-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EOVVuZfqsSmhskgnG5E5Trk6U31MuhtXm/SzTiSuYgoLQuLBbloQ3OhqcFyxwrpL mPbJZtYMdA0IMnM12/cHnA== 0000950123-98-006763.txt : 19980723 0000950123-98-006763.hdr.sgml : 19980723 ACCESSION NUMBER: 0000950123-98-006763 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19980721 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLAINWELL INC CENTRAL INDEX KEY: 0001058581 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 383391489 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-51857 FILM NUMBER: 98669097 BUSINESS ADDRESS: STREET 1: 200 ALLEGAN ST CITY: PLAINWELL STATE: MI ZIP: 49080 BUSINESS PHONE: 6166855851 MAIL ADDRESS: STREET 1: 200 ALLEGAN ST CITY: PLAINWELL STATE: MI ZIP: 49080 S-4/A 1 AMENDMENT NO. 1 TO FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1998 REGISTRATION NO. 333-51857 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ PLAINWELL INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 2621 38-3391489 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
200 ALLEGAN STREET PLAINWELL, MICHIGAN 49080 TELEPHONE: (616) 685-8500 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ WILLIAM L. NEW 200 ALLEGAN STREET PLAINWELL, MICHIGAN 49080 TELEPHONE: (616) 685-2500 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPY TO: LANCE C. BALK KIRKLAND & ELLIS 153 EAST 53RD STREET NEW YORK, NEW YORK 10022-4675 TELEPHONE: (212) 446-4800 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] ------------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Proposed Proposed Amount Maximum Maximum Amount of Title of Each Class of Securities to be Offering Price Aggregate Registration to be Registered Registered Per Unit(1) Offering Price(1) Fee(2) - --------------------------------------------------------------------------------------------------------------------------- PLAINWELL INC.'s 11% Senior Subordinated Notes due 2008........................... $130,000,000 $1,000 $130,000,000 $38,350 - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
* Not Applicable. (1) Estimated solely for the purpose of calculating the registration fee. (2) Registration fee previously paid. ---------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JULY 21, 1998 PROSPECTUS [PLAINWELL INC. LOGO] PLAINWELL INC. OFFER TO EXCHANGE ITS SERIES B 11% SENIOR SUBORDINATED NOTES DUE 2008 FOR ANY AND ALL OF ITS OUTSTANDING SERIES A 11% SENIOR SUBORDINATED NOTES DUE 2008 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED. PLAINWELL INC., a Delaware corporation ("Plainwell" or the "Company"), hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount of its Series B 11% Senior Subordinated Notes due 2008 (the "Exchange Notes"), which will have been registered under the Securities Act of 1933, as amended (the "Securities Act") pursuant to a Registration Statement of which this Prospectus is a part, for each $1,000 principal amount of its outstanding Series A 11% Senior Subordinated Notes due 2008 (the "Notes"), of which $130,000,000 principal amount is outstanding. The form and terms of the Exchange Notes are the same as the form and term of the Notes (which they replace) except that the Exchange Notes will bear a Series B designation and will have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not contain certain provisions relating to an increase in the interest rate which were included in the terms of the Notes in certain circumstances relating to the timing of the Exchange Offer. The Exchange Notes will evidence the same debt as the Notes (which they replace) and will be issued under and be entitled to the benefits of the Indenture dated March 6, 1998 between Plainwell and United States Trust Company of New York (the "Indenture") governing the Notes. See "The Exchange Offer" and "Description of Exchange Notes." Plainwell has not issued, and does not have any current firm arrangements to issue, any indebtedness to which the Exchange Notes would rank senior or pari passu in right of payment. The Exchange Notes will be general unsecured obligations of the Company and will be subordinate in right of payment to all future Senior Debt (as defined herein) and will be senior or pari passu in right of payment to all future subordinated indebtedness of the Company. As of March 31, 1998, which includes the effect of the Transactions (as defined), the amount of the Company's outstanding Senior Debt was $27.8 million. Plainwell will accept for exchange any and all Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless extended by Plainwell in its sole discretion (the "Expiration Date"). Notwithstanding the foregoing, Plainwell will not extend the Expiration Date beyond , 1998. Tenders of Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain customary conditions. The Notes were sold by Plainwell on March 6, 1998 to the Initial Purchasers (as defined) in a transaction not registered under the Securities Act in reliance upon an exemption under the Securities Act. The Initial Purchasers subsequently placed the Notes with qualified institutional buyers in reliance upon Rule 144A under the Securities Act and with a limited number of institutional accredited investors that agreed to comply with certain transfer restrictions and other conditions. Accordingly, the Notes may not be reoffered, resold or otherwise transferred in the United States unless registered under the Securities Act or unless an applicable exemption from the registration requirements of the Securities Act is available. The Exchange Notes are being offered hereunder in order to satisfy the obligations of Plainwell under the Exchange and Registration Rights Agreement entered into by Plainwell in connection with the offering of the Notes. See "The Exchange Offer." With respect to resales of Exchange Notes, based on interpretations by the staff of the Securities and Exchange Commission (the "Commission") set forth in no-action letters issued to third parties, Plainwell believes the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of Plainwell within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. See "The Exchange Offer -- Purpose and Effect of the Exchange Offer" and "The Exchange Offer -- Resales of the Exchange Notes." Each broker-dealer (a "Participating Broker-Dealer") that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. Plainwell has agreed that, for a period of up to one year from the consummation of the Exchange Offer, it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." If any holder of Notes is an affiliate of the Company, is engaged in or intends to engage in or has any arrangement or understanding with any person to participate in the distribution of the Exchange Notes to be acquired in the Exchange Offer, such holder (i) cannot rely on the applicable interpretations of the Commission and (ii) must comply with the registration requirements of the Securities Act in connection with any resale transaction. Holders of Notes not tendered and accepted in the Exchange Offer will continue to hold such Notes and will be entitled to all the rights and benefits and will be subject to the limitations applicable thereto under the Indenture and with respect to transfer under the Securities Act. Plainwell will pay all the expenses incurred by it incident to the Exchange Offer. See "The Exchange Offer." ------------------------------ SEE "RISK FACTORS" ON PAGE 17 FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE OFFER. ------------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1998. 3 There has not previously been any public market for the Notes or the Exchange Notes. Plainwell does not intend to list the Exchange Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance that an active market for the Exchange Notes will develop. See "Risk Factors -- Absence of Public Market." Moreover, to the extent that Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Notes could be adversely affected. The Exchange Notes will be available initially only in book-entry form. Plainwell expects that the Exchange Notes issued pursuant to this Exchange Offer will be issued in the form of a Global Certificate (as defined), which will be deposited with, or on behalf of, The Depository Trust Company (the "Depositary") and registered in its name or in the name of Cede & Co., its nominee. Beneficial interests in the Global Certificate representing the Exchange Notes will be shown on, and transfers thereof to qualified institutional buyers will be effected through, records maintained by the Depositary and its participants. After the initial issuance of the Global Certificate, Exchange Notes in certified form will be issued in exchange for the Global Certificate only on the terms set forth in the Indenture. See "Description of Exchange Notes." AVAILABLE INFORMATION Plainwell has filed with the Commission a Registration Statement on Form S-4 (the "Exchange Offer Registration Statement," which term shall encompass all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the Exchange Notes being offered hereby. This Prospectus includes a discussion of all material elements of the Exchange Offer Registration Statement, but does not contain all of the information set forth therein. For further information with respect to Plainwell and the Exchange Offer, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Exchange Offer Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Exchange Offer Registration Statement, including the exhibits thereto, can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549, at the Regional Offices of the Commission at 7 World Trade Center, Suite 1300, New York, NY 10048 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, DC 20549, at prescribed rates. Additionally, the Commission maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including the Company. As a result of the filing of the Exchange Offer Registration Statement with the Commission, Plainwell will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will be required to file periodic reports and other information with the Commission. The obligation of Plainwell to file periodic reports and other information with the Commission will be suspended if the Exchange Notes are held of record by fewer than 300 holders as of the beginning of any fiscal year of Plainwell other than the fiscal year in which the Exchange Offer Registration Statement is declared effective. Plainwell will nevertheless be required to continue to file reports with the Commission if the Exchange Notes are listed on a national securities exchange. In the event Plainwell ceases to be subject to the informational requirements of the Exchange Act, Plainwell will be required under the Indenture to continue to file with the Commission the annual and quarterly reports, information, documents or other reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K, which would be required pursuant to the informational requirements of the Exchange Act. Under the Indenture, Plainwell shall file with the Trustee such annual, quarterly and other reports. Further, to the extent that annual, quarterly or other financial reports are furnished by Plainwell to stockholders generally it will mail such reports to holders of Exchange Notes. Plainwell will furnish annual and quarterly financial reports to stockholders of Plainwell and will mail such reports to holders of Exchange Notes pursuant to the Indenture, i 4 thus holders of Exchange Notes will receive financial reports every quarter. Annual reports delivered to the Trustee and the holders of Exchange Notes will contain financial information that has been examined and reported upon, with an opinion expressed by an independent public or certified public accountant. Plainwell will also furnish such other reports as may be required by law. FORWARD LOOKING STATEMENTS THE PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY, INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "UNAUDITED PRO FORMA FINANCIAL INFORMATION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL OF THESE FORWARD LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY THE MANAGEMENT OF THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES WILL BE REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2) INCREASED COSTS; (3) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4) INCREASES IN THE COMPANY'S COST OF BORROWING OR INABILITY OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL; (5) ADVERSE STATE OR FEDERAL LEGISLATION OR REGULATION OR ADVERSE DETERMINATIONS IN PENDING LITIGATION; AND (6) CHANGES IN GENERAL ECONOMIC CONDITIONS AND/OR IN THE MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME, COMPETE. MANY OF SUCH FACTORS ARE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. FOR FURTHER, INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK FACTORS." ii 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements, including the notes thereto, contained elsewhere in this Prospectus. References in this Prospectus to "Consumer Products Division" refer to the tissue business of Plainwell acquired from Pope & Talbot, Inc. and Pope & Talbot, Wis., Inc. (collectively, "Pope & Talbot"). References to "Specialty Paper Division" refer to the specialty paper business of Plainwell, formerly known as Plainwell Paper Company. References to the "Company" refer to Plainwell immediately following the consummation of the Transactions (as defined). References to 1993, 1994, 1995, 1996 and 1997 with respect to financial information for the Specialty Paper Division refer to the fiscal year ending on the Sunday closest to December 31 for such year. THE COMPANY The Company is a leading U.S. producer and marketer of value-added paper products for niche markets within the paper industry. The Company conducts its business through two divisions: (i) the Consumer Products Division, which produces private label consumer tissue products such as bath tissue, paper towels, napkins and facial tissue, and (ii) the Specialty Paper Division, which produces premium coated and uncoated printing papers and release and other technical/specialty papers. The Company has established leading market positions in certain of these niche markets by combining high quality products, broad product offerings, strong customer service, efficient manufacturing and the significant use of recycled materials. In addition, the Company believes that operating in different niche markets provides the Company with a larger, more diversified income stream. The Company's pro forma net sales, pro forma EBITDA and pro forma income (loss) before extraordinary item were $222.9 million, $30.9 million and $1.8 million, respectively, for the year ended December 31, 1997 and $53.1 million, $4.1 million and $(1.9) million, respectively, for the three months ended March 31, 1998. Pro forma for the same periods, the Consumer Products Division contributed 61.1% and 62.3%, respectively, of net sales, and the Specialty Paper Division contributed 38.9% and 32.7%, respectively of net sales of the Company. CONSUMER PRODUCTS DIVISION The Consumer Products Division manufactures and markets a broad line of consumer tissue products, with an estimated 21% share of the U.S. private label consumer tissue market. Its products include bath tissue, paper towels, napkins and facial tissue which range from economy to premium quality grades, including premium quality paper towels and napkins with embossing and colored prints in a variety of designs. Its product assortment is designed for the private label consumer market. The Company believes that the private label tissue market will continue to be an attractive niche market because of: (i) increased recognition by consumers that private label tissue products offer quality at value prices; (ii) increased emphasis by retailers who generally receive higher margins on private label tissue products than on their nationally branded counterparts; and (iii) the growth of mass merchandisers and wholesale clubs which have traditionally emphasized private label tissue products. The Consumer Products Division has well established relationships with its customer base and serves as a major private label tissue supplier to many of its customers. The division sells its products to customers located throughout the U.S., with a concentration near its manufacturing facilities in the Midwest and Northeast. Its customers include: (i) mass merchandisers such as Kmart Corporation and Wal-Mart Stores, Inc.; (ii) warehouse clubs such as B.J. Wholesale Club; (iii) supermarkets that operate under the names A&P, Giant, Tops Markets and Stop & Shop; and (iv) other retailers and wholesalers. The Company believes that the Consumer Products Division is currently the only private label tissue supplier to its customers that utilizes an integrated computer-based customer service system. Since 1992, the Consumer Products Division has invested approximately $10 million to develop and implement its customer service system, which includes Electronic Data Interchange ("EDI") and Vendor Managed Inventory ("VMI") technologies. By providing the division's sales force and customer service representatives with real-time information on customers, orders, shipments and inventory status, the system has enabled the division to 1 6 monitor and replenish customer inventories, provide information on category activity and shelf space profitability and to offer just-in-time order delivery to its top customers. The Company believes that its system provides a significant competitive advantage and has been an important factor in increasing sales to mass merchandisers and wholesale clubs from approximately 4,268 tons in 1993 to approximately 29,800 tons for 1997. By focusing on these larger accounts, which generally involve higher volume transactions and fewer Stock Keeping Units ("SKUs"), the Consumer Products Division is able to improve overall efficiency through longer production runs and reduced inventory. The Consumer Products Division owns and operates two fully-integrated tissue manufacturing and converting facilities located in Eau Claire, Wisconsin and Ransom, Pennsylvania with converting and distributing facilities for the Ransom facility located in nearby Pittston, Pennsylvania (collectively, the "Consumer Products Facilities"). The Consumer Products Facilities are strategically located in proximity to the retail distribution centers of the Consumer Product Division's largest customers, which enables just-in-time delivery while reducing transportation costs. The Consumer Products Division uses primarily recycled fiber as the raw material for its tissue products. The Consumer Products Division has recently generated significant improvement in its operating performance. In 1997, net sales and EBITDA were $136.2 million and $20.7 million, respectively, as compared to $104.9 million and a $6.8 million loss, respectively, for 1994. The Company believes this improvement was primarily due to the approximately $50 million of capital investment over the last five years, used primarily to strategically reposition the division. Important elements of the strategic repositioning included the upgrade of existing facilities, including a new pulping and de-inking operation at the Eau Claire, Wisconsin facility, the construction of the Pittston, Pennsylvania converting facility and the development and implementation of the integrated computer-based customer service system. Such capital expenditures have enabled the Company to: (i) produce a brighter, softer pulp which has improved finished product quality and allowed the Company to command higher prices for its products; (ii) increase sales of higher margin, premium tissue products such as two-ply bath tissue and paper towels; (iii) improve its level of customer service; (iv) increase sales to mass merchandisers and wholesale clubs; and (v) increase productivity and realize manufacturing efficiencies. As a result of these improvements, the net selling price per ton realized by the division increased 23.7% from 1994 to 1997. During the same period, market tissue prices, as measured by the U.S. Bureau of Labor Statistics, increased by 10.8%. In addition, to address the Ransom, Pennsylvania facility's historically high labor cost structure, the Company implemented a labor contract in 1995 which resulted in an eight-month strike. The strike was resolved in December 1995 and a new labor agreement was adopted, resulting in increased workforce flexibility and reduced labor costs. The Company believes that the strategic repositioning of the division has resulted in significant improvement in the Consumer Products Division's operating performance and positions the division to pursue future growth opportunities. SPECIALTY PAPER DIVISION The Specialty Paper Division produces and supplies premium coated and uncoated printing papers and release and other technical/specialty papers throughout the U.S. to end users which require high quality and high performance paper. Premium printing papers are used for corporate annual reports, high-end advertising brochures, magazines and catalogs, coffee table books, menus and high quality, full color desktop publishing. Customers of such products include paper merchants which market such products to graphic designers and specialty and commercial printers. Release and other technical/specialty papers include base papers which are silicone coated by the division's customers and used as a protective layer or backing paper for pressure sensitive applications. Applications include release papers for self-adhesive postage stamps, mailing labels, bar code labels, and labels for retail food packages. Release papers are also increasingly being used to protect industrial adhesives used as fastening systems for certain automotive trim and aircraft assembly applications as well as for the manufacture of sound, thermal and electrical insulating materials. Because release and other technical/specialty paper specifications vary depending upon their end use, the division's sales force, specialized technical service staff and research and development team work closely with customers to customize and develop products to meet their specific needs. 2 7 The Specialty Paper Division owns and operates a paper mill and converting plant for the production of specialty paper in Plainwell, Michigan (the "Plainwell Mill"). The Plainwell Mill is strategically located to serve the major printing centers of Chicago and New York. The Specialty Paper Division uses a combination of technologies to produce high recycled content paper which the Company believes is comparable to virgin fiber content paper in appearance, performance and selling price. The Plainwell Mill is able to blend a broad range of fibers, including a high percentage of generally lower cost recycled fibers, into a base sheet which is then coated using a rod coating technology. The Company believes that this technology and its capability to produce high quality recycled content papers provide the Company with significant cost savings and marketing advantages. In addition, the Plainwell Mill is configured to handle frequent paper grade changes. As a result of such manufacturing flexibility, the Company believes that the division is well positioned to produce a wide range of paper products that meet the product requirements of many end users in the premium printing paper and release and other technical/specialty paper niche markets. The Specialty Paper Division was purchased from Simpson Paper Company ("Simpson") in June 1997 by an investor group led by William L. New, the Company's Chairman, Chief Executive Officer and President, together with affiliates of 399 Venture Partners, Inc. The investor group believed that the Specialty Paper Division represented an attractive investment opportunity based on: (i) the quality and condition of the manufacturing assets which resulted from the substantial capital expenditures made by the division's previous owners; (ii) the investor group's knowledge of the plant and its operations; (iii) the historical profitability of the business; (iv) the division's reputation as a leader in the premium printing paper and release and other technical/specialty paper niche markets; (v) the division's technical expertise; and (vi) the opportunity to increase profitability of underutilized assets through more focused management. In anticipation of the pending sale of the division, beginning in 1996, Simpson began to implement the investor group's initiatives to increase profitability of the division by: (i) reducing headcount; (ii) reducing fiber costs by using a higher percentage of recycled fiber; (iii) reviewing and reducing other operating costs; and (iv) increasing production and capacity utilization. BUSINESS STRATEGY The Company's business strategy is to increase revenues and profitability in its Consumer Products Division and Specialty Paper Division. The Company intends to implement its strategy by: (i) capitalizing on attractive niche markets; (ii) fully utilizing existing capacity; (iii) increasing sales of higher margin products; (iv) enhancing its high level of customer service; (v) reducing costs and increasing operating efficiencies; and (vi) pursuing strategic acquisitions. 3 8 THE TRANSACTIONS Pursuant to an agreement dated as of January 22, 1998 among Pope & Talbot, Inc., Pope & Talbot, Wis., Inc., the Company's parent, Plainwell Holding Company ("Holdings"), and the Company (the "Acquisition Agreement"), Plainwell purchased substantially all of the assets, properties and rights and assumed certain related liabilities of the tissue business of Pope & Talbot (the "Acquisition" and, together with the Offering (as defined herein), the use of proceeds thereof, the Contributions (as defined herein) and the Merger (as defined herein), the "Transactions"). Pope & Talbot received, as part of the consideration for the Acquisition, $121.0 million in cash, subject to adjustments for working capital, and the Company assumed $18.8 million of indebtedness in the form of the Eau Claire IRBs (as defined herein) and assumed certain other liabilities. In connection with the financing of the Acquisition, 399 Venture Partners, Inc. ("399 Venture Partners") and its affiliates, and certain members of the management of the Consumer Products Division and the Specialty Paper Division (the "Management Stockholders") purchased common stock and preferred stock of Holdings for an aggregate purchase price of approximately $25.0 million. Holdings contributed the full amount of such equity investment to the Company (the "Contributions"). In conjunction with the Acquisition, the Company entered into an agreement with Pope & Talbot, Inc. pursuant to which Pope & Talbot, Inc. agreed to provide certain transition services to the Company for a period of up to 18 months after the closing of the Acquisition. In connection with the offering of the Notes (the "Offering"), Plainwell Paper Company merged with and into the Company and its business operates as the Specialty Paper Division (the "Merger"). In June 1997, Holdings consummated the acquisition of the Specialty Paper Division for $32.5 million by acquiring (i) 100% of the common stock of Plainwell Paper Company from Simpson for $22.7 million and (ii) substantially all of the inventory of Plainwell Paper Company from Simpson for $9.8 million (the "1997 Acquisition"). In addition, Holdings assumed certain liabilities of Plainwell Paper Company. Of the aggregate purchase price, $4.0 million was paid by Holdings by issuing $4.0 million of its Series A Preferred Stock to Simpson and $1.8 million was paid during the first quarter of 1998. In conjunction with the 1997 Acquisition, an affiliate of 399 Venture Partners (Citicorp Venture Capital, Ltd.), certain members of management of the Specialty Paper Division, and certain other investors made an equity investment in the Specialty Paper Division by purchasing shares of common stock, shares of preferred stock and warrants to purchase common stock of Holdings pursuant to the terms and conditions of various securities purchase agreements. 4 9 The following diagram sets forth an overview of the Acquisition and the Merger: [diagram] - --------------- 1. Plainwell purchased substantially all of the assets, properties and rights and assumed certain related liabilities of the tissue business of Pope & Talbot. 2. Plainwell Paper Company merged with and into the Company. ------------------------ The Company is a Delaware corporation. The Company's principal offices are located at 200 Allegan Street, Plainwell, Michigan 49080, and its telephone number is (616) 685-2500. 5 10 THE OFFERING NOTES.................. The Notes were sold by the Company on March 6, 1998 to Bear, Stearns & Co. Inc. and Salomon Brothers Inc (the "Initial Purchasers") pursuant to a Purchase Agreement dated March 3, 1998 (the "Purchase Agreement"). The Initial Purchasers subsequently resold the Notes to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to a limited number of institutional accredited investors that agreed to comply with certain transfer restrictions and other conditions. EXCHANGE AND REGISTRATION RIGHTS AGREEMENT............ Pursuant to the Purchase Agreement, the Company and the Initial Purchasers entered into an Exchange and Registration Rights Agreement dated March 6, 1998, which grants the holder of the Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such exchange rights which terminate upon the consummation of the Exchange Offer. THE EXCHANGE OFFER SECURITIES OFFERED..... $130,000,000 aggregate principal amount of Series B 11% Senior Subordinated Notes due 2008. THE EXCHANGE OFFER..... $1,000 principal amount of the Exchange Notes in exchange for each $1,000 principal amount of Notes. As of the date hereof, $130,000,000 aggregate principal amount of Notes are outstanding. The Company will issue the Exchange Notes to holders on or promptly after the Expiration Date. Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and that such holder does not intend to participate and has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. Each Participating Broker-Dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of up to one year from the consummation of the Exchange Offer, it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes could 6 11 not rely on the position of the staff of the Commission enunciated in no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Failure to comply with such requirements in such instance may result in such holder incurring liability under the Securities Act for which the holder is not indemnified by the Company. The exchange of Notes for Exchange Notes pursuant to the Exchange Offer will not be treated as an "exchange" for federal income tax purposes. See "Certain Material Federal Income Tax Consequences." EXPIRATION DATE........ 5:00 p.m., New York City time, on , 1998 unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. ACCRUED INTEREST ON THE EXCHANGE NOTES AND THE NOTES............ Each Exchange Note will bear interest from its issuance date. Holders of Notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the issuance date of the Exchange Notes. Such interest will be paid with the first interest payment on the Exchange Notes. Interest on the Notes accepted for exchange will cease to accrue upon issuance of the Exchange Notes. CONDITIONS TO THE EXCHANGE OFFER....... The Exchange Offer is subject to certain customary conditions, which may be waived by the Company. See "The Exchange Offer -- Conditions." PROCEDURES FOR TENDERING NOTES...... Each holder of Notes wishing to accept the Exchange Offer must complete, sign and date the accompanying Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Notes and any other required documentation to the Exchange Agent (as defined) at the address set forth herein. By executing the Letter of Transmittal, each holder will represent to the Company that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, that neither the holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company. See "The Exchange Offer -- Purpose and Effect of the Exchange Offer" and "-- Procedures for Tendering." UNTENDERED NOTES....... Following the consummation of the Exchange Offer, holders of Notes eligible to participate but who do not tender their Notes will not have any further exchange rights and such Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Notes could be adversely affected. CONSEQUENCES OF FAILURE TO EXCHANGE.......... The Notes that are not exchanged pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Notes may be resold only: (i) to the Company; (ii) pursuant to Rule 144A or Rule 144 under the Securities Act or pursuant to some other exemption under the Securities Act; (iii) outside the United States to a foreign person pursuant to the requirements of Rule 904 under 7 12 the Securities Act; or (iv) pursuant to an effective registration statement under the Securities Act. See "The Exchange Offer -- Consequences of Failure to Exchange." SHELF REGISTRATION STATEMENT............ If any holder of the Notes (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) is not eligible under applicable securities laws to participate in the Exchange Offer, and such holder has provided information regarding such holder and the distribution of such holder's Notes to the Company for use therein, the Company has agreed to register the Notes on a shelf registration statement (the "Shelf Registration Statement") and use its best efforts to cause it to be declared effective by the Commission as promptly as practicable on or after the consummation of the Exchange Offer. The Company has agreed to maintain the continuous effectiveness of the Shelf Registration Statement for, under certain circumstances, a maximum of two years, to cover resales of the Notes held by any such holders. SPECIAL PROCEDURES FOR BENEFICIAL OWNERS.... Any beneficial owner whose Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering its Notes, either make appropriate arrangements to register ownership of the Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. The Company will keep the Exchange Offer open for not less than twenty days in order to provide for the transfer of registered ownership. GUARANTEED DELIVERY PROCEDURES........... Holders of Notes who wish to tender their Notes and whose Notes are not immediately available or who cannot deliver their Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent (or comply with the procedures for book-entry transfer) prior to the Expiration Date must tender their Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." WITHDRAWAL RIGHTS...... Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. ACCEPTANCE OF NOTES AND DELIVERY OF EXCHANGE NOTES................ The Company will accept for exchange any and all Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer." USE OF PROCEEDS........ There will be no cash proceeds to the Company from the exchange pursuant to the Exchange Offer. Substantially all of the net proceeds from the Offering as of March 6, 1998 were used to finance the Acquisition and to repay certain indebtedness. See "Use of Proceeds." EXCHANGE AGENT......... United States Trust Company of New York 8 13 THE EXCHANGE NOTES GENERAL................ The form and terms of the Exchange Notes are the same as the form and terms of the Notes (which they replace) except that: (i) the Exchange Notes bear a Series B designation; (ii) the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof; and (iii) the holders of Exchange Notes will not be entitled to certain rights under the Exchange and Registration Rights Agreement, including the provisions providing for an increase in the interest rate on the Notes in certain circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. See "The Exchange Offer -- Purpose and Effect of the Exchange Offer." The Exchange Notes will evidence the same debt as the Notes and will be entitled to the benefits of the Indenture. See "Description of Exchange Notes." The Notes and the Exchange Notes are referred to herein collectively as the "Senior Subordinated Notes." SECURITIES OFFERED..... $130,000,000 aggregate principal amount of Series B 11% Senior Subordinated Notes due 2008 of the Company. MATURITY DATE.......... March 1, 2008. INTEREST PAYMENT DATES................ March 1 and September 1, commencing September 1, 1998. EVENTS OF DEFAULT...... The Indenture under which the Exchange Notes will be issued provides that each of the following, should they occur, constitutes an Event of Default thereunder: Such events include the following: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages, if any, with respect to, the Senior Subordinated Notes (whether or not prohibited by the subordination provisions of the Indenture), (ii) default in payment when due of the principal of or premium, if any, on the Senior Subordinated Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company to comply with the provisions described under the captions "-- Repurchase at the Option of Holders -- Change of Control" or "-- Asset Sales" or "-- Certain Covenants -- Merger, Consolidation or Sale of Assets;" (iv) failure by the Company for 30 days after written notice by the Trustee or the Holders of at least 25% in principal amount of the then outstanding Senior Subordinated Notes to comply with any of its other agreements in the Indenture or the Senior Subordinated Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists or is created after the Closing Date, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vi) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million and either (a) any creditor commences enforcement proceedings upon any such judgment or (b) such judgments are not paid, fully bonded (by a financially responsible institution regularly engaged in the issuance of security bonds) discharged or stayed within a period of 45 days; (vii) except as permitted 9 14 by the Indenture, any guarantee of the Senior Subordinated Notes shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Restricted Subsidiary, or any Person acting on behalf of any Restricted Subsidiary, shall deny or disaffirm its obligations under its guarantee; and (viii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries. See "Description of Exchange Notes -- Events of Default." OPTIONAL REDEMPTION.... Except as set forth below, the Exchange Notes will not be redeemable at the option of the Company prior to March 1, 2003. Thereafter, the Exchange Notes will be subject to redemption, at the option of the Company, in whole or in part, at the redemption prices set forth herein plus accrued and unpaid interest and Liquidated Damages, if any, to the applicable redemption date. Notwithstanding the foregoing, at any time prior to March 1, 2001, the Company may redeem up to 35% of the Senior Subordinated Notes at a redemption price of 111% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of a Public Offering (as defined herein); provided that at least 65% in aggregate principal amount of the Senior Subordinated Notes originally issued under the Indenture remain outstanding immediately after the occurrence of such redemption; and provided further, that such redemption shall occur within 60 days following the date of the consummation of each such Public Offering. See "Description of Exchange Notes -- Optional Redemption." CHANGE OF CONTROL...... Upon the occurrence of a Change of Control at any time, the Company will be obligated to make an offer to repurchase each Holder's Exchange Notes at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and the board of directors of the Company may not waive such obligation. The New Credit Facility prohibits, and future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may prohibit, the Company from purchasing any Senior Subordinated Notes following a Change of Control and/or provide that certain change of control events with respect to the Company would constitute a default thereunder. There can be no assurance that the Company will have the financial resources to repurchase the Exchange Notes upon a Change of Control. See "Description of Exchange Notes -- Repurchase at the Option of Holders -- Change of Control; -- Events of Default and Remedies." RANKING................ The Exchange Notes will be general unsecured obligations of the Company and will be subordinate in right of payment to all existing and future Senior Debt, and will be senior or pari passu in right of payment to all future subordinated indebtedness of the Company. The Company has not issued, and does not have any current firm arrangements to issue, any indebtedness to which the Exchange Notes would rank senior or pari passu in right of payment. As of March 31, 1998, which includes the effect of the Transactions, the amount of the Company's outstanding Senior Debt was $27.8 million. RESTRICTIVE COVENANTS.............. The indenture pursuant to which the Exchange Notes will be issued (the "Indenture") contains certain covenants that, among other things, limit the ability of the Company to incur additional indebtedness, issue preferred stock, pay dividends or make other distributions, repurchase Equity Interests (as defined herein), repay subordinated indebtedness or make other Restricted Payments (as defined herein), create certain liens, enter into certain transactions with affiliates, sell assets, issue or sell Equity Interests of the Company's Restricted Subsidiaries 10 15 (as defined herein) or enter into certain mergers and consolidations. See "Description of Exchange Notes -- Certain Covenants." For additional information regarding the Exchange Notes, see "Description of Exchange Notes." RISK FACTORS Holders of Notes should carefully consider all of the information set forth in this Prospectus and, in particular, should evaluate the specific factors under "Risk Factors" as well as the other information and data included in this Prospectus prior to tendering their Notes in the Exchange Offer. 11 16 PLAINWELL INC. SUMMARY UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA (DOLLARS IN THOUSANDS) The following table sets forth summary unaudited pro forma financial data of the Company for the year ended December 31, 1997 and the three months ended March 31, 1998. The summary unaudited pro forma statement of operations data give effect to the Transactions as if they had occurred on January 1, 1997. The information contained in the following table should also be read in conjunction with "Capitalization," "Unaudited Pro Forma Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the historical financial statements, including the notes thereto, contained elsewhere in this Prospectus.
YEAR ENDED THREE MONTHS DECEMBER 31, ENDED MARCH 31, 1997 1998 ------------ --------------- STATEMENT OF OPERATIONS DATA: Net sales................................................... $222,892 $ 53,139 Cost of sales............................................... 188,604 47,416 -------- -------- Gross profit................................................ 34,288 5,723 Selling, general and administrative expenses................ 15,020 4,727 -------- -------- Operating income............................................ 19,268 996 Interest expense............................................ 15,957 3,941 -------- -------- Income (loss) before income taxes and extraordinary item.... 3,311 (2,945) Income tax provision (benefit).............................. 1,483 (1,011) -------- -------- Income (loss) before extraordinary item..................... $ 1,828 $ (1,934) ======== ======== OTHER DATA: Pro forma EBITDA (1)........................................ $ 30,896 $ 4,059 Capital expenditures........................................ 4,366 676 Depreciation and amortization............................... 11,628 3,063 Ratio of earnings to fixed charges(2)....................... 1.2x 0.3x
- ------------------------------ (1) Pro forma EBITDA represents pro forma operating income plus pro forma depreciation and amortization. The Company has included information concerning EBITDA because management believes that EBITDA is generally accepted as providing useful information regarding a company's ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows or other income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. The Company understands that, while EBITDA is frequently used by securities analysts in the evaluation of companies, EBITDA, as used herein, is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. EBITDA is not intended as an alternative to cash flow from operating activities as a measure of liquidity, as an alternative to net income as an indicator of the Company's operating performance or an alternative to any other measure of performance in conformity with generally accepted accounting principles. (2) For purposes of computing this ratio, earnings consist of income before income taxes and extraordinary item plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing costs and one-third of the rent expense from operating leases, which management believes is a reasonable approximation of the interest factor of the rent. 12 17 THE COMPANY AND SPECIALTY PAPER DIVISION SUMMARY HISTORICAL FINANCIAL AND OTHER DATA (DOLLARS IN THOUSANDS, EXCEPT PER TON AMOUNTS) The following table sets forth summary historical financial and other data of the Specialty Paper Division -- Predecessor as of and for each of the fiscal years in the four-year period ended December 29, 1996 and the period from December 30, 1996 through June 16, 1997, and the three months ended March 31, 1997, of the Specialty Paper Division -- Successor as of and for the period from June 17, 1997 through December 31, 1997, and of the Company as of and for the three months ended March 31, 1998. On March 6, 1998, pursuant to the Acquisition Agreement date January 22, 1998, the Specialty Paper Division was merged with PLAINWELL INC. and PLAINWELL INC. purchased the Consumer Products Division. The historical financial statements of the Specialty Paper Division are presented as the historical financial statements of the Company and the results of operations of the Consumer Products Division are included in the financial statements of the Company beginning on the acquisition date. The summary historical financial and other data, with the exception of tons sold and average selling price per ton, as of and for the years ended December 31, 1995 and December 29, 1996, the period from December 30, 1996 through June 16, 1997 and the period from June 17, 1997 through December 31, 1997 have been derived from the financial statements of the Specialty Paper Division, contained elsewhere herein, which have been audited by Ernst & Young LLP, independent auditors. The summary historical financial and other data, with the exception of tons sold and average selling price per ton, as of and for the years ended December 31, 1993 and December 31, 1994 have been derived from the unaudited financial statements of the Specialty Paper Division. The summary historical financial and other data, with the exception of tons sold and average selling price per ton, as of and for the three months ended March 31, 1997 and 1998 have been derived from the unaudited interim financial statements of the predecessor and successor, respectively. In the opinion of management, the interim financial statements as of and for the three months ended March 31, 1997 and 1998 reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the information presented for such periods. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results of operations to be expected for the full year. The information contained in the following table should also be read in conjunction with "Capitalization," "Unaudited Pro Forma Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the historical financial statements of the Specialty Paper Division, including the notes thereto, contained elsewhere in this Prospectus.
PREDECESSOR SUCCESSOR(1) PREDECESSOR SUCCESSOR(1) ----------------------------------------------------- ------------- ------------ ------------- PERIOD FROM PERIOD FROM DECEMBER 30, JUNE 17, THREE 1996 1997 THREE MONTHS MONTHS FISCAL YEAR(2) THROUGH THROUGH ENDED ENDED -------------------------------------- JUNE 16, DECEMBER 31, MARCH 31, MARCH 31, 1993 1994 1995 1996 1997 1997 1997 1998 ------- ------- -------- ------- ------------ ------------- ------------ ------------- STATEMENT OF OPERATIONS DATA: Net sales.................. $86,202 $96,736 $101,049 $85,230 $40,795 $45,921 $21,995 $ 30,170 Cost of sales.............. 73,184 87,587 99,536 76,425 34,231 40,805 18,306 27,098 ------- ------- -------- ------- ------- ------- ------- -------- Gross profit............... 13,018 9,149 1,513 8,805 6,564 5,116 3,689 3,072 Selling, general and administrative expenses... 3,231 4,833 3,455 4,434 1,539 3,302 838 2,523 Corporate overhead allocation................ 5,165 5,829 6,260 5,537 724 -- 390 -- ------- ------- -------- ------- ------- ------- ------- -------- Operating income (loss).................... 4,622 (1,513) (8,202) (1,166) 4,301 1,814 2,461 549 Interest expense........... 117 146 146 144 124 1,187 62 1,643 ------- ------- -------- ------- ------- ------- ------- -------- Income (loss) before income taxes and extraordinary item...................... 4,505 (1,659) (8,348) (1,310) 4,177 627 2,399 (1,094) Income tax provision (benefit)................. 1,945 (494) (2,777) (335) 1,655 413 926 (289) ------- ------- -------- ------- ------- ------- ------- -------- Income (loss) before extraordinary item........ 2,560 (1,165) (5,571) (975) 2,522 214 1,473 (805) Extraordinary item......... -- -- -- -- -- -- -- (597) ------- ------- -------- ------- ------- ------- ------- -------- Net income (loss).......... $ 2,560 $(1,165) $ (5,571) $ (975) $ 2,522 $ 214 $ 1,473 $ (1,402) ======= ======= ======== ======= ======= ======= ======= ========
13 18
PREDECESSOR SUCCESSOR(1) PREDECESSOR SUCCESSOR(1) ----------------------------------------------------- ------------- ------------ ------------- PERIOD FROM PERIOD FROM DECEMBER 30, JUNE 17, THREE 1996 1997 THREE MONTHS MONTHS FISCAL YEAR(2) THROUGH THROUGH ENDED ENDED -------------------------------------- JUNE 16, DECEMBER 31, MARCH 31, MARCH 31, 1993 1994 1995 1996 1997 1997 1997 1998 ------- ------- -------- ------- ------------ ------------- ------------ ------------- BALANCE SHEET DATA (AT END OF PERIOD): Cash....................... $ -- $ 88 $ 67 $ -- $ -- $ 772 $ -- $ 1,271 Working capital(3)......... 4,857 3,989 8,555 3,259 5,761 5,437 10,532 27,162 Total assets............... 54,769 56,842 47,786 49,619 51,591 51,892 50,640 230,214 Total debt................. 3,500 3,500 3,500 3,500 3,500 20,839 3,500 157,785 Total stockholder's equity.................... 37,112 35,947 30,376 29,401 31,923 8,188 30,874 27,498 OTHER DATA: Capital expenditures....... $ 1,854 $ 1,568 $ 3,878 $ 1,220 $ 66 $ 563 $ 23 $ 676 Depreciation and amortization.............. 2,038 2,104 2,257 2,330 1,070 766 535 1,448 Ratio of earnings to fixed charges(4)................ 20.2x -- -- -- 25.0x 1.5x 27.7x 1.6x Tons sold.................. 79,627 87,764 79,662 73,019 36,594 43,736 19,841 26,784 Average selling price per ton....................... $ 1,083 $ 1,102 $ 1,268 $ 1,167 $ 1,115 $ 1,050 $ 1,109 $ 1,126
- ------------------------------ (1) The Specialty Paper Division was acquired from Simpson as of June 17, 1997 in a transaction accounted for under the purchase method of accounting. (2) The Specialty Paper Division has a fiscal year ending on the Sunday closest to December 31. (3) Working capital represents total current assets less total current liabilities. Throughout 1993 to June 16, 1997, Simpson performed cash management on a centralized basis and processed related accounts receivable. Accordingly, accounts receivable were funded immediately by Simpson and are not included in working capital for fiscal years 1993, 1994, 1995 and 1996 and the period from December 30, 1996 through June 16, 1997. (4) For purposes of computing this ratio, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing costs and one-third of the expense from operating leases, which management believes is a reasonable approximation of the interest factor of the rent. For fiscal years 1994, 1995 and 1996, and for the three months ended March 31, 1998, earnings were inadequate to cover fixed charges by $1,659, $8,348 and $1,310, respectively. 14 19 CONSUMER PRODUCTS DIVISION SUMMARY HISTORICAL FINANCIAL AND OTHER DATA (DOLLARS IN THOUSANDS, EXCEPT PER TON AMOUNTS) The following table sets forth summary historical financial and other data of the Consumer Products Division as of and for each of the fiscal years in the five-year period ended December 31, 1997. The summary historical financial and other data, with the exception of tons sold and average selling price per ton, as of and for each of the years in the three-year period ended December 31, 1997, have been derived from the financial statements of the Consumer Products Division, contained elsewhere herein, which have been audited by Arthur Andersen LLP, independent public accountants. The summary historical financial and other data, with the exception of tons sold and average selling price per ton, as of and for each of the years in the two-year period ended December 31, 1994 have been derived from the unaudited financial statements of the Consumer Products Division. The information contained in the following table should also be read in conjunction with "Capitalization," "Unaudited Pro Forma Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the historical financial statements of the Consumer Products Division, including the notes thereto, contained elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Net sales................................... $105,040 $104,884 $107,013 $133,649 $136,176 Cost of sales............................... 110,619 115,713 129,483 124,052 121,751 -------- -------- -------- -------- -------- Gross profit (loss)......................... (5,579) (10,829) (22,470) 9,597 14,425 Selling, general and administrative expenses.................................. 3,490 3,967 3,228 3,351 2,919 Corporate overhead allocation(1)............ 1,555 1,724 1,509 1,962 2,057 -------- -------- -------- -------- -------- Operating income (loss)..................... (10,624) (16,520) (27,207) 4,284 9,449 Interest expense............................ -- 89 881 812 846 -------- -------- -------- -------- -------- Income (loss) before income taxes........... (10,624) (16,609) (28,088) 3,472 8,603 Income tax provision (benefit)(2)........... (3,957) (6,187) (10,533) 1,354 3,355 -------- -------- -------- -------- -------- Net income (loss)........................... $ (6,667) $(10,422) $(17,555) $ 2,118 $ 5,248 ======== ======== ======== ======== ======== BALANCE SHEET DATA (AT END OF PERIOD): Cash........................................ $ -- $ -- $ -- $ -- $ -- Working capital............................. 10,369 18,211 18,053 19,294 15,560 Total assets................................ 113,669 139,713 139,670 129,443 116,473 Total debt(3)............................... -- 18,800 18,800 18,800 18,800 Intercompany accounts(4).................... 82,548 94,951 99,107 89,638 75,489 OTHER DATA: Capital expenditures........................ $ 9,988 $ 14,450 $ 21,113 $ 1,922 $ 3,737 Depreciation and amortization(5)............ 8,906 9,710 11,298 11,809 11,309 Ratio of earnings to fixed charges(6)....... -- -- -- 5.3x 11.2x Tons sold................................... 94,212 92,292 80,609 90,445 96,888 Average selling price per ton............... $ 1,115 $ 1,136 $ 1,328 $ 1,478 $ 1,405
15 20 - ------------------------------ (1) Corporate overhead allocation represents a pro rata (based on sales dollars) allocation of certain Pope & Talbot, Inc. corporate administrative costs not directly attributable to the Consumer Products Division. These costs include such items as tax services, certain human resource services, and general corporate administrative costs. (2) The Consumer Products Division historically has been included in the consolidated income tax returns of Pope & Talbot, Inc. Income taxes are presented here as if Consumer Products Division filed its taxes on a separate return basis. (3) Total debt consists of a note payable to the City of Eau Claire, Wisconsin due 2014 in connection with the issuance of the Eau Claire IRBs to finance a wastepaper pulping improvement project at the Consumer Products Division's Eau Claire, Wisconsin facility. The note payable is to be assumed by the Company in connection with the Acquisition. (4) The Consumer Products Division has historically been accounted for as a division of Pope & Talbot, Inc. and therefore has no separate historical equity accounts. Cash funding and distributions have been managed through Pope & Talbot, Inc.'s corporate cash management system. Cash collected from and distributed to the Consumer Products Division has been reflected in the intercompany account balance. The intercompany account balance represents the net accumulated transactions between the Consumer Products Division and Pope & Talbot, Inc. (5) Includes amortization of deferred financing costs of $2, $14, $14, and $13 for the years ended December 31, 1994, 1995, 1996 and 1997, respectively. (6) For purposes of computing this ratio, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense and amortization of deferred financing costs. For the years ended December 31, 1993, 1994 and 1995, earnings were inadequate to cover fixed charges by $10,624, $16,609 and $28,088, respectively. 16 21 RISK FACTORS Holders of the Notes should carefully consider the following factors, in addition to the other information contained in this Prospectus, before tendering their Notes in the Exchange Offer. SUBSTANTIAL LEVERAGE; POTENTIAL INABILITY TO SERVICE INDEBTEDNESS As a result of the Offering, the Company is highly leveraged. As of March 31, 1998, which includes the effect of the Transactions, the Company has approximately $157.8 million of indebtedness outstanding and had available $35.0 million of borrowing capacity under the New Credit Facility (as defined herein), subject to borrowing base limitations. For the year ended December 31, 1997 and the three months ended March 31, 1998, after giving pro forma effect to the Transactions, the Company's ratio of earnings to fixed charges would have been 1.2x and 0.3x, respectively. See "Capitalization," "Unaudited Pro Forma Consolidated Financial Information," "Selected Financial and Other Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The significant indebtedness incurred as a result of the Offering has several important consequences to the holders of the Exchange Notes, including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to service the Company's indebtedness, and the failure of the Company to generate sufficient cash flow to service such indebtedness could result in a default under such indebtedness, including under the Exchange Notes; (ii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or for other purposes may be impaired; (iii) the Company's flexibility to expand, make capital expenditures and respond to changes in the industry and economic conditions generally may be limited; (iv) the New Credit Facility and the Indenture contain, and future agreements relating to the Company's indebtedness may contain, numerous financial and other restrictive covenants, including, among other things, limitations on the ability of the Company to incur additional indebtedness, to create liens and other encumbrances, to make certain payments and investments, to sell or otherwise dispose of assets, or to merge or consolidate with another entity, the failure to comply with which may result in an event of default, which, if not cured or waived, could have a material adverse effect on the Company; and (v) the ability of the Company to satisfy its obligations pursuant to such indebtedness, including pursuant to the Exchange Notes and the Indenture, will be dependent upon the Company's future performance which, in turn, will be subject to management, financial, business, regulatory and other factors affecting the business and operations of the Company, some of which are not in the Company's control. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." If the Company is unable to generate sufficient cash flow to meet its debt obligations, the Company may be required to renegotiate the payment terms or to refinance all or a portion of the indebtedness under the New Credit Facility or the Senior Subordinated Notes, to sell assets or to obtain additional financing. If the Company could not satisfy its obligations related to such indebtedness, substantially all of the Company's long-term debt could be in default and could be declared immediately due and payable. SUBORDINATION OF EXCHANGE NOTES The Exchange Notes will be general unsecured obligations of the Company and will be subordinate in right of payment to all existing and future Senior Debt, and will be senior or pari passu in right of payment to all future subordinated indebtedness of the Company. The Company has not issued, and does not have any current firm arrangements to issue, any indebtedness to which the Exchange Notes would rank senior or pari passu in right of payment. The Exchange Notes are not secured by any of the assets of the Company. In addition, the payment of principal, accrued and unpaid interest and Liquidated Damages, if any, with respect to the Exchange Notes will be subordinated, as set forth in the Indenture, to the prior payment in full of all present and future Senior Debt. Therefore, in the event of the liquidation, dissolution or reorganization of, or any similar proceeding relating to, the Company, the assets of the Company will not be available to pay the obligations on the Exchange Notes until the holders of the Senior Debt have been paid in full. In that event, it is likely that the assets of the Company, a substantial portion of which are pledged to secure the Company's 17 22 obligations under the New Credit Facility, will be insufficient to pay all or a portion of the obligations on the Exchange Notes. In addition, the Company may not pay principal, accrued and unpaid interest and Liquidated Damages, if any, with respect to the Exchange Notes, or defease, purchase, redeem or otherwise acquire any Exchange Notes, under the circumstances described under "Description of Exchange Notes -- Subordination." NEW CREDIT FACILITY AND INDENTURE RESTRICTIONS The New Credit Facility and the Indenture impose certain operating and financial restrictions on the Company. The New Credit Facility requires the Company to maintain specified financial ratios, among other obligations, including a maximum leverage ratio and a minimum fixed charge coverage ratio, each as defined in the New Credit Facility. In addition, the New Credit Facility restricts, among other things, the Company's ability to: (i) declare dividends or redeem or repurchase capital stock; (ii) prepay, redeem or purchase debt; (iii) incur liens and engage in sale/leaseback transactions; (iv) make loans and investments; (v) incur indebtedness and contingent obligations; (vi) amend or otherwise alter debt and other material agreements; (vii) make capital expenditures; (viii) engage in mergers, consolidations, acquisitions and asset sales; (ix) engage in transactions with affiliates; and (x) alter its lines of business or accounting methods. In addition, the Indenture limits, among other things: (i) the incurrence of additional indebtedness by the Company and its Restricted Subsidiaries; (ii) the payment of dividends and other restricted payments by the Company and its Restricted Subsidiaries; (iii) asset sales; (iv) transactions with affiliates; (v) the incurrence of liens; and (vi) mergers and consolidations. The Company's ability to comply with such covenants may be affected by events beyond its control, including prevailing economic and financial conditions, a breach of any of these covenants could result in a default under the New Credit Facility and/or the Indenture. Upon the occurrence of an event of default under the New Credit Facility or the Indenture, the lender under the New Credit Facility could elect to declare all amounts outstanding under the New Credit Facility, together with accrued and unpaid interest, to be immediately due and payable. If the Company were unable to repay any such amounts, such lender could proceed against the collateral securing such indebtedness. If the lender under the New Credit Facility accelerates the payment of such indebtedness, there can be no assurance that the assets of the Company would be sufficient to repay in full such indebtedness and the other indebtedness of the Company, including the Exchange Notes. In addition, because the Indenture limits the ability of the Company to engage in certain transactions except under certain circumstances, the Company may be prohibited from entering into transactions that could be beneficial to the Company. See "Description of Certain Indebtedness" and "Description of Exchange Notes." CYCLICAL INDUSTRY CONDITIONS The markets for paper products, including the Company's, are highly cyclical, being characterized by periods of supply and demand imbalance, sensitivity to changes in industry capacity, overall domestic economic activity and competitive conduct, all of which are beyond the Company's control. A number of structural factors accentuate the cyclicality of the paper industry, including the substantial capital investment and high fixed costs required to manufacture paper products and the significant exit costs associated with capacity reductions. In addition, because of the high fixed costs associated with paper production, paper manufacturers need to maintain high levels of capacity utilization (operating rates) to cover fixed costs and accordingly, relatively small changes in operating rates due to changes in domestic demand, capacity, levels of imports or otherwise, may significantly affect prices. There can be no assurance that the current price levels of the Company's products will be maintained, that any announced price increases will be achieved, that the paper industry will not add incremental capacity, either from new machines or from rebuilds of existing machines, or that imports from overseas will not increase. Prices for the Company's products may fluctuate substantially in the future. A significant downturn in such prices could have a material adverse effect on the Company's results of operations. 18 23 RISKS ASSOCIATED WITH FLUCTUATIONS IN SUPPLY AND COSTS OF RAW MATERIALS The Consumer Products Division purchases pre-consumer and post-consumer wastepaper for the production of its products through a combination of supply arrangements with brokers located in the Midwest and the Northeast. While these relationships have historically been stable, supply arrangements are by purchase order and are terminable at will at the option of either party. There can be no assurance that any of these supply relationships will not be terminated in the future. Although the Company believes that current sources of supply for the Consumer Products Division's raw materials are adequate to meet its requirements, occasional periods of short supply of certain raw materials may occur. Some of the Consumer Products Division's competitors control collection sources of consumer wastepaper, and may therefore have better access to such raw materials during periods of short supply. The Specialty Paper Division depends on pulp as a key raw material for the manufacturing of its products. The Specialty Paper Division purchases pulp through a broad based system of suppliers and brokers, and seeks competitive bids on all major purchases to ensure competitive prices. While these relationships have historically been stable, there can be no assurance that any of these supplier relationships will continue in the future. Prices for pulp and waste paper show considerable price volatility over the business cycle. Prices for pulp and waste paper increased dramatically in 1995 and as a result of such increase, the 1995 results of the Consumer Products Division and the Specialty Paper Division were adversely affected. No assurance can be given that future price fluctuations in pulp, waste paper and other raw materials will not have a material adverse effect on the Company. In addition, prices for the Company's other raw materials fluctuate. The actual impact on the Company of raw materials price changes is affected by a number of factors including the level of inventories at the time of a price change, the specific timing and frequency of price changes, and the lag time that generally accompanies the implementation of both raw materials and subsequent selling price changes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Raw Materials and Suppliers." DEPENDENCE ON CERTAIN CUSTOMERS The Company's revenues are substantially dependent upon a limited number of large customers. For 1996 and 1997, the 10 largest customers of the Consumer Products Division represented 73.7% and 77.5% of its net sales, respectively. For the same periods, the 10 largest customers of the Specialty Paper Division represented 62.7% and 67.5% of its net sales, respectively. On a pro forma basis, for the same periods, the 10 largest customers of the Company represented 50.0% and 58.5% of the Company's net sales, respectively. In conjunction with the 1997 Acquisition, Holdings and Simpson entered into a requirements contract pursuant to which Simpson has the right to purchase from Plainwell Paper Company all of Simpson's requirements, up to 20,000 tons per twelve-month period through June 30, 1998, for coated two-sided matte paper products sold by Simpson under the brand name EVERGREEN(R). Simpson is not obligated to make any purchases under the contract, and each purchase is subject to the terms and conditions set forth in the contract, including price. From June 17, 1997 to December 31, 1997, Simpson purchased an average of 2,364 tons per month, and accounted for 36.5% of Plainwell Paper Company's net sales during such period. The requirements contract expires June 30, 1998, the date on which Simpson's license to use the EVERGREEN(R) brand name expires, but may be extended at the option of Simpson. If the term of the requirements contract is extended by Simpson, Simpson has the right to purchase from Plainwell Paper Company all of Simpson's requirements, up to 20,000 tons per twelve-month period through June 30, 2000, for sheets and rolls of matte paper of the same grade and quality as EVERGREEN(R). There can be no assurance that Simpson will continue to make purchases from the Company under this contract or that it will be extended beyond its current term. The loss of, or significant decrease or interruption in business from, one or more of the Company's significant customers, including Simpson, could have a material adverse effect on the Company. See "Business -- Marketing and Sales," and "Business -- Customers." 19 24 INTEGRATION OF ACQUISITIONS; MANAGEMENT INFORMATION SYSTEMS Part of the Company's business strategy is to actively pursue strategic acquisition candidates. The Company has been in, and expects to continue to be in, discussions with potential acquisition candidates. The integration of the Consumer Products Division and future acquired business could be affected by a number of factors, some of which are not in the Company's control. Such factors include the response of competition, general economic conditions, the ability of the Company's existing management and systems infrastructure to absorb increased operations and the integration of new operations and inventory procedures into the Company's management information systems and operations. The Company has determined that the Specialty Paper Division's management information systems are inadequate and intends to upgrade such systems over the next two years. No assurance can be given that such upgrade will be accomplished, or will not interfere with the Company's operations. In connection with the 1997 Acquisition, Plainwell Paper Company and Simpson entered into a Transition Services Agreement pursuant to which Simpson agreed to provide certain transition services to Plainwell Paper Company for a period ending not later than the second anniversary of the 1997 Acquisition. The Company is dependent upon the continued services of Simpson under such agreement, and the early termination of such agreement could have a material adverse effect on the Company. Acquisitions may also increase the Company's leverage and debt service requirements. While growth through acquisitions is part of the Company's business strategy, there can be no assurance that suitable additional acquisitions will be available to the Company on acceptable terms, that financing for future acquisitions will be available on acceptable terms, that future acquisitions will be advantageous to the Company or that anticipated benefits of such acquisitions will be realized. The pursuit, timing and integration of possible future acquisitions may cause substantial fluctuations in operating results. See "Business -- Business Strategy." COMPETITION The Consumer Products Division participates in the highly competitive private label consumer tissue market. The division's competitors include large, vertically integrated, multinational companies and smaller, regional companies including Fort James Corporation, Georgia-Pacific Corporation, Shepherd Tissue Inc., American Tissue Corporation, Orchids Paper Products Co. and Potlach Corporation. Many of the division's competitors are larger and have equal or greater access to financial and other resources than the Company. The Specialty Paper Division sells products in the highly competitive premium coated printing paper and release and other technical/specialty paper markets. The division's products compete directly with those of a number of companies, some which are significantly larger than the Company and which have integrated pulp supplies at their mill sites. Such companies may manufacture a significant amount of their pulp requirements which may reduce their exposure to fluctuations in the market price of pulp compared to the Company. See "-- Risks Associated with Fluctuations in Supply and Costs of Raw Materials." In addition, certain of the mills operated by the division's competitors may be lower cost producers of pulp and coated paper than the Plainwell Mill. The Specialty Paper Division's main competitors in premium coated printing paper and release and other technical/specialty paper markets include Champion International Corporation, Consolidated Papers Inc., Potlach Corporation and S.D. Warren Co., the Nicolet Division of International Paper Company, and Rhinelander Paper Company, Inc. and Otis Specialty Papers, units of Wausau-Mosinee Paper Corporation. See "Business -- Competition." CONTROLLING STOCKHOLDERS The Management Stockholders and 399 Venture Partners beneficially own substantially all of the outstanding common stock of Holdings and collectively control the affairs and policies of the Company. Circumstances may occur in which the interests of these stockholders could be in conflict with the interests of the Holders of the Exchange Notes. In addition, these stockholders may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to the Holders of the Exchange Notes. See "Principal Stockholders." 20 25 DEPENDENCE ON KEY PERSONNEL The Company is dependent on the continued services of its senior management team, including William L. New, its Chairman, Chief Executive Officer and President. The Company believes that the loss of the services of any of its senior management team could have a material adverse effect on the Company. See "Management." LABOR MATTERS As of March 31, 1998, 100% of the Company's hourly production employees were covered by collective bargaining agreements. The collective bargaining agreements covering employees at the Consumer Products Division expire in September 1999 and March 2000. The collective bargaining agreement covering employees at the Specialty Paper Division expires in November 2000. There can be no assurance that the Company will be successful in renegotiating such agreements or that the Company will not incur increased costs as a result of such negotiations. The Consumer Products Division experienced an eight-month work strike at its Ransom, Pennsylvania facility from May 1995 through December 1995 which had a material adverse effect on the Consumer Products Division. Extended interruption of operations at the Consumer Products Facilities or the Plainwell Mill could have a material adverse effect on the Company's financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Employees." ENVIRONMENTAL MATTERS The Company is subject to comprehensive and evolving federal, state and local environmental and occupational health and safety requirements, including laws and regulations relating to air emissions, wastewater management, the handling and disposal of solid and hazardous waste and related financial responsibility requirements, and the cleanup of properties affected by hazardous substances. Certain environmental laws impose significant penalties for noncompliance, and others impose strict, retroactive, joint and several liability on persons responsible for releases of hazardous substances. The Company believes that its operations have been and are in substantial compliance with environmental requirements, and that it has no liabilities arising under environmental requirements, except as would not be expected to have a material adverse effect on the Company's operations, financial condition or competitive position. Some risk of environmental liability is inherent in the Company's business, however, and there can be no assurance that material environmental costs will not arise in the future. The Company will continue to incur capital and operating expenditures to achieve and maintain compliance with current environmental laws and new requirements. Such new requirements include rules promulgated by the U.S. Environmental Protection Agency ("U.S. EPA") that may require more stringent controls on air emissions and wastewater discharges from pulp and paper mills (generally referred to as the "Cluster Rules"). U.S. EPA has also promulgated regulations implementing the Great Lakes Initiative ("GLI"), which affects the control of water quality in certain Midwest states. The Company's future spending on environmental matters may be significantly influenced by the Cluster Rules and the state-adopted regulations implementing the GLI. The Company estimates that future capital spending to comply with the Cluster Rules and the GLI could be up to $5 million, depending on the timing and specific requirements imposed. The Company cannot predict if or when such rules will be promulgated in a form that will require the Company to make such expenditures. The Company believes that the costs of compliance with the Cluster Rules, the GLI and other environmental requirements will not have an material adverse effect on the Company's liquidity, operations or financial condition. Certain environmental laws, such as the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA," or "Superfund") provide in particular instances for strict, joint and several liability for investigation and cleanup of contaminated sites. Such laws impose liability on several classes of persons (and their successors), including current and former owners and operators of contaminated sites and others responsible for the arrangement and disposal of contaminants. The Company is currently considered a potentially responsible party for costs associated with five sites. The Company is also a party to 21 26 various indemnification agreements with respect to most of these known sites, and the Company believes such agreements should cover most of the Company's associated liabilities. There can be no assurance, however, that the indemnifying parties will perform under the indemnification agreements or that the Company will not incur material liabilities with respect to the known sites or others under Superfund or other laws. Based on information currently available and the contractual rights to indemnification, management believes that the costs associated with these sites will not have a material adverse effect on the liquidity, operations or financial condition of the Company. See "Business -- Environmental Matters." Additionally, there can be no assurance that the Company will not be involved in a CERCLA proceeding in the future and that the aggregate amount of future clean-up costs and other environmental liabilities will not be material. See "Business -- Environmental Matters." The Company cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist for which the Company may have liability. Enactment of more stringent laws or regulations or more strict interpretation of existing laws and regulations could require additional expenditures by the Company, some of which could be material. CHANGE OF CONTROL PROVISIONS Upon the occurrence of a Change of Control at any time, the Company will be required to offer to repurchase each Holder's Senior Subordinated Notes at a price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase. There can be no assurance that the Company will have the financial resources necessary to repurchase the Senior Subordinated Notes upon a Change of Control. In addition, the terms of the New Credit Facility require that the New Credit Facility be repaid in full upon a Change of Control before repurchase of the Senior Subordinated Notes. The requirement to repurchase the Senior Subordinated Notes upon a Change of Control may discourage persons from making a tender offer for or a bid to acquire the Company. See "Description of Certain Indebtedness" and "Description of Exchange Notes -- Repurchase at the Option of Holders -- Change of Control." ABSENCE OF PUBLIC MARKET Prior to the Exchange Offer, there has been no public market for the Notes. The Notes have not been registered under the Securities Act and will be subject to restrictions on transferability to the extent that they are not exchanged for Exchange Notes by holders who are entitled to participate in this Exchange Offer. The holders of Notes (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who are not eligible to participate in the Exchange Offer are entitled to certain registration rights, and the Company is required to file a Shelf Registration Statement with respect to such Notes. The Exchange Notes are new securities for which there currently is no market. The Exchange Notes are eligible for trading by qualified buyers in the Private Offerings, Resale and Trading though Automated Linkages (PORTAL) market. The Company does not intend to apply for listing of the Exchange Notes, on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Although the Exchange Notes are eligible for trading through PORTAL, the Exchange Notes may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar securities, the Company's performance and other factors. The Company has been advised by the Initial Purchasers that they currently intend to make a market in the Exchange Notes as permitted by applicable law and regulations; however, the Initial Purchasers are not obligated to do so and any such market-making activities, if commenced, may be discontinued at any time without notice. In addition, such market-making activities may be limited during the Exchange Offer and pendency of the Shelf Registration Statement. Therefore, there can be no assurance that an active market for any of the Exchange Notes will develop, either prior to or after the Company's performance of its obligations under the Exchange and Registration Rights Agreement. See "Description of Exchange Notes." 22 27 The Exchange Notes generally will be permitted to be resold or otherwise transferred (subject to the restrictions described under "Description of Exchange Notes") by each holder without the requirement of further registration. The Exchange Notes, however, will also constitute a new issue of securities with no established trading market. The Exchange Offer will not be conditioned upon any minimum or maximum aggregate principal amount of Notes being tendered for exchange. No assurance can be given as to the liquidity of the trading market for the Exchange Notes, or, in the case of non-exchanging holders of Notes, the trading market for the Notes following the Exchange Offer. The liquidity of, and trading market for, the Exchange Notes also may be adversely affected by general declines in the market or by declines in the market for similar securities. Such declines may adversely affect such liquidity and trading markets independently of the financial performance of, and prospects for, the Company. FORWARD LOOKING STATEMENTS Certain of the matters discussed in this Prospectus may constitute forward-looking statements for purposes of the Securities Act and the Exchange Act, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward looking statements. Important factors that could cause the actual results, performance or achievements of the Company to differ materially from the Company's expectations are disclosed in this Prospectus ("Cautionary Statements"), including, without limitation, those statements made in conjunction with the forward-looking statements included under "Risk Factors" and otherwise herein. All written forward looking statements attributable to the Company are expressly qualified in their entirety by the Cautionary Statements. EXCHANGE OFFER PROCEDURES Issuance of the Exchange Notes in exchange for the Notes pursuant to the Exchange Offer will be made only after a timely receipt by the Company of such Notes, a properly completed and duly executed Letter of Transmittal and all other required documents. Therefore, holders of the Notes desiring to tender such Notes in exchange for Exchange Notes should allow sufficient time to ensure timely delivery. The Company is under no duty to give notification of defects or irregularities with respect to the tenders of Notes for exchange. Notes that are not tendered or are tendered but not accepted will, following the consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof and, upon consummation of the Exchange Offer, certain registration rights under the Exchange and Registration Rights Agreement will terminate. In addition, any holder of Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transactions. Each Participating Broker-Dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. See "Plan of Distribution." To the extent that Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Notes could be adversely affected. See "The Exchange Offer." 23 28 USE OF PROCEEDS The Exchange Offer is intended to satisfy certain of the Company's obligations under the Exchange and Registration Rights Agreement. The Company will not receive any cash proceeds from the issuance of the Exchange Notes in the Exchange Offer. The sources and uses of cash from the proceeds from the Offering as of March 6, 1998, the Contributions and borrowings under the New Credit Facility are set forth below:
(DOLLARS IN THOUSANDS) ----------- SOURCES OF FUNDS: 11% Senior Subordinated Notes due 2008.................... $130,000 Contributions from Holdings............................... 25,000 New Credit Facility(1).................................... 2,190 -------- Total............................................. $157,190 ======== USES OF FUNDS: Cash consideration for Consumer Products Division......... $121,218 Repayment of Existing Credit Facility(2).................. 21,879 Dividend to Holdings to redeem preferred stock of Holdings held by Simpson(3)..................................... 4,288 Repayment of notes and accrued interest due Simpson....... 1,881 Transaction costs......................................... 7,924 -------- Total............................................. $157,190 ========
- ------------------------------ (1) The New Credit Facility provides up to $35.0 million on a revolving basis, subject to borrowing base limitations and provides up to an additional $20.0 million for letters of credit to secure the Eau Claire IRBs. See "Description of Certain Indebtedness." (2) Reflects amounts outstanding under the Existing Credit Facility as of March 6, 1998. At December 31, 1997, the Revolver and Term Note bore interest at either a Base Rate (as defined) or a LIBOR rate (as defined) which was payable monthly. The average rate charged at December 31, 1997 was 9.2% and 9.3%, respectively, and the initial Revolving Loan Maturity Date (as defined) was June 1, 2002. (3) Reflects accrued dividends as of March 6, 1998. In connection with the Transactions, Holdings was required to redeem preferred stock pursuant to change of control provisions. 24 29 CAPITALIZATION AS OF MARCH 31, 1998 The following table sets forth the cash and cash equivalents and capitalization of the Company as of March 31, 1998 on a historical basis which includes the effect of the Transactions. The table should be read in conjunction with the "Unaudited Pro Forma Financial Information," "Selected Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements, including the notes thereto, contained elsewhere in this Prospectus.
