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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 27, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 33-93494
CROWN PAPER CO.
(Exact name of registrant as specified in its charter)
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Virginia 54-1752385
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(State of incorporation) (I.R.S. Employer Identification No.)
300 Lakeside Drive, Oakland, California 94612-3592
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (510) 874-3400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ] Not Applicable
All of the outstanding shares of the registrant's capital stock are owned
by Crown Vantage Inc.
As of March 20, 1999, 1 (one) share of Common Stock of the registrant was
outstanding.
The registrant meets the conditions set forth in General Instruction I(1)
(a) and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
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(THIS PAGE INTENTIONALLY LEFT BLANK)
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PART 1
Item 1. Business
General
Crown Paper Co. and subsidiaries (the "Company" or "Crown Paper") is a
wholly owned subsidiary of Crown Vantage Inc. (the "Parent" or "Crown Vantage")
and is a major producer of value-added paper products for many different end-
uses. The Company operates in two segments: printing and publishing papers and
specialty papers. Special interest magazines, books, custom business forms and
corporate communications such as annual reports, stationery and promotions use
Crown Paper printing and publishing papers. Specialty papers production
supplies both coated and uncoated papers principally for food and retail
packaging applications and conversion into such items as coffee filters, cups,
plates, disposable medical gowns and file folders.
During 1998, the Company operated 10 facilities using 30 diverse paper
machines with specialized capabilities. On March 25, 1999 the Company
announced the intended sale of its pulp and paper mills in New Hampshire. See
"Recent Development" in this Item 1.
The Company believes that its broad manufacturing capabilities enable it to
offer a wider range of products and basis weights than most of its North
American competitors. The Company focuses its operations on the higher value-
added market niches of the sectors in which it competes. Papers produced for
such niches generally command higher prices and tend to be less cyclical than
commodity grades because they are used for more specialized applications and
because there are fewer substitutes for these products.
The Company has implemented a business strategy that builds on Crown
Papers' unique strengths and technical expertise and that further differentiates
it from other paper producers. The Company's objectives are to enhance its
position as a leading supplier of value-added paper products to target markets
and to continue to pursue cost reductions and manufacturing efficiencies to
maximize profitability. The Company's business strategy to accomplish such
objectives is to: i) accelerate the introduction of additional value-added
papers into the Company's mix; ii) obtain market share with innovative new
products; iii) add value through high levels of customer service and product
quality; and iv) reduce costs and improve productivity.
The Parent became an independent company when it was spun off from James
River Corporation of Virginia ("James River"), now known as Fort James
Corporation ("Fort James"), on August 25, 1995. James River distributed all of
the outstanding stock of the Parent in a tax-free dividend to its shareholders.
The dividend provided one share of the Parent's stock for every 10 shares of
James River stock held. The spin-off included certain assets, liabilities and
operations that comprised a substantial part of James River's Communication
Papers Business and the paper-based part of its Food and Consumer Packaging
Business.
Crown Paper Co. 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"). Substantially
all of the net proceeds from the Financing ($485 million) were paid to James
River together with $100 million Senior Pay-in-Kind Notes issued by the Parent
("PIK Notes") as a return of James River's capital investment. The distribution
of the Parent's stock, transfer of assets and liabilities, Financing, and return
of capital are collectively referred to as the "Spin-Off."
On September 28, 1998 Crown Vantage and Crown Paper settled with Fort James
for the delivery of $25.1 million in PIK Notes to Crown Vantage and $8.1 million
in PIK Notes to Crown Paper in exchange for the mutual release from a variety of
claims that had arisen between Fort James, Crown Paper and Crown Vantage. For
Crown Paper, this resulted in an extraordinary gain of $5.0 million that is
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net of $3.1 million in taxes. The settlement amended the terms of the remaining
PIK Notes and allows Crown Vantage the right to call the remaining PIK Notes and
accrued interest at fair value at any time prior to their maturity. Upon
consolidation of the Crown Vantage financial statements, the $8.1 million in PIK
Notes held by Crown Paper are eliminated.
RECENT DEVELOPMENT
On March 25, 1999 the Company announced that it had reached an agreement
to sell its pulp and paper mills located in Berlin and Gorham, New Hampshire
for approximately $45 million. The net proceeds, after transaction costs and
funding of certain other liabilities, will be used to pay down debt. The
operations being sold include the pulp mill in Berlin, which produces
approximately 300,000 tons of hardwood and softwood pulp annually, and the
five paper machines in Gorham. Four of the paper machines manufacture
approximately 142,000 tons of printing and publishing papers, while the fifth
machine produces approximately 40,000 tons of commercial toweling annually.
As part of the sales agreement, Crown Vantage and the buyer have entered
into a strategic marketing and outsourcing alliance to certain value-added
printing and publishing paper grades. Crown Vantage will retain control of the
use of branded printing and publishing papers made at Berlin-Gorham facility,
which are integral to the Company's strategic printing and publishing papers
offering throughout the Crown Vantage system. In addition, Crown Vantage will
market, on behalf of the buyer, all other paper grades manufactured at Berlin-
Gorham (except toweling) for a period of three years.
Successful completion of the transactions discussed above is subject to a
number of risks and uncertainties including, but not limited to, the ability
of the buyer to successfully arrange financing, consent by Crown Vantage
lenders, transaction delays, failure to close the contemplated agreements,
failure by either party to successfully execute under the strategic marketing
and outsourcing alliance, and other factors, including business conditions and
the general economy, maintaining good customer and labor relations, and
competitive factors.
Historical information below concerning the Berlin and Gorham mills should
be considered in light of, and is qualified by reference to, the intended sale
of these mills.
Business Segments and End Use-Markets
Printing and Publishing Papers
Crown Paper manufactures and markets both coated groundwood and uncoated
freesheet papers for printing and publishing applications. The Company's coated
groundwood papers are produced on two modern machines at its facility in St.
Francisville, Louisiana, which uses both kraft and groundwood pulp mills to
supply all pulp requirements. Groundwood papers are made from a blend of kraft
pulp and pulp produced by mechanically grinding wood to extract wood fibers.
Wood chips are used in the kraft pulp process (chemical pulp produced by an
alkaline cooking process) and are either chipped by the Company or purchased
directly. These papers are produced and sold for end-use products such as
specialty magazines, catalogs, direct mail, and advertising supplements. The
paper is sold to publishers, commercial printers, including the four largest in
North America, and to merchant distributors. The strength of the coated
groundwood market is largely driven by the health of the retail market and is
correlated with retailer advertising expenditures. Printing and publishing
papers had one significant customer totaling 10.8% of the segment's net sales in
1998.
Uncoated printing and publishing papers are manufactured at the Company's
fully pulp-integrated facilities in Berlin and Gorham, New Hampshire, and at its
non-integrated facilities in Adams, Massachusetts; Ypsilanti, Michigan; and
Dalmore and Guardbridge, Scotland. Customer end uses include stationary, custom
business forms, books and manuals, annual reports and other corporate
communications. Demand for uncoated printing and publishing papers is
correlated with economic cycles, since these papers are predominantly used in
business-related activities and commercial printing.
This segment includes the Company's market pulp and toweling operations in
Berlin-Gorham, New Hampshire as well as the Company's cast-coating operations in
Richmond, Virginia. The Richmond facility provides cast-coating capabilities
for a premium grade of coated paperboard for packaging and printing
applications. The Berlin-Gorham, New Hampshire facility reserves the majority
of the pulp it produces for internal consumption but sold approximately 86,000
tons of pulp in 1998.
See "Recent Development" discussed above for information concerning the
announced sale of the Company's pulp and paper mills in New Hampshire.
Specialty Papers
Crown Paper manufactures and sells bleached specialty papers for use in
food and retail packaging. The Company's coated and uncoated specialty papers
supply niche markets and these products are used by customers to produce items
such as multi-wall bags for pet foods, food service papers, labels, disposable
medical gowns and cereal liners. The Company's specialty packaging business is
principally driven by consumer spending trends and generally exhibits less
cyclicality to general economic trends compared to producers of papers for other
end-use products. The Company's specialty packaging papers operations purchase
all of their pulp and therefore operating results are more susceptible to pulp
price fluctuations. Operating results benefit during periods of decreasing pulp
prices from lower raw material costs and suffer during periods of increasing
pulp prices. The benefit to operating results from the decline in pulp prices
during 1998 has been offset by declines in the average price per ton for the
Company's specialty packaging products. The decline in average price per ton
during 1998, is primarily due to the continuing economic crisis in Asia and its
indirect affect on the Company's specialty packaging papers as European
producers are redirecting their output to North American markets and as large
integrated mills in North America are entering otherwise non-traditional
markets, thereby
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disrupting supply/demand balance and pricing for the Company's specialty
packaging papers. The Company's specialty papers are produced at non-integrated
facilities in Port Huron and Parchment, Michigan, and Milford, New Jersey.
Crown Paper also manufactures specialty converting papers at its fully
integrated facility in St. Francisville, Louisiana. The Company imparts
customer-specific technical requirements to these value-added papers for
conversion by its customers into end-uses such as paper cups and plates, coffee
filters, file folders and bacon board.
Financial information of the Company's segments is incorporated herein by
reference from Note 13 to the Consolidated Financial Statements included in this
report.
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Item 2. Properties
The Company owns and operates three pulp mills, seven paper mills and one cast-
coating facility in the United States and two paper mills in Scotland. The
following table summarizes the location, 1998 volumes and pertinent production
characteristics of each facility. The Company's bank credit facility is
collateralized by substantially all of the Company's assets, including the
facilities listed below.
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Printing and Publishing Papers Specialty Papers
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Coated Uncoated
Groundwood Freesheet Other
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Facilities: St. Francisville, LA Gorham, NH Richmond, VA St. Francisville, LA
Guardbridge, Berlin, NH Port Huron, MI
Scotland Gorham, NH Parchment, MI
Dalmore, Scotland Milford, NJ
Adams, MA
Ypsilanti, MI
1998 Sales
Volumes: 289,000 tons 241,000 tons 117,000 tons 322,000 tons
Primary No. 4, No. 5 medium to Text, cover and Cast-coated, pulp, and Coffee filters, cup
Production: heavy weight grades for writing grades, toweling and plate stock,
magazines and catalogs security papers, grease resistant
custom forms papers paper, labels,
and specialty multi-wall bags,
applications coated and uncoated
other packaging and
specialty applications
Special Coating, calendering Calendering, cast-coating, sheeting Calendering, creped
Production watermarks, sheeting, products, coating,
Capabilities: embossing waxing and chemical
treatment
Paper Machines 2 paper machines with 12 paper machines, 1 paper machine, 4 15 paper machines, 3
and Related on-machine coating, 4 assorted sheeters, cast-coating machines, with on-machine
Equipment: off-machine super-calenders rewinders and embossers 4 sheeters coating and hot/soft
calendering, 3 with
on-machine waxers, 3
off-machine coaters, 6
off-machine waxers
</TABLE>
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Item 3. Legal Proceedings
In 1994, the Company filed a suit against the City of Berlin, New Hampshire
relating to an approximately $107 million increase from 1992 to 1994 of the
City's assessed value of the Berlin portion of the Berlin-Gorham facility. The
increased assessed value resulted in an annual increase in property taxes of
approximately $2.5 million. The Company sought abatement of the tax increase on
the grounds that the City's valuations were excessive, and that New Hampshire
law exempted certain income producing equipment, such as the chemical recovery
unit, from property taxation. In April 1996, the trial court affirmed most of
the City's positions, and the Company appealed that decision to the New
Hampshire Supreme Court. On December 31, 1997, the Supreme Court released an
opinion which, in part, resulted in a remand of various issues back to the trial
court. On February 1, 1999, the Company finalized an agreement with the City,
which permanently settles the issues of taxability of factory machinery and for
the next three years significantly reduces the assessed value from recent
valuations of the Company's Berlin pulp mill. Over the three years the City of
Berlin's property taxes are expected to average $3 million annually at the
current assessed rate, which is some $2 million per year less than has been
billed over the past five years. The Company expects to reverse a property tax
accrual of approximately $9 million in the first quarter of 1999.
The Company has been identified as a potentially responsible party ("PRP"),
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 19 sites in the United States. The Company has previously settled
its remediation obligations at 12 of those sites. At 6 other sites, the Company
is one of many potentially responsible parties and its alleged contribution to
the site and remediation obligation is not considered significant. At one other
site, remedial investigation is underway and a loss estimate for the potential
remediation effort is not yet possible. However, the Company's accrual for the
remediation investigation effort was $.4 million at December 27, 1998 and $.6
million at December 28, 1997. The liabilities can change substantially due to
such factors as the solvency of other potentially responsible parties, the
Company's share of responsibility, additional information on the nature or
extent of contamination, methods and associated costs of remediation required,
and other actions by governmental agencies or private parties. While it is not
feasible to predict the outcome of all environmental liabilities, based on its
most recent review, management estimates the Company's share of the costs of
investigation and remediation of the known sites will not have a material
adverse effect upon the consolidated financial condition of the Company. Due to
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. As with most manufacturing and many
other entities, there can be no assurance that the Company will not be named as
a PRP or incur liabilities through other means at additional sites in the future
or that the costs associated with such additional sites would not be material.
In addition to the matters described above, 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 opinion of the Company's management that the
outcome of any claim that 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.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Not applicable
Item 6. Selected Financial Data
Omitted in accordance with General Instruction I.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Omitted in accordance with General Instruction I. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" preceding the
Consolidated Financial Statements (Item 8).
Item 7a. Qualitative and Quantitative Disclosures About Market Risk
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Market Risk" preceding the Consolidated Financial Statements (Item
8).
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of the report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
Omitted in accordance with General Instruction I.
Item 11. Executive Compensation
Omitted in accordance with General Instruction I.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Omitted in accordance with General Instruction I.
Item 13. Certain Relationships and Related Transactions
Omitted in accordance with General Instruction I.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements. The report of independent auditors as of December
27, 1998 and December 28, 1997 and for the three years then ended and the
following consolidated financial statements of the Company are included in this
Form 10-K at the page numbers indicated below.
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Page in
Financial
Statements
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Report of Independent Auditors........................................................................... 6
Consolidated Statements of Operations - Years Ended December 27, 1998, December 28, 1997 and
December 29, 1996...................................................................................... 7
Consolidated Balance Sheets - December 27, 1998 and December 28, 1997.................................... 8
Consolidated Statements of Cash Flows - Years Ended December 27, 1998, December 28, 1997
and December 29, 1996.................................................................................. 9
Consolidated Statement of Changes in Equity (Deficit) - Years Ended December 27, 1998, December 28, 1997,
and December 29, 1996.................................................................................. 10
Notes to Consolidated Financial Statements............................................................... 11
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(a)(2) Financial Statement Schedule.
All schedules are omitted because of the absence of the conditions under which
they are required or because the required information is set forth in the
consolidated financial statements and notes thereto.
(a)(3) Exhibits
All exhibits, including those incorporated by reference:
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Exhibit
No. Description
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2.1(1) Form of Contribution Agreement among Crown Paper Co. ("Crown Paper"),
Crown Vantage, Inc. ("Crown Vantage"), James River Corporation of Virginia
("JRC") and James River Paper Company, Inc. ("James River Paper")
3.1(1) Articles of Incorporation of Crown Paper
3.2(4) Articles of Amendment to the Articles of Incorporation dated May 13,
1996 and July 31, 1996
3.3* Restated Bylaws of Crown Paper
3.4(1) Articles of Designation for Preferred Shares, Series A
4.1(1) Form of Rights Agreement between Crown Vantage and Norwest Bank
Minnesota, N.A., as Rights Agent
10.1(1) Form of Tax Sharing Agreement among JRC, James River Paper, Crown
Vantage and Crown Paper
10.2(1) Form of Pulp Purchase Agreement between James River Paper and Crown
Paper
10.3(1) Form of Environmental Services Agreement between James River Paper and
Crown Paper
10.4(1) Form of Pulp Technology Services Agreement between James River Paper
and Crown Paper
10.5(1) Form of Cottonwood Pedigreed Plant Material Agreement between James
River Paper and Crown Paper
10.6(1) Form of St. Francisville Product Supply Agreement (Consumer Products
Business) between James River Paper and Crown Paper
10.7(1) Form of St. Francisville Product Supply Agreement (Packaging Business)
between James River Paper and Crown Paper
10.8(1) Form of Landfill Agreement between James River Paper and Crown Paper
10.9(1) Form of Allocation Agreement among JRC, James River Paper and Crown
Paper
10.10(1) Form of Packaging Papers Product Supply Agreement between James River
Paper and Crown Paper
10.11(1) Form of St. Francisville Wood Chip Supply Agreement between James
River Paper and Crown Paper
10.12(1) Form of St. Francisville Roundwood Supply and Cutting Rights Agreement
between James River Paper and Crown Paper
10.13(1) Form of Northeast Roundwood Supply Agreement between James River Paper
and Crown Paper
10.14(1) Form of Pension Funding Agreement among Crown Paper, Crown Vantage and
James River
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10.15(1) Form of Guaranty Support Agreement among Crown Paper, Crown Vantage
and James River
10.16(1) Form of Eureka Trademark Agreement
10.17(1) Form of Crown Vantage Stock Option Plan for Outside Directors **
10.18(6) Crown Vantage Inc. Stock Award Plan for Outside Directors (as
amended) **
10.19(6) Second Amendment to the Crown Vantage Inc. Stock Award Plan for
Outside Directors **
10.20(5) Crown Vantage Inc. 1995 Incentive Stock Plan **
10.21(1) Form of Crown Vantage Inc. Stock Plus Employee Stock Ownership Plan **
10.22(3) Form of Employment Agreement for Ernest S. Leopold dated December 5,
1995 **
10.23(2) Form of Nonstatutory Stock Option with Reload Feature Agreement under
the Registrant's 1995 Omnibus Incentive Stock Plan **
10.24(2) Form of Restricted Stock Award Agreement under the Registrant's 1995
Omnibus Incentive Stock Plan **
10.25(2) Form of Nonstatutory Stock Option Agreement under the Registrant's
1995 Stock Option Plan for Outside Directors **
10.26(2) Form of Restricted Stock Award Agreement under the Registrant's 1995
Stock Award Plan for Outside Directors **
10.27(3) Form of Agreement (Severance) dated December 5, 1995 **
10.28(3) Form of Amendment No. 1 to the Crown Vantage Inc. Stock Plus Employee
Stock Ownership Plan
10.29(1) Indenture between the Bank of New York, as trustee, and the Company,
relating to the Notes
10.30(6) First Supplemental Indenture between the Bank of New York, as trustee,
and the Company, relating to the Notes
10.31(1) Bank Credit Agreement among Morgan Guaranty Trust Company of New York,
as Agent, the Banks named therein, Crown Paper and Crown Vantage
10.32(6) Amendment No. 1 to Credit Agreement
10.33(6) Amendment No. 2 to Credit Agreement
10.34(6) Receivables Purchase Agreement
10.35(6) Purchase and Sale Agreement (relating to Receivables Purchase
Agreement)
10.36(6) Loan Agreement between Business Finance Authority of the State of New
Hampshire and Crown Paper Co.
10.37(6) Refunding Loan Agreement between Business Finance Authority of the
State of New Hampshire and Crown Paper Co.
10.38(8) Amendment No. 3 to Credit Agreement
10.39(8) Amendment No. 4 to Credit Agreement
10.40(7) Option and Settlement Agreement Between Fort James Corporation and
Crown Vantage, relating to the PIK Notes
10.41(9) Amendment No. 1 to Form of Agreement (Severance) (a management
contract) **
10.42(10) Form of Agreement - Deferred Stock Awards for Selected Salaried
Employees **
10.43(10) Form of Agreement - Deferred Stock Awards for Senior Officers **
10.44(10) Description of Temporary Enhanced Severance **
10.45(11) Form of Employment Agreement (amendment No. 2) for Ernest S. Leopold
dated September 11, 1998 **
10.46(11) Amendment No. 5 to Credit Agreement
10.47* Amendment No. 6 to Credit Agreement
10.48* Second Supplemental Indenture between the Bank of New York, as
trustee, and the Company, relating to the Notes
27* Financial Data Schedule
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(1) Previously filed as Exhibits to Crown Paper Co. Registration Statement
No. 33-93494 on Form S-1 filed with the Securities and Exchange
Commission ("SEC") on June 15, 1995 and all amendments thereto,
concerning the offering of the $250,000,000 aggregate principal amount
of Senior Subordinated Notes to be isued by Crown Paper Co.
(2) Previously filed as Exhibits to Crown Vantage Inc. Form 10-Q for the
quarterly period ended September 24, 1995.
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(3) Previously filed as Exhibits to Crown Paper's Annual Report on Form
10-K for the year ended December 31, 1995.
(4) Previously filed as Exhibits to Crown Vantage Inc. Registration Statement No.
333-09361 on Form S-8 and to Crown Vantage Inc.'s report on Form 10-Q for the
quarter ended June 30, 1996, respectively.
(5) Previously filed as Exhibits to Crown Vantage Inc.'s report on Form 10-Q for the
quarter ended September 29, 1996.
(6) Previously filed as Exhibits to Crown Paper's Annual Report on Form 10-K
for the year ended December 29, 1996
(7) Previously filed in Form 8-K dated March 25, 1998.
(8) Previously filed as Exhibits to Crown Paper's Annual Report on Form 10-K
for the year ended December 28, 1997
(9) Previously filed as Exhibits to Crown Paper's report on Form 10-Q for the
quarter ended March 29, 1998.
(10) Previously filed as Exhibits to Crown Paper's report on Form 10-Q for the
quarter ended June 28, 1998.
(11) Previously filed as Exhibits to Crown Paper's report on Form 10-Q for the
quarter ended September 28, 1998.
* Included as an exhibit herein.
** Indicates management contract or compensatory plan or arrangement.
</TABLE>
(b) Reports on Form 8-K. Current Report, previously filed on Form 8-K dated
October 5, 1998, item 5, relating to the Company's settlement agreement with the
Parent and Fort James on the Parent's $33 million in PIK Notes
Current Report, previously filed on Form 8-K dated January 27, 1999, item 5,
relating to the Company's anticipated weak fourth quarter 1998 pulp and paper
pricing, fourth quarter 1998 charges and Crown Vantage's Nasdaq hearing.
(c) Exhibits. The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules. The response to this portion of Item 14 is
submitted as a separate section of this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
March 16, 1999 Crown Paper Co.
(Registrant)
/s/ R. Neil Stuart /s/ Michael J. Hunter
- ---------------------------- -------------------------------
R. Neil Stuart, Michael J. Hunter
Executive Vice President, Senior Vice President,
Chief Financial Officer Chief Accounting Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Christopher M. McLain, R. Neil Stuart, and
Michael J. Hunter, and each of them, his or her true and lawful agent, proxy and
attorney-in-fact, with full power of substitution and resubstitution, for him or
her and in his or her name, place and stead, in any and all capacities, to (i)
act on, sign and file with the Securities and Exchange Commission any and all
amendments to this report on Form 10-K together with all schedules and exhibits
thereto, (ii) act on, sign and file such certificates, instruments, agreements
and other documents as may be necessary or appropriate in connection therewith,
and (iii) take any and all actions which may be necessary or appropriate to be
done, as fully for all intents and purposes as he or she might or could do in
person, hereby approving, ratifying and confirming all that such agent, proxy
and attorney-in-fact or any of his or her substitutes may lawfully do or cause
to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 16, 1999.
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<CAPTION>
Signature Title
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<S> <C>
/s/ George B. James Chairman and Director
- ----------------------------------------------------
George B. James
/s/ Robert A. Olah Chief Executive Officer, President and Director
- ----------------------------------------------------
Robert A. Olah
/s/ Ernest S. Leopold Director
- ----------------------------------------------------
Ernest S. Leopold
/s/ Joseph T. Piemont Director
- ----------------------------------------------------
Joseph T. Piemont
/s/ E. Lee Showalter Director
- ----------------------------------------------------
E. Lee Showalter
/s/ William D. Walsh Director
- -----------------------------------------------------
William D. Walsh
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
/s/ James S. Watkinson Director
- -----------------------------------------------------
James S. Watkinson
/s/ Donna L. Weaver Director
- -----------------------------------------------------
Donna L. Weaver
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 16, 1999.
<TABLE>
Signature Title
- --------- -----
<S> <C>
/s/ R. Neil Stuart Chief Financial Officer
- -----------------------------------------------------
R. Neil Stuart
/s/ Michael J. Hunter Chief Accounting Officer
- -----------------------------------------------------
Michael J. Hunter
</TABLE>
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CROWN PAPER CO.
ANNUAL REPORT ON FORM 10-K
ITEM 8 AND ITEM 14 (a)(1)
CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 27, 1998
14
<PAGE>
Item 8 and 14 (a)(1) Financial Statements. The following consolidated financial
statements of Crown Paper Co. and subsidiaries, together with the report of
independent auditors are included in Items 8 and 14(a)(1).