MARCH 31, 1998 -------------- (DOLLARS IN THOUSANDS) Cash and cash equivalents................................... $ 1,271 ======== Debt: Industrial Revenue Bonds: City of Plainwell, Michigan due 2007................... $ 3,500 City of Eau Claire, Wisconsin due 2014................. 18,800 New Credit Facility(1).................................... 5,485 11% Senior Subordinated Notes due 2008.................... 130,000 -------- Total debt............................................. 157,785 -------- Total stockholder's equity.................................. 27,498 -------- Total capitalization.............................. $185,283 ========
- ------------------------------ (1) The New Credit Facility provides up to $35.0 million on a revolving basis, subject to borrowing base limitations, and provides up to an additional $20.0 million for letters of credit to secure the Eau Claire IRBs. See "Description of Certain Indebtedness." 25 30 UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma financial information (the "Unaudited Pro Forma Financial Information") of the Company has been derived by the application of pro forma adjustments, which give effect to the Transactions, to the historical financial statements of the Consumer Products Division and the Specialty Paper Division included elsewhere in this Prospectus. The Acquisition occurred simultaneously with the closing of the Offering. The Unaudited Pro Forma Statements of Operations for the year ended December 31, 1997 and the three months ended March 31, 1998, give effect to the Transactions as if such Transactions had occurred on January 1, 1997. The Unaudited Pro Forma Financial Information is for comparative purposes only and does not purport to represent what the Company's results of operations would actually have been had the Transactions in fact occurred on the assumed date or to project the Company's results of operations for any future period. The Unaudited Pro Forma Financial Information should be read in conjunction with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements of the Consumer Products Division and the Specialty Paper Division, including the notes thereto, contained elsewhere in this Prospectus. The pro forma adjustments, as described in the accompanying Notes to the Unaudited Pro Forma Statements of Operations, are based on available information and certain assumptions that management believes are reasonable. The Acquisition has been accounted for under the purchase method of accounting. The purchase price for the Consumer Products Division has been allocated to tangible and intangible assets and liabilities based on preliminary estimates of the fair value of assets acquired and liabilities assumed. However, the allocation of the purchase price is subject to revision when additional information concerning the final determination of the fair value of assets acquired and liabilities assumed is obtained. Management believes that the final allocation of the purchase price will be completed prior to September 30, 1998 and will not materially differ from the preliminary estimated amounts. 26 31 PLAINWELL INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
HISTORICAL SPECIALTY PAPER DIVISION --------------------------- PERIOD FROM PERIOD FROM DECEMBER 30, JUNE 17, PRO FORMA HISTORICAL 1996 TO 1997 TO SPECIALTY CONSUMER JUNE 16, DECEMBER 31, PRO FORMA PAPER PRODUCTS PRO FORMA PRO FORMA 1997 1997 ADJUSTMENTS DIVISION DIVISION ADJUSTMENTS TOTAL ------------ ------------ ----------- --------- ---------- ----------- --------- Net sales................ $40,795 $45,921 $ -- $86,716 $136,176 $ -- $222,892 (423)(d) (1,541)(f) Cost of sales............ 34,231 40,805 (432)(a) 74,181 121,751 (5,787)(g) 188,604 ------- ------- ------- ------- -------- -------- -------- Gross profit............. 6,564 5,116 855 12,535 14,425 7,328 34,288 218(f) 5,787(g) Selling, general and 5(a) 246(h) administrative expenses............ 1,539 3,302 504(b) 5,350 2,919 500(i) 15,020 Corporate overhead allocation............. 724 -- (724)(b) -- 2,057 (2,057)(i) -- ------- ------- ------- ------- -------- -------- -------- Operating income......... 4,301 1,814 1,070 7,185 9,449 2,634 19,268 Interest expense......... 124 1,187 941(c) 2,252 846 12,859(j) 15,957 ------- ------- ------- ------- -------- -------- -------- 3,311 Income before income taxes.................. 4,177 627 129 4,933 8,603 (10,225) Income tax provision..... 1,655 413 48(e) 2,116 3,355 (3,988)(k) 1,483 ------- ------- ------- ------- -------- -------- -------- Net Income............... $ 2,522 $ 214 $ (81) $ 2,817 $ 5,248 $ (6,237) $ 1,828 ======= ======= ======= ======= ======== ======== ========
See Notes to Unaudited Pro Forma Statements of Operations. 27 32 PLAINWELL INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS THREE MONTH PERIOD ENDED MARCH 31, 1998 (DOLLARS IN THOUSANDS)
HISTORICAL CONSUMER PRODUCTS DIVISION HISTORICAL PERIOD FROM THE JANUARY 1, 1998 TO PRO FORMA TOTAL COMPANY MARCH 5, 1998 ADJUSTMENTS PRO FORMA ---------- ------------------ ----------- --------- Net sales.............................. $30,170 $23,969 $ -- $53,139 Cost of sales.......................... 27,098 21,763 (1,286)(g) 47,416 (159)(f) ------- ------- -------- ------- Gross profit........................... 3,072 1,206 1,445 5,723 Selling, general and administrative expenses............................. 2,523 704 75(f) 4,727 1,286(g) 50(h) 89(i) Corporate overhead allocation.......... -- 366 (366)(i) -- ------- ------- -------- ------- Operating income....................... 549 136 311 996 Interest expense....................... 1,643 138 2,160(j) 3,941 ------- ------- -------- ------- Loss before income taxes and extraordinary item................... (1,094) (2) (1,849) (2,945) Income tax benefit..................... (289) (1) (721)(k) (1,011) ------- ------- -------- ------- Loss before extraordinary item......... $ (805) $ (1) $ (1,128) $(1,934) ======= ======= ======== =======
See Notes to Unaudited Pro Forma Statements of Operations. 28 33 PLAINWELL INC. NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) (a) Adjustment to depreciation expense based on the purchase price accounting adjustment and remaining economic useful lives of the Speciality Paper Division's properties, as follows:
PERIOD FROM DECEMBER 30, 1996 THROUGH JUNE 16, 1997 ---------------------------------------- SELLING, GENERAL AND COST OF SALES ADMINISTRATIVE EXPENSES ------------- ----------------------- Remove historical depreciation.............. $(1,037) $ 33 New basis depreciation...................... 605 38 ------- ---- $ (432) $ 5 ======= ====
(b) Adjustments to reduce selling, general and administrative expenses for the corporate overhead allocation from Simpson, offset by additional selling, general and administrative expenses (principally, compensation expense, professional fees and marketing costs) that management estimates would have been incurred by the Specialty Paper Division to replace services previously provided by Simpson. (c) The deferred finance costs of $1,051,000 are being amortized over five years which is the length of the term note and revolving credit facility (revolver). Adjustment to record interest expense and amortization of deferred financing costs on the debt incurred to finance the acquisition of the Specialty Paper Division, calculated as follows:
PERIOD FROM DECEMBER 30, 1996 THROUGH JUNE 16, 1997 ----------------------------- Term note........................................... $589 Revolving credit facility........................... 240 ---- 829 Amortization of deferred financing costs............ 122 ---- $941 ====
The effect on interest expense pertaining to the variable rate term note and revolving credit facility of an adjustment of 1/8 of a percent variance in interest rates would be $163 for the period from December 30, 1996 through June 16, 1997. (d) Adjustment to conform the inventory method of the Speciality Paper Division for the period from December 30, 1996 to June 16, 1997 from the last-in, first-out method to the first-in, first-out method. (e) Adjustment to record the tax effect on the above adjustments using the marginal effective income tax rate of 37%. (f) Adjustment to reflect depreciation expense based on the new basis and remaining economic useful lives of the Consumer Products Division's properties, as follows:
YEAR ENDED PERIOD FROM JANUARY 1, 1998 DECEMBER 31, 1997 THROUGH MARCH 5, 1998 ------------------------------- ------------------------------ SELLING, GENERAL AND SELLING, GENERAL AND COST OF ADMINISTRATIVE COST OF ADMINISTRATIVE SALES EXPENSES SALES EXPENSES -------- -------------------- ------- -------------------- Remove historical depreciation.... $(10,078) $(1,052) $(1,582) $(136) New basis depreciation............ 8,537 1,270 1,423 211 -------- ------- ------- ----- $ (1,541) $ 218 $ (159) $ 75 ======== ======= ======= =====
(g) Reclassification of the Consumer Products Division general and administrative expenses to conform to the Specialty Paper Division's classification. 29 34 PLAINWELL INC. NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS -- (CONTINUED) (h) Adjustment to record in selling, general and administrative expenses the amortization of the residual goodwill over 40 years, calculated as follows:
PERIOD FROM JANUARY 1, 1998 YEAR ENDED THROUGH DECEMBER 31, 1997 MARCH 5, 1998 ----------------- --------------- Remove historical amortization................ $(166) $(28) New basis amortization........................ 412 78 ----- ---- $ 246 $ 50 ===== ====
(i) Adjustment to reduce selling, general and administrative expenses for the corporate overhead allocation from Pope & Talbot, Inc., offset by additional selling, general and administrative expenses (principally compensation expense and professional fees) to be incurred by the Company after the Acquisition. Compensation expense relating to replacements, including additional compensation to employees who will assume new responsibilities, is included based on planned employment arrangements.
PERIOD FROM JANUARY 1, 1998 YEAR ENDED THROUGH DECEMBER 31, 1997 MARCH 5, 1998 ----------------- --------------- Corporate overhead expenses: Executive officers.......................... $(1,338) $(212) Other....................................... (719) (154) ------- ----- $(2,057) $(366) ======= ===== Additional selling, general and administrative expenses: Executive officers.......................... $ 291 $ 52 Other....................................... 210 37 ------- ----- $ 500 $ 89 ======= =====
(j) Adjustment to record interest expense and amortization of deferred financing costs on the debt incurred to finance the Acquisition and the repayment of certain existing indebtedness of the Specialty Paper Division, calculated as follows:
PERIOD FROM JANUARY 1, 1998 YEAR ENDED THROUGH DECEMBER 31, 1997 MARCH 5, 1998 ----------------- --------------- 11% Senior Subordinated Notes due 2008................ $14,300 $2,547 Eliminate historical interest expense on the Specialty Paper Division indebtedness repaid.................. (1,858) (451) ------- ------ 12,442 2,096 Amortization of deferred financing costs (over 10 years, straight line)............................... 653 110 Eliminate amortization of deferred financing costs on the Specialty Paper Division indebtedness repaid.... $ (236) 46 ------- ------ $12,859 $2,160 ======= ======
(k) Adjustment to record the tax effect on the above adjustments using the marginal effective income tax rate of 39%. 30 35 SELECTED HISTORICAL FINANCIAL AND OTHER DATA (DOLLARS IN THOUSANDS, EXCEPT PER TON AMOUNTS) THE COMPANY AND SPECIALTY PAPER DIVISION The following table sets forth the selected historical financial and other data of the Specialty Paper Division-Predecessor as of and for each of the fiscal years in the four-year period ended December 29, 1996 and the period from December 30, 1996 through June 16, 1997 and the three months ended March 31, 1997, of the Specialty Paper Division-Successor as of and for the period from June 17, 1997 through December 31, 1997, and of the Company as of and for the three months ended March 31, 1998. On March 6, 1998, pursuant to the Acquisition Agreement dated January 22, 1998, the Specialty Paper Division was merged with PLAINWELL INC. and PLAINWELL INC. purchased the Consumer Products Division. The historical financial statements of the Specialty Paper Division are presented as the historical financial statements of the Company and the results of operations of the Consumer Products Division are included in the financial statements of the Company beginning on the acquisition date. The selected historical financial and other data, with the exception of tons sold and average selling price per ton, as of and for the years ended December 31, 1995 and December 29, 1996, the period from December 30, 1996 through June 16, 1997 and the period from June 17, 1997 through December 31, 1997 have been derived from the financial statements of the Specialty Paper Division, contained elsewhere herein, which have been audited by Ernst & Young LLP, independent auditors. The selected historical financial and other data, with the exception of tons sold and average selling price per ton, as of and for the years ended December 31, 1993 and December 31, 1994 have been derived from the unaudited financial statements of the Specialty Paper Division. The selected historical financial and other data, with the exception of tons sold and average selling price per ton, as of and for the three months ended March 31, 1997 and 1998 have been derived from the unaudited interim financial statements of the predecessor and successor, respectively. In the opinion of management, the interim financial statements as of and for the three months ended March 31, 1997 and 1998 reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the information presented for such periods. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results of operations to be expected for the full year. The information contained in the following table should also be read in conjunction with "Capitalization," "Unaudited Pro Forma Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the historical financial statements of the Specialty Paper Division, including the notes thereto, contained elsewhere in this Prospectus.
PREDECESSOR(1) SUCCESSOR(1) ----------------------------------------------------- ------------ PREDECESSOR SUCCESSOR PERIOD FROM PERIOD FROM ----------- --------- DECEMBER 30, JUNE 17, THREE THREE 1996 1997 MONTHS MONTHS FISCAL YEAR(2) THROUGH THROUGH ENDED ENDED -------------------------------------- JUNE 16, DECEMBER 31, MARCH 31, MARCH 31, 1993 1994 1995 1996 1997 1997 1997 1998 ------- ------- -------- ------- ------------ ------------ ----------- --------- STATEMENT OF OPERATIONS DATA: Net sales........................ $86,202 $96,736 $101,049 $85,230 $40,795 $45,921 $21,995 $ 30,170 Cost of sales.................... 73,184 87,587 99,536 76,425 34,231 40,805 18,306 27,098 ------- ------- -------- ------- ------- ------- ------- -------- Gross profit..................... 13,018 9,149 1,513 8,805 6,564 5,116 3,689 3,072 Selling, general and administrative expenses......... 3,231 4,833 3,455 4,434 1,539 3,302 838 2,523 Corporate overhead allocation.... 5,165 5,829 6,260 5,537 724 -- 390 -- ------- ------- -------- ------- ------- ------- ------- -------- Operating income (loss).......... 4,622 (1,513) (8,202) (1,166) 4,301 1,814 2,461 549 Interest expense................. 117 146 146 144 124 1,187 62 1,643 ------- ------- -------- ------- ------- ------- ------- -------- Income (loss) before income taxes and extraordinary item.......... 4,505 (1,659) (8,348) (1,310) 4,177 627 2,399 (1,094) Income tax provision (benefit)... 1,945 (494) (2,777) (335) 1,655 413 926 (289) ------- ------- -------- ------- ------- ------- ------- -------- Income (loss) and extraordinary item............................ 2,560 (1,165) (5,571) (975) 2,522 214 1,473 (805) Extraordinary item............... -- -- -- -- -- -- -- (597) ------- ------- -------- ------- ------- ------- ------- -------- Net income (loss)................ $ 2,560 $(1,165) $ (5,571) $ (975) $ 2,522 $ 214 $ 1,473 $ (1,402) ======= ======= ======== ======= ======= ======= ======= ======== BALANCE SHEET DATA (AT END OF PERIOD): Cash............................. $ -- $ 88 $ 67 $ -- $ -- $ 772 $ -- $ 1,271 Working capital(3)............... 4,857 3,989 8,555 3,259 5,761 5,437 10,532 27,162 Total assets..................... 54,769 56,842 47,786 49,619 51,591 51,892 50,640 230,214 Total debt....................... 3,500 3,500 3,500 3,500 3,500 20,859 3,500 157,785 Total stockholder's equity....... 37,112 35,947 30,376 29,401 31,923 8,188 30,874 27,498 OTHER DATA: Capital expenditures............. $ 1,854 $ 1,568 $ 3,878 $ 1,220 $ 66 $ 513 $ 23 $ 676 Depreciation and amortization.... 2,038 2,104 2,257 2,330 1,070 766 535 1,488 Ratio of earnings to fixed charges(4)...................... 20.2x -- -- -- 25.0x 1.5x 27.7x 1.6x Tons sold........................ 79,627 87,764 79,662 73,019 36,594 43,736 19,841 26,784 Average selling price per ton.... $ 1,083 $ 1,102 $ 1,268 $ 1,167 $ 1,115 $ 1,050 $ 1,109 $ 1,126
31 36 - ------------------------------ (1) The Specialty Paper Division was acquired from Simpson as of June 17, 1997 in a transaction accounted for under the purchase method of accounting. (2) The Specialty Paper Division has a fiscal year ending on the Sunday closest to December 31. (3) Working capital represents total current assets less total current liabilities. Throughout 1993 to June 16, 1997, Simpson performed cash management on a centralized basis and processed related accounts receivable. Accordingly, accounts receivable were funded immediately by Simpson and are not included in working capital for fiscal years 1993, 1994, 1995 and 1996 and the period from December 30, 1996 through June 16, 1997. (4) For purposes of computing this ratio, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing costs and one-third of the rent expense from operating leases, which management believes is a reasonable approximation of the interest factor of the rent. For fiscal years 1994, 1995 and 1996, earnings were inadequate to cover fixed charges by $1,659, $8,348 and $1,310, respectively. 32 37 CONSUMER PRODUCTS DIVISION The following table sets forth selected historical financial and other data of the Consumer Products Division as of and for each of the years in the five-year period ended December 31, 1997. The selected historical financial and other data, with the exception of tons sold and average selling price per ton, as of and for each of the years in three-year period ended December 31, 1997, have been derived from the financial statements of the Consumer Products Division, contained elsewhere herein, which have been audited by Arthur Andersen LLP, independent public accountants. The selected historical financial and other data, with the exception of tons sold and average selling price per ton, as of and for each of the years in the two-year period ended December 31, 1994 have been derived from the unaudited financial statements of the Consumer Products Division. The information contained in the following table should also be read in conjunction with "Capitalization," "Unaudited Pro Forma Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the historical financial statements of the Consumer Products Division, including the notes thereto, contained elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1993 1994 1995 1996 1997 ----------- ----------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Net sales................................................ $105,040 $104,884 $107,013 $133,649 $136,176 Cost of sales............................................ 110,619 115,713 129,483 124,052 121,751 -------- -------- -------- -------- -------- Gross profit (loss)...................................... (5,579) (10,829) (22,470) 9,597 14,425 Selling, general and administrative expenses............. 3,490 3,967 3,228 3,351 2,919 Corporate overhead allocation(1)......................... 1,555 1,724 1,509 1,962 2,057 -------- -------- -------- -------- -------- Operating income (loss).................................. (10,624) (16,520) (27,207) 4,284 9,449 Interest expense......................................... -- 89 881 812 846 -------- -------- -------- -------- -------- Income (loss) before income taxes........................ (10,624) (16,609) (28,088) 3,472 8,603 Income tax provision (benefit)(2)........................ (3,957) (6,187) (10,533) 1,354 3,355 -------- -------- -------- -------- -------- Net income (loss)........................................ $ (6,667) $(10,422) $(17,555) $ 2,118 $ 5,248 ======== ======== ======== ======== ======== BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents................................ $ -- $ -- $ -- $ -- $ -- Working capital.......................................... 10,369 18,211 18,053 19,294 15,560 Total assets............................................. 113,669 139,713 139,670 129,443 116,473 Total debt(5)............................................ -- 18,800 18,800 18,800 18,800 Intercompany accounts(6)................................. 82,548 94,951 99,107 89,638 75,489 OTHER DATA: Capital expenditures..................................... $ 9,988 $ 14,450 $ 21,113 $ 1,922 $ 3,737 Depreciation and amortization(3)......................... 8,906 9,710 11,298 11,809 11,309 Ratio of earnings to fixed charges(4).................... -- -- -- 5.3x 11.2x Tons sold................................................ 94,212 92,292 80,609 90,445 96,888 Average selling price per ton............................ $ 1,115 $ 1,136 $ 1,328 $ 1,478 $ 1,405
33 38 - ------------------------------ (1) Corporate overhead allocation represents a pro rata (based on sales dollars) allocation of certain Pope & Talbot, Inc. corporate administrative costs not directly attributable to the Consumer Products Division. These costs include such items as tax services, certain human resource services, and general corporate administrative costs. (2) The Consumer Products Division historically has been included in the consolidated income tax returns of Pope & Talbot, Inc. Income taxes are presented here as if Consumer Products Division filed its taxes on a separate return basis. (3) Includes amortization of deferred financing costs of $2, $14, $14 and $13 for the years ended December 31, 1994, 1995, 1996 and 1997, respectively. (4) For purposes of computing this ratio, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense and amortization of deferred financing costs. For the years ended December 31, 1993, 1994 and 1995, earnings were inadequate to cover fixed charges by $10,624, $16,609 and $28,088, respectively. (5) Total debt consists of a note payable to the City of Eau Claire, Wisconsin due 2014 in connection with the issuance of the Eau Claire IRBs to finance a wastepaper pulping improvement project at the Consumer Products Division's Eau Claire, Wisconsin facility. The note payable is to be assumed by the Company in connection with the Acquisition. (6) The Consumer Products Division has historically been accounted for as a division of Pope & Talbot, Inc. and therefore has no separate historical equity accounts. Cash funding and distributions have been managed through Pope & Talbot, Inc.'s corporate cash management system. Cash collected from and distributed to the Consumer Products Division has been reflected in the intercompany account balance. The intercompany account balance represents the net accumulated transactions between the Consumer Products Division and Pope & Talbot, Inc. 34 39 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion and analysis should be read in conjunction with the financial statements of the Specialty Paper Division and the Consumer Products Division, including the notes thereto, contained elsewhere in this Prospectus. Prior to the 1997 Acquisition and the Acquisition, the Specialty Paper Division and the Consumer Products Division were not operated as separate, stand alone companies. As described under "Unaudited Pro Forma Financial Information," a number of significant changes occurred in the funding and operation of the Specialty Paper Division and the Consumer Products Division in connection with the Transactions. As a result, the historical financial information included in this Prospectus does not necessarily reflect what Plainwell's financial position and results of operations would have been had each division been operated as a separate, stand-alone entity during the periods presented. The Company acquired the Consumer Products Division simultaneously with the consummation of the Offering. Accordingly, the following discussion regarding the Consumer Products Division is based on its historical financial information relating to periods of ownership by Pope & Talbot. Holdings acquired the Specialty Paper Division on June 16, 1997, and merged the division with and into the Company in connection with the consummation of the Offering. The results of operations of the Specialty Paper Division have been included in the financial statements of the Company since June 17, 1997. Prior to the 1997 Acquisition, the Company had no operations and no significant assets. The Offering and the Acquisition will prospectively affect the Company's results of operations and financial position in significant respects. The acquisition of the Specialty Paper Division and the Consumer Products Division were each accounted for using the purchase method of accounting. The purchase price of the Specialty Paper Division was $32.5 million, which included $9.8 million for inventory. The purchase price of the Consumer Products Division was $121.0 million in cash (less a working capital adjustment), plus the assumption of certain liabilities. See "Prospectus Summary -- The Transactions." GENERAL The Company is a leading U.S. producer and marketer of value-added paper products for niche markets within the paper industry. The Company conducts its business through two divisions: (i) the Consumer Products Division, which produces private label consumer tissue products such as bath tissue, paper towels, napkins, and facial tissue, and (ii) the Specialty Paper Division, which produces premium coated and uncoated printing papers and release and other technical/specialty papers. Market conditions and demand for the Company's products are generally subject to cyclical changes in the economy and changes in industry operating rate and capacity, all of which can significantly impact selling prices and the Company's profitability. The Company believes that these two divisions are generally subject to different market conditions and supply and demand characteristics. THE COMPANY AND SPECIALTY PAPER DIVISION On March 6, 1998, the Specialty Paper Division was merged with PLAINWELL INC. and PLAINWELL INC. purchased the Consumer Products Division pursuant to the Acquisition Agreement dated January 22, 1998. The historical financial statements of the Specialty Paper Division are presented as the historical financial statements of the Company and the results of operations of the Consumer Products Division are included in the financial statements of the Company beginning on the acquisition date. Although the selling prices of the Specialty Paper Division's products are impacted by the general movement in the cost of principal raw materials, primarily pulp, they have historically been less vulnerable to such movements than the products of the Consumer Products Division. When raw material prices increase, the division's profitability is dependent on the timing and degree to which it is able to pass through price increases to its customers. The actual impact on the division of raw materials price changes is affected by a 35 40 number of factors including the level of inventories at the time of a price change, the specific timing and frequency of price changes, and the lag time that generally accompanies the implementation of selling price changes following increases in raw materials prices. In 1995, the division was adversely affected by a more than doubling of the price of pulp compared to 1994. During 1996, pulp prices returned to near 1994 levels and remained relatively stable throughout 1997. In addition to selling and raw material prices, the division's gross and operating income margins are impacted by manufacturing utilization levels. Management believes the division's previous owners used the facility to supply inventory as a portion of its corporate-wide needs and did not seek to maximize production at the Plainwell Mill. As part of its current business strategy, management has restructured its sales force in an effort to increase sales and will seek to improve margins and profitability by operating the facility at or near capacity in the future. RESULTS OF OPERATIONS -- THE COMPANY AND SPECIALTY PAPER DIVISION Holdings acquired the Specialty Paper Division on June 16, 1997. The financial results of the division for all periods prior to such date reflect the operations of the division while it was under the ownership of Simpson. For the period from June 17, 1997 through December 31, 1997, the financial results of the Specialty Paper Division have been included in the financial statements of Holdings. The financial information for the Specialty Paper Division before and after its acquisition are not directly comparable because of differences in accounting policies applied by Simpson and the Company and purchase method accounting adjustments relating to its acquisition. The historical financial information of the Specialty Paper Division for the three months ended March 31, 1997 are presented as the historical financial information of the Company. The historical financial information of the Company for the three months ended March 31, 1998 includes the results of operations of the Consumer Products Division since March 6, 1998. The following table sets forth for the periods presented the Specialty Paper Division's and the Company's historical results of operations as a percentage of net sales.
SPECIALTY PAPER SPECIALTY PAPER DIVISION - COMPANY DIVISION - PREDECESSOR SUCCESSOR --------------------------- -------------------------------------- ------------ PREDECESSOR SUCCESSOR PERIOD FROM PERIOD FROM ----------- --------- DECEMBER 30, JUNE 17, THREE THREE 1996 1997 MONTHS MONTHS THROUGH THROUGH ENDED ENDED FISCAL FISCAL JUNE 16, DECEMBER 31, MARCH 31, MARCH 31, YEAR 1995 YEAR 1996 1997 1997 1997 1998 --------- --------- ------------ ------------ ----------- --------- Net sales................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales............ 98.5 89.7 83.9 88.9 83.2 89.8 ----- ----- ----- ----- ----- ----- Gross profit............. 1.5 10.3 16.1 11.2 16.8 10.2 Selling, general and administrative expenses............... 3.4 5.2 3.8 7.2 3.8 8.4 Corporate overhead allocation............. 6.2 6.5 1.8 -- 1.8 -- ----- ----- ----- ----- ----- ----- Operating income (loss)................. (8.1)% (1.4)% 10.5% 4.0% 11.2% 1.8% ===== ===== ===== ===== ===== =====
Three months ended March 31, 1998 compared to the three months ended March 31, 1997. Net Sales Net sales increased $8.2 million to $30.2 million for the three months ended March 31, 1998 compared to $22.0 million for the three months ended March 31, 1997. The increase was attributable to the acquisition of the Consumer Products Division which added $10.2 million in net sales. Sales for the Specialty Paper Division decreased $2.0 million to $20.0 million for the three months ended March 31, 1998 compared to $22.0 million for the three months ended March 31, 1997. The decrease in sales for Specialty Paper Division was attributable to an increase in the proportion of lower priced products and a 1.2% decline in tons sold. 36 41 Cost of Sales and Gross Profit Cost of sales increased $8.8 million to $27.1 for the three months ended March 31, 1998 compared to $18.3 million for the three months ended March 31, 1997. The increase was attributable to the acquisition of the Consumer Products Division which added $9.1 in cost of sales. Cost of sales for the Specialty Paper Division decreased approximately $0.3 million or 1.5% to $18.0. Gross profit as a percent of net sales decreased to 10.2% for the three months ended March 31, 1998 compared to 16.8% for the three months ended March 31, 1997. The decrease in the gross profit percentage was mostly attributable to an increase in the cost of fiber during the three months ended March 31, 1998 compared to the three months ended March 31, 1997. Selling, General and Administrative Expenses Selling, general and administrative expenses increased $1.3 million to $2.5 million for the three months ended March 31, 1998 compared to $1.2 million for the three months ended March 31, 1997. The increase was attributable to the acquisition of the Consumer Products Division which added $0.8 million in additional costs. Costs for the Specialty Paper Division increased due to additional sales personnel and other administrative expenses that have been added following the consummation of the 1997 Acquisition. Operating income (loss) For the three months ended March 31, 1998 the Company's operating income was $0.5 million compared to $2.5 million for the three months ended March 31, 1997. The decline in operating income is attributable to the $0.6 million decline in gross margins resulting from sales of an increase proportion of lower priced products and the $1.3 million increase in selling, general and administrative expenses. 1997 Compared to 1996 Net Sales. The Specialty Paper Division's net sales increased $1.5 million, or 1.7%, to $86.7 million for 1997 compared to $85.2 million for 1996. The increase was attributable to a 10.0% increase in tons sold from 73,019 tons for 1996 to 80,330 tons for 1997 which was partially offset by a 7.6% reduction in the average selling price per ton. Cost of Sales and Gross Profit. Cost of sales decreased $1.4 million, or 1.8%, to $75.0 million for 1997 compared to $76.4 million for 1996. Cost of sales as a percentage of net sales decreased to 86.5% for 1997 compared to 89.7% for 1996. As a percentage of net sales, gross profit improved to 13.5% for 1997 compared to 10.3% for 1996. The improvement in both cost of sales as a percentage of net sales and gross profit was primarily due to lower pulp prices, reduced headcount and improved capacity utilization which were partially offset by lower average selling prices per ton. Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of net sales was 7.2% for the period from June 17, 1997 through December 31, 1997 and 3.8% for the period from December 30, 1996 through June 16, 1997 compared to 5.2% for 1996. The increase for the period June 17, 1997 through December 31, 1997 was primarily due to additional general and administrative expenses incurred by the division following the consummation of the 1997 Acquisition representing costs for administrative services previously provided by Simpson and thus previously reflected in the corporate overhead allocation. Corporate Overhead Allocation. Corporate overhead allocation represents amounts charged to the division from Simpson for certain administrative services rendered. Corporate overhead allocation declined $4.8 million to $724,000 for the period December 30, 1996 through June 16, 1997 compared to $5.5 million for 1996. Corporate overhead allocation was not charged to the division subsequent to the acquisition from Simpson, and thus for the period June 17, 1997 to December 31, 1997, there were no costs charged to the division. Subsequent to June 17, 1997, incremental costs for the required services previously provided by Simpson are reflected in selling, general and administrative expenses. Operating Income (Loss). Operating income as a percentage of net sales was 4.0% for the period from June 17, 1997 through December 31, 1997 and 10.5% for the period from December 30, 1996 through June 16, 1997 compared to a 1.4% loss for 1996. This improvement was primarily attributable to higher gross margins resulting from decreased costs of raw materials. 37 42 1996 Compared to 1995 Net Sales. The Specialty Paper Division's net sales decreased $15.8 million, or 15.7%, to $85.2 million for 1996 compared to $101.0 million for 1995. The decrease in net sales was due to a combination of a 8.3% reduction in tons sold to 73,019 tons for 1996 from 79,662 tons for 1995, and an 8.0% decrease in the average selling price per ton. The reduction in tons sold was partially attributable to the announcement of the pending sale of the division. Cost of Sales and Gross Profit. Cost of sales decreased $23.1 million, or 23.2%, to $76.4 million for 1996 compared to $99.5 million for 1995. Cost of sales as a percentage of net sales decreased to 89.7% for 1996 compared to 98.5% for 1995. As a percentage of net sales, gross profit increased to 10.3% for 1996 compared to 1.5% for 1995. The reduction in cost of sales was primarily due to the decrease in tons sold and a reduction in prices of raw materials compared to 1995. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $979,000, or 28.3% to $4.4 million for 1996 compared to $3.5 million for 1995. Selling, general and administrative expenses as a percentage of net sales increased 1.8% to 5.2% for 1996 compared to 3.4% for 1995. The increase was primarily due to an increase in workers compensation insurance expense. Corporate Overhead Allocation. Corporate overhead allocation decreased $723,000, or 11.5% to $5.5 million for 1996 compared to $6.3 million for 1995. Corporate overhead allocation as a percentage of net sales increased to 6.5% for 1996 compared to 6.2% for 1995. Operating Loss. Operating loss decreased $7.0 million to $1.2 million for 1996 compared to an $8.2 million loss for 1995. The improvement in operating loss was primarily attributable to reduced costs of raw materials. CONSUMER PRODUCTS DIVISION The selling prices of the Consumer Product Division's products are largely a function of demand and industry capacity. The Consumer Products Division's private label tissue products are generally priced at a discount to their nationally branded counterparts. The tissue markets, which were subject to industry-wide overcapacity and substantial price competition beginning in the early 1990s, began to recover in early 1995 as supply and demand began to equalize and manufacturers were able to pass through increases in raw material prices. According to the U.S. Bureau of Labor Statistics, market tissue prices for 1991, 1992, 1993, 1994, 1995, and 1996 increased (decreased) by 0.7%, 0.5%, (1.7%), (1.0%), 8.4%,and 3.8%, respectively. Based on preliminary estimates by the U.S. Bureau of Labor Statistics, tissue prices declined by 2.0% (subject to change), in 1997. Management believes that this decline was the result of downward pricing pressure based on lower pulp and waste paper costs. However, management anticipates that tissue prices will improve in 1998, and in January 1998 one industry participant announced tissue price increases of approximately 4% to 7%. There can be no assurance, however, that any such price increase will be implemented. The division's profitability is affected by the timing and degree to which it is able to pass through price increases of its raw materials, particularly wastepaper. Wastepaper generally follows the pricing trends of world pulp markets. In the second half of 1994 and the first half of 1995, pulp and wastepaper prices increased significantly. From 1994 to 1995, the Consumer Products Division's wastepaper costs per ton increased from $127 to $247 for post-consumer waste and from $128 to $299 for pre-consumer waste. These costs per ton declined along with the pulp market by early 1996 and in 1997 have averaged $153 for pre-consumer waste and $110 for post-consumer waste. Generally, the Company is able to increase sales prices in times of rising material costs and is forced to reduce prices in times of declining costs. However, there is usually a lag of several months before the Company adjusts its prices. The Consumer Products Division has recently generated significant improvement in its operating performance. In 1997, net sales, EBITDA and net income were $136.2 million, $20.7 million and $5.2 million, respectively, as compared to $104.9 million, a $6.8 million loss and a $10.4 million net loss, respectively, for 1994. The Company believes this improvement was primarily due to the approximately $50.0 million of capital investment over the last five years, used primarily to strategically reposition the division. Important elements 38 43 of the strategic repositioning included the upgrade of existing facilities, including a new pulping and de-inking operation at the Eau Claire, Wisconsin facility, the construction of the Pittston, Pennsylvania converting facility and the development and implementation of the integrated computer-based customer service system. Such capital expenditures have enabled the Company to: (i) produce a brighter, softer pulp which has improved finished product quality and allowed the Company to command higher prices for its products; (ii) increase sales of higher margin, premium tissue products such as two-ply bath tissue and paper towels; (iii) improve its level of customer service; (iv) increase sales to mass merchandisers and wholesale clubs; and (v) increase productivity and realize manufacturing efficiencies. As a result of these improvements, the net selling price per ton realized by the division increased 23.7% from 1994 to 1997. During the same period, market tissue prices as measured by the U.S. Bureau of Labor Statistics increased by 10.8%. In addition, to address the Ransom, Pennsylvania facility's historically high labor cost structure, the Company implemented a labor contract in 1995 which resulted in an eight-month strike. The strike was resolved in December 1995 and a new labor agreement was adopted, resulting in increased workforce flexibility and reduced labor costs. The 1995 strike had a significant impact on financial performance in 1995 and also affected financial performance in 1996 as the Company resumed full-scale operations at the Ransom, Pennsylvania facility. The Company believes that the strategic repositioning of the division has resulted in significant improvement in the Consumer Products Division's operating performance and positions the division to pursue future growth opportunities. RESULTS OF OPERATIONS -- CONSUMER PRODUCTS DIVISION The following table sets forth for the periods presented the Consumer Products Division's historical results of operations as a percentage of net sales.
YEAR ENDED DECEMBER 31, ----------------------- 1995 1996 1997 ----- ----- ----- Net sales................................................... 100.0% 100.0% 100.0% Cost of sales............................................... 121.0 92.8 89.4 ----- ----- ----- Gross profit (loss)......................................... (21.0) 7.2 10.6 Selling, general and administrative expenses................ 3.0 2.5 2.1 Corporate overhead allocation............................... 1.4 1.5 1.5 ----- ----- ----- Operating income (loss)..................................... (25.4)% 3.2% 7.0% ===== ===== =====
1997 Compared to 1996 Net Sales. The Consumer Products Division's net sales increased $2.6 million, or 1.9%, to $136.2 million for 1997 compared to $133.6 million for 1996. The increase was attributable to a 7.1% increase in tons sold to 96,888 for 1997 compared to 90,445 for 1996 and which was partially offset by a 4.9% reduction in the average selling price per ton to $1,405 for 1997 as compared to $1,478 per ton for 1996. The decrease in the selling price per ton was primarily the result of downward pricing pressure based on lower wastepaper costs for 1997, which was partially offset by a more favorable mix of higher margin products. Cost of Sales and Gross Profit. Cost of sales decreased $2.3 million, or 1.9%, to $121.8 million for 1997 compared to $124.1 million for 1996. Cost of sales as a percentage of net sales decreased to 89.4% for 1997 compared to 92.8% for 1996. As a percentage of net sales, gross profit improved to 10.6% for 1997 compared to 7.2% for 1996. The improvement in both cost of goods sold and gross profit as a percentage of net sales was primarily due to increased sales of higher margin products, higher utilization rates on manufacturing equipment, lower raw material costs as a percentage of net sales, and increased salary absorption related to increased volume. In addition, costs were higher for 1996 as the division recovered from the effects of the strike at the Ransom, Pennsylvania facility which ended in December 1995. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $432,000, or 12.9% to $2.9 million for 1997 compared to $3.4 million for 1996. Selling, general and administrative expenses as a percentage of net sales decreased 0.4% to 2.1% for 1997 compared to 2.5% for 39 44 1996. The decrease was primarily due to a continued emphasis on controlling costs, and in particular for this period, reduction in salary and benefits expenses. Corporate Overhead Allocation. Corporate overhead allocation represents amounts charged to the division from Pope & Talbot, Inc. for certain administrative services rendered. Corporate overhead allocation remained essentially flat at $2.1 million and $2.0 million, or 1.5% of net sales, for 1997 compared to 1996, respectively. The Company believes the corporate overhead allocation amounts are higher than amounts that would have been realized had the division operated as a stand alone business. See "Unaudited Pro Forma Consolidated Financial Information." Operating Income. Operating income increased $5.1 million, or 118.6% to $9.4 million for 1997 compared to $4.3 million for 1996. Operating income as a percentage of net sales increased 3.8% to 7.0% for 1997 compared to 3.2% for 1996. This improvement was primarily attributable to higher gross profit for 1997. 1996 Compared to 1995 Net Sales. The Consumer Products Division's net sales increased $26.6 million, or 24.9%, to $133.6 million for 1996 compared to $107.0 million for 1995. The increase was attributable to (i) a 12.2% increase in tons sold for 1996 to 90,445 compared to 80,609 for 1995 as the Company recovered from an eight-month strike at its Ransom, Pennsylvania facility in 1995 and (ii) an 11.3% increase in the average selling price per ton for 1996 to $1,478 compared to $1,328 for 1995, due in part to higher percentage of sales in higher price product lines such as two-ply paper towels and napkins. Cost of Sales and Gross Profit (Loss). Cost of sales decreased $5.4 million, or 4.2% to $124.1 million for 1996 compared to $129.5 million for 1995. Cost of sales as a percentage of net sales decreased to 92.8% for 1996 compared to 121.0% for 1995. As a percentage of net sales, gross profit improved to 7.2% for 1996 compared to a gross loss in 1995. The improvement in both cost of goods sold as a percentage of net sales and gross profit was primarily due to the settlement at the end of 1995 of an eight-month strike at the Ransom, Pennsylvania facility which negatively impacted 1995 results. In addition, this improvement was due to increased sales of higher quality, higher margin products as the division began to realize the benefits of its capital improvement program at the Eau Claire, Wisconsin facility, which was completed in 1995, lower raw material costs and higher utilization rates on manufacturing equipment. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $123,000, or 3.8%, to $3.4 million for 1996 compared to $3.2 million for 1995. Selling, general and administrative expenses as a percentage of net sales decreased 0.5% to 2.5% for 1996 compared to 3.0% 1995. The decrease was primarily due to the increase in net sales. Corporate Overhead Allocation. Corporate overhead allocation increased $453,000, or 30.0% to $2.0 million for 1996 compared to $1.5 million for 1995. Corporate overhead allocation as a percentage of net sales increased 0.1% to 1.5% for 1996 compared to 1.4% for 1995. Operating Income (Loss). Operating income increased $31.5 million to $4.3 million for 1996 compared to a $27.2 million loss for 1995. Operating income as a percentage of net sales was 3.2% for 1996. The improvement in operating income was primarily attributable to higher gross profit for 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements are for working capital, debt service, capital expenditures and possible acquisitions. Management believes that cash generated from operations, together with borrowings under the New Credit Facility, will be sufficient to meet the Company's capital needs in the foreseeable future. Capital expenditures were $0.7 million for the three months ended March 31, 1998 compared to $0.02 for the three month period ended March 31, 1997. Capital expenditures for the Specialty Paper Division were $629,000 for 1997 compared to $1.2 million and $4.7 million in 1996 and 1995, respectively. The 1995 expenditures were primarily used to: (i) construct a 40 45 new pulping building; (ii) install a new pulping system; (iii) relocate an existing pulper; and (iv) replace certain other equipment. Capital expenditures at the Consumer Products Division were $3.7 million for 1997 compared to $1.9 million and $21.1 million for 1996 and 1995, respectively. The 1995 expenditures were primarily used for a new pulping operation at the Eau Claire, Wisconsin facility which substantially increased pulp production capacity and improved the product quality at that facility. For 1998 the Company anticipates capital expenditures of approximately $7 million to $9 million which is expected to be used to complete installation of the "pop-up" facial converting line at the Pittston, Pennsylvania facility, for additional converting capacity and for general equipment maintenance. The Company estimates that $730,000 will be spent in 1998 on environmental compliance and cleanup work at its operating locations. The Company further estimates that future capital spending to comply with the Cluster Rules and the GLI could be up to $5 million. The Company cannot predict if or when such rules will be promulgated in a form that will require the Company to make such expenditures. In addition, the Company is indemnified under various agreements with respect to other contingent environmental liabilities. See "Risk Factors -- Environmental Matters" and "Business -- Environmental Matters." In connection with the consummation of the Merger and the Acquisition, the Company established the New Credit Facility which matures in 2003 and which provides for up to $35.0 million of borrowings on a revolving basis, subject to a borrowing base, and up to an additional $20.0 million for letters of credit to secure the Eau Claire IRBs. The New Credit Agreement contains certain financial and operational covenants and other restrictions with which the Company must comply, including among others, a requirement to maintain certain financial ratios and limitations on the Company's ability to incur additional indebtedness. See "Description of Certain Indebtedness." The Year 2000 issue relates to the ability or inability of computer systems to properly process information and data containing or related to dates beginning with the year 2000 and beyond. The Year 2000 issue exists because, historically, many computer systems that are in use today were developed years ago when a year was identified using a two-digit field rather than a four-digit field. As information and data containing or related to the century date are introduced to computer hardware, software and other systems, date sensitive systems may recognize the year 2000 as "1900", or not at all, which may result in computer systems processing information incorrectly. This, in turn, may significantly and adversely affect the integrity and reliability of information databases and may result in a wide variety of adverse consequences to a company. In addition, Year 2000 problems that occur with third parties with which a company does business, such as suppliers, computer vendors, distributors and others, may also adversely affect any given company. In connection with the 1997 Acquisition, Plainwell Paper Company and Simpson entered into a Transition Services Agreement pursuant to which Simpson agreed to provide certain services to Plainwell Paper Company for a period ending not later than the second anniversary of the 1997 Acquisition. The Company entered into an 18-month Transition Services Agreement with Pope & Talbot, Inc. for the purposes of maintaining and processing the Consumer Products Divisions information systems requirements. The Company has engaged a consulting firm to assist in (i) inventorying the Consumer Products Division existing information systems, (ii) determining the ongoing productivity of each such system to the Consumer Products Division, (iii) determining fitness for use of such systems by the Specialty Products Division and certain other tasks, including Year 2000 impact; and (iv) certain other tasks. The Company has made an initial assessment of the Year 2000 impact. At the Specialty Paper Division management plans are installing new software. The Consumer Products Division management plans on contracting with third parties to provide enhancements to existing software with greater functionality and change the hardware that the software will operate on. The enhancements will include compliance with Year 2000 issues. Based on preliminary estimates, the Company expects to incur costs of approximately $2.5 million during the next 18 months, the majority of which are expected to be capital in nature. Management believes that based on current levels of operations and anticipated internal growth, cash flow from operations, together with other available sources of funds including the availability of seasonal 41 46 borrowings under the New Credit Facility will be adequate for the foreseeable future to make required payments of principal and interest on the Company's indebtedness, to fund anticipated capital expenditures and working capital requirements. The ability of the Company to meet its debt service obligations and reduce its total debt will be dependent, however, upon the future performance of the Company which, in turn, will be subject to general economic conditions and to financial, business and other factors, including factors beyond the Company's control. A portion of the debt of the Company bears interest at floating rates; therefore, its financial condition is and will continue to be affected by changes in prevailing interest rates. INFLATION The Company believes that inflation has not had a material impact on the results of operations of either the Consumer Products Division or the Specialty Paper Division. 42 47 INDUSTRY OVERVIEW The paper industry is generally divided into three market segments: (i) printing and writing papers; (ii) packaging; and (iii) tissue. The Company competes in the tissue segment and the premium end of the printing and writing papers segment. The Company also produces release and other technical/specialty papers. TISSUE Tissue paper is used principally for bath tissue, facial tissue, napkins and paper towels and is sold to consumer and commercial/industrial customers. According to industry sources, the U.S. tissue industry has among the highest profit margins and most stable growth rates in the paper industry. From 1975 to 1996, total shipments for the U.S. tissue industry increased from 4.0 million tons to 6.3 million tons, a compound annual growth rate of 2.2%. In the last 10 years total shipments have declined only once and in the last 22 years shipments have not declined in successive years. [U.S. SHIPMENT OF TISSUE BAR CHART] In 1996, the U.S. consumer tissue industry had sales of approximately $7 billion, which accounted for approximately 63% of the U.S. tissue industry's sales. Domestic consumer tissue shipments grew from 2.7 million tons in 1984 to 3.9 million tons in 1996, a compound annual growth rate of 3.1%. The Company believes that shipment growth rates in the consumer market are primarily affected by population growth trends and general economic growth. In 1996, branded premium products, branded value products and private label products accounted for 44%, 40% and 16%, respectively, of total consumer tissue shipments. In 1996, bath tissue accounted for 54% of the market, with paper towels making up 31%, and facial tissue and napkins accounting for the remainder. Historically, the primary channels of distribution for the at home market have been grocery stores, and to a lesser extent, retail drug stores and pharmacies. However, during the past several years mass merchandisers and warehouse clubs have become increasingly important distribution channels. The private label market is a niche market in the tissue segment of the paper industry. The Company believes that there are significant opportunities for growth in the private label tissue market because of: (i) increased recognition by consumers that private label tissue products offer quality at value prices; (ii) increased emphasis by retailers who generally receive higher margins on private label tissue products than on their nationally branded counterparts; and (iii) the growth of mass merchandisers and wholesale clubs which have traditionally emphasized private label tissue products. 43 48 The Company believes that tissue segment operating rates (i.e., actual production divided by industry capacity) of approximately 92% to 93% represent balanced supply and demand. During the period from 1991 through 1993, tissue industry operating rates fell to approximately 91% due to higher than historic capacity additions. At the same time, there was significant price competition in the premium branded segment of the market which, as seen in the chart below, effectively capped prices for the period from 1991 through 1994. According to the American Forest & Paper Association, tissue industry operating rates have since increased from the levels experienced in 1992 and were 94.3% for the year ended December 31, 1997. The tissue pricing environment has improved as operating rates increased, price competition at the premium level decreased and market prices, as measured by the tissue price index shown in the table below, have increased by 10.8% (as of September 30, 1997) since 1994 and at a compound annual rate of 4.6% since 1975. According to information provided by the American Forest & Paper Association, capacity additions are expected to be approximately 2.3% in 1998 and approximately 3.8% in 1999. Since this information was published, there have been public announcements of capacity curtailments that would reduce industry capacity growth to (0.1)% in 1998 and 3.0% in 1999. These rates compare to the growth rate in industry capacity of 2.1% per year from 1977 to 1997 and 1.7% per year for the last five years ended 1997.
Measurement Period (Fiscal Year Covered) 1975 100 110 122 1978 130 144 167 1981 179 182 186 1984 188 194 197 1987 198 209 229 1990 246 248 249 1993 245 242 263 1996 273 267
PRINTING AND WRITING PAPERS Coated Paper Coated papers are primarily used in media and marketing applications including corporate annual reports, high-end advertising brochures, magazines and catalogs, and direct mail advertising. Coated papers can be split into two main categories based on price and quality: coated groundwood papers (made with 10% or more of mechanical pulp) and free-sheet papers (made with chemically treated pulp). Chemically treated pulp produces brighter and stronger paper than groundwood pulp. Coated papers are further differentiated into five product grades of decreasing brightness ranging from No. 1 (highest quality and brightness) to No. 5 (lowest quality and brightness). Each grade is produced in a variety of basis weights (weight per sheet size) and finish which can be gloss, dull or matte. The coating process changes the gloss, ink absorption, texture and opacity of the paper to meet the performance requirements of each customer group. 44 49 The following table shows the characteristics, applications and relative market size of each of the coated paper grades.