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 1
Report of Independent Auditors............................................................................. 6
Consolidated Statements of Operations - Years Ended December 27, 1998,
December 28, 1997, and December 29, 1996......................................................... 7
Consolidated Balance Sheets - December 27, 1998 and December 28, 1997...................................... 8
Consolidated Statements of Cash Flows - Years Ended December 27, 1998,
December 28, 1997, and December 29, 1996......................................................... 9
Consolidated Statement of Changes in Equity (Deficit) - Years Ended December 27, 1998,
December 28, 1997, and December 29, 1996......................................................... 10
Notes to Consolidated Financial Statements................................................................. 11
</TABLE>
15
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- -----------------------------------------------------------------------------
Corporate Overview
Business Segments
Crown Paper Co. and subsidiaries (the "Company" or "Crown Paper") is a major
producer of value-added paper products for a diverse array of end-uses. The
Company operates in two segments: printing and publishing papers and specialty
papers. Printing and publishing papers are primarily for applications such as
special interest magazines, books, custom business forms, corporate
communications and promotions (e.g. annual reports and stationery) and other
graphics applications. Specialty papers are principally for food and retail
packaging applications and conversion into such items as coffee filters, labels,
cups and plates and disposable medical gowns.
The Company's two largest facilities are integrated operations located in St.
Francisville, La., and Berlin and Gorham, N.H. 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, Mass.; Ypsilanti,
Mich., 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, Mich., and Milford, N.J. In addition to its primary paper-
making operations, the Company operates a cast-coating facility in Richmond,
Va., that produces coated paper and board for graphics and packaging uses.
The Company believes that its broad manufacturing capabilities allow it to offer
a wider range of products and basis weights serving more specialized markets
than most of its North American competitors. The Company focuses its operations
on the higher value-added market niches of the segments in which it competes.
Papers produced for such niches generally command higher prices and tend to be
less cyclical than commodity grades because they are used for more specialized
applications and there are fewer substitutes for these products.
Consolidated Results of Operations -- 1998 Compared to 1997
Net Sales: The Company's net sales decreased by 5.2% to $851.0 million for the
52-week year ended December 27, 1998 compared to $897.5 million for the 52-week
year ended December 28, 1997. The decrease in sales is largely due to a 3.9%
decrease in average net sales price per ton and a 1.3% decrease in tons sold
during 1998 compared to 1997.
Operating Income (Loss): The Company had an operating loss of $172.1 million in
1998 compared to operating income of $14.3 million in 1997. The decrease in
operating results is attributable to fixed asset write-downs of $146.9 million
(primarily at the Berlin-Gorham, N.H., pulp and paper mill) and a charge of
$16.9 million that represents the discounted net future lease payments for a co-
generation facility at the St. Francisville, La., mill that no longer provides
substantive use or benefit to the mill (see Note 2 and Note 11 to the
Consolidated Financial Statements). 1997 operating income included a gain of
$13.5 million for the sale of timberlands and a charge of $3.3 million for
closure of the Newark, Del., facility. Excluding the fixed asset write-down and
co-generation charge discussed above, the operating loss in 1998 was $8.3
million compared to operating profit of $4.2 million in 1997, excluding the mill
closure charge and timberland sale gain discussed above. Contributing to the
decline in operating results are the decreases in average net sales price per
ton and tons sold discussed above that are partially offset by reduced costs
primarily from lower raw material costs and the Company's cost reduction
program. Gross margin as a percent of sales was 6.4% for 1998 compared to 6.7%
for 1997. The gross margin decrease was due to the decline in net sales price
per ton discussed above, which was partially offset by a 3.6% decrease in
average cost per ton sold in 1998 compared to 1997.
Selling and administrative expenses increased $6.5 million to $62.4 million in
1998 compared to $55.9 million in 1997. The increase is primarily due to Year
2000 compliance costs, one-time expenditures associated with certain of the
Company's strategic initiatives, higher sales and marketing costs associated
1
<PAGE>
with stocking programs to provide faster delivery times to customers and one
time contractual compensation costs.
Interest Expense: Interest expense decreased from $50.3 million in 1997 to $49.1
million in 1998. The decrease in interest expense is primarily due to debt
reduction that occurred in the fourth quarter of 1997.
Tax Provision: The income tax benefit in 1998 totaled $73.5 million compared to
$12.1 million in 1997. The income tax rates were 33.5% in 1998 and 35.0% in
1997. Income tax benefits for 1998 have been reduced by a deferred tax asset
valuation allowance of $10.5 million. The Company anticipates that, in
accordance with Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes," tax benefits resulting from operating losses in the
foreseeable future would at least be partially offset by deferred tax asset
valuation allowances.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Results of Operation by Business Segment
- --------------------------------------------------------------------------------------------------------------------
Net Sales and Tonnage by Segment
For the Year Ended 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(sales in millions, tons in thousands) Tons Sales Tons Sales Tons Sales
Printing and Publishing Papers:
Coated groundwood 289 $232 280 $198 258 $214
Uncoated 241 221 239 233 240 239
Other (a) 118 60 109 82 96 83
Specialty Papers 321 338 354 384 354 389
- --------------------------------------------------------------------------------------------------------------------
Total Company 969 $851 982 $897 948 $925
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents market sales of pulp to third parties, toweling, and cast-coated
papers. Pulp sales excludes approximately 32,000 tons in 1998, 42,000 tons
in 1997, and 44,000 tons in 1996 that were transferred to other Company
facilities.
<TABLE>
Operating Income (Loss) by Segment (in millions)
- ------------------------------------------------------------------------------------------------------------------
For the Year Ended 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing and Publishing Papers $ <166> $ 1 $ 12
Specialty Papers <6> 13 11
- ------------------------------------------------------------------------------------------------------------------
Total operating income <loss> <172> $ 14 $ 23
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Printing and Publishing Papers
Within this business segment, the Company produces coated groundwood and
uncoated freesheet papers. This segment also includes the Company's toweling and
pulp operations in Berlin-Gorham, N.H., and cast-coating operations in Richmond,
Va.
The Company's coated groundwood papers are produced and sold for end-use
products such as specialty magazines, catalogs, direct mail, and advertising
supplements. The strength of the coated groundwood market is largely driven by
the strength of the retail market and is correlated with retailer advertising
expenditures. Net sales of coated groundwood papers increased 17.3% in 1998
compared to 1997. The increase is primarily due to a 13.5% increase in average
net sales price per ton and a 3.4% increase in tons sold. While demand for
coated groundwood papers was strong for most of 1998, coated paper imports
increased significantly during the year resulting in industry-wide mill
inventory builds and price discounting during the latter part of 1998. The
current supply/demand imbalance poses a threat of continued price discounting
that may negatively impact prices of the Company's coated groundwood papers in
future periods.
Customer end-use products within uncoated printing and publishing papers include
stationery, custom business forms, books and manuals, annual reports and other
forms of corporate communications. Demand for the Company's uncoated printing
and publishing products is correlated with economic cycles, since these papers
are predominantly used in business-related activities and commercial printing.
The Company's specialty niches within the uncoated printing and publishing
papers category make Crown Vantage less
2
<PAGE>
susceptible, though not immune, to economic cycles. Net sales for uncoated
printing and publishing papers decreased 5.0% during 1998 compared to 1997. The
decrease in net sales is primarily due to a 5.7% decrease in average sales price
per ton. Despite strong domestic demand, the current economic crisis in Asia
coupled with a strong U.S. Dollar have resulted in lower exports by U.S. paper
producers and increased imports into the U.S. from Asia, Europe, and South
America. This abundance of uncoated freesheet paper has negatively impacted
demand and pricing for some of the Company's uncoated printing and publishing
papers, resulting in depressed prices for the Company's lower value products.
The 1998 supply levels of these papers in the marketplace also resulted in the
Company's partial shift in mix to lower value-added grades in order to maintain
volume during this period of supply/demand imbalance, which also negatively
impacted the Company's average net selling price.
Other products reported within printing and publishing papers include the
Company's toweling, pulp and cast-coating operations. Cast-coating provides a
high gloss finish for a premium grade of coated paperboard used for graphics and
packaging applications. Net sales decreased by $22.9 million during 1998
compared to 1997 primarily due to a change in product mix as tons sold of higher
priced cast-coated papers and toweling, declined by 38.8% and tons of pulp sold
increased by 50.1%. The decline in cast-coated papers and toweling is primarily
due to the decision by certain customers during the last half of 1997 to use
their own internal resources. The Company continues to aggressively pursue
replacing the lost tonnage with new product development and trials of engineered
papers in progress. Tons of pulp sold is a function of market demand as well as
managing, to the Company's best advantage, internal pulp integration. The
increase in pulp tons sold is principally due to the availability of pulp for
sale that in the prior year was used internally and to improved operating
efficiencies.
Operating Income (Loss)
The operating loss of $166.1 million in 1998 declined $167.1 million from an
operating profit of $1 million in 1997. The fixed asset write-downs and charges
associated with the co-generation facility affected both segments. The
allocation of these charges to this segment and the primary reasons for the
decline in operating results during 1998 are the fixed asset write-downs of
$145.2 million and a $12.1 million charge for the co-generation facility. The
1997 operating profit includes the $13.5 million gain from the sale of certain
timberlands and a $3.3 million charge for the closure of the Newark, Del.,
facility. Operating results before the nonrecurring items discussed above are
operating losses of $8.8 million for 1998 and $9.2 million for 1997.
Specialty Papers
Within this segment, the Company produces specialty papers for use in food and
retail packaging and converting end uses. The Company's products, which are
concentrated in niche markets for coated and uncoated papers within the
specialty packaging industry, are used by its customers to produce items such as
labels, multi-wall bags for pet foods, food service papers, flexible packaging,
and technical and industrial specialty products such as disposable medical
gowns. The Company's specialty packaging papers business is principally driven
by consumer spending patterns and has historically exhibited less cyclicality
due to general economic trends compared to producers of papers for other end-use
products. The Company's specialty packaging papers operations in Milford, N.J.,
and Parchment and Port Huron, Mich., purchase all of their pulp and are
therefore susceptible to pulp price fluctuations. Operating results benefit
during periods of decreasing pulp prices and suffer during periods of increasing
pulp prices. The Company manufactures specialty converting papers on two paper
machines at its fully integrated facility in St. Francisville, La. To meet
customer-specific requirements, the Company imparts technical qualities to these
value-added papers for conversion by its customers into end-uses such as paper
cups and plates, coffee filters, and bacon board.
Specialty papers had net sales of $338.2 million for 1998 compared to net sales
in 1997 of $384.5 million. The 12.0% decrease in net sales is primarily due to a
3.1% decrease in average selling price per ton and a 9.2% decrease in tons sold
in 1998 compared to 1997. The continuing economic crisis in Asia is indirectly
affecting the Company's specialty packaging papers as European producers are
redirecting their output to North American markets and as large integrated mills
in North America are entering otherwise non-
3
<PAGE>
traditional markets, thereby disrupting supply/demand balance and pricing
for the Company's specialty packaging papers.
Operating Income (Loss)
The operating loss of $6.1 million in 1998 declined $19.5 million from an
operating profit of $13.4 million in 1997. The decrease in operating income in
1998 from 1997 is primarily due to the decline in tons sold and average price
per ton discussed above. Contributing to the decline are the fixed asset write-
downs of $1.7 million and a $4.8 million charge for the co-generation facility
lease allocated to this segment. These were partially offset by lower raw
material costs and improved operating efficiencies. Before the nonrecurring
items discussed above, this segment had an operating profit of $.4 million in
1998.
Other Matters
- -------------------------------------------------------------------------------
Market Risk
The Company incurred fixed and variable rate debt in connection with the Spin-
Off. In addition, the Company uses variable rate debt to finance operations,
for capital spending programs and for general corporate purposes. Futures
contracts used to hedge exposures to foreign currency risks are immaterial.
Our market risk exposure for changes in interest rates relates primarily to debt
obligations.
The following table presents principal amounts and related weighted average
interest rates by year of expected maturity for the Company's debt obligations.
For obligations with variable interest rates, the table sets forth interest
rates that are based on current rates and principle amounts due and does not
attempt to project future interest rates. This information should be read in
conjunction with Note 6 to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Debt
- ------------------------------------------------------------------------------------------------
2003 & Fair value
(In millions) 1999 2000 2001 2002 beyond @ 12/27/98
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate $250.0 $220.0
Average interest rates 11.0%
Variable rate $ 1.0 $ 1.3 $ .8 $122.0 $ 46.1 $171.2
Average interest rates 9.19% 9.19% 9.19% 8.81% 9.19%
Industrial Revenue bonds $ 39.3 $ 39.0
Average interest rates 7.55%
- ------------------------------------------------------------------------------------------------
</TABLE>
The Company's other market risk is primarily due to its ownership of mills in
Scotland. The translation of their financial statements from their functional
currency to U.S. dollars is accounted for in equity under foreign currency
translation adjustments. These operations comprise less than 10% of the
Company's sales and assets. Although we monitor foreign currency fluctuations
and trends, through December 27, 1998 we have decided not to hedge our net
investment in our foreign operations.
Continued Nasdaq National Market Listing
The Parent's common stock price has fallen below the $5 minimum maintenance
standard for continued listing on the Nasdaq National Market. Crown Vantage
shared its management initiatives with Nasdaq on February 5, 1999. Subsequently,
Crown Vantage received an extension stipulating that the stock will continue to
trade on The Nasdaq National Market so long as a closing bid price of at least
$5 per share is achieved by June 18, 1999 and thereafter the stock maintains a
closing bid price of at least $5 per share for a minimum of 10 consecutive
trading days. If the shares are de-listed, Crown Vantage anticipates that the
shares may be traded on the Nasdaq Over-the-Counter Bulletin Board. The stock
price, stock trading liquidity, analyst coverage, and the ability to raise
capital might be adversely affected if the stock is de-listed from the Nasdaq
National Market or fails to trade actively or at all on the Bulletin Board, both
of which are not within the control of the Parent.
Settlement of Berlin Property Tax Case
On February 1, 1999, the Company finalized an agreement with the City of Berlin,
N.H. concerning assessed values and taxability of factory machinery. Over the
next three years the agreement significantly reduces the assessed value from
recent valuations of the Company's Berlin pulp mill. The Company expects to
reverse a property tax accrual of approximately $9 million in the first quarter
of 1999, which relates to amounts over-accrued for previous tax years.
Forward Looking Statements
Certain statements within Management's Discussion and Analysis and elsewhere are
forward-looking within the meaning of the Private Securities Litigation Reform
Act of 1995. These statements are subject to various risks and uncertainties
that could cause the actual results to be materially different from the
Company's current expectations. These forward-looking statements can be
identified by use of language such as plans, expects, estimates, anticipates,
believes, possible and other similar words or phrases. In addition to the
factors discussed above, there are other factors that could cause the actual
results to differ materially. These other factors include but are not limited
to business conditions and the general economy, both global and domestic; prices
for the Company's products; the duration and depth of the Asian economic crisis;
the effects of the Asian economic crisis to other regions around the world;
competitive factors; maintaining good labor relations; the Company's ability to
successfully implement its Year 2000 plans; possible de-listing of the Parent's
common stock from the Nasdaq National Market; the Company's ability to comply
with debt covenants, and maintaining good customer relations.
4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholder of Crown Paper Co.:
We have audited the accompanying consolidated balance sheets of Crown Paper Co.
and subsidiaries as of December 27, 1998 and December 28, 1997, and the related
consolidated statements of operations, cash flows, and changes in equity
(deficit) for each of the three years in the period ended December 27, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Crown Paper Co.
and subsidiaries at December 27, 1998 and December 28, 1997 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 27, 1998 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Francisco, California
January 29, 1999, except for Note 6, paragraph 4, as to which the date is
February 26, 1999
5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 27, December 28, December 29,
(amounts in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 850,994 $897,492 $925,376
Cost of goods sold 796,935 837,452 850,419
- -----------------------------------------------------------------------------------------------------------------------
Gross margin 54,059 60,040 74,957
Asset impairment and other charges <163,834> <3,325>
Gain on timberlands sale 13,518
Selling and administrative expenses <62,360> <55,889> <52,215>
- -----------------------------------------------------------------------------------------------------------------------
Operating income <loss> <172,135> 14,344 22,742
Interest expense <49,102> <50,321> <49,920>
Other income, net 1,630 1,314 555
- -----------------------------------------------------------------------------------------------------------------------
Loss before income taxes and
extraordinary item <219,607> <34,663> <26,623>
Income tax benefit <73,534> <12,132> <10,087>
- -----------------------------------------------------------------------------------------------------------------------
Net loss before extraordinary item <146,073> <22,531> <16,536>
Extraordinary item, net of tax 4,964
- -----------------------------------------------------------------------------------------------------------------------
Net loss <141,109> <22,531> <16,536>
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(dollar amounts in thousands) December 27, 1998 December 28, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 9,806 $ 11,415
Accounts receivable 41,022 40,787
Inventories 102,397 104,117
Prepaid expenses and other current assets 3,481 7,399
Deferred income taxes 15,067 14,480
- ----------------------------------------------------------------------------------------------------------------
Total current assets 171,773 178,198
- ----------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 434,075 621,276
Other assets 43,839 38,090
Unamortized debt issue costs 11,808 14,039
Due from Parent 10,698
Intangibles, net 27,852 28,977
- ----------------------------------------------------------------------------------------------------------------
Total Assets $ 700,045 $880,580
- ----------------------------------------------------------------------------------------------------------------
Liabilities and Equity (Deficit)
Current Liabilities:
Accounts payable $ 40,916 $ 54,181
Accrued liabilities 75,268 80,358
Current portion of long-term debt 1,000 1,000
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 117,184 135,539
- ----------------------------------------------------------------------------------------------------------------
Long-term debt 459,249 430,878
Accrued postretirement benefits other than pensions 100,736 102,397
Other long-term liabilities 33,596 12,732
Deferred income taxes 16,406 88,427
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities 727,171 769,973
- ----------------------------------------------------------------------------------------------------------------
Shareholder's Equity (Deficit):
Preferred Stock, no par value:
Authorized 5,000 shares;
Issued and outstanding None
Common Stock, no par value:
Authorized - 5,000 shares;
1 share issued and outstanding at December 27,
1998, and December 28, 1997 137,751 132,698
Other Cumulative Comprehensive Income <Loss>:
Minimum pension liability <2,231> <330>
Cumulative foreign currency translation
adjustment 1,562 1,338
Retained deficit <164,208> <23,099>
- ----------------------------------------------------------------------------------------------------------------
Total Equity (Deficit) <27,126> 110,607
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities and Equity (Deficit) $ 700,045 $880,580
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 27, December 28, December 29,
(amounts in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used for) operating activities:
Net loss (141,109) $(22,531) $(16,536)
Items not affecting cash:
Depreciation and cost of timber harvested 84,851 83,373 79,252
Amortization of goodwill and other intangibles 1,125 1,124 1,125
Deferred income tax benefit (75,690) (14,711) (3,405)
Gain on sale of timberlands (13,518)
Asset impairment and other charges 163,834 3,325
Other, net 9,313 6,100 4,461
Extraordinary gain, pre-tax (8,046)
Change in current assets and liabilities:
Accounts receivable (includes $43,000
sold in 1996) (235) 15,217 49,676
Inventories 220 (6,142) 3,344
Other current assets 3,330 7,532 (9,948)
Accounts payable (12,286) 1,493 (4,958)
Other current liabilities (5,090) (3,887) 523
Other, net (6,113) (3,550) 1,403
- ---------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 14,104 53,825 104,937
- ---------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) investing activities:
Expenditures for property, plant and equipment (42,056) (59,309) (80,914)
Proceeds from sale of property, plant and
equipment 489 36,740 71
Other, net (2,321) 1,735 (232)
- ---------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (43,888) (20,834) (81,075)
- ---------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities:
Repayments of Term Loans (1,825) (46,712) (52,538)
Proceeds from draw down of Revolving Credit 126,000 122,000 191,000
Repayments of Revolving Credit (96,000) (102,000) (176,000)
Proceeds from issuance of Industrial Revenue
Bonds, less underwriting costs 4,701 12,100
Payments of other long-term debt (740) (2,584)
- ---------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities 28,175 (22,751) (28,022)
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,609) 10,240 (4,160)
Cash and cash equivalents, beginning of year 11,415 1,175 5,335
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 9,806 $ 11,415 $ 1,175
- --------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
8
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Foreign
Common Minimum Currency Retained
Stock Comprehensive Pension Translation Earnings
(amounts in thousands) Shares Amounts Loss Liability Adjustment (Deficit)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 1 $125,537 <5,611> <1,348> $ 15,968
Net loss $<16,536> <16,536>
Foreign currency translation adjustment 4,713 4,713
Minimum pension liability adjustment 4,719 4,719
--------
Comprehensive loss $ <7,104>
========
ESOP and restricted stock activity, net 3,521
- ---------------------------------------------------------------------------------------------------------------------------
Balance December 29, 1996 1 129,058 <892> 3,365 <568>
Net loss $<22,531> <22,531>
Foreign currency translation adjusment <2,027> <2,027>
Minimum pension liability adjustment 562 562
--------
Comprehensive loss $<23,996>
========
ESOP and restricted stock 3,640
Balance December 28, 1997 1 132,698 <330> 1,338 <23,099>
Net loss <141,109> <141,109>
Foreign currency translation adjustment 224 224
Minimum pension liability adjustment <1,901> <1,901>
---------
Comprehensive loss <142,786>
========
ESOP and restricted stock activity net 5,053
- -------------------------------------------------------------------------------------------------------------------------
Balance December 27, 1998 1 $137,751 <2,231> $ 1,562 <164,208>
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Note 1
Organization and Operations
Crown Paper Co. and subsidiaries (the "Company" or "Crown Paper") is a wholly
owned subsidiary of Crown Vantage Inc. (the "Parent" or "Crown Vantage") and is
a major producer of value-added paper products for a diverse array of end-uses.
The Company's two segments 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 10 facilities
using 30 diverse paper machines with sales primarily in North America. Crown
Vantage became an independent company when it was spun off from James River
Corporation of Virginia, now known as Fort James Corporation ("Fort James" or
"James River"). The spin-off and initial capitalization are referred to as the
"Spin-Off."
On December 27, 1998, the Company employed approximately 3,550 individuals of
which approximately 1/4 were salaried and 3/4 were hourly. All of the Company's
domestic hourly employees are represented under various collectively bargained
union contracts. Hourly personnel at the Company's two mills in Scotland are
covered by an ongoing national agreement that addresses working conditions,
safety, and annual wage increases. Collective bargaining agreements at the
Company's Parchment, Mich.; Adams, Mass., and Richmond, Va., facilities, which
cover approximately 17.7% of the Company's hourly employees, expire before
January 2000. The Company plans to renegotiate the above contracts before they
expire.
The Company believes that its broad manufacturing capabilities allow it to offer
a wider range of products and basis weights than most of its North American
competitors. The Company focuses its operations on the higher value-added market
niches of the sectors in which it competes. Papers produced for such niches
generally command higher prices and tend to be less cyclical than commodity
grades because they are used for more specialized applications and because there
are fewer substitutes for these products. Like its competitors, the Company is
subject to a number of risks, including the cyclical nature of the industry and
the high degree of competition in the industry. In addition, the Company is
highly leveraged as a result of its initial capitalization.
Note 2
Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
Crown Paper, and Crown Paper's consolidated subsidiaries. Significant
intercompany balances and transactions have been eliminated.
The accompanying financial statements include the consolidated results of
operations, assets and liabilities of the Company for the 52 weeks ended
December 27, 1998, and December 28, 1997. The accompanying financial statements
also include the consolidated results of operations of the Company for the 52
weeks ended December 29, 1996. The Company's fiscal year includes the 52 or 53
weeks ending on the last Sunday in December.
Cash and Cash Equivalents
The Company invests excess cash in marketable securities with
original maturities of three months or less. These investments are classified
as cash equivalents in the accompanying consolidated financial statements.
Inventories
Inventories are stated at the lower of cost or market and include
the cost of materials, labor and manufacturing overhead. The last-in, first-out
cost flow assumption is used for valuing substantially all domestic inventories
other than stores and supplies. Other inventories, including all inventories
held by foreign operations, are valued using the first-in, first-out method.
10
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation,
including related delivery and installation costs and interest incurred on
significant capital projects during their construction periods. Expenditures for
improvements that increase asset values or extend useful lives are capitalized.
Maintenance and repair costs are expensed as incurred. For financial reporting
purposes, depreciation is computed using the straight-line method over the
estimated useful lives of the respective assets, which range from 20 to 45 years
for buildings and 5 to 20 years for machinery and equipment. For income tax
purposes, depreciation is calculated using accelerated methods.
The Company assesses the recoverability of its investments in long-lived assets
to be held and used in operations whenever events or circumstances indicate that
their carrying amounts may be impaired. Such assessment requires that the future
cash flows expected to result from use of the assets are estimated and an
impairment loss recognized when future cash flows are less than the carrying
value of such assets. Estimating future cash flows requires the Company to
estimate useful lives of its long-lived assets, future production volumes and
costs, future sales volumes, demand for the Company's product mix and prices
that reflect the use of its long-lived assets and market conditions. Based on
this assessment, the Company recorded a $146.9 million charge during the fourth
quarter of 1998 to write down impaired assets. These assets were primarily at
the Berlin-Gorham, N.H., pulp and paper mills and were written down to the
present value of their estimated future cash-flows as a measure of fair value
(see "Note 11"). Although the Company believes it has a reasonable basis for its
estimates, it is reasonably possible that the Company's estimate of future cash
flows could change from current estimates which could result in recognizing, in
future periods, additional material impairment losses on its long-lived assets
at Berlin-Gorham or other facilities.
Unamortized Debt Issue Costs
Debt issue costs, incurred primarily at the Spin-Off, are deferred and charged
to interest expense over the life of the underlying indebtedness.
Goodwill
The excess of the purchase price over the fair value of identifiable net assets
of acquired companies is allocated to goodwill and amortized over 40 years.