GENERAL 1997 U.S. GRADE CHARACTERISTICS TONS SOLD BASESTOCK BRIGHTNESS TYPICAL USE - ----- ------------------ --------- ------------------ ---------- ------------------ No.1... Enameled, double- 455,255 High-brightness 82 to 88 Corporate coated, expensive chemical pulp, communications, base and coating, heavily filled high-end high gloss advertising No.2... Double-coated, 1,142,314 High-brightness 78 to 82 Expensive expensive base and chemical pulp advertising, coating brochures, magazine covers No.3... Single or double 2,218,619 Chemical pulp, 76 to 82 Upscale catalogs, coated, lower minor amounts of direct mail quality basesheet groundwood promotions, magazines and text books No.4... Lower cost, lower 1,146,307 Groundwood and 72 to 78 Magazines, brightness chemical pulp, catalogs and some clay filler direct mail catalogs No.5... Lower basis 3,934,199 Mostly groundwood 68 to 72 Mass market, weight, high or thermo- catalogs, weekly groundwood content mechanical pulp, magazines, large chemical pulp volume mailings --------- Total 8,896,694
- ------------------------------ Sources: American Forest & Paper Association. The Specialty Paper Division primarily produces No. 1 and No. 2 premium grades of paper. No. 1 and No. 2 premium grades of paper accounted for approximately 1.5 million tons, or 19.1%, of the total 7.8 million tons of coated two-sided printing paper produced in 1996. Coated free-sheet is typically used for corporate annual reports, high-end advertising brochures, magazines and catalogs, coffee table books and menus for which higher reproduction and graphics quality is required. These grades are characterized by short production runs with frequent grade changes. Coated paper demand and prices are cyclical. Prices are driven by domestic supply and demand and to a lesser extent by the availability and price of imports. Coated two-sided printing paper net imports accounted for 8.6% of domestic consumption in 1996. Demand is generally correlated with domestic economic conditions and more specifically to consumption in end-use markets such as magazine and book publications, food and consumer packaging and business papers. From 1988 to 1993 North American and European coated paper manufacturers increased capacity by approximately six million tons or approximately 40%. At the same time the world's economies moved into a recession which resulted in decreased demand, low operating rates and decreased prices. The improved economic environment and increased demand resulting from a pick-up in advertising pages, catalogs and new publications fueled higher selling prices and lower inventories during 1994 with prices for No.1 coated free-sheet peaking in mid-1995. In response to near record prices demand decreased late in 1995 and through 1996 resulting in lower realized prices across all coated paper grades. Release and Other Technical/Specialty Papers The Company also produces release and other technical/specialty papers. Release paper is used for backing paper for products ranging from postage stamps to food labeling. According to an industry source, this 45 50 market has had a compound annual growth rate of 8.8% for the period from 1993 through 1997. Much of this growth has been driven by (i) consumer applications such as food nutritional labeling, self-adhesive postage stamps and computer printer labels and (ii) industrial applications such as bar code labels, automotive trim and insulation applications. Uncoated Papers The Specialty Paper Division participates to a small degree in the uncoated paper market. The Specialty Paper Division produces a film coated sheet sold under the brand name Satin Kote which is a hybrid between the coated and uncoated segment. The Specialty Paper Division also sells some uncoated offset as filler tonnage when needed. 46 51 BUSINESS GENERAL The Company is a leading U.S. producer and marketer of value-added paper products for niche markets within the paper industry. The Company conducts its business through two divisions: (i) the Consumer Products Division, which produces private label consumer tissue products such as bath tissue, paper towels, napkins and facial tissue, and (ii) the Specialty Paper Division, which produces premium coated and uncoated printing papers and release and other technical/specialty papers. The Company has established leading market positions in certain of these niche markets by combining high quality products, broad product offerings, strong customer service, efficient manufacturing and the significant use of recycled materials. In addition, the Company believes that operating in different niche markets provides the Company with a larger, more diversified income stream. BUSINESS STRATEGY The Company's business strategy is to increase revenues and profitability in its Consumer Products Division and Specialty Paper Division. The Company intends to implement its strategy by: (i) capitalizing on attractive niche markets; (ii) fully utilizing existing capacity; (iii) increasing sales of higher margin products; (iv) enhancing its high level of customer service; (v) reducing costs and increasing operating efficiencies; and (vi) pursuing strategic acquisitions. - CAPITALIZE ON ATTRACTIVE NICHE MARKETS. The Company has positioned itself to take advantage of several niche markets within the paper industry which it believes are attractive and growing. The Consumer Products Division has established a leading market position in the private label segment of the at-home consumer tissue market. The Company believes that the private label tissue market will continue to be an attractive niche market because of: (i) increased recognition by consumers that private label tissue products offer quality at value prices; (ii) increased emphasis by retailers who generally receive higher margins on private label tissue products than on their nationally branded counterparts; and (iii) the growth of mass merchandisers and wholesale clubs which have traditionally emphasized private label tissue products. The Company believes the premium printing paper, release and technical/specialty paper niche markets offer generally higher margins, fewer competitors and more stable prices than the commodity paper market. In addition, according to industry sources, U.S. sales of coated two-sided No. 1 and No. 2 paper, the division's primary printing products, grew at 6.3% and 8.6%, respectively, for 1997 from 1996. The Company further believes it is well positioned for growth in these niche markets due to the Specialty Paper Division's technical expertise, flexible manufacturing capabilities and customized selling process. - FULLY UTILIZE EXISTING CAPACITY. The Company's objective is to fully utilize existing capacity in both the Specialty Paper Division and the Consumer Products Division. The Specialty Paper Division has recently been operating at production levels which are below the approximately 88,000 tons, respectively, of finished product which it produced in 1994. During 1996 and 1997, the Specialty Paper Division produced approximately 67,450 tons and approximately 83,903 tons, of finished product. The Company believes that in the future it can exceed production levels which were achieved in 1994. In addition, the Company believes that there is additional converting capacity in the Consumer Products Division which can be utilized over the next twelve months. The Consumer Products Division also intends to commence full scale production of "pop-up" facial tissue by mid-1998. The Company expects to invest approximately $3.7 million (of which $742,000 has been invested as of December 31, 1997) to acquire and install the necessary "pop-up" converting equipment which will add approximately 5,000 tons of converting capacity. - INCREASE SALES OF HIGHER MARGIN PRODUCTS. The Company plans to continue to increase sales of higher margin products. The Consumer Products Division has successfully increased sales of higher 47 52 margin two-ply bath tissue and paper towels from 43.2% of tons sold in 1994 to 54.2% of tons sold in 1997. The Company plans to commence in mid-1998 the full scale production of higher margin "pop-up" facial tissue. The Company expects this new product will enhance the Company's product line, result in increased sales to the division's existing customers and generate incremental demand for all its private label tissue products. The Specialty Paper Division plans to use its focused marketing, product engineering capabilities and flexible manufacturing to continue to develop new higher margin products for niche applications. In addition, the Company will also continue to focus on increasing sales of its existing higher margin products, such as its Kashmir(R) brand of No. 1 coated printing paper. - ENHANCE HIGH LEVEL OF CUSTOMER SERVICE. The Company intends to continue to enhance its high level of customer service to strengthen its relationships with its customers. The Company believes that the Consumer Products Division is currently the only private label tissue supplier to its customers that utilizes EDI and VMI systems, which enable the Company to assist customers with inventory management, the development of a favorable product mix and the implementation of category management programs. The Company believes that continued high levels of customer service will further increase sales to existing mass merchandisers and warehouse club customers and attract new ones. Management believes that it can extend the application of the Consumer Products Division's computerbased customer service system to customers of the Specialty Paper Division. The system should provide the Specialty Paper Division with a competitive advantage as it seeks to better serve its customer base. In addition, the Specialty Paper Division's sales and service staff expects to continue to fulfill its customers' needs through a highly specialized technical service staff and research and development team. - REDUCE COSTS AND IMPROVE OPERATING EFFICIENCIES. The Company continually focuses on reducing costs and improving operating efficiencies. For example, the Specialty Paper Division has recently increased productivity, as measured by tons of production per employee, by 22.4%, from 210 tons per employee for 1996 to 257 tons per employee for 1997. The Company intends to continue to focus on the Specialty Paper Division's cost reduction efforts as well as implement cost reduction efforts at the Consumer Products Division to: (i) improve manufacturing and converting yield; (ii) reduce freight transportation costs; (iii) improve fiber purchasing and mix; (iv) reduce energy and other manufacturing costs; and (v) eliminate duplicative administrative functions. - PURSUE STRATEGIC ACQUISITIONS. The Company intends to supplement its growth strategy by actively evaluating specialty paper acquisition candidates to expand its manufacturing capacity, strengthen its presence within various channels of distribution, serve new geographic markets or further diversify its operations and income stream. The Company is in discussions from time to time with potential acquisition candidates and believes that the ongoing consolidation of the North American paper industry should present the Company with attractive acquisition opportunities. PRODUCTS The following table sets forth net sales of the Consumer Products Division and the Specialty Paper Division for the periods shown:
YEAR ENDED DECEMBER 31, -------------------------- 1995 1996 1997 ------ ------ ------ (DOLLARS IN MILLIONS) Consumer Products Division.................................. $107.0 $133.7 $136.2 Specialty Paper Division.................................... 101.0 85.2 86.7 ------ ------ ------ Total............................................... $208.0 $218.9 $222.9 ====== ====== ======
Consumer Products Division. The Consumer Products Division's broad line of private label consumer tissue products includes bath tissue, paper towels, napkins and facial tissue which range from economy to premium quality grades, including premium quality paper towels and napkins. Its product assortment is 48 53 designed for the private label consumer tissue market. The Company intends to add "pop-up" tissue to its product offering in mid-1998 and believes that with this addition, the Company will have a broad product line that offers retailers one-stop shopping for their private label tissue needs. The division's premium products include two-ply bath tissue and paper towels, napkins and paper towels with embossing and colored prints in a variety of designs, including seasonal designs. In addition, from time to time the Consumer Products Division sells excess jumbo rolls of tissue (i.e., large rolls of manufactured paper used for conversion into finished product) to other tissue converters. The following table sets forth the Consumer Products Division's net sales and tons sold by product line for the periods shown:
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------- 1995 1996 1997 --------------------- --------------------- --------------------- (DOLLARS IN MILLIONS) NET SALES TONS SOLD NET SALES TONS SOLD NET SALES TONS SOLD --------- --------- --------- --------- --------- --------- 1-Ply Bath Tissue.......................... $ 12.9 10,513 $ 15.7 11,229 $ 17.7 13,369 2-Ply Bath Tissue.......................... 29.8 22,750 34.2 24,021 36.5 27,579 Facial Tissue.............................. 9.6 5,455 9.8 5,110 9.4 4,854 Napkins.................................... 17.0 11,599 23.0 13,229 22.4 13,331 1-Ply Paper Towels......................... 8.6 8,128 11.1 8,991 11.4 9,620 2-Ply Paper Towels......................... 26.8 19,161 37.3 24,272 36.6 24,958 Jumbo Rolls................................ 2.3 3,003 2.6 3,593 2.2 3,177 ------ ------ ------ ------ ------ ------ Total.............................. $107.0 80,609 $133.7 90,445 $136.2 96,888 ====== ====== ====== ====== ====== ======
Specialty Paper Division. The Specialty Paper Division produces and supplies premium coated and uncoated printing papers and release and other technical/specialty papers throughout the U.S. to end users which require high quality and high performance paper. Premium coated printing paper is used for corporate annual reports, high-end advertising brochures, magazines and catalogs, coffee table books, menus and high quality, full color desktop publishing. Uncoated printing paper is used for quality books, manuals, direct mail, brochures, reply cards, newsletters, inserts, maps, data sheets and envelopes. Release papers include base papers which are silicone coated by the division's customers and used as a protective layer or backing paper for pressure sensitive applications. Applications include release papers for self-adhesive postage stamps, mailing labels, bar code labels, and labels for retail food packages. Release papers are also increasingly being used to protect industrial adhesives used as fastening systems for certain automotive trim and aircraft applications as well as for the manufacture of sound, thermal and electrical insulating materials. Other technical/specialty papers are used for special dry release, cigarette mouthpiece, tamperproof label, archival bond and other customer specific applications. The division's sales force, specialized technical service staff and research and development team work closely with customers to improve its products and to develop new products to address market needs. The division's research and development team is currently developing new coated printing paper products for use in connection with digital imaging systems such as desktop color ink jet printers and digital printing presses. The following table sets forth the Specialty Paper Division's net sales and tons sold by product line for the periods shown:
THREE MONTHS FISCAL YEAR ENDED MARCH 31, --------------------------------------------------------------------- --------------------- 1995 1996 1997 1998 --------------------- --------------------- --------------------- --------------------- (DOLLARS IN MILLIONS) NET SALES TONS SOLD NET SALES TONS SOLD NET SALES TONS SOLD NET SALES TONS SOLD --------- --------- --------- --------- --------- --------- --------- --------- Coated Printing Paper............. $ 44.0 34,773 $38.6 32,682 $42.6 39,349 $ 9.1 8,702 Uncoated Printing Paper........... 12.9 12,706 9.1 10,606 9.2 11,746 3.2 4,588 Release Paper..................... 42.0 30,467 35.4 28,303 33.5 27,037 6.6 5,336 Other Technical/Specialty Paper(1)........................ 2.1 1,716 2.1 1,428 1.4 2,198 1.1 984 ------ ------ ----- ------ ----- ------ ----- ------ Total......................... $101.0 79,662 $85.2 73,019 $86.7 80,330 $20.0 19,610 ====== ====== ===== ====== ===== ====== ===== ======
- --------------- (1) Includes sales adjustments. 49 54 MARKETING AND SALES Consumer Products Division. The Consumer Products Division's marketing and sales efforts are primarily targeted at the retail consumer market. It sells products through a number of distribution channels including mass merchandisers, warehouse clubs, supermarkets and drug store chains principally in the Midwest and the Northeast. Approximately 90% of its consumer products are sold under major grocery and mass merchandisers' private label brand names which the Company believes have become well-recognized and accepted among their value-conscious consumers. The remaining 10% of the division's products are sold under its own brand names such as Nature's Choice(R), Best Value(R), Pert(R) and Capri(R) generally by smaller retailers that do not have their own private label brand names. The Consumer Products Division markets and sells its products to a wide variety of customers through an eight-person sales force and selected independent brokers. Its sales force works directly with customers to evaluate and develop favorable product mixes and to implement category management programs that are designed to assist customers with distribution and inventory management. The Consumer Products Division has developed and implemented an integrated computer-based customer service system which includes technologies such as EDI, VMI, Advanced Shipment Notification ("ASN") and Continuous Replenishment Planning ("CRP"). The system provides real-time information on customers, orders, shipments and inventory status. Using such information, the division is able to monitor and replenish customer inventories, provide information on category activity and shelf space profitability and to offer just-in-time order delivery to its top customers. In addition, such information is used to schedule production operations in a cost effective manner and to maintain sufficient inventories to meet customer demand. The Consumer Products Division has six customer service representatives and four scheduling representatives who serve customers by processing, tracking and confirming orders and answering general product inquiries. Customer service and scheduling representatives are linked to its customer service database and are capable of providing customers with inventory and order data. Such representatives manage the day-to-day operation of the EDI, ASN, CRP and VMI services to evaluate customers' inventory needs and product mix and enable the division to maintain a dialogue with customers. The Company believes that from these services, the Consumer Products Division has fostered long-term relationships with many of its customers through its efforts to increase customer profitability in the private label tissue industry and to provide high levels of customer service. The Company believes that such system provides a significant competitive advantage and has been an important factor in increasing sales to mass merchandisers and wholesale clubs from approximately 4,268 tons in 1993 to approximately 29,800 tons for 1997. The Consumer Products Division's marketing and sales effort includes materials such as printed advertisements in trade publications, targeted direct mailings and product brochures which assist the promotion of products by its customers. The Company also has agreements with approximately 30 selected independent brokers for the marketing and sale of the division's various products to certain customers. The agreements are generally for a one-year term and are terminable by either party upon 30 days written notice. The brokers receive commissions which range from one to three percent of net sales. Specialty Paper Division. The Specialty Paper Division uses two separate sales forces to market and sell its products. Premium coated and uncoated printing papers are sold to customers in major metropolitan markets through a four-person sales force focused primarily to paper merchants which market such products to graphic designers, specialty and commercial printers. Premium coated printing paper is marketed and sold under the Kashmir(R) brand name and the division's new brand name, "Plainwell." The Specialty Paper Division markets and sells a film-coated grade of printing paper to printing markets under the brand name Satin Kote. The Company's sales groups and research and development department frequently work with end users such as graphic designers, printers and hardware companies such as printer manufacturers to develop products tailored for specific customer requirements. The release and other technical/specialty papers are sold by a dedicated three-person technical sales group. These products are sold directly to the division's customers which include companies that silicone coat base papers for use as a protective layer or backing paper for pressure sensitive applications by end users. The division's customers also include other industries that use release and other technical/specialty papers. In 50 55 providing a customized product offering, the Company seeks to capitalize on its technical product development and flexible manufacturing capabilities to differentiate itself from its competitors. CUSTOMERS Consumer Products Division. The Consumer Products Division has well established relationships with its customer base and serves as a major private label tissue supplier to many of its customers. The division sells its products to customers located throughout the U.S., with a concentration near its manufacturing facilities in the Midwest and Northeast. Its customers include: (i) mass merchandisers such as Kmart Corporation and Wal-Mart Stores, Inc.; (ii) warehouse clubs such as B.J. Wholesale Club; (iii) supermarkets that operate under the names A&P, Giant, Tops Markets and Stop & Shop; and (iv) other retailers and wholesalers. In 1997, its top 10 customers accounted for approximately 77.5% of its net sales. The Company expects to focus on increasing the Consumer Products Division's sales to its top customers and large, growing customers such as mass merchandisers and wholesale clubs that typically purchase a full line of products which generally involve higher volume transactions and fewer SKUs. By focusing on these larger accounts, the Consumer Products Division is able to improve overall efficiency through longer production runs and reduced inventory. Specialty Paper Division. Premium coated and uncoated papers are sold to paper merchants such as Zellerbach, a division of Mead, and Unisource. Release and other technical/specialty papers are sold to silicone coating companies such as the Akrosil Division of the International Paper Company and Avery Dennison Corporation. In 1997, the 10 largest customers of the Specialty Paper Division represented 67.5% of its net sales. In conjunction with the 1997 Acquisition, Holdings and Simpson entered into a requirements contract pursuant to which Simpson has the right to purchase specific products from Plainwell Paper Company. The Specialty Paper Division has agreed to supply Simpson with up to 20,000 tons of a specific product during the initial year (and an additional two years if the term is extended by Simpson) under Simpson's brand name to maintain continuity of supply of products. See "Risk Factors -- Dependence on Certain Customers." MANUFACTURING Consumer Products Division. The Consumer Products Division operates two paper mills which have an estimated combined capacity to produce 110,000 tons of tissue paper per year. Each mill is equipped with (i) a wet crepe paper machine used to process pulp to manufacture products that require greater strength and durability such as paper towels, and (ii) a dry crepe machine used to process pulp to manufacture lighter weight products that emphasize softness and brightness such as bath tissue and facial tissue. The mill located in Eau Claire, Wisconsin pulps, de-inks and removes debris such as staples and fine fiber remnants from pre-consumer and post-consumer wastepaper to produce pulp. As a result of a recent $21.0 million investment in the Eau Claire, Wisconsin facility, it has excess capacity of 25,000 tons of pulp per year which could support future growth of paper making operations. The mill located in Ransom, Pennsylvania uses pre-consumer wastepaper, predominantly polycoated trimmings from the production of paper cups and food board used in frozen food packaging, to produce pulp. The mill separates the polycoating from the wastepaper which is washed and does not require de-inking. The Ransom, Pennsylvania facility blends minimal amounts of virgin fiber with its recycled pulp. The Ransom, Pennsylvania facility uses a computerized monitoring process to ensure quality control. Converting involves mounting jumbo rolls of paper on converting machines which unroll, emboss and print tissue as needed. The machines then roll or fold the processed tissue into finished products such as bath tissue, napkins or paper towels. Finished goods are then packaged and stored in warehouses. The Company conducts converting operations at its Eau Claire, Wisconsin facility and Pittston, Pennsylvania facility which is located near the Company's Ransom, Pennsylvania facility. Specialty Paper Division. The Plainwell Mill has three Black Clawson Fourdrinier paper machines with independent fiber lines and associated converting operations. The mill has an estimated capacity to produce 99,600 tons of paper per year. The Plainwell Mill uses a wide range of pulp grades purchased from outside suppliers as well as large volumes of post-industrial and post-consumer waste to meet product specifications. 51 56 Each of the three paper machines has its own dedicated stock preparation line matched to the size of the machine. The lines can be interchanged to allow for specialty runs which enables greater flexibility. The Plainwell Mill is able to blend a broad range of fibers, including a high percentage of generally lower cost recycled fibers, into a base sheet which is then coated using a rod coating technology. The Company believes that this technology and its capability to produce high quality recycled content papers provide the Company with significant cost savings and marketing advantages. The mill has complete process control and on-line dye control through a Measurex system that allows the mill to meet and maintain exact customer specifications. The division's converting operations are housed in a 32,000 square foot facility adjacent to the paper machine building. Approximately 60% of the Plainwell Mill's production is shipped in roll form, and the mill has an automated roll wrap system. The remainder of the mill's production is sheeted on cutter/trimmer operations. The quality control system at the Plainwell Mill is ISO 9002 certified. COMPETITION Consumer Products Division. The private label consumer tissue products industry is highly competitive. The Consumer Products Division competes with large, vertically integrated, multinational companies and smaller, regional companies. The markets in which the division operates have been increasingly characterized by a limited number of large companies selling under recognized brand names. Some of the division's competitors are significantly larger than the Company, are vertically integrated and have equal or greater access to financial and other resources. The Consumer Products Division's primary competitors include Fort James Corporation, Georgia-Pacific Corporation, Shepherd Tissue Inc., American Tissue Corporation, Orchids Paper Products Co. and Potlach Corporation. The Company believes that it has a competitive advantage over most of such competitors based largely on its focus on private label tissue products, its integrated computer-based customer service and the Company's ability to offer a broad range of products at competitive prices and to deliver these products on a timely basis. Specialty Paper Division. The Specialty Paper Division sells products in the highly competitive premium coated printing paper and release and other technical/specialty paper markets. The division's products directly compete with those of a number of companies, some which are significantly larger than the Company and which have integrated pulp supplies at their mill sites. Such companies may manufacture a significant amount of their pulp requirements which may reduce their exposure to fluctuations in the market price of pulp compared to the Company. See "Risk Factors -- Risks Associated with Fluctuations in Supply and Costs of Raw Materials." In addition, certain of the mills operated by the division's competitors may be lower cost producers of pulp and coated paper than the Plainwell Mill. The Specialty Paper Division's main competitors in premium coated printing paper and release and other technical/specialty paper markets include Champion International Corporation, Consolidated Papers Inc., Potlach Corporation, S.D. Warren Co., the Nicolet Division of International Paper Company, and Rhinelander Paper Company, Inc. and Otis Specialty Papers, units of Wausau-Mosinee Paper Corporation. The Company believes that it has a competitive advantage based largely on its ability to produce small quantities of highly customized products that vary in specifications such as paper weight, opacity, brightness and coatings. See "Risk Factors -- Competition." RAW MATERIALS AND SUPPLIERS Consumer Products Division. Raw materials are a significant component of the Consumer Products Division's cost structure. Principal raw materials for the division's products are pre-consumer and post-consumer waste paper. Wastepaper is purchased by the division under a combination of supply arrangements with brokers located in the Midwest and the Northeast. In order to minimize freight costs, the Consumer Products Division focuses on maintaining and establishing relationships with dealers located near its manufacturing facilities and in proximity to urban areas where a majority of post-consumer waste is produced. The division has a network of consistent suppliers for substantially all of its raw materials and believes that current sources of supply are adequate to meet its requirements. The division purchases the bulk of its raw materials under purchase orders. Specialty Paper Division. The Specialty Paper Division depends on pulp as a key raw material for the manufacturing of its products. All supplies and raw materials, including pulp, are sourced and purchased by 52 57 the Plainwell Mill under purchase orders. The purchasing department utilizes a broad network of suppliers who provide all goods and services necessary for the mill's operations. Pulp is purchased locally through a broad based system of suppliers and brokers. The division seeks competitive bids on all major purchases to ensure competitive prices and believes that current sources of supply are adequate to meet its requirements. The Company's energy requirements are satisfied through electricity, water, and natural gas. See "Risk Factors -- Risks Associated with Fluctuations in Supply and Costs of Raw Materials." FACILITIES The Company owns manufacturing, converting and warehouse facilities at the locations shown in the following table:
SIZE (APPROXIMATE LOCATION DIVISION TYPE OF FACILITY SQUARE FEET) -------- -------- ---------------- ----------------- Eau Claire, Wisconsin Consumer Products Manufacturing, Converting, 462,000 Distribution, Warehouse Pittston, Pennsylvania Consumer Products Converting, Distribution, 330,000 Warehouse Ransom, Pennsylvania Consumer Products Manufacturing 238,000 Plainwell, Michigan Specialty Paper Manufacturing, Converting, 526,000 Distribution, Warehouse Plainwell, Michigan Specialty Paper Warehouse 40,000
The Company's executive offices are located in Plainwell, Michigan. The Company also leases warehouse space in Eau Claire, Wisconsin and, on a short-term, as needed basis, at locations in Pennsylvania. EMPLOYEES As of March 31, 1998, the Company employed persons, consisting of 748 persons at the Consumer Products Division and persons at the Specialty Paper Division. All of the Company's hourly production employees are represented by the United Paperworkers International Union, and all of the Company's facilities are covered by labor agreements. The labor agreement covering the Wisconsin facility expires in March 2000. The labor agreements for the Ransom and Pittston, Pennsylvania facilities expire in September 1999. The labor agreement for the Plainwell Mill expires in November 2000. The employees at the Eau Claire, Wisconsin facility participate in a multiemployer pension plan which is not administered by the Company but by a separate plan administrator. Under the Multiemployer Pension Plan Act of 1980, if a contributing employer totally or partially withdraws from an underfunded multiemployer plan, the employer would become liable to fund a portion of the plan's unfunded vested liability. The plan administrator informed Pope & Talbot, Inc. in a letter dated December 6, 1996 that if Pope & Talbot, Inc. withdrew in 1996 from the multiemployer plan relating to the Eau Claire, Wisconsin facility, the withdrawal liability would have been $9.7 million. The Acquisition will not cause a withdrawal to occur and management has no intention of changing operations so as to subject the Company to any material withdrawal obligation under such plan. In 1995, to address the Ransom, Pennsylvania facility's historically high labor cost structure, the Company implemented a labor contract which resulted in an eight-month strike. The division's union employees in Ransom, Pennsylvania rejected this contract, went on strike for eight months and returned to work in December 1995. The strike was resolved in December 1995 and a new labor agreement was adopted, resulting in increased workforce flexibility and reduced labor costs. The Company considers its relationships with its employees to be good. 53 58 LEGAL PROCEEDINGS The Company is a party to various litigation matters incidental to the conduct of its business. Management does not believe that the outcome of any of the matters in which the Company is currently involved will have a material adverse effect on the financial condition or results of operations of the Company. ENVIRONMENTAL MATTERS The Company is subject to increasingly stringent and comprehensive federal, state and local environmental requirements, including laws and regulations relating to air emissions, wastewater management, the handling and disposal of solid and hazardous waste and related financial responsibility requirements, and the cleanup of properties affected by hazardous substances. Certain environmental laws impose significant penalties for noncompliance, and others impose strict, retroactive, joint and several liability on persons responsible for releases of hazardous substances. The Company believes that its operations have been and are in substantial compliance with environmental requirements, and that it has no liabilities arising under such requirements except as would not be expected to have a material adverse effect on the Company's operations, liquidity or financial condition. The Company estimates that $730,000 will be spent in 1998 on environmental compliance and clean up work at its operating locations. Although the Company believes its estimate of 1998 costs is reasonable, there can be no assurances that actual expenditures will not exceed the estimated amount. The Company owns and operates a landfill in Washington County, Wisconsin, for disposal of its paper-making sludge. Pope & Talbot, Wis., Inc. has already closed two of three sections of the landfill and the Company is currently monitoring those sections in accordance with requirements of environmental laws. The Company expects to begin closure of the third section of the landfill by 2002. Closure will cost approximately $1.3 million, and the Company will then spend an additional $80,000 per year for 40 years to monitor the closed landfill. The Company believes that, based on current information and regulatory requirements, the estimates for the landfill closure established by the Company are adequate, although there can be no assurance that the costs will not eventually exceed the amount presently estimated. The Company or its predecessors has received requests for information and notice letters from government agencies or other third parties indicating that the Company may be responsible for costs associated with the investigation and cleanup of several contaminated sites. Because investigation and remediation activities at some of these sites are in preliminary stages, the Company cannot estimate with any certainty the costs it may incur to resolve its involvement in these known cases. Based on current information about materials sent to the sites and the fact that the Company has certain indemnification and statutory rights against its corporate predecessors and other responsible parties, the Company does not expect these matters to have a material adverse effect on the Company's operations, liquidity or financial condition. In 1990, the Company's predecessor was named a potentially responsible party ("PRP") with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site ("Kalamazoo River Site"). The site is named on U.S. EPA's National Priorities List ("NPL"), the agency's inventory of contaminated sites designated for ranking and cleanup under the federal Superfund law. According to investigations conducted by U.S. EPA, the Kalamazoo River and associated paper mill properties, including the Company's, may be contaminated with polychlorinated biphenyls ("PCBs"). U.S. EPA believes that the contamination is a result of historical paper-making operations at a number of mills in the Kalamazoo area. Simpson entered into an Administrative Consent Order with the Michigan Department of Environmental Quality ("MDEQ") on December 28, 1990, under which it and other PRPs agreed to perform certain environmental investigation activities at the site. In connection with the 1997 Acquisition, the Company assumed such obligations. The Company also joined a group of four PRPs, the Kalamazoo River Study Group ("KRSG"), to conduct the work required under the Order and attempt to identify other PRPs who might contribute to the investigation and cleanup effort. Litigation involving KRSG and other prospective PRPs is pending. To the Company's knowledge, neither U.S. EPA nor the PRPs have developed comprehensive estimates of overall cleanup costs for the Kalamazoo River Site. Although the Company's share of such costs could be material, the Company believes that any costs likely to be incurred by it in connection with this matter would be borne by Simpson 54 59 pursuant to the indemnity provisions contained in the 1997 Acquisition agreement. Therefore, based on its understanding of the Kalamazoo River Site contamination, the involvement of other PRPs and the indemnity rights against Simpson the Company does not expect this matter to have a material adverse effect on the Company's operations, liquidity or financial condition. One discrete portion (a so-called "Operable Unit") of the Kalamazoo River Site is the 12th Street Landfill, a property wholly owned by the Company. The Company expects to pay for the entire cost of the investigation and cleanup work at this location. An environmental consultant retained by the Company estimates, based on recent studies of the site and an evaluation of possible cleanup strategies, that the present value cost of the final remedy is $1.8 million. The Company expects that costs associated with the 12th Street Landfill, as with other portions of the Kalamazoo River Site, will be borne by Simpson pursuant to the indemnity agreement discussed above. The Company has been identified as a PRP with respect to the West KL Avenue Landfill NPL site in Oshtemo Township, Michigan. On May 2, 1997, the Company entered into a Settlement Agreement with other PRPs, one faction of which had sued another, pursuant to which each PRP agreed to pay a certain share of the site's cleanup costs. The Company's share of the costs was $15,000. On June 19, 1997, the underlying lawsuit regarding costs associated with the cleanup was dismissed with prejudice by the U.S. District Court for the Western District of Michigan. The court's order also barred future claims for contribution and response costs by non-parties. The Company therefore believes this matter is resolved. The Company expects that any further costs associated with this matter would be borne by Simpson pursuant to the indemnity agreement discussed above. The Company received notice from private parties that it might be liable for releases of hazardous substances at the Cork Street Landfill NPL Site, in Kalamazoo, Michigan. The Company believes that wastewater treatment plant sludge, fly ash and bottom ash from the Plainwell Mill may have been disposed of at the site in the mid-1980s. Sludge from the mill is currently being sent to the landfill for use as cover material, with regulatory agency approval. According to the environmental consultant who reviewed the available information in 1997, U.S. EPA's responsible project manager has stated that the information known about the Company's involvement at the Cork Street Landfill would not now support the agency's naming the entity a PRP with respect to the site. The Company believes this matter is resolved and expects that any further costs associated with this matter would be borne by Simpson pursuant to the indemnity agreement discussed above. In 1987, the Company's predecessor, Pope & Talbot, Wis., Inc. received a request for information from the U.S. EPA that indicated that it was considered a PRP with respect to the Blue Valley Landfill Superfund Site in Eau Claire, Wisconsin. Available records indicate that Pope & Talbot, Wis., Inc. sent a de minimis amount of wastewater treatment sludge from the de-inking process and general wastes from the tissue division to the Blue Valley Landfill. Pope & Talbot, Wis., Inc.'s predecessor at the Eau Claire facility, the Brown Company, also sent waste to the Blue Valley Landfill Superfund Site and has been named a PRP with respect to the site. Based on the amount of material that Pope & Talbot, Wis., Inc. sent to the Blue Valley Landfill and its indemnification agreement with the Brown Company, the Company does not anticipate that its costs associated with the site will have a material adverse effect on the Company's operations, liquidity or financial condition. In 1996, Pope & Talbot, Wis., Inc. received notification from U.S. EPA that it was considered a PRP with respect to the A.E. Schneider & Son Salvage Yard Site in Chippewa Falls, Wisconsin ("Schneider Site"). U.S. EPA indicated in subsequent correspondence with Pope & Talbot, Wis, Inc. that it believed that lead from the Eau Claire, Wisconsin facility might have been disposed of at the Schneider Site. Pope & Talbot, Wis, Inc. conducted a followup investigation and reported to U.S. EPA that the only potentially lead-containing waste transported from the Eau Claire, Wisconsin mill to the Schneider Site was believed to be a counterweight to a steam engine crane that was disposed of in the mid-1970s, when Pope & Talbot, Wis., Inc.'s predecessor at the Eau Claire, Wisconsin facility, the Brown Company, owned the mill. The Company does not believe the costs associated with this matter will have a material adverse effect on the Company's operations, liquidity or financial condition. 55 60 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the names, ages as of February 1, 1998, and a brief account of the business experience of each person who is a director or executive officer of the Company.
NAME AGE POSITION - ---- --- -------- William L. New......................... 54 Chairman, Chief Executive Officer and President Francis J. Fitzpatrick................. 58 Group Executive and Chief Operating Officer -- Specialty Paper Division George E. Mangarelli................... 55 Executive Vice President, Chief Financial Officer -- Specialty Paper Division, Secretary and Director Roy E. Fuchs........................... 54 Executive Vice President and Chief Financial Officer -- Consumer Products Division Gary A. Hayden......................... 49 Vice President and General Manager -- Consumer Products Division Brenton S. Halsey...................... 70 Director David F. Thomas........................ 48 Director John D. Weber.......................... 34 Director
WILLIAM L. NEW has served as Chairman of the Board of Directors, Chief Executive Officer and President of the Plainwell Paper Company since June 1997. Prior to that, from September 1995 through May 1997 Mr. New was President and a Director of the New Group, Inc., consultants to the paper industry. From 1991 to August 1995, Mr. New founded and was Chairman, Chief Executive Officer and President of Encore Paper Company. Prior to that, from 1970 to 1991, Mr. New held various positions at Wisconsin Tissue, previously an affiliate of Philip Morris (which owned Plainwell Paper Company over this tenure), including Executive Vice President and Chief Operating Officer. Following the consummation of the Transactions, Mr. New serves as Chairman of the Board of Directors, Chief Executive Officer and President of the Company. Since 1991, Mr. New has served as a director of Integrated Paper Services. FRANCIS J. FITZPATRICK has served as Executive Vice President and Chief Operating Officer of Plainwell Paper Company since June 1997. Prior to that he was a principal in Longmeadow Associates which provided consulting services for product and market development in the paper industry. From 1982 to 1990, he was President of Westfield River Paper Company. Prior to that he was Director of marketing and sales for the Nicolet Division, previously an affiliate of Philip Morris (which owned Plainwell Paper Company over this tenure). Mr. Fitzpatrick serves as Group Executive and Chief Operating Officer -- Specialty Paper Division. GEORGE E. MANGARELLI has served as Executive Vice President and Chief Financial Officer of Plainwell Paper Company since July 1997. Prior to that, from May 1995 to July 1997, he was Senior Vice President, Chief Financial Officer and Secretary of Encore Paper Company. From 1993 to 1994, Mr. Mangarelli was Senior Vice President and Chief Financial Officer of Overhead Door Corporation. From 1990 to 1993, he was Vice President, Finance and Chief Financial Officer of Global Technology Systems, Inc. Mr. Mangarelli serves as Executive Vice President, Chief Financial Officer -- Specialty Paper Division, Secretary and a director of the Company. Mr. Mangarelli is a certified public accountant. ROY E. FUCHS has served as a financial consultant to Plainwell Paper Company since November 1997. Prior to that, from September 1989 to September 1997, he was Vice President, Paper Industry Financing for the CIT Group, Inc. From 1987 to 1989 he was an independent consultant to the paper industry. From 1974 to 1987 he held positions in finance and marketing management with International Paper Company. Mr. Fuchs serves as Executive Vice President and Chief Financial Officer -- Consumer Products Division. GARY A. HAYDEN has served as Vice President and General Manager -- Consumer Products Division since June 1997 and has served as Division Manufacturing Manager for the tissue business of Pope & Talbot 56 61 since 1996. Prior to that, Mr. Hayden served as Resident Manager for the Eau Claire, Wisconsin facility. From 1977 to 1993, Mr. Hayden worked in various operational and managerial capacities for Pope & Talbot. BRENTON S. HALSEY is a director of the Company. Mr. Halsey was the founding Chief Executive Officer and Chairman of the James River Corporation from 1969 to 1990. He continued as Chairman until 1992 when he became Chairman Emeritus. DAVID F. THOMAS is a director of the Company. Mr. Thomas has been President of 399 Venture Partners since December 1994. In addition, Mr. Thomas has been a Managing Director of Citicorp Venture Capital, Ltd., an affiliate of 399 Venture Partners, for over five years. Mr. Thomas is currently a director of Lifestyle Furnishings International Ltd., Galey & Lord, Inc., Anvil Knitwear, Inc., Stage Stores, Inc., Neenah Foundry Company and a number of private companies. JOHN D. WEBER is a director of the Company. Since 1994, Mr. Weber has been a Vice President at Citicorp Venture Capital, Ltd. Previously, Mr. Weber worked at Putnam Investments from 1992 through 1994. Mr. Weber is a director of Anvil Knitwear, Inc., Neenah Foundry Company and a number of private companies. DIRECTOR COMPENSATION The Company will reimburse directors for any out-of-pocket expenses incurred by them in connection with services provided in such capacity. In addition, the Company may compensate directors for services provided in such capacity. EXECUTIVE COMPENSATION For the period from June 17, 1997 through December 31, 1997 William L. New, Francis J. Fitzpatrick and George E. Mangarelli received $168,030, $108,159, and $101,172, respectively, in cash compensation from the Plainwell Paper Company. Messrs. New, Fitzpatrick and Mangarelli serve as executive officers of the Company. The Company is currently negotiating salaries and other cash compensation to be paid to the executive officers. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Messrs. Halsey, Thomas and Weber comprise the members of the Compensation Committee of the Board of Directors. EXECUTIVE EMPLOYMENT AND STOCK PURCHASE AGREEMENTS Plainwell Paper Company has entered into an Executive Employment and Stock Purchase Agreement with William L. New, and in connection with the Transactions, the Company assumed the obligations of Plainwell Paper Company thereunder. Such agreement provides for: (i) a three year employment term; (ii) severance benefits and noncompetition, nonsolicitation and confidentiality agreements in certain situations; (iii) restrictions on the transfer of Mr. New's common stock in Holdings; (iv) the vesting of certain of Mr. New's common stock in Holdings (the "Common Stock"); and other terms and conditions of Mr. New's employment. See "Certain Transactions -- Executive Employment Stock Purchase Agreements." 57 62 PRINCIPAL STOCKHOLDERS All of the Company's issued and outstanding capital stock is owned by Holdings. The following table sets forth certain information with respect to the equity interests of the Company.
PERCENTAGE OF NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK ------------------------------------ ------------- Plainwell Holding Company(1)................................ 100% c/o PLAINWELL INC. 200 Allegan Street Plainwell, Michigan 49080
- --------------- (1) Plainwell Holding Company is an affiliate of 399 Venture Partners. The Management Shareholders also have, through an investment in Plainwell Holding Company, a beneficial interest in the Company. DESCRIPTION OF HOLDINGS' CAPITAL STOCK In connection with the Acquisition, Holdings' certificate of incorporation was amended and restated to provide for two series of preferred stock (series A and B) and four classes of common stock (classes A, B, C and D). The Series A Preferred Stock (the "Series A Preferred") has a liquidation value of $100 per share, an accruing dividend of 13.0% and a scheduled redemption 13 years after the closing of the Acquisition. Holdings is authorized to issue 240,000 shares of Series A Preferred, of which approximately 232,300 shares are issued and outstanding as of the closing of the Acquisition. The Series B Preferred Stock (the "Series B Preferred") has a liquidation value of $100 per share, an accruing dividend of 12.5% and a scheduled redemption 13 years after the closing of the Acquisition. Holdings is authorized to issue 40,000 shares of Series B Preferred, of which 35,000 shares are issued and outstanding as of the closing of the Acquisition. Each share of common stock is entitled to participate pro rata in any distribution made by Holdings with respect to its common stock. The Class A Common Stock (the "Class A Common") is Holdings' only class of voting stock. The holders of Class A Common are entitled to one vote per share. Shares of Class A Stock are convertible into an equal number of shares of Class B Common Stock (the "Class B Common"). The Class B Common are non-voting common stock and are convertible into an equal number of shares of Class A Common upon the occurrence of a public offering of Holdings' equity securities or at the election of the holders of a majority of the Class B Common then outstanding. The Class C Common Stock (the "Class C Common") are non-voting common stock and, upon any distribution by Holdings upon its common stock, each share of Class C Common is entitled to a distribution, prior in right to the remaining common stock of Holdings, equal to the unreturned original cost thereof (as defined in Holdings' certificate of incorporation) plus a yield of 8.0% compounded annually on the unreturned original cost thereof from the date of issuance thereof. The Class D Common Stock (the "Class D Common") is non-voting common stock and, upon any distribution by Holdings upon its common stock, each share of Class D Common is entitled to a distribution, junior in right to distributions made on the Class C Common with respect to the unreturned original cost thereof and prior in right to the remaining common stock of Holdings, equal to the unreturned original cost thereof (as defined in Holdings' certificate of incorporation). 58 63 CERTAIN TRANSACTIONS EXECUTIVE EMPLOYMENT AND STOCK PURCHASE AGREEMENT Plainwell Paper Company has entered into an Executive Employment and Stock Purchase Agreement with William L. New, and in connection with the Transactions, the Company assumed the obligations of Plainwell Paper Company thereunder. Such agreement provides for: (i) a three year employment term; (ii) severance benefits and noncompetition, nonsolicitation and confidentiality agreements in certain situations; (iii) restrictions on the transfer of Mr. New's common stock in Holdings; (iv) the vesting of certain of Mr. New's common stock in Holdings; and other terms and conditions of Mr. New's employment. STOCKHOLDERS AGREEMENT In connection with the 1997 Acquisition, Holdings, 399 Venture Partners, management stockholders and the other stockholders of Holdings entered into a Stockholders Agreement, dated as of June 16, 1997, as amended ( the "Stockholders Agreement"). The Stockholders Agreement provides, among other things, for the following: (i) an agreement by all parties to vote their Common Stock so as to cause the Board of Directors of the Company to consist of five members, two of whom shall be selected by 399 Venture Partners (currently, Messrs. Thomas and Weber), one of whom shall be designated by the holders of a majority Holdings' Class A Common Stock (currently, Mr. Halsey), one of whom shall be the Chief Executive Officer of the Company (currently, Mr. New), and one of whom shall be the Chief Financial Officer of the Specialty Paper Division (currently, Mr. Mangarelli), (ii) certain restrictions on transfer of the Common Stock, including, but not limited to, provisions providing that (a) the Company and certain holders of the Common Stock will have limited rights of first offer in any proposed third party sale of Common Stock by any of Holdings' stockholders, and (b) certain holders of the Common Stock will have limited participation rights in any proposed third party sale of Common Stock by other stockholders, (iii) certain limited preemptive rights to Holdings' stockholders with respect to an issuance or sale of Common Stock by Holdings, and (iv) an agreement by all parties that, upon approval of a sale of all Common Stock or a sale of all or substantially all of Holdings' assets by Holdings' Board of Directors and 399 Venture Partners, such parties will consent to and raise no objections against such sale and sell its Common Stock in such sale, if so required. REGISTRATION RIGHTS AGREEMENT In connection with the 1997 Acquisition, the parties to the Stockholders Agreement contemporaneously entered into a Registration Rights Agreement (as amended, the "Registration Rights Agreement"). Pursuant to the terms of the Registration Rights Agreement, 399 Venture Partners has the right to require Holdings, at the expense of Holdings and subject to certain limitations, to register under the Securities Act all or part of the shares of Common Stock (the "Registrable Securities") held by them. 399 Venture Partners is entitled to demand up to five long-form registrations at any time and unlimited short-form registrations. Subject to certain limitations set forth in the Registration Rights Agreement, all holders of Registrable Securities are entitled to an unlimited number of "piggyback" registrations, with Holdings paying all expenses of the offering, whenever Holdings proposes to register Common Stock under the Securities Act. Each such holder is subject to certain pro rata limitations on its ability to participate in such a "piggyback" registration. In addition, pursuant to the Registration Rights Agreement, Holdings has agreed to indemnify all holders of Registrable Securities against certain liabilities, including certain liabilities under the Securities Act. 59 64 DESCRIPTION OF CERTAIN INDEBTEDNESS NEW CREDIT FACILITY Concurrently with the consummation of the Transactions, the Company entered into the New Credit Facility with Sanwa Business Credit Corporation. The following is a summary of the material terms and conditions of the New Credit Facility and is subject to the detailed provisions of the New Credit Facility and various related documents entered into in connection with the New Credit Facility. General. The New Credit Facility consists of (i) a five-year revolving line of credit providing up to $35.0 million of availability (the "Revolver") and (ii) a five-year letter of credit guaranty providing for a maximum amount of up to $20.0 million (the "LC Facility") to support obligations of the Company under the Eau Claire IRBs. The Revolver is available in multiple drawings from time to time, subject to certain limitations, including a requirement that amounts outstanding under the Revolver (including certain letters of credit other than the letters of credit applicable to the Eau Claire IRBs) will at all times be less than a borrowing base based on (i) 85% of the Company's Eligible Accounts Receivable (as defined), and (ii) 60% of the Company's Eligible Raw Materials and Finished Goods Inventory (as defined) subject to a cap of $21.0 million. Up to $6.0 million of the amount available under the Revolver may be used for letters of credit supporting obligations of the Company, which will reduce the availability under the Revolver. Advances under the Revolver will be used to finance ongoing working capital and general corporate requirements of the Company. Under certain circumstances, the Company is required to repay the Revolver with the proceeds of asset sales. Interest Rate; Fees. Amounts outstanding under the Revolver bear interest, at the Company's option, at either (i) the Prime Rate plus a margin which varies between 0% and .25% depending upon the Company's financial performance and leverage ratio; or (ii) LIBOR plus a margin which varies between 2.0% and 2.75% depending upon the Company's financial performance and leverage ratio, payable monthly in arrears. The Company pays a non-use fee equal to 0.375% of the unused amount of the Revolver per annum, payable monthly in arrears. In addition, the Company pays a fee equal to 1.5% per annum on the undrawn face amount of the LC Facility and a fee equal to 2.0% per annum on the undrawn face amount of letters of credit issued under the $6.0 million subfacility of the Revolver payable monthly in arrears plus expenses. Collateral. The New Credit Facility is secured by a first priority perfected lien on, and security interest in, all of the Company's common stock and present and future tangible and intangible assets (subject to first priority liens on the Eau Claire, Wisconsin facility attributable to the applicable IRBs), and proceeds thereof, including, without limitation, accounts receivable, inventory, machinery, equipment, tooling, real property, leasehold interests, patents, trademarks, copyrights, royalty interest, brand-names, customer lists and general intangibles, (collectively the "Collateral"); provided, that as of the Closing Date the Collateral will not include the Company's real property at its Ransom and Pittston, Pennsylvania facilities or the equipment and fixtures installed therein. The Revolver and the LC Facility are cross-collateralized. Under certain circumstances, the Company is required to cash collateralize the LC Facility. Covenants. The Company is subject to certain affirmative and negative covenants contained in the New Credit Facility, including covenants that limit: (i) liens; (ii) additional indebtedness; (iii) mergers and acquisitions; (iv) sale of assets; and (v) ability to pay dividends. In addition, the New Credit Facility requires the Company to maintain compliance with certain specified financial covenants, including covenants relating to net funded debt to EBITDA, fixed charge coverage and capital expenditures and requires repayment upon a change of control (as defined therein). THE IRBS Eau Claire Industrial Revenue Bonds Concurrently with the consummation of the Acquisition, the Company assumed all liabilities under Industrial Revenue Bonds issued by the City of Eau Claire, Wisconsin (the "Eau Claire IRBs"). The 60 65 following is a summary of the material terms and conditions of the Eau Claire IRBs and various related documents. General. The Eau Claire IRBs mature in 2014, were issued by the City of Eau Claire, Wisconsin on November 1, 1994, and the proceeds from the sale thereof were loaned to Pope & Talbot, Wis., Inc. to finance the acquisition, construction, installation and equipping of a solid waste disposal facility and to pay certain costs of issuance of the Eau Claire IRBs. The Eau Claire IRBs are limited obligations of the City of Eau Claire payable only from amounts paid by Pope & Talbot, Wis., Inc. and its permitted assigns and other amounts held in certain funds and accounts established under an indenture (the "Eau Claire IRB Indenture") and pledged therefor. The Company will be obligated to make payments in amounts sufficient to pay the principal of and interest and premium on the Eau Claire IRBs and certain other fees and expenses and to make payments sufficient to pay the purchase price of Eau Claire IRBs tendered for purchase. Interest Rate; Fees. The Eau Claire IRBs bear interest at various rates set forth in the Eau Claire IRB Indenture, subject to adjustment from time to time. At no time will any of the Eau Claire IRBs bear interest at a rate in excess of the lesser of (i) 12% per annum or (ii) the maximum rate permitted by applicable law. In addition, the Company will be obligated to pay a fee equal to 1.5% per annum on the undrawn face amount of the LC Facility. At September 30, 1997, the interest rate on the Eau Claire IRBs was 4.25%. Demand Purchase Option. At any time or from time to time, the Eau Claire IRBs may be tendered for repurchase by the holders thereof prior to maturity at a purchase price equal to the principal amount plus accrued interest. The repurchase date varies depending upon the interest rate reset date applicable at the time a holder tenders for repurchase. The sources of funds for the repurchase of any tendered Eau Claire IRBs is as follows and in the following order of priority: (i) funds from a bond purchase fund required to be maintained with the trustee under the Eau Claire IRB Indenture; (ii) proceeds from a remarketing of the Eau Claire IRBs; (iii) funds drawn from certain permitted credit facilities established to provide security for certain obligations with respect to the Eau Claire IRBs; and (iv) any other funds furnished by or on behalf of the Company. Redemption. The Eau Claire IRBs may be redeemed by the City of Eau Claire prior to maturity in whole at the option of the Company during certain periods and upon the occurrence of certain events, at a redemption price equal to the principal amount plus accrued interest thereon. The Eau Claire IRBs are also subject to mandatory redemption by the City of Eau Claire in whole, without a redemption premium, upon the occurrence of certain tax-significant events defined and set forth in the Eau Claire IRB Indenture. Collateral. The payment of the principal and purchase price of and interest on the Eau Claire IRBs is secured by the LC Facility, which provides for a maximum amount of up to $20.0 million to support obligations of the Company under the Eau Claire IRBs. Covenants. The Company is subject to certain affirmative and negative covenants contained in the Eau Claire IRB Indenture and related agreements, including covenants that limit: (i) liens; (ii) additional senior indebtedness; (iii) mergers and acquisitions; (iv) sale of assets; and (v) ability to pay dividends. In addition, the Indenture and related agreements require the Company to maintain compliance with certain specified financial covenants, including covenants relating debt to net worth, fixed charge coverage and capital expenditures. Plainwell Industrial Revenue Bonds Concurrently with the consummation of the Merger, the Company assumed all liabilities under the Plainwell IRBs. The following is a summary of the material terms and conditions of the Plainwell IRBs and various related documents. General. The Plainwell IRBs mature in 2007, were issued by the City of Plainwell, Michigan on November 1, 1983 and the proceeds from the sale thereof were loaned to Plainwell Paper Company to finance the cost of acquiring, constructing and installing certain facilities including pollution control facilities. 61 66 The Plainwell IRBs are limited obligations of the City of Plainwell payable only from amounts paid by Plainwell Paper Company and its permitted assigns and other amounts held in, or as guaranty of, certain funds and accounts established under an indenture (the "Plainwell IRB Indenture") and pledged therefor. The Company is obligated to make payments in amounts sufficient to pay the principal of and interest and premium on the Plainwell IRBs and certain other fees and expenses. Following the Merger, the obligations of the Company under the Plainwell IRBs remained subject to the absolute and unconditional guaranty of Philip Morris Corporation, a Virginia corporation and former parent of the Specialty Paper Division, pursuant to a parent guaranty agreement. Interest Rate; Fees. The Plainwell IRBs are variable rate obligations which bear interest at a rate equal to a benchmark rate, plus an amount in the range of 1/4% to 2 1/4%, adjusted from time to time in accordance with and subject to certain exceptions set forth in the Plainwell IRB Indenture. The interest rate is subject to conversion to a fixed rate of interest at any time at the option of the Company. At December 31, 1997, the interest rate on the Plainwell IRBs was 4.45% Demand Purchase Option. The Plainwell IRBs may be purchased on the demand of the owners thereof at a purchase price of par plus accrued interest. Following conversion to a fixed rate of interest, however, the Plainwell IRBs shall no longer be subject to purchase on demand. Redemption. The Plainwell IRBs may be redeemed by the City of Plainwell prior to maturity in whole or in part at the option of the Company (i) at any time at the redemption price of 100% of the principal amount thereof plus accrued interest, or (ii) on any interest payment date at various redemption prices set forth in the Plainwell IRB Indenture. The Plainwell IRBs are also callable for redemption by the City of Plainwell in whole, without a redemption premium, if the Company is obligated, or exercises its option, to cause the Plainwell IRBs to be redeemed upon the occurrence of certain tax-significant or materially adverse events. Covenants. The Company is not be subject to any material affirmative or negative covenants contained in the Plainwell IRB Indenture or related agreements. 62 67 DESCRIPTION OF EXCHANGE NOTES GENERAL The Exchange Notes will be issued pursuant to the Indenture among the Company and United States Trust Company of New York, as trustee (the "Trustee"). The terms of the Exchange Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Exchange Notes are subject to all such terms, and Holders of Exchange Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of the material provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. Copies of the Indenture and the Exchange and Registration Rights Agreement will be made available to Holders as set forth under "-- Additional Information." The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." For purposes of this "Description of Exchange Notes," the term "Company" refers only to PLAINWELL INC. and not to Holdings or any of its Subsidiaries. The Company has not issued, and does not have any current firm arrangements to issue, any indebtedness to which the Exchange Notes would rank senior or pari passu in right of payment. The Exchange Notes will be general unsecured obligations of the Company and will be subordinated in right of payment to all existing and future Senior Debt of the Company. As of March 31, 1998, which includes the effect of the Transactions, the amount of the Company's outstanding Senior Debt was $27.8 million. In addition, the Company has $35.0 million of additional borrowings available under the New Credit Facility. The Indenture permits the Company to incur additional indebtedness, including additional Senior Debt, subject to certain restrictions. See "-- Certain Covenants -- Incurrence of Indebtedness." Although the Company currently has no Subsidiaries, under certain circumstances, the Company will be able to designate any future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the restrictive covenants set forth in the Indenture. The Company's payment obligations under the Exchange Notes will be guaranteed, on a senior subordinated basis, by all of the Company's future Restricted Subsidiaries, if any. See "-- Certain Covenants -- Subsidiary Guarantees." PRINCIPAL, MATURITY AND INTEREST The Exchange Notes will be limited in aggregate principal amount to $130,000,000 and will mature on March 1, 2008. Interest on the Exchange Notes will accrue at the rate of 11% per annum and will be payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 1998, to Holders of record on the immediately preceding February 15 and August 15. Interest on the Exchange Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal of and premium, interest and Liquidated Damages, if any, on the Exchange Notes will be payable at the office or agency of the Company maintained for such purpose or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders of the Exchange Notes at their respective addresses set forth in the register of Holders of Exchange Notes; provided that all payments of principal, premium, interest and Liquidated Damages with respect to Exchange Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Until otherwise designated by the Company, the Company's office or agency will be the office of the Trustee maintained for such purpose. The Exchange Notes will be issued in denominations of $1,000 and integral multiples thereof. SUBORDINATION The payment of principal of and premium, interest and Liquidated Damages, if any, on the Exchange Notes will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full of all Senior Debt of the Company, whether outstanding on the Closing Date or thereafter incurred. 63 68 Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshaling of the Company's assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before the Holders of Senior Subordinated Notes will be entitled to receive any payment with respect to the Senior Subordinated Notes, and until all Obligations with respect to Senior Debt are paid in full, any distribution to which the Holders of Senior Subordinated Notes would be entitled shall be made to the holders of Senior Debt (except that Holders of Senior Subordinated Notes may receive Permitted Junior Securities and payments made from the trust described under "-- Legal Defeasance and Covenant Defeasance"). The Company also may not make any payment upon or in respect of the Senior Subordinated Notes (except in Permitted Junior Securities or from the trust described under "-- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of the principal of or premium, or interest on any Designated Senior Debt occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to any Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the holders of such Designated Senior Debt. Payments on the Senior Subordinated Notes may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. No new period of payment blockage as a result of a nonpayment default may be commenced unless and until (i) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice issued as a result of a nonpayment default. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless the same has been cured for a period of at least 181 consecutive days, provided that 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice. The Indenture further requires that the Company promptly notify holders of Senior Debt if payment of the Senior Subordinated Notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a liquidation or insolvency, Holders of Exchange Notes may recover less ratably than creditors of the Company who are holders of Senior Debt. As of March 31, 1998, which includes the effect of the Transactions, the amount of the Company's outstanding Senior Debt was $27.8 million. The Company will be able to incur additional Senior Debt in the future, subject to certain limitations. See "-- Certain Covenants -- Incurrence of Indebtedness." OPTIONAL REDEMPTION The Exchange Notes are not redeemable at the Company's option prior to March 1, 2003. Thereafter, the Exchange Notes are subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on March 1 of the years indicated below:
YEAR PERCENTAGE - ---- ---------- 2003........................................................ 105.500% 2004........................................................ 103.666% 2005........................................................ 101.833% 2006 and thereafter......................................... 100.000%
64 69 Notwithstanding the foregoing, prior to March 1, 2001, the Company may redeem up to an aggregate of $45,500,000 in principal amount of Senior Subordinated Notes at a redemption price of 111% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the redemption date, with the net cash proceeds of a Public Offering of common stock of the Company; provided that (i) at least 65% in aggregate principal amount of the Senior Subordinated Notes originally issued under the Indenture remain outstanding immediately after the occurrence of such redemption and (ii) such redemption shall occur within 60 days of the date of the consummation of each such Public Offering. SELECTION AND NOTICE If less than all of the Senior Subordinated Notes are to be redeemed at any time, selection of Senior Subordinated Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Senior Subordinated Notes are listed, or, if the Senior Subordinated Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Senior Subordinated Notes of $1,000 principal amount or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Senior Subordinated Notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any Senior Subordinated Note is to be redeemed in part only, the notice of redemption that relates to such Senior Subordinated Note shall state the portion of the principal amount thereof to be redeemed. A new Senior Subordinated Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Senior Subordinated Note. Senior Subordinated Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest and Liquidated Damages, if any, cease to accrue on the Senior Subordinated Notes or portions of them called for redemption. MANDATORY REDEMPTION The Company is not required to make mandatory redemption or sinking fund payments with respect to the Senior Subordinated Notes. REPURCHASE AT THE OPTION OF HOLDERS Change of Control Upon the occurrence of a Change of Control, the Company will be obligated to make an offer (a "Change of Control Offer") to each Holder of Senior Subordinated Notes to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of the principal amount of such Holder's Senior Subordinated Notes at an offer price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of purchase (the "Change of Control Payment"). Within 30 days following a Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Senior Subordinated Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Senior Subordinated Notes as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Senior Subordinated Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Senior Subordinated Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Senior Subordinated Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Senior Subordinated Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of Senior Subordinated Notes so tendered the Change of Control 65 70 Payment for such Senior Subordinated Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Senior Subordinated Note equal in principal amount to any unpurchased portion of the Senior Subordinated Notes surrendered, if any; provided that each such new Senior Subordinated Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Senior Subordinated Notes to require that the Company repurchase or redeem the Senior Subordinated Notes in the event of a takeover, recapitalization or similar transaction. The New Credit Facility prohibits, and future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may prohibit, the Company from purchasing any Senior Subordinated Notes following a Change of Control and/or provide that certain change of control events with respect to the Company would constitute a default thereunder. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Senior Subordinated Notes, the Company could seek the consent of its lenders to the purchase of Senior Subordinated Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Senior Subordinated Notes. The Company's failure to purchase tendered Senior Subordinated Notes following a Change of Control would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the New Credit Facility. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Senior Subordinated Notes. See "-- Subordination." The Company will not be required to make a Change of Control Offer following a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Senior Subordinated Notes validly tendered and not withdrawn under such Change of Control Offer. Asset Sales The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash; provided that the amount of (a) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or such Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (b) any securities, notes or other obligations received by the Company or such Restricted Subsidiary from such transferee that are immediately converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received) shall be deemed to be cash for purposes of this provision. Within 360 days of the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, (i) to repay Senior Debt (and to correspondingly permanently reduce commitments with respect thereto in the case of revolving borrowings) or (ii) to fulfill reimbursement obligations arising under the LC Facility to the extent such reimbursement obligations arose as a result of actual cash payments having been made under such facility for the benefit of the Company in connection with the Eau Claire IRBs (and to correspondingly permanently reduce reimbursement obligations with respect 66 71 thereto) or to cash collateralize the LC Facility if the Indebtedness under the New Credit Facility has been accelerated or (iii) the making of a capital expenditure or the acquisition of other long-term assets (including the acquisition of Capital Stock of a Person) in the same line of business as the Company immediately prior to such acquisition. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of Senior Subordinated Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Senior Subordinated Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Senior Subordinated Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Senior Subordinated Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Senior Subordinated Notes to be purchased on a pro rata basis. Upon completion of an Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. CERTAIN COVENANTS Restricted Payments The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to any direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions (a) payable in Equity Interests (other than Disqualified Stock) of the Company, (b) to the Company or any Wholly Owned Restricted Subsidiary of the Company or (c) paid by a Restricted Subsidiary pro rata to the holders of its common stock); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company (other than any such Equity Interests owned by the Company or any Wholly Owned Restricted Subsidiary of the Company); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Company or any Restricted Subsidiary that is subordinated to the Senior Subordinated Notes or any Guarantee thereof, except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under caption "-- Incurrence of Indebtedness;" and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the Closing Date, is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the Closing Date to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the 67 72 time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale since the Closing Date of, or equity contributions with respect to, Equity Interests of the Company (other than Disqualified Stock) or of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock), plus (iii) 100% of the fair market value of non-cash property contributed as equity contributions to the Company, provided that (a) such property is related, ancillary or complementary to a business of the Company conducted on the Closing Date, (b) such fair market value is determined by the Company in good faith evidenced by a resolution of the Board of Directors set forth in an Officer's Certificate delivered to the Trustee and, if the fair market value of such contribution or series of related contributions is in excess of $5.0 million, an opinion as to the value thereof issued by an investment banking firm of national standing shall simultaneously be delivered to the Trustee (which opinion shall provide a specific value, or a range of values the lowest point of which, is not lower than the value set forth in the related resolution of the Board of Directors) and (c) the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of such non-cash contribution (or the dates of each non-cash contribution in the case of a series of related contributions) determined on a pro forma basis as if such contribution (or series of related contributions) had been made at the beginning of such four quarter period (or periods) shall be greater than the Company's historical Fixed Charge Coverage Ratio for such period (or periods) plus (iv) to the extent that any Restricted Investment is sold for cash or otherwise liquidated or repaid for cash, 100% of the net cash proceeds thereof (less the cost of disposition) (but only to the extent not included in subclause (i) of this clause (c)). The foregoing provisions will not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at the date of declaration such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness or Equity Interests of the Company or any Restricted Subsidiary in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from the calculation of the amount available for Restricted Payments pursuant to clause (c) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; provided that the amount of any such net cash proceeds that are utilized for any such defeasance, redemption, repurchase or other acquisition shall be excluded from the calculation of the amount available for Restricted Payments pursuant to clause (c) of the preceding paragraph; (iv) payments to, which are promptly used by, Holdings for the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Holdings held by any of the Company's (or any of its Restricted Subsidiaries') directors, officers or employees who have died or whose employment has been terminated; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $500,000 in any twelve-month period or $2,000,000 in the aggregate and no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (v) payments of up to $4.2 million (from the net proceeds of the Offering) to, which are promptly used by, Holdings for the repurchase of up to $4.0 million in liquidation value of Holdings' Series A Preferred Stock, par value $0.01 per share, held by Simpson and accrued but unpaid dividends thereon provided such shares are permanently retired; and (vi) other Restricted Payments in an aggregate amount not to exceed $5.0 million. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined in good faith by the Board of Directors whose resolution with respect thereto shall be set forth in an Officers' Certificate and delivered to the Trustee. Not later than 68 73 the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greatest of (i) the net book value of such Investments at the time of such designation, (ii) the fair market value of such Investments at the time of such designation and (iii) the original fair market value of such Investments at the time they were made. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the definition of an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "-- Certain Covenants -- Incurrence of Indebtedness," the Company shall be in default of such covenant). The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under the covenant described under the caption "-- Certain Covenants -- Incurrence of Indebtedness," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period, and (ii) no Default or Event of Default would be in existence following such designation. Incurrence of Indebtedness The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt); provided, however, that the Company and its Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred at the beginning of such four-quarter period. The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following (collectively, "Permitted Debt"): (i) the incurrence by the Company or its Restricted Subsidiaries of Indebtedness under the Revolver under the New Credit Facility in an aggregate amount not to exceed the greater of $35.0 million at any time outstanding and the Borrowing Base as of such date, less the aggregate amount of all Net Proceeds of Asset Sales applied to repay any such Indebtedness pursuant to clause (i) of the second paragraph of the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales;" (ii) the incurrence by the Company of reimbursement or term loan obligations of up to $20.0 million arising with respect to the LC Facility under the New Credit Facility to the extent such reimbursement or term loan obligations arise as a result of actual cash payments having been made under 69 74 such facility for the benefit of the Company in connection with the Eau Claire IRBs or the incurrence of Indebtedness to cash collateralize the LC facility if Indebtedness under the New Credit Facility has been accelerated; (iii) the incurrence by the Company of Indebtedness represented by the Senior Subordinated Notes; (iv) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (v) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary (or purchase of the outstanding Capital Stock of a Person that owns such property, plant or equipment), in an aggregate principal amount not to exceed at any one time outstanding the greater of $5.0 million or 5% of the Company's net tangible assets (determined in accordance with GAAP applied on a consistent basis) as of the most recent quarterly balance sheet date; (vi) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in connection with the acquisition of assets or a new Restricted Subsidiary; provided that such Indebtedness was incurred by the prior owner of such assets or such Restricted Subsidiary prior to such acquisition by the Company or one of its Restricted Subsidiaries and was not incurred in connection with, or in contemplation of, such acquisition by the Company or one of its Restricted Subsidiaries; and provided, further, that the principal amount (or accreted value, as applicable) of such Indebtedness, together with any other outstanding Indebtedness incurred pursuant to this clause (vi), does not exceed $5.0 million; (vii) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness that was permitted to be incurred by the first paragraph, or by clauses (iii) through (vii) of the second paragraph of this covenant; (viii) the incurrence of Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries; provided, however, that any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary, and any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary, shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (ix) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; (x) the guarantee by the Company or any of its Restricted Subsidiaries of Indebtedness that was permitted to be incurred by another provision of this covenant; (xi) Indebtedness incurred pursuant to commodity agreements of the Company or any of its Restricted Subsidiaries to the extent entered into in the ordinary course of the Company's business and not for speculative purposes to protect the Company and its Restricted Subsidiaries from fluctuations in the prices of raw materials used in their businesses in amounts reasonably related to the Company's business; (xii) Indebtedness incurred pursuant to exchange rate agreements of the Company or any of its Restricted Subsidiaries to the extent entered into in the ordinary course of the Company's business and not for speculative purposes to protect the Company and its Restricted Subsidiaries from fluctuations in exchange rates relating to sales of inventory in the ordinary course of business in a currency other than U.S. dollars in amounts reasonably related to such sales; 70 75 (xiii) Indebtedness incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims or self-insurance, and obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary of the Company in the ordinary course of business; provided, however, that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within 30 days following such drawing or incurrence; and (xiv) the incurrence by the Company and its Restricted Subsidiaries of additional Indebtedness in an aggregate amount not to exceed $10 million at any one time outstanding, which Indebtedness may be incurred under the New Credit Facility or otherwise. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xiv) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. Liens The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness or trade payables on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens unless all payments of principal of, and premium, interest and Liquidated Damages, if any, on the Notes or otherwise under the Indenture are equally and ratably secured with (or prior to) such Indebtedness. Dividend and Other Payment Restrictions Affecting Subsidiaries The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the Closing Date, (b) the Credit Agreement as in effect as of the Closing Date, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive with respect to such dividend and other payment restrictions than those contained in the Credit Agreement as in effect on the Closing Date, (c) the Indenture and the Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred, (f) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (g) purchase money obligations for property acquired in the ordinary 71 76 course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, or (h) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. Merger, Consolidation, or Sale of Assets The Indenture provides that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Senior Subordinated Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (a) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (b) will, after giving pro forma effect to such transaction as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "-- Incurrence of Indebtedness." Transactions with Affiliates The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or such Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The foregoing provisions will not prohibit (i) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary or other agreements which provide for reasonable and customary indemnities provided on behalf of, officers, directors and employees of the Company and its Restricted Subsidiaries, in each case as determined in good faith by the Company evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee, (ii) transactions between or among the Company and/or its Restricted Subsidiaries; and (iii) any Restricted Payment that is permitted by the provisions of the Indenture described above under the caption "-- Restricted Payments." 72 77 Limitation on Issuances and Sales of Capital Stock of Subsidiaries The Indenture provides that the Company (i) will not, and will not permit any of its Restricted Subsidiaries to, transfer, convey, sell or otherwise dispose of any Capital Stock of any Restricted Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company), unless (a) such transfer, conveyance, sale or other disposition is of all of the Capital Stock of such Restricted Subsidiary owned by the Company and its Restricted Subsidiaries and (b) such transaction is conducted in accordance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales" and (ii) will not permit any Restricted Subsidiary of the Company to issue any of its Equity Interests (other than, if required by law, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Restricted Subsidiary of the Company. Limitation on Other Senior Subordinated Debt The Indenture provides that neither the Company nor any Restricted Subsidiary will incur any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of the Company or such Restricted Subsidiary, as the case may be, and senior in any respect in right of payment to the Senior Subordinated Notes or such Restricted Subsidiary's Guarantee thereof. Subsidiary Guarantees The Indenture provides that if the Company or any of its Restricted Subsidiaries shall acquire or create after the date of the Indenture a Subsidiary substantially all of whose assets are located in the United States or that conducts substantially all of its business in the United States, then such newly acquired or created Subsidiary shall execute a Guarantee of the Senior Subordinated Notes (a "Subsidiary Guarantee") and deliver an opinion of counsel in accordance with the terms of the Indenture; provided that this covenant shall not apply to (i) a Restricted Subsidiary formed for the sole purpose of engaging in accounts receivable financings; and (ii) any Subsidiary that has been properly designated as an Unrestricted Subsidiary in accordance with the Indenture for so long as it continues to constitute an Unrestricted Subsidiary. The Obligations of each Guarantor of the Senior Subordinated Notes under its Subsidiary Guarantee will be subordinated in right of payment to all Senior Debt of such Guarantor pursuant to subordination provisions substantially similar to those described above under "-- Subordination." The Indenture permits the Company's Subsidiaries to incur additional indebtedness, including additional Senior Debt, subject, in the case of the Company's Restricted Subsidiaries, to certain restrictions. See "-- Incurrence of Indebtedness." The Indenture provides that in the event of a sale or other disposition of all of the assets of any Restricted Subsidiary, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Restricted Subsidiary, or in the case the Company designates a Restricted Subsidiary to be an Unrestricted Subsidiary in accordance with the Indenture, then such Restricted Subsidiary will be released and relieved of any obligations under its guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "-- Repurchase at the Option of Holders -- Asset Sales." Reports The Indenture provides that, whether or not required by the rules and regulations of the Commission, so long as any Senior Subordinated Notes are outstanding, the Company will furnish to the Holders of Senior Subordinated Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries (showing in reasonable detail, either on the face of the financial statements or in the footnotes thereto and in Management's Discussion and Analysis of Financial Condition and Results of Operations, the financial 73 78 condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial information and results of operations of the Unrestricted Subsidiaries of the Company) and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company and its Restricted Subsidiaries will agree that, for so long as any Senior Subordinated Notes remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Act. EVENTS OF DEFAULT AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages, if any, with respect to, the Senior Subordinated Notes (whether or not prohibited by the subordination provisions of the Indenture), (ii) default in payment when due of the principal of or premium, if any, on the Senior Subordinated Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company to comply with the provisions described under the captions "-- Repurchase at the Option of Holders -- Change of Control" or "-- Asset Sales" or "-- Certain Covenants -- Merger, Consolidation or Sale of Assets;" (iv) failure by the Company for 30 days after written notice by the Trustee or the Holders of at least 25% in principal amount of the then outstanding Senior Subordinated Notes to comply with any of its other agreements in the Indenture or the Senior Subordinated Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists or is created after the Closing Date, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vi) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million and either (a) any creditor commences enforcement proceedings upon any such judgment or (b) such judgments are not paid, fully bonded (by a financially responsible institution regularly engaged in the issuance of security bonds) discharged or stayed within a period of 45 days; (vii) except as permitted by the Indenture, any guarantee of the Senior Subordinated Notes shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Restricted Subsidiary, or any Person acing on behalf of any Restricted Subsidiary, shall deny or disaffirm its obligations under its guarantee; and (viii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Senior Subordinated Notes may declare all the Senior Subordinated Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Senior Subordinated Notes will become due and payable without further action or notice. Holders of the Exchange Notes may not enforce the Indenture or the Exchange Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Senior Subordinated Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Subordinated Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. 74 79 In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Senior Subordinated Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Senior Subordinated Notes. If an Event of Default occurs prior to March 1, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Senior Subordinated Notes prior to such date, then the premium specified in the Indenture with respect to the year 2003 shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Senior Subordinated Notes. The Holders of a majority in aggregate principal amount of the Senior Subordinated Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Senior Subordinated Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of the principal of or premium, interest or Liquidated Damages, if any, on, the Senior Subordinated Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of the Company or any Restricted Subsidiary (other than the Company and its Restricted Subsidiaries), as such, shall have any liability for any obligations of the Company or such Restricted Subsidiary under the Senior Subordinated Notes, any Guarantee thereof, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Senior Subordinated Notes by accepting a Senior Subordinated Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Senior Subordinated Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Senior Subordinated Notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding Senior Subordinated Notes to receive payments in respect of the principal of and premium, interest and Liquidated Damages, if any, on the Senior Subordinated Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to the Senior Subordinated Notes concerning issuing temporary Senior Subordinated Notes, registration of Senior Subordinated Notes, mutilated, destroyed, lost or stolen Senior Subordinated Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Senior Subordinated Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Senior Subordinated Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Senior Subordinated Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal 75 80 of and premium, interest and Liquidated Damages, if any, on the outstanding Senior Subordinated Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Senior Subordinated Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the Closing Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding Senior Subordinated Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Senior Subordinated Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Senior Subordinated Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with, except that the opinion of counsel need not speak as to the conditions precedent stated in clauses (iv) and (vii) of this paragraph. TRANSFER AND EXCHANGE A Holder may transfer or exchange the Exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Exchange Note selected for redemption. Also, the Company is not required to transfer or exchange any Exchange Note for a period of 15 days before a selection of Notes to be redeemed. The registered Holder of an Exchange Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Indenture, the Senior Subordinated Notes and the Guarantees thereof may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Senior Subordinated Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Subordinated Notes), and any existing default or compliance with any provision of the Indenture, the Senior Subordinated Notes or the Guarantees thereof may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Senior Subordinated Notes (including consents obtained in connection with a tender offer or exchange offer for Senior Subordinated Notes). 76 81 Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Senior Subordinated Notes held by a non-consenting Holder): (i) reduce the principal amount of Senior Subordinated Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Senior Subordinated Note or alter the provisions with respect to the redemption of the Senior Subordinated Notes (other than provisions relating to the covenants described above under the caption "-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change the time for payment of interest or Liquidated Damages, if any, on any Senior Subordinated Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, interest or Liquidated Damages, if any, on the Senior Subordinated Notes (except a rescission of acceleration of the Senior Subordinated Notes by the Holders of at least a majority in aggregate principal amount of the Senior Subordinated Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Senior Subordinated Note payable in money other than that stated in the Senior Subordinated Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Senior Subordinated Notes to receive payments of principal of or premium, interest or Liquidated Damages, if any, on the Senior Subordinated Notes, (vii) waive a redemption payment with respect to any Senior Subordinated Note (other than a payment required by one of the covenants described above under the caption "-- Repurchase at the Option of Holders"), (ix) release any Restricted Subsidiary from its Guarantee of the Senior Subordinated Notes or (ix) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions of Article 10 of the Indenture (which relate to subordination) requires the consent of the Holders of at least 75% in aggregate principal amount of the Senior Subordinated Notes then outstanding if such amendment would adversely affect the rights of Holders of Senior Subordinated Notes. Notwithstanding the foregoing, without the consent of any Holder of Senior Subordinated Notes, the Company and the Trustee may amend or supplement the Indenture, the Senior Subordinated Notes or any Guarantee thereof to cure any ambiguity, defect or inconsistency, to provide for uncertificated Senior Subordinated Notes in addition to or in place of certificated Senior Subordinated Notes, to provide for the assumption of the Company's or any Restricted Subsidiary's obligations to Holders of Senior Subordinated Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of Senior Subordinated Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding Senior Subordinated Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Senior Subordinated Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. ADDITIONAL INFORMATION Anyone who receives this Prospectus may obtain a copy of the Indenture and Exchange and Registration Rights Agreement without charge by writing to PLAINWELL INC., 200 Allegan Street, Plainwell, MI 49080, Attention: Chief Financial Officer. 77 82 CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full definition of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback), excluding sales of inventory in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "-- Repurchase at the Option of Holders -- Change of Control" and/or the provisions described above under the caption "-- Certain Covenants -- Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the issue or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (iii) a Restricted Payment that is permitted by the covenant described above under the caption "-- Certain Covenants -- Restricted Payments," (iv) the grant in the ordinary course of business of a non-exclusive license of patents, trademarks, registrations therefor and other similar intellectual property for fair value as determined in good faith by the Company evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee and (v) any Lien (or foreclosure thereon) securing Indebtedness to the extent that such Lien is granted in compliance with "-- Certain Covenants -- Liens" above will not be deemed to be Asset Sales. "Borrowing Base" means, as of any date, an amount equal to the sum of (i) 85% of the book value of accounts receivable, net of allowances for doubtful accounts, owned by the Company and its Restricted Subsidiaries as of such date, plus (ii) 60% of the book value of inventory owned by the Company and its Restricted Subsidiaries as of such date, minus (iii) the principal amount of borrowings outstanding as of such date under the Revolver to the extent that the amount of such borrowings exceeds the sum of clauses (i) and (ii) above, all of the foregoing calculated on a consolidated basis in accordance with GAAP. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. 78 83 "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within one year after the date of acquisition. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries, to any "person" or "group" (as such terms are used in Section 13(d)(3) and Section 14(d)(2) of the Exchange Act), other than the Principals, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any person or group (as defined above), other than the Principals, becomes the "beneficial owner" (as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of 50% or more of the voting power of the voting stock of the Company; or (iv) the first day on which more than a majority of the members of the board of directors of the Company are not Continuing Directors. For purposes of this definition, any transfer of an equity interest of an entity that was formed for the purpose of acquiring voting stock of the Company will be deemed to be a transfer of such portion of such voting stock as corresponds to the portion of the equity of such entity that has been so transferred. Clause (i) of the definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Restricted Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Restricted Subsidiaries taken as a whole to another Person or group may be uncertain. "Closing Date" means the date of the closing of the sale of the Notes. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus, to the extent deducted in computing such Consolidated Net Income, (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale, (ii) provision for taxes based on income or profits, (iii) consolidated interest expense whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (iv) depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Restricted Subsidiary of a Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained) pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. 79 84 "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded and (v) the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Restricted Subsidiaries; provided that for purposes of the covenant described under the caption "-- Certain Covenants -- Restricted Payments," "Consolidated Net Income" means with respect to the Company for any period, the Company's Consolidated Net Income for such period plus the portion of the Company's non-cash charges for such period for amortization of goodwill or other intangibles recorded in connection with acquisitions as a result of the application of the purchase method of accounting in accordance with Accounting Principles Board Opinion Nos. 16 and 17, provided, that such adjustments shall not be made in respect of any subsidiary of the Company or portion of the Company's business which the Company received as a contribution, the fair market value of which contribution was included in clause (c)(iii) of the first paragraph of the covenant described under the caption "-- Certain Covenants -- Restricted Payments." "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (a) the consolidated equity of the common stockholders of such Person and its consolidated Restricted Subsidiaries as of such date, plus (b) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a consolidated Restricted Subsidiary of such Person, (ii) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Restricted Subsidiaries and (iii) all unamortized debt discount and expense and unamortized deferred charges as of such date, in each case determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of the Indenture, (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election (which approval may be specific or by approval of a proxy statement which contains the name of such nominees for election) or (iii) is an employee of and was nominated in good faith by 399 Venture Partners, Inc. pursuant to the Stockholders Agreement, for 399 Venture Partners, Inc.'s own benefit and not pursuant to any arrangement, agreement or understanding with any third party (other than the Stockholders Agreement). "Credit Agreement" means that certain credit agreement, dated as of the Closing Date, by and among the Company, the lenders party thereto, including the Revolver and the LC Facility, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. 80 85 "Designated Senior Debt" means (i) any Indebtedness outstanding under the Credit Agreement and (ii) any other Senior Debt permitted under the Indenture the principal amount of which is $10.0 million or more and that has been designated by the Company as "Designated Senior Debt." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable (other than pursuant to an offer to repurchase such Capital Stock due to a change of control provision substantially similar to the "Change of Control" covenant applicable to the Senior Subordinated Notes, which offer may not be completed until 60 days after completion of the Change of Control Offer), pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Senior Subordinated Notes mature. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Existing Indebtedness" means Indebtedness in existence on the date of the Indenture, until such Indebtedness is repaid. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be 81 86 excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantor" means each of the Company's Restricted Subsidiaries existing on the Closing Date, and each other Restricted Subsidiary that executes a Guarantee of the Senior Subordinated Notes pursuant to the terms of the Indenture. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate, currency or commodity swap agreements, cap agreements and collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates, currency exchange rates or commodity prices. "Holdings" means Plainwell Holding Company, a Delaware corporation. "Indebtedness" means, with respect to any Person, (i) any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance deferred that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, including without limitation, accrued interest, premiums, fees and expenses, (ii) all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person), (iii) Disqualified Stock of such Person and (iv) to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the value of the Equity Interests of such Restricted Subsidiary not sold or disposed of. "LC Facility" means the letter of credit guaranty under the Credit Agreement providing for a maximum amount of $20.0 million to support certain obligations of the Company as specified therein, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to 82 87 give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness: (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise) and (c) constitutes the lender; (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the Notes being offered hereby) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Investments" means (i) any Investment in the Company or in a Wholly Owned Restricted Subsidiary of the Company; (ii) any Investment in Cash Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (a) such Person becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (iv) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales;" and (v) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company. "Permitted Junior Securities" means Equity Interests in the Company or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Senior Subordinated Notes are subordinated to Senior Debt pursuant to Article 10 of the Indenture. "Permitted Liens" means (i) Liens securing Senior Debt of the Company and its Restricted Subsidiaries which Senior Debt was permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company or any of its Restricted Subsidiaries; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; 83 88 provided that such Liens were not created in contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided that such Liens were not created in the contemplation of such acquisition; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens existing on the date of the Indenture; (vi) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefore; and (vii) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; (viii) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of the second paragraph of the covenant entitled "Incurrence of Indebtedness" covering only the assets acquired with the proceeds of such Indebtedness; (ix) Liens to secure Permitted Refinancing Indebtedness so long as such Liens do not extend to any property not subject to the Liens securing the Indebtedness exchanged for, or extended, refinanced, renewed, replaced, defeased by, or refunded from the net proceeds of, such Permitted Refinancing Indebtedness and (x) Liens in favor of the Trustee as provided for in the Indenture on money or property held or collected by the Trustee in its capacity as Trustee. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount (or accredit value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accredit value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Senior Subordinated Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Senior Subordinated Notes on terms at least as favorable to the Holders of Senior Subordinated Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary that is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity. "Principals" means 399 Venture Partners, Inc., CCT Partners IV, L.P. and William L. New and their respective Affiliates. "Public Offering" means an underwritten public offering of stock (other than Disqualified Stock) of the Company registered under Securities Act (other than a public offering registered on Form S-8 under the Securities Act) that results in net proceeds of at least $35.0 million to the Company. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. 84 89 "Revolver" means the revolving line of credit under the Credit Agreement providing up to $35.0 million of availability, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Senior Debt" of a Person means (i) all Indebtedness of such Person outstanding under the Credit Agreement and all Hedging Obligations with respect thereto, (ii) any other Indebtedness of such Person permitted to be incurred under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinated in right of payment to any Senior Debt of such Person and (iii) all Obligations of such Person with respect to the foregoing including interest accruing at the contract rate or rates therefor from and after the initiation of a bankruptcy proceeding with respect to any such Person regardless of whether such interest in allowed as a claim in such bankruptcy proceeding. Notwithstanding anything to the contrary in the foregoing, Senior Debt of a Person will not include (a) any liability for federal, state, local or other taxes owed or owing by such Person, (b) any Indebtedness of such Person to any of its Subsidiaries or other Affiliates, (c) any trade payables or (d) any Indebtedness that is incurred in violation of the Indenture. "Significant Subsidiary" means any Restricted Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Stockholders Agreement" means that certain Stockholders Agreement, dated as of June 16, 1997, by and among Holdings, 399 Venture Partners, Inc., CCT Partners IV, L.P., Brenton Halsey, Larkspur Capital Corporation, William L. New (and any other executives of the Company executing a joinder thereto) and the Individual Purchasers (as defined in the Stockholders Agreement), as amended, in whole or in part from time to time. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (1) to subscribe for additional Equity Interests or (2) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has at least one director on its board of directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. 85 90 "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. 86 91 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Notes were originally sold by the Company on March 6, 1998 to the Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers subsequently resold the Notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act and to a limited number of institutional accredited investors that agreed to comply with certain transfer restrictions and other conditions. As a condition to the Purchase Agreement, the Company entered into the Exchange and Registration Rights Agreement with the Initial Purchaser pursuant to which the Company has agreed to: (i) file with the Commission on or prior to 60 calendar days after the date of issuance of the Notes (the "Issue Date") a registration statement on an appropriate form under the Securities Act (the "Exchange Offer Registration Statement") relating to a registered exchange offer (the "Exchange Offer") for the Notes under the Securities Act and (ii) use its best efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act as soon as practicable thereafter, but in no event later than 150 calendar days after the Issue Date. Upon the effectiveness of the Exchange Offer Registration Statement, unless it would not be permitted by applicable law or Commission policy, the Company will promptly offer to exchange any and all of the outstanding Notes for the Exchange Notes that are identical in all material respects to the Notes (except that the Exchange Notes will not contain terms with respect to transfer restrictions) and that would be registered under the Securities Act. The Company will keep the Exchange Offer open for not less than 20 days (or longer, if required by applicable law) after the date on which notice of the Exchange Offer is mailed to the holders of the Notes. For each Note surrendered to the Company pursuant to the Exchange Offer, the holder of such Note will receive an Exchange Note having a principal amount equal to that of the surrendered Note. Interest on each Exchange Note will accrue from the date of its original issue. Under existing interpretations of the staff of the Commission contained in several no-action letters to third parties, the Company believes that the Exchange Notes would in general be freely tradeable after the Exchange Offer without further registration under the Securities Act. However, any purchaser of Notes who is an "affiliate" of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes: (i) will not be able to rely on the interpretation of the staff of the Commission; (ii) will not be able to tender its Notes in the Exchange Offer; and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes, unless such sale or transfer is made pursuant to an exemption from such requirements. If (i) the Company is not required to file the Exchange Offer Registration Statement or permitted to effect the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy; or (ii) any Holder of Transfer Restricted Securities notifies the Company prior to the 20th day following commencement of the Exchange Offer that (a) it is prohibited by law or Commission policy from participating in the Exchange Offer or (b) that it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales or (c) that it is a Broker-Dealer and owns Notes acquired directly from the Company or an affiliate of the Company, then the Company will file with the Commission a shelf registration statement (the "Shelf Registration Statement") to cover resales of Transfer Restricted Securities by such holders who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. For purposes of the foregoing, "Transfer Restricted Securities" means each Note and each Exchange Note, the Holder of which is subject to prospectus delivery requirements of the Securities Act in order to sell such Note or Exchange Note, until the occurrence of any of the following events: (i) the first date on which such Note may be exchanged for an Exchange Note in the Exchange Offer, if following such exchange such Holder would be entitled to resell such Exchange Note to the public without complying with the prospectus delivery requirements of the Securities Act; (ii) the date on which such Note has been registered pursuant to an effective Shelf Registration Statement under the Securities Act and disposed of in accordance with the "Plan of Distribution" section of the Prospectus contained in such Shelf Registration Statement; (iii) the date on which such Note is sold to the public pursuant to Rule 144 under the Securities Act or by a Broker-Dealer pursuant to the "Plan of 87 92 Distribution" contemplated by the Exchange Offer Registration Statement (including delivery of the Prospectus contained therein); or (iv) such Note or Exchange Note, as the case may be, shall have ceased to be outstanding. The Company will use its best efforts to cause the Exchange Offer Registration Statement or, if applicable, the Shelf Registration Statement (each, a "Registration Statement") to become effective under the Securities Act by the Commission as soon as practicable after the filing thereof but in no event later than 150 calendar days after the Issue Date. Upon the effectiveness of the Exchange Offer Registration Statement, unless it would not be permitted by applicable law or Commission policy, the Company will promptly commence the Exchange Offer to enable each Holder of the Notes (other than Holders who are affiliates (within the meaning of the Securities Act) of the Company or underwriters (as defined in the Securities Act) with respect to the Exchange Notes) to exchange the Notes for Exchange Notes. If applicable, the Company shall keep the Shelf Registration Statement continuously effective for, under certain circumstances, a maximum of two years after the Issue Date. In the event that, for any reason whatsoever: (a) the Company fails to file any of the Registration Statements on or before the date specified for such filing; (b) any of such Registration Statements is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"); (c) the Company fails to consummate the Exchange Offer within 30 Business Days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement; or (d) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified in the Exchange and Registration Rights Agreement (each such event referred to in clauses (a) through (d) above a "Registration Default"), then the Company will pay liquidated damages ("Liquidated Damages") to each Holder of Notes, with respect to the first 90 calendar day period, or any portion thereof, immediately following the occurrence of a Registration Default, in an amount equal to 50 basis points per annum of the principal amount of Notes held by such Holder. The amount of the Liquidated Damages will increase by an additional 50 basis points per annum of the principal amount of Notes with respect to each subsequent 90 calendar day period, or any portion thereof, until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages of 200 basis points per annum of the principal amount of Notes. At such time as no Registration Default is continuing, the accrual of Liquidated Damages will cease. In the event of any Registration Default, the Company will provide appropriate notice thereof and of the imposition of the related Liquidated Damages to the Holders of the Notes. The Company (i) shall make available for a period of up to one year from the consummation of the Exchange Offer a prospectus meeting the requirements of the Securities Act to any broker-dealer for use in connection with any resale of any such Exchange Notes and (ii) shall pay all expenses incident to the Exchange Offer (including the expense of one counsel to the Holders covered thereby) and will indemnify certain holders of the Notes (including any broker-dealer) against certain liabilities, including liabilities under the Securities Act. A broker-dealer which delivers such a prospectus to purchasers in connection with such resales will be subject to certain of the civil liability provisions under the Securities Act and will be bound by the provisions of the Exchange and Registration Rights Agreement (including certain indemnification rights and obligations). Each holder of Notes who wishes to exchange such Notes for Exchange Notes in the Exchange Offer will be required to make representations in the Letter of Transmittal that (a) it is not an "affiliate" of the Company (within the meaning of Rule 405 of the Securities Act); (b) it is not engaged in and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes to be issued in the Exchange Offer; (c) it is acquiring the Exchange Notes in its ordinary course of business; and (d) if it is a Participating Broker-Dealer holding Notes acquired for its own account as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Notes received in respect of such Exchange Notes pursuant to the Exchange Offer. The Commission has taken the position and the Company believes that Participating Broker-Dealers may fulfill their prospectus delivery requirements 88 93 with respect to the Exchange Notes (other than a resale of an unsold allotment from the original sale of the Notes) with the prospectus contained in the Exchange Offer Registration Statement. Under the Exchange and Registration Rights Agreement, the Company is required to allow Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use the prospectus contained in the Exchange Offer Registration Statement in connection with the resale of such Exchange Notes. If the holder is a Participating Broker-Dealer, it will be required to include a representation in such Participating Broker-Dealer's letter of transmittal with respect to the Exchange Offer that such Participating Broker-Dealer has not entered into any arrangement or understanding with the Company or any affiliate of the Company to distribute the Exchange Notes. Holders of the Notes will be required to make certain representations to the Company (as described above) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement in order to have their Notes included in the Shelf Registration Statement and benefit from the provisions regarding liquidated damages set forth in the preceding paragraphs. A holder who sells Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Exchange and Registration Rights Agreement which are applicable to such a holder (including certain indemnification obligations). For so long as the Notes are outstanding, the Company will continue to provide to holders of the Notes and to prospective purchasers of the Notes the information required by Rule 144A(d)(4) under the Securities Act. The foregoing description of the Exchange and Registration Rights Agreement contains a discussion of all material elements thereof, but does not purport to be complete and is qualified in its entirety by reference to all provisions of the Exchange and Registration Rights Agreement. The Company will provide a copy of the Exchange and Registration Rights Agreement to prospective purchasers of Notes identified to the Company by an Initial Purchaser upon request. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Notes accepted in the Exchange Offer. Holders may tender some or all of their Notes pursuant to the Exchange Offer. However, Notes may be tendered only in integral multiples of $1,000. The form and terms of the Exchange Notes are the same as the form and terms of the Notes except that: (i) the Exchange Notes bear a Series B designation and a different CUSIP Number from the Notes; (ii) the Exchange Notes have been registered under the Securities Act and hence will not bear legends restricting the transfer thereof; and (iii) the holders of the Exchange Notes will not be entitled to certain rights under the Exchange and Registration Rights Agreement, including the provisions providing for an increase in the interest rate on the Notes in certain circumstances relating to the timing of the Exchange Offer, all of which rights will terminate when the Exchange Offer is terminated. The Exchange Notes will evidence the same debt as the Notes and will be entitled to the benefits of the Indenture. As of the date of this Prospectus, $130,000,000 aggregate principal amount of Notes were outstanding. The Company has fixed the close of business on , 1998 as the record date for the Exchange Offer for purposes of determining the persons to whom this Prospectus and the Letter of Transmittal will be mailed initially. Holders of Notes do not have any appraisal or dissenters' rights under the General Corporation Law of Delaware or the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder. 89 94 The Company shall be deemed to have accepted validly tendered Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the Exchange Notes from the Company. If any tendered Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted Notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the Exchange Offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1998, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. Notwithstanding the foregoing, the Company will not extend the Expiration Date beyond , 1998. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will mail to the registered holders an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "-- Conditions" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest from their date of issuance. Holders of Notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the date of issuance of the Exchange Notes. Such interest will be paid with the first interest payment on the Exchange Notes on September 1, 1998. Interest on the Notes accepted for exchange will cease to accrue upon issuance of the Exchange Notes. Interest on the Exchange Notes is payable semi-annually on each March 1 and September 1, commencing on September 1, 1998. PROCEDURES FOR TENDERING Only a holder of Notes may tender such Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Notes and any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. To be tendered effectively, the Notes, Letter of Transmittal and other required documents must be completed and received by the Exchange Agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the Notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of such book-entry transfer must be received by the Exchange Agent prior to the Expiration Date. 90 95 By executing the Letter of Transmittal, each holder will make to the Company the representations set forth above in the eighth paragraph under the heading "--Purpose and Effect of the Exchange Offer." The tender by a holder and the acceptance thereof by the Company will constitute agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. See "Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner" included with the Letter of Transmittal. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of the Medallion System (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Notes listed therein, such Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Notes with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, offices of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. The Company understands that the Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Notes at the book-entry transfer facility, The Depository Trust Company (the "Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Notes by causing such Book-Entry Transfer Facility to transfer such Notes into the Exchange Agent's account with respect to the Notes in accordance with the Book-Entry Transfer Facility's procedures for such transfer. Although delivery of the Notes may be effected through book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly completed and duly executed with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. The Depositary and DTC have confirmed that the Exchange Offer is eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC participants may electronically transmit their accept- 91 96 ance of the Exchange Offer by causing DTC to transfer Notes to the Depositary in accordance with DTC's ATOP procedures for transfer. DTC will then send an Agent's Message to the Depositary. The term "Agent's Message" means a message transmitted by DTC, received by the Depositary and forming part of the confirmation of a book-entry transfer, which states that DTC has received an express acknowledgment from the participant in DTC tendering Notes which are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Pen-Tab may enforce such agreement against such participant. In the case of an Agent's Message relating to guaranteed delivery, the term means a message transmitted by DTC and received by the Depositary, which states that DTC has received an express acknowledgment from the participant in DTC tendering Notes that such participant has received and agrees to be bound by the Notice of Guaranteed Delivery. Notwithstanding the foregoing, in order to validly tender in the Exchange Offer with respect to Securities transferred pursuant to ATOP, a DTC participant using ATOP must also properly complete and duly execute the applicable Letter of Transmittal and deliver it to the Depositary. Pursuant to authority granted by DTC, any DTC participant which has Notes credited to its DTC account at any time (and thereby held of record by DTC's nominee) may directly provide a tender as though it were the registered holder by so completing, executing and delivering the applicable Letter of Transmittal to the Depositary. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Notes not properly tendered or any Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right in its sole discretion to waive any defects, irregularities or conditions of tender as to particular Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Notes must be cured within such time as the Company shall determine. Although the Company intends, to notify holders of defects or irregularities with respect to tenders of Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Notes and (i) whose Notes are not immediately available, (ii) who cannot deliver their Notes, the Letter of Transmittal or any other required documents to the Exchange Agent or (iii) who cannot complete the procedures for book-entry transfer, prior to the Expiration Date, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of such Notes and the principal amount of Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Notes (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account at the Book-Entry Transfer Facility), and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and 92 97 (c) such properly completed and executed Letter of Transmittal (of facsimile thereof), as well as the certificate(s) representing all tendered Notes in proper form for transfer (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account at the Book-Entry Transfer Facility), and all other documents required by the Letter of Transmittal are received by the Exchange Agent upon five New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Notes in the Exchange Offer, a telegram, telex, letter or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Notes to be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn (including the certificate number(s) and principal amount of such Notes, or, in the case of Notes transferred by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited), (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Notes register the transfer of such Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Notes so withdrawn are validly retendered. Any Notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Notes may be retendered by following one of the procedures described above under "-- Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange Exchange Notes for, any Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Notes, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or any material adverse development has occurred in any existing action or proceeding with respect to the Company or any of its subsidiaries; or (b) any law, statute, rule, regulation or interpretation by the staff of the Commission is proposed, adopted or enacted, which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or materially impair the contemplated benefits of the Exchange Offer to the Company; or (c) any governmental approval has not been obtained, which approval the Company shall, in its sole discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby. If the Company determines in its sole discretion that any of the conditions are not satisfied, the Company may (i) refuse to accept any Notes and return all tendered Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Notes (see "-- Withdrawal of Tenders") or (iii) waive such 93 98 unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Notes which have not been withdrawn. EXCHANGE AGENT United States Trust Company of New York has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: United States Trust Company of New York 114 West 47th Street New York, New York 10036-1532 Delivery to an address other than as set forth above will not constitute a valid delivery. FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telecopy, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers, or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. ACCOUNTING TREATMENT The Exchange Notes will be recorded at the same carrying value as the Notes, which is face value, as reflected in the Company's accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by the Company. The expenses of the Exchange Offer will be expensed over the term of the Exchange Notes. CONSEQUENCES OF FAILURE TO EXCHANGE The Notes that are not exchanged for Exchange Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Notes may be resold only: (i) to the Company (upon redemption thereof or otherwise); (ii) so long as the Notes are eligible for resale pursuant to Rule 144A, to a person inside the United States whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel reasonably acceptable to the Company); (iii) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act; or (iv) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. RESALES OF THE EXCHANGE NOTES With respect to resales of Exchange Notes, based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that a holder or other person who receives Exchange Notes, whether or not such person is the holder (other than a person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who receives Exchange Notes in 94 99 exchange for Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with person to participate, in the distribution of the Exchange Notes, will be allowed to resell the Exchange Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires Exchange Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the Exchange Notes, such holder cannot rely on the position of the staff of the Commission enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each Participating Broker-Dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. As contemplated by these no-action letters and the Registration Rights Agreement, each holder accepting the Exchange Offer is required to represent to the Company in the Letter of Transmittal that (a) it is not an "affiliate" of the Company (within the meaning of Rule 405 of the Securities Act); (b) it is not engaged in and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes to be issued in the Exchange Offer; (c) it is acquiring the Exchange Notes in its ordinary course of business; and (d) if it is a Participating Broker-Dealer holding Notes acquired for its own account as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Notes received in respect of such Exchange Notes pursuant to the Exchange Offer. As indicated above, each Participating Broker-Dealer that receives an Exchange Note for its own account in exchange for Notes must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. For a description of the procedures for such resales by Participating Broker-Dealers, see "Plan of Distribution." CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES The following discussion (including the opinion of special counsel described below) is based upon current provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the "Service") will not take a contrary view, and no ruling from the Service has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conditions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. Certain holders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. The Company recommends that each holder consult such holder's own tax advisor as to the particular tax consequences of exchanging such holder's Notes for Exchange Notes, including the applicability and effect of any state, local or foreign tax laws. In the opinion of Kirkland & Ellis, special counsel to the Company, the exchange of the Notes for Exchange Notes pursuant to the Exchange Offer will not be treated as an "exchange" for federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Notes. Rather, the Exchange Notes received by a holder will be treated as a continuation of the Notes in the hands of such holder. As a result, there will be no federal income tax consequences to holders exchanging Notes for Exchange Notes pursuant to the Exchange Offer. PLAN OF DISTRIBUTION Each Participating Broker-Dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus meeting the requirements of the Securities 95 100 Act in connection with any resale of Exchange Notes received in respect of such Notes pursuant to the Exchange Offer. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of up to one year from the consummation of the Exchange Offer, it will make this Prospectus, as amended or supplemented, available to any Participating Broker-Dealer for use in connection with any such resale. In addition, until , 1998, all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sales of the Exchange Notes by Participating Broker-Dealers. Exchange Notes received by Participating Broker-Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchaser or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Participating Broker-Dealer and/or the purchasers of any such Exchange Notes. Any Participating Broker-Dealer that resells the Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. With respect to resales of Exchange Notes, based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that a holder or other person who receives Exchange Notes, whether or not such person is the holder (other than a person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who receives Exchange Notes in exchange for Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with person to participate, in the distribution of the Exchange Notes, will be allowed to resell the Exchange Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires Exchange Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the Exchange Notes, such holder cannot rely on the position of the staff of the Commission enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction and such a secondary resale transaction should be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K under the Securities Act, unless an exemption from registration is otherwise available. Further, each Participating Broker-Dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Company has agreed that, for a period of up to one year from the consummation of the Exchange Offer, it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale. LEGAL MATTERS Certain legal matters in connection with the issuance of the Exchange Notes offered hereby will be passed upon for the Company by Kirkland & Ellis, New York, New York. 96 101 EXPERTS The financial statements of the Specialty Paper Division as of December 31, 1995, December 29, 1996, June 16, 1997 and December 31, 1997, and for the years ended December 31. 1995 and December 29, 1996, the period from December 30, 1996 through June 16, 1997, and the period from June 17, 1997 through December 31, 1997, appearing in this Prospectus and in the Registration Statement, and the financial statement schedule for the years ended December 31, 1995 and December 29, 1996, the period from December 30, 1996 through June 16, 1997, and the period from June 17, 1997 through December 31, 1997, included in the Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein and in the Registration Statement, and are included herein in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The financial statements of the Consumer Products Division as of and for the three years ended December 31, 1997, appearing in this Prospectus and in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report thereon appearing elsewhere herein, and are included herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 97 102 INDEX TO FINANCIAL STATEMENTS PLAINWELL PAPER COMPANY -- SUCCESSOR Report of Ernst & Young LLP, Independent Auditors......... F-2 Balance Sheet as of December 31, 1997..................... F-3 Statement of Operations for the period from June 17, 1997 through December 31, 1997.............................. F-4 Statement of Changes in Stockholder's Equity for the period from June 17, 1997 through December 31, 1997.... F-5 Statement of Cash Flows for the period from June 17, 1997 through December 31, 1997.............................. F-6 Notes to Financial Statements............................. F-7 PLAINWELL PAPER COMPANY -- PREDECESSOR Report of Ernst & Young LLP, Independent Auditors......... F-15 Balance Sheets as of December 29, 1996 and June 16, 1997................................................... F-16 Statements of Operations for the years ended December 31, 1995 and December 29, 1996 and for the period from December 30, 1996 through June 16, 1997................ F-17 Statements of Changes in Stockholder's Equity for the years ended December 31, 1995 and December 29, 1996 and for the period from December 30, 1996 through June 16, 1997................................................... F-18 Statements of Cash Flows for the years ended December 31, 1995 and December 29, 1996 and for the period from December 30, 1996 through June 16, 1997................ F-19 Notes to Financial Statements............................. F-20 CONSUMER PRODUCTS DIVISION (AN OPERATING DIVISION OF POPE & TALBOT, INC.) FINANCIAL STATEMENTS Report of Arthur Andersen LLP, Independent Public Accountants............................................ F-28 Balance Sheets -- December 31, 1996 and 1997.............. F-29 Statements of Operations -- Years ended December 31, 1995, 1996 and 1997.......................................... F-30 Statements of Inter Company Accounts -- Years Ended December 31, 1995, 1996 and 1997....................... F-31 Statements of Cash Flows -- Years ended December 31, 1995, 1996 and 1997.......................................... F-32 Notes to Financial Statements............................. F-33 PLAINWELL INC. Balance Sheet as of March 31, 1998 (unaudited)............ F-40 Statements of Operations for the three months ended March 31, 1997 and 1998 (unaudited).......................... F-41 Statements of Cash Flows for the three months ended March 31, 1997 and 1998 (unaudited).......................... F-42 Notes to Condensed Financial Statements................... F-43
F-1 103 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Directors of Plainwell Paper Company We have audited the accompanying balance sheet of Plainwell Paper Company (the Company) as of December 31, 1997 and the related statements of operations, changes in stockholder's equity and cash flows for the period from June 17, 1997 through December 31, 1997. 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1997 and the results of its operations and its cash flows for the period from June 17, 1997 through December 31, 1997, in conformity with generally accepted accounting principles. Milwaukee, Wisconsin ERNST & YOUNG LLP March 19, 1998 F-2 104 PLAINWELL PAPER COMPANY BALANCE SHEET DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) ASSETS: Current assets: Cash...................................................... $ 772 Accounts receivable, net of allowances of $344............ 6,473 Inventories............................................... 10,681 Refundable Income Taxes................................... 852 Deferred income taxes..................................... 674 Prepaid expenses.......................................... 718 ------- Total current assets........................................ 20,170 Properties, net............................................. 24,594 Other assets................................................ 7,128 ------- TOTAL ASSETS...................................... $51,892 ======= LIABILITIES AND STOCKHOLDER'S EQUITY: Current liabilities: Current portion of long-term debt......................... $ 3,000 Accounts payable.......................................... 7,857 Accrued liabilities....................................... 3,673 Income taxes.............................................. 203 ------- TOTAL CURRENT LIABILITIES.............................. 14,733 Long-term debt.............................................. 20,839 Other long-term liabilities................................. 3,360 Deferred income taxes....................................... 4,772 Commitments and contingencies (Note 6) STOCKHOLDER'S EQUITY: Common stock, par value $1 per share; authorized 1,000 shares; issued and outstanding 500 shares.............. 1 Paid-in capital........................................... 7,973 Retained earnings......................................... 214 ------- TOTAL STOCKHOLDER'S EQUITY............................. 8,188 ------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........ $51,892 =======
See accompanying notes. F-3 105 PLAINWELL PAPER COMPANY STATEMENT OF OPERATIONS PERIOD FROM JUNE 17, 1997 THROUGH DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) Net sales................................................... $45,921 Costs and expenses: Cost of sales............................................. 40,805 Selling, general and administrative....................... 3,302 Interest.................................................. 1,187 ------- Total costs and expenses.......................... 45,294 ------- Income before income taxes.................................. 627 Income tax provision........................................ 413 ------- Net income.................................................. $ 214 =======
See accompanying notes. F-4 106 PLAINWELL PAPER COMPANY STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY PERIOD FROM JUNE 17, 1997 THROUGH DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL ------ ------- -------- ------ Balance at June 17, 1997.............................. $-- -- $ -- $ -- Issuance of common stock............................ 1 7,973 -- 7,974 Net income.......................................... -- -- 214 214 --- ------ ---- ------ Balance at December 31, 1997.......................... $ 1 $7,973 $214 $8,188 === ====== ==== ======
See accompanying notes. F-5 107 PLAINWELL PAPER COMPANY STATEMENT OF CASH FLOWS PERIOD FROM JUNE 17, 1997 THROUGH DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) OPERATING ACTIVITIES: Net income.................................................. $ 214 Adjustments to reconcile net income to net cash used in operating activities: Depreciation.............................................. 766 Amortization of deferred finance costs.................... 124 Deferred income taxes..................................... 68 Changes in operating assets and liabilities: Increase (decrease) in: Accounts payable..................................... 2,375 Accrued liabilities.................................. 1,100 Income taxes......................................... (812) Accrued pensions..................................... (73) Postretirement benefits.............................. 66 Decrease (increase) in: Accounts receivable.................................. (6,473) Inventories.......................................... (1,732) Prepaid expenses..................................... (43) Other assets......................................... 216 ------- NET CASH USED IN OPERATING ACTIVITIES............. (4,204) INVESTING ACTIVITY: Capital expenditures........................................ (563) ------- NET CASH USED IN INVESTING ACTIVITY............... (563) FINANCING ACTIVITIES: Payments of long-term debt.................................. (500) Net borrowings on revolving line of credit.................. 6,039 ------- NET CASH PROVIDED BY FINANCING ACTIVITIES......... 5,539 ------- Increase in cash............................................ 772 Cash at beginning of period................................. -- ------- Cash at end of period....................................... $ 772 ======= Supplemental disclosure of cash flow information: Cash paid for interest.................................... $ 947 Cash paid for income taxes................................ $ 1,157
See accompanying notes. F-6 108 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Plainwell Paper Company (the "Company") is a wholly owned subsidiary of Plainwell Holding Company ("Holdings"). On June 16, 1997, Holdings acquired from Simpson Paper Company ("Simpson") in a series of transactions 100% of the common stock of the Company and certain inventories for $16,638,000 in cash, the assumption of $3,500,000 of indebtedness in the form of industrial revenue bonds, the assumption of other liabilities of $6,572,000, the issuance by Holdings of $4.0 million in Series A Preferred Stock and an estimated amount payable to Simpson of $1,771,000. The total purchase price, including the costs of the acquisition, was $33,467,000. The acquisition has been accounted for using the purchase method of accounting and the allocation of the purchase price has been pushed down to the Company by Holdings. The purchase price has been allocated to the estimated fair values of the underlying assets acquired and liabilities assumed in accordance with Accounting Principles Board opinion No. 16. Such allocations were based on appraisals, evaluations and other studies. The purchase cost was less than the estimated fair value of the Company's net assets. For financial reporting purposes, current assets were recorded at estimated fair value and the residual of $24,357,000 was allocated to noncurrent assets. Nature of Operations The Company owns and operates, in Plainwell, Michigan, a specialty coated paper mill. The plant has a flexible manufacturing system which produces premium coated printing paper and technical special grades of paper. Sales are generally to well-established companies in the United States. Credit losses have not been significant. For the period ending December 31, 1997, sales to two customers comprised 36% and 15% of sales for the period. No other customers represented more than 10% of sales. The Company purchases pulp from several vendors and believes that it has an adequate supply. The price of pulp is a commodity and is subject to significant fluctuations. Fiscal Year The Company's fiscal period ends on December 31. Inventories Inventories are stated at the lower of cost or market with cost determined using the first-in, first-out method. Properties Properties are carried at cost. Costs of maintenance and repairs are charged to expense as incurred. Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts, with the resultant gain or loss included in income. F-7 109 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 For financial reporting purposes, depreciation is computed using the straight-line method over the useful lives of respective assets.
ESTIMATED LIFE IN YEARS -------------- Mills, plant and improvements.......................... 20 - 40 Equipment.............................................. 6 - 15 Furniture and fixtures................................. 6 - 10
For income tax purposes, depreciation is calculated primarily using accelerated methods. Interest is capitalized in connection with construction of major projects. No interest was capitalized in 1997. Inventoriable Stores Inventoriable stores include various parts and supplies used in the maintenance and operation of the Company's manufacturing equipment. Inventoriable stores are stated at cost determined using the first-in, first out method of accounting. Deferred Finance Costs Deferred finance costs are amortized using the interest method over the terms of the related debt. Environmental Losses associated with environmental remediation obligations are accrued when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than the completion of a remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Recoveries of environmental remediation costs from other parties are recognized as assets when their receipt is deemed probable. Revenue Recognition Revenues are recognized when goods are shipped to the customer. In determining net sales, revenues are reduced by freight, discounts and returns. Research and Development Research and development costs are charged to expense as incurred and were $92,000 in 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-8 110 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 2. ADDITIONAL BALANCE SHEET INFORMATION Components are as follows (dollars in thousands): Accounts receivable: Trade receivables......................................... $ 6,509 Miscellaneous receivable.................................. 308 Less: Sales returns.......................................... (321) Allowance for doubtful accounts........................ (23) ------- $ 6,473 ======= Inventories: Paper mill fiber.......................................... $ 1,985 Work in progress.......................................... 1,916 Finished goods............................................ 5,650 Chemicals and other....................................... 1,130 ------- $10,681 ======= Properties: Land...................................................... $ 566 Mills, plant and improvements............................. 4,787 Equipment................................................. 19,532 Furniture and fixtures.................................... 475 ------- 25,360 Less accumulated depreciation............................. (766) ------- Net properties.............................................. $24,594 ======= Other assets: Deferred finance costs, net of accumulated amortization of $124................................................... $ 1,148 Due from prior owners for environmental remediation costs.................................................. 2,000 Intangible pension asset.................................. 991 Inventoriable stores...................................... 1,833 Other..................................................... 1,156 ------- $ 7,128 ======= Accrued liabilities: Payable to Simpson........................................ $ 1,852 Other..................................................... 1,821 ------- $ 3,673 ======= Other long-term liabilities: Accrued pension cost...................................... $ 126 Postretirement obligation................................. 1,234 Accrued environmental..................................... 2,000 ------- $ 3,360 =======
F-9 111 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 3. LONG-TERM DEBT Long-term debt consists of the following (dollars in thousands): Term note.................................................. $13,500 Note payable............................................... 3,500 Revolving line of credit................................... 6,839 ------- 23,839 Less current portion....................................... 3,000 ------- Long-term debt............................................. $20,839 =======
Under the terms of a bank Loan and Security Agreement ("LSA"), the Company's credit facility consists of a term note ("Term Note") in the amount of $13,500,000 and a revolving line of credit ("Revolver") up to a maximum of $10,000,000. Borrowings on the Revolver are limited to an amount equal to the sum of 85% of eligible accounts receivable and 60% of eligible inventories. At December 31, 1997, unused available borrowings on the Revolver were $3,161,000. The Revolver and Term Note bear interest at either a base rate (as defined) or a LIBOR rate (as defined) which is payable monthly. The average rate charged at December 31, 1997 was 9.2% and 9.3%, respectively. A fee of .375% per annum is charged on the average daily unused portion of the Revolver. The Revolver is due on June 1, 2002. Monthly principal of $250,000 is due on the Term Note beginning November 1, 1997 with a final payment due June 1, 2002. The LSA is secured by substantially all of the Company's assets other than land and buildings. The LSA contains various restrictive covenants which limit the amount of capital expenditures and management fees that can be paid and have required fixed charged coverage and liabilities to net worth ratios. The Company was in compliance with or obtained waivers for all restrictive covenants. The $3,500,000 note payable relates to a tax-exempt bond issued by the City of Plainwell for the benefit of the Company. The bond and related note payable bear interest at a variable rate which was 4.65% at December 31, 1997. Interest payments are due monthly and continue until the note matures on October 1, 2007. Maturities of long-term debt are as follows (in thousands): 1998 -- $3,000; 1999 -- $3,000; 2000 -- $3,000; 2001 -- $3,000; and 2002 -- $8,339. 4. EMPLOYEE BENEFIT PLANS Pension Plans Substantially all of the Company's employees participate in noncontributory defined-benefit pension plans. These include a Company-administered salary plan and union plan. Net periodic pension cost for the period ending December 31, 1997 was composed of the following (dollars in thousands): Salary and union hourly plan: Service cost -- benefits earned during the period......... $ 270 Interest cost on projected benefit obligation............. 340 Actual earnings from plan assets.......................... (482) ----- Total net periodic pension cost................... $ 128 =====
F-10 112 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 The following table sets forth the funded status of the plans and the amount recognized as a prepaid (accrued) pension cost at December 31, 1997 (dollars in thousands):
PLANS IN WHICH: ----------------------------------- ASSETS ACCUMULATED EXCEED BENEFITS ACCUMULATED EXCEED BENEFITS ASSETS TOTAL ----------- ----------- ------- Accumulated benefit obligation: Vested portion.................................... $(9,722) $ -- $(9,722) Nonvested portion................................. (294) (88) (382) ------- ----- ------- Accumulated benefit obligation...................... (10,016) (88) (10,104) Excess of projected benefit obligation over accumulated benefit obligation.................... -- (38) (38) ------- ----- ------- Projected benefit obligation........................ (10,016) (126) (10,142) Plan assets at fair market value.................... 11,007 -- 11,007 ------- ----- ------- Prepaid (accrued) pension cost...................... $ 991 $(126) $ 865 ======= ===== =======
Substantially all of the pension plans' assets are invested in common stock, fixed-income securities, cash and cash equivalents. The discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5%. The expected long-term rate of return on plan assets was 9.0%. The funding policy regarding all of the plans is to make contributions to the plan that are between the minimum amounts required by the Employee Retirement Income Security Act and the maximum amounts deductible under current income tax regulations. Defined Contribution Retirement Plans The Company sponsors defined contribution 401(k) retirement plans covering substantially all salaried and hourly employees. The Company matches a percentage of the participants' contributions. Total Company contribution expense was $157,000 in 1997. Other Postretirement Plans The Company sponsors postretirement medical and life insurance plans for certain salaried and nonsalaried employees and eligible spouses and dependents of the employees. The medical plans pay a stated percentage of covered medical expenses incurred after deducting co-payments made once a stated deductible has been met. The life insurance plans pay a defined benefit. The Company does not fund these plans prior to actual incurrence of costs under the plans. Net periodic other postretirement benefit cost for these plans for the period ending December 31, 1997 was composed of the following (dollars in thousands): Postretirement costs: Service cost -- benefits attributed to service during the period................................................. $24 Interest cost on accumulated benefit obligation........... 42 --- Net periodic cost of other postretirement benefit plans..... $66 ===
F-11 113 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 The following table reconciles the plans' funded status to the accrued postretirement medical and life insurance cost liability in the accompanying balance sheet at December 31, 1997 (dollars in thousands): Accumulated benefit obligation: Retirees.................................................. $ 97 Other fully eligible participants......................... 282 Other active participants................................. 855 ------ $1,234 ======
For measurement purposes, 7.67% was assumed for health care costs for 1997. The rate is assumed to decline in decrements of 0.33% every year until it reaches 5.0% in 2005 where it will remain thereafter. A 1% increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation by 9% at December 31, 1997. The effect of this 1% increase on the service and interest cost components of the net periodic cost of postretirement medical and life insurance plans would be an increase of 10%. The discount rate used in determining the accumulated benefit obligation was 7.5% in 1997. 5. INCOME TAXES The income tax provision (benefit) consists of the following components (dollars in thousands): Current: Federal................................................... $ 48 State..................................................... 297 ---- 345 Deferred: Federal................................................... 62 State..................................................... 6 ---- 68 ---- $413 ====
The income tax provision was different from the amount computed by applying the United States statutory federal income tax rate as follows (dollars in thousands): Provision at statutory rates................................ $213 State income and franchise tax, net of federal income tax benefit................................................... 196 Other....................................................... 4 ---- $413 ====
F-12 114 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. The net deferred tax (liabilities) assets are composed of the following (dollars in thousands): Deferred income tax liabilities: Property and equipment................................... $(5,119) Environmental recoveries................................. (740) Pension.................................................. (368) ------- (6,227) Deferred income tax assets: Receivables.............................................. 88 Inventories.............................................. 162 Vacation and other employee benefits..................... 339 Inventoriable stores..................................... 219 Environmental liabilities................................ 740 Postretirement benefits.................................. 457 Health insurance accrual................................. 85 Other.................................................... 39 ------- 2,129 ------- Net deferred tax liability................................. $(4,098) ======= Included in the balance sheet as: Current deferred income tax asset........................ $ 674 Noncurrent deferred income tax liability................. (4,772) ------- $(4,098) =======
6. ENVIRONMENTAL REMEDIATION In 1990, the Company was named as one of several potentially responsible parties ("PRP") at a Superfund site in Kalamazoo, Michigan which has five distinct operable units. PRPs may be held jointly and severally liable for cleanup plus related costs. One operable unit of the Kalamazoo River Site is the 12th Street Landfill, a property wholly owned by the Company. The Company expects to pay for the entire cost of the investigation and remediation work at this location. The Company has recorded a liability for the estimated cost to remediate this unit. A receivable for remediation costs recoverable under an indemnification agreement with Simpson has also been recorded. Investigations at a second operable unit, which includes a portion of the Kalamazoo River, continue and environmental remediation costs, if any, that may be incurred cannot presently be estimated. Management believes the Company is not responsible for environmental remediation costs at the other three units. Accordingly, in the accompanying financial statements, the Company has not recorded a liability for any remediation costs or recovery under the indemnification agreement for the other three units. Although the final outcome of these environmental matters is subject to a great many variables and cannot be predicted with any degree of certainty, management believes that the ultimate outcome will not have a material effect on the current financial position, liquidity or results of operations of the Company. F-13 115 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 7. COMMITMENTS Under the terms of a requirements contract, Simpson has the right to purchase from the Company all of Simpson's requirements, up to 20,000 tons for the twelve-month period ended June 30, 1998 for coated two-sided matter paper products sold by Simpson under the brand name EVERGREEN. If the terms of the requirements contract is extended by Simpson, Simpson has the right to purchase from the Company all of Simpson's requirements, up to 20,000 tons per twelve month period through June 30, 2000 for sheets and rolls of matte papers of the same grade and quality as EVERGREEN. In connection with the purchase of Plainwell Paper Company, a Transition Service Agreement was entered into pursuant to which Simpson has agreed to provide certain transition services to the Company for a period ending not later than June 16, 1999. In connection with the purchase of the Consumer Products Division, the Company entered into a 18-month Transaction Service Agreement through September 30, 1999 with Pope & Talbot, Inc. for the purpose of processing the existing information systems. 8. SUBSEQUENT EVENT Pursuant to the Acquisition Agreement dated January 22, 1998, the Company merged with PLAINWELL INC. effective March 6, 1998. PLAINWELL INC. is also a wholly owned subsidiary of Plainwell Holding Company. The Company will operate as the Specialty Paper Division of PLAINWELL INC. Also effective March 6, 1998, PLAINWELL INC. purchased substantially all of the assets, properties and rights and assumed certain related liabilities of the tissue business of Pope & Talbot. This unit will operate as the Consumers Products Division of PLAINWELL INC. In connection with the merger and acquisition of the tissue business, effective March 6, 1998 the Company established a new credit facility which matures in 2003 and provides for up to $35.0 million of borrowings on a revolving basis, subject to various restrictions. The new credit facility contains certain financial and operational restrictions. F-14 116 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Plainwell Paper Company We have audited the accompanying balance sheets of Plainwell Paper Company (the "Company") as of December 29, 1996 and June 16, 1997, and the related statements of operations, changes in stockholder's equity and cash flows for the years ended December 31, 1995 and December 29, 1996 and for the period from December 30, 1996 through June 16, 1997. 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 financial position of the Company at December 29, 1996 and June 16, 1997, and the results of its operations and its cash flows for the years ended December 31, 1995 and December 29, 1996 and for the period from December 30, 1996 through June 16, 1997, in conformity with generally accepted accounting principles. Milwaukee, Wisconsin ERNST & YOUNG LLP June 29, 1998 F-15 117 PLAINWELL PAPER COMPANY BALANCE SHEETS
DECEMBER 29, JUNE 16, 1996 1997 ------------ -------- (DOLLARS IN THOUSANDS) ASSETS: Current assets: Miscellaneous receivable.................................. $ 25 $ 43 Inventories............................................... 9,407 12,139 Deferred income taxes..................................... 839 534 Prepaid expenses.......................................... 846 626 ------- ------- Total current assets................................... 11,117 13,342 Properties, net............................................. 26,906 25,847 Receivable from Simpson..................................... 5,795 5,876 Other assets................................................ 5,801 6,526 ------- ------- TOTAL ASSETS...................................... $49,619 $51,591 ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY: Current liabilities: Accounts payable.......................................... $ 5,771 $ 5,911 Accrued liabilities....................................... 2,087 1,670 ------- ------- TOTAL CURRENT LIABILITIES.............................. 7,858 7,581 Long-term debt.............................................. 3,500 3,500 Other long-term liabilities................................. 4,241 3,979 Deferred income taxes....................................... 4,619 4,608 Commitments and contingencies (Note 6) STOCKHOLDER'S EQUITY: Common stock, par value $1 per share; authorized 1,000 shares; issued and outstanding 500 shares.............. 1 1 Paid-in capital........................................... 27,480 27,480 Retained earnings......................................... 1,920 4,442 ------- ------- TOTAL STOCKHOLDER'S EQUITY............................. 29,401 31,923 ------- ------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........ $49,619 $51,591 ======= =======
See accompanying notes. F-16 118 PLAINWELL PAPER COMPANY STATEMENTS OF OPERATIONS
PERIOD FROM DECEMBER 30, YEAR ENDED YEAR ENDED 1996 THROUGH DECEMBER 31, DECEMBER 29, JUNE 16, 1995 1996 1997 ------------ ------------ ------------ (DOLLARS IN THOUSANDS) Net sales............................................. $101,049 $85,230 $40,795 Costs and expenses: Cost of sales....................................... 99,536 76,425 34,231 Selling, general and administrative................. 3,455 4,434 1,539 Overhead allocation from Simpson.................... 6,260 5,537 724 Interest............................................ 146 144 124 -------- ------- ------- Total costs and expenses.................... 109,397 86,540 36,618 -------- ------- ------- Income (loss) before income taxes..................... (8,348) (1,310) 4,177 Income tax provision (benefit)........................ (2,777) (335) 1,655 -------- ------- ------- Net income (loss)..................................... $ (5,571) $ (975) $ 2,522 ======== ======= =======
See accompanying notes. F-17 119 PLAINWELL PAPER COMPANY STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 29, 1996 AND THE PERIOD FROM DECEMBER 30, 1996 THROUGH JUNE 16, 1997 (Dollars In thousands)
COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL ------ ------- --------- ------- Balance at January 2, 1995.......................... $1 $27,480 $8,466 $35,947 Net loss.......................................... -- -- (5,571) (5,571) -- ------- ------ ------- Balance at January 1, 1996.......................... 1 27,480 2,895 30,376 Net loss.......................................... -- -- (975) (975) -- ------- ------ ------- Balance at December 29, 1996........................ 1 27,480 1,920 29,401 Net income........................................ -- -- 2,522 2,522 -- ------- ------ ------- Balance at June 16, 1997............................ $1 $27,480 $4,442 $31,923 == ======= ====== =======
See accompanying notes. F-18 120 PLAINWELL PAPER COMPANY STATEMENTS OF CASH FLOWS
PERIOD FROM DECEMBER 30, YEAR ENDED YEAR ENDED 1996 THROUGH DECEMBER 31, DECEMBER 29, JUNE 16, 1995 1996 1997 ------------ ------------ ------------- (Dollars In thousands) OPERATING ACTIVITIES: Net income (loss).................................... $(5,571) $ (975) $ 2,522 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for deferred income taxes................ 138 628 294 Depreciation....................................... 2,257 2,330 1,070 Changes in operating assets and liabilities: Increase (decrease) in: Accounts payable.............................. (3,296) (662) 140 Accrued liabilities........................... 69 373 (417) Other long-term liabilities................... (564) 2,345 (334) Accrued pensions.............................. 13 (1,507) (102) Postretirement benefits....................... 100 140 72 Decrease (increase) in: Miscellaneous receivable...................... 380 41 (18) Inventories................................... (1,458) 5,773 (2,732) Prepaid expenses.............................. (16) 52 (623) Other assets.................................. (188) (2,255) 220 Receivable from Simpson....................... 11,959 (5,284) (81) ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES............................... 3,823 999 11 INVESTING ACTIVITIES: Capital expenditures................................. (3,878) (1,220) (66) Other................................................ 34 154 55 ------- ------- ------- NET CASH USED IN INVESTING ACTIVITIES...... (3,844) (1,066) (11) ------- ------- ------- Decrease in cash..................................... (21) (67) -- Cash at beginning of period.......................... 88 67 -- ------- ------- ------- Cash at end of period................................ $ 67 $ -- $ -- ======= ======= ======= Supplemental disclosure of cash flow information -- Cash paid for interest.............. $ 146 $ 144 $ 124
See accompanying notes. F-19 121 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS JUNE 16, 1997 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Plainwell Paper Company (the "Company"), formerly doing business as Simpson Plainwell Paper Company, is a wholly owned subsidiary of Simpson Paper Company, which is a subsidiary of Simpson Investment (collectively, "Simpson"). Nature of Operations and Relationship With Simpson The Company owns and operates a specialty coated paper mill in Plainwell, Michigan, that produces and supplies premium coated printing papers and technical specialty grades of paper. Sales are generally to well-established companies in the United States. Credit losses have not been significant. For the year ended December 31, 1995, the Company had sales to two individual customers which comprised 12.6% and 10.7% of sales for the year. For the year ended December 29, 1996, the Company has sales to two individual customers which comprised 14% and 11% of sales for the year. For the period ending June 16, 1997, sales to one individual customer comprised 16% of sales for the period. No other customers represented more than 10% of revenues. The Company purchases pulp from several vendors and believes that it has an adequate supply. The price of pulp is a commodity and is subject to significant fluctuations. The financial statements are based on separate accounting records maintained by Simpson for the Company. Throughout the period covered by these financial statements, Simpson performed cash management on a centralized basis and processed related accounts receivable and certain other transactions. The systems utilized by Simpson did not provide detail for receivables and cash receipts and payments on a business-specific basis. Accordingly, cash, trade receivables and the related allowances for bad debts are recorded by the Company and by Simpson through the intercompany receivable account. These accounting records reflect certain charges by Simpson for direct costs and expenses incurred by Simpson that were associated with the Company's selling, general and administrative operations. Additionally, certain administrative costs incurred by Simpson which benefit the Company but are not directly attributable to the Company, which historically had not been allocated, have been allocated to the Company in the accompanying financial statements. These costs include engineering, environmental, management information services, marketing and other administrative costs and are allocated based on net sales. Such costs are separately classified as overhead allocation from Simpson in the statements of operations. Management believes the allocation of overhead from Simpson is reasonable given Simpson's organizational and management structure. Throughout the period covered by these financial statements, the Company participated in Simpson's cash disbursement system and, as such, its cash funding requirements were met by Simpson. Other than the note payable (see Note 3) and related interest expense, there has been no allocation to the Company of Simpson's consolidated borrowings and related interest expense. For the periods in the accompanying financial statements, the Company was generally in a net receivable position from Simpson. The financial information included herein may not necessarily be indicative of the financial position, results of operations or cash flows of the Company in the future, nor does such information necessarily reflect the financial position, results of operations or cash flows of the Company had it been a separate, stand-alone company during the periods presented. Fiscal Year The Company's fiscal year ended on the Sunday closest to December 31. F-20 122 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 16, 1997 Inventories Inventories are stated at the lower of cost or market, with cost determined using the last-in, first-out (LIFO) method. Properties Properties are carried at cost. Costs of maintenance and repairs are charged to expense as incurred. Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts, with the resultant gain or loss included in income. For financial reporting purposes, depreciation is computed using the straight-line method over the useful lives of respective assets. The estimated useful lives of the principal items of plant and equipment range from 10 to 40 years. For income tax purposes, depreciation is calculated primarily using accelerated methods. Interest is capitalized in connection with construction of major projects. No interest was capitalized in 1995, 1996 or 1997. Inventoriable Stores Inventoriable stores include various parts and supplies used in the maintenance and operation of the Company's manufacturing equipment. Inventoriable stores are stated at cost determine on the first-in, first out method of accounting. Intercompany Account Cash collected from and distributed to the Company is reflected in the intercompany account balance. The intercompany account balance represents the net accumulated transactions between Simpson and the Company. Income Taxes The Company is included in the consolidated federal tax return of Simpson. Income taxes have been provided as if the Company were a separate taxpayer. The Company's current tax expense (benefit) has been charged to the intercompany account. Environmental Liabilities Losses associated with environmental remediation obligations are accrued when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized not later than the completion of a remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Recoveries of environmental remediation costs from other parties are recognized as assets when their receipt is deemed probable. Revenue Recognition Sales are recognized when goods are shipped to the customer. In determining net sales, sales are reduced by commissions, discounts and freight. F-21 123 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 16, 1997 Interest Expense and Income The interest expense reflected in the statements of operations represents interest associated with the note payable related to an industrial revenue bond. The Company was not allocated any interest income on the receivable from Simpson. Research and Development Research and development costs are charged to expense as incurred and were $351,000, $181,000 and $142,000 for the years ended December 31, 1995 and December 28, 1996, and for the period from December 30, 1996 through June 16, 1997, respectively. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. ADDITIONAL BALANCE SHEET INFORMATION Components are as follows (dollars in thousands):
DECEMBER 29, JUNE 16, 1996 1997 ------------ -------- Inventories: Paper mill fiber.......................................... $ 1,537 $ 1,883 Work in progress.......................................... 1,372 1,716 Finished goods............................................ 5,548 6,577 Chemicals and other....................................... 916 1,506 ------- ------- 9,373 11,682 Plus adjustment to state inventories at LIFO cost......... 34 457 ------- ------- $ 9,407 $12,139 ======= ======= Properties: Land...................................................... $ 1,178 $ 1,178 Mills, plant and improvements............................. 9,586 9,638 Equipment................................................. 29,900 29,873 Furniture and fixtures.................................... 2,518 2,488 ------- ------- 43,182 43,177 Less accumulated depreciation............................. 16,276 17,330 ------- ------- Net properties.............................................. $26,906 $25,847 ======= ======= Other assets: Due from prior owners for environmental remediation costs.................................................. $ 2,000 $ 2,000 Intangible pension asset.................................. 1,144 1,246 Inventoriable stores...................................... 2,311 2,433 Other..................................................... 346 847 ------- ------- $ 5,801 $ 6,526 ======= =======
F-22 124 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 16, 1997
DECEMBER 29, JUNE 16, 1996 1997 ------------ -------- Accrued liabilities: Workers' compensation claims.............................. $ 667 $ 654 Other..................................................... 1,420 1,016 ------- ------- $ 2,087 $ 1,670 ======= ======= Other long-term liabilities: Postretirement obligation................................. $ 1,390 $ 1,462 Accrued environmental..................................... 2,000 2,000 Workers' compensation and other........................... 717 414 Other..................................................... 134 103 ------- ------- $ 4,241 $ 3,979 ======= =======
3. LONG-TERM DEBT The $3,500,000 note payable relates to a tax-exempt bond issued by the City of Plainwell for the benefit of the Company. The bond and related note payable bear interest at a variable rate which was 4.45% at December 29, 1996 and June 16, 1997. Interest payments are due monthly and continue until the note matures on October 1, 2007. 4. EMPLOYEE BENEFIT PLANS Pension Plans Substantially all of the Company's employees participate in noncontributory defined-benefit pension plans. Salaried employees are covered by a noncontributory defined-benefit pension plan administered by Simpson which also includes other salaried employees of Simpson. The union hourly employees are covered by a noncontributory defined-benefit pension plan administered by Simpson. Pension benefits for employees covered under this plan are based on each employee's years of service. Net periodic pension cost, was composed of the following (dollars in thousands):
PERIOD FROM DECEMBER 30, YEAR ENDED YEAR ENDED 1996 THROUGH DECEMBER 31, DECEMBER 29, JUNE 16, 1995 1996 1997 ------------ ------------ ------------ Service cost -- benefits earned during the period...................................... $ 372 $ 524 $ 269 Interest cost on projected benefit obligation.................................. 749 831 429 Actual earnings from plan assets.............. (1,677) (2,258) (1,693) Deferral of earnings from plan assets......... 1,036 1,429 1,161 Net amortization and deferral................. 151 194 92 ------- ------- ------- Net periodic pension cost..................... $ 631 $ 720 $ 258 ======= ======= =======
F-23 125 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 16, 1997 The following table sets forth the funded status and the amount recognized as a prepaid pension cost (in thousands):
DECEMBER 29, JUNE 16, 1996 1997 ------------ -------- Accumulated benefit obligation: Vested portion............................................ $(11,297) $(11,902) Nonvested portion......................................... (402) (425) -------- -------- Accumulated benefit obligation.............................. (11,699) (12,327) Excess of projected benefit obligation over accumulated benefit obligation........................................ (1,024) (1,108) -------- -------- Projected benefit obligation................................ (12,723) (13,435) Plan assets at fair market value............................ 11,975 13,799 -------- -------- Plan assets greater (less) than projected benefit obligation................................................ (748) 364 Unrecognized net gain (loss)................................ 552 (390) Unrecognized prior service.................................. 1,346 1,277 Balance of unrecorded transition asset...................... (6) (5) -------- -------- Prepaid pension cost........................................ $ 1,144 $ 1,246 ======== ========
Substantially all the pension plan's assets are invested in common stock, fixed-income securities, cash and cash equivalents. The discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% for December 29, 1996 and June 16, 1997. The expected long-term rate of return on plan assets was 9.0% for the 1996 and 1997 periods. The funding policy regarding all of the plans is to make contributions to the plans that are between the minimum amounts required by the Employee Retirement Income Security Act of 1974 (ERISA) and the maximum amounts deductible under current income tax regulations. Profit-Sharing and Savings Retirement Plan The Company sponsors a 401(k) retirement plan covering substantially all salaried and hourly employees. The Company matches a percentage of the participants' contributions. Total Company contributions expense recorded for the years ended December 31, 1995 and December 29, 1996 and for the period from December 30, 1996 through June 16, 1997 was $165,000, $198,000 and $87,000, respectively. Other Postretirement Plans Simpson sponsors postretirement medical and life insurance plans for certain salaried and nonsalaried Company employees and eligible spouses and dependents of the employees. The medical plans pay a stated percentage of covered medical expenses incurred after deducting copayments made once a stated deductible has been met. The life insurance plans pay a defined benefit. Simpson does not prefund these plans prior to actual incurrence of costs under the plans. F-24 126 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 16, 1997 Net periodic other postretirement benefit cost, for these plans was composed of the following (dollars in thousands):
PERIOD FROM DECEMBER 30, YEAR ENDED YEAR ENDED 1996 THROUGH DECEMBER 31, DECEMBER 29, JUNE 16, 1995 1996 1997 ------------ ------------ ------------ Service cost -- benefits attributed to service during the period........................... $ 46 $ 48 $25 Interest cost on accumulated benefit obligation.................................. 105 123 67 Net amortization and deferral................. 3 28 6 ---- ---- --- Net periodic cost of other postretirement benefit plans............................... $154 $199 $98 ==== ==== ===
The following table reconciles the plans' funded status to the accrued postretirement medical and life insurance cost liability in the accompanying balance sheets (in thousands):
DECEMBER 29, JUNE 16, 1996 1997 ------------ -------- Accumulated benefit obligation: Retirees.................................................. $ 454 $ 451 Other fully eligible participants......................... 371 389 Other active participants................................. 899 807 ------ ------ 1,724 1,647 Unrecognized actuarial gain................................. (334) (185) ------ ------ Accrued postretirement benefit cost liability............... $1,390 $1,462 ====== ======
For measurement purposes, 8.0% and 7.67% rates of increase were assumed for health care costs for 1996 and 1997, respectively. The rate is assumed to decline in 1/3% decrements every year until it reaches 5% in 2005 where it will remain thereafter. A 1% increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation by 7% at June 16, 1997. The effect of this 1% increase on the service and interest cost components of the net periodic cost of postretirement medical and life insurance plans would be an increase of 8% for 1997. The discount rate used in determining the accumulated benefit obligation was 7.5% in both 1996 and 1997. F-25 127 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 16, 1997 5. INCOME TAXES The income tax provision (benefit) consists of the following components (dollars in thousands):
PERIOD FROM DECEMBER 30, YEAR ENDED YEAR ENDED 1996 THROUGH DECEMBER 31, DECEMBER 29, JUNE 16, 1995 1996 1997 ------------ ------------ ------------ Current: Federal............................. $ 3,015) $(1,133) $1,041 State............................... 100 170 320 ------- ------- ------ 2,915 (963) 1,361 Deferred: Federal............................. 127 577 270 State............................... 11 51 24 ------- ------- ------ 138 628 294 ------- ------- ------ $(2,777) $ (335) $1,655 ======= ======= ======
The income tax provision (benefit) was different from the amount computed by applying the United States statutory federal income tax rate as follows (dollars in thousands):
PERIOD FROM DECEMBER 30, YEAR ENDED YEAR ENDED 1996 THROUGH DECEMBER 31, DECEMBER 29, JUNE 16, 1995 1996 1997 ------------ ------------ ------------ Provision (benefit) at statutory rates............................... $(2,838) $(445) $1,420 State income and franchise tax, net of federal income tax benefit.......... 73 112 211 Other, net............................ 12 (2) 24 ------- ----- ------ $(2,777) $(335) $1,655 ======= ===== ======
F-26 128 PLAINWELL PAPER COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 16, 1997 Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. The net deferred tax (liabilities) assets are composed of the following (dollars in thousands):
DECEMBER 29, JUNE 16, 1996 1997 ------------ -------- Deferred income tax liabilities: Property and equipment.............................. $(4,710) $(4,688) Environmental recoveries............................ (740) (740) Pension............................................. (423) (461) ------- ------- (5,873) (5,889) Deferred income tax assets: Vacation and other employee benefits................ 817 505 Environmental liabilities........................... 740 740 Postretirement benefits............................. 514 541 Other............................................... 22 29 ------- ------- 2,093 1,815 ------- ------- Net deferred tax liability............................ $(3,780) $(4,074) ======= ======= Included in the balance sheet as: Current deferred income tax asset................... $ 839 $ 534 Noncurrent deferred income tax liability............ (4,619) (4,608) ------- ------- $(3,780) $(4,074) ======= =======
6. ENVIRONMENTAL REMEDIATION In 1990, the Company was named as one of several potentially responsible parties ("PRP") at a Superfund site in Kalamazoo, Michigan which has five distinct operable units. PRPs may be held jointly and severally liable for cleanup plus related costs. One operable unit of the Kalamazoo River Site is the 12th Street Landfill, a property wholly owned by the Company. The Company expects to pay for the entire cost of the investigation and remediation work at this location. The Company has recorded a liability for the estimated cost to remediate this unit. A receivable for remediation costs recoverable under an indemnification agreement with Simpson has also been recorded. Investigations at a second operable unit, which includes a portion of the Kalamazoo River, continue and environmental remediation costs, if any, that may be incurred cannot presently be estimated. Management believes the Company is not responsible for environmental remediation costs at the other three units. Accordingly, in the accompanying financial statements, the Company has not recorded a liability for any remediation costs or recovery under the indemnification agreement for the other three units. Although the final outcome of these environmental matters is subject to a great many variables and cannot be predicted with any degree of certainty, management believes that the ultimate outcome will not have a material effect on the current financial position, liquidity or results of operations of the Company. F-27 129 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Pope & Talbot, Inc.: We have audited the accompanying balance sheets of the Consumer Products Division (an operating division of Pope & Talbot, Inc.) as of December 31, 1996 and 1997, and the related statements of operations, intercompany account and cash flows for each of the years ended December 31, 1995, 1996 and 1997. 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 financial position of the Consumer Products Division (an operating division of Pope & Talbot, Inc.) as of December 31, 1996 and 1997, and the results of its operations and its cash flows for each of the years ended December 31, 1995, 1996 and 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Portland, Oregon, April 6, 1998 F-28 130 CONSUMER PRODUCTS DIVISION BALANCE SHEETS DECEMBER 31, 1996 AND 1997 (IN THOUSANDS)
1996 1997 -------- -------- ASSETS Current Assets: Accounts receivable (net of allowance for doubtful accounts of $1,019 and $639 at December 31, 1996 and 1997, respectively).................................... $ 12,380 $ 10,676 Inventories............................................... 17,976 17,669 Deferred income taxes..................................... 2,566 2,053 Prepaid expenses.......................................... 379 262 -------- -------- Total current assets................................... 33,301 30,660 Properties: Plant and equipment....................................... 178,305 180,301 Accumulated depreciation.................................. (98,302) (107,856) -------- -------- 80,003 72,445 Land...................................................... 2,524 2,524 -------- -------- Total properties....................................... 82,527 74,969 Goodwill, net of amortization............................... 3,863 3,697 Deferred Income Tax Assets, net............................. 9,528 6,936 Other Assets................................................ 224 211 -------- -------- $129,443 $116,473 ======== ======== LIABILITIES Current Liabilities: Accounts payable.......................................... $ 3,467 $ 5,712 Accrued payroll and related taxes......................... 4,990 4,625 Other accrued liabilities................................. 5,550 4,763 -------- -------- Total current liabilities.............................. 14,007 15,100 Postretirement Benefits..................................... 6,998 7,084 Long-Term Debt.............................................. 18,800 18,800 Commitments and Contingencies............................... -- -- Intercompany Account........................................ 89,638 75,489 -------- -------- $129,443 $116,473 ======== ========
The accompanying notes are an integral part of these balance sheets. F-29 131 CONSUMER PRODUCTS DIVISION STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS)
1995 1996 1997 -------- -------- -------- Net Revenues............................................... $107,013 $133,649 $136,176 Costs and Expenses: Cost of sales............................................ 129,483 124,052 121,751 Selling, general and administrative...................... 3,228 3,351 2,919 Corporate overhead allocation............................ 1,509 1,962 2,057 Interest................................................. 881 812 846 -------- -------- -------- Total costs and expenses.............................. 135,101 130,177 127,573 -------- -------- -------- Income (Loss) Before Income Taxes.......................... (28,088) 3,472 8,603 Income Tax Provision (Benefit)............................. (10,533) 1,354 3,355 -------- -------- -------- Net Income (Loss).......................................... $(17,555) $ 2,118 $ 5,248 ======== ======== ========
The accompanying notes are an integral part of these statements. F-30 132 CONSUMER PRODUCTS DIVISION STATEMENTS OF INTERCOMPANY ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS) Balance at December 31, 1994................................ $ 94,951 1995 Activity: Net loss............................................... (17,555) Net distribution from Pope & Talbot, Inc............... 21,711 -------- Balance at December 31, 1995................................ 99,107 1996 Activity: Net income............................................. 2,118 Net distribution to Pope & Talbot, Inc................. (11,587) -------- Balance at December 31, 1996................................ 89,638 1997 Activity: Net income............................................. 5,248 Net distribution to Pope & Talbot, Inc................. (19,397) -------- Balance at December 31, 1997................................ $ 75,489 ========
The accompanying notes are an integral part of these statements. F-31 133 CONSUMER PRODUCTS DIVISION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS)
1995 1996 1997 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)........................................ $(17,555) $ 2,118 $ 5,248 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities -- Depreciation and amortization......................... 11,298 11,809 11,309 Gain on sale of properties............................ -- -- (32) Changes in assets and liabilities: Increase (decrease) in -- Accounts payable................................. (3,434) (3,516) 2,245 Accrued payroll and related taxes................ (88) 427 (365) Other accrued liabilities........................ (752) 2,276 (787) Postretirement benefits.......................... 75 55 86 Decrease (increase) in: Accounts receivable.............................. 1,191 (2,963) 1,704 Inventories...................................... 3,423 2,869 307 Deferred income taxes............................ (10,533) 1,218 3,105 Prepaid expenses................................. 3 (86) 117 -------- -------- -------- Net cash provided by (used for) operating activities..................................... (16,372) 14,207 22,937 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures..................................... (21,113) (1,922) (3,737) Proceeds from sale of other properties................... 316 58 197 -------- -------- -------- Net cash used for investing activities........... (20,797) (1,864) (3,540) CASH FLOW FROM FINANCING ACTIVITIES: Net distribution (to) from Pope & Talbot, Inc............ 21,711 (12,343) (19,397) Change in restricted bond funds.......................... 15,458 -- -- -------- -------- -------- Net cash provided by (used for) financing activities..................................... 37,169 (12,343) (19,397) Change in Cash............................................. -- -- -- Cash at Beginning of Period................................ -- -- -- -------- -------- -------- Cash at End of Period...................................... $ -- $ -- $ -- ======== ======== ======== Noncash Investing Activities: Transfer of property from Parent to CPD.................. $ -- $ 756 $ -- ======== ======== ========
The accompanying notes are an integral part of these statements. F-32 134 CONSUMER PRODUCTS DIVISION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 1. BASIS OF PRESENTATION: The Consumer Products Division (CPD) is an operating division of Pope & Talbot, Inc. and Subsidiaries (Parent). The CPD owns and operates fully-integrated tissue manufacturing and converting facilities located in Eau Claire, Wisconsin, and Ransom, Pennsylvania, with converting and distributing operations for the Ransom facility located in Pittston, Pennsylvania. Tissue products manufactured by the CPD include towels, napkins, bathroom tissue and facial tissue. These tissue products are sold under private and controlled labels to supermarkets, drugstores, mass merchandisers, food and drug distribution companies and warehouse club stores. The accompanying financial statements reflect the assets and liabilities of the CPD at December 31, 1996 and 1997, and the statements of operations, changes in intercompany account and cash flows for the years ended December 31, 1995, 1996 and 1997. The financial statements are based on separate accounting records maintained by Parent for the CPD. These accounting records reflect certain charges by Parent for direct costs and expenses associated with the CPD operations which were included in cost of goods sold or selling, general and administrative expenses as appropriate. Additionally, Parent's administrative costs not directly attributable to the CPD, which historically had not been allocated, have been allocated to the CPD based on net sales. Management believes this allocation method is reasonable. These indirect Parent costs include such items as general corporate, tax services, certain human resources and other administrative costs. The Parent's indirect administrative overhead allocation, which is separately classified as corporate overhead allocation in the statements of operations, amounted to $1.5 million, $2.0 million and $2.1 million for the years ended December 31, 1995, 1996 and 1997, respectively. Since CPD has historically operated as a division of the Parent it is not practicable to estimate what the corporate overhead expenses would have been on a stand-alone basis. Because the CPD results were included in the consolidated financial statements of Parent, there are no separate historical equity accounts for the CPD. Throughout the period covered by these financial statements, the CPD participated in Parent's cash disbursement system and, as such, its cash funding requirements were met by Parent. Other than the City of Eau Claire note payable (see Note 6) and related interest expense, there has been no allocation to the CPD of the Parent's consolidated borrowings and related interest expense, except for interest capitalized as a component of properties. The financial information included herein may not necessarily be indicative of the financial position, results of operations or cash flows of the CPD in the future, nor does such information necessarily reflect the financial position, results of operations or cash flows of the CPD had it been a separate, stand-alone company during the periods presented. 2. ACCOUNTING POLICIES: Inventories Inventories are stated at the lower of average cost or market. Inventory costs include the cost of materials, labor and plant overhead. Properties Properties are carried at cost and include expenditures for new facilities and equipment and those expenditures which substantially increase the useful lives of existing plant and equipment. Costs of maintenance and repairs are charged to expense as incurred. Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts, with the resultant gain or loss included in income. F-33 135 CONSUMER PRODUCTS DIVISION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 For financial reporting purposes, depreciation is computed using the straight-line method over the useful lives of respective assets. The estimated useful lives of the principal items of plant and equipment range from 3 to 20 years. For income tax purposes, depreciation is calculated primarily using accelerated methods. Interest costs related to funds borrowed by Parent during the construction period of major capital projects is capitalized. The interest capitalized is determined by applying Parent's effective interest rate to the accumulated capital costs during the construction period of a project. Interest capitalized was $149,000 during 1995 and no interest was capitalized in 1996 or 1997. Goodwill The goodwill contained in the balance sheets relates to the 1980 purchase of the Eau Claire, Wisconsin facilities. This amount is being amortized on a straight-line basis over 40 years. The accumulated amortization related to this goodwill was $2,927,000 and $3,093,000 at December 31, 1996 and 1997, respectively. Revenue Recognition Revenue from the sale of products is recognized when the products are shipped to customers. Advertising Costs Advertising costs are expensed as incurred. Advertising costs expensed in the three years ended December 31, 1995, 1996 and 1997 were not material. Interest Expense The interest expense reflected in the statements of operations represents interest associated with the City of Eau Claire note payable, which is currently an obligation of the Parent, but is directly related to the CPD. Consequently, the interest expense reflected in the statements of operations and the amount of debt reflected in the balance sheets are not intended to reflect interest expense that the CPD may have incurred or the amount of debt which would have been outstanding had the CPD been an independent company. Income Taxes Income taxes have been determined on a separate return basis. Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. The principal temporary differences are related to depreciation, net operating loss carryforwards and postretirement benefits. Intercompany Account Parent maintains a cash disbursement system which is administered by its corporate office. Cash collected from and distributed to the CPD is reflected in the intercompany account balance. The intercompany account balance represents the net accumulated transactions between Parent and the CPD. Per Share Information Earnings per common share information has been omitted in the financial statements since the CPD was not a separate entity with its own capital structure during the years presented. F-34 136 CONSUMER PRODUCTS DIVISION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. INVENTORIES: Inventory components at December 31, 1996 and 1997 are as follows (in thousands):
1996 1997 ------- ------- Raw materials............................................ $ 4,776 $ 3,343 Finished goods........................................... 10,140 11,050 Chemicals and supplies................................... 3,060 3,276 ------- ------- $17,976 $17,669 ======= =======
4. PLANT AND EQUIPMENT: Plant and equipment components at December 31, 1996 and 1997 are as follows (in thousands):
1996 1997 -------- -------- Mills, plants and improvements......................... $ 31,356 $ 32,059 Equipment.............................................. 144,373 144,365 Mobile equipment....................................... 1,829 1,390 Construction in progress............................... 747 2,487 -------- -------- $178,305 $180,301 ======== ========
5. OTHER ACCRUED LIABILITIES: Other accrued liabilities' components at December 31, 1996 and 1997 are as follows (in thousands):
1996 1997 ------ ------ Customer incentive accrual................................. $2,206 $2,187 Accrued freight costs...................................... 984 811 Accrued utilities costs.................................... 1,120 881 Other accrued liabilities.................................. 1,240 884 ------ ------ $5,550 $4,763 ====== ======
CPD provides certain customers sales discounts based on negotiated minimum purchased volumes. Discounts are accrued as product shipments are made and are paid periodically as minimum volumes are achieved. 6. LONG-TERM DEBT: During 1994, the City of Eau Claire, Wisconsin issued tax-exempt, adjustable rate, solid waste disposal revenue bonds. The bonds were issued to finance a wastepaper pulping improvement project at the CPD's Eau Claire, Wisconsin tissue facility. Upon sale of the bonds, the City of Eau Claire loaned $18.8 million to Parent and the related debt is reflected on the CPD balance sheets. The note payable has a variable interest rate F-35 137 CONSUMER PRODUCTS DIVISION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (4.3% at December 31, 1997) and is due in 2014. The carrying value of the note payable approximates its fair value. In connection with the note payable, Parent maintains a $19,552,000 letter of credit with a bank to collateralize the note payable for which it pays a commitment fee. The commitment fee on the letter of credit varies from 0.425% to 0.625% annually (.5% at December 31, 1997) based upon Parent's leverage ratio. 7. PENSION AND OTHER POSTRETIREMENT PLANS: Pension Plans Substantially all of the CPD employees participate in noncontributory defined-benefit pension plans. These include Parent administered plans and a multi-employer plan administered by a union. The Eau Claire union CPD hourly employees are covered under a multi-employer union pension plan. Contributions to this plan are based upon negotiated hourly rates. Salaried CPD employees are covered by a noncontributory defined-benefit pension plan administered by Parent which also includes other salaried employees of Parent. It is not practical to determine the amount of accumulated benefits or net assets available for benefits that apply solely to CPD employees covered by these plans. The Ransom union CPD hourly employees are covered by a noncontributory defined benefit pension plan administered by Parent. Pension benefits for employees covered under this plan are based on each employee's years of service. Net periodic pension cost for the years ended December 31, 1995, 1996 and 1997 was composed of the following (in thousands):
1995 1996 1997 ------- ------- ------- Ransom union hourly plan: Service cost -- benefits earned during the period................................... $ 328 $ 248 $ 244 Interest cost on projected benefit obligation............................... 971 1,017 1,038 Actual earnings from plan assets............ (1,805) (2,047) (3,531) Deferral of earnings from plan assets....... 864 975 2,330 Net amortization and deferral............... 136 136 136 ------- ------- ------- Total Ransom union hourly plan...... 494 329 217 Allocations of salaried pension benefits from Parent...................................... (96) (11) (152) Contributions to multi-employer plan.......... 994 1,034 1,052 ------- ------- ------- Total net periodic pension cost..... $ 1,392 $ 1,352 $ 1,117 ======= ======= =======
F-36 138 CONSUMER PRODUCTS DIVISION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 The following table sets forth the funded status of the Ransom union hourly plan and the amount recognized as a prepaid (accrued) pension cost at December 31, 1996 and 1997 (in thousands):
1996 1997 -------- -------- Accumulated benefit obligation: Vested portion....................................... $(13,536) $(14,027) Nonvested portion.................................... (884) (607) -------- -------- Accumulated and projected benefit obligation...... (14,420) (14,634) Plan assets at fair market value....................... 13,676 16,391 -------- -------- Plan assets greater (less) than projected benefit obligation...................................... (744) 1,757 Unrecognized net gain.................................. (144) (2,597) Unrecognized prior service............................. 942 811 Balance of unrecorded transition asset from initial application of SFAS No. 87........................... 19 15 -------- -------- Prepaid (accrued) pension cost......................... $ 73 $ (14) ======== ========
Substantially all of the pension plan's assets are invested in common stock, fixed-income securities, cash and cash equivalents. The discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% for December 31, 1996 and 1997. The expected long-term rate of return on plan assets was 9.0% for the 1996 and 1997 periods. The funding policy regarding all of the Parent administered plans is to make contributions to the plans that are between the minimum amounts required by the Employee Retirement Income Security Act (ERISA) and the maximum amounts deductible under current income tax regulations. Other Postretirement Plans The Parent sponsors postretirement medical and life insurance plans for certain salaried and nonsalaried CPD employees and eligible spouses and dependents of the employees. The medical plans pay a stated percentage of covered medical expenses incurred after deducting co-payments made once a stated deductible has been met. The life insurance plans pay a defined benefit. The Parent does not fund these plans prior to actual incurrence of costs under the plans. Net periodic other postretirement benefit cost for the years ended December 31, 1995, 1996 and 1997 for these plans was composed of the following (in thousands):
1995 1996 1997 ---- ---- ---- Nonsalaried CPD postretirement costs: Service cost -- benefits attributed to service during the period................................ $113 $116 $120 Interest cost on accumulated benefit obligation..... 330 405 411 Net amortization and deferral....................... (79) (53) (39) ---- ---- ---- Total nonsalaried........................... 364 468 492 Allocations of salaried postretirement costs from Parent.............................................. (19) 144 169 ---- ---- ---- Net periodic cost of other postretirement benefit plans............................. $345 $612 $661 ==== ==== ====
F-37 139 CONSUMER PRODUCTS DIVISION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 The following table reconciles the plans' funded status to the accrued postretirement medical and life insurance cost liability in the accompanying balance sheets at December 31, 1996 and 1997 (in thousands):
1996 1997 ------ ------ Accumulated benefit obligation: Retirees................................................. $2,597 $2,652 Other fully eligible participants........................ 1,470 1,492 Other active participants................................ 3,382 3,442 ------ ------ 7,449 7,586 Unrecognized actuarial gain................................ (622) (630) Unrecognized prior service................................. 171 128 ------ ------ Accrued postretirement benefit cost liability.............. $6,998 $7,084 ====== ======
For measurement purposes, 9.0% and 8.5% rates of increase were assumed for health care costs for 1996 and 1997, respectively. The rate is assumed to decline in .5% decrements every year until it reaches 5% in 2004 where it will remain thereafter. A 1% increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation by $873,000 at December 31, 1997. The effect of this 1% increase on the service and interest cost components of the net periodic cost of postretirement medical and life insurance plans would be an increase of $98,000 for 1997. The discount rate used in determining the accumulated benefit obligation was 7.5% in for both 1996 and 1997. 8. INCOME TAXES: The income tax provision (benefit) consists of the following components (in thousands):
CURRENT DEFERRED TOTAL ------- -------- -------- Year Ended December 31, 1995 Federal.................................... $ -- $ (9,550) $ (9,550) State...................................... -- (983) (983) ---- -------- -------- $ -- $(10,533) $(10,533) ==== ======== ======== Year Ended December 31, 1996 Federal.................................... $ -- $ 1,146 $ 1,146 State...................................... 134 74 208 ---- -------- -------- $134 $ 1,220 $ 1,354 ==== ======== ======== Year Ended December 31, 1997 Federal.................................... $ -- $ 2,839 $ 2,839 State...................................... 251 265 516 ---- -------- -------- $251 $ 3,104 $ 3,355 ==== ======== ========
F-38 140 CONSUMER PRODUCTS DIVISION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 The difference in income tax provision (benefit) from the amount computed by applying the United States statutory federal income tax rate for the years ended December 31, 1995, 1996 and 1997 is reconciled below (in thousands):
1995 1996 1997 -------- ------ ------ Income (loss) before income taxes.............. $(28,088) $3,472 $8,603 ======== ====== ====== United States statutory federal income tax provision (benefit).......................... $ (9,831) $1,215 $3,011 State income and franchise taxes, net of federal income tax benefit................... (702) 139 344 -------- ------ ------ $(10,533) $1,354 $3,355 ======== ====== ======
Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. The net deferred tax assets at December 31, 1996 and 1997 are comprised of the following (in thousands):
1996 1997 ------- ------- Current deferred taxes: Gross assets........................................... $ 2,566 $ 2,053 Gross liabilities...................................... -- -- ------- ------- Total current deferred taxes........................ 2,566 2,053 Noncurrent deferred taxes: Gross assets........................................... 20,882 17,460 Gross liabilities...................................... (11,354) (10,524) ------- ------- Total noncurrent deferred taxes..................... 9,528 6,936 ------- ------- Net deferred tax assets........................ $12,094 $ 8,989 ======= =======
The tax effect of significant temporary differences representing deferred tax assets (liabilities) at December 31, 1996 and 1997 are as follows (in thousands):
1996 1997 -------- -------- Depreciation........................................... $(11,125) $(10,397) Net operating loss carryforwards....................... 18,153 14,697 Postretirement benefits................................ 2,729 2,763 Vacation pay........................................... 1,076 1,018 Reserves and allowances................................ 705 514 Inventories............................................ 468 236 Other, net............................................. 88 158 -------- -------- Net deferred tax assets................................ $ 12,094 $ 8,989 ======== ========
At December 31, 1997, CPD had available approximately $38,100,000 of net operating loss carryforwards for U.S. Federal tax purposes, expiring beginning in 2007 through 2010. 9. MAJOR CUSTOMERS: In 1995, the CPD had sales to two customers of $14,727,000 and $12,198,000. In 1996, the CPD had sales to three customers of $16,307,000, $14,430,000 and $13,491,000. Also during 1996, the CPD had sales to F-39 141 CONSUMER PRODUCTS DIVISION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 two customers of $10,171,000 and $7,098,000, that became commonly owned in 1997. In 1997, the CPD had sales to three customers of $20,715,000, $20,323,000 and $13,825,000. No other customers represented more than 10% of revenues for any of the aforementioned periods. 10. LITIGATION AND LEGAL MATTERS: The CPD is a party to legal proceedings and environmental matters generally incidental to the business. Although the final outcome of any legal proceeding or environmental matter is subject to a great many variables and cannot be predicted with any degree of certainty, management believes that the ultimate outcome resulting from these proceedings and matters would not have a material effect on CPD's current financial position, liquidity or results of operations; however, in any given future reporting period such proceedings or matters could have a material effect on results of operations. CPD owns and operates a landfill in Washington County, Wisconsin, for disposal of its paper-making sludge. CPD has closed two of three sections of the landfill and is currently monitoring those sections in accordance with requirements of state environmental laws. CPD expects to begin closure of the third section of the landfill by 2002. Estimated closure costs of $1,300,000 are being accrued over the operational life of the landfill. Monitoring costs estimated at $80,000 per year will be required for 40 years following the closure of the landfill. It is CPD's policy to expense monitoring costs as incurred. CPD believes that, based on current information and regulatory requirements, the estimates for the landfill closure costs established by CPD are adequate, although there can be no assurance that the costs will not eventually exceed the amount presently estimated. In 1987, CPD received a request for information from the U.S. Environmental Protection Agency (EPA) that indicated that it was considered a potentially responsible party (PRP) with respect to the Blue Valley Landfill Superfund Site in Eau Claire, Wisconsin. Available records indicate that CPD sent a de minimis amount of wastewater treatment sludge from the de-inking process and general wastes from the tissue division to the Blue Valley Landfill. CPD's predecessor at the Eau Claire facility, the Brown Company, also sent waste to the Blue Valley Landfill Superfund Site and has been named a PRP with respect to the site. Based on the amount of material that CPD sent to the Blue Valley Landfill and its indemnification agreement with the Brown Company, CPD does not anticipate that its costs associated with the site will have a material adverse effect on its operations, liquidity or financial condition. In 1996, CPD received notification from the EPA that it was considered a PRP with respect to the A.E. Schneider & Sons Salvage Yard Site in Chippewa Falls, Wisconsin (the Schneider Site). U.S. EPA indicated in subsequent correspondence with CPD that it believed that lead from the Eau Claire, Wisconsin facility might have been disposed of at the Schneider Site. CPD conducted a follow-up investigation and reported to the EPA that the only potentially lead containing waste transported from the Eau Claire, Wisconsin mill to the Schneider Site was believed to be a counterweight to a steam engine crane that was disposed of in the mid-1970s, when CPD's predecessor at the Eau Claire, Wisconsin facility, the Brown Company, owned the mill. CPD does not believe the costs associated with this matter will have a material adverse effect on its operations, liquidity or financial condition. In 1997, the EPA published regulations establishing standards and limitations for non-combustion sources under the Clean Air Act and revised regulations under the Clean Water Act. The new rules may require more stringent controls on air emissions and wastewater discharges from the CPD tissue mills. These regulations are collectively referred to as the "cluster rules." CPD estimates that future capital spending to comply with the cluster rules could be up to $5,000,000, depending on the timing and specific requirements imposed. CPD cannot predict if or when such rules will be promulgated in a form that will require the CPD to make such expenditures. CPD believes that the cost of compliance with cluster rules and other environmental requirements will not have a material adverse effect on its liquidity, operations or financial condition. F-40 142 PLAINWELL INC. CONDENSED BALANCE SHEET
MARCH 31, 1998 ---------------------- (DOLLARS IN THOUSANDS) (UNAUDITED) ASSETS Current assets: Cash...................................................... $ 1,271 Accounts receivable....................................... 20,204 Inventories............................................... 32,088 Other current assets...................................... 2,015 -------- Total current assets.............................. 55,578 Properties, net............................................. 142,687 Intangible assets, net...................................... 31,949 -------- Total assets...................................... $230,214 ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable.......................................... $ 15,117 Accrued liabilities....................................... 13,299 -------- Total current liabilities................................... 28,416 Long-term debt.............................................. 157,785 Other long-term liabilities................................. 16,515 Commitments and contingencies (Note 4) Stockholder's equity: Common stock, par value $1 per share; authorized 1,000 shares; issued and outstanding 500 shares.............. 1 Paid-in capital........................................... 32,973 Deficit................................................... (5,476) -------- Total stockholder's equity............................. 27,498 -------- Total liabilities and stockholder's equity........ $230,214 ========
See accompanying notes. F-41 143 PLAINWELL INC. CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, ---------------------------- 1997 1998 (PREDECESSOR) (SUCCESSOR) ------------- ----------- (IN THOUSANDS) (UNAUDITED) Net Sales................................................... $21,995 $30,170 Costs and expenses: Cost of sales............................................. 18,306 27,098 Selling, general and administrative....................... 1,228 2,523 Interest.................................................. 62 1,643 ------- ------- Total costs and expenses.................................... 19,596 31,264 ------- ------- Income (loss) before income taxes and extraordinary item.... 2,399 (1,094) Income tax provision (benefit).............................. 926 (289) ------- ------- Income (loss) before extraordinary item..................... 1,473 (805) Extraordinary item, net of tax (Note 3)..................... -- (597) ------- ------- Net income (loss)........................................... $ 1,473 $(1,402) ======= =======
See accompanying notes. F-42 144 PLAINWELL INC. CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, ---------------------------- 1997 1998 (PREDECESSOR) (SUCCESSOR) ------------- ----------- (IN THOUSANDS) (UNAUDITED) OPERATING ACTIVITIES Net income (loss)........................................... $ 1,473 $ (1,402) Adjustments to reconcile net income (loss) to net cash used in operating activities: Extraordinary item........................................ -- 597 Depreciation and amortization............................. 535 1,448 Changes in operating assets and liabilities............... (1,985) (3,339) ------- --------- Net cash provided by (used in) operating activities......... 23 (2,696) INVESTING ACTIVITIES Capital expenditures........................................ (23) (676) Purchase of Consumer Products Division...................... -- (123,317) ------- --------- Net cash used in investing activities....................... (23) (123,993) FINANCING ACTIVITIES Proceeds from long-term debt................................ -- 130,000 Payments of term loan....................................... -- (13,500) Deferred finance cost incurred.............................. -- (6,899) Payment of revolver......................................... -- (1,354) Payment of Simpson note payable............................. -- (1,771) Capital contribution........................................ -- 25,000 Dividend.................................................... -- (4,288) ------- --------- Net cash provided by financing activities................... -- 127,188 ------- --------- Increase in cash............................................ -- 499 Cash at beginning of period................................. -- 772 ------- --------- Cash at end of period....................................... $ -- $ 1,271 ======= =========
See accompanying notes. F-43 145 PLAINWELL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1998 1. BASIS OF PRESENTATION PLAINWELL INC. (the Company) was formed on March 6, 1998. The Company is a wholly owned subsidiary of Plainwell Holding Company. Effective March 6, 1998, Plainwell Paper Company merged with the Company. In addition, the Company purchased substantially all of the assets, properties and rights and assumed certain related liabilities of the tissue business of Pope & Talbot, Inc. This business operates as the Consumer Products Division of the Company. The historic financial statements of the Plainwell Paper Company (predecessor) are presented as the historic financial statements of the Company for the three months ended March 31, 1997. The historic financial information of the Company (successor) for the three months ended March 31, 1998 includes the result of operations of Consumer Products Division beginning on the acquisition date. The accompanying unaudited consolidated balance sheet as of March 31, 1998, and the consolidated statements of operations and cash flows for the three months ended March 31, 1997 and 1998, have been prepared in accordance with generally accepted accounting principles for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the financial position and results of operations have been included. Operating results for the three months ended March 31, 1998 are not necessarily indicative of the results that might be expected for the year ending December 31, 1998. 2. INVENTORIES For the three months period ended March 31, 1997, the predecessor recorded inventories at the lower of cost or market, with cost determined using the last-in, first-out (LIFO) method. For the three months ended March 31, 1998 the success recorded inventories at the lower of cost or market with cost determined using the first-in, first-out (FIFO) method. Inventories consist of the following at March 31, 1998 (in thousands): Raw materials.............................................. $ 3,544 Work in progress........................................... 5,131 Finished goods............................................. 16,270 Chemicals and supplies..................................... 7,143 ------- $32,088 =======
3. ACQUISITIONS AND FINANCINGS Effective March 6, 1998, Plainwell Paper Company merged with and into the Company (the Merger) and its business operates as the Specialty Paper Division of the Company. In connection therewith, the Company recorded a dividend to Plainwell Holding Company of $4,288 to permit Plainwell Holding Company to redeem preferred stock of Plainwell Holding Company held by Simpson Paper Company as required pursuant to change of control provisions. In January 1998, the Company entered into an agreement to purchase substantially all of the assets, properties and rights and assume certain related liabilities of the tissue business of Pope & Talbot, Inc. (the Acquisition). Effective March 6, 1998, the Company acquired the tissue business of Pope & Talbot, Inc. for consideration consisting of $121 million in cash, subject to adjustments for working capital, and the F-44 146 PLAINWELL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) MARCH 31, 1998 assumption of $18.8 million of indebtedness in the form of industrial revenue bonds and the assumption of certain other liabilities. The acquisition of the Consumer Products Division has been accounted for under the purchase method; accordingly, its results are included in the consolidated financial statements of the Company from the date of acquisition (in thousands): Cash consideration, including working capital consideration............................................. $121,707 Direct acquisition costs.................................... 1,610 -------- Total purchase price........................................ $123,317 ======== Accounts receivable......................................... $ 9,620 Inventories................................................. 19,683 Properties.................................................. 119,735 Other current assets........................................ 3,665 Intangible.................................................. 17,573 Accounts payable and accrued expenses....................... (17,903) Long-term debt -- industrial revenue bonds.................. (18,800) Other long-term liabilities................................. (10,256) -------- $123,317 ========
In connection with the Merger and the Acquisition, on March 6, 1998, the Company (i) issued $130 million principal amount of 11% Senior Subordinated Notes due 2008 in a Rule 144A private placement and entered into a $35 million senior credit facility. In addition, the Company received an equity contribution of $25 million from Plainwell Holding Company. The net proceeds from the offering and the equity contribution were used by the Company to fund the cash portion of the consideration for the Acquisition, to repay certain existing debt of Plainwell Paper Company, and to pay the dividend to Plainwell Holding Company to enable Plainwell Holding Company to redeem the preferred stock held by Simpson Paper Company. In connection with Plainwell Paper Company's early extinguishment of debt in March 1998, the Company recorded an extraordinary loss of $597 which represents the unamortized balance of debt issuance costs related to Plainwell Paper Company's previous credit agreement. The following unaudited pro forma results of operations for the year ended December 31, 1997 and the three months ended March 31, 1998 assume the Acquisition, Merger and related transactions occurred at the beginning of each period presented:
YEAR ENDED THREE MONTHS DECEMBER 31, 1997 ENDED MARCH 31, 1998 ----------------- -------------------- Net sales................................ $222,892 $53,139 Income (loss) before extraordinary item................................... 1,828 (1,934)
This pro forma information does not purport to be indicative of the results that actually would have been obtained if the combined operations had been conducted during the periods presented and is not intended to be a projection of future results. F-45 147 PLAINWELL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) MARCH 31, 1998 Management believes if the Specialty Paper and Consumer Products Divisions operated on a stand-alone basis using the cost structure management expects to have in place, the corporate overhead costs allocated would have been replaced with the following:
YEAR ENDED THREE MONTHS DECEMBER 31, 1997 ENDED MARCH 31, 1998 ----------------- -------------------- Corporate overhead allocation: Specialty Paper Division............... $ (724) $ -- Consumer Products Division............. (2,057) (366) Stand-Alone Basis: Specialty Paper Division............... 724 -- Consumer Products Division............. 500 89 ------- ----- Reduction in expenses.................... $(1,224) $(277) ======= =====
4. COMMITMENTS AND CONTINGENCIES In 1990, the Company was named as one of several potentially responsible parties ("PRP") at a Superfund site in Kalamazoo, Michigan which has five distinct operable units. PRPs may be held jointly and severally liable for cleanup plus related costs. One operable unit of the Kalamazoo River Site is the 12th Street Landfill, a property wholly owned by the Company. The Company expects to pay for the entire cost of the investigation and remediation work at this location. The Company has recorded a liability for the estimated cost to remediate this unit. A receivable for remediation costs recoverable under an indemnification agreement with Simpson has also been recorded. Investigations at a second operable unit, which includes a portion of the Kalamazoo River, continue and environmental remediation costs, if any, that may be incurred cannot presently be estimated. Management believes the Company is not responsible for environmental remediation costs at the other three units. Accordingly, in the accompanying financial statements, the Company has not recorded a liability for any remediation costs or recovery under the indemnification agreement for the other three units. Although the final outcome of these environmental matters is subject to a great many variables and cannot be predicted with any degree of certainty, management believes that the ultimate outcome will not have a material effect on the current financial position, liquidity or results of operations of the Company. 5. COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." Statement 130 established new rules for the reporting and display of comprehensive income and its components. The adoption of this Statement had no impact on the Company's net loss or shareholders' equity. F-46 148 - ------------------------------------------------------------ - ------------------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT ANY INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary......................... 1 Risk Factors............................... 17 Use of Proceeds............................ 24 Capitalization............................. 25 Unaudited Pro Forma Consolidated Financial Information.............................. 26 Selected Historical Financial and Other Data..................................... 31 Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 35 Industry Overview.......................... 43 Business................................... 47 Management................................. 56 Principal Stockholders..................... 58 Description of Holdings' Capital Stock..... 58 Certain Transactions....................... 59 Description of Certain Indebtedness........ 60 Description of Exchange Notes.............. 63 The Exchange Offer......................... 87 Certain Material U.S. Federal Income Tax Considerations........................... 95 Plan of Distribution....................... 95 Legal Matters.............................. 96 Experts.................................... 97 Index to Financial Statements.............. F-1
- ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ [PLAINWELL INC. LOGO] PLAINWELL INC. OFFER TO EXCHANGE ITS SERIES B 11% SENIOR SUBORDINATED NOTES DUE 2008 FOR SERIES A 11% SENIOR SUBORDINATED NOTES DUE 2008 --------------------- PROSPECTUS --------------------- BEAR, STEARNS & CO. INC. SALOMON SMITH BARNEY , 1998 - ------------------------------------------------------------ - ------------------------------------------------------------ 149 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company is incorporated under the laws of the State of Delaware. Section 145 of the General Corporation Law of the State of Delaware, inter alia, ("Section 145") provides that a Delaware corporation may indemnify any persons who were, are or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was illegal. A Delaware corporation may indemnify any persons who are, were or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests, provided that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer, director, employee or agent is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director has actually and reasonably incurred. The Company's Certificate of Incorporation provides for the indemnification of directors and officers of the Company to the fullest extent permitted by the General Corporation Law of the State of Delaware, as it currently exists or may hereafter be amended. Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by him in any such capacity, arising out of his status as such, whether or not the corporation would otherwise have the power to indemnify him under Section 145. The Company maintains and has in effect insurance policies covering all of the Company's directors and officers against certain liabilities for actions taken in such capacities, including liabilities under the Securities Act of 1933. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) EXHIBITS. *3.1 Certificate of Incorporation of PLAINWELL INC. *3.2 By-laws of PLAINWELL INC. *4.1 Indenture dated as of March 6, 1998 between PLAINWELL INC. and United States Trust Company of New York. *4.2 Purchase Agreement dated as of March 3, 1998 among PLAINWELL INC., Bear, Stearns & Co. Inc. and Salomon Brothers Inc *4.3 Exchange and Registration Rights Agreement dated as of March 6, 1998 among PLAINWELL INC., Bear, Stearns & Co. Inc. and Salomon Brothers Inc *5.1 Opinion and consent of Kirkland & Ellis.
II-1 150 *10.1 Amended and Restated Loan and Security Agreement dated as of March 6, 1998 by and between PLAINWELL INC. and Sanwa Business Credit Corporation as Agent for the Lenders. *10.2 Agreement of Purchase and Sale dated as of January 22, 1998, by and among Pope & Talbot, Inc., Pope & Talbot, Wis., Inc., Plainwell Holding Company and PLAINWELL INC. *10.3 Transition Services Agreement dated as of March 6, 1998 by and between PLAINWELL INC. and Pope & Talbot, Inc. 10.4 Transition Services Agreement dated as of June 16, 1997 by and between Plainwell Paper Company and Simpson Paper Company. *10.5 CVC Securities Purchase Agreement dated as of June 16, 1997 by and between Plainwell Holding Company and Citicorp Venture Capital, Ltd. *10.6 Securities Transfer Agreement made and entered into as of January 31, 1998 between 399 Venture Partners, Inc. and Citicorp Venture Capital, Ltd. *10.7 Stockholders Agreement dated as of June 16, 1997, by and among Plainwell Holding Company, Citicorp Venture Capital, Brenton Halsey, Larkspur Capital Corporation, William L. New and any executives of the Company and its Subsidiaries acquiring Common Stock after the date thereof and executing a joinder thereto, and the persons set forth on the Individual Purchaser Signature Page attached thereto. *10.8 Joinder to Stockholders Agreement dated as of June 16, 1997 by and among Plainwell Holding Company (the "Company") and certain securityholders of the Company made and entered into as of January 31, 1998 by and between the Company and 399 Venture Partners, Inc. *10.9 Registration Rights Agreement dated as of June 16, 1997 by and among Plainwell Holding Company, Citicorp Venture Capital, Ltd., CCT II Partners, L.P., Brenton Halsey, Larkspur Capital Corporation, William L. New and each other executive of the Company or its subsidiaries who acquires Common Stock from the Company and executes a joinder thereto and the persons set forth on the Individual Purchaser Signature Page attached thereto. *10.10 Joinder to Registration Rights Agreement dated as of June 16, 1997 by and among Plainwell Holding Company (the "Company") and certain securityholders of the Company made and entered into as of January 31, 1998 by and between the Company and 399 Venture Partners, Inc. 10.11 Inventory Purchase Agreement dated June 12, 1997 by and between Simpson Paper Company and Plainwell Paper Company. 10.12 Collective Bargaining Agreement dated November 29, 1995 by and between Pope & Talbot, Inc., CPD - Ranson/Pittston Township and United Paperworkers International Union AFL-CIO and Ranson/Pittston Township, Local Number 1448. 10.13 Collective Bargaining Agreement dated April 1, 1997 by and between Pope & Talbot, Wis., Inc., Eau Claire, Wisconsin and the United Paperworkers International Union and its affiliated Local No. 42. 10.14 Loan Agreement dated November 1, 1983 by and between Economic Development Corporation of the City of Plainwell and Plainwell Paper Company. 10.15 Indenture of Trust dated November 1, 1983 by and among Economic Development Corporation of the City of Plainwell and First & Merchants National Bank. *10.16 Executive Employment and Stock Purchase Agreement dated as of June 16, 1997 by and among Plainwell Paper Company, Plainwell Holding Company and William New. *12.1 Statement of Computation of Ratios. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Arthur Andersen LLP. *23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1). *24.1 Powers of Attorney (included in signature page). *25.1 Statement of Eligibility of Trustee on Form T-1. *27.1 Financial Data Schedule.
II-2 151 *99.1 Form of Letter of Transmittal. *99.2 Form of Notice of Guaranteed Delivery. *99.3 Form of Tender Instructions.
- --------------- * Previously filed. ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and (4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 of the chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. (1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions II-3 152 described under Item 20 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-4 153 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Plainwell, State of Michigan, on July 21, 1998. PLAINWELL INC. By: * ------------------------------------ Name: William L. New Title: Chairman, Chief Executive Officer and President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated on July 21, 1998:
SIGNATURE CAPACITY --------- -------- * Chairman, Chief Executive Officer and - -------------------------------------------------------- President (principal executive officer) William L. New /s/ GEORGE E. MANGARELLI Executive Vice President, Chief Financial - -------------------------------------------------------- Officer -- Specialty Paper Division, George E. Mangarelli Secretary, Treasurer (principal financial officer and accounting officer) and Director * Director - -------------------------------------------------------- Brenton S. Halsey * Director - -------------------------------------------------------- Dave F. Thomas * Director - -------------------------------------------------------- John D. Weber *By: /s/ GEORGE E. MANGARELLI --------------------------------------------------- As Attorney-in-fact
II-5 154 EXHIBITS INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------- ----------- ------------ *3.1 Certificate of Incorporation of PLAINWELL INC. ............. *3.2 By-laws of PLAINWELL INC. .................................. *4.1 Indenture dated as of March 6, 1998 between PLAINWELL INC. and United States Trust Company of New York................. *4.2 Purchase Agreement dated as of March 3, 1998 among PLAINWELL INC., Bear, Stearns & Co. Inc. and Salomon Brothers Inc. ... *4.3 Exchange and Registration Rights Agreement dated as of March 6, 1998 among PLAINWELL INC., Bear, Stearns & Co. Inc. and Salomon Brothers Inc. ...................................... *5.1 Opinion and consent of Kirkland & Ellis..................... *10.1 Amended and Restated Loan and Security Agreement dated as of March 6, 1998 by and between PLAINWELL INC. and Sanwa Business Credit Corporation as Agent for the Lenders........ *10.2 Agreement of Purchase and Sale dated as of January 22, 1998, by and among Pope & Talbot, Inc., Pope & Talbot, Wis., Inc., Plainwell Holding Company and PLAINWELL INC. ............... *10.3 Transition Services Agreement dated as of March 6, 1998 by and between PLAINWELL INC. and Pope & Talbot, Inc. ......... 10.4 Transition Services Agreement dated as of June 16, 1997 by and between Plainwell Paper Company and Simpson Paper Company..................................................... *10.5 CVC Securities Purchase Agreement dated as of June 16, 1997 by and between Plainwell Holding Company and Citicorp Venture Capital, Ltd. ...................................... *10.6 Securities Transfer Agreement made and entered into as of January 31, 1998 between 399 Venture Partners, Inc. and Citicorp Venture Capital, Ltd. ............................. *10.7 Stockholders Agreement dated as of June 16, 1997, by and among Plainwell Holding Company, Citicorp Venture Capital, Brenton Halsey, Larkspur Capital Corporation, William L. New and any executives of the Company and its Subsidiaries acquiring Common Stock after the date thereof and executing a joinder thereto, and the persons set forth on the Individual Purchaser Signature Page attached thereto........ *10.8 Joinder to Stockholders Agreement dated as of June 16, 1997 by and among Plainwell Holding Company (the "Company") and certain securityholders of the Company made and entered into as of January 31, 1998 by and between the Company and 399 Venture Partners, Inc. ..................................... *10.9 Registration Rights Agreement dated as of June 16, 1997 by and among Plainwell Holding Company, Citicorp Venture Capital, Ltd., CCT II Partners, L.P., Brenton Halsey, Larkspur Capital Corporation, William L. New and each other executive of the Company or its subsidiaries who acquires Common Stock from the Company and executes a joinder thereto and the persons set forth on the Individual Purchaser Signature Page attached thereto............................. *10.10 Joinder to Registration Rights Agreement dated as of June 16, 1997 by and among Plainwell Holding Company (the "Company") and certain securityholders of the Company made and entered into as of January 31, 1998 by and between the Company and 399 Venture Partners, Inc. ..................... 10.11 Inventory Purchase Agreement dated June 12, 1997 by and between Simpson Paper Company and Plainwell Paper Company... 10.12 Collective Bargaining Agreement dated November 29, 1995 by and between Pope & Talbot, Inc., CPD - Ranson/Pittston Township and United Paperworkers International Union AFL-CIO and Ranson/Pittston Township, Local Number 1448.............
155
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------- ----------- ------------ 10.13 Collective Bargaining Agreement dated April 1, 1997 by and between Pope & Talbot, Wis., Inc., Eau Claire, Wisconsin and the United Paperworkers International Union and its affiliated Local No. 42..................................... 10.14 Loan Agreement dated November 1, 1983 by and between Economic Development Corporation of the City of Plainwell and Plainwell Paper Company................................. 10.15 Indenture of Trust dated November 1, 1983 by and among Economic Development Corporation of the City of Plainwell and First & Merchants National Bank......................... *12.1 Statement of Computation of Ratios.......................... 23.1 Consent of Ernst & Young LLP................................ 23.2 Consent of Arthur Andersen LLP.............................. *23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1)....... *24.1 Powers of Attorney (included in signature page)............. *25.1 Statement of Eligibility of Trustee on Form T-1............. *27.1 Financial Data Schedule..................................... *99.1 Form of Letter of Transmittal............................... *99.2 Form of Notice of Guaranteed Delivery....................... *99.3 Form of Tender Instructions.................................