Goodwill (included in intangibles), which relates to the St. Francisville, La.,
mill, totaled $40.1 million at December 27, 1998, and December 28, 1997, and is
presented net of accumulated amortization of $13.2 million at December 27, 1998,
and $12.2 million at December 28, 1997. The recoverability of goodwill has been
evaluated to determine whether current events or circumstances warrant
adjustments to the carrying value. As of December 27, 1998, and December 28,
1997, management believes that no significant impairment of goodwill was
indicated.
Landfill Closure and Post-Closure Costs
The Company accrues for landfill closure and post-closure costs over the periods
that benefit from the use of the landfills. Management regularly reviews the
adequacy of cost estimates and adjusts the accrued amounts as necessary.
Income Taxes
No provision is made for U.S. federal income taxes on $10.5 million of
undistributed earnings of the Company's foreign subsidiaries as such earnings
are considered indefinitely reinvested.
Foreign Currency Translation
The accounts of foreign subsidiaries of the Company are measured using local
currency as the functional currency. Assets and liabilities are translated into
U.S. dollars at period-end exchange rates, and revenue and expense accounts are
translated at average monthly exchange rates. Net exchange gains or losses
resulting from such translation are excluded from net earnings and accumulated
as a separate component of Shareholders' Equity. Gains and losses from foreign
currency transactions are included in cost of sales and were less than $.1
million for each of the years presented.
11
<PAGE>
Selected Sales Information
During 1998, 1997, and 1996 export sales to foreign markets from the Company's
domestic operations represented less than 10% of the Company's net sales for
that year. Net sales from the Company's two Scottish facilities were 7.7% for
1998, 7.6% for 1997 and 7.4% for 1996. No single customer accounted for more
than 10% of net sales during 1998, 1997, or 1996.
Due From Parent
As part of the Spin-Off, Crown Vantage issued 11.45% Pay-In-Kind Notes due 2007
to James River. On September 28, 1998 Crown Vantage and Crown Paper Co. settled
with Fort James a variety of claims that had arisen between the companies. The
settlement resulted in the delivery of $8.1 million of PIK Notes to Crown Paper
Co. from Fort James and an extraordinary gain of $5.0 million that is net of
$3.1 million in taxes. Also included in "Due from Parent" are $2.4 million of
expenses paid by Crown Paper in behalf of Crown Vantage, primarily for consent
and investment banking fees associated with the settlement and accrued interest
of $.2 million on the PIK Notes due to Crown Paper.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Reclassifications
Certain 1997 and 1996 amounts have been reclassified to conform to the 1998
presentation.
Note 3
Sale of Accounts Receivable
The Company entered into a five-year agreement expiring in 2000 with certain
banks, which provides for the sale of undivided interests (up to $60 million) in
a revolving pool of trade accounts receivable. During 1996, the Company sold a
total of $43 million of undivided interests. Proceeds from the sales, which are
reported as operating cash flows in the consolidated statement of cash flows,
were used to prepay $43 million of long-term debt. 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 the amount permitted.
The amount sold as of December 27, 1998 is $39.7 million and $43 million as of
December 28, 1997 and December 29, 1996.
The proceeds from sales are less than the face amount of the undivided
interests in accounts receivable sold and this discount ($2.7 million in 1998,
$2.8 million in 1997 and $1.6 million in 1996) is included in selling and
administrative expenses in the consolidated statement of operations.
Note 4
Concentration of Credit Risk
Credit risk represents the accounting loss that would be recognized at the
reporting date if customers failed completely to perform as contracted.
Concentrations of credit risk that arise from financial instruments exist for
groups of customers when they have similar economic characteristics that would
cause their ability to meet contractual obligations to be similarly affected by
changes in economic or other conditions. The Company does not have any
significant concentration of credit risk.
Accounts receivable at the Company's facilities in Scotland totaled $18.5
million on December 27, 1998 and $18.3 million on December 28, 1997. There were
no other significant concentrations of foreign credit risk on December 27, 1998,
or December 28, 1997.
12
<PAGE>
Note 5
Supplemental Balance Sheet Information
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Inventories
(amounts in thousands) 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw Materials $ 24,716 $ 27,911
Work-in-process 6,757 7,038
Finished goods 46,469 45,936
Stores and supplies 34,142 35,569
- --------------------------------------------------------------------------------------------------------------
112,084 116,454
Last-in, first-out reserve (9,687) (12,337)
- --------------------------------------------------------------------------------------------------------------
Total Inventories $102,397 $104,117
- --------------------------------------------------------------------------------------------------------------
Valued at lower of cost or market:
Last-in, first-out $ 57,072 $ 56,402
First-in, first-out 45,325 47,715
- --------------------------------------------------------------------------------------------------------------
Total inventories $102,397 $104,117
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Property, Plant and Equipment
(amounts in thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 33,968 $ 39,955
Buildings 135,344 143,399
Machinery and equipment 999,448 1,043,162
Construction in progress 14,892 16,100
- --------------------------------------------------------------------------------------------------------------
1,183,652 1,242,616
Accumulated depreciation (756,019) (627,891)
- --------------------------------------------------------------------------------------------------------------
427,633 614,725
Timber, net 6,442 6,551
- --------------------------------------------------------------------------------------------------------------
Net property, plant and equipment $ 434,075 $ 621,276
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Accrued Liabilities
(amounts in thousands) 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Compensated absences $11,238 $11,835
Employee insurance benefits 13,251 15,267
Accrued post retirement benefits
other than pensions, current portion 2,947 3,004
Accrued interest 11,410 12,203
Taxes payable, other than income taxes 11,268 10,083
Other accrued liabilities 25,154 27,966
- -----------------------------------------------------------------------------------------------------------
Total accrued liabilities $75,268 $80,358
- -------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Note 6
Long-Term Debt
- --------------------------------------------------------------------------------------------
Consolidated long-term debt consists of the following:
(amounts in thousands) 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Bank Credit Facility:
Revolving credit, average interest rate 8.57%
in 1998 and 1997, due 2002 $ 75,000 $ 45,000
Term Loan B, average interest rate 9.19% in
1998 and 9.14% in 1997, due 2003 96,175 98,000
- -------------------------------------------------------------------------------------------
171,175 143,000
11% Senior Subordinated Notes, due 2005 250,000 250,000
Industrial Revenue Bonds, average interest rate
7.55% in 1998 and 7.91% in 1997, payable to 2026
39,074 38,878
- --------------------------------------------------------------------------------------------
460,249 431,878
Less current portion 1,000 1,000
- --------------------------------------------------------------------------------------------
$459,249 $430,878
- --------------------------------------------------------------------------------------------
</TABLE>
Maturities of long-term debt, excluding the revolver, for the next five years
are: 1999 - $1.0 million; 2000 - $1.3 million; 2001 - $.8 million; 2002 - $47.0
million, and 2003 - $46.1 million. Cash paid for interest in 1998, 1997, and
1996 totaled $ 45.6 million, $46.0 million, and $45.8 million,
respectively.
Under the Bank Credit Facility (the "Facility") the revolving
credit available is in the aggregate amount of $150 million with a $75 million
sublimit for letters of credit (of which $38.2 million has been issued at
December 27, 1998). This revolving credit can be used for general corporate
purposes, working capital needs, and permitted investments. At December 27,
1998, $75.0 million of the revolving credit was outstanding and $36.8
million of the aggregate line was available if needed. Borrowings under the
Facility are subject to varying rates of interest that are indexed (at the
Company's option) to a base rate (the higher of the Prime Rate or Federal Funds
Rate) or the London Interbank Offered Rate.
Principal and interest amounts on
the Term Loan are due in quarterly installments. In addition to those scheduled
repayments, Crown Paper Co. is obligated to make prepayments equal to 75% of
Excess Cash Flow (as defined in the underlying agreement). The Company did not
generate Excess Cash Flow in 1998 or 1997. The Company is also required to make
prepayments (in varying percentages of net proceeds) upon the occurrence of
certain events that include, but are not limited to, proceeds received from any
new debt or equity issuances, asset sales, and sales of accounts receivable.
During 1997, the Company sold approximately 108,000 acres of timber-producing
properties for approximately $36 million. Proceeds from the sale of the
Company's timber properties were used to prepay Term Loan A. Also during 1997,
the Company repaid the remaining $3.2 million balance of Term Loan A. During
1996, the Company prepaid $43 million on Term Loan A using proceeds obtained
through the sale of certain accounts receivable.
In connection with the Facility, Crown Paper Co. is required to comply with
certain financial covenants. During the fourth quarter of 1998 Crown Paper Co.
amended its financial covenants and remained in compliance with the Facility.
The Facility, as amended on February 26, 1999, requires Crown Paper Co. to
maintain the following covenants for the fiscal year ended December 26, 1999:
<TABLE>
<CAPTION> 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1999 1999 1999 1999
------------------ ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Minimum Cash Flow Ratio .13:1 .12:1 .10:1 .11:1
Interest Coverage Ratio 1.42:1 1.30:1 1.09:1 1.17:1
Adjusted Minimum Tangible Net
Worth (in millions) $ 75.0 $ 60.0 $ 55.0 $ 47.5
</TABLE>
In addition, both the Parent and Crown Paper Co. are subject to certain
limitations on indebtedness, liens, mergers and acquisitions, asset sales,
investments, joint ventures, capital expenditures and prepayments or
acquisitions of certain indebtedness. The Facility also restricts Crown Paper
Co. from
14
<PAGE>
paying cash dividends to the Parent. Generally, dividends are limited to (a)
amounts necessary to pay certain personnel and administrative expenses (not to
exceed $800,000 per year), (b) current taxes payable attributable to Crown Paper
Co., and (c) Crown Paper Co.'s share of Equity Proceeds (as defined in the
underlying agreement). The Facility contains customary events of default,
including certain changes of control. The obligations under the Facility are
collateralized by substantially all of the assets of Crown Paper Co.
The Senior Subordinated Notes (the "Notes") are unsecured and interest is
payable semi-annually in March and September. The Notes are redeemable at the
option of Crown Paper Co. on or after September 1, 2000 at a redemption price of
105.5%, which declines to par after September 1, 2003, and thereafter. In the
event of a Change of Control (as defined in the underlying agreement) the
holders of the Notes have the right to require Crown Paper Co. to purchase the
Notes in cash at 101%. The Notes contain covenants, limitations and restrictions
that in general are not more restrictive than those contained in the Facility.
Proceeds from the sale of industrial revenue bonds are used to finance eligible
project costs, of which $1.3 million and $3.4 million are included in cash and
cash equivalents at December 27, 1998, and December 28, 1997, respectively.
At December 27, 1998 and December 28, 1997, estimated fair values of the
Company's long-term debt instruments were $430.2 million and $441.0 million,
respectively. The fair values of the Company's long-term debt instruments are
based on quoted market prices, estimated based on quoted market prices for
similar issues or estimated by discounting expected cash flows at the rates
currently available to the Company for debt having similar characteristics.
Note 7
Income Taxes
The Company recorded deferred tax benefits for the net operating losses of $13.7
million in 1998, $12.4 million in 1997, and $1.8 million in 1996. The Company
has federal and state net operating loss carryforwards of approximately $35.4
million for 1998 that expire in 2018, $31.9 million for 1997 that expire in 2012
and $7.8 million for 1996 that expire in 2011. The Company made estimated tax
payments of $.8 million in 1998, $.7 million in 1997 and $1.6 million in 1996,
of which $1.2 million was recovered in 1997. The Company recorded an $11.4
million valuation allowance against the deferred tax assets as of December 27,
1998. This included a reduction of the deferred tax benefit of $10.6 million
and the elimination of the tax assets associated with the minimum pension
liability of $.8 million.