- --------------- * Previously filed. EX-10.4 2 TRANSITION SERVICES AGREEMENT 1 EXHIBIT 10.4 TRANSITION SERVICES AGREEMENT TRANSITION SERVICES AGREEMENT (this "Agreement"), dated as of June 12, 1997, by and between PLAINWELL PAPER COMPANY, a Michigan corporation (the "Company") and SIMPSON PAPER COMPANY, a Washington corporation ("Simpson"). WHEREAS, Plainwell Holding Company, a Delaware corporation ("Holdings"), and Simpson have entered into a Stock Purchase Agreement dated as of March 12, 1997 (the "Stock Purchase Agreement"); WHEREAS, pursuant to the terms of the Stock Purchase Agreement, Holdings is acquiring all of the stock of the Company; and WHEREAS, Simpson is prepared to provide certain transition services to the Company following consummation of the transactions contemplated in the Stock Purchase Agreement (the "Acquisition") upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and the agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: I. SERVICES. A. Transition Services. Except as otherwise expressly provided below, Simpson shall provide to the Company certain administrative, transition and computer services, described in Exhibit A for the periods set forth in Exhibit A (the "Transition Services"). The Transition Services, together with the Additional Services described in paragraph 2(a) are herein collectively referred to as the "Services" and individually as a "Service". Simpson shall not be obligated to: (i) purchase, license, lease or otherwise obtain the right to use any equipment or resources (including, but not limited to hardware or software) in addition to those used prior to the Closing in connection with provision of the Services; (ii) maintain or retain any such equipment or resources solely for the benefit of the Company if it is no longer useful to or used by Simpson; (iii) convert or assemble data for the Company into a form or content required for use with such equipment or resources (it being the responsibility of the Company to provide the data, where applicable, in a ready to use form for example following Simpson's chart of accounts); or (iv) provide any services to the Company other than the Services and services that are a necessary incident thereto. Simpson may modify its current systems for its own business needs even if such modification would render any such system unusable by the Company. Notwithstanding the foregoing limitations on Simpson's obligations hereunder, Simpson intends to, and shall cooperate in good faith to, assist the Company in obtaining the Services. B. Additional Services. The parties have attempted to identify and 2 specifically enumerate on Exhibit A hereto all transitional services required to be provided by Simpson to the Company in order to continue the uninterrupted operation of the business of the Company following the Closing. In the event that the Company needs additional services, the parties shall negotiate in good faith to determine if Simpson can provide the additional services upon mutually agreed terms and conditions (the "Additional Services"), and reflect such terms and conditions as so agreed. II. PROCESSING ERRORS. COMPANY OBLIGATIONS. ETC. A. Correction of Processing Errors. The Company is responsible from the date hereof for: (i) the accuracy and completeness of all data or information submitted by the Company to Simpson for processing or transmission in connection with the Services (the "Data"); and (ii) any errors in and with respect to data or information obtained from Simpson because of any inaccurate or incomplete Data. B. Company Obligations. The Company shall: (i) maintain in good operating condition all equipment, software and operational resources necessary to allow Simpson to provide the Services in a manner consistent with past practice of the Company prior to the date hereof; and (ii) comply with any reasonable instructions provided by Simpson that are necessary for Simpson to provide the Services in accordance with this Agreement. C. Company Reporting Obligations. On a periodic basis during the term of this Agreement (as set forth in Section 9, the "Term"), the Company shall provide Simpson with oral updates as to the current status of the Company's efforts to establish replacement or alternative programs and services for all Services provided by Simpson. III. DATA. A. Except as may be required in order to perform the Services, all Data shall be in the form maintained by the Company before the date hereof and shall remain the property of the Company. Unless furnished to Simpson by the Company, all media upon which Data is stored is and shall remain the property of the Company. The Company shall be entitled to copies of all media upon which Data is stored. Upon the Company's written request, Simpson shall erase or destroy all copies of all media upon which Data is stored and shall provide the Company written verification thereof. IV. FEES. A. Fees. 1. In consideration of the provision of the Services, the Company shall pay to -2- 3 Simpson the fees specified in Exhibit A (the "Fees"). 2. Not later than the close of business on the fifth business day of each calendar month during the Term and not later than five business days after the last day of the Term, Simpson shall deliver an invoice to the Company setting forth the Fees (which shall be prorated in the case of Fees payable for any period in the Term that is less than a full calendar month) payable by the Company for the Services provided in the preceding month (or, in the case of the invoice delivered after the last day of the Term, in the period since the end of the preceding month) (the "Fee Invoice"). The Company shall pay the Fees set forth in the Fee Invoice in full by check or by wire transfer of immediately available funds to Account No. 67034710 in the name of Simpson, Seattle First National Bank, CASC, Seattle, Washington, 98104, ABA No. 125000024 or an account of Simpson's designation not later than the close of business on the fifth business day following the date of receipt of such Fee Invoice. B. Taxes. The Company shall pay any valued-added tax and any tariff, duty, export or import fee, sales tax, use tax, service tax or other tax or charge imposed or incurred relating to Simpson's performance of the Services hereunder. Any payments made pursuant to this paragraph 4(b) shall not reduce the amount of the Fees payable hereunder. V. CONFIDENTIALITY. A. All confidential or proprietary information and documentation relating to either party hereto provided by either party to the other pursuant to the terms and conditions of this Agreement (the "Confidential Information") shall be held in confidence by the other party (including its affiliates) during and after the Term to the same extent and in at least the same manner as such party protects its own confidential or proprietary information. Neither party shall disclose, publish, release, transfer or otherwise make available Confidential Information of the other party in any form to, or for the use or benefit of, any person or entity without the other party's prior written approval. Each party shall, however, be permitted to disclose relevant aspects of the other party's Confidential Information to its officers, agents and employees and to the officers, agents and employees of its affiliates to the extent that such disclosure is reasonably necessary to the performance of its duties and obligations under this Agreement, provided that such party shall take all reasonable measures to ensure that Confidential Information of the other party is not disclosed or duplicated in contravention of the provisions of this Agreement by such officers, agents and employees. The obligations in this Section 5 shall not: (a) restrict any disclosure by either party pursuant to order of any court or government agency (provided that the disclosing party shall endeavor to give prior written notice to the non-disclosing party as may be reasonable under the circumstances); and (b) apply with respect to information that: (i) is independently developed by the other party, (ii) becomes part of the public domain (other than through unauthorized disclosure in contravention -3- 4 of the terms and conditions of this Agreement); (iii) is disclosed by the owner of such information to a third party free of any obligation of confidentiality under the terms and conditions of this Agreement; or (iv) either party gained knowledge or possession of free of any obligation of confidentiality under the teens and conditions of this Agreement. VI. WARRANTY: DISCLAIMER. Simpson shall perform the Services consistent with the manner (including, without limitation, quality and level of Services) in which such Services were provided by the Company for the business of the Company prior to the Closing. THE COMPANY ACKNOWLEDGES THAT THE SERVICES ARE PROVIDED WITHOUT ANY OTHER EXPRESS OR IMPLIED WARRANTIES, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. VII. LIABILITY. IN NO EVENT SHALL SIMPSON BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL AND CONSEQUENTIAL DAMAGES, FOR LOST PROFITS OR SAVINGS, OR FOR ANY THIRD PARTY CLAIMS RELATED TO ITS PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT, EXCEPT TO THE EXTENT SUCH INDIRECT, SPECIAL, INCIDENTAL- OR CONSEQUENTIAL DAMAGES ARE ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SIMPSON. VIII. FORCE MAJEURE. In case either party shall be hindered, delayed or prevented from performing its obligations under this Agreement, or if such performance is rendered impossible by reason of any force majeure event including but not limited to fire, explosion, earthquake, storm, flood, drought, embargo, war or other hostilities. strike, lockout or other labor disturbance, mechanical breakdown, governmental action, or any other cause whatsoever that is beyond a party's reasonable control, the party so hindered, delayed or prevented shall not be liable to the other for the resulting failure to carry out its obligations hereunder. Any such obligations, so far as may be necessary, shall be suspended during the period of such hindrance, delay or prevention, and the Term shall be extended by a period of time equal to the duration of all such events of force majeure so as to permit performance of this Agreement as contemplated. IX. TERM: TERMINATION. A. Term. The term of this Agreement shall commence upon the date hereof and shall continue until the end of all periods for which Services are to be provided as set forth on Exhibit A or such earlier date on which this Agreement is terminated pursuant to paragraph 9(b) or terminated in respect of all the Services pursuant to paragraph 9(c) (the "Term"). -4- 5 B. For Default. In the event that either party materially or repeatedly fails to perform any of its material duties or obligations pursuant to this Agreement and such failure is not cured within 30 days after written notice to such party specifying the nature of such material or repeated failure, the other party may terminate this Agreement upon notice of such termination to the defaulting party. C. For Convenience. The Company may terminate this Agreement in respect of any or all of the Services at any time upon 14 days' written notice to Simpson. D. Effect of Termination. Upon the expiration of the Term, all Fees owed by the Company to Simpson for Services provided through the date of such expiration shall be paid within two business days of the date of such expiration. X. MISCELLANEOUS PROVISIONS. A. No Waivers. The failure on the part of either party to exercise or delay in exercising any right or remedy hereunder shall not operate as a waiver of such right or remedy. Any single or partial exercise by a party of any right or remedy hereunder shall not preclude the exercise of any other right or remedy or further exercise of such right or remedy. B. Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of each party hereto under this Agreement will not be materially and adversely affected thereby, (i) such provision will be fully severable, (ii) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, and (iii) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. C. Headings. The headings used in this Agreement are intended for reference only. They are not intended as and shall not be construed to be a substantive part of this Agreement or in any way affect the validity, construction or effect of any of the provisions of this Agreement. D. Exhibit. The Exhibit attached hereto is incorporated herein by reference as an integral part of this Agreement. In the event of any inconsistency between the terms contained in the Exhibit and the terms contained herein, the terms in the Exhibit shall govern. E. Notices. All notices, designations, approvals, consents, requests, acceptances, rejections or other communications required or permitted by this Agreement shall be in writing and shall be sent by either telecopy (effective upon the sender's receipt of transmission confirmation) overnight courier or similar service (effective on the day -5- 6 after mailed) or by U.S. mail (effective on the third day after mailed) to the addresses specified below: If to Simpson: Simpson Paper Company Third Avenue, Suite 4900 Seattle, WA 98101-3045 Attention: Joseph R. Breed, Esq. Facsimile: (206) 224-5059 If to the Company: Plainwell Paper Company Allegan Street Plainwell, MI 49080 Attention: Chief Executive Officer Facsimile: (616) 685-2597 With a copy (which shall not constitute notice) to: Citicorp Venture Capital, Ltd. Park Avenue 14th Floor New York, New York 10043 Attention: John Weber Facsimile: (212) 888-2940 Kirkland & Ellis East 53rd Street New York, New York 10022-4675 Attention: Kirk A. Radke, Esq. Facsimile: (212) 446-4900 Godfrey & Kahn, S.C. North Water Street Milwaukee, WI 53202-3590 Attention: Thomas A. Myers, Esq. Facsimile: (414) 273-5198 Any party may at any time, by notice to the other party transmitted or sent in the manner described above, change the address or telecopy number to which communications to it are to be sent. F. Relationship. The performance by Simpson of its duties and obligations under this Agreement shall be that of an independent contractor and nothing herein contained -6- 7 shall create or imply an agency relationship between the parties, nor shall this Agreement be deemed to constitute a joint venture, franchise or partnership between the parties hereto. G. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington applicable to a contract executed and performed therein, without giving effect to the conflicts of laws principles thereof. H. Covenant of Further Assurances. The parties covenant and agree that, subsequent to the execution and delivery of this Agreement and without any additional consideration, each of the parties hereto will execute and deliver, or cause their respective appropriate affiliates to execute and deliver, any further legal instruments and perform any acts which are or may become reasonably necessary to effectuate this Agreement. I. Assignment. Neither this Agreement nor any right, interest or obligation hereunder may be assigned by either party hereto without the prior written consent of the other party hereto. J. Entire Understanding. This Agreement represents the entire understanding of the parties with respect to its subject matter and supersedes all prior or contemporaneous writings, correspondence and memoranda with respect hereto. No representations, warranties, agreements or covenants, express or implied, of any kind or character whatsoever with respect to such subject matter have been made by either party to the other, except as herein expressly set forth. K. Successors. Subject to the restrictions on assignment set forth in paragraph I l(i) above, this Agreement shall be binding upon and inure to the benefit of and be enforceable against the parties hereto and their respective successors and permitted assigns. L. Amendments. This Agreement can be modified or amended only by a written amendment executed by both parties. M. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. N. Third Party Beneficiaries. Each party intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any person or entity other than the Company and Simpson. O. Time is of the Essence: Computation of Time. Time is of the essence for each and every provision of this Agreement. Whenever the last day for the exercise of any privilege or the discharge of any duty hereunder shall fall upon any day which is not -7- 8 a business day, the party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding business day. * * * * * IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers to be effective as of the day and year first above written. PLAINWELL PAPER COMPANY By: --------------------------------- Title: SIMPSON PAPER COMPANY By: --------------------------------- Title: -8- 9 EXHIBIT A TRANSITION SERVICES A. Services 1. If requested by the Company, the following accounting services shall be provided by Simpson on behalf of the Company for the period or periods requested by the Company, in any event ending not later than 2 years after the date hereof in the format and timetable that was used by the Company prior to the date hereof: General Ledger - masterfile maintenance General Accounting - masterfile maintenance Monthly Closing Financial Statements 2. If requested by the Company, Simpson will make available its host computers for purposes of preparing general ledgers from time to time for he Business and for accounts payable and accounts receivable purposes for a period ending not later than 2 years after the date hereof. 3. If requested by the Company, Simpson will make available its host computers for purposes of Sales Order Entry (provided the Company pays the cost of partitioning the mainframe to permit segregation of the data), Sales Analysis, Costing, Purchasing, Receiving, and Inventory Reporting including existing End-of-Day and Start-of-Day processes and utilizing the interface processes in place for continued updates to the General Ledger and Accounts Receivable Systems, as well as any other computer systems in use for the Facilities, for a period ending not later than 2 years after the date hereof. 4. If requested by the Company, Simpson will make available its host computers for use in providing data for sales and use tax computations for a period ending not later than 2 years after the date hereof. 5. On reasonable notice and during normal business hours, Simpson will make available its Project Cost System for use by the Company in preparing its projections for the calendar year 1998. B. Monthly Fees for Transition Services As fees for the Transition Services (which, for any particular period, shall comprise fees for all or any part of the Transition Services provided during such period), the Company shall pay Simpson an aggregate amount per calendar month (pro rated in the case of any partial calendar month) equal to (i) all reasonable direct costs incurred by Simpson (which shall include Simpson's actual expenses incurred in providing the services of an employee of Simpson) in providing the Services ("Simpson's Cost") plus 25% on a per month basis during the period from the date hereof -9- 10 until the 90th day after the date hereof, (ii) Simpson's Cost plus 50% on a per month basis during the period from the 90th day after the date hereof until the 80th day after the date hereof, (iii) Simpson's Cost plus 65% on a per month basis during the period from the 1 80th date hereof until the 365th day after the date hereof, and (iv) Simpson's Cost plus 75% on a per month basis thereafter. -10- EX-10.11 3 INVENTORY PURCHASE AGREEMENT 1 EXHIBIT 10.11 INVENTORY PURCHASE AGREEMENT THIS AGREEMENT is made and entered into this ___ day of June, 1997, by and between SIMPSON PAPER COMPANY, a Washington corporation (the "Seller"), PLAINWELL HOLDING COMPANY, a Delaware corporation (the "Buyer"). All undefined terms used herein shall have the meaning assigned to such terms in that certain Stock Purchase Agreement dated as of March 12, 1997, as amended, by and between the Seller and the Buyer (the "Stock Purchase Agreement"). RECITALS: A. The Seller owns all of the Purchased Inventory and for the purposes of this Agreement, the term Purchased Inventory shall include Seller's inventory of Satin Kote as well as the products identified in the Stock Purchase Agreement. B. The Seller desires to sell to the Buyer, and the Buyer desires to purchase from the Seller, the Purchased Inventory. TERMS: Therefore, in consideration of the mutual covenants contained in this Agreement, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: ARTICLE I 1.1 Purchase and Sale. Subject to the terms and conditions set forth in this Agreement, at the closing of the purchase and sale of the Purchased Inventory contemplated herein (the "Inventory Closing"), which shall occur immediately prior to the Closing on the Closing Date, the Seller will sell to the Buyer, and the Buyer will purchase from the Seller, free and clear of all liens, claims or encumbrances of any nature whatsoever, all of the Purchased Inventory. 1.2 Purchase Price. The purchase price for the Purchased Inventory (the "Inventory Purchase Price") shall be an amount equal to the book value thereof as determined in accordance with generally accepted accounting principles, consistently applied, pursuant to the FIFO Inventory Valuation Methodology described on attached Exhibit A (the "Inventory Valuation Methodology"). 1.3 Estimated Inventory Purchase Price. The parties acknowledge and agree that the exact amount of the Inventory Purchase Price will not be known as of the Closing Date and the amount paid at the Inventory Closing pursuant to Section 1.4, below, is an estimate of 2 the Inventory Purchase Price. In that regard, immediately prior to the Closing Date, the Seller will perform a physical count of the Purchased Inventory, a process in which the Buyer and its representatives shall have the right to participate, and will deliver to the Buyer an initial inventory statement (the "Initial Inventory Statement") certified by the Seller's chief financial officer setting forth an itemization and the determination of the value, pursuant to the Inventory Valuation Methodology, of the Purchased Inventory (the "Estimated Inventory Purchase Price") as of the Closing Date. 1.4 Payment of Estimated Inventory Purchase Price. Subject to the post-closing adjustment described in Section 1.5 hereof, the Buyer will (and the Seller hereby directs the Buyer to) pay the Estimated Inventory Purchase Price to the Company at the Inventory Closing, which shall be payable in immediately available and lawful funds of the United States by wire transfer to Account No. 67034710 in the name of the Seller, Seattle First National Bank, CASC, Seattle, Washington, 98104, ABA No. 125000024, or such other account as the Seller shall designate in writing at least five (5) days prior to the Closing Date. 1.5 Post-Closing Adjustment. After the Inventory Closing, the amount of the Final Inventory Purchase Price (as hereinafter defined) shall be determined as provided below, and the amount of the payment made by wire transfer at the Inventory Closing shall be adjusted, if necessary, to reflect any difference between the value of the Estimated Inventory Purchase Price as shown in the Initial Inventory Statement and the value of the Final Inventory Purchase Price as finally determined pursuant to Section 1.5.1, below. 1.5.1 Closing Audit. Promptly after the Inventory Closing but in any event within ninety (90) days after the Closing Date, the Seller shall deliver to the Buyer a final inventory statement (the "Final Inventory Statement") certified by its chief financial officer setting forth an itemization and the determination of the value, pursuant to the Inventory Valuation Methodology, of the Purchased Inventory as of the Closing Date (the "Final Inventory Purchase Price"). The Buyer shall have thirty (30) days after delivery of the Final Inventory Statement within which to approve or object in writing to the Final Inventory Statement. During that 30-day period, the Buyer and its accountants may review all the Seller's records, working papers, and calculations relating to the Final Inventory Statement and calculation of the Final Inventory Purchase Price and have such access to the Seller's personnel as may be reasonably necessary to review in detail the manner in which the Final Inventory Statement was prepared. If the Buyer objects in writing to the Final Inventory Purchase Price specified in the Final Inventory Statement, the Seller will take the objections into account and deliver a revised Final Inventory Statement to the Buyer within seven (7) days after receipt of the Buyer's objection. In that event, the Buyer shall have fifteen (15) business days within which to approve or object in writing to the revised Final Inventory Statement. If the Buyer and the Seller do not agree on the Final Inventory Purchase Price after following these procedures, any party may submit the dispute to Deloitte & Touche, LLP or any other firm of nationally recognized independent certified public accountants approved by the Buyer and the Seller and not currently employed by any party hereto, who shall review the Final -2- 3 Inventory Statement and make a determination of the Final Inventory Purchase Price without any obligation to accept the positions taken by the Seller or the Buyer, provided that such final determination may not fall outside the range bounded by the valuations originally asserted, if any, by the Buyer and the Company. The determination of such firm shall be based upon definitions and provisions contained herein, shall be in writing, and shall be final and binding on the parties; such firm's fee and costs shall be shared equally by the Buyer and the Seller. 1.5.2 Payment Adjustment. If the amount of the Final Inventory Purchase Price as set forth on the Final Inventory Statement is greater than the amount of the Estimated Inventory Purchase Price set forth on the Initial Inventory Statement, the Buyer shall promptly pay the difference to the Seller in immediately available funds, with interest from the Closing Date at a floating rate per annum equal to the reference rate of interest announced from time to time by Bank of America, N.A., of San Francisco. California. Conversely, if the amount of the Final Inventory Purchase Price as set forth on the Final Inventory Statement is less than the Estimated Inventory Purchase Price as set forth on the Initial Inventory Statement, the Seller shall promptly pay the difference to the Buyer in immediately available funds with interest from the Closing Date at a floating rate per annum equal to the reference rate of interest announced from time to time by Bank of America, N.A., of San Francisco, California. ARTICLE II Sale of Purchased Inventory The Seller shall use its reasonable best efforts from and after the Closing Date to assist the Buyer in selling or otherwise disposing of those items of the Purchased Inventory which are located at any of the Seller's facilities. ARTICLE III Closing Deliveries The Inventory Closing shall occur simultaneously with the execution of this Agreement. At the Inventory Closing, the Seller shall deliver to the Buyer a Quitclaim Bill of Sale in the form attached hereto as Exhibit B and such other instruments of conveyance as the Buyer shall require in a form reasonably satisfactory to the Buyer and its legal counsel. ARTICLE IV Title to Purchased Inventory The Seller warrants and represents to the Buyer, which warranties and representations shall survive the execution and closing hereof, that the Seller has, and shall convey. good, valid, -3- 4 and marketable title to the Purchased Inventory, free and clear of all liens, claims and encumbrances of any nature whatsoever, and, upon transfer to the Buyer at the Inventory Closing good, valid, and marketable title to the Purchased Inventory will pass to the Buyer. ARTICLE V Miscellaneous 5.1 Notices. All notices, demands, requests and other communications required or permitted hereunder shall be written and given pursuant to Section 13.4 of the Stock Purchase Agreement. 5.2 Assignment . This Agreement shall not be assigned, in whole or in part, by any party without the prior written consent of the other parties, except that the Buyer may assign its rights under this Agreement to: (i) an Affiliate that is a substantial ongoing entity with as much net worth as the assignor and that agrees in a writing, reasonably satisfactory to the Seller to assume the obligations of the Buyer hereunder; or (ii) an institutional lender as security for an operating line or other financing. Any assignment in violation of this Section 5.2 shall be null and void, and no assignment shall relieve the Buyer of its obligations to the Seller or the Seller hereunder. 5.3 Other Miscellaneous Matters. This Agreement, together with applicable provisions of the Stock Purchase Agreement: (i) contains the entire understanding of the parties on the subject matter addressed; (ii) supersedes all prior understandings on those matters; (iii) may only be amended in a writing signed by duly authorized representatives of the Seller and the Buyer; (iv) shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties; and (v) may be executed in counterparts, each of which shall be deemed a fully binding original of the same instrument. Nothing in this Agreement, express or implied. is intended to confer any rights upon any individual (including, without limitation, any employees or former employees of the Seller or the Buyer) other than the parties hereto and their successors and permitted assigns. 5.4 Governing Law. This Agreement shall be governed by, construed under, and enforced in accordance with the laws of the State of Washington without reference to the conflict-of-laws provisions thereof. 5.5 Severability. In the event that any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby so long as the remaining provisions do not fundamentally alter the relations among the parties hereto. 5.6 Headings. The section headings of this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement. -4- 5 5.7 Further Cooperation. After the Inventory Closing, the Seller and the Buyer shall cooperate with each other to give full effect to the consummation of the purchase and sale of the Purchased Inventory hereunder. 5.8 Termination. In the event that the Closing of the Stock Purchase Agreement is not consummated for any reason, this Agreement shall be terminated and shall be of no further force or effect. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day, month and year first above written. SIMPSON PAPER COMPANY By: ----------------------------- Its -------------------------- PLAINWELL HOLDING COMPANY By: ----------------------------- Its -------------------------- -5- 6 EXHIBIT A FIFO INVENTORY VALUATION METHODOLOGY GENERAL Finished goods and in process inventories are assumed to turn 4 to 5 times per year and are stated at lower of cost or market. RAW MATERIAL FIFO value is established for individual categories of Fiber, Fillers, and Additives by determining average price per unit based on accumulated invoice value of the most recent purchases prior to the end of the period. The FIFO value for Mill Broke is established by calculating the ratio of the per unit FIFO value to the standard cost value for Southern Hardwood Pulp. This ratio is applied to the per unit standard cost value for Mill Broke to arrive at the per unit FIFO value for Mill Broke. Label inventories are valued at zero cost. FINISHED GOODS PRODUCT INVENTORIES Direct Costs - Inventory is first valued at standard direct costs by individual grade and then consolidated. Significant cost differences between standard cost and actual latest acquisition costs are calculated in aggregate for Raw Materials, Direct Labor, Utilities, and Packaging and then added or subtracted from total standard direct cost. The prior three months actual costs are used for latest acquisition costs for Direct Labor, Utilities, and Packaging. The material component of finished goods inventory is costed by determining average price per unit based on accumulated invoice value of the most recent purchases prior to the end of the period. Period Costs - Inventories period costs per unit are determined by taking the prior three months period expenses less the following: o Period inventory variation. o Warehouse and shipping costs related to shipments directly from the mill to customers. o Seasonal or unusual costs that may distort the calculated rate. The remaining amount is divided by practical capacity to arrive at the prior cost rate per unit of inventory. This rate is extended against total Finished Goods Inventory volume to calculate total inventoriable period costs for Finished Goods. Practical capacity for Plainwell is 90,260 tons per -6- 7 year (361 operating days per year, 250 packed tons per day). Period costs do not include depreciation for 1996 valuations. IN-PROCESS PRODUCT INVENTORIES Direct Costs - Same as above except that WIP inventory is converted to equivalent finished goods unit prior to the standard cost calculation. Also, unincurred costs for converting operations are subtracted from the total standard cost value and cost differences-between standard and current costs are not calculated for packaging materials. Period Costs - Same as above except that period costs related to converting operations, warehouse, and shipping operations are not included in the prior three months costs to calculate the period cost rate per unit of inventory. MACHINE CLOTHING Inventoried at the actual acquisition cost on a per item basis. FUEL OIL. SPARES AND OTHER SUPPLIES Inventory valuation is on a rolling average basis. -7- 8 EXHIBIT B QUITCLAIM BILL OF SALE FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, SIMPSON PAPER COMPANY, a Washington corporation (the "Seller"), hereby conveys, grants, bargains, sells, transfers, assigns and delivers unto PLAINWELL HOLDING COMPANY, a Delaware corporation ("Buyer"), its successors and assigns forever all of the Seller's right, title and interest in and to all of the Purchased Inventory (as defined in that certain Stock Purchase Agreement ("Stock Purchase Agreement") dated as of even date herewith, by and between the Seller and Buyer. TO HAVE AND TO HOLD all of the above-described assets hereby assigned, transferred and conveyed unto Buyer, its successors and assigns, to its and their own use forever. SELLER WARRANTS AND REPRESENTS, WHICH WARRANTY AND REPRESENTATION SHALL SURVIVE THE EXECUTION HEREOF, THAT SELLER HAS GOOD AND MARKETABLE TITLE TO THE PURCHASED INVENTORY FREE AND CLEAR OF ALL LIENS, CLAIMS AND ENCUMBRANCES. SELLER MAKES NO FURTHER WARRANTIES WITH RESPECT TO THE PURCHASED INVENTORY. IT BEING EXPRESSLY UNDERSTOOD THAT THE PURCHASED INVENTORY IS IN AS IS, WHERE IS" CONDITION, WHEREVER LOCATED. IN WITNESS WHEREOF, Seller has executed this instrument as of this 12th day of June, 1997. SELLER: SIMPSON PAPER COMPANY By: -------------------------- -8- EX-10.12 4 COLLECTIVE BARGAINING AGREEMENT 1 Exhibit 10.12 Agreement Dated November 29, 1995 between [LOGO] [POPE & TALBOT, INC.] CPD - RANSOM/PITTSTON TOWNSHIP and United Paperworkers International Union AFL-CIO and Ransom/Pittston Township Local Number 1448 [GRAPHIC OMITTED] 2 INDEX AGREEMENT ....................................................................1 The GENERAL PURPOSE of the AGREEMENT .........................................1 SECTION 1 -- Recognition ....................................................1 SECTION 2 -- Union Shop .....................................................2 SECTION 3 -- Union Dues Check-Off ...........................................2 SECTION 4 -- Hours of Work ..................................................4 SECTION 5 -- Overtime .......................................................8 SECTION 6 -- Holidays ......................................................13 SECTION 7 -- Vacation ......................................................17 SECTION 8 -- Wages .........................................................20 SECTION 9 -- Pension .......................................................26 SECTION 10 -- Seniority .....................................................27 SECTION 11 -- Wire and Felt Time ............................................39 SECTION 12 -- Reporting Time ................................................41 SECTION 13 -- Call Time .....................................................42 SECTION 14 -- Cessation of Work .............................................43 SECTION 15 -- Grievance Procedure ...........................................44 SECTION 16 -- Permission to Enter Plant .....................................47 SECTION 17 -- Sick Leave ....................................................47 SECTION 18 -- Industrial Leave ..............................................48 SECTION 19 -- General Leave .................................................50 SECTION 20 -- Health and Welfare Benefits ...................................51 SECTION 21 -- Funeral Leave .................................................54 SECTION 22 -- Jury Duty .....................................................54 SECTION 23 -- Miscellaneous .................................................55 SECTION 24 -- Maintenance Program ...........................................58 SECTION 25 -- Absenteeism Policy ............................................65 SECTION 26 -- Scheduling ....................................................66 SECTION 27 -- Change and Modification .......................................70 SECTION 28 -- Termination of Agreement ......................................70 SECTION 29 -- Changes in Writing ............................................71 APPENDIX 1: Company Rules ...................................................71 APPENDIX 2: Safety Rules ....................................................75 APPENDIX 3: Americans with Disabilities Act .................................78 APPENDIX 4: Substance Abuse Program .........................................78 APPENDIX 5: Declaration of Principles .......................................87 APPENDIX 6: Maintenance Department Restructuring ............................89 APPENDIX 7: 12 Hour Shift Schedule ..........................................89 APPENDIX 8: Material Support ................................................90 APPENDIX 9: Pension .........................................................91 APPENDIX 10: 401-K Plan .....................................................92 3 AGREEMENT A. This Agreement, made and entered into as of the 29th day of November 1995, by and between Pope & Talbot Wis., Inc., with its place of business situated at Ransom in Lackawanna County, and Pittston Township, in Luzerne County, Pennsylvania, party of the first part, hereinafter called the "Company", and the United Paperworkers International Union, AFL-CIO, and Ransom/Pittston Township Local No. 1448 of the said United Paperworkers International Union, parties of the second part, hereinafter called the "Union". WITNESSETH: THE GENERAL PURPOSE OF THE AGREEMENT B. It is the mutual interest of the Company and the employees to provide for the successful operation of the plant under methods which will further to the fullest extent possible the economic welfare of the Company and of its employees, the safety of its employees, economy of operation, quality and quantity of output, cleanliness of the plant, purity and sanitary quality of its products, and protection of property, materials, and supplies. It is recognized by this Agreement to be the duty of the Company and the Union to cooperate fully, individually and collectively, for the accomplishment of these ends. SECTION 1 Recognition The Company recognizes the United 2 4 Paperworkers International Union and Ransom/Pittston Township Local No. 1448, United Paperworkers International Union and their International Representatives, as exclusive representatives of all employees for the purpose of collective bargaining, with the exclusions of the office workers, quality control 2 workers, all other persons working in a clerical or supervisory capacity, and professional employees such as chemists. It is understood that except as otherwise expressly set forth in this Agreement, the right of the Company to manage its business, operations, and to prescribe terms and conditions of employment shall be unimpaired. The failure of the Company to exercise rights hereby reserved to it, or its exercising them in a particular way, shall not be deemed a waiver of said rights or a waiver of its rights to exercise them in some way not in conflict with the terms of this Agreement. SECTION 2 Union Shop Under this Agreement, all employees eligible for membership in the Union must maintain membership in the Union in good standing as a condition to continued employment. All new employees shall be considered probationary employees until the completion of ninety (90) working days. This probationary period may be extended by agreement between Management and the Union for individual cases. At the end of the first thirty (30) working days, all new employees shall become members of the Union 3 5 thereupon. New employees may be discharged or disciplined at the sole discretion of the Company during this probationary period. The plant Management shall cooperate with the Local Union in maintaining the above conditions. SECTION 3 Union Dues Check-Off A. The Company agrees, for and on behalf of the employees covered by this Agreement, who voluntarily furnish the Company with a properly signed authorization request; substantially in the form set forth below, to deduct the initiation fee and regular monthly dues from the wages of these employees. Such deduction will be made from the third pay 3 roll of each month, provided the employee has received a minimum of forty (40) hours pay within said month. B. Dues and initiation fee deductions for new employees will begin after thirty (30) days of the probationary period have been completed. C. The Local Union agrees to advise the plant Management in writing, signed by the duly authorized officer of the Local Union, as to the initiation fee and regular dues to be deducted, the name of the Financial Secretary of the Local Union, the payee of said check and the address of which said funds shall be forwarded together with a list of such employees from whom said initiation fee and dues are deducted. D. The Company agrees to submit to the Financial Secretary of Local No. 1448 once a 4 6 month, a list of those employees separated from employment and a list of new employees hired, together with their dates of hiring and separation. VOLUNTARY ASSIGNMENT AND AUTHORIZATION FOR DUES AND INITIATION FEE DEDUCTION: Pope & Talbot, Wis., Inc. Ransom and Pittston Township, Pennsylvania You are hereby authorized and directed to deduct from my wages an initiation fee and, each month, for the duration of this Agreement, my regular Union membership dues and to remit the amount so deducted to the Financial Secretary of Local No. 1448, United Paperworkers International Union. I reserve the right to revoke this authorization during the two (2) week period preceding the next anniversary date. This authorization shall be self-renewing thereafter from year to year, subject to revocation during the said two (2) 4 week period preceding the anniversary date. - -------------------------------------------------------------------------------- SIGNATURE - -------------------------------------------------------------------------------- FINANCIAL SECRETARY LOCAL NO. 1448 - -------------------------------------------------------------------------------- DATE 5 7 E. The Union shall indemnify and save the Company harmless against any and all claims, demands, suits, or other forms of liability that shall arise out of or by reason of action taken or not taken by the Company for the purpose of complying with any of the provisions of this Section, or in reliance of any list, notice, or assignment furnished under any such provisions. SECTION 4 Hours of Work A. 1. The regular work week shall start at 7 a.m. Monday and end 7 a.m. Sunday, except those operating on a 12-hour schedule which shall end at 7 a.m. the following Monday. 2. The regular work day for non-shift workers shall consist of eight (8) consecutive hours, excluding lunch time. The starting and stopping time for non-shift workers shall be 7:00 a.m. to 3:30 p.m. with one-half (1/2) hour for lunch time. Non-shift workers, when scheduled for work on Holidays, will be scheduled on 5 a straight eight (8) hour basis. The normal hours of the day shift jobs of Quality Assurance, Stockroom, and Poly Specialist will be 7:00 a.m. to 3:00 p.m. 3. The regular workday for `8-hour' shift workers shall consist of not more than eight (8) consecutive hours (exclusive of 6 8 the lunch period referred to in Paragraph C-1 of this section) in any twenty-four (24) hour period. The regular workweek shall be five (5) consecutive eight (8) hour days, Monday through Friday. The starting and stopping time for 8-hour shift workers shall be: First Shift, 7:00 am to 3:00 pm; Second Shift, 3:00 pm to 11:00 pm; Third Shift, 11:00 pm to 7:00 am. a. The regular workday for "12-hour" shift workers shall consist of not more than twelve (12) consecutive hours (exclusive of the lunch period referred to in Paragraph C-1 of this section) in any twenty-four (24) hour period. The regular workweek shall be not more than four (4) twelve (12) hour shifts, Monday through Sunday. The starting and stopping time for 12-hour shift workers shall be: First Shift, 7:00 am to 7:00 pm; Second Shift, 7:00 pm to 7:00 am. b. The following 12-hour schedule would be implemented in those operations deemed continuous process, i.e., 24 hour, seven day operations. SCHEDULE: "12-HOUR" (2-2-3) ROTATION: 4 TEAMS...1,2,3, and 4, WITH 2 TEAMS OFF AT ALL TIMES...rotating from days to nights (shifts). 7 9 The aforementioned 12-hour schedule is being conducted as a trial on the basis that: the efficiency of operations as determined by Management will not decrease including product quality and employee safety. The initial trial period will be 6 months and will commence as soon as practical following the conclusion of the work stoppage. At the end of the 6 month trial period, the Company will poll those employees operating under the 12-hour schedule to gain their feedback in helping to determine the future application of the trial. Management will make subjective judgements of the operations effectiveness under this 12 hour schedule and may decide to continue with this particular 12-hour schedule, to introduce any other 12-hour schedule options, or to re-establish the normal 7-day rotation at any time after consulting with the Union. 4. The workday shall consist of all employees working on a three (3) shift or 12-hour schedule, the work day shall consist of the consecutive twenty-four (24) hour period beginning with the starting time of the employee's shift, provided however, that in case of a change of shift for the employ- 8 10 ee's convenience or by reason of permanent promotion, the work day prior to the change shall be considered to terminate immediately before the starting time of the shift to which such employee is changed. 5. In the case of all employees working the 8-hour shift schedule, the work day shall consist of the consecutive twenty-four (24) hour period starting at 7:00 a.m. provided however, that in the case of change of shift for the Company's convenience, the work day overlapping the change shall be considered to start with the starting time of the employee's former shift. B. 1. All Employees in the Maintenance Department working on a one (1) shift basis will have a regular one-half hour lunch period to be taken between the hours of 11:00 a.m. and 1:00 p.m. 2. Maintenance Department employees with the above specified regular lunch period shall not be obligated to work through such period except during emergencies. An employee working through the lunch period or any part thereof shall be granted a reasonable length of time, not to exceed one-half (1/2) hour in which to have lunch as soon after the regular period as possible, with pay. C. 1. Those employees working at CDC on an 8-hour schedule will be provided with one (1) twenty (20) minute break for a lunch peri- 9 11 od. It is understood that this period will be taken between 11:00a.m to 1:30 pm for the First Shift; between 7:00 pm to 9:30 pm for Second Shift; and between 3:00 am to 5:30 am for Third Shift. Those employees working at CDC on a 12-hour schedule will be provided with one(1) twenty (20) minute break for a lunch period using the aforementioned lunch period schedule (above). In addition employees who are working twelve(12) hours will be allowed one (1) ten (10)minute rest period, given at times most conducive to efficient plant operations. Employees who punch in/out for lunch at CDC will be permitted one (1) rest period, given at times most conducive to efficient plant operations, not to exceed ten 8 (10) minutes. Rest periods will be given at times most conducive to efficient plant operations. 2. Those employees working at Ransom on an 8-hour shift schedule or a 12-hour shift schedule shall be given an opportunity to eat at a reasonable time conducive to efficient plant operations. Employees who punch in/out for lunch at Ransom will be permitted one (1) rest period, given at times most conducive to efficient plant operations, not to exceed (10) minutes. Converting Department employees who work the 8-hour schedule, will be granted one (1) twenty (20) minute rest period. D. It is mutually recognized by the Company 10 12 and the Union that the Company has the prerogative of operating its plant seven (7) days per week. E. The provisions of this section shall not be construed as a guarantee that any employee will receive any specific number of hours of work per day or per week. SECTION 5 Overtime A. Time and one-half (1-1/2) the regular rate of pay shall be paid for the following: 1. For all work performed over twelve (12) hours in any work day of twenty-four (24) hours. 2. For all work performed in excess of forty (40) hours in any work week. B. Double time (2X) the regular rate of pay shall be paid for work performed after 7:00 am Sunday and before 7:00 am Monday. C. The Company agrees that there will be no layoffs or staggering of shifts for the express purpose of keeping within the forty (40) hour week. D. The Company will attempt to avoid undue overtime, however, the opportunities for overtime shall be distributed among employees in the department where such overtime occurs, provided the employee is qualified to perform the duties of the job. 11 13 Employees who are training on a job will not be eligible for overtime on that job until the training is complete and they are qualified to perform the job. E. It is understood that there will be no pyramiding of overtime and premium pay. F. When an employee works any overtime in their own department during the regular work week, or any overtime in a department other than their own, such overtime shall have no bearing on the distribution of their weekend overtime. G. No double eight hour shifts will be worked when there are any employees laid off, provided qualified employees are available to be called in. No double 12-hour shifts will be required. H. If there is an error in the posted rotation list assignments, the aggrieved employee is responsible for bringing the error to the Supervisor's or Scheduler's attention before the end of his or her shift, otherwise, no grievance will be paid for the error. The employee will be offered the next overtime opportunity for which s/he qualifies. I. It is understood between the parties that the application of the time and one-half rate (1.5X) for all work performed over forty (40) hours in any work week, per 12 14 Paragraph A-2 of this Section, shall apply after recording (calculating) the actual time worked relative to "punching in late and punching out early" under the Kronos Timekeeping System. For example, an employee who "punched in" five minutes late each day of the week would have not worked a total of twenty-five minutes for the week. Therefore, the time and one-half overtime rate for over forty (40) hours would not apply in that work week until the employee worked the twenty-five minutes to arrive at forty (40) hours worked. J. Filling Temporary Vacancies A. When a temporary vacancy occurs on a shift, the following steps will be utilized: 1. Decide whether or not to fill the vacancy in accordance with Section 26 (Scheduling) and Appendix 5 (Declaration of Principles). 2. In the event that an 8-hour vacancy is to be filled, it will be filled as follows: a. Qualified senior employees from the lay off list (Call List). b. Offer the employee waiting to be relieved a double. c. Select the senior qualified employee from the sign-up |sheet. d. If none of the above employees accept the work, the affected employee is required to work a double. 13 15 3. In the event that a 12-hour vacancy is to be filled, it will be as follows: a. Qualified plant senior employees from the lay off list (Call List) will be offered the assignment. b. The most senior qualified 12-hour shift employee on his day off who has not worked the preceding shift, providing such opportunity will not result in his working in excess of sixteen (16) hours, with the understanding that any employee electing to refuse such work will automatically drop to the bottom of the rotation list. c. If all 12-hour shift employees under the rotation list as outlined in step 3b above are not available, the employee waiting to be relieved may be required to work an additional four (4) hours. d. The eight (8) hour vacancy procedure outlined under 2 (above) will be followed to fill the vacancy. 4. When filling an 8-hour shift vacancy other than the first day on an overtime basis, and no qualified employees on the layoff list are available, it will be filled by scheduling the employee in the classification on the preceding shift to work four hours past his regular shift and the employee on the succeeding shift to come in four hours early to work the last half of the vacant shift. 14 16 5. If employees who are responsible for covering the shift vacancy agree to fill the vacancy by rescheduling their hours of work, they may do so provided that there is no additional cost to the Company as a result of the scheduling. B. Weekend Work: When a Production Department is in operation. 1. Employees scheduled on the job, Monday-Friday, are required to work Saturday. Sunday needs will be filled on a voluntary basis. This section shall not apply to employees working on what are normally classified as seven-day continuous operations (i.e., 12-hour shifts) C. Weekend Work: When a department is not in production. 1. Post Saturday signup sheet for volunteers. 2. Volunteers will be selected using the following steps: a. Plant senior qualified employees within such department who are scheduled for less than 40 hours in that week will be utilized for the available Saturday work. b. Followed by qualified call list employees who have worked less than 40 hours in that week. c. Followed by plant senior qualified employees within such department who have worked 40 hours in that week. d. Followed by qualified call list 15 17 employees who have worked 40 hours in that week. 3. Any available Sunday work within a department (exception Converting), shall be rotated on a departmental seniority basis with the understanding that any employee electing to refuse such Sunday overtime will automatically drop to the bottom of the rotation list. The 11:00 pm to 7:00 am and the 7:00 am shifts (from Saturday) are excluded, but the senior names are to be kept at the top of the seniority list. a. For the Converting Department, post a Sunday signup sheet for volunteers. Plant senior qualified employee within the Converting Department will be utilized. 4. Available Saturday and/or Sunday work, outside an employee's own department will be given to the plant senior qualified employees who are not otherwise scheduled to work. Plant seniority may be 13 exercised on Saturday and/or Sunday in filling any job not held Monday through Friday of the scheduled work week provided all employees with department seniority are working and more employees are required (CDC or Plant 1). D. Maintenance Overtime: 1. Paragraph A, will apply with the following exceptions: a. Weekend overtime in the 16 18 Maintenance Departments will be based on department seniority and specialized skills within their assigned work location (CDC or Plant 1). b. If there is a problem at the end or during a shift, which is not solved when the shift mechanics (electricians) tour is over, he/she will stay until the problem is solved or the Maintenance Manager or Shift Supervisor calls another person in to relieve that employee. 1. On Holidays, if there is a job or jobs that will require more than a twelve (12) hour period, the Company will make a good faith effort to call in appropriate replacements from the sign up sheet. The Company will also require at least one person to stay on the job to provide continuity. E. OT -- Oversight Committee: 1. An Oversight Committee comprised of two (2) management representatives and two (2) union representatives chosen by the respective parties and a Facilitator/Mediator will be formed. a. The committee's sole purpose is to resolve issues relative to the application/ administration of the contractual overtime provisions (i.e., this 14 committee will not deal with individual grievances). b. The committee, by agreement, is 17 19 empowered to change and/or establish overtime procedures consistent with the bargained intent of the overtime provisions. c. The committee will in no way interfere with either parties' right to pursue an alleged overtime provision violation through the entire grievance and arbitration procedure. F. Miscellaneous 1. A Converting Department sign up sheet will be posted daily on each shift. Employees who want to work overtime at the end of their shift must sign the daily sign up sheet no later than one (1) hour from the end of the shift. 2. Paper Machine #3 and #4 shall each keep its own work week and overtime. Qualified employees, if available, will be moved up on shift on the same paper machine in covering temporary vacancies and vacation relief, except as described under Section 26-Scheduling, Paragraph P. SECTION 6 Holidays A. The Company will grant eight (8) hours regular rate of pay to employees who have completed their probation period, when no work is performed on the following Holidays: New Year's Day -- 24 hour shutdown -- January 1st, 7:00 a.m. to January 2nd, 7:00 a.m. 18 20 Easter Sunday -- 24 hour shutdown -- 7:00 a.m. Sunday to 7:00 a.m. Monday Memorial Day -- 24 hour shutdown -- 7:00 a.m. Monday to 7:00 a.m. Tuesday July 4th -- 24 hour shutdown -- July 4th 7:00 a.m. to July 5th 7:00 a.m. Labor Day -- 24 hour shutdown -- Monday 7:00 a.m. to Tuesday 7:00 a.m. Thanksgiving Day -- 24 hour shutdown -- Thursday 7:00 a.m. to Friday 7:00 a.m. Day after Thanksgiving -- 24 hour shutdown -- 7:00 a.m. Friday to 7:00 a.m. Saturday December 24th -- 24 hour shutdown -- December 24th 7:00 a.m. to December 25th 7:00 a.m. December 25th -- 24 hour shutdown -- December 25th 7:00 a.m. to December 26th 7:00 a.m. December 31st -- 24 hour shutdown -- December 31st 7:00 a.m. to January 1st 7:00 a.m. Personal Holiday -- The Company must be notified in writing, at least seven (7) days prior to the date that the employee desires to observe a personal holiday. Exceptions to the 19 21 foregoing may be made by the Supervisor for good and valid reasons. It will be entirely within the discretion of the Company to determine the number of employees permitted to observe a personal holiday on the same day. Personal holiday pay will be compensated only on the basis of straight eight (8) hours at the regular rate of pay of the employee regardless of the day of the week on which the employee observes such personal holiday. The Company must notify the employee no less than three (3) days prior to the date requested off as to whether the request is granted or denied. If more than one (1) employee requests the same day off as a Personal Holiday, consideration of the employees' request, consistent with the above language, shall be in order of the employee's department seniority. B. It is understood that the Company retains the option of scheduling production work on any holidays with the exception of Christmas Eve, Christmas Day, and Easter. When that option is exercised, it is understood that the normally scheduled crews will come in on these non-restricted holidays. C. Maintenance employees will be scheduled to work on Holidays by departmental seniority and qualified skills within their assigned work location (CDC or Plant 1). Requests for personal time off on a day by day basis for maintenance employees, other 20 22 than those who volunteered to work, will be granted following any Holiday worked. The number of employees to be granted the day off based on departmental seniority basis will be determined by the Company. It is the intention of the Company to schedule a 7:00 a.m. starting time for Holiday maintenance work, whenever possible. D. To be eligible for Holiday pay, an employee must have worked their last scheduled day before the Holiday and their first scheduled day after the Holiday unless such employee is absent with the Company's permission, absent because of a bona fide illness based on a submission of proper approved medical certification; or absent for a bona fide reason approved by the Company. Holiday pay will be granted for all intervening Holidays on absences covering three (3) days or more; up to six (6) months on occupational injury and ninety (90) days on illness; based on submission of proper medical certification. Holiday pay will be distributed to those eligible employees on the pay day immediately following the return to work. E. Employees with necessary seniority, who have been laid off in a reduction of force and are called back to work within thirty (30) days from the date of layoff, shall be eligible for Holiday pay for any of the Holidays listed herein, which fall within the said thirty (30) day period. 21 23 F. All employees who work on any of the foregoing Holidays shall be paid at the rate of double time their regular rate of pay for the hours worked in addition to the eight (8) hours Holiday pay at the regular rate of pay. Triple time will be paid for all work performed over eight (8) hours on a given Holiday. Any Holiday not worked shall be counted as eight (8) hours worked in computing overtime. G. In the event that a holiday occurs on a Saturday and an employee does not work on such Holiday, he or she shall be paid one and one-half (1-1/2) times the regular rate of pay for the eight (8) hours Holiday pay. H. Any Holiday falling on Sunday will be celebrated on the following Monday except for those operations on a twelve (12) hour schedule. It is understood that with the exception of those operations on a 12-hour schedule, the Easter Sunday Holiday will be celebrated on Easter Monday. Holiday pay for those employees on 12-hour operations will be paid at the stipulated rate for the day in question. Whenever December 24th and December 31st fall on Sunday, the Holidays will be celebrated on the following Tuesdays for all operations other than four 12-hour schedules. Triple the regular rate of pay shall be paid for work performed on Easter Sunday. I. If a holiday should fall during a vacation shutdown week the said Holiday is to be celebrated on the following Monday for non- 22 24 four (4) crewing operations only. SECTION 7 Vacation A. Vacation and vacation pay will be granted between May 1st of a given year and April 30th of the following year, and shall be granted by seniority within departments except the Converting Department which shall be granted by departmental seniority within major operating units, and for Maintenance employees, to include Shop Maintenance and Converting Maintenance wherein vacation requests will be granted based on Plantwide seniority within the department. A vacation week is deemed to be seven (7) consecutive days beginning at 7:00 a.m. of a given Monday and cannot be split into separate days except as provided for in Paragraph I of this section. During the life of this Agreement the Company will inform its employees, prior to January 15th, of any vacation shutdown plans affecting non-twelve (12) hour operations. It is understood that any such shutdown week(s), as determined by the Company, would occur between June 15th and September 1st. B. Vacation request forms will be issued no later than December 15th and must be returned to the Company no later than January 15th with the vacation schedule to be posted no later than March 15th. It is agreed that vacation schedules will be so arranged as to provide 23 25 that any eligible employee who requests his or her first and/or second week of vacation during the last two (2) vacation weeks of June or during the Months of July or August will be granted at least one (1) vacation week during this period. It is understood, however, that the employee is not guaranteed the particular week he or she requests. This paragraph in no way affects the present method of scheduling vacation according to departmental seniority. C. Employees eligibility for vacation weeks will be determined on the basis of his or her most recent date of hire. D. Vacation requests for the first and second weeks shall take precedence over requests for the third, fourth, and fifth vacation weeks. All vacation weeks for eligible employees shall be compulsory except as governed by Paragraph H of this section. E. During the first year of an employee's seniority such employee must have worked at least 1,700 hours during the vacation year to be eligible for one (1) week vacation with pay; to be eligible for two (2) weeks vacation with pay, such employee must have worked at least forty-eight (48) full weeks. F. After the first year of seniority, to be eligible for vacation and vacation pay, an employee must have worked at least seven hundred (700) hours out of the best six (6) months of 24 26 the vacation year from May 1st to May 1st. Any employee having less than seven hundred (700) hours after complying with the foregoing requirement will be prorated accordingly. The first six (6) months of any absence caused by injury in the course of employment or illness, shall be counted as time worked for this purpose. G. Effective 5/1/96 (based on 1995 qualifying hours), the vacation schedule shall be amended to provide:
Vacation Credit Years Vacation Time Off Vacation Pay --------------------- ----------------- ------------ 1 1 week 48 hours 2 2 weeks 96 hours 8 3 weeks 144 hours 13 4 weeks 192 hours 20 5 weeks 240 hours
H. Any employee may elect to work during all or part of his or her vacation period, provided that he or she obtains the consent of the Company and the Union. However, an employee who is eligible for four (4) or more weeks of vacation may elect to receive pay for the 4th or 5th week of eligible vacation in lieu of time off. If all or part of a vacation period is worked, the employee shall receive his or her vacation pay for the period, in addition, to his or her pay for any work performed in such period. I. Employees with four (4) or more weeks of 25 27 vacation may schedule one (1) of the additional weeks of vacation on a day to day basis as long as they meet the same conditions set forth under Section 6, Holidays, Personal Holiday. An 8-hour employee electing to take one of their vacation weeks in days will be granted five days off and will be paid at the employee's regular rate of pay for each day at eight (8) hours per day for the first four (4) days; for the fifth (5) day, the employee shall receive sixteen (16) hours pay at the employee's regular rate of pay to provide for the weekly number of pay hours per Paragraph J of this section. A 12 hour employee electing to take one of their vacation weeks in days will be granted four (4) days 21 off and will be paid at the employee's regular rate of pay for each day at twelve (12) hours per day to provide for the weekly number of pay hours per Paragraph J of this section. 1. Vacation by days may be taken only between September 1st and June 15th. Vacation by days will not be allowed between June 16th and August 31st. J. Vacation pay shall be computed on the basis of forty-eight (48) hours total at the employee's regular rate of pay for each week. K. An employee will be paid vacation pay at the highest regular rate of pay that such employee has maintained for thirty (30) days during the vacation year preceding the employee's first week of vacation or the rate of their regular job just preceding the employee's requested week(s) of vacation, whichever is 26 28 higher. L. Vacation pay shall be subject to such deductions as are normally made from regular pay. M. In the event of the death of an employee, his or her accrued vacation pay will be paid to the beneficiary designated by such employee on his or her individual Company Life Insurance Policy within the Limits described in Section 20, Paragraph D of this Agreement. N. It is understood between the parties that the 3 and 4 Paper Machines will have separate vacation schedules as long as only one job classification from each machine is scheduled off at the same time. SECTION 8 Wages A. Management agrees to update all rate adjustments negotiated within the past three years. The regular rate of pay will be as follows:
PAPER MACHINES Per Hour Effective No. 4 Paper Machine 12/4/95 9/17/97 9/17/98 Machine Tender .................. 14.12 14.54 15.05 Back Tender ..................... 13.55 13.96 14.45 Third Hand ...................... 13.09 13.48 13.95
27 29
Fourth Hand ..................... 12.82 13.20 13.66 Temporary Fifth Hand ............ 12.61 12.99 13.44 Per Hour Effective No. 3 Paper Machine 12/4/95 9/17/97 9/17/98 Machine Tender .................. 14.15 14.57 15.08 Back Tender ..................... 13.50 13.91 14.40 Third Hand ...................... 13.10 13.49 13.96 Fourth Hand ..................... 12.89 13.28 13.74 Temporary Fifth Hand ............ 12.61 12.99 13.44 FIBER PREPARATION Per Hour Effective DEPARTMENT 12/4/95 9/17/97 9/17/98 Stock Perparation Operator ...................... 13.25 13.65 14.13 1st Asst. Stock Preparation Operator ...................... 13.00 13.39 13.86 2nd Asst. Stock Preparation Operator ...................... 12.75 13.13 13.59 Utility Operator Level 1 ........ 12.24 12.61 13.05 CONVERTING DEPARTMENT BRT Lines 1, 2, 3, 4 System Operator ................. 12.82 13.20 13.66 Training Level 2 ................ 12.14 12.50 12.94 Training Level 1 ................ 11.76 12.11 12.53 HHT Lines 1, 2, 3 System Operator ................. 13.14 13.53 14.00 Training Level 2 ................ 12.62 13.00 13.46 Training Level 1 ................ 11.95 12.31 12.74 FACIAL Facial System Operator .......... 12.72 13.10 13.56 Facial Training Level 2 ......... 12.09 12.45 12.89 Facial Training Level 1 ......... 11.87 12.23 12.66
28 30
NAPKIN LINES 1, 2 Napkin System Operator .......... 12.92 13.31 13.78 Napkin Training Level 1 ......... 12.41 12.78 13.23 INTERFOLDER Interfolder Sys. Operator ....... 12.20 12.57 13.01 Interfolder Train. Lev. 1 ....... 11.89 12.25 12.68 Interfolder Packer (non-progressive) ............. 11.80 12.15 12.58 NON-PROGRESSIVE Corrugated Printer Operator ..... 12.15 12.51 12.95 Core Machine Operator ........... 12.10 12.46 12.90 MAINTENANCE Per Hour Effective DEPARTMENT 12/4/95 9/17/97 9/17/98 Journey Maintenance ............. 13.01 13.40 13.87 Intermed. Maintenance "A" ....... 12.78 13.16 13.62 Intermed. Maintenance ........... 12.57 12.95 13.40 Junior Maintenance .............. 12.38 12.75 13.20 Maintenance Helper .............. 12.22 12.59 13.03 MATERIAL SUPPORT DEPARTMENT Poly Specialist ................. 12.35 12.72 13.17 Relief Poly Specialist .......... 12.35 12.72 13.17 Motor Operator .................. 12.35 12.72 13.17 Utility Motor ................... 12.07 12.43 12.87 DISTRIBUTION CENTER ULF Motor Operator .............. 12.45 12.82 13.27 Distribution Specialist/ Spotter Driver .................. 12.35 12.72 13.17 Distribution Specialist ......... 12.27 12.64 13.08
29 31
WASTE WATER TREATMENT/ INCINERATOR DEPARTMENT Waste Water Treatment Operator ................ 13.05 13.44 13.91 Incinerator Operator ............ 13.05 13.44 13.91 Incinerator Operator Relief ..... 12.27 12.64 13.08 Incinerator Helper .............. 11.95 12.31 12.74 Incinerator Helper Relief ....... 11.70 12.05 12.47 OPEN BID JOBS Relief Corrugated Printer Operator ................ 12.15 12.51 12.95 Core Machine Operator ........... 12.10 12.46 12.90 Stock Room Clerk ................ 12.02 12.38 12.81 Relief Stock Room Clerk ......... 12.02 12.38 12.81 Quality Assurance Clerk ......... 11.83 12.18 12.61 Relief Quality Assurance Clerk ................... 11.83 12.18 12.61 Bundler Operator ................ 11.67 12.02 12.44 Per Hour Effective MICELLANEOUS 12/4/95 9/17/97 9/17/98 Utility ......................... 11.62 11.97 12.39
B. Probationary employees will receive a rate of pay $2.00 per hour less than the job they are working. C. When new jobs are created (i.e., introduction of new machinery or equipment), or when significant changes are made in the duties and/or workload of existing jobs, the Company and the Union will meet within sixty (60) days from the date the request is received ,unless mutually agreed to extend the time limit, to negotiate the rate of the new job or the rate of the existing job that 30 32 has been substantially changed. If no agreement can be reached, the Company will set the job rate; but such rate may be subject to negotiations at the next general contract negotiations, and any change agreed upon at that time will be made retroactive to employees then on the payroll of the Company to such time as the Company and the Union shall agree. 1. Such changes are limited to those occurring during the term of the agreement. 2. Factors to be considered for a wage adjustment will be based upon the following criteria: Manual skills, mental skills, experience, physical effort, visual application, responsibility for materials, responsibility for tools and equipment, direction of others, responsibility for operations, safety of others, hazards, and working conditions. 3. Significant net increases in a majority of the above criteria will be required for consideration. Production will not be considered as a criteria for consideration for a wage adjustment. D. All employees will be paid for time spent in training on Company premises. E. 8-hour shift workers will receive a shift differential above the regular rate of pay for the job for the second (2nd) shift of thirty-five cents ($.35) per hour and for the third (3rd) shift of forty-six cents ($.46) per hour. 12-hour shift workers will receive a shift dif- 31 33 ferential pay adjustment above the regular rate of fifty-seven cents ($0.57) per hour for the job in lieu of a second shift differential. Non-shift employees who work two (2) hours or more beyond their regular quitting time will be paid shift differential for such overtime hours. F. Any 8-hour or 12-hour employee continuously engaged in work for the Company for a period of thirteen (13) hours or more will be furnished a meal, not to exceed four (4) dollars, at Company expense. G. All employees will be paid the rate of pay of the job when called into work in their own department from the layoff (call) list. H. Any employee assigned by the Company to a job in a department other than their own will be paid at the regular rate of pay of the assigned job. I. Employees holding bids on the relief positions described in Section 10, Paragraph D of this Agreement will be paid the rate of the relief job. J. A profit sharing plan, fully described under a separate document entitled "Profit Sharing Plan for Hourly Employees of UPIU Local 1448 at Ransom, and Pittston Township, Pennsylvania", will remain in effect for the duration of this Agreement. The specific terms of the plan are not negotiable and are 32 34 the sole responsibility of the Company. The Union will be notified of any changes after approval by the Company's Corporate Officers. A revised document entitled "Group Performance Plan" (GPP) became effective on January 1, 1994 and will remain in effect for the duration of this Agreement. The GPP includes both the aforementioned Profit Sharing Plan and a Performance Plan directed at paying hourly employees of the UPIU, Local 1448, for "unit" performance improvements in a number of selected plant operating categories. The specific terms of both plans are not negotiable and are the sole responsibility of the Company. The Union will be notified of any changes after approval by the Company's Corporate Officers. K. The Company will distribute payroll checks, if available, to all 8-hour shift employees working the 3-11 p.m. shift no later than 11:00 p.m. each Wednesday. All employees working the 12-hour shift scheduled on Wednesday, 7:00 am to 7:00 pm, will be given their paychecks before 7:00 pm. L. In the event Pope & Talbot Wis., Inc's Ransom, and Pittston Township, Pa. Mills are totally and permanently closed, affected employees will receive severance pay based on the following schedule:
Years of Service Severance Pay 3 Years but less than 5 Years.................. 1 Week @ 40 X Straight Time Rate
33 35
5 Years but less than 10 Years................ .2 Weeks @ 40 X Straight Time Rate 10 Years but less than 17 Years................ 3 Weeks @ 40 X Straight Time Rate 17 Years but less than 25 Years................ 4 Weeks @ 40 X Straight Time Rate 25 Years and over.............................. 5 Weeks @ 40 X Straight Time Rate
SECTION 9 Pension A. It is agreed that a Pension Plan and Trust Agreement providing for a Corporate Trustee shall be adopted with the Corporation accepting the responsibility to provide pension benefit levels in the amount of $20.00 per month multiplied by years of credited service effective November 1, 1995; $21.00 per month multiplied by years of credited service effective November 1, 1997; and $22.00 per month multiplied by years of credited service effective November 1, 1998. Employees retiring January 1st or after in any plan year will receive the new increase in that year. B. Employees will be credited for fractional benefits for months of service completed. 34 36 C. Employees with five (5) years of service will be 100% vested in the Pension Plan and Trust Agreement. D. Employees who qualify for early retirement may retire at age 62 without their pension being reduced. Employees who qualify for early retirement and elect to retire prior to age 62 will have their basic benefit reduced 1/2% per month for each month the benefit commences before age 65. Employees with ten (10) years of credited service who have reached age fifty-five (55) are qualified for early retirement. E. Life insurance in the amount of $2,000.00 will be provided for employees retiring at the age of 62 or thereafter. F. The Company agrees to furnish all employees an updated Pension Booklet, Life Insurance Policy and Medical Coverage Booklet(s) sixty (60) days following the ratification of the labor aqreement. SECTION 10 Seniority A. SENIORITY-GENERAL: 1. In the case of promotion, demotion, transfer, curtailment, layoff, increase in working force and decrease in working force, qualifications to perform the work and length of service 35 37 shall be the factors considered. When, in the judgement of management, all factors constituting qualifications are relatively equal, length of service shall prevail as provided for in this Agreement. 2. Qualifications will be determined on the basis of a review of the employee's record with the Company, including the ability, fitness, knowledge, training, experience and skill on one or more jobs that are necessary to satisfactorily discharge the duties and responsibilities of the job involved. B. JOB BIDDING-GENERAL: 1. Job bidding will be governed as follows: All bid job vacancies known to be permanent, existing on the entry level jobs in a line of progression or non-progression jobs listed under Paragraph I of this section shall be posted for a period of five (5) calendar days. An employee who is awarded a bid job shall be placed in their new position as soon as a qualified replacement for their former job is available or within thirty (30) calendar days from the date they are awarded the job, provided the transfer can be made without disruption to the vacation schedules. A list of bidders will be maintained by the Company in seniority order on any job posted for bid (including job preference and temporary bids) and such list will be utilized to fill vacancies on the given job for a period of six (6) months from the date the job was posted for bid 36 38 (including job preference and temporary bids) after which the job will be reposted for bid and the resulting list of bidders will be maintained for another six (6) months. 2. In the event that no bids are received on any bid job the Company will award the bid to the plant senior employee who does not hold a bid. For vacancies in the Paper Machines, only those employees who have elected to work in the Paper Machines will be awarded the bid. 3. An employee may, within the first seven (7) working days of his/her new assignment, decide to revert to their former position. When new equipment results in new job classifications being established, employees shall have fifteen (15) working days to decide to revert to their former position. After the new equipment/job classifications are in operation six (6) months, the seven (7) working day decision period applies. 4. Except as otherwise provided in Paragraphs B-6 and H-1 of this Section or in the Maintenance Program described in Section 24, an employee who bids into another department or who is assigned to a different job shall be considered to be on trial for thirty (30) working days, such limit may be extended by mutual agreement by the Company and the Union. In the event that an employee is found by the Company to be unsuited for the job at the termination of the trial period, he/she may be transferred back 37 39 to his/her original department and exercise his/her seniority in that department. An employee who is returned to his/her former job under this paragraph three (3) times shall be assigned by the Company to an open position the person is qualified to perform. 5. An employee assigned to another department shall retain and accumulate department seniority in his/her original department. On permanent bid jobs, seniority terminates in his/her former department and begins in the new department after completion of the thirty (30) day trial period. 6. In the event of any promotion to the job of Machine Tender or Back Tender, the employee so promoted shall be on probation for the period of three (3) months from the date of such promotion. For the first month of such probationary period, the employee's qualification for the job shall be decided solely by the Company, and in the event that the employee so promoted does not qualify to the satisfaction of the Company, he/she may be relieved of his/her job and thereupon shall exercise his/her seniority on the job held prior to his/her promotion. If the Company decides during the second two (2) months of such probationary period that such promoted employee is not qualified for the job, the employee may invoke the grievance procedure under this Agreement if he/she feels the Company's decision is unfair. Upon completion of the three (3) months probationary 38 40 period, his/her promotion shall become permanent. 7. Distribution/Material Support job openings for straight days, two shift operations and 12-hour shift operations will be awarded by preference polling, by department seniority. C. TEMPORARY JOB BIDDING: Temporary openings in bid job classifications which will be vacant for thirty (30) days or more shall be posted for bid. Bid holders may not be holders of a permanent bid position. Temporary bid holders will be scheduled where their ability and seniority will place them when not required on their bid jobs. Permanent bid job holders may withdraw from such positions to accept a Temporary bid job. 1. The Company will post Temporary 5th Hand positions for bid with the understanding that eligible bidders may not hold a permanent bid job. Temporary 5th Hand bid holders must accept permanent openings in such positions and will be utilized as needed on shift when available for vacation week(s) coverages and absence of the regular job holder. 2. In the event of a cut-back on the Paper Machine or Fiber Preparation Departments, employees who are on temporary promotions will revert back to their regular job. D. RELIEF JOB BIDDING: 39 41 1. Certain positions in the organization require that fully trained relief personnel be available for short-term replacement of the personnel holding those positions full time. These relief positions will be posted, open for bid by personnel already holding a bid position. When necessary, the personnel holding these relief positions will be scheduled into the position and their primary job will be filled by other personnel according to the procedures in this agreement. 2. Personnel holding permanent bids will be returned to their permanent bid positions when not utilized in the relief positions. Personnel not holding permanent bids will be assigned where their seniority and skills will place them when not utilized in the relief positions. 3. The following positions will be posted jobs: Relief Corrugated Printer Operator, Relief Stockroom Clerk, Relief Sample Person, Relief Incinerator Helper, Relief Incinerator Operator, and Relief Poly Specialist. (Note: The positions of Relief Stock Room Clerk and Relief Sample Clerk are to be re-bid) 4. Personnel will be selected from those signing the posting(s), first by department seniority, then by plantwide seniority if no personnel with department seniority sign the posting or if any personnel with department seniority cannot perform the duties of the job. If the successful bidder was chosen by plantwide 40 42 seniority, the seniority in the department of the relief position will begin for the successful bidder on the closing date of the posting. 5. Personnel successfully bidding into these positions will be designated fill-ins when necessary and must move into the permanent position when the permanent vacancy arises, based upon their seniority in the relief position. E. JOB CLASSIFICATION CHANGE: 1. If a job classification in an established line of progression, is removed and placed in a different established line of progression, in the same or a different department, an eligible employee with established seniority, occupying the job classification at the time the change occurs, will be given an opportunity to move with the job classification to the position in which it is placed in another line, with his/her established department seniority from the former line, and may exercise such seniority in the line in which the job is placed under paragraph "a" below: a. When a job opening occurs in other succeeding job classifications in an established line of progression in which an employee has established seniority, eligible employees in the qualifying job classification will be considered for such openings on the basis of qualifications and length of service. 41 43 2. If a job classification not in an established line of progression is removed from the department and placed in an established line of progression, an eligible employee with established seniority, occupying the job classification at the time the change occurs, will be given an opportunity to move with the job classification to the position in which it is placed in the line, with his /her established department seniority from the former department, and may exercise such seniority in the line of progression, in which the job is placed under paragraph "a" below: a. When a job opening occurs in other succeeding job classifications in an established line of progression in which an employee has established seniority, eligible employees in the qualifying job classification will be considered for such openings on the basis of qualifications and length of service . 3. If a job classification not in an established line of progression is removed from the department and placed in a different department, an eligible employee with established seniority, occupying the job classification at the time the change occurs, will be given an opportunity to move with the job classification to the position, with his/her established department seniority from the former department. 4. If an established job classification is eliminated and removed from an established job progression line, an eligible senior employee 42 44 in the line may exercise his/her seniority as follows: a. When curtailment occurs in a line of progression in the department, an employee with established seniority in the line being curtailed will come back down the line through each job classification in the reverse order of promotion. b. An employee curtailed from an established line of progression who cannot retain a position in that line of progression shall have the opportunity to exercise his/her department seniority to retain an entry level job classification in all other lines of progression within his/her department. c. An employee curtailed from an established line of progression who cannot retain a position in his/her department as outlined above under paragraph 2-b, shall have the opportunity to exercise his/her plant seniority to retain an entry level job classification in all other lines of progression or non progression jobs where qualified in all other departments. d. An employee curtailed from an established line of progression can exercise his/her plant seniority to retain a position on the lay off (Call List) list. e. Employees permanently curtailed to the lay off (Call List) status from a line of progression will retain first recall rights to 43 45 that line of progression in the same order as they were curtailed until the employee accepts a job bid and completes the probationary period. f. If a job elimination occurs during the employee's first year on the job, the employee will be allowed to return to his/her former bid job and position. Department seniority will be credited to the employee for the time spent on the eliminated job. g. Employees not willing to move upward in a line of progression may not remain in that line of progression. It is understood that this provision does not apply to those employees currently "frozen." In training for jobs in a line of progression, there will be no trading of positions. 5. In the event of an elimination of a job classification not in a line of progression, the affected employee can exercise his/her department seniority to retain a position in an entry level position in their department. F. CURTAILMENT: 1. Reductions of working force within an existing department shall be done for the duration of the work week or three (3) days whichever is greater. 2. Employees unable to work in their own 44 46 department shall not exercise plant seniority for such duration of the work week or any layoff, of less than three (3) days. Plant seniority will prevail on the entry level job in the various departments to the extent of allowing the plant senior employees to work. 3. If a piece of Converting equipment is shut down for one (1) or more shifts, it will be the Company's option to: a. Assign other work to the affected employees and continue to maintain their classified regular rate of pay or; b. The affected employees will be allowed to exercise their departmental seniority by replacing on their shift the junior employees in the entry level job in any progression line in the department on their shift and will be paid the regular rate of pay for that job. 4. In the event of a shutdown on either machine or both, the crews of the affected machine or machines shall not exercise departmental or plant seniority for the duration of the work week or three (3) days, whichever is greater, except upon an announcement by the Company of a shutdown of undetermined duration in which case seniority may be exercised on the work day immediately following such announcement. Fiber Preparation Department shall be subject to the same provisions as those specified for the Paper 45 47 Machines. The employees of the Paper Machine and Fiber Preparation Departments shall receive their regular rate of pay for shutdown work performed in their own department or any other work performed at the specific request of the Company. 5. In the event of a permanent curtailment (reduction in force), affected employees who cannot retain a job either in their line of progression, or if not in a line of progression, within their department, shall exercise their plant seniority to retain an entry level job classification in all other departments. Affected employees who cannot retain an entry level job classification (above) shall be assigned to the lay off (Call list) list. G. LAYOFF: 1. Employees who are laid off will only retain recall rights for a period of eighteen (18) months. 2. The terms Lay-off list, Call list, and Call board are intended to have the same meaning and are used synonymously throughout the labor agreement. H. MISCELLANEOUS: 1. Any bargaining unit employee who is promoted to a supervisory position shall be considered to be on trial in that position for a period of four (4) months while a thirty (30) working day trial period will apply on any 46 48 other non bargaining unit position. 2. Employees shall suffer no loss of seniority for loss of time due to any disablement incurred in the performance of their duties for the Company. 3. Any promotion except a permanent position or a temporary vacancy known to exceed thirty (30) days is to be made within the employee's shift without moving the employee from one shift to another. Shift promotions will be made on all shifts on all jobs, whenever qualified employees are available, except in cases of coverage for various Union Committee meetings with the Company. 4. The parties agree that management shall have the right to add jobs, change jobs, change progression ladders or eliminate jobs. It is understood by the parties that the Company shall meet and discuss with the Union Committee the establishment, modification, or elimination of lines of progression at least thirty (30) days prior to the planned action. I. LINES OF PROGRESSION: 1. The normal line of progression for each department is shown below, with each succeeding job listed in the order of importance. (Note: bold indicates entry level position for bumping applications...and * indicates bid position.) 47 49
RANSOM: - ------- PAPER MACHINES DEPARTMENT: No. 3 Paper Machine No. 4 Paper Machine - ------------------- ------------------- Machine Tender Machine Tender Back Tender Back Tender Third Hand Third Hand Fourth Hand Fouth Hand Temporary Fifth Hand* FIBER PREPARATION DEPT. RANSOM MAINT. DEPT. - ----------------------- ------------------- Stock Preparation Operator Journey Maintenance First Assistant Stock Prep Oper. Intermediate Maintenance A Second Assistant Stock Prep Oper. Intermediate Maintenance Utility Operator-Level 1* Junior Maintenance Maintenance Helper* WASTE WATER TREATMENT INCINERATOR DEPARTMENT: - --------------------------------------------- Waste Water Treatment Operator Incinerator Operator Incinerator Operator Relief* Incinerator Helper Incinerator Helper Relief* CONVERTING & DISTRIBUTION CENTER: - --------------------------------- CONVERTING DEPARTMENT: - ----------------------
48 50
HHT LINES: 1 2 3 - - - - System Operator System Operator System Operator Training Level 2 Training Level 2 Training Level 2 Training Level 1* Training Level 1* Training Level 1* BRT LINES: 1 2 - - - System Operator System Operator Training Level 2 Training Level 2 Training Level 1* Training Level 1* 3 4 - - - System Operator System Operator Training Level 2 Training Level 2 Training Level 1* Training Level 1* NAPKIN LINES: 1 2 - - - Systems Operator Systems Operator Training Level 1* Training Level 1* FACIAL LINES: 1 2 (Interfolder) - - --------------- Systems Operator Systems Operator
49 51 Training Level 2 Training Level 1* Training Level 1* Packer (non-progressive)*
MISCELLANEOUS POSITIONS: Stock Room Clerk Quality Assurance Clerk Relief Stock Room Clerk* Relief Quality Assurance Clerk* NON-PROGRESSIVE POSITIONS: (all bid jobs*) Core Machine Operator Bundler Operator Corrugated Printer Operator Relief Corrugated Printer Operator Interfold Packer Utility (Note: position of "Utility" listed as reference only; position is not normally filled) DISTRIBUTION CENTER DEPARTMENT: ULF Motor Operator Distribution Specialist/Spotter Driver Distribution Specialist* CDC MAINT. DEPARTMENT Journey Maintenance Intermediate Maintenance A Intermediate Maintenance Junior Maintenance Maintenance Helper* MATERIALS SUPPORT DEPARTMENT Motor Operator* Poly Specialist 50 52 Relief Poly Specialist* NOTE THAT, THE REORGANIZATION OF THE LANGUAGE IS NOT INTENDED TO CHANGE THE INTENT OF THE LANGUAGE. - ---------- Note: Only One QA Clerk Position Is Open For Bumping. J. Any employee returning to work from an unauthorized absence shall have the right to submit a bid, within seventy-two (72) hours from the employee's return to work, on any job posted during the employee's absence up to thirty (30) days from the date of return to work. SECTION 11 Wire and Felt Time A. Wire changes are to be handled as follows: 1. #3 Paper Machine - Three (3) full paper machine crews (12 people) are to be used for putting on wires. Full 42 paper machine crew is defined as Machine Tender, Back Tender, Third Hand, and Fourth Hand. If full crews are not available for the wire change, then off shift, then days off crew members of #4 machine are to be called in utilizing the "extra wire" rotation list. 2. #4 Paper Machine - Three (3) full paper machine crews (12 people) are to be used for putting on wires. Full paper machine crew is defined as Machine Tender, Back Tender, Third Hand, and Fourth Hand. If full crews are not available for the scheduled wire change, then off shift, then days off crew members of #3 51 53 machine are to be called utilizing the "extra wire" rotation list. 3. Fiber Preparation employees on duty shall be used if employees are still needed after calling in all off duty crew members of both paper machines. 4. When employees are called in or stay in after their regular hours, they will receive six (6) hours pay for putting on the wire. This is with the expectation that the employees will be available for work during the entire time of putting on the wire. Should they only be available for part of the time, they shall be compensated proportionately. 5. Any employee covering any of the major jobs in either mill is not entitled to wire time during the wire change. This applies to regular and overtime hours. 6. If part of the wire change time comes within a worker's regular shift, it is not intended that he or she shall draw both their regular pay and their wire allowance pay for the same hours worked. 7. Call in details: a. Who to Call Off shift by seniority and rotation. Days off by seniority and rotation. b. When making calls for clothing changes, the promo 43 tion book will be utilized. c. After a holiday shutdown where there has been no scheduled production, paper machine department schedule will be utilized to call in crew members (off shift, then days off) for a clothing change. d. The following will not be eligible for the 52 54 clothing changes: anyone on restricted duty, people who have requested the day off (vacation or off with permission) defined from 7:00 a.m. that day to 7:00 a.m. the following day and 5th hands. B. Felt changes are to be handled as follows: 1. Felt time will apply whenever a whole felt is removed from the paper machine. 2. The following number of Paper Machine employees will be used for a felt: a. #3 pick-up: 8 b. #4 wet felt: 6 c. #4 pick-up: 8 Off shift, then days off crew members on the machine scheduled for the felt will be called in as needed to "fill-in" by seniority and by shift. In the event the full crew list has been exhausted for the paper machines scheduled for the felt change, then the off shift, then days off crew members from the other paper machine will be utilized by shift and seniority as described in paragraph A, Item #7. 3. When employees are called in or held in after their regular hours for the purpose of putting on a felt or felts, they shall be paid as follows: a. Six (6) hours at their regular rate of pay for a wet felt or time and one-half (1-1/2x), whichever is greater. b. Seven (7) hours at their regular rate of pay for a pickup felt or time and one-half (1-1/2x), whichever is greater. 53 55 This is with the expectation that the employees will be available for work during the entire time of putting on the felt. Should they only be available for part of the time, they shall be compensated proportionately. 4. If the felt or felts are changed on Saturday or Sunday, the above premiums will be paid at the rate of time and one-half (1-1/2x) or double time (2x) respectively. 5. Any employee covering positions on the machine scheduled for the felt is not entitled to felt time during the felt change. This provision applies to regular and overtime hours. 6. In the event that the felt or felts are changed so that the change occurs on a split shift, employees will be paid proportionately. 7. Felt time begins when the felt is ready to be put on the machine and does not include shrinkage. C. When employees are requested to report for a wire or felt change at a specific time and are unable to begin said wire or felt change, they shall be paid one and one-half (1-1/2x) times their regular rate of pay for such waiting time, except Sunday when double time (2x) will apply. D. These wire and felt time allowances are not to be credited against other overtime provisions nor is it intended to deny the workers the benefit of any other overtime provisions. SECTION 12 54 56 Reporting Time A. Any employee who reports for work on his or her regular shift when required to do so or has received less than two (2) hours notification in the usual manner, not to report for work, shall receive four (4) hours at his or her regular rate of pay if there is not work for him or her. B. If the employee so reporting is put to work, he or she shall be paid for a full day, provided he or she is available for a full day's work; this shall also apply to an employee who has been laid off due to lack of work. C. Shop Stewards, or any Union member in the event no Shop Steward is available, will be called upon to substantiate the Company's unsuccessful efforts to notify an employee of any change in their daily work routine. SECTION 13 Call Time A. When an employee is called in at a time other than his or her regular working hours, he or she shall be paid time and one-half (1-1/2) his or her regular rate of pay if off for the day with the Company's permission, or if the employee already worked his or her regular hours; but only his or her regular rate of pay if off due to layoff, lack of work or other causes; with a guarantee pay in any event equivalent to at least four (4) hours time at his or her regular rate of pay; six (6) hours on Saturday and eight (8) hours on Sunday. If, 55 57 while calling in employees, an employee is not at home but can be contacted, that employee may return the call to the Company if she/he desires the work. If the return call is received prior to the position(s) being filled, that employee will be used to fill the position(s). B. This call time provision shall not apply to the call-in of a Facial Machine Operator at any time within one-half (1/2) hour prior to the regular starting time. Where such operator is so called in, such operator shall be paid the daily premium as provided herein for hours worked other than his or her regular working hours. C. When a maintenance employee is called in at a time other than their regular working hours for the purpose of doing a specific job or related jobs to maintain operations of the equipment, it is not the intention of the Company to assign work to him or her, on any other additional unrelated job(s) except in an emergency. The senior employee will be assigned to the emergency while the next person on the rotation will fill the original call. This does not apply to the case of any employee called in as an addition to the work force or for the purpose of filling the job of an absence. D. If maintenance personnel are needed and are called in on a Saturday, Sunday or Holiday before 7:00 a.m. and they show an effort to arrive as quickly as possible but no later than 56 58 6:30 a.m., the company will pay four (4) hours call time until 7:00 a.m. After 7:00 a.m., the pay rate will be the rate of pay they would normally receive for the day according to the provision of this agreement. SECTION 14 Cessation of Work A. It is agreed that there shall be no strikes, walkouts, lockouts, stoppage of work, slowdown or curtailment of production or other similar interruption of work during the period of this Agreement. B. The United Paperworkers International Union and Ransom/Pittston Township Local No. 1448 agree that neither of them will, during the term of this Agreement, authorize any strikes. It being understood and agreed that any strike not expressly authorized by the Union, in accordance with the United Paperworkers International Constitution, By-Laws, Standing Rules and General Laws, shall be deemed for all purposes, an unauthorized strike, for which there shall be no financial liability on the part of the United Paperworkers International Union and Ransom, and Pittston Township, Local No. 1448 or officers thereof. C. In the event of an unauthorized strike, walkout, stoppage of work, slowdown or curtailment of production or other similar interruption of work during the period of this Agreement, the United Paperworkers 57 59 International Union and the Ransom, and Pittston Township, Local No. 1448 will endeavor to secure the immediate return of the strikers to work. In case of any unauthorized strike, walkout, stoppage of work, slowdown or curtailment of production or other similar interruption of work during the period of this Agreement, the employer may impose disciplinary measures involving loss of seniority, or loss of vacation pay, or suspension from work, or may discharge the employee involved in such unauthorized acts. SECTION 15 Grievance Procedure A. The Union Grievance Committee shall be composed of six (6) members, plus the President of Ransom, and Pittston Township, Local No. 1448. B. The Company agrees to give the President of Local No. 1448, Shop Stewards and employees such time off with pay, as may be necessary for the handling of grievances and for the transaction of Union business with the Company, providing this privilege is used with discretion. C. A Shop Steward or President of Local No. 1448 shall not absent themselves from his or her place of work to visit other parts of the plant or department without permission of his or her Supervisor or Superintendent; any reasonable request shall be granted by the Supervisor or 48 Superintendent. 58 60 The President of Local No. 1448 or any Union official shall, upon entering a department, report to the Supervisor or Superintendent of the department of his or her representative, and advise him or her of his or her business. D. Supervisors will confer with the Shop Steward on problems arising within a department in an endeavor to resolve such problems, to the extent of their ability. E. Grievances are to be handled according to the following steps: 1. The employee and Shop Steward shall refer any complaint to the proper Supervisor and if at the end of twenty four (24) hours, the employee receives no satisfaction he or she shall file a formal, written grievance. Such formal grievance must be filed with the Company no later than five (5) working days after the cause for such complaint has occurred. 2. If the grievance is not resolved at the end of five (5) working days after the same is filed with the Company, the Union Grievance Committee shall meet with the Department Head involved to effect a resolution of the grievance. The immediate Supervisor may be designated to attend this meeting as desired by the Department Head. 59 61 3. If the grievance is not settled at the end of the three (3) working days from the meeting referred to in Step #2, the Human Resources Manager and Department Head shall meet with the Union Grievance Committee. 4. If the grievance is not settled in Step #3, the Plant Manager and Employee Relations Manager shall meet with the Union Grievance Committee and the representative of the International Union within one (1) week or as soon as possible. 5. If the grievance is not settled as outlined in Step #4, the matter shall be submitted to the Union body at their next regularly scheduled monthly meeting for their decision as to whether the question is to be submitted to arbitration as hereinafter described. Such decision by the Union body must be relayed to the Company no later than five (5) days from the time the decision has been made. Then at the discretion of either party to the Labor Agreement, the grievance may be submitted for arbitration. 6. Arbitration shall be conducted by a sole arbitrator who shall be selected by both parties to the Labor Agreement, under the then current Voluntary Labor Arbitration rules of the American Arbitration Association. All necessary expenses of the sole arbitrator shall be shared equally by the Company and the Union. The arbitra- 60 62 tor's decision shall be final and binding upon both parties. 7. Both parties may reject the first panel of arbitrators and request a second panel within ten (10) days after receipt of the first panel. Each party may strike one (1) name from the second panel until the arbitrator is chosen; this procedure must be accomplished within fifteen (15) working days. The arbitrator shall render his decision within a forty-five (45) day period from the date of the hearing. It is mutually agreed that there shall be no extension of the time limits in this procedure. 8. The arbitrator must render a decision within the scope and terms of this Agreement and only on interpretation and application of the provisions herein. 9. It is understood that only two (2) issues may be arbitrated on a given day by a given arbitrator. F. The Company will endeavor to cooperate with the Union in granting reasonable requests for time off without pay, for Union business providing this privilege is used with discretion. G. Employees serving on the Grievance Committee and Safety Committee shall be paid their regular rate of pay for all time spent in conference with the Company. 61 63 H. The time limits in the steps listed above are understood to be with the exclusion of Saturdays, Sundays, Holidays, and non-operating days. I. It is understood that the Grievance and Negotiating Committees shall be composed of not more than seven (7) bargaining unit employees. SECTION 16 Permission to Enter Plant A. The duly authorized officers of the Union shall be permitted to enter the Company's premises for the purpose of adjusting complaints or ascertaining whether this Agreement is being performed, provided however, that they shall in no way interfere with the continuation of the Company's business; and provided that such authorized representative of the Union shall, before seeking admission to any part of the Company's premises, first report to the office of the Company for permission. B. Employees not on duty who have not been called for work shall also report to the Company office before seeking admission to the Company's plant. SECTION 17 Sick Leave A. Any employee who shall become ill, excluding Occupational Sickness or Accident, and whose claim of illness is supported by satisfactory evidence, shall be granted sick leave of 62 64 absence automatically up to a period of nine (9) months without pay. Such leave of absence may be extended by mutual agreement between the Company and the Union and seniority shall accumulate during the leave. B. Maternity leaves shall be subject to the same limitations as outlined for sick leave. C. It is understood that the absences referred to in the foregoing will be based on acceptable medical certification as submitted to the Company by the attending physician. SECTION 18 Industrial Leave A. It is agreed that Worker's Compensation benefits will be paid beginning on the fourth (4th) day of absence due to an industrial injury. The first three (3) days will be paid providing such absence is of more than seven (7) days in duration. It is further agreed that if such absence is of fourteen (14) days or more in duration, the affected employee will sign over to the Company those compensation benefits which would be paid by the Worker's Compensation insurance carrier covering the first (lst) week of compensable absence. 1. It is understood that the absences referred to in the foregoing will be based on acceptable medical certification as submitted to the Company by the attending physician. 63 65 2. The Company will keep the normal Company paid benefits in force for up to twelve (12) months following the date of disability for employees eligible and receiving Worker's Compensation benefits. B. When it becomes necessary for an industrial injured employee to undergo follow-up treatment or therapy by the attending physician or therapist during scheduled work hours, such employee will be compensated for work time lost up to a maximum of eight (8) hours per day. The employee must schedule such appointments before or after working hours if possible, however, the Company will verify such appointments and schedule the time before or after working hours whenever possible. C. Any industrially injured employee returning to work and unable to perform their regular duties must be able to assume the duties within thirty (30) days, of a job on which a bid has been submitted. D. The Ransom, and Pittston Township, Light Duty program is designed for employees who suffer an injury or illness on the job. Employment is provided for an employee who has suffered a lost time incident or maintained for an employee who has not suffered a lost time incident, by matching an employee's medical restrictions with existing work needs in the operation as follows: 1. Medical restrictions will be determined by 64 66 a physician. 2. For maintaining employment for an employee who has not suffered a lost time incident, a meeting will be held with the employee, a Union Official, and a Company Official. For returning employees to work following a lost time incident, a meeting will be held with the employee, the available Union Committee, Safety Supervisor, and Department Manager or Superintendent. The employee's medical restrictions will be reviewed to ensure that no employee is assigned work that is in conflict with the medical restrictions. The employees will be informed of their work hours, work responsibilities and related issues (i.e., time clock procedures) at this meeting. 3. Employees working under this program will stay in the department where injured. If work is not available in an employee's department, the employee may be assigned to another department. Employee's assigned light duty to his or her regular bid job will be carried as an extra. 4. Employees working under this program should rotate with their shift in both 3 and 4 crewing applications. They should keep the highest rate of pay. Employees who are able to make the Saturday or Sunday schedule will be brought in. Employees on-call under this program will be contacted for the day. 65 67 SECTION 19 General Leave A. An employee who has a legitimate reason and requests time off by giving a minimum of five (5) days advance notice in writing to the Company, will be granted the time off provided qualified replacements are available to perform his or her job. B. The Company recognizes that occasional emergency or unpredictable situations arise in which employees require additional time off. As an hourly employee you may request an unpaid leave of absence (typically not to exceed thirty (30) days). This type of leave of absence will be evaluated and granted at the discretion of the department/plant manager based on: 1. Management's determination of whether the reason given for the request is legitimate. 2. The economic impact that would result if a leave was granted. 3. The conditions which led up to the request are out of the individual's control. 4. Where Federal and State laws mandate the Company to grant the time off (example: Family & Medical Leave Act...FMLA). This type of leave is intended to be taken after all accrued vacation time is exhausted and employees will be required to pay their employee benefit plan premium costs 66 68 during the leave of absence. Employees who desire to apply for this type of leave of absence should do so in writing at least five (5) days in advance of the first day requested off. Exceptions to the above under FMLA are: (1) eligibility; (2) employees must ordinarily provide 30 days advance notice when the leave is "foreseeable;" (3) all paid leave applications shall be applied (substituted) to the leave request; (4) for the duration of the FMLA leave, the Company will maintain the employee's health coverage; and (5) the FMLA leave will not result in the loss of any employment benefit that accrued prior to the start of the employee's leave. SECTION 20 Health and Welfare Benefits A. 1. All costs in connection with the Blue Cross/Blue Shield Hospital, Surgical, and Major Medical Plans, Life Insurance, Dental Insurance, and Sick and Accident Benefits, within the limitations of the policies, shall be borne by the Company. Employees on the payroll may select one of the two options listed below: Option #1 Employees may elect to be covered under the Blue Cross/Blue Shield Comprehensive Medical Plan with the understanding that such Plan will be 67 69 provided at no premium cost to the employee. Once an employee elects to take the Comprehensive Medical Plan, such employee will not be allowed to return to the existing Medical Plan. Option #2 Employees may elect to be covered under the existing Blue Cross/Blue Shield Major Medical Plan with the understanding that such employees will contribute fifty percent (50%) of any future increases in premium over that being paid by the Company. If premiums decrease in the future, employee contributions will be reduced by fifty percent (50%) of the decrease. Increases or decreases in the premium will be certified in writing by Blue Cross/Blue Shield. Copies of these certifications will be given to the Union and affected employees. Employees contributions will be made through four (4), equal, weekly payroll deductions each month. Employees may, on the 1st of any month, decide to elect Option #1. 2. It is mutually agreed that the group insurance program is to be utilized only as intended and that both parties will actively engage in combating any abuse thereof. Employees must have 120 calendar days of service prior to being eligible for the above group insurance coverage. 68 70 B. Any employee hired on or after December 4, 1995 and who subsequently becomes eligible for medical benefits may elect either Option #1 or Option #2. C. The Company's portion of a laid off employee's health and welfare benefits will be paid by the Company for a period of twelve (12) months following the month in which she/he is laid off. Following this, COBRA would apply. D. Health and Welfare benefits are as described in the plan booklets and endorsements. 1. Effective December 4, 1995 a. Life & AD&D --$22,500. b. Weekly Sickness & Accident -- $250.00 (28 week maximum) 2. Effective September 17, 1996 a. Life & AD&D -- $22,500. b. Weekly Sickness & Accident -- $260.00 (28 week maximum) 3. Effective September 17, 1997 a. Life & AD&D -- $22,500. b. Weekly Sickness & Accident -- $270.00 (28 week maximum) 4. Effective September 17, 1998 a. Life & AD&D -- $22,500. b. Weekly Sickness & Accident -- $280.00 (28 week maximum) E. A Blue Shield Dental Program is provided as follows: 1. Basic plan plus prosthetic rider for employees and dependents with Basic Plan reimbursement at 80/20 and prosthetic reim- 69 71 bursement at 80%. Reimbursements will be limited to $1,000.00 maximum per individual per year. Employees must have six (6) months or more of service prior to being eligible for Dental Program coverage. 2. Oral Surgery at 80/20 Co-Insurance. 3. Orthodontic coverage at 50% of the charge to the maximum of $800.00 per lifetime for children under age 19. 4. Periodontal coverage at 80/20 Co-Insurance. F. Penn Vision II Option 2 coverage will remain in effect for the duration of the agreement. G. Blue Cross/Blue Shield of Northeastern Pennsylvania will be maintained as the group health and dental carrier for the duration of this Agreement unless the Company and the Union mutually agree to change to a provider that offers the same or better coverage. SECTION 21 Funeral Leave A. In the event of a death of an employee's immediate family, i.e., mother or father, husband or wife, brother or sister, son or daughter, mother-in-law or father-in-law, brother-in law or sister-in-law, grandchildren, grandparents, son-in law, or daughter-in-law, employees shall receive immediately following such death and upon request a maximum of four (4) consecutive days funeral leave. During this four (4) consecutive day funeral leave employee's will be paid their regular rate of pay. 70 72 Employees must work at least one (1) day during the week in which the death occurs to be eligible for death leave except where serious illness of an employee, not on sick leave, or serious illness or death in the employee's family precludes such employee from reporting on his or her scheduled job. B. Death Leave will be paid at the rate of time and one-half (1-1/2) for Saturday and double time for Sunday to those employees who, ordinarily would have been scheduled to work such days. C. It is understood that employees are not to receive death leave pay if they elect to work in lieu of time off. Employees must provide proof of death when so requested by the Company. SECTION 22 Jury Duty A. The Company agrees to pay the difference between the employee's regular rate of pay and jury duty pay, based on acceptable proof, to any scheduled employee who is called to serve on jury duty. SECTION 23 Miscellaneous A. Labor-Management Meetings: It is agreed that there will be a Labor/Management Good Will Meeting once a month. These meetings will be held on a day mutually agreed upon. 71 73 B. It is agreed that there will be a joint Labor/Management Safety Committee which will meet once a month. C. Bid Notices and Award Notices: The Company agrees to furnish the President of Ransom and Pittston Township Local No. 1448 with copies of bid notices and bid award notices. A Union Officer will be notified of discharge cases as soon as practicable. The Union will be furnished a copy of all current bargaining unit jobs. D. Union Negotiating Committee: The Company agrees to pay the Union Negotiating Committee eight (8) hours pay per day at their straight time hourly rate for each day, including Saturdays, Sundays, and Holidays, of Labor Agreement negotiations up to a maximum one hundred twelve (112) hours of pay. E. There shall be no discrimination against any bargaining unit employee on account of race, color, religion, sex, age, disability, national origin, or veteran status. Any provision of this Agreement or practice or custom to the contrary shall be null and void. F. Whenever the male pronoun is used in this contract, it may include the female pronoun if appropriate thereto; and whenever the singular is used it may include the plural if appropriate thereto. 72 74 G. The Company will continue its present practice regarding major construction, major work repair, and installation of equipment. It is the Company's desire and intention to award as much maintenance work as possible to Local #1448, United Paperworkers International Union. It is agreed that no maintenance work normally performed by Maintenance Department employees after the ratification of this contract (and resulting maintenance position reductions) will be done within the plant by outside contracting services until all factors (below) have been carefully considered (including but not limited to). It is recognized by the Union and the Company that during times of peak work loads, beyond the capabilities of a normal size maintenance crew to absorb, it may be necessary to supplement the maintenance effort with outside contractors or other source of labor as dictated by the circumstances and economics of the situation. 1. Time availability of required skills and personnel within the appropriate department. 2. The timely availability of necessary tools and equipment. 3. The time limits within which the work must be completed. 4. Availability of related services. 5. The continuity of plant operations while the work is being performed. 6. Pertinent cost factors. 73 75 The above understandings supersede all supplemental agreements, position statements, prior understandings either written or oral, grievance answers, arbitration awards, or any other source related to the contracting out of work. H. Shift changes will be permitted within reason providing the privilege is not abused and with such shift changes to be confined between employees on the same production unit and of the same job classification. A shift change request of an entry level employee who is being trained on a higher classification will only be permitted with another entry level employee who is also being trained on the same higher classified job. The Company will make a good faith effort to grant shift trades. I. The Company will furnish specialized tools as required and will reimburse employees for tools broken on the job. Basic operating tools will be supplied by equipment operators. Basic operating tools include adjustable wrenches, screwdrivers, and drive socket set (1/2" or 3/8"). Maintenance is required to possess a basic tool set consisting of: set of combination wrenches (1/4" to 1-1/4"), allen wrenches, ball peen hammer, screw drivers, assorted pliers, 8" and 14" pipe wrenches, punches & chisels, combination steel square and centering head, feeler gauges, 6" and 2' levels, and 1/2" and 3/8" drive socket sets. 74 76 J. A Union Officer or Steward may attend a Labor-Management Counseling Meeting on their own time, if so requested by an hourly employee or employees. A Union Officer or Steward who is requested to attend the meeting during their shift will be paid for time spent in the meeting. K. The Company will provide glass enclosed bulletin boards for the posting of Union notices. L. It is not the intent of the Company to deprive bargaining unit employees of wages by having supervisors perform work usually done by bargaining unit employees. No supervisors will perform bargaining unit work except that which is necessary in instructing employees in the operation of the work or in case of emergencies. M. Air conditioning and smoke eaters will be provided in the existing cafeteria facilities. N. A copy of the Supervisor's Industrial Accident report will be distributed to a Union Representative during the Monthly Safety Meeting. O. Break areas, vending machine areas, and rest room facilities will remain open at all times. P. Fans will be provided on all production units. Q. Labor/Management meetings will be scheduled within the time required for the Agenda. 75 77 R. Employees covered by this Labor Agreement will not be sent to outside warehouses not covered by this agreement. S. The Company may hire full time college students as summer temporary help. These employees will be covered by this agreement except the provisions of Article 10 -- Seniority will not apply. Their employment will begin no earlier than May 1st, and will terminate no later than September 15th of each year unless the Company and the Union mutually agree to an extension. SECTION 24 Maintenance Program A. Only employees in the following Maintenance crews are subject to the provisions of this Maintenance Program: Mechanics, and Electricians. The title "Maintenance" or the term "Maintenance Crew" will include Mechanics and Electrical classifications. 1. If a maintenance employee at any level of one trade (either Mechanical or Electrical) begins training in the other trade, his or her department seniority will become the date the training begins and will revert to the date held previously when the Journeyperson level in the new trade is achieved. 2. When a permanent vacancy in either work 76 78 location (CDC or Plant 1) occurs, maintenance employees in the affected work location will be polled by department seniority to fill the opening. Subsequent openings following the initial vacancy in question will be filled by polling the affected work location maintenance employees. In the event that the final vacancy in this sequence is not filled, employees from the other work location will be polled by department seniority. In the event that the vacancy is not filled, Paragraph G will be applied. 3. Vacation relief, sick leave, and industrial leave for shift maintenance employees will be handled by polling employees at the affected work location (CDC or Plant 1) by department seniority and qualifications to cover the open shift. If there are no volunteers the junior qualified employee at the work location where the vacancy occurred will be required to fill the vacancy. If no junior qualified employees at the affected work location are available, the junior qualified employee at the other work location will be required to fill the vacancy. 4. In the case of emergencies, the available qualified employee may be transferred from one Department to the other to assist with the emergency. B. The following are the grades of Maintenance employees and helpers: 77 79 Journey Maintenance Intermediate Maintenance "A" Intermediate Maintenance Junior Maintenance Maintenance Helper A Journey Maintenance employee is one who is a finished Mechanic, or Electrician and has the necessary tools required. In general, in the case of Ransom Maintenance, he or she is a man or woman who could qualify as a Journey Worker in any Industrial Job Shop. In the case of CDC Maintenance, he or she is a man or woman who could qualify as a Converting Journeyperson in a recognized tissue industry converting facility. He or she must be able to execute the necessary work without direct supervision from his or her supervisor. C. The Company will select the Maintenance Helpers on its Maintenance crew through a testing procedure administered by the State Bureau of Employment Security for Mechanical Aptitude. Each person selected for the Maintenance crew shall indicate his or her desire to become Journey Maintenance and shall indicate his or her desire in writing, on a form provided by the Company as soon as he or she has completed his or her probationary period, to start taking courses or other schooling approved by the Company to acquire such mathematical knowledge, blueprint reading ability and other related subjects as are required to reach Journey Maintenance status. Upon enrollment in such 78 80 courses or schooling with additional 50% for the cost of such courses or schooling with additional 50% to be paid upon completion and passing of said courses or schooling. D. An applicant transferred to the job of Maintenance Helper, who has temporarily worked with the Maintenance crew for continuous periods of two (2) or more forty (40) hour weeks, will be credited with all such periods up to the total time requirement for promotion to Junior Maintenance. During the first three (3) months after an applicant has been regularly assigned to a Maintenance Helper's Job, he or she will be classified as probationary on that crew and he or she can be removed from the crew at any time during the period. Prior to removal from the crew of any such probationary Maintenance Helper because of his or her performance, Management will notify the Union standing committee of the intended action and the justification thereof. If the standing committee considers the proposed removal unjustified, it may take the matter up with the Engineering and Maintenance Management, whose decision shall be subject to the Grievance Procedure. If such applicant transferred to the Maintenance crew from another department in the plant, he or she will retain his or her seniority in the department from which he or she transferred for a period of ninety (90) days and will be returned to the job from which he or she transferred if removed from the crew. During 79 81 the probationary period, Management will determine as quickly as practical, whether or not the applicant has the aptitude and other characteristics necessary to become Journey Maintenance. Unless a Maintenance Helper has earlier been removed from the crew, prior to the expiration of the first ninety (90) days after he or she has been regularly assigned as a Maintenance Helper, the Company will review with him or her their progress to date. E. An employee's skill and knowledge will be determined through an objective and measurable format before promotion to the next level as outlined below. 1. An applicant selected by the Company to enter the Maintenance Program will be placed, when a vacancy exists, on the Maintenance Helper's job for a period of nine (9) months elapsed time or 1,350 worked hours, whichever is longer; and at the end of the period, will be automatically promoted to Junior Maintenance. 2. A Junior Maintenance employee shall spend a period of nine (9) months elapsed time or 1,350 worked hours whichever is longer, at which time he or she shall then be promoted to Intermediate Maintenance. 3. Upon completion of one (1) year elapsed time or 1,800 worked hours, whichever is longer, as Intermediate Maintenance, he or she will be promoted to Journey 80 82 Maintenance "A". 4. Upon completion of one (1) year or 1,800 worked hours, whichever is longer, as Intermediate Maintenance "A", he or she will be promoted to Journeyperson. F. The progress and qualifications of each Maintenance employee below the grade of Journey Maintenance will be periodically reviewed at intervals of not more than six (6) months. Records of the results of these reviews will be maintained and will be discussed with each employee at six (6) month intervals. If the employee so desires, he or she may have his or her progress report discussed with him or her. Whenever such a review of such a Maintenance employee has been completed, the Company shall notify him or her in writing with a copy to the Local Union calling his or her attention to the completion of such review and his or her right to request a discussion of it. G. Outside Maintenance workers may be employed in any of the established classifications. The Company agrees that, if an outside employee is hired, the next vacancy in that work location will be filled by an inside employee. A ninety (90) day probationary period will apply to any maintenance worker hired from outside sources. H. For Ransom, Management will adopt an organized plan as far as practical of rotating each 81 83 employee below Journey Maintenance through different operating departments, including shift work under different Journey Maintenance employees, in order that he or she may gain the widest variety of experience in the work of his or her chosen trade. For CDC, Management will adopt an organized plan as far as practical of rotating each employee below Journey Maintenance through different operating systems, including shift work, and under different Journey Maintenance employees, in order that he or she may gain the widest variety of experience in the work of his or her chosen trade. I. Employees in the classification of Journey Maintenance will be recognized for additional abilities or skills. The additional skills recognized for Ransom will be Basic Welding, Advanced Welding, Instrument Repair, Machinist, Accuray Certification, Pipefitter, PLC, Substation, and other future categories to be determined by the Company. The additional skills recognized for CDC will be Machinist, Basic Welding, Advanced Welding, PLC, Converting Maintenance, Converting Electrician and other future categories to be determined by the Company. The number of employees to be utilized in each skill category shall be determined by the Company. A program will be developed by the Company describing requirements and qualifications which must be met before the selected Maintenance Department employees will be considered qualified in a given skill and 82 84 therefore, eligible to receive the established skill value adjustment. Distribution of additional skills will be handled in the following manner. Each individual who possesses existing recognized skills beyond the journeyman level will choose their primary skill. As new skill categories are developed or existing skill categories expanded to include additional individuals, the interested individuals will be selected by seniority order among the journeyman maintenance employees possessing the least number of skills. Training will continue until all interested employees possess a primary skill. At that time, training will revert to the top of seniority order until all interested employees possess a secondary skill. This process shall be repeated based on the total number of existing skills and future skills to be determined by the Company. Employees will be considered eligible to receive the skill adjustment upon recommendation of the evaluation team composed of other journey people and maintenance supervision. Employees shall demonstrate to the team the necessary skill by performing work in the field utilizing the new skill. If transferred to a work assignment within the Pennsylvania operations where a skill(s) cannot be utilized, the Company shall suspend the skill adjustment after reviewing the matter with the evaluation team. Should the employee in question transfer to an area 83 85 where the skill can be utilized and the Company, at the time of the transfer, requires additional employees with the skill(s) formerly suspended, the employee will be re-evaluated by the evaluation team. Where retraining is 69 needed, the skill adjustment will be considered after the retraining and pending the evaluation team's recommendation. Training or classwork for skill qualifications shall be done on the employee(s) own time. The employee will be reimbursed for necessary tuition and books under the guidelines of the Pope & Talbot Tuition Refund Program upon presenting evidence of satisfactory completion of the course. 1. Based on the guidelines set forth in Paragraph I. 1., a skill adjustment of twenty cents ($0.20) per hour will be added to the Journey Maintenance classification for each skill in which the employee meets the required qualifications, with the exception of the Basic Welding Skill, which shall be ten cents ($0.10) per hour. J. Nothing herein above shall be construed so as: (a) To oblige the employer to hire or retain any employee unless there is work for him or her, or; (b) To mean that any right or obligation of either party to the Labor Agreement, established under the Agreement and not herein specifically amended, has been modified or revoked. SECTION 25 84 86 Absenteeism Policy A. Attendance Incident Definition: An attendance incident is any absence of one day or a combination of consecutive days. An instance of tardiness will constitute 1/2 of an attendance incident. B. Absence Definition: Any time an employee is not at work or leaves work for any reason with the following exceptions: 1. Contract-provided leave or time off: Vacation, Holiday, Jury Duty, Military Leave, Funeral Leave, absence for official union business, absence for Company paid business, and General Leave. (Excluded: Sick Leave and Industrial Leave) 2. Any approved absence. C. Tardiness Definition: Arriving at work between seven (7) minutes and four (4) hours late. Tardiness in excess of four (4) hours will be recorded as an absence. D. Attendance Incident Problem Definition: Any employee who produces seven (7) incidences in a twelve (12) month moving period. E. Progressive Disciplinary Action Steps: 1. At seven (7) attendance incidences, a formal documented verbal warning will be issued. 2. At eight (8) attendance incidences, a written warning will be issued. 3. At nine (9) attendance incidences, a five-day disciplinary layoff will be issued. 85 87 4. At ten (10) attendance incidences, the employee will be discharged for cause. In these cases, the Human Resource Manager and the Plant Manager must be consulted before this action is taken in order to consider the employee's work and previous work record. F. For every two calendar months of active employment (i.e., actively at work and not on A & S, Worker's Comp., etc.) without incurring an attendance incident, one attendance incident will be removed from an employee's record of attendance incidences until his or her balance of incidences is back to zero. SECTION 26 Scheduling A. Plant senior employees within a department shall be scheduled in their own department. B. Except where Section 10, Paragraph F-3 applies, employees who hold bids, either permanent or temporary, shall work in their bid jobs so long as their plant seniority entitles them to work in their own department on a weekly schedule. C. Except where Section 10, Paragraph F-3 applies, all employees shall, according to department seniority, rotate with their shift. The proper rotation is 7:00 a.m.-3:00 p.m. to 11:00 p.m.-7:00 a.m. to 3:00 p.m.-11:00 p.m. for eight-hour shifts and 7:00 a.m.-7:00 p.m.to 7:00 p.m.-7:00 a.m. for twelve-hour shifts. 86 88 D. Relief and temporary bid holders who make the schedule shall fill available openings if it is economically feasible or plant operations require it. E. Entry level and non-progressive positions shall be forfeit to employees who are entitled, by plant seniority, to work in their own department on the weekday schedule. F. Converting employees who are not scheduled in the Converting Department shall be scheduled, by plant seniority, in the highest paying ($/week) weekly openings in other departments for which they are qualified. G. Employees who based on their plant seniority, are not placed on the weekly schedule shall be assigned to the lay-off (call-list) list. Call List Procedures and Rules are listed as follows: 1. All calls made under this application will be made by 87 89 management. 2. Employees who, after being called to work under this application and fail to respond to a call for any reason during the call time schedule listed below, shall not be eligible for unemployment compensation benefits for the missed day(s) in question. a. All calls placed on weekdays and weekends shall be based on seniority , using the Call-List roster. Employees who cannot be called for the 7:00 a.m. to 3:00 p.m. shift (and 7:00 a.m. to 7:00 p.m. shift) are employees who worked the previous shift. Note, these employees must be considered as part of the Call-List roster and contacted should a need arise for the 3:00 p.m. to 11:00 p.m., 11:00 p.m.. to 7:00 a.m., or 7:00 p.m. to 7:00 a.m. shifts. b. All calls placed on weekdays and weekends shall be based on the following Calling Time Schedule: 5:00 a.m. to 8:00 a.m.; 1:00 p.m. to 4:00 p.m.; 6:00 p.m. to 12 midnight. Note, employees shall be contacted at other times other than the Calling Time Schedule for additional vacancies in the day. c. All calls placed on weekdays and weekends shall be allowed to ring for approximately forty-five (45) seconds. If the phone is busy, management will wait approximately five (5) minutes before retrying. All subsequent calls will be placed starting with the first employee whose phone was busy per the eligibility language in paragraph 2-a. Management will move to the next employee on the list. Management placing the call must sign the sheet, indicate the time the call was placed, and list the employee as a "no answer" if the employee does not respond. If the employee calls back after the initial effort to contact him/her, the employee will be used if the position has not been filled. 88 90 3. Employees on the Call List who cannot be reached or refuse to report when called during the call time schedule listed in 2-b will be subject to the Absenteeism Policy. a. Employees who cannot be reached for more than three (3) consecutive days will be sent a letter asking them if they wish to continue their employment. Employees failing to respond to the letter within five (5) calendar days will be discharged. H. In Converting, twelve-hour vacancies shall be filled before eight-hour vacancies. I. Employees who have been assigned to a Converting twelve-hour operation shall remain on twelve hours so long as they make the Converting schedule. J. Employees shall be assigned, by department seniority, to the same shift on Saturdays as they worked during the week. K. Employees shall have until 9:00 a.m. on Wednesday to submit requests for Saturday off. The Company will post a list of all personnel requesting Saturday off indicating acceptance or denial by the Company of such request. This list will be posted on enclosed bulletin boards by the end of the day shift on Thursday. Employees may request a copy of their Request Off form from their Supervisor. L. Once the weekly schedule is finalized and posted, the Company will not move employees from job to job except in emergency situations where qualified replacements, in key positions, are needed. This does not preclude the Company from shutting down equipment on a shift and 74 89 91 utilizing those personnel according to the provisions of this agreement. M. The Company agrees to post work schedules for all departments on the Thursday preceding the work week, whenever possible by 3:00 p.m. N. It is understood by both parties that the Company is to be permitted a leeway of not less than twenty-four (24) hours from the time work schedule errors are reported to the Company for correction of same. O. The Company and the Union may mutually agree to add to or change these scheduling ground rules where permitted under the Labor Agreement. P. In regard to vacation replacement vacancies being filled, the following will apply: 1. Regarding the Bath and Towel lines in the Converting Department, two (2) people from Bath and two (2) people from Towel lines will be allowed to be on vacation per week and will be replaced on the schedule. 2. Regarding the combined Napkin lines in the Converting Department, one (1) person will be allowed to be on vacation per week and will be replaced on the schedule. 3. In the Paper Machines, two (2) positions per shift will be granted vacation as follows: a. No two from any one machine off at the same time. b. Progression will be used to fill vacancies. 4. In the Fiber Plant work group, one (1) person per shift will be granted vacation as follows: a. Progression will be used. 5. Vacancies as a result of vacation-by-days may not be filled under the above, items 1-4. 90 92 SECTION 27 Change and Modification A. This Agreement shall be in effect December 4, 1995, and shall remain in effect until and including September 16, 1999, and from year to year thereafter, unless terminated in accordance with provisions of Section 28 below. B. If either party shall desire to change any provision of this Agreement, it shall give written notice of such desire to the other party at least sixty (60) days in advance of any anniversary date. C. The giving of notice provided in subsection B above shall constitute an obligation upon both parties to negotiate in good faith all the questions at issue, with the intent of reaching written agreement prior to the anniversary date. D. Any provision of this Labor Agreement which is contrary to law will be reviewed to conform to the legal requirements, however, all other provisions of this Labor Agreement will remain in full force and effect. SECTION 28 Termination of Agreement A. At any time after the anniversary date, if no agreement on the questions at issue has been reached, either party may give written notice to the other party of intent to terminate the Agreement in not less than ten (10) days. All provisions of the Agreement shall remain in effect until the specified time has elapsed. During this period, attempts to reach an Agreement shall be continued. B. If the parties have failed to resolve their differences before the specified time has elapsed, all obligations 91 93 under this Agreement are automatically cancelled. C. This Agreement shall be binding upon the parties hereto, their successor, administrators, assigns and executors. In the event this operation or any part of it is sold, leased, assignment, receivership or bankruptcy proceedings, such operation shall continue to be subject to the terms of this Agreement so long as the operation remains substantially similar to that which is covered by this Agreement. SECTION 29 Changes in Writing A. No change of any provision of this Agreement shall be recognized or effective unless such change is in writing and signed by the parties to this Agreement. B. All contract Agreements are to be incorporated in the Agreement. Any future Agreements made after the signing of the new Contract will be in written form and copies provided each bargaining unit employee at Company expense. C. This Agreement and Appendixes 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 supersede all prior Agreements and understandings, oral or written, expressed or implied, and shall govern the entire relationship between the parties. APPENDIX 1 Company Rules Violations of all General Plant Rules and Operational Rules listed below shall be managed under the following Progressive Discipline Schedule: (1) formal documented verbal warning; (2) written warning; (3) suspension; and, (4) discharge for cause; in these cases, the Labor-Management Committee must be consulted before this 92 94 action is taken in order to consider the facts, including the employee's overall record. This Progressive Discipline Schedule will operate under a one year moving period in regards to this Appendix. GENERAL PLANT RULES: 1. Notices shall not be posted on Company property nor upon the official Bulletin Boards without the permission of Management. 2. Loitering during working hours by employees shall not be permitted. 3. Members of employees' families, friends, and employees not on duty shall not enter in or upon the Company property without permission. 4. No employee shall peddle, solicit, or offer for sale any article in or upon the premises without permission from the Company. OPERATIONAL RULES: (Reporting To Work... Reporting Off Work...etc.) 1. Employees must be in their working place ready for work at the starting hour, and will remain at their designated places until the regulated quitting time, unless properly relieved. 2. No employee shall leave his or her work except in the performance of his or her duties without first obtaining permission from the Supervisor, except in customary practices approved by Supervisors. 93 95 3. Employees shall make every reasonable effort to notify their Supervisor no later than four (4) hours preceding an intended absence from work for any reason. Supervisors must be notified at least sixteen (16) hours and in no case less than eight (8) hours before any employee will be permitted to return to work after an absence. Employees scheduled on the 3-11 shift must report in for work after an absence, no later than six (6) hours prior to the start of the shift. 4. If an employee becomes ill (not work related) while they are at work the following procedure will be followed: a. Supervisor or Plant Nurse may or may not communicate with the employee's family doctor. b. If the Supervisor, Plant Nurse or the family doctor feels it is necessary for the employee to be transported by ambulance one will be called. c. When the employee receives the ambulance bill they should submit it to their medical plan, currently Blue Cross and Blue Shield of Northeastern, PA. d. The employee should bring in proof of the unpaid balance for this ambulance bill to the Human Resources Department. e. The Company will pay for the unpaid balance. The Company will use their discretion as to whether an employee should be transported by ambulance. If the Company decides it is necessary for the employee to be transported by ambulance and the employee refuses, a direct order will be issued. Failure to follow the direct order will lead to termination. This procedure is to be 94 96 considered a guideline. It is the Company's discretion to modify the contents of this guideline when necessary. 5. Eating will not be tolerated except during lunch periods as specified in the contact, unless approved by the Supervisor. Thls does not apply to those working on a three (3) shift basis who do not have a specified lunch period. IMMEDIATE DISCHARGE: (General / Operational Rules continued) 1. Violation of the following rules shall be considered sufficient cause for dismissal: a. Use, possess, manufacture, distribute, dispense or receive alcohol, intoxicants or controlled substances (drugs...including prescription drugs) on Company premises (see Substance Abuse Policy). b. Bringing firearms in the Mill or on Company property, without permission from the Resident Manager. c. Neglect of duty. d. Refusal to obey orders or instructions from the Supervisor. e. Deliberate destruction or unauthorized removal or theft of Company's or employees' property or outside contractors' equipment. f. Disfigurement of Bulletin Boards and interference with Company notices. g. Disorderly or immoral conduct. 95 97 h. Dishonesty. i. Sleeping on duty. j. Smoking on duty in prohibited areas. k. Stealing or removing from the plant any tools or materials belonging to the Company, except with written permission from the Supervisor. l. Registering or tampering with another employee's time card/clock, i.e., punching in/out for another employee(s). m. Leaving Company property during work hours without permission from Supervision. 2. It is understood that the Company reserves the right, after due consultation with the Labor-Management Committee to alter or add to the Company Rules whenever the conduct of the Company's business so requires, providing that such alterations or additions are not in conflict with the other terms of the contract. 3. Any unfair application of these rules or penalties connected therewith will be subject to the Grievance Procedure. 96 98 APPENDIX 2 Safety Regulations Penalties for violations of the foregoing, with the exception of Safety Regulation 33, are as follows: 1st Offense -- Formal Documented Verbal Warning 2nd Offense -- Written Warning 3rd Offense -- Five (5) Day Suspension 4th Offense -- Discharge For Cause ; in these cases, the Labor-Management Committee must be consulted before this action is taken in order to consider the facts, including the employee's overall record. The progressive penalty schedule outlined above will be applied under a one year moving period. Careless workers are a menace to themselves and to their fellow workers. They cannot be retained by this Company. 1. Everything in and about the plant shall be kept clean and in good order. Each employee will be held responsible for the condition of the plant and the equipment under his or her control. 2. Running, shouting, throwing objects and "horseplay" are strictly forbidden. 3. The breaking or separating of rolls, packages or other forms or paper across any part of the body is expressly forbidden. 4. Keep yourself in physical condition to do a day's work. 5. Wear clothes suited to the job; gloves, if needed. Use goggles and other protective equipment provided. 6. Listen to the Supervisor's instructions and have them clearly in mind before starting work. 7. If you don't know how to do the job safely, ask your Supervisor. 8. Always use all safeguards provided. 9. Pile and unpile material with care. Handling material is the greatest accident producer in this plant. When you see nails sticking up in boards, bend them over or remove them. 10. Keep material out of walkways, particularly boards with nails in them. 11. Warn employees working above or below you. 97 99 12. When working with another employee, be sure he or she knows what you are going to do before you drop a load or do anything which might injure him or her. Good teamwork promotes safety. 13. Have both hands free for going up or down ladders. See that ladders are firmly placed before using them. See that all rungs are securely nailed. 14. Report unsafe conditions to your Supervisor. 15. Get help for lifting heavy objects. Learn to lift the correct way. 16. Report all injuries promptly. Get immediate First Aid. 17. Keep your mind on your job. Alertness prevents accidents. 18. Never try to oil, clean or adjust machinery while it is in use. 19. Never throw anything from a height until you are sure no one is below. 20. Do not look at welders or cutters while they work. You might ruin your eyes. 21. Do not wear ragged sleeves, loose coats, flowing ties or loose jumpers while working around machinery. 22. Do not use improper or broken tools, they are dangerous. 23. Do not ride loads being lifted by cranes. 24. Do not get under loads which are being carried by cranes. 25. Do not hoist a load until it is securely made fast and balanced. 26. Never start machinery, operate valves, or change electric switches until you know by personal investigation that it is safe. 27. Do not fix electrical equipment of any kind, unless your work requires it. 28. Never turn compressed air on anyone, nor on yourself; it is extremely dangerous. 98 100 29. If an employee's full rim glasses are broken or damaged as a result of a witnessed on the job accident, not involving horseplay, replacement of the broken parts will be paid for by the Company. Lenses will not be paid for if the prescription is changed. 30. The wearing of shorts will be authorized whenever not in conflict with safety requirements. 31. The Company will reimburse an employee for the purchase of safety shoes in the amount of $20.00 per pair with a maximum of $40.00 per year. 32. All accidents shall be reported at once by the injured employee to the immediate Supervisor or Human Resource Manager. 33. No smoking allowed except in the following areas: Wet Ends No. 4 and No. 3 Paper Machines, Machine Shop, Mechanics Lunch Room, Designated Cafeteria and Boiler Room. Other areas to be stipulated by Bulletin Board notices if the occasion arises. 99 101 APPENDIX 3 LETTER OF AGREEMENT BETWEEN UNITED PAPERWORKERS INTERNATIONAL UNION LOCAL 1448 AND POPE & TALBOT WIS., INC. CONCERNING THE AMERICANS WITH DISABILITIES ACT The Company and the Union agree to meet and discuss actual or potential accommodation that may be required by the implementation of the Americans with Disabilities Act. The purpose of these meetings will be to come to some agreement when reasonable accommodation that may violate parts of this agreement may have to be made to comply with the Act. 101 102 APPENDIX 4 SUBSTANCE ABUSE PROGRAM (This program is separate from "Self Referral") Policy: The Union and Company jointly recognize alcoholism and drug abuse as illnesses which are treatable. It is also recognized that it is for the best interests of the employee, the Union, and the Company that these illnesses be treated and controlled under the existing collective bargaining contractual relationship. Our concern is directed at alcoholism and drug problems which permit the employee to perform the job in an unsafe and inefficient manner and cause poor attendance and unsatisfactory performance on the job. Our sole objective is to help not harm. This program is designed for rehabilitation and not elimination of the employee. Any employee who participates in this program will be entitled to all of the rights and benefits provided to other employees who are sick, in addition to specific services and assistance which this program may provide. It shall be the responsibility of all employees in a supervisory position to comply with the Company's policy and to assure any employee with an alcohol or drug problem that a request for diagnosis or treatment will not jeopardize their job rights or job security and that confidential handling of the diagnosis and treatment of these problems is an absolute fact--not just an assertion. This policy is written in the spirit of complying with the Drug- 102 103 Free Act of 1988. The Act requires each Federal Contractor to certify that it will provide a drug-free workplace by fulfilling seven requirements. These requirements are the basic elements of the contractor's on-going responsibility to make good faith efforts to maintain a drug-free environment. A key action under the Act requires the Company to establish a drug-free awareness program to inform employees about the dangers of workplace drug abuse, the Company's drug-free workplace policy, the availability of drug counseling, rehabilitation, and employee assistance programs, and the penalties that may be imposed for drug abuse violations. Objectives: 1. To comply with the Drug-Free Workplace Act of 1988. 2. To protect the health and welfare and safety of all employees. 3. To protect the Company's assets. 4. To promote the highest levels of plant performance. 5. To rehabilitate employees through the application of the EAP program for present employees who have shown positive results from drug screens. 6. To provide due process, fair treatment, and respect for employees' privacy for all employees covered by this policy. This policy includes all employees at Pope & Talbot's, Ransom and Pittston Township, Pennsylvania operations. 7. To promote the principle of shared responsibility in managing this matter. Work Rules: All employees must report to work in a physical condition that will enable them to perform their jobs in a safe and efficient manner. Employees shall not: 103 104 APPENDIX 5 DECLARATION OF PRINCIPLES BETWEEN UNITED PAPERWORKERS INTERNATIONAL UNION LOCAL 1448 AND POPE AND TALBOT, WIS., INC. CONCERNING TEAM WORK 1. It is to the mutual interest of the employer and the employees to provide for the operation of the facilities under methods which will further to the fullest extent possible the economic welfare of the employees, the safety of the employees, economy of operation, quality and quantity of output, cleanliness of the facilities, and protection of property. It is agreed that the Company, the Union, and the employees will cooperate fully for the advancement of these conditions. 2. The entire facility(s) will operate utilizing the principles of cooperation and teamwork for safety and efficiency. 3. Each line of progression and/or nonprogression department will work as an operating team which at times will be assisted by a maintenance team. The company agrees that it is not their intention to make maintenance employees out of operators or operators out of maintenance employ- 104 105 ees. This means, for example, that maintenance employees will assist production employees and production employees will assist maintenance employees within the limits of their skills and safe work practices throughout the operation. This also means that maintenance employees will assist maintenance employees of other trades and perform incidental work outside their trade and assigned job. 4. Each member of a team has primary responsibilities in his/her respective classification. However, they will also be responsible to assist any and all other team members when the need arises. Operations members in lines of progression will be expected to be able to perform the functions of the two (2) classifications above them in the operating line of progression. Team members may not select certain tasks within the team's areas of responsibility to the exclusion of other tasks. No team member has exclusive jurisdiction over any task. The supervisor may make task assignments in a manner considered by the supervisor to be the most efficient. 5. Recognizing that all teams are interdependent, cooperation/ communication between teams is a part of the standard operating procedure. 6. Vacancies shall be filled only when supervision determines it is necessary to do so. 7. The Company and the Union recognize that using and developing the most efficient methods of operation enhances the competitive position of the operations and the secu- 105 106 rity of all employees. With this in mind, the Company and Union agree to establish a Competitive Improvement Oversight Committee. The parties agree to focus the Committee's activities on improving the operation's ability to: (1) meet customer needs; (2) develop more efficient operations; (3) obtain and maintain a competitive edge; and (4) utilize the full potential of employees. Each party will select three (3) members to serve on this Committee. APPENDIX 6 MEMORANDUM OF AGREEMENT BETWEEN UNITED PAPERWORKERS INTERNATIONAL UNION LOCAL 1448 AND POPE AND TALBOT, WIS., INC. CONCERNING MAINTENANCE DEPARTMENT RESTRUCTURING It is understood that those maintenance and electrical employees who normally work (meaning for this application...prior to April 29, 1995) in the Converting & Distribution Center shall be retained as a group under the newly formed CDC Maintenance Department. Those affected employees shall move into the CDC Maintenance Department with their established department seniority from their former depart- 106 107 ment. All provisions of Section 24, Maintenance Program, will be applied to the CDC Maintenance Department. APPENDIX 7 LETTER OF UNDERSTANDING BETWEEN UNITED PAPERWORKERS INTERNATIONAL UNION LOCAL 1448 AND POPE AND TALBOT, WIS., INC. CONCERNING 12-HOUR SHIFT SCHEDULE It is understood that changes made in the Labor Agreement relative to the term, "4-crewing" are intended to incorporate the application of the "12-hour shift schedule." In the event that the parties have not identified all "4-crewing" language references in the Labor Agreement, it is understood that those "missed" applications would be changed to the "12-hour shift schedule reference if needed. Further, in the event that the "12-hour shift schedule" application was not exercised by the parties at any point in time to the future, then all previous "12-hour shift schedule" applications (aforementioned) would apply to "4-crewing" applications, where applicable. Note, as an example, the "8-hour" shift application procedure(s) would apply (versus the "12-hour" procedure) to the "4-crew- 107 108 ing" application. APPENDIX 8 LETTER OF UNDERSTANDING BETWEEN UNITED PAPERWORKERS INTERNATIONAL UNION LOCAL 1448 AND POPE AND TALBOT, WIS., INC. CONCERNING MATERIAL SUPPORT 1. The Company will retain the Materials/Support Department as a Department. 2. Employees in the Materials/Support Department will be required to work as a team(s) as determined by the Company. It would be anticipated that a team designation will be set up for both CDC and Ransom, respectively. 3. The Company shall have the exclusive right to determine job content, staffing levels, and the like. 4. Consistent with the parties' intent to minimize overtime costs, the Company will utilize qualified employees (i.e., those with a valid lift truck drivers license) under the guidelines described in Section 5, Overtime. 5. All temporary Materials/Support positions eliminated. 6. Employees designated by the Company shall 108 109 be required to drive a lift truck or other power material moving equipment as determined by the Company. APPENDIX 9 MEMORANDUM OF AGREEMENT BETWEEN UNITED PAPERWORKERS INTERNATIONAL UNION LOCAL 1448 AND POPE AND TALBOT, WIS., INC. CONCERNING PENSION Effective November 1, 1995, the monthly pension benefit earned will be $20.00 multiplied times years of credited service. This reduction will not take away or reduce any pension benefits that have been earned under the plan for service through October 31, 1995. The benefit level for service as of October 31, 1993 was $29.00. This level applies only to those employees in active service as of that date. 109 110 APPENDIX l0 MEMORANDUM OF AGREEMENT BETWEEN UNITED PAPERWORKERS INTERNATIONAL UNION LOCAL 1448 AND POPE AND TALBOT, WIS., INC. CONCERNING 401-K PLAN Effective 4/1/96, all bargaining unit employees will be eligible to participate in the Company's 401-K plan in effect at that time. There will be no company contributions. All rules and regulations in effect under the Company's 401-K Plan on 4/1/96 shall be followed by all plan participants. 110 111 Pope & Talbot Wis., Inc. CONSUMER PRODUCTS DIVISION FOR THE COMPANY: Leland Peterson, Resident Manager John Austin, Converting & Distribution Superintendent Eileen Templeton, Human Resources, Administrative Assistant (Note taker) Joseph Martin, Human Resources, Accounting & Purchasing Manager Winsor Jenkins, Corporate Manager Industrical Relations Organization Dev. FOR THE UPIU: Joseph Adams, President Michael Bidwell, Vice President James Salitis, Recording Secretary Daniel Coyne, Financial Secretary Paul Jancouskas, Treasurer Allan Haas, Executive Board Robert Koons, Executive Board Anthony Lupi, International Representative 111 112 RANSOM and PITTSTON TOWNSHIP PLANTS 1. Use, possess, manufacture, distribute, dispense or receive alcohol, intoxicants or controlled substances (drugs...including prescription drugs) on Company premises. 2. Report to work with any measurable amount of a controlled substance, intoxicant or illegal drug in their system. Medication prescribed by a physician is an exception when the physician prescribing medication has released the individual to work while taking the prescribed medication. Abuse of prescribed drugs is a violation of this program. Employees who violate the above work rules shall be subject to appropriate discipline up to and including discharge for cause. However, it is the primary intent for most infractions to encourage and assist employees in treatment and rehabilitation. Testing for Cause: 1. Random drug/alcohol tests are strictly prohibited. Employees who are returned to work after completion of treatment but who remain under the terms of an aftercare program, shall be subject to unannounced follow-up tests. In keeping with the purposes and policies of the program, drug/alcohol screens are to be administered only when there is probable cause to believe that the employee is under the influence of or impaired by alcohol or drugs. Probable cause includes abnormal coordination, appearance, behavior, speech or odor. It can also include work performance and attendance problems. 2. No drug/alcohol screen is to be performed until the 97 112 113 supervisor's probable cause has been confirmed by another management representative. Note, the supervisor's efforts should be properly documented, preferably in writing. The employee will be provided with an opportunity to explain his/her conduct. The supervisor will explain the employee's right to have a union representative or fellow employee present, if requested. 3. Failure to submit to a test required on one of the above basis will be grounds for discharge. Employees who feel that they have a legitimate grievance must still submit to the test and then file a grievance in accordance with the Labor Agreement. An employee may forego the test if the employee voluntarily consents to obtaining assistance and immediately enters into a written Referral Agreement. The Company will apply all medical/ related treatment charges to the Company's Health & Welfare, Blue Cross/Blue Shield benefits package for an employee who elects to voluntarily consent. 4. An employee who has a confirmed positive test will be referred to the EAP. Employees referred to an EAP will have disciplinary action withheld pending satisfactory completion of the referral agreement requirements (which includes aftercare). 5. An employee who has a confirmed positive test will only be provided with one (1) opportunity for rehabilitation under this Program. The Company will apply all medical/related treatment charges to the Company's Health & Welfare, Blue Cross/Blue Shield benefits package for employees who receive treatment after testing positive. Testing Procedures: 1. The Company and the Union will select reputable facili 98 113 114 ties for base and confirmatory testing. The facility for confirmatory testing must meet all the standards set by Federal Health Agencies for laboratory performance and they must employ certified Medical Technologists and Technicians. The selection process includes following testing procedures that provide the most accurate test results, maintaining the most complete chain of custody and quality control procedures, insuring maximum confidentiality. 2. The employee will have the opportunity to have a reputable testing facility test the same sample submitted to the original test facility. Accepted chain of custody procedures must be followed and the test facility must meet all standards set by Federal Health Agencies for laboratory performance using certified Medical Technologists and Technicians. An employee may request the independent test by notifying the Resident Manager in writing within two calendar days after the day the employee is informed of the test results. The test result will be kept confidential and will be available only to a designated Company representative, a designated Union representative or a designated Legal representative. A. An employee who requests an independent sample test under Paragraph 2 (above), will be reimbursed for his/her expenses for the independent test if the test result is negative. Otherwise, an employee with a positive test result is responsible for the test expenses. B. An employee who, after requesting an independent test under Paragraph 2 (above), receives a negative test result, will be paid for lost time from work. 114 115 3. Sample collection is to be accomplished in a manner compatible with employee dignity. It is technically feasible to verify that a sample has not been tampered with without subjecting the screened employee to a degrading experience. 4. Drawing blood samples to perform drug/alcohol screening for the purpose of this policy is prohibited. 5. Employees required to take a test will be placed on an unpaid leave of absence pending the receipt of the test results. Employees who test negative will be paid for time lost from work. a. Employees who test negative will be paid for lost time from work (per Paragraph 5) and 40 hours at their regular rate of pay for any repeat testing requests which produce negative test results. 6. Any employee who has a confirmed positive test will be referred to the Employee Assistance Program. This referral and any subsequent treatment, including aftercare, is a condition of continued employment. The state level for alcohol will be used to determine a positive test for alcohol. 7. None of the testing procedures are intended to be in violation of the law, and if they are, they shall be eliminated without interfering with other parts of this program. 8. An employee will have the right to use the grievance and arbitration system in the current Labor Agreement to challenge any aspect of the testing procedures. Referral Agreement: 115 116 1. It is the intent of the Company and the Union to correct problems associated with drugs and alcohol. Therefore, an employee who voluntarily enters into treatment in lieu of a required test or has a positive result on a test will have disciplinary action withheld pending satisfactory completion of the Referral Agreement requirements. 2. The terms and conditions of each Referral Agreement will be put in writing and signed by the employee, the Union, and the Company. Each Referral Agreement will contain some basic core requirements, but will be designed giving consideration to the individual's circumstances. The disciplinary action will be abated for an employee who satisfactorily completes the treatment program prescribed by his/her counselor and who meets the terms and conditions of the Referral Agreement. 3. An employee who fails to cooperate, abandons, or does not complete the treatment program prescribed by his/her counselor or who fails to live up to the terms and conditions of the Referral Agreement will receive the previously withheld discipline. However, before the disciplinary action is imposed, the Company and the Union representative will attempt to counsel the employee in completing the treatment program. 4. Whether an employee volunteers to participate in a treatment program or is required to participate as a condition of continued employment, that employee shall continue to be subject to the same rules, working conditions, and disciplinary procedures in effect for other employees, i.e., employees cannot escape discipline for future infractions by being enrolled in a treatment program. Employees will not be allowed to elect rehabilitation (i.e., voluntarily con 101 116 117 sents) in lieu of discipline more than one time. Union Liability: 1. The parties agree that this program will not diminish the rights of individual employees under state and federal laws relatinq to drug testing. 2. The Company agrees to hold the Union harmless and agrees to pay the reasonable and normal expenses of an attorney for the Union in defending joint litigation arising from the implementation of this program. General Provisions: 1. This policy does not apply to EAP self-referrals (which are covered under the Company's BC/BS Plan). 117 118 [CALENDARS OMITTED] 118 119 [CALENDARS OMITTED] 119 EX-10.13 5 COLLECTIVE BARGAINING AGREEMENT 1 EXHIBIT 10.13 LABOR AGREEMENT AND WAGE SCALE 2 ARTICLE 1 TERMS OF AGREEMENT 2 ARTICLE 2 GENERAL PURPOSES OF AGREEMENT 3 ARTICLE 3 RECOGNITION 3 ARTICLE 4 UNION MEMBERSHIP 3 ARTICLE 5 STRIKES AND LOCKOUTS 4 ARTICLE 6 NON-DISCRIMINATION 4 ARTICLE 7 ADJUSTMENT OF GRIEVANCES 4 ARTICLE 8 SENIORITY 6 ARTICLE 9 LAYOFF AND RECALL 8 ARTICLE 10 JOB ALLOCATION 9 ARTICLE 11 HOURS AND SCHEDULING 14 ARTICLE 12 TIME KEEPING 16 ARTICLE 13 CHEMICAL ABUSE 17 ARTICLE 14 WAGES 19 ARTICLE 15 CALL TIME AND REPORTING TIME 24 ARTICLE 16 OVERTIME AND PREMIUM PAY 24 ARTICLE 17 OUTSIDE CONTRACTORS 27 ARTICLE 18 FUNERAL LEAVE 27 ARTICLE 19 ABSENCE 28 ARTICLE 20 JURY DUTY 29 ARTICLE 21 HOLIDAYS 30 ARTICLE 22 VACATIONS 31 ARTICLE 23 INSURANCE 33 ARTICLE 24 PENSION PLAN 36 ARTICLE 25 END OF THE YEAR BONUS 38 ARTICLE 26 BULLETIN BOARDS 38 ARTICLE 27 SERVICE AND SAVINGS CLAUSE 38 ARTICLE 28 TOOL REPLACEMENT 38 ARTICLE 29 EDUCATIONAL EXPENSES 38 ARTICLE 30 SAFETY EQUIPMENT 39 ARTICLE 31 CENTRAL MAINTENANCE FLEXIBILITY 39 ARTICLE 32 JOINTNESS AGREEMENT 40 ARTICLE 33 COMPANY AFFAIRS AND PROCESSES 41 EXHIBIT A SAFETY RULES 43 EXHIBIT B PLANT AND COMPANY RULES 45 EXHIBIT C RATE SCHEDULE 47 EXHIBIT D INSURANCE SUMMARY 49 EXHIBIT E VACANCY PROGRESSION 51 1 2 LABOR AGREEMENT AND WAGE SCALE Articles of Labor Agreement by and between Pope & Talbot, Wis., Inc., Eau Claire, Wisconsin (hereinafter referred to as the Company), and the United Paperworkers International Union and its affiliated Local No. 42, (hereinafter referred to as the Union). WITNESSETH Article 1 TERMS OF AGREEMENT 1.1 Change or modification of Agreement. 1.101 This agreement will be in effect April 1, 1997, and will remain in effect until March 31, 2000, inclusive, and from year to year thereafter, unless terminated in accordance with the provisions of Paragraph 1.2 below. 1.102 If either party will desire to change any provision of this Agreement, it will give written notice of such desire to the other party at least sixty (60) days in advance of any anniversary date. 1.103 The giving of notice provided in Paragraph 1.102. above will constitute an obligation upon both parties to negotiate in good faith all questions at issue, with the intent of reaching written agreement prior to the anniversary date. 1.104 If the parties have not reached agreement on or before the anniversary date, all the provisions of the agreement will remain in effect unless specifically terminated in accordance with the provisions 1.2. below. 1.105 In the event the new Agreement is consummated after March 31, 2000, all provisions of said Agreement will be made retroactive to April 1 provided the Union has requested the conference sixty (60) days prior to March 31, for the purpose of negotiating the changes or modifications of this Agreement. 1.106 This Agreement is all inclusive. All prior side agreements and practices are null and void unless incorporated into this Agreement. Side agreements during the term of this contract must be mutually agreed to and signed by the parties to this Agreement. 1.2 Termination of Agreement: 1.201 At any time after the anniversary date, if no agreement on the questions at issue has been reached, either party may give written notice to the other party of intent to terminate the Agreement in no less than 10 days. All the provisions of the Agreement will remain in full force and effect until the time set forth has elapsed. During this period, attempts to reach an agreement will be continued. 1.202 If the parties have failed to resolve their differences before the time set forth has elapsed, all obligations under this agreement are automatically canceled. 2 3 Article 2 GENERAL PURPOSES OF AGREEMENT 2.101 The intent and purpose of this agreement is to provide and promote harmonious relationship and cooperation between the company and the Union, under methods which will provide for the following: 2.1011 Economic welfare of the Company and its employees; 2.1012 Safety and health of their employees; 2.1013 Quality and quantity of output; 2.1014 Economy of operation and reduction of waste; 2.1015 Cleanliness of plant and protection of property. 2.102 It is recognized by the parties of this agreement that it is the duty of the Company and the employees to cooperate fully, individually and collectively for the advancement of said conditions. As part of this cooperation, the Company agrees to notify the Union of any sale or shutdown of the operation as soon as the Company is aware of the situation. 2.103 The Company will provide safe and healthful working conditions for its employees which comply with or exceed any standards provided in federal, state, and local laws. It is the responsibility of the Company and the Union to insure that employees comply with the health and safety rules and procedures herein. This provision is not to be construed as a basis of liability of the Union to any employees in the event of illness or injury. Article 3 RECOGNITION 3.101 The Company agrees to recognize the United Paperworkers International Union and its affiliated Local No 42 as the sole and exclusive collective bargaining agency governing wages, hours and working conditions for all production and maintenance employees including paper and pulp testers. Employees exempt from this Agreement will include supervisors, office employees, technical staff and watchmen. Article 4 UNION MEMBERSHIP 4.101 It is agreed that all employees covered by this Agreement will, as a condition of employment, become a member of the Signatory Union, after working thirty-one (31) days from their respective dates of employment, or the effective date of the signing of this Agreement or after employee is accepted by the Company as a regular employee, whichever is later. 4.102 It is also agreed that each vacation replacement, after working thirty-one (31) days, will be required to join the Union. 3 4 4.103 The Company agrees upon demand by the Union, to dismiss all employees who fail to become members or maintain membership in the Union. Article 5 STRIKES AND LOCKOUTS 5.101 There will be no authorized strikes or lockouts during the term of this Agreement. In the event of an unauthorized strike, the United Paperworkers International Union and its affiliated Local No. 42 will order the immediate return of the strikers to work. Article 6 NON-DISCRIMINATION 6.101 The Company and Union agree there will be no discrimination against any employee or applicant because of race, creed, sex, age, national origin, handicap, or veteran status. 6.102 The Company and the Union agree that all forms of sexual harassment will not be tolerated, and upon knowledge of any incident, the company will take immediate disciplinary action. 6.103 The use of the male gender in certain clauses of this Agreement is done for convenience purposes and does not imply any preference of male to female employees. 6.104 The Company and Union agree to comply with the intent and requirements of the Americans with Disabilities Act. Article 7 ADJUSTMENT OF GRIEVANCES 7.1 Adjustment Committee 7.101 The Local Union will elect or appoint a standing Adjustment Committee which will present any complaints that may arise concerning the administration of this Agreement to the appointed representative or representatives of the Company. This Adjustment Committee will represent the Local Union as the bargaining agency. The names on this committee will be filed with the Company. On ratification, the Company will pay for up to five members of the Union's Adjustment Committee and/or stewards attending grievance meetings. 7.2 Grievance Procedure 7.201 In the event an employee has a grievance, he will, with the department steward, refer the grievance verbally to his supervisor within 48 hours after the alleged violation becomes known. 4 5 7.202 In the event the supervisor and grieved employee cannot settle the grievance, a Union official or the aggrieved employee will, within 24 hours, file a Step 2 grievance at the Human Resources Office, who will forward copies to the Chief Steward and the Area Manager. The Step 2 meeting will be scheduled within 48 hours of receipt in the Human Resources Office. The answer will be given within 72 hours of the meeting. 7.203 Should settlement still be unsatisfactory, within 24 hours the grievance will be submitted to Step 3 and the parties will meet together with the International Representative and the Resident Manager for final determination within 10 days. A written answer will be given within 72 hours of the meeting. 7.204 If not settled at the prior step, it will be referred to arbitration within 21 days. The Federal Mediation and Conciliation Service will be used and the party seeking arbitration will submit a written request for a panel of seven qualified arbitrators. 7.2041 The Company and Union will each strike alternate names from the panel and the remaining arbitrator will then be requested to be assigned to the matter at the earliest possible date. 7.2042 The arbitrator's decision will be binding but he may not change or add to the language of the Labor Agreement. Wages are not subject to arbitration, wage adjustment requests will automatically be submitted at the third step. 7.2043 The cost of the Arbitrator's fees and expenses will be shared equally by the Union and the Company. 7.205 Time limits may be altered by mutual agreement between Company and Union, but all time limits exclude Saturday, Sunday and Holidays. 7.206 In the event an employee has a record clear of violation for one year, prior violations will not be used in future grievances or disciplinary action. 7.207 Adjustments such as changing of hourly rates, hours of work working conditions and matters of like nature affecting this Agreement will meet the approval of all parties to this Agreement to be executed. 7.3 Union Committeemen and/or Stewards 7.301 All Union committeemen and/or stewards are subject to all of the plant rules and regulations regarding conduct of employees on the premises of the Company. It is understood and agreed by the parties hereto that each will cooperate with the other in reducing to a minimum the actual time spent by the committeemen and/or stewards in investigating, presenting and adjusting grievances or disputes or other problems related to the Agreement. Officers and stewards will notify their supervisor before leaving the job to attend Union business. 7.302 The Company will pay the straight-time posted job rate for time lost from scheduled work by the grievant for attendance at joint meetings to discuss the grievance. 7.303 The Company will pay Adjustment Committee members for time spent in joint meetings to discuss Union/Management business. The rate paid will be the committee member's posted job rate, with all hours at straight time. 5 6 Article 8 SENIORITY 8.1 Company Seniority 8.101 All new employees will serve a probationary period of 30 days worked and will not accrue seniority during that period. The Company may request a 30 calendar day extension of the probationary period. During the probationary period, the Company may at its option, layoff or dismiss said probationary employees. Upon becoming a regular employee, seniority will be credited from date of hire. The company is to provide the Union with a list of new employees and department worked in each month. 8.102 Millwide seniority will be established as of the date that the employee was last hired by the Company. Employees starting work on the same day will be ranked by means of a blind drawing with designated representatives from the Company and the Union present. The first name drawn will be the most senior and so on. 8.103 A new employee will mean a person with no previous employment with the Company or a person rehired after a discharge or voluntary separation, or a person who has been terminated under Paragraph 8.4 and its inclusions. 8.104 New employees hired after July 15, 1982, will be assigned to a labor pool and will be utilized for temporary fill-ins at the Company's discretion until they begin their first posted job in a structure 8.2 Department Consolidation 8.201 All current departments will be consolidated into three departments. Seniority in the new departments will be based on mill seniority at the time of implementation. 8.2011 The Paper Converting Department will consist of the existing ppd, printing, central stores, receiving, shipping and lab structures. 8.2012 The Paper Mill Department will consist of the existing paper machines, stock prep, sanitation, yard and steam plant structures. 8.2013 For the life of this agreement, no employee holding a posted job in the Paper Converting or Paper Mill Departments at the time of ratification will be permanently displaced from the workforce due to application of this agreement except through departmental attrition. 