15
<PAGE>
The components of loss before income taxes and extraordinary item were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(amounts in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $(225,629) $(40,441) $(32,457)
Foreign 6,022 5,778 5,834
- ------------------------------------------------------------------------------------------------------------------------
Loss before income taxes $(219,607) $(34,663) $(26,623)
- ------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit) consisted of the following:
- ------------------------------------------------------------------------------------------------------------------------
(amounts in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Current:
Federal $ ( 693) $ (8,032)
State $ 730 1,775 (644)
Foreign 1,426 1,497 1,994
-----------------------------------------------------------------------------------------------------------------------
Total current income tax expense (benefit) 2,156 2,579 (6,682)
- ------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (78,054) (13,353) (3,353)
State (8,833) (1,685) (374)
Valuation allowance 10,527
Foreign 670 327 322
- -------------------------------------------------------------------------------------------------------------------------
Total deferred income tax benefit (75,690) (14,711) (3,405)
- -------------------------------------------------------------------------------------------------------------------------
Income tax benefit $ (73,534) $(12,132) $(10,087)
- ------------------------------------------------------------------------------------------------------------------------
Principal reasons for the differences between the federal statutory income tax rate on the loss before income taxes and
extraordinary item, and the Company's effective tax rate were as follows:
- ------------------------------------------------------------------------------------------------------------------------
Percent of Pretax Loss
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Federal statutory income tax rate (35.0)% (35.0)% (35.0)%
State income taxes, net of federal income tax effect (3.8) (3.7) (3.8)
Valuation allowance 4.7
Amortization of goodwill .2 1.0 1.3
Other items, net .4 2.7 (.4)
- ------------------------------------------------------------------------------------------------------------------------
Effective income tax rates (33.5)% (35.0)% (37.9)%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The income tax effects of temporary difference that gave rise to the net
deferred tax assets and liabilities as of December 27, 1998 and December 28,
1997, were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(amounts in thousands) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Excess of book over tax basis of property, plant and equipment $ 66,039 $129,073
Pension benefits, net 15,407 13,943
Other items 5,475 4,881
- --------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 86,921 147,897
- --------------------------------------------------------------------------------------------------------------------
Postretirement benefits other than pensions (40,229) (40,874)
Accrued liabilities (27,079) (17,399)
Net operating loss carryforward (28,513) (14,787)
Other items (1,153) (890)
- ---------------------------------------------------------------------------------------------------------------------
Total deferred tax assets (96,974) (73,950)
- ---------------------------------------------------------------------------------------------------------------------
Valuation allowance 11,392
- --------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 1,339 $ 73,947
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Note 8
Pension and Other Benefit Plans
In connection with the Spin-Off, the Company and James River entered into an
agreement with the Pension Benefit Guaranty Corporation (the "PBGC") whereby
U.S. pension plans transferred to the Company and corresponding accumulated
participant benefits were frozen (the "Frozen Plans"). New pension plans (the
"New Plans") were then established by the Company that have terms substantially
similar to the Frozen Plans. James River entered into an agreement with the
PBGC providing that, if the PBGC institutes proceedings to terminate a Frozen
Plan, James River may either assume sponsorship of the plan or will be
responsible for all liabilities arising from the termination of the plan. James
River's contingent obligation with respect to the Frozen Plans will generally
end when there are no unfunded benefit obligations for the Frozen Plans. James
River and the Company have entered into an agreement (the "Pension Funding
Agreement") that establishes minimum funding requirements by the Company for the
Frozen Plans that are at least equal to minimum funding requirements pursuant to
Section 412 of the Internal Revenue Code.
Post-retirement benefit plans ("Other Benefits") are provided for certain
salaried and substantially all hourly employees. Salaried employees hired before
January 1, 1993, generally become eligible for retiree medical benefits after
reaching age 55 with 15 years of service or after reaching age 65. Under the
salaried plan, post-age 65 eligible retirees are reimbursed for a portion of the
cost of premiums of Medicare supplement insurance policies, based upon vested
years of service. Post-age 65 salaried retirees are also reimbursed for certain
prescription drug costs, less deductibles. Pre-age 65 eligible retirees are paid
a stated percentage of covered medical expenses, less deductibles. Salaried
employees hired after January 1, 1993 are not eligible for retiree medical
benefits. Benefits, eligibility and cost-sharing provisions for hourly employees
vary by location and collective bargaining unit. All of the Company's retiree
medical plans are unfunded.
The consolidated financial statements include the present value of benefit
obligations, related components of pension and other benefit costs, unrecognized
net gains and plan assets that were derived from actuarial calculations.
Summary information on the Company's pension and other benefit plans is as
follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------- ---------------
(amounts in thousands) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 281,048 $244,531 $ 70,523 $ 79,323
Service cost 7,314 5,310 1,174 1,090
Interest cost 20,109 19,306 5,126 5,033
Amendment 268 1,570
Plan participants' contributions 1,437 1,350 903 842
Actuarial (gain) loss 13,750 25,006 415 (11,295)
Benefits paid (16,615) (16,025) (5,240) (4,470)
--------- -------- -------- --------
Benefit obligation at end of year $ 307,311 $281,048 $ 72,901 $ 70,523
========= ======== ======== ========
Change in plan assets
Fair value of plan assets at beginning
of year $ 337,134 $281,753
Actual return on plan assets 22,124 66,399
Company contributions 6,771 3,647
Plan participants' contributions 1,437 1,350
Benefits paid ( 16,615) (16,025)
--------- --------
Fair value of plan assets at end of year $ 350,851 $337,124
========= ========
</TABLE>
Plan assets are invested primarily in domestic equity and fixed income mutual
funds. The following table sets forth the funded status of the Company's
pension plans and other benefit plans at December 27, 1998, and December 28,
1997:
17
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Pension Plans Other Benefits Plans
- -------------------------------------------------------------------------------------------------------------------------
(amounts in thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Funded status (over/(under)funded) $ 43,540 $ 56,076 $ (72,901) $ (70,523)
Unrecognized net gain (8,365) (24,851) (20,631) (22,777)
Unrecognized prior service
cost (gain) 10,011 11,275 (10,151) (12,101)
Unrecognized net transition (asset)
liability 55 ( 3,348)
Minimum pension liability ( 4,115) ( 2,184)
- -------------------------------------------------------------------------------------------------------------------------
Net asset (liability) $ 41,126 $ 36,968 $(103,683) $(105,401)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts applicable to certain of the Company's pension plans with accumulated
benefit obligations and projected benefit obligations in excess of plan assets
are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Projected benefit obligation $21,981 $18,025
Accumulated benefit obligation 21,653 17,796
Fair value of plan assets 18,474 16,455
</TABLE>
The components of the Company's net pension and other benefit costs, which
include the Company's pension plan in Scotland, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Pension Plans Other Benefit Plans
(amounts in thousands) 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 7,314 $ 5,310 $ 5,344 $ 1,174 $ 1,090 $ 1,582
Interest cost 20,109 19,305 19,055 5,126 5,033 5,919
Net investment income on plan assets (27,511) (69,794) (27,088)
Net amortization 730 45,827 6,196 (3,352) (3,886) (1,965)
Contributions to multiemployer pension
plans 19 53 52
- ---------------------------------------------------------------------------------------------------------------
Net benefit cost $ 661 $ 701 $ 3,559 $ 2,948 $ 2,237 $ 5,536
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Net amortization of pension and other benefit costs includes amortization of the
net transition assets, net experience gains and losses, and prior service costs
over 15 to 20 years. The actuarial assumptions used in determining net pension
and other benefit costs and related pension and other benefit obligations were
as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Pension Benefits Other Benefits
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount Rate 7.0% 7.5% 7.0% 7.5%
Assumed rate of increase in
compensation levels 4.0% 4.0%
Expected long-term rate of return
on plan assets 10.0% 10.0%
</TABLE>
Changes in actuarial assumptions for 1998 resulted in an increase to the net
periodic pension and other benefit costs of $.6 million and the related
accumulated benefit obligation of $5.6 million. The assumed health care cost
trend rate used in measuring the accumulated benefit obligation for other
benefits was 6.5% in 1998, declining by 0.5% per year through 2002 to an
ultimate rate of 4.5%. The effect of a 1% change in the health care cost trend
rate assumptions is as follows:
18
<PAGE>
<TABLE>
<S> <C> <C>
1% increase 1% decrease
----------- -----------
Service and interest cost $ .8 $ .7
Accumulated postretirement benefit obligation $ 8.1 $ 7.0
</TABLE>
Other assets include net noncurrent pension assets of $43.8 million on December
27, 1998 and $38.0 million on December 28, 1997, exclusive of the additional
minimum pension liabilities. The additional minimum pension liabilities of $4.1
million on December 27, 1998 and $2.2 million on December 28, 1997 were offset
by intangible assets of $1.9 million and $1.7 million, respectively. The
additional minimum pension liabilities were offset by charges to shareholders'
equity on December 27, 1998 of $2.2 million, net of no deferred taxes due to the
valuation allowance (see Note 7), and $.3 million, net of deferred taxes of $.2
million on December 28, 1997.
Note 9
Commitments and Contingent Liabilities
Leases
As of December 27, 1998, future minimum rental payments under noncancelable
operating leases were as follows:
<TABLE>
<CAPTION>
Minimum
(amounts in thousands) Rentals
<S> <C>
1999 $ 5,750
2000 5,653
2001 5,292
2002 5,103
2003 4,353
Later years 10,716
-----------
Total future minimum rentals $36,867
===========
</TABLE>
Rent expense totaled $6.5 million in 1998, $6.6 million in 1997 and $6.7 million
in 1996.
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 year.
The Company has accrued $12.2 million at December 27, 1998 and $12.0 million at
December 28, 1997 primarily for estimated landfill site restoration, post-
closure and monitoring costs. In addition, the Company has been identified as a
potentially responsible party ("PRP"), 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 19 sites in the
United States. The Company has previously settled its remediation obligations
at 12 of those sites. At 6 other sites, the Company is one of many potentially
responsible parties and its alleged contribution to the site and remediation
obligation is not considered significant. At one other site, remedial
investigation is underway and a loss estimate for the potential remediation
effort costs is not yet possible. However, the Company's accrual for the
remediation investigation effort was $.4 million at December 27, 1998 and $.6
million at December 28, 1997. The liabilities can change substantially due to
such factors as the solvency of other potentially responsible parties, the
Company's share of responsibility, additional information on the nature or
extent of contamination, methods and associated costs of remediation required,
and other actions by governmental agencies or private parties. While it is not
feasible to predict the outcome of all environmental liabilities,
19
<PAGE>
based on its most recent review, management estimates the Company's share of the
costs of investigation and remediation of the known sites will not have a
material adverse effect upon the consolidated financial condition of the
Company.
Due to 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. As with most manufacturing
and many other entities, there can be no assurance that the Company will not be
named as a PRP or incur liabilities through other means at additional sites in
the future or that the costs associated with such additional sites would not be
material.
The Environmental Protection Agency signed final rules affecting pulp and paper
industry discharges of wastewater and gaseous emissions ("Cluster Rules") which
became effective on April 15, 1998. These Cluster Rules require 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. Based on
management's understanding of the rules, the Company estimates that
approximately $40 million of capital expenditures may be required to comply with
the rules with compliance dates beginning in 1999 and extending over the next
two to five years. The Company's 1998 environmental capital spending includes
$3.6 million for compliance with the Cluster Rules. There are risks and
uncertainties associated with the Company's estimate that could cause total
capital expenditures and timing of such expenditures to be materially different
from current estimates, including changes in technology, interpretation of the
rules by government agencies that is substantially different from the Company's
interpretation, or other items.
Note 10
Employee Stock Ownership Plan
Currently the Company sponsors an Employee Stock Ownership Plan ("ESOP") that is
available to substantially all employees of the Company. Participants may elect
to contribute up to 16% of their compensation as pretax contributions under
Internal Revenue Code 401(k). The Company will make matching contributions (up
to a maximum of 6%) based on each participant's contribution. On December 27,
1998, 381,000 shares were authorized but not yet issued to the ESOP.
Prior to the fourth quarter of 1998, the ESOP was leveraged and was funded by
loans from Crown Paper Co., with the proceeds used to purchase shares of the
Company's Common Stock. One loan was repaid in 1997 and the other loan was
repaid in 1998. Prior to the loans being paid off, the Company's annual
contributions to the ESOP in the form of matching contributions was equal to the
amount needed by the ESOP to make the principal and interest payments on the
loan.
When the ESOP was leveraged, shares were pledged as collateral for this debt. As
the debt was repaid, shares were released from collateral and allocated to
employees who made 401(k) contributions that year, based on the proportion of
debt service paid in the year. The shares pledged as collateral were reported as
unearned ESOP shares in the consolidated balance sheet.
Compensation expense for the 401(k) match and the ESOP was $3.8 million in 1998
and $2.7 million in 1997.
20
<PAGE>
The ESOP shares as of December 27, 1998, and December 28, 1997, were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Number of Shares
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Allocated shares 944,000 516,000
Shares released/issued for
allocation 101,000
Unearned shares 327,000
- -------------------------------------------------------------------------------
Total ESOP shares 944,000 944,000
- -------------------------------------------------------------------------------
Fair value of unearned shares
at end of year $ -0- $2,534,000
- -------------------------------------------------------------------------------
</TABLE>
Note 11
Asset Impairment, Timberland Gain and Other Charges
During the fourth quarter of 1998, the Company determined that the estimated
future cash flows for certain of its fixed assets (primarily at the Berlin and
Gorham, N.H., pulp and paper mills) were insufficient to recover the net book
value of those assets. Accordingly, the Company recorded an asset impairment
charge of $146.9 million in the fourth quarter of 1998 to write down those
assets. Also, the Company determined that the co-generation facility at the St.
Francisville, La., mill no longer provides substantive use or benefit to the
mill. Based on this assessment, the Company recorded a $16.9 million charge
during the fourth quarter of 1998, which represents discounted net future lease
payments.
During the fourth quarter of 1997, the Company sold approximately 108,000 acres
of timber-producing properties for approximately $36 million and recognized a
gain of $13.5 million.
During the fourth quarter of 1997, the Company closed its Newark, Del., facility
and recorded a charge related to the closure of the mill in the fourth quarter
of 1997 totaling $3.3 million.
Note 12
Work Force Reduction
During 1998, the Company accrued $3.0 million relating to the announced 5% work
force reduction. The accrual is for anticipated expenses resulting from the
work force reduction, primarily for severance and benefit payments to the
approximately 230 affected employees. Both hourly and salaried employees from
manufacturing, maintenance, and office staff were affected. As of December 27,
1998 approximately $1.6 million had been paid and the remainder will be paid
during the first half of 1999.
21
<PAGE>
Note 13
Segment Information
The Company is organized around two segments based primarily on similarities in
products, the manufacturing process and customers.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
(amounts in millions) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating income (loss):
Printing & Publishing Papers $ (166.1) $ 1.0 $ 11.6
Specialty Papers (6.0) 13.3 11.1
- -----------------------------------------------------------------------------------------------------------------------------
Total $ (172.1) $ 14.3 $ 22.7
- -----------------------------------------------------------------------------------------------------------------------------
EBITDA:
Printing & Publishing Papers $ 54.1 $ 64.4 $ 72.8
Specialty Papers 24.1 34.6 30.9
Other .7 1.0 .4
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 78.9 $ 100.0 $ 104.1
- -----------------------------------------------------------------------------------------------------------------------------
Total assets:
Printing & Publishing Papers $ 457.6 $ 631.4 $ 678.5
Specialty Papers 204.1 222.0 237.0
Other 38.3 27.2 30.1
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 700.0 $ 880.6 $ 945.6
- -----------------------------------------------------------------------------------------------------------------------------
Net sales:
Printing & Publishing Papers $ 512.8 $ 513.0 $ 536.5
Specialty Papers 338.2 384.5 388.9
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 851.0 $ 897.5 $ 925.4
- -----------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization expense:
Printing & Publishing Papers $ 62.3 $ 63.3 $ 60.2
Specialty Papers 23.7 21.2 20.2
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 86.0 $ 84.5 $ 80.4
- -----------------------------------------------------------------------------------------------------------------------------
Asset impairment, other charges, and timberland gain:
Printing & Publishing Papers $ (157.3) $ 10.2
Specialty Papers (6.5)
- -----------------------------------------------------------------------------------------------------------------------------
Total $ (163.8) $ 10.2
- -----------------------------------------------------------------------------------------------------------------------------
Expenditures for property, plant and equipment:
Printing & Publishing Papers $ 27.2 $ 43.5 $ 60.8
Specialty Papers 13.9 13.0 16.0
Other 1.0 2.8 4.1
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 42.1 $ 59.3 $ 80.9
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Both operating income (as used in the statement of operations) and EBITDA are
used by the Company's chief operating decision makers to assess the performance
of these segments. EBITDA represents income (loss) before income taxes,
interest expense and depreciation and amortization. 1998 EBITDA for Printing and
Publishing Papers excludes the $145.2 million fixed asset write-down and the
$12.1 million charge for future lease payments for the co-generation facility at
the St. Francisville, La., mill. Specialty Papers' 1998 EBITDA excludes $1.7
million for the fixed asset write-down and the $4.8 million charge for future
lease payments for the co-generation facility at the St. Francisville, La.,
mill. Printing and Publishing Papers' 1997 EBITDA includes a $13.5 million gain
on sale of timberlands and a $3.3 million charge due to the closure of the
Newark, Del. facility. "Other" consists primarily of corporate balances not
allocated to segments such as prepaid pension assets, deferred income taxes, due
from Parent and the balance sheet effect of certain financing arrangements.
Other's revenue is interest income. The allocation of pension costs to the
segments is actuarially determined. Corporate general and administrative
expenses are allocated based on tons sold.
22
<PAGE>
Note 14
<TABLE>
<CAPTION>
Quarterly Financial Summary (unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
(amounts in thousands) Quarter Quarter Quarter Quarter Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Net sales $221,806 $215,413 $211,768 $ 202,007 $ 850,994
Gross margin 8,998 11,982 21,679 11,400 54,059
Net loss before
extraordinary item <11,638> <9,663> <4,297> <120,475> <146,073>
Net loss <11,638> <9,663> <4,297> <115,511> <141,109>
- ---------------------------------------------------------------------------------------------------------------------------
1997
Net sales $228,641 $224,932 $226,808 $ 217,111 $ 897,492
Gross margin 17,164 10,752 20,598 11,526 60,040
Net loss <7,364> <8,524> <4,189> <2,454> <22,531>
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
EXHIBIT 3.3
RESTATED BYLAWS OF
CROWN PAPER CO.
(as amended February 2, 1999)
ARTICLE I - MEETING OF STOCKHOLDERS
Section 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.
Section 1.2 Organization and Order of Business. The Chairman (the
----------------------------------
"Chairman") or, in his absence, the Chief Executive Officer or 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.
Section 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.
Section 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 Chief
Executive Officer or the Board of Directors. Any meeting so called shall be
designated and treated for all purposes as the annual meeting.
Section 1.5 Special Meetings. Special meetings of the stockholders may be
----------------
called only by the Chief Executive Officer 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.
1
<PAGE>
Section 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.
Section 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 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.
Section 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
2
<PAGE>
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.
Section 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.
Section 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 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
Section 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.
3
<PAGE>
Section 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.
Section 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.
Section 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) 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.
Section 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 Chief Executive Officer 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.
Section 2.6 Special Meetings. Special meetings of the Board of Directors
----------------
may be called by the Chief Executive Officer 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.
4
<PAGE>
Section 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.
Section 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 the meeting and does not thereafter vote for assent to
action taken at the meeting.
Section 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.
Section 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.
Section 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.
5
<PAGE>
ARTICLE III - COMMITTEES OF DIRECTORS
Section 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.
Section 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 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.
Section 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.
Section 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
Section 4.1 Officers. The officers of the Corporation shall be a
--------
Chairman; a Chief Executive Officer; a President; 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. Each of the Chairman and the Chief Executive
Officer 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 Chief Executive Officer
and Secretary. The Board may designate that the Chairman be "non-executive" and
not an officer of the Corporation if the Chairman is not an employee of the
Corporation.
6
<PAGE>
Section 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.
Section 4.3 Removal of Officers. Officer may be removed, with or without
-------------------
cause, at any time by the Board of Directors.
Section 4.4.1 Duties of the Chairman. The Chairman 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.
Section 4.4.2 Duties of the Chief Executive Officer. The Chief Executive
-------------------------------------
Officer shall have general charge of, and be charged with, the duty of
supervision of the business of the Corporation. 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.
Section 4.4.3 Duties of the President. The President shall perform such
-----------------------
duties, from time to time, as may be assigned to him or her by the Board of
Directors. To the extent that such duties are not so assigned, such officer
shall have such authority and perform the duties which generally pertain to such
office, subject to the control of the Chief Executive Officer.
Section 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 Chief
Executive Officer or the Board of Directors, or as may be required by law.
Section 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 Chief Executive Officer
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.
7
<PAGE>
Section 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 that generally
pertain to their respective offices, subject to the control of the Chief
Executive Officer or the Board of Directors.
Section 4.8 Voting Securities of Other Corporations. Any one of the Chief
---------------------------------------
Executive Officer 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.
Section 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
Section 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 Chief
Executive Officer 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.
Section 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.
Section 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.
Section 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
8
<PAGE>
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.
ARTICLE VI - MISCELLANEOUS PROVISIONS
Section 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".
Section 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.
Section 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.
9
<PAGE>
EXHIBIT 10.47
AMENDMENT NO. 6 TO CREDIT AGREEMENT
AMENDMENT dated as of December 11, 1998 among CROWN PAPER CO. (the
"Borrower"), CROWN VANTAGE INC. ("Holdings"), the BANKS listed on the signature
pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Administrative Agent (the "Administrative Agent").
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered into a Credit Agreement
dated as of August 15, 1995 (as heretofore amended, the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement as more fully set
forth below;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Defined Terms. Unless otherwise specifically defined herein,
each term used herein which is defined in the Agreement shall have the meaning
assigned to such term in the Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in the
Agreement shall from and after the date hereof refer to the Agreement as amended
hereby.
Section 2. Amendment to the Definition of Consolidated EBITDA. The
definition of "Consolidated EBITDA" set forth in Section 1.1 of the Agreement is
amended to read in its entirety as follows:
" Consolidated EBITDA" means, for any fiscal period, Consolidated EBIT for
such period plus, to the extent deducted in determining Consolidated Net Income
for such period, (i) the aggregate amount of depreciation, amortization, non-
cash incentive compensation expense and other similar non-cash charges, (ii)
solely for any period ended on or prior to December 31, 1997 and solely to the
extent not included in clause (i), the lesser of (x) the aggregate amount of
write-downs, write-offs or reserves with respect to the rebuild of the Number
One Paper Machine at St. Francisville and (y) $2,500,000 and (iii) solely for
any period ended on or prior to December 31, 1998 and solely to the extent not
included in clause (i), (x) the aggregate amount of write-offs with respect to
the stream of
<PAGE>
lease payments on a co-generation facility at St. Francisville, up to
$17,000,000 in the aggregate and (y) the aggregate amount of December non-
recurring charges with respect to environmental compliance and workers
compensation costs, up to $5,000,000 in the aggregate, in each case as described
by the Borrower to the Banks prior to the date of effectiveness of Amendment
No.6 to this Agreement dated as of December 11, 1998 among the Borrower,
Holdings, the Banks and the Administrative Agent.
Section 3. Cash Flow Ratio. Section 5.12 of the Agreement is amended to
read in its entirety as follows:
SECTION 5.12. Cash Flow Ratio. As of the last day of each fiscal
---------------
quarter of the Borrower set forth below, the Cash Flow Ratio at such day will
not be less than the ratio set forth below opposite such fiscal quarter:
Fiscal Quarter Ratio
-------------- -----
Fourth quarter of 1998 fiscal year 0.145:1
Thereafter 0.200:1
Section 4. Interest Coverage Ratio. Section 5.13 of the Agreement is
amended to read in its entirety as follows:
SECTION 5.13. Interest Coverage Ratio. As of the last day of each
-----------------------
fiscal quarter of the Borrower set forth below, the Interest Coverage Ratio at
such day will not be less than the ratio set forth below opposite such fiscal
quarter:
Fiscal Quarter Ratio
-------------- -----
Fourth quarter of 1998 fiscal year 1.50:1
Thereafter 2.50:1
Section 5. Net Worth. Section 5.14 of the Agreement is amended to read
in its entirety as follows:
2
<PAGE>
SECTION 5.14. Minimum Consolidated Tangible Net Worth. Consolidated
---------------------------------------
Tangible Net Worth will at no time during any fiscal period set forth below be
less than the amount set forth in the table below opposite such period; provided
that calculations of Consolidated Tangible Net Worth shall exclude the effect of
(i) the aggregate amount of the pretax write-offs with respect to the stream of
lease payments on a co-generation facility at St. Francisville, up to
$17,000,000 in the aggregate, (ii) the aggregate amount of the pretax December
non-recurring charges with respect to environmental compliance and workers
compensation costs, up to $5,000,000 in the aggregate and (iii) the aggregate
amount of the potential pre-tax non-cash asset write-downs, up to $195,000,000
in the aggregate, in each case as described by the Borrower to the Banks prior
to the date of effectiveness of Amendment No. 6 to this Agreement dated as of
December 11, 1998 among the Borrower, Holdings, the Banks and the Administrative
Agent:
Period Amount
- --------------------------------------------------------------------------------
6/30/98-12/30/98 $ 50,000,000
- --------------------------------------------------------------------------------
12/31/98-3/30/99 $ 50,000,000
- --------------------------------------------------------------------------------
3/31/99-12/30/99 $ 75,000,000
- --------------------------------------------------------------------------------
Thereafter $100,000,000
- --------------------------------------------------------------------------------
Section 6. Delivery of 1999 Strategic Plan. A new Section 5.26 is added
to the Agreement immediately after Section 5.25 thereof, to read in its entirety
as follows:
SECTION 5.26. 1999 Bankers Meeting. On or prior to February 15, 1999,
--------------------
the Borrower shall host a bankers meeting where the Borrower shall discuss with
the Banks the strategic plan for the 1999 fiscal year, which plan shall include
the Borrower's operating and capital expenditure budgets and cash flow forecast
on a quarterly basis for such fiscal year (which shall include a projected
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the last day of each fiscal quarter and the related projected statements of
consolidated income and cash flows for such fiscal quarter and for the portion
of such fiscal year to end at the end of such fiscal quarter).