8.2014 The Central Maintenance Department will be a separate department. The oilers will be placed in Central Maintenance. Those employees holding posted jobs within Central Maintenance will be exempt from seniority based bumps. Central Maintenance employees may bump using millwide seniority within the Central Maintenance groups of mechanical trade or electrical/ instrumentation depending on the location of their primary craft, but not in other departments. Sufficient slots for six (6) displaced Central Maintenance employees will be made available. They will be slotted into one of the crafts by seniority. The displaced individual must be a journeyman or pass a Maintenance Aptitude test in order to return to central maintenance. and enter an apprentice program (selection based on Company needs and employee desires). Their wages will be frozen until exceeded by the appropriate apprentice/journeyman rate. Central Maintenance employees may sign for a relief or posted job outside their department, however this relinquishes all current and future rights to Central Maintenance. Central Maintenance employees, if they have physical, mental or medical condition (s) that would prevent them from 6 7 doing their duties would be discussed with the Maintenance Review Board and they could be allowed to go into the Labor Pool. 8.2015 In the event of a temporary reduction in force (defined as temporary machine or line curtailment), the employee whose position is curtailed may within 7 calendar days bump into open jobs or posted jobs held by any less senior employee in the structure. If there are no less senior employees in the structure, the employee may bump into open jobs or posted jobs held by the least senior employee within their department. If there are no less senior employees in the department, the employee may bump into open jobs or posted jobs held by the least senior employee in any other department other than Central Maintenance. In the event a temporary curtailment lasts 90 consecutive calendar days, this will become the bumping employee's permanent posted job. Prior to 90 calendar days, unless the employee has posted and received another position, the employee will be required to return to their posted job and all affected employees must return to their posted jobs. In the event an employee posts and receives another position within the 90 days, the employee bumped from the job will return to it. Displaced employees who fail to bump and go to the Labor Pool will lose their posting and be classed as Labor Pool employees after 90 calendar days. 8.2016 In the event of a permanent reduction in force, the employee whose position is eliminated may within 7 calendar days bump into open jobs or posted jobs held by any less senior employee in the structure. If there are no less senior employees in the structure, the employee may bump into open jobs or posted jobs held by the least senior employee within their department. If there are no less senior employees in the department, the employee may bump into open jobs or posted jobs held by the least senior employee in any other department other than Central Maintenance. If there are no less senior employees in the other department, the employee will be placed in the Labor Pool and be classes as a Labor Pool employee. 8.2017 Any employee exercising millwide seniority rights will be trained for the designated training period to perform the work of the assigned job. If, during the break-in period (or, if the break-in period is waived, 7 days), the employee awarded the job decides to relinquish his right to the job, the employee bumped from the job will return to it. If this was a posting rather than a bump, then the next senior employee to sign the posting will be considered. Names of unsuccessful bidders on any posting will be void after 90 calendar days. The 90-day period begins on the day that the first bidder on that posting begins on the job after training is completed. If, in the judgment of the Company, after receiving input from employees and the Union, the employee is unable to acceptably perform the duties of the new job within the first 30 working days after assuming the job, that employee may be relieved of that job and put back to their previous position. 8.2018 There will be one Labor Pool. Employees who end up in the Labor Pool will be at the schedulers discretion (training, fill-in or laid off, possibly out of turn). The intent of this language is to keep the senior employee working whenever possible. 8.2019 Future vacancies will be filled through postings by employees from within the structure on the basis of millwide seniority. If a position is not filled within the structure, the position will then be offered millwide and filled on the basis of mill seniority. In the event there are no applicants, the least senior employee in the labor pool will be assigned to the posted position. The parties agree on or about January 1, 1999, to determine if Labor Pool movement is occurring. If not, the parties agree to negotiate an alternative resolution to the problem. 8.3 Paper Machine Seniority 7 8 8.301 For Machine Tender -- Starting date as Back Tender is used; For Back Tender -- Starting date as Third Hand is used; For Third Hand -- Starting date on Paper Machine is used. Personnel signing on the Paper Machines after July 15, 1974 must agree to job progression. 8.4 Loss of Seniority 8.401 Seniority will be lost by any one of the following specified acts: 8.4011 When an employee voluntarily quits work. 8.4012 A proper discharge. 8.4013 After having been laid off the employee does not report for work within one week after written notice is mailed to the employee at the address on the Company's records and the Bargaining Committee will have been notified of such a fact. 8.5 Voluntary layoffs 8.501 Will be granted under the following conditions: 8.5011 The employee has no unscheduled vacations; and, if granted, vacations cannot be canceled or rescheduled; and, pool vacations are not at a maximum; and, there is a qualified employee available to perform the job being vacated; or, 8.5012 The employee on a crew scheduled on machine curtailment and is not scheduled to take vacation during the machine curtailment. 8.6 The voluntary layoff will be for a minimum of two (2) weeks, and extended in one (1) week increments. Personnel on voluntary layoff must follow the procedures in paragraph 8.7 and, if at any time during the voluntary layoff, the entire workforce is recalled, any employees on voluntary layoff will also be returned to work. 8.7 Employees on layoff status are required to contact the Human Resources Office by 3:00 p.m. Friday of each week to determine their work status for the following week's schedule. If work becomes available after this time, it will be the company's responsibility to contact the employee for return to work. Unemployment compensation benefits for any employee on involuntary layoff, meeting the above requirement, will not be challenged. Article 9 LAYOFF AND RECALL 9.1 Recall from Temporary Layoff 9.101 Recall from temporary layoff will be by millwide seniority, with the employee on the layoff list having the most millwide seniority being recalled first, and so on down the layoff list. 9.102 When filling vacancies that occur during the week the company will attempt to fill the vacancy using the most senior laid off employee from the Labor Pool. Where lengthy training for the position is needed, the position will be filled with most senior person capable of doing the job. 8 9 9.1021 Attempts will be made to contact the most senior person capable of doing the job up until 1:00 p.m. on the business day prior to the start of the job. If this person cannot be contacted by this time, the Company will attempt, in seniority order, to contact others capable of doing the job until the job is filled. All hours relating to that position will then be filled by the first person successfully contacted who is capable of performing the work. 9.1022 Documentation will be kept for all attempts at filling these positions. The Company is obligated to report these attempts to the Unemployment Compensation Office where they will determine eligibility based on employee and Company information provided. Article 10 JOB ALLOCATION 10.1 Filling Permanent Vacancies 10.101 Whenever a vacancy in a job covered by this Agreement arises as a result of attrition, promotion, transfer, or new jobs, the company will post a notice of the vacancy on the bulletin board in the structure for a period of seven (7) calendar days and will furnish the union copies. Preference for filling all such vacancies will be given to senior qualified employees covered by this Agreement. The physical condition of the employee to perform the tasks of the job will be considered before allowing the employee to take the job. If not filled from within the structure then the vacancy will be posted millwide. This posting will be outside the Human Resources Office. The company will notify the Union of any changes that are made in the language of the job. 10.102 Any employee(s) interested in filling the vacancy must sign the posting during the posting period. 10.1021 When an employee is not working for an approved reason during the posting period, he will be able to bid for the job immediately upon his return to work, or by phone, or by someone else in his name, if this is done before the vacancy has been permanently filled by someone else. 10.103 If, in the judgment of the Company, the employee is unable to acceptably perform the duties of the new job within the first 30 working days after assuming the job, that employee may be relieved of that job and returned to his previous position. 10.104 An employee signing for and eligible to receive more than one job, must indicate which posting right he wishes to exercise. Once this choice is made, that employee will not be eligible to exercise rights on the other posting (s). 10.1041 If an employee signs multiple postings and is awarded a job, but was prevented from getting another job because of his seniority, his name will remain active on that posting for as long as he is in the break-in period. In the event the more senior employee (s) fail to get the job, he may, in that case, exercise his seniority for that job. 10.105 An employee will be limited to two (2) successful bids on jobs during any twelve (12) month period. Additional bids may be made providing they involve a monetary gain or involuntary 9 10 removal from a job. A successful bid is defined as being awarded and actually beginning to work in the job. 10.106 For employees signing on the Paper Machines after July 15, 1974, when a vacancy occurs on a job falling within the Paper Machine progression, the job will be posted for bidding by employees occupying the same or higher classification on the Paper Machines; if it is not filled by this job posting procedure it will be filled as follows: 10.1061 The senior employee occupying the job which would progress to the vacant job will be required to move to that new job. 10.1062 This move will be made regardless of which Paper Machine the vacancy occurs on. 10.1063 It is also understood that a Machine Tender electing to move to Back Tender on another Paper Machine does so without loss of Machine Tender seniority for this instance only. 10.107 Any employee who gives up a job must remain on the job until he can be replaced by a qualified employee. 10.108 A progress review committee consisting of the trainer, the committee person from the area, the manager in charge of training for the area and the superintendent will meet, when necessary, to review the progress of the trainee and resolve any problems that may be hindering the training. The trainee will also attend this meeting. 10.2 Filling Temporary Vacancies 10.201 Any temporary vacancies within a progression will be filled by the employee occupying the job which would normally progress to that vacancy as described in Exhibit E. On the Paper Machines, this temporary movement to the next higher job is voluntary for employees signing on the machines prior to July 15, 1974. No crossing of machine/system or shifts will be permitted in these instances without written permission of the department superintendent. 10.202 The temporary opening in the bottom position in a progression or in a non-progression job will be filled by the most senior qualified person from the Labor Pool. 10.2021 If the permanent job of an individual employee is temporarily filled for the entire scheduling period (Monday through Sunday), the employee temporarily filling that job will assume the days off of that job during that scheduling period. 10.203 Employees holding posted jobs in the Material Support System will have the option of electing to move into one of the Paper Products systems on a temporary fill-in basis on his or her shift. The employee may select only one of the systems: BRT System HHT System Napkin System Facial System Once an employee makes a selection, s/he will be used as needed for temporary fill-in before any Labor Pool people on that shift and must move into that system when needed. 10.204 Posted schedule changes for the following week must be approved in advance by the department superintendent in writing and will not be permitted after 2:00 p.m. on Friday. The schedule for the following week will be posted by 2:00 p.m. on Thursday of each week. 10 11 10.3 Relief Positions 10.301 Selection of employees for the position of Relief Supervisor will be made by the Company, based upon qualifications it deems appropriate for the position, without regard for seniority or position in the work force. A bargaining unit employee who works 52 consecutive weeks as a spare foreman after April 1, 1997, must either be offered a supervisory position or return to a bargaining unit position. 10.302 The following positions will be posted jobs: Relief Waste Treatment Plant Operator Relief Waste Treatment Truck Driver Relief Steam Plant Operator Relief ULF Operator/Maintenance Relief Spotter Driver Relief Receiving Driver Relief Electrical Operator Relief PPD Maintenance Personnel will be selected from those signing the posting (s), first by millwide seniority within the structure, then by millwide seniority if no personnel within the structure sign the posting. Employees may hold only one Relief Position. 10.303 The position of Relief Electrical Operator will be a posted job. Postings will apply only to currently qualified electricians in the Electrical Classification. If no currently qualified Electricians sign the posting the least senior qualified Electrician will be required to fill the position when needed. 10.3031 Generally, a qualified electrician will mean any person who held an electrician job prior to April 1, 1990, and any future apprentices who complete the Electrical Apprenticeship and receive a Journeyman classification. Considering the safety of the individual and the operation of the mill, if the question of qualifications in normal electrical skills should arise, it will be settled by the Electrical Supervisor, a Union representative from the trades, and the Human Resources Manager. 10.304 Personnel successfully bidding into these positions will be the designated fill-ins on a temporary basis and will normally have first rights to the structure posting when posted based upon their seniority in the relief position. 10.3041 If a reduction in workforce (temporary or permanent) should impact any employee holding a posted job which utilizes relief operators, that displaced person will have the opportunity to fill a future permanent vacancy in that job before any existing vacation relief individual (See article 10.304). Furthermore, that displaced person must continue to utilize his skills and, therefore, will be utilized as a vacation relief consistent with current practice and procedures. 10.3042 "Signing off" a vacation relief position awarded also relinquishes current and future right to maintenance. Permanent PPD Maintenance employees may sign for a posted job outside of PPD Maintenance. However, this relinquishes all current and future rights to PPD Maintenance. 10.4 Vacation Replacements 11 12 10.401 Vacation replacements will be hired between the period May 1 through September 15 for the purpose of filling vacancies created by vacations, and will be terminated at the 15th of September or sooner if required. It is also agreed that each vacation replacement, after working 31 days, will be required to join the union. The "Vacation replacements" in this section may also be used during the holiday season to augment the workforce during these heavy vacation periods. 10.402 A vacation replacement file will be maintained in the Human Resources Office for the Purpose of filling vacancies created by vacations or other short term work requirements not falling within the dates of the preceding paragraph. This list will not be used for call in until all permanent, full-time employees on lay off have been given the opportunity for the work, and the Company and the Union will mutually agree upon when this list will be used. No permanent employee benefits will be due to workers holding this status. 10.5 Protection of Seniority 10.501 Any employee promoted to a position within the Company over which the Union has no jurisdiction, and in good standing with the Union, will be entitled within six months of the time of his promotion, if still an employee of the Company, to exercise his seniority on his previous job in case of discontinuance of his position. However, if the employee had occupied the position of Relief Supervisor for the period of six (6) months prior to accepting a permanent promotion, he will have only sixty (60) days to exercise this option. 10.6 Maintenance Apprenticeship 10.601 A maintenance apprenticeship program, in compliance with the Wisconsin State Statutes is established effective July 15, 1987, for all future employees entering central maintenance. 10.602 First consideration for apprenticeship training will be given to current full-time maintenance employees desiring to participate in the program and qualified maintenance helper employees who have passed the Maintenance Aptitude Test. 10.603 The term of the apprenticeship will be four years of not less than 8,000 hours. Up to the first 1,000 hours will constitute the probationary period. During this period he will be interviewed and his performance evaluated as required by a maintenance review board consisting of Company and Union representatives. 10.604 The apprentice will attend vocational technical related instruction classes four hours per week or equivalent instruction for a minimum as prescribed by the apprentice program and satisfactorily complete the required course materials. Hours of school attendance will be counted as hours worked and the Company will pay the apprentice the same rate of pay for these hours as hours on the job. 10.605 A schedule of processes to be worked in each apprenticeship will be developed for each of the trades. Experience and training will be required in each of the process sections. 10.606 Any employees who were not members of the Maintenance Department prior to July 15, 1987, and are not satisfactorily completing the required course materials or work credits will be removed from the apprentice program and maintenance department. 10.607 Employees will not be allowed to change apprenticeship programs once their training has begun. 10.608 When an Electrical Apprentice completes the training and becomes a Journeyman Electrician, a posting for an Electrician will be posted unless that Apprentice already holds a posted Electrician job. At this time, an Electrical Operator may use his/her Electrician seniority to bid onto the 12 13 Electrician job. If an Electrical Operator successfully bids onto the Electrician job, the Electrical Operator job will be posted. Qualified Electricians will be required to fill the next vacancy as an Electrical Operator. Senior persons will be asked, junior person (s) will be required to fill the Electrical Operator job. 10.6081 Both postings in the paragraph above will be internal to the Electrical Craft only to serve as documentation of any changes. 10.609 Participants in the maintenance apprenticeship program will be paid according to wage schedule in Exhibit C. of this Agreement. 10.7 Steam Plant Licensing 10.701 Employees who successfully bid on Steam Plant Operator or Relief Steam Plant Operator positions and pass the required physical will complete an eight (8) week training period. At the end of this training period, the employee will be required to take a written exam provided by the Company and score 80% or better on this exam. All license renewals required by company will be at company expense. Any current licenses held by Steam Plant Operators or Relief Steam Plant Operators will be kept in force under current conditions of renewal. 10.7011 If an employee scores between seventy per cent (70%) and eighty per cent (80%) on the first time the written exam is taken, that employee may receive up to an additional four (4) weeks of training and retake the exam. 10.702 Employees not passing the written exam with a score of 80% or better will return to their previous job and be ineligible for all future Steam Plant openings. 10.703 Any modifications to the written examination dated February, 1991 will be reviewed with a Union representative. 10.704 If, through the action of some regulatory agency, it should become necessary for Steam Plant Operators to be licensed or otherwise certified by such regulatory agency, employees holding the Steam Plant Operator or the Relief Steam Plant Operator positions will be expected to do whatever is necessary to meet the regulatory agency's requirements in order to maintain their positions in these jobs. 10.8 Physician's Work Restrictions 10.801 The Company and Union agree that if an employee cannot perform the work of his regular job because of restrictions established by a physician, he will be placed in the Labor Pool and will be subject to the following conditions: 10.8011 The employee will remain in the Labor Pool until he bids on and receives a job according to the contract or until he is released by a physician to return to his regular job. 10.8012 The employee may exercise his mill seniority within his structure for an open job that he can perform. 10.8013 An employee placed in the Labor Pool has no special seniority. These procedures apply only to fill in on vacant jobs, on a temporary basis. 10.8014 In all cases, employees with work related injuries will be given priority over non-work related injuries. 13 14 10.9 Waste Treatment Plant Operator Licensing 10.901 Employees who operate the Waste Treatment Plant must hold a valid operator's license as issued by the Wisconsin Department of Natural Resources. The operator must meet at least the requirements for level two grade for: General, Primary, Settling, Activated Sludge, Mechanical Sludge Handling and Laboratory. 10.902 Within one year of accepting the position of Waste Treatment Plant operator, the individual is required to successfully complete one required test necessary for the Waste Treatment Plant licensing. Two additional required test must be successfully completed during the second year. Two additional required licensing tests must be successfully completed in the third year. Pay will be adjusted proportionally for each test passed until the pay rate for licensed waste water treatment plant operator is attained. 10.903 Failure to meet progress requirements as stated in 10.902 will subject the employee to a review by one union committeeman and the department manager with the department manager making the final decision regarding the progress requirement. Any operator who fails the progress requirement review as detailed above will not be allowed to retain their job in the Waste Treatment Plant and will be ineligible for any future openings for Waste Treatment Operator. Article 11 HOURS AND SCHEDULING 11.1 Work Week and Running Schedule Reference to 7-day swing in Article 11 or anywhere else in this agreement is equivalent to the term Southern Swing. 11.101 The normal work week for those areas or machines on Seven Day Swing will be seven (7) days running Monday through Sunday, and for those areas or machines not scheduled on Seven Day Swing will be five (5) days of forty (40) hours running Monday through Friday. The payroll week will run from 6:30 a.m. Monday to 6:30 a.m. of the following Monday. 11.102 If operational requirements dictate a six day operation, the Company retains the prerogative of scheduling and manning the necessary equipment to meet these requirements. 11.103 Should the occasion arise when the Company desires to establish a Seven Day Swing schedule in any department, including necessary support personnel, it will be for a minimum of 8 weeks and if necessary extend in multiples of four weeks. The Company and Union may, in case of emergency, mutually agree to waive the four week multiples. 11.1031 The positions for the fourth or D shift will initially be posted unless otherwise stated below. Personnel will be selected by mill seniority within their structure first, followed by millwide seniority if enough structure personnel are not available. This language is interpreted as purrint on an extra crew. When that crew is no longer required, the actual personnel who successfully bid into the extra crew positions will be the personnel who are referred to in the language. This movement in and out of the extra crew positions will also be applied if, for instance, a third crew of personnel were added to a 14 15 normally two crew operation. Time limits for any additional crews other than for Seven Day Swing will be mutually agreed between the Company and Union. 11.104 When paper machines are not scheduled to operate on Sundays or holidays, machine clothing may be changed by employees on a voluntary basis. 11.105 If any paper machines, running on a seven day swing schedule, are running a product that can be run on a machine that is on a six day schedule, that machine will revert back to the seven day swing schedule. The Company agrees not to buy any paper that can be produced on the paper machine that is not scheduled on a seven day week. 11.106 Eight (8) hours will constitute a normal day's work in all departments. 11.2 Scheduling Changes 11.201 If an error is made in scheduling, it is the employees responsibility to bring the error to the attention of the scheduler before noon on Friday, or before noon on the last business day before the schedule is effective. This includes regular scheduling weeks, holidays, and overtime. Otherwise, no grievance will be paid for the error. 11.3 Shifts 11.301 Normal starting times for shifts are 6:30 a.m., 2:30 p.m., and 10:30 p.m. The parties agree that for purposes of computing overtime and tracking tardiness, these established starting times will be used. 11.4 Starting and Stopping Work -- Shift Workers 11.401 When a shift begins, each shift worker is required to be in his place. At the end of a shift no shift worker will leave his place to wash up and dress until his partner has changed his clothes and reported to take on responsibility of the position. 11.402 If a shift worker does not report for his regular shift the shift worker still at his position will notify his supervisor and will remain at his post until a substitute is secured and if necessary, will work an extra shift. Reasonable effort will be made by the supervisor to secure relief to avoid the worker having to work an extra shift. When an employee works for 12 hours without being notified before his shift starting time on that day, arrangements will be made to provide a meal delivered to his/her place of work. An employee may receive a petty cash slip for up to five ($5.00) for money spent on purchasing meals from the vending service. 11.403 It is the duty of each shift worker to report for his regular shift, unless he has already arranged with his supervisor for a leave of absence. If unavoidably prevented from reporting for his regular shift, he must give notice to his supervisor or at the office at least four hours before his shift goes on duty, except in case of emergency. 11.404 If an employee is scheduled for 12 hours, the Company will be required to provide work or pay lost time. 11.5 Exchanging Shifts 11.501 Changing of shifts between shift workers will not be permitted unless approved by the head of the department in which employees concerned are working. When permission is granted for such exchange employees will notify the Payroll Department. 15 16 11.502 Any employee may arrange in advance with his supervisor for an absence, and for his partner (partners first) to work his shift. The employee taking off must return the shift for his partner during the same week the original absence occurs. No overtime will be paid for such hours worked in excess of eight (8) as the result of this arrangement. Employees must ask their partners on both the preceding and following shifts first. If neither partner can trade shifts, the employee may ask other qualified employees in the department to make the change. The supervisor must approve the qualifications of the individual willing to make the change. 11.6 Starting and Stopping Work -- Day Workers 11.601 Day workers will be at their respective posts ready to begin work at the time their pay starts, and will not quit work in advance of the time their pay stops. 11.6011 Example: If a mechanic's paytime is from 6:30 a.m. to 2:30 p.m., he will be at his post ready to work at 6:30 a.m. and will not quit work until 2:30 p.m. 10 minutes are allowed for putting away tools and washup. 11.602 Salaried supervisors will not perform work regularly performed by employees in the recognized bargaining unit. It will not be considered doing bargaining unit work for a supervisor to engage in training an employee, predetermined experimentation while accompanied by a qualified member of the bargaining unit, or to provide for the safety of the employees and company property. 11.7 Essential Services 11.701 Boiler Room personnel and Electrical Operators are considered essential services. Waste Treatment Plant Operators and Truck Drivers will remain on the job until the waste treatment plant has been safely shut down and all remaining sludge has been removed to the landfill. 11.8 Continuous Run Operations 11.801 The following structures and/or equipment will be operated continuously by their crews for the duration of each scheduled shift: 11.8011 Stock Preparation Area 11.8012 All Paper Machines 11.8013 HHT, BRT, Napkin, and Facial machines, along with any support functions and equipment currently in place and any future equipment and/or systems in the Paper Converting Department. 11.8014 Shipping 11.8015 Steam Plant Operators Article 12 TIME KEEPING 16 17 12.101 Each employee is required to accurately maintain a record of his time worked on a daily basis and is responsible for the maintenance and security of the time and attendance system input devices. 12.102 Any employee found to be using an input device other than their own or tampering with or otherwise destroying the integrity of time keeping services will be subject to discharge. 12.103 Any lateness will be charged at the rate of one-tenth (1/10) of an hour for each increment of six (6) minutes or less of tardiness. Article 13 CHEMICAL ABUSE 13.1 General Purpose 13.101 The mutual objective of this article is to remove potential problems associated with the illegal drug and alcohol abuse from the work place, either through treatment, cessation of use, or, if necessary, termination of employment. The following policies and procedures concerning substance abuse will apply: 13.1011 All employees must report to work in a physical condition that will enable them to perform their jobs in a safe and efficient manner. Employees will not use, possess, dispense, or receive alcohol, intoxicants or controlled substances (drugs) on Company premises or report to work with any amount of a controlled substance, intoxicant, or illegal drug which equals or exceeds any current legal limits, in their system. 13.1012 Medication prescribed by a physician is an exception when the physician prescribing medication has released the individual to work while taking the prescribed medication. Abuse of prescribed drugs is a violation of this article. 13.1013 It is the primary intent to encourage and assist employees in treatment and rehabilitation through the Employee Assistance Program (EAP). However, employees who repeatedly violate the above will be subject to appropriate discipline up to and including discharge. 13.2 General Procedure 13.201 Whenever the Company has reason to suspect that an employee is impaired or under the influence of illegal drugs or alcohol, as defined in Paragraph 13.101 above, while on Company premises, the Company reserves the right to require a urinalysis, blood or other related test. Refusal to submit to such test or tests is grounds for appropriate discipline. 13.2011 A supervisor must have reasonable grounds to believe that the employee is under the influence of or impaired by alcohol or drugs. 13.2012 Supervisor's reasonable grounds must be confirmed by another Management representative. 13.2013 The employee will be provided with an opportunity to explain his/her conduct. The employee will have the opportunity to have a Union representative present if requested (fellow employee if no Union representative is available). 17 18 13.2014 In circumstances involving the physical safety of employees including employees involved in some manner in a recordable accident, the Company will have the right to immediately require a urinalysis and/or blood test of such individuals, providing the Company has reason to believe such recordable accident was the result of using illegal drugs or alcohol. 13.3 Rules and Regulations 13.301 The Company will have the right to establish reasonable rules and regulations concerning the Company's treatment of employees suffering from substance abuse and the related testing for substance abuse consistent with this article. 13.3011 Employee representatives and/or the employee will have the opportunity to review the testing procedure. 13.3012 All samples which test positive will be confirmed using a gas chromatography/mass spectrometry test, or a superior or equally reliable test, if same becomes reasonably available. 13.3013 The employee at his/her expense, will have the opportunity to have a reputable testing facility test the same sample submitted to the original test facility. Accepted chain of custody procedures must be followed. An employee may request the independent test by notifying the Personnel Manager in writing within two calendar days after the day the employee is informed of the test results. The test results will be kept confidential, and will be available only to a designated employer representative, a designated Union representative, or a designated legal representative. 13.3014 None of the testing procedures are intended to be in violation of the law, and if they are, they will be eliminated without interfering with other parts of this Agreement. 13.3015 Employees required to take a test will be placed on an unpaid leave of absence, pending the receipt of the test results. Employees tested as the result of an accident will not be placed on an unpaid leave unless other grounds exist. 13.3016 If the test results are negative, the employee will be paid for any time lost as a result of 13.3015. 13.3017 Any employee who, during the term of this Agreement, is required to take a test two (2) times by the same supervisor, and whose results are negative both times, will receive one week's pay at current vacation hours as compensation for the inconvenience. 13.4 Positive Test Results 13.401 Positive test results will invoke the following procedures: 13.4011 The terms of the disciplinary action will be set forth in a written referral agreement entered into between the employee, the Union, and the Company. When reviewing the written agreement, the disciplinary action will be abated for an employee who satisfactorily completes the treatment program prescribed, and who meets the terms and conditions of the written referral agreement. 13.4012 An employee who fails to cooperate, abandons or does not complete the treatment program prescribed by the EAP counseling, or who fails to live up to the terms and conditions of the referral agreement, will receive the previously withheld discipline. 18 19 However, before the disciplinary action is imposed, the Employer and Union representative will attempt to counsel the employee into completing the treatment program. 13.4013 Whether an employee volunteers to participate in the EAP or is required to participate as a condition of continued employment, that employee will continue to be subject to the same rules, working conditions, and disciplinary procedures in effect for other employees, i.e., employees cannot escape discipline for future infractions by being enrolled in the EAP. 13.4014 Employees will not be allowed to elect rehabilitation in lieu of discipline more than two (2) times. The Company will refer employees and pay for rehabilitation as in 13.501 for a maximum of two (2) times. A third offense of any chemical abuse problem affecting the employee's job will result in termination of employment. 13.5 Covered Expenses 13.501 The Company agrees that medical care expenses are covered, as provided by the Company's Health and Welfare Plan and weekly accident and sickness benefits are covered under the provisions of the Company's Plan. 13.5011 If necessary, leaves of absence will be made available for treatment and counseling. The Company will initially select reputable facilities for base testing and confirmatory testing at Company expense. The facility must employ certified medical technologists and technicians. The Union will be provided with the testing facilities, names, addresses, and credentials, if requested. The Union retains the right to demand a change in test procedure or test facility, based on reliable information which disproves the accuracy or quality of either. The Union also retains the right to request a change in test procedures or test facility, when a reasonable and superior alternative to either is available. Article 14 WAGES 14.1 Wage Rates 14.101 Wage rates shown on the attached schedule (Exhibit C), including shift premium, will be paid. In addition, a Profit Sharing Plan, fully described under a separate document entitled "Profit Sharing Plan for Hourly Employees of UPIU Local 42 at Eau Claire, Wisconsin," will become effective on January 1, 1993, and will remain in effect for the duration of this Agreement. The specific terms of the plan are not negotiable and are the sole responsibility of the Company. The Union will be notified of any changes after approval by the Company's Corporate Officers. 14.102 When the Company installs new equipment or rebuilds present equipment, the rates of pay established will be retroactive to the time the equipment starts operation. 14.103 Any employee training in a job that does not have an established training rate progression in Exhibit C will be paid the posted rate for that job. 14.1031 The Levels of pay in Exhibit C in the Converting section are defined as follows: 19 20 Level 1 Refers to the entry level rate in a system Level 2 Means qualified on two of the functional operating units within a system. Level 3 Means qualified on three of the functional operating units within a system. The decision regarding qualifications will be the responsibility of the Department Supervisor and Superintendent. This authorization will be documented and copies distributed to the employee's personnel file, the employee, Local 42, and the Payroll Department. 14.104 Employees will be paid the rate assigned to the job they occupy. No employee's regular job rate will be reduced when temporarily transferred to a job paying a lower rate per hour unless the employee's regular job ceases to provide work. 14.105 The matter of wages is not to be a subject of arbitration. 14.2 Pay Practices 14.201 Pay periods will cover a period of one calendar week. 14.202 Pay day will be every Thursday. 14.203 Any claim or error in pay should be reported to the Time Clerk for investigation. 14.204 On the paper machines, work performed during breakdowns, dryer grinds, rebuilds, etc. will be paid at the employees' regular rate of pay. 14.205 No pay will be given to an employee other than the one to whom it is due, except on a written order signed by the employee, reading as follows: Pope & Talbot Wis., Inc. Eau Claire, Wisconsin Pay bearer all wages due me up to and including _____________________ _____________________________________________________________________ Card No. _____________ Signed ______________________________________ 14.3 Shift Premium 14.301 Employees as defined in the foregoing articles of this Agreement will be paid a shift premium as outlined and attached to the wage schedule. 14.4 Wage Retention 14.401 An employee who has ten or more years of service and is demoted by the Company because of inability to perform his job, or employees displaced by crew reduction or current operating machinery, not to include shutdowns of structures or temporary layoffs of a shift, will qualify for the following wage retention: 14.402 The employee will receive a special minimum wage rate on his new job which will be a rate halfway between his former classified job rate and the base labor rate in existence at that time. 20 21 He will receive one-half of any general wage increase negotiated until his new classified job rate exceeds his special minimum rate. If his job is subsequently changed, he retains his special minimum rate unless the new job rate exceeds such minimum. In any event, three years from the date of such demotion, any employee's special minimum rate terminates and the hourly wage rate of such employee will become the rate of the classification he then occupies. In no event can an employee accumulate more than three years coverage under the wage retention clause. 14.5 Speed Clause 14.501 The base speeds for the paper machine speed clause of rates in the contract effective April 1, 1993, are as follows: No. 3 paper machine 3000 FPM wet end speed 2-ply HHT No. 5 paper machine 4200 FPM wet end speed 2-ply bag stock 14.5011 The Company will automatically increase the pay rates for the machine tender, back tender, third and fourth hands, fifteen (15) cents per one hundred feet sustained speed increase. 14.502 A one hundred foot speed increase is defined as a speed which is repeatedly attained during the greater portion of a calendar month when the machine is on a grade on which the machine runs at its highest speed. 14.503 If at a future date, the speed is not maintained consistent with the pay increase made, the increase will be negated. 14.504 When capital investments are made to increase machine speeds, the Company and the Union will mutually agree to any necessary wage adjustments and the new base speed of the machine for the purposes of this Article. 14.6 Wire Clause 14.601 Wire Time 14.6011 Shift workers required to put on wires at a time other than their regular shift will be paid in accordance with the schedule outlined below or one and one-half times the hourly rate for the actual hours worked, whichever is greater. If shift workers continue such work after their shift ends or put on a wire during their regular shift, they will be paid in accordance with the schedule outlined below for the time required to change the wire or one and one-half times the hourly rate for the actual hours worked, whichever is greater. It is understood that their regular hours, however, will not continue during the wire change. 21 22 Wire Time Machine No. 6 hours 5 10 hours 3 14.6012 Shift workers required to put on wires on Saturday will be paid in accordance with the schedule outlined below. Wire Time Machine No. 9 hours 5 15 hours 3 14.6013 Shift workers required to put on wires on Sunday and recognized holidays will be paid in accordance with the schedule outlined below: Wire Time Machine No. 12 hours 5 20 hours 3 14.602 Procedures for Manning Wire Change: 14.6021 Procedure for Manning Wire Change No. 3 Paper Machine Twelve people are required to perform the wire change. Personnel scheduled on three shifts that day will man the change. If enough people are not available, use the following sequence to fill the vacancies: 1. Promote up to fill the vacancy and then use the utility driver and facial helper on shift to fill in if orders allow No. 5 Winder to shut down. 2. The people assigned to No. 3 Paper Machine who are on their scheduled day off will be called in by mill seniority 3. Next, call the personnel from the posted call list scheduled in the structure by mill seniority. 4. Next, call the personnel working in the structure in order of mill seniority. 5. Next, people who are on their day off scheduled in the structure by mill seniority. 6. Next, call the personnel from the posted call list scheduled in the Paper making Department by mill seniority. 7. Personnel on shift will not be allowed to get replacements for themselves until all twelve positions have been filled. 8. Employees getting replacements must follow steps 1-7. If they cannot get a replacement, they must work the wire change. 9. When possible, wire changes will be scheduled a day ahead and a notice posted for the regular crews to report. 10. When a wire is changed at 6:30 a.m. on Wednesday, the personnel coming off the 11-7 shift have the option of staying or going home. 14.6022 Procedure for manning wire change, No. 5 Paper Machine Eight people are required to perform a wire change. 1. If before midpoint of shift, the crew on duty and the previous crew will man the change. 2. If after midpoint of shift, the crew on duty and the incoming crew will man the change. 3. Fourth hands will be used next. 22 23 4. If enough people are not available from two shifts, the third crew scheduled that day will be called by mill seniority. 5. The people assigned to No. 5 Paper Machine who are on their scheduled day off will be called in by mill senioirty. 6. Next, call the personnel from the posted call list scheduled in the structure by mill seniority. 7. Next, call the personnel working in the structure in order of mill seniority. 8. Next, people who are on their day off scheduled in the structure by mill seniority. 9. Next, call the personnel from the posted call list scheduled in the Paper making Department by mill seniority. 14.6023 There will be a Call List posted in the Tour Boss office each week. If, after all the procedures described above have been exhausted, there is still a requirement for more personnel, the personnel who have put their names on the list will be called in order of millwide seniority. Personnel may add or delete their names from this list at any time during the week. 14.6024 After the Call-List in paragraph 14.6024 has been exhausted, any qualified employee (s) may be called in to fill any necessary jobs. 14.7 401(k) Plan 14.701 Effective January 1, 1994, all active employees will be eligible to participate in the 401(k) Plan for Pope & Talbot employees at Eau Claire. All participating employees will be subject to the rules and regulations of this plan as administered by the Company including any administrative changes made by the Company in the future. There will be no Company contribution to this plan on the effective date. 14.702 Enrollment dates will be the month of December becoming effective in January and the next enrollment date is the month of June becoming effective the month of July. 14.8 Severance Plan 14.801 In the event that the Eau Claire mill is totally and completely shut down and ceases all operations, all active employees of the mill will receive the benefits of the severance plan described below. 14.8011 Each active employee will receive a lump-sum severance payment equal to one (1) week's pay for each full year of service from the most recent date of hire. 14.80111 There will be a minimum of four (4) week's pay and a maximum of twenty-six (26) week's pay. 14.80112 One week's pay is defined as the employee's posted job rate times the current number of hours paid for a vacation week. For employees with no posted job, the base rate will be used for the job rate. 14.8012 The employee's current medical and dental coverage will be continued under COBRA from the first of the month coincident with or next following the date of the plant shutdown. 14.80121 The Company will pay the COBRA premium until the last day of the month in which the final week of severance pay would occur if not paid in a lump sum. 23 24 14.80122 Employees will be provided with notification and the appropriate forms to voluntarily continue their coverage, after Company paid coverage ends, by paying the current monthly premium for benefit continuation for the remainder of the COBRA period effective at that time. Article 15 CALL TIME AND REPORTING TIME 15.101 Any employee called to work at any time other than the start of his or her established shift will be paid two hours call time plus the actual hours worked, but not less than four hours on any one call. If an employee, who has been called in to perform a specific task or job, is requested by the Company to remain and perform additional tasks or jobs, he will receive two (2) hours pay or actual hours worked, whichever is greater, for each additional task or job he performs. However, the employee may refuse the multiple call request. Employees already on the mill premises will not receive call time if requested to begin work prior to the start of their normal shift. Overtime will be paid for time worked before normal shift starting time or where otherwise applicable. 15.102 When an employee reporting for work on his or her regular shift finds work is not available and said employee has not been notified within one hour just prior to his starting time not to report for work, said employee will receive two hours pay or at least four hours work at the regular pay, except in case of breakdown. 15.103 It is agreed that the time for a start of employee's shift or day may be changed at any time by the management upon notification to the employee before the end of their last preceding shift. 15.104 No limitation on hours of work contained in this Agreement will apply to employees of any class when engaged in emergency work involving breakdown or emergency work involving protection of life and property. Any emergency work will not be included in their regular schedule of hours. 15.105 Call time does not apply to any circumstances where an employee is called back to work from a lay off. Article 16 OVERTIME AND PREMIUM PAY 16.1 General Provisions 16.101 Time and one-half will be paid to any employee for all work performed in excess of eight (8) hours but less than twelve (12) hours per day, more than eight (8) but less than twelve consecutive hours, or 40 hours per week. Double time will be paid for all work performed in excess of twelve (12) hours per day or twelve (12) consecutive hours. 16.102 Premium Days 16.1021 Double time will be paid for all work performed on Sunday. 16.1022 Double time will be paid for all work performed on the holidays listed in Article 21. 24 25 16.1023 Time and one-half will be paid for all work performed on Saturday. 16.1024 Time and one-half will be paid for all work performed, at the Company's request, on a regularly scheduled day off. 16.103 The employee on the job is defined as the person (s) that actually performed work in a scheduled or assigned classification for all or the final portion of a regular workday prior to the overtime. 16.104 An employee who does not work any scheduled hours during the week in the structure where the overtime occurs is not eligible for any overtime in that structure unless the position cannot be filled. 16.105 If it is necessary to fill a temporary vacancy by using long hours, the overtime will go to the job in which it was created. 16.106 For the purpose of computing overtime, when an idle holiday occurs in the employee's scheduled work week, such idle holiday hours will be considered as time worked. 16.107 If posted weekend overtime is canceled after noon Friday, the Company will pay those employees canceled, two hours penalty pay at their job rate, for each day canceled. This paragraph applies for both voluntary and required overtime. 16.2 Required Daily Overtime 16.201 For required daily overtime, a call list will be posted each Thursday for the following week next to the schedule. Employees may sign or remove their name any time during the week. 16.2011 The employee on the job has first right to the overtime. If the employee wants to work the overtime, he or she must work at least four (4) hours when the overtime is equal to or greater than four (4) hours. 16.2012 If that employee turns down the overtime it will be posted in the structure. The most senior qualified employee with mill seniority within the structure, signing the list, will be awarded the overtime and will be required to stay at least four (4) hours when the overtime is equal to or greater than four (4) hours. 16.2013 If it becomes necessary to call someone in, the employee on that job on the next shift will be called first. 16.2014 If the overtime cannot be filled as in 16.2013, qualified employees from the call list will be called by mill seniority within the structure. 16.2015 If the overtime cannot be filled as in 16.2014, all qualified employees in the structure will be called by mill seniority within the structure. 16.2016 If the overtime cannot be filled as in 16.2015, the employee on the job must stay but will not be required to work more than a total of sixteen (16) hours. 16.202 If emergency or unplanned overtime is required, the man on the job (see 16.103) will have first rights to the overtime. If this is not possible, the procedures defined in 16.2014 through 16.2016 will be followed. 16.3 Required Weekend Overtime 25 26 16.301 When the Company requires Saturday production from a job that is scheduled to run on a Monday through Friday shift, the overtime must be posted by 1:00 p.m. on Wednesday of that week. The employee on the job is required to work or find a qualified replacement acceptable to the company. Trade slips must be used for verification of these personnel changes. 16.4 Voluntary Overtime 16.401 When voluntary overtime is requested by the Company, a list of all jobs operating will be posted as soon as the requirement is known, but no later than noon on Friday. The list will remain posted for twenty-four (24) hours or until 3:00 p.m. on Friday, whichever is longer. 16.4011 The employee on the job will have first right to the overtime, provided the employee signs the overtime posting. Employees must work their own shift first. It is agreed that the employee who would normall be scheduled in that job on that shift on the day of the holiday will have first right to work the holiday and receive the overtime provided the employee has signed the overtime posting. If the overtime is not filled in this manner, the current Labor Agreement provisions numbered 16.4012 through and including 6.4014 will apply to fill the overtime. 16.4012 If the employee on the job does not sign the posting, the overtime will be awarded to the senior qualified employee with the most millwide seniority within that structure who signed the posting, then by the most senior qualified employee using millwide seniority. 16.4013 Employees working in the structure that week will be eligible for more than eight (8) hours of overtime before any employee who did not work in that structure. No employee will be awarded more than eight (8) hours unless all qualified employees, working the structure that week, who have signed the posting have been awarded at least eight (8) hours. 16.4014 The Company will make an objective evaluation of the employees qualifications when they sign for jobs other than their own posted jobs. Physical condition, safety record, and length of time since the employee last performed the job will be taken into consideration. The Company retains the right to make the final determination of an employees' qualifications. 16.4015 If it becomes necessary to operate a piece of equipment on a shift for which it was not scheduled to run during the week, the proper procedure to fill the opening(s) will be to ask the senior qualified person(s) going off shift just prior to schedule change, then call senior, qualified person(s) on the call list, then senior qualified person(s) not on the call list. Paragraph 16.4014 will apply in all instances. 16.5 Central Maintenance Overtime 16.501 A call list will be posted for each trade on Thursday. Employees may sign for call in and/or weekend overtime for the following week. 16.502 If it is required that a maintenance employee remains to finish a job, the employee on the job has first right to the overtime. 16.503 Call in and weekend overtime for Central Maintenance employees will be as follows: 16.5031. Millwrights and Pipefitters 16.50311. Call in requirements will be filled by straight seniority from the call list. 26 27 16.50312 For weekends, the maintenance manager will determine if and how many employees from either craft are needed. This overtime will be offered to the required crafts on a rotating basis (most senior to least). 16.5032. Machinists, Construction, and Welders. 16.50321. Call in requirements will be filled by straight seniority from the call list. 16.50322. Weekend overtime will be filled by straight seniority from the call list. 16.5033. Electricians 16.50331. Call in requirements will be filled first by the Electrician assigned to that area, then by seniority from the Electricians on the call list. 16.50332. Weekend requirements will be filled first by the Electrician assigned to that area, then by seniority from the Electricians on the call list. 16.5034. Electrical Operators 16.50341. An Electrical Operator will have a right to stay beyond his normal shift to complete a job he was currently working on at shift change if the incoming Electrical Operator is needed elsewhere. 16.50342. When an Electrical Operator position needs to be on filled because of absence, the Electrical the job has first right to the overtime, then the Operator person scheduled to come in on the following shift, then the Electrical Operator on his days off, then Electricians by seniority from the call list. If the position is not filled in this manner, the Electrical Operator on the job is required to work the shift. 16.50343. Electrical Operator's names will appear at the bottom of the Electrician call in and overtime list in order of their mill seniority within their structure. 16.504. Weekend overtime in what would normally be considered Maintenance Department work during the week, if not filled by the individual craft procedures above, will be offered to Maintenance employees in any craft based on the Maintenance Department seniority of those employees who have signed the call list. Article 17 OUTSIDE CONTRACTORS 17.101 It is not normally the policy of the Company to have work done by outside contractors. However, when it is deemed necessary due to special requirements, the Union will be notified in advance, in writing, and provided a general description of the work to be done. Article 18 FUNERAL LEAVE 27 28 18.101 It is the intent of this Article to provide employees with time off, without suffering a loss in pay, to attend to those requirements resulting from a death in the immediate family. 18.102 In event of a death in the immediate family as defined herein, all regular employees will be compensated for his scheduled days of work lost, up to a maximum of three (3) days. For the computation of the three (3) days maximum pay, the two (2 ) days preceding the funeral, the day before and the day after the funeral, the day of the funeral, and the two (2) days after the funeral are the only days to be considered, provided one of the days taken is the day of the funeral. For the purposes of this clause, the immediate family includes father or step-father, mother or step-mother, brother, sister, husband, wife, son, daughter, mother or father-in-law, son or daughter-in-law, sister or brother-in-law and grandchildren. 18.103 One day leave with pay to attend the funeral of a grandparent of either the employee or the employee's spouse will be granted. 18.104 Funeral leave will be subject to the following provisions: 18.1041 An employee must be a regular employee. 18.1042 Employee must make application for pay within two weeks after the funeral. 18.1043 Funeral leave will not be allowed for the following: 1) Personal time off. 2) Absences on group health plan or workers' compensation. 3) Employees on lay off status. 18.1044 If the funeral is out of the area and the employee must request vacation to travel to the funeral, the employee will receive regular vacation pay and time off, plus the funeral pay described in Paragraphs 2. and 3. of this Article. Total time off will not exceed the normal vacation days. Article 19 ABSENCE 19.101 In the case of a necessary absence for business in connection with the Union or the Company, prior notice must be given the Company, and the starting back to work time given whenever possible. 19.102 Any leave of absence will be subject to the approval of the Company. The Union to be notified of same. 19.103 When an employee has not been granted a leave of absence and does not report for work for a period of three days, or when an employee has been granted a leave of absence and overstays it, he will be considered as being absent without permission. 19.104 An employee taking another job for pay during any authorized absence from his employment with this Company will be discharged. 28 29 19.105 Employees who are absent without permission for a continuous period of three working days, three working nights or longer, will be cleared from the department roll and placed on suspended roll in the Human Resources Department. 19.106 Employees returning to work without at least eight (8) hours notification prior to their regular shift will not be entitled to reporting time. 19.107 These rules with reference to Leave of Absence apply to all employees on the Factory Roll. 19.108 Employees whose absenteeism or tardiness is of an excessive or unreasonable nature will be disciplined in accordance with the following absenteeism policy: 19.1081 An individual who becomes an absenteeism or tardiness problem will be given a first warning letter. 19.1082 If this individual continues to miss work, he will be given a second warning letter. 19.1083 Further excessive absenteeism or tardiness after the second letter will result in a final warning letter along with possible temporary disciplinary suspension. 19.1084 After all this, if the individual continues to miss work, he or she will be discharged. Article 20 JURY DUTY 20.101 Any employee who is required to be absent from work because of jury duty will be paid the difference between the compensation received for such duty and the amount of wages he would have earned (computed on the basis of his regular straight time rate) for his scheduled hours during the period he is serving on the jury. The company will lower the flag to half mast on each April 28th to honor those workers who have been killed on the job. This is Worker's Memorial Day. 20.102 Employees required to report for jury selection who are scheduled for work and not selected to serve on a jury, are expected to report for work on the afternoon and night shifts. Employees on the day shift will not be required to report for work on a day when they were required to attend jury selection proceedings. An employee who does not sign the posting for voluntary overtime on a holiday cannot be rquired to remain on the job if the volunteer who is supposed to be doing that job on the holiday does not show up. The employee on the job may elect to stay but cannot be forced. 20.103 The employee, when released from jury duty, will report for his next regularly scheduled shift and will be required to furnish a signed statement from a responsible officer of the court as proof of jury duty and jury pay received. 20.1031 Any employee selected and actually serving on a jury may elect not to report to work on the scheduled shift during or after serving on the jury during that day. The pay provisions in Paragraph 20.101. of this Article will apply. 29 30 Article 21 HOLIDAYS 21.101 All employees covered by this Agreement will receive one day's pay (8 hours) for each of the following days: New Years Day First Day Deer Hunting Memorial Day Thanksgiving Day July 3rd Day After Thanksgiving Day July 4th December 24th Labor Day Christmas Day New Year's Eve 21.102 The Company will give 30 days notice when it desires to run on one of the holidays above, and the posting of those willing to work will be removed one week prior to the holiday. Holiday production overtime assignments will be made according to Article 16, Paragraph 16.4011 through 16.4014. 21.103 Any maintenance work to be done on a holiday will be in the following manner: 21.1031 One week prior to the holiday, the maintenance manager will meet with the committee to cover work which is to be done. 21.1032 The work to be done must constitute work that could not be done during normal operating situations. If this is agreed, then schedules will be posted as to which employees are required to work on that holiday. 21.1033 Any maintenance work which could be done during normal operating situations may be done on a voluntary basis by the employees of the maintenance department. 21.104 The Company will attempt to avoid scheduling the converting department on Saturday preceding a Monday holiday. The third shift will, if possible, be scheduled to start their week on Sunday preceding the holiday, with wages to be paid at the straight time rate. 21.105 The shutdown periods will be as follows, subject to voluntary work mentioned above: The first day of deer hunting was changed to a 24 hour holiday from a 26 hour holiday to accommodate Kronos. It is agreed that employees may still leave two (2) hours before the end of the shift ending just prior to the holiday as in the past. This time off will be without pay if the employee elects to leave.
HOLIDAY YEAR SHUTDOWN FROM: STARTUP AT: ------- ---- -------------- ----------- Labor Day 1997 6:30 a.m. 9/1 6:30 a.m. 9/2 24 hours 1998 6:30 a.m. 9/7 6:30 a.m. 9/8 1999 6:30 a.m. 9/6 6:30 a.m. 9/7 First Day of 1997 6:30 a.m. 11/22 6:30 a.m. 11/23 Deer Hunting 1998 6:30 a.m. 11/21 6:30 a.m. 11/22 24 hours 1999 6:30 a.m. 11/20 6:30 a.m. 11/21 Thanksgiving 1997 6:30 a.m. 11/27 6:30 a.m. 11/29 Day and the 1998 6:30 a.m. 11/26 6:30 a.m. 11/28 day after 1999 6:30 a.m. 11/25 6:30 a.m. 11/27
30 31 Christmas 1997 6:30 a.m. 12/24 6:30 a.m. 12/26 48 hours 1998 6:30 a.m. 12/24 6:30 a.m. 12/26 1999 6:30 a.m. 12/24 6:30 a.m. 12/26 New Year's 1997 6:30 a.m. 12/31 6:30 a.m. 1/2/98 48 hours 1998 6:30 a.m. 12/31 6:30 a.m. 1/2/99 1999 6:30 a.m. 12/31 6:30 a.m. 1/2/00 Memorial Day 1997 6:30 a.m. 5/26 6:30 a.m. 5/27 24 hours 1998 6:30 a.m. 5/25 6:30 a.m. 5/26 1999 6:30 a.m. 5/24 6:30 a.m. 5/25 Independence 1997 6:30 a.m. 7/3 6:30 a.m. 7/5 Day 1998 6:30 a.m. 7/3 6:30 a.m. 7/5 48 hours 1999 6:30 a.m. 7/4 6:30 a.m. 7/6
21.106 An employee must be a regular employee before becoming eligible for this pay. 21.107 Employees must work their scheduled work day before a holiday and scheduled work day after a holiday to be eligible for holiday pay. An employee who is medically unable to fulfill the work requirements of this paragraph, and who provides acceptable proof of same from a physician, will be paid for the holiday. 21.108 When an employee is off the job for any reason other than an industrial injury for one hundred twenty (120) consecutive days or more prior to a holiday, he will receive no holiday pay. Employees who are off as a result of a compensated industrial injury will receive holiday pay for up to one (1) year after the date of injury. Article 22 VACATIONS 22.1 Vacation Plan 22.101 A vacation plan for the vacation year with regulations mutually agreed upon between the parties for the most economical operations of the plant will be as follows:
CONTINUOUS YEARS OF SERVICE WEEKS OF VACATION --------------------------- ----------------- 1 but less than 3 1 3 but less than 8 2 8 but less than 12 3 12 but less than 17 4 17 but less than 23 5 23 but less than 35 6 35 or more 7
The seventh week of vacation will be available to any employee who reaches 35 years of continuous service after April 1, 1997. Employees with less than 35 years of service who already have 7 weeks of vacation will be grandfathered. 31 32 22.102 Employees with six (6) months or more service prior to the beginning of the vacation year will be prorated during the first year. Employees with less than six (6) months service prior to the beginning of any vacation year will be prorated for the following year. After prorating, vacation time for employees will be computed from the beginning of the vacation year. 22.103 The vacation year will run from April 1st through March 31. 22.104 A schedule will be posted on the first Monday of January for first choice (one week) vacation selection for the entire year. The schedule will be taken down on the third Monday of January. An employee will be advised prior to the first Monday of February if their vacation request was denied. 22.1041 Employees who schedule more than one week as first choice on this yearly schedule will lose all rights to any first choice week. 22.1042 A second vacation sign up sheet will be posted on the First Monday of February for the rest of choice vacation selection for the entire year. The schedule will be taken down on the third Monday of February. Vacations scheduled during this time period will not overrule the January first choice vacation selections. An employee will be advised prior to the first Monday of March if their vacation request was denied. 22.1043 A third vacation sign-up period will occur between the first and third Mondays of March for vacation selection for the entire year. Vacations scheduled during this time period will not overrule the vacations scheduled in January or February. 22.1044 Vacations will be considered as scheduled when each schedule is taken down. 22.1045 Employees may not schedule more vacation than they are eligible to receive. If this happens, the earliest vacation put on the schedule will be the vacation scheduled. 22.105 Except in the case of emergencies, vacations must be canceled with a minimum of one month's notice before the vacation is to begin. 22.106 Insofar as possible, consistent with production requirements, vacations will be scheduled by mill-wide seniority at the employee's convenience. However, it is recognized that reasonable limitations must be set in each structure. 22.107 Hours of Pay for Vacation Weeks will be as follows: Effective 4/1/97 - 44 straight time hours Effective 4/1/98 - 43 straight time hours Effective 4/1/99 - 42 straight time hours 22.108 Employees on a seven day swing schedule may take up to four weeks vacation as scheduled to work. All other vacations will start on Monday for seven consecutive days. 22.109 Upon retirement, resignation, or death of an employee who has been employed for one year, the vacation earned by said employee will be prorated on the basis of 1/12 of his vacation for each month worked in the vacation year. 22.2 Vacation Payments 32 33 22.201 Vacation payments will be paid on the last regular pay day prior to, or first pay day after return from their earned vacation time off, providing sufficient notice (three weeks) is given to the Payroll Department. 22.202 Rates of pay for vacation payments will be on employee's current posted job at current rates. 22.203 When an employee is off the job for one hundred twenty (120) consecutive days or more prior to the beginning of the vacation year, his vacation pay will be prorated on the basis of 1/12th of his vacation for each month worked. This excludes employees who are off due to a covered workers' compensation injury. 22.204 If an employee is off work for two (2) weeks or more for Accident and Sickness, Workers' Compensation, or Lay Off in any six month period, the employee may receive a maximum of two (2) weeks of vacation for that period. 22.2041 It is agreed that all vacation time in excess of four (4) weeks may be sold back to the Company. 22.205 Vacation weeks in excess of one (1) week, not scheduled by January 15 of each year, will be automatically bought back by the Company. All vacations not taken by March 31 will be bought back. Article 23 INSURANCE 23.1 General Information 23.101 Group medical, dental and life insurance, and Accident & Sickness (A&S) coverages are available for all full time employees. These benefit levels are negotiated by the parties and the medical, dental, and A&S benefits which are part of the medical plans, are summarized in the Summary Plan Descriptions given to employees. 23.102 The Plan Document (Insurance Contract) is the ruling document in all cases. A copy of the master Document for each plan is kept in the Human Resource Office at Portland, Oregon. Copies of this document are available at the plant. Employees may look through these documents during normal office hours and may request a copy of the document for $.30 per page copying charge. 23.103 The medical and dental plans provide for dependent coverage as defined in the Plan Documents. 23.104 Employees and their dependents will become eligible for coverage on the first of the month following or coincident with thirty (30) days from their start date or after they have completed their probationary period, whichever is later. 23.105 It is the employee's responsibility to keep the Human Resources Office informed of all changes relating to benefits. Benefits will be paid only on most recent records. If notification is not made in a timely manner, coverage may be delayed. 23.106 In paragraphs 23.2 and 23.3 and their inclusions of this Article, continuation of coverage for the medical plan, as described, refers to continuation of coverage as negotiated between the parties. Employees selecting to continue medical coverage under COBRA may continue coverage only 33 34 under the plan by which they are covered when they make this selection. The Company agrees to comply with federal and state laws regarding continuation of coverage. 23.2 Active Employees - Duration of Coverage 23.201 Employee and dependent coverage under the medical, dental, and life insurance plans will be continued under the following situations and time limits. 23.2011 For recognized layoff, for up to six (6) months. 23.2012 For disability or sickness not relating to the job, for one year. After this period, if the employee is under age 55, medical coverage, for the employee only, will continue until the employee reaches age 65. 23.2013 For disability or sickness which is job related, for as long as they remain on the payroll record. 23.2014 Disability Benefits for Active and Retired Employees Effective April 1, 1997, Pope & Talbot will provide continuation of Medical and Dental Plan coverage (subject to the provisions and limitation of COBRA) for an hourly employee who is totally disabled and his/her dependents, subject to the following: 1. The disabled hourly employee must be receiving a disability income benefit from the A&S plan. Pope and Talbot will provide continued coverage under the medical and dental plans for a period of one year from the original date on which the disability began. 2. If the disability continues beyond one year, and the employee is receiving a disability income benefit from Social Security, Pope & Talbot will continue medical and dental coverage only, at no cost to the employee, until the employee is eligible for Medicare. 3. If, beyond the initial one year, the employee had continued paying for their own coverage under the provisions of COBRA and then received a total disability award from Social Security, during the first 18 months of continuation coverage, Pope & Talbot will resume providing medical and dental coverage only, at no cost to the employee until the employee is eligible for Medicare. P&T will refund premiums that the employee paid for their own coverage. 4. In the event this results in loss of benefits for those currently covered in the disability pension plan, the Company agrees to provide comparable coverage. 5. Continued coverage under any of the above extensions will end on the date the employee becomes entitled to Medicare, ceases to be disabled, or dies, whichever comes first. In order to qualify for any of the above extensions, the employee must enroll for COBRA when notified of his/her rights by Pope & Talbot. 23.202 Upon the death of an active employee, the current life insurance benefit will be paid to the current beneficiary and medical coverage for the covered spouse and dependents will continue for six (6) months after the month of death. 34 35 23.2021 The life insurance amounts for active employees will be $24,000 with an additional $24,000 accidental death and dismemberment feature. 23.203 Accident & Sickness benefits are not payable for a disability which occurs while, on leave of absence, or for any pre-existing disability. Accident and sickness benefits will be payable for a disability which occurs while an employee is on layoff, except if the disability is due to the employee working on another job while on layoff. 23.204 All coverage durations assume the continuation of this Agreement. 23.3 Retired Employees - Duration of Coverage 23.301 Medical coverage will continue from age 55 and end at age 65 for all retired employees who were covered by medical before retirement. At the time an employee retires he/she must choose between a COBRA or one of the two available corporate plans. Retirement is defined as receiving benefits from the current pension plan or being eligible for deferred benefits. Medical coverage will cease at the end of the month in which the retiree becomes eligible for benefits under Medicare or any group plan. 23.3011 Medical coverage for retired employee spouses will be continued until the spouse reaches age 65 if she or he was covered prior to the employee's retirement. 23.302 Dental coverage will continue from age 55 and end at age 65 for all employees who were covered under the dental plan prior to retirement and had a retirement date after 7/15/77. 23.3021 Dental coverage for the spouses of the above retirees will continue to age 65 if she or he was covered prior to the employee's retirement. 23.303 Upon the death of the retired employee, if the spouse is not yet 65 years of age, the dental coverage will cease at the end of the month of the death and the medical coverage will be continued for three (3) months from the end of the month of death. 23.304 The life insurance for employees retiring during the life of this contract is $3,750 which will be paid to the beneficiary of record. 23.305 Effective January 1, 1988, retired employees and/or their spouses may elect to participate in the Medicare supplement medical plan administered by the Company. If this election is made, the entire premium established by the insurance company will be paid by the employee and/or spouse in order for coverage to continue. Eligibility for coverage under this plan includes all present and future retirees and/or their spouses who are covered by Medicare. Coverage will cease if a premium payment is over thirty (30) days late. 23.306 All coverage durations assume the continuation of this Agreement. 23.307 Benefits of employees who retire after August 31, 1997, shall match the active employee benefit level (per prior agreement). 23.4 Health Care Cost Containment 23.401 The Company and the Union will establish a Cost Containment Committee comprised of four members from management and four members from the Union plus alternates. This committee will be responsible for minimizing health care costs. The first meeting will be shortly after ratification. Subsequent meetings will be held in November and May. 35 36 23.402 Plan years for all medical and dental plans will be calendar years. Employees will be provided with premium or premium equivalent rates for each plan prior to December 1st of each year. These rates will be used for the following year as the premium rates for the medical plans. There will be an open enrollment during the month of December each year. Employees may select any of the medical plans offered in Exhibit D during this open enrollment period. Participation in that plan will begin on January 1st after the selection is made and will remain in effect until changed by the employee in a future open enrollment period. 23.403 The Company currently offers an Eau Claire/Chippewa HPP and a Valley Health Plan. The Company will pay up to the single or family premium equivalent rate for the Eau Claire/Chippewa Health Protection Plan (HPP), including the drug and chiropractic coverage. Should the premium for the Valley Health Plan exceed the premium equivalent rate for the HPP, employees may, during the open enrollment period, change to the HPP or remain in the Valley Health Plan and pay to the Company, the monthly difference between the premium cost of the Valley Health Plan and the HPP, through payroll deduction. Article 24 PENSION PLAN SECTION I Commencing with the day stated below, the undersigned Employer. I). if subject to a collective bargaining agreement with the undersigned union ("collective bargaining agreement"), agrees to pay the PAPER INDUSTRY UNION MANAGEMENT PENSION FUND (hereinafter called the Fund), the amount stated below for each compensable hour outlined below, for employees subject to the collective bargaining agreement and for all noncollectively bargained employees not subject to the collective bargaining agreement if contribution to the Fund for any noncollectively bargained employee is made and 2) if a participating union the amount stated below for each compensable hour for all noncollectively bargained employees. The compensable hours that payment to the Fund shall be based are the following, up to a maximum of 2,200 hours in a calendar year. a) All hours worked, including overtime. b) Eight (8) hours per day for each holiday not worked, for which payment is required unless not required by the collective bargaining agreement. c) Eight (8) hours per day for all vacation days taken, for which payment is required, unless not required by the collective bargaining agreement. The timing of the vacation wage payment and the employee's time off need not coincide. d) Eight (8) hours per day for all time for which payment is required, unless not required by the collective bargaining agreement (i.e., jury duty, sick leave, funeral leave, etc.) Language in the collective bargaining agreement to the contrary notwithstanding, the Employer shall contribute on all individuals performing work covered by the collective bargaining agreement. Including probationary, temporary, and part time employees, except for those individuals in the employ of the Employer for a period of less than sixty (60) calendar days. Contributions are due for newly hired individuals remaining in the employ of the Employer beyond sixty (60) calendar days, on a retroactive basis, as of their date of hire. In addition, unless the box below marked "none" is marked, the Employer shall also contribute on the same basis as described below for those classes of employees covered by the collective bargaining agreement that are described next to the box marked "other classes." 36 37 SECTION II The payments so made to the Fund shall be used by it to provide retirement benefits for eligible employees in accordance with the Pension Plan of said Fund, as determined by the Trustees of said Fund, to be applied to the eligible employees based on the amount of Employer contribution. The benefit level described below has been identified for informational purposes only and reflects the level of benefits associated with the contribution level at the time the agreement was signed. The Trustees of the Fund reserve all the rights described in the Agreement and Declaration of Trust to change or modify the benefit level. SECTION III: The Employer hereby agrees to become a party to the Agreement and Declaration of Trust establishing the said Fund, a copy of which is annexed to this Agreement and made a part hereof, and agrees to be bound by all the terms and provisions of said Agreement (including all amendments thereto, whether adopted before or after the date of the Agreement). The Employer further agrees irrevocably to designate as its representative on the Board of Trustees of the Fund such Trustees as are named in said Agreement and Declaration of Trust as Employer Trustees together with their successors selected in the manner provided in the said Agreement. SECTION IV: It is understood and agreed that the Pension Plan referred to herein shall be such as will qualify for approval by the appropriate governmental agencies where applicable, so as to allow the Employer an income tax deduction for the contributions paid hereunder. SECTION V: This Agreement is to be considered part of the collective bargaining agreement between the Employer and the Union. The termination date of the Employer's obligation to contribute to the Fund shall be the same as the termination date of the said collective bargaining agreement unless otherwise required by law. SECTION VI: If the employer becomes delinquent in its contributions, in addition to the contributions due the Employer shall also pay to the Fund 1) interest on delinquencies calculated at the Federal Fund's Discount Rate plus 2 percent on the day the delinquency occurs, 2) liquidated damages of 20 percent on delinquent contributions and 3) all costs of collection (including--without limitation, attorneys' fees and disbursements). a) Employer contributions to the fund are due the tenth day of the month following the payroll period. For example, a January report is due February 10. b) Contributions are delinquent on the first day of the second month following the payroll period. For example, a January report would be delinquent if received on March 1.
Effective Date Contribution Rate Benefit Level April 1, 1995 $1.341 $1,035.00 April 1, 1996 $1,485 $1,104.00 April 1, 1997 $1.629 $1,173.00 April 1, 1998 $1,773 $1,242.00 April 1, 1999 $1,917 $1,311.00
37 38 Article 25 END OF THE YEAR BONUS 25.101 The Company agrees to pay all of its employees on the payroll June 15,1997 or 1998 or 1999 and remain on the payroll until December 24, 1997 or 1998 or 1999, a $25.00 end of the year bonus. Article 26 BULLETIN BOARDS 26.101 The Company will supply adequate enclosed bulletin boards for the use of the Union in the mill for the posting of officially signed bulletins by an official of the Union. Article 27 SERVICE AND SAVINGS CLAUSE 27.101 The Company and the Union will comply with all present and future laws or regulations of federal, state, or local governments. Any provisions of this Agreement which are in contravention of any federal, state, or local laws or regulations will be invalid only to the extent that they are in violation of such laws or regulations. Such an invalidation of part of the Agreement will not affect the operation of any part of the Agreement of which the law or regulation is not applicable. Article 28 TOOL REPLACEMENT 28.101 The Company will replace tools used on the job that are required by employees to perform their assigned duties if the tool is damaged beyond safe or practical use in the performance of these duties. The damaged tool must have been of a recognized quality for industrial work and must be presented to the employee's supervisor with an explanation of the reason for the damage. Article 29 EDUCATIONAL EXPENSES 29.101 The Company agrees to provide cash advances or reimburse employees for expenses incurred in attending Company mandated training. All reasonable expenditures for tuition including testing fees, books, travel, lodging, meals and course required materials (not including tools) will be reimbursed. Any expenses incurred in subsequently repeated courses or tests will be reimbursed 38 39 only after successful completion. It will be the employee's responsibility to request said payments on appropriate Company forms with all required documentation. Article 30 SAFETY EQUIPMENT 30.101 The Company agrees to pay 50% (up to two times per year, up to a maximum of $60 each time) of the cost of safety shoes. The company agrees to pay 50% (up to once every two years up to a maximum of $60 each time) for the cost of prescription safety glasses. Article 31 CENTRAL MAINTENANCE FLEXIBILITY 31.101 It is the intent of the Company and the Union to increase individual productivity throughout the workforce through added skills and responsibilities, resulting in a multi-skilled workforce in which work is performed in the most efficient manner. To accomplish a portion of this goal, Central Maintenance will be organized along the following guidelines and with these key features: A. Organization 1. Current craft classifications will be maintained. However, arbitrary divisions of labor between current craft classifications are eliminated. 2. Crafts people are expected to utilize skills already possessed to perform tasks. 3. Recognizing that there may be exceptions which will be dealt with by theMaintenance Review Committee, crafts people are expected to develop new skills to be utilized in performing required maintenance tasks. 4. Maintenance personnel will be assigned to areas as workload/skill requirements dictate. These area teams will be expected to coordinate themselves across "craft" lines. 5. Safety is a priority. B. Wage Structure 1. Base compensation for all crafts will be equal. 2. Base compensation will be adjusted incrementally with the attainment of additional skills. 3. Incremental adjustments will be timed to ensure uniform movement. C. Skill Levels 1. Seniority will be utilized to the extent possible to allow people to choose secondary crafts. However, business needs will dictate which secondary skills are trained for first. 2. Minimum skill requirements necessary for attaining a secondary skill level will be determined by the Maintenance Review Board. 3. Qualification for secondary or higher skill levels will be determined by a majority of the Maintenance Review Board. 39 40 4. All employees will have, on a seniority basis, an opportunity