Section 7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
3
<PAGE>
Section 8. Counterparts; Effectiveness. This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective as of the date hereof when the
Administrative Agent shall have received (x) duly executed counterparts hereof
signed by the Borrower and the Required Banks (or, in the case of any party as
to which an executed counterpart shall not have been received, the
Administrative Agent shall have received telegraphic, telex or other written
confirmation from such party of execution of a counterpart hereof by such party)
and (y) for the account of each Bank that has delivered an executed counterpart
hereof (or telegraphic, telex or other written confirmation of execution of a
counterpart hereof) to the Administrative Agent on or prior to December 21,
1998, an amendment fee in such amount as shall have been previously agreed upon
between the Borrower and the Banks.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.
CROWN PAPER CO.
By /s/ R. Neil Stuart
----------------------------------
Title: EVP & CFO
CROWN VANTAGE INC.
By /s/ R. Neil Stuart
---------------------------------
Title: EVP & CFO
5
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By /s/ Stephen J. Hannan
----------------------------------
Title: Vice President
THE BANK OF NEW YORK
By /s/ Robert J. Louk
----------------------------------
Title: Vice President
CERES FINANCE LTD.
By /s/ David Egglishaw
----------------------------------
Title: Director
THE CHASE MANHATTAN BANK
By /s/ Lenard Weiner
----------------------------------
Title: Managing Director
6
<PAGE>
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By /s/ Jack R. Bertges
--------------------------------------
Title: Senior Vice President
By /s/ James F. McCann
--------------------------------------
Title: Vice President
CHRISTIANIA BANK og KREDITKASSE
By /s/ Carl Petter Svendsen
--------------------------------------
Title: Senior Vice President
By /s/ Peter M. Dodge
--------------------------------------
Title: Senior Vice President
DRESDNER BANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES
By /s/ John W. Sweeney
--------------------------------------
Title: Assistant Vice President
By /s/ Brigitte Sacin
--------------------------------------
Title: Assistant Treasurer
7
<PAGE>
FIRST SOURCE FINANCIAL LLP, by FIRST SOURCE
FINANCIAL, INC., its Agent/Manager
By /s/ John P. Thacker
--------------------------------------
Title: Senior Vice President
KZH III LLC
By /s/ Virginia Conway
--------------------------------------
Title: Authorized Agent
KZH HIGHLAND-2 LLC
By /s/ Virginia Conway
--------------------------------------
Title: Authorized Agent
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES AGENCY
By /s/ Noboru Akahane
--------------------------------------
Title: Deputy General Manager
8
<PAGE>
MARINE MIDLAND BANK
By /s/ Susan L. LeFevre
--------------------------------------
Title: Authorized Signatory
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, LP,
as Investment Advisor
By /s/ Andrew C. Liggio
--------------------------------------
Title: Authorized Signatory
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By /s/ Andrew C. Liggio
--------------------------------------
Title: Authorized Signatory
NATEXIS BANQUE BFCE
By /s/ Jordan Sadler
--------------------------------------
Title: Associate
By /s/ William C. Maier
--------------------------------------
Title: Senior Vice President
9
<PAGE>
NATIONSBANK, N.A.
By /s/ Christopher R. Gernhard
--------------------------------------
Title: Vice President
THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY
By /s/ Richard A. Strait
--------------------------------------
Title: Its Authorized Representative
PNC BANK, NATIONAL ASSOCIATION
By /s/ Philip K. Liebscher
--------------------------------------
Title: Vice President
MORGAN STANLEY DEAN WITTER PRIME INCOME
TRUST
By /s/ Peter Gewirtz
--------------------------------------
Title: Authorized Signatory
10
<PAGE>
PAMCO CAYMAN LTD.
By: Highland Capital Management LP, as
Collateral Manager
By /s/ James Dondero,
--------------------------------------
Title: CFA, CPA
President
Highland Capital
Management L.P.
KEYPORT LIFE INSURANCE COMPANY
By: Stein Roe & Farnham Incorporated, as
Agent for Keyport Life Insurance Company
By /s/ Brian W. Good
--------------------------------------
Title: Vice President & Portfolio
Manager
SOUTHERN PACIFIC BANK
By /s/ Charles D. Martorano
--------------------------------------
Title: Senior Vice President
STRATA FUNDING LTD.
By /s/ David Egglishaw
--------------------------------------
Title: Director
11
<PAGE>
VAN KAMPEN SENIOR INCOME TRUST
By /s/ Jeffrey W. Maillet
--------------------------------------
Title: Senior Vice President &
Director
VAN KAMPEN PRIME RATE INCOME TRUST
By /s/ Jeffrey W. Maillet
--------------------------------------
Title: Senior Vice President & Director
ML CBO IV (CAYMAN) LTD.
By: Highland Capital Management LP, as
Collateral Manager
By /s/ James Dondero
--------------------------------------
Title: CFA, CPA
President
Highland Capital
Management L.P.
MORGAN GUARANTY TRUST COMPANY, as
Administrative Agent and Collateral Agent
By /s/ Stephen J. Hannan
--------------------------------------
Title: Vice President
12
<PAGE>
EXHIBIT 10.48
CROWN PAPER CO., as Issuer
and
THE BANK OF NEW YORK, as Trustee
- -------------------------------------------------------------------------------
SECOND SUPPLEMENTAL INDENTURE
Dated as of September 28, 1998
to
Indenture
Dated as of August 23, 1995
- -------------------------------------------------------------------------------
11% Senior
Subordinated Notes
due 2005
<PAGE>
SECOND SUPPLEMENTAL INDENTURE (hereafter, the "Second Supplemental
Indenture") dated as of September 28, 1998 between CROWN PAPER CO. (hereinafter,
the "Company"), a corporation duly organized and existing under the laws of the
Commonwealth of Virginia, and THE BANK OF NEW YORK (hereinafter, the "Trustee"),
a banking corporation organized and existing under the laws of the State of New
York.
W I T N E S S E T H :
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an Indenture dated as of August 23, 1995 (as amended by the First
Supplemental Indenture dated October 18, 1996, hereinafter, the "Indenture")
providing for the issuance of the Company's 11% Senior Subordinated Notes due
2005 (hereinafter, the "Securities"); and
WHEREAS, pursuant to Section 902 of the Indenture, the Company has
obtained the consent of the Holders of not less than a majority in principal
amount of the outstanding Securities to the amendments made hereby;
WHEREAS, the Board of Directors of the Company has authorized the
execution of this Supplemental Indenture and its delivery to the Trustee;
WHEREAS, the Company has delivered an Officers' Certificate and
Opinion of Counsel to the Trustee pursuant to Section 903 of the Indenture; and
WHEREAS, all other actions necessary to make this Supplemental
Indenture a legal, valid and binding obligation of the parties hereto in
accordance with its terms and the terms of the Indenture have been performed;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Company covenants and agrees with the Trustee, for the equal and proportionate
benefit of all present and future holders of Securities, as follows:
Section 1. The definition of "Permitted Investment" in Section 101 of
the Indenture shall read in its entirety as follows:
"Permitted Investment" means (i) Investments in any Wholly Owned
Subsidiary or any Person which, as a result of such Investment, (a) becomes
a Wholly Owned Subsidiary or (b) is merged or consolidated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or any Wholly Owned Subsidiary; (ii) Indebtedness of the
Company or a Subsidiary described under clauses (iv), (v) and (vi) of the
definition of "Permitted Indebtedness"; (iii) Temporary Cash Investments;
(iv) Investments acquired by the Company or any Subsidiary in connection
with an Asset Sale permitted under Section 1012 to the extent such
<PAGE>
2
Investments are non-cash proceeds as permitted under such covenant; (v)
Investments acquired by the Company or any Subsidiary in connection with
any sale, conveyance, transfer, lease or other disposition (collectively, a
"transfer") of any properties or assets to another Person, which transfer
does not constitute an Asset Sale; (vi) a loan of up to $10.1 million to
the ESOP by the Company as contemplated by the Contribution Agreement;
(vii) Investments in existence on the date of this Indenture; and (viii)
the receipt of $8,045,796 in aggregate principal amount of Holdings PIK
Notes from the Fort James Entities in the Spin-Off Settlement pursuant to
the terms of the Spin-Off Settlement Agreement.
Section 2. The definition of "Asset Sale" in Section 101 of the
Indenture shall read in its entirety as follows:
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or Sale and Leaseback Transaction) (collectively, a
"transfer"), directly or indirectly, in one or a series of related
transactions, of: (i) any Capital Stock of any Subsidiary; (ii) all or
substantially all of the properties and assets of any division or line of
business of the Company or its Subsidiaries; or (iii) any other properties
or assets of the Company or any Subsidiary other than in the ordinary
course of business. For the purposes of this definition, the term "Asset
Sale" shall not include any transfer of properties and assets (A) that is
governed by Article Eight, (B) that is by the Company to any Guarantor, or
by any Subsidiary to the Company or any Wholly Owned Subsidiary in
accordance with the terms of this Indenture, (C) that is of obsolete
equipment in the ordinary course of business, (D) the sale by the Company
of its mill and related operations located in Milford, New Jersey, (E) the
sale by the Company of timber properties (other than in a Timber Asset
Swap) in an aggregate principal amount of up to $10 million during the term
of the Indenture, (F) in addition to the items described in clauses (A)
through (E), assets, the Fair Market Value of which in the aggregate during
the term of this Indenture, for all transfers, does not exceed $40 million,
or (G) in the Spin-Off Settlement pursuant to the terms of the Spin-Off
Settlement Agreement.
Section 3. Section 101 of the Indenture is hereby further amended by
adding the following defined terms in the proper alphabetical order:
"Fort James Entities" means Fort James Corporation (successor by merger to
James River Corporation), Fort James Operating Company, Fort James Fiber
Company and Fort James International Holdings, Ltd.
"Holdings PIK Notes" means the 11.45% Senior Pay-in-Kind Notes due 2007
issued by Holdings.
"Spin-Off Settlement" means the transactions contemplated by Sections 2.2
through 2.9, inclusive, of the Spin-Off Settlement Agreement.
<PAGE>
3
"Spin-Off Settlement Agreement" means the Option and Settlement Agreement
dated as of March 18, 1998 among the Fort James Entities, Holdings and the
Company.
Section 4. For all purposes of this Second Supplemental Indenture,
except as otherwise herein expressly provided or unless the context otherwise
requires: (i) the terms and expressions used herein shall have the same
meanings as corresponding terms and expressions used in the Indenture; and (ii)
the words "herein", "hereof" and "hereby" and other words of similar import used
in this Second Supplemental Indenture refer to this Second Supplemental
Indenture as a whole and not to any particular Section hereof.
Section 5. The Trustee accepts this Second Supplemental Indenture and
the amendment of the Indenture effected thereby and agrees to execute the trust
created by the Indenture as hereby amended, but only upon the terms and
conditions set forth in the Indenture, including the terms and provisions
defining and limiting the liabilities and responsibilities of the Trustee, which
terms and provisions shall in like manner define and limit its liabilities in
the performance of the trust created by the Indenture as hereby amended.
Section 6. Except as hereby expressly amended, the Indenture and the
Securities issued thereunder are in all respects ratified and confirmed and all
the terms, conditions and provisions thereof shall remain in full force and
effect.
Section 7. This Second Supplemental Indenture shall form a part of
the Indenture for all purposes, and every holder of Securities heretofore or
hereafter authenticated and delivered shall be bound hereby.
Section 8. This Second Supplemental Indenture may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original, and all of such counterparts shall together constitute one and the
same instrument.
<PAGE>
4
Section 9. This Second Supplemental Indenture shall be construed in
accordance with and governed by the laws of the State of New York (without
giving effect to the conflict of laws principles thereof).
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed, all as of the day and year first
above written.
CROWN PAPER CO.
By: /s/ Christopher M. McLain
---------------------------------------
Name: Christopher M. McLain
Title: Senior Vice President
THE BANK OF NEW YORK, as Trustee
By: /s/ Thomas C. Knight
---------------------------------------
Name: Thomas C. Knight
Title: Assistant Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<CASH> 9,806
<SECURITIES> 0
<RECEIVABLES> 41,522
<ALLOWANCES> 500
<INVENTORY> 102,397
<CURRENT-ASSETS> 171,773
<PP&E> 1,190,094
<DEPRECIATION> 756,019
<TOTAL-ASSETS> 700,045
<CURRENT-LIABILITIES> 117,184
<BONDS> 459,249
0
0
<COMMON> 137,751
<OTHER-SE> (164,877)
<TOTAL-LIABILITY-AND-EQUITY> 700,045
<SALES> 850,994
<TOTAL-REVENUES> 850,994
<CGS> 796,935
<TOTAL-COSTS> 796,935
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,102
<INCOME-PRETAX> (219,607)
<INCOME-TAX> (73,534)
<INCOME-CONTINUING> (146,073)
<DISCONTINUED> 0
<EXTRAORDINARY> 4,964
<CHANGES> 0
<NET-INCOME> (141,109)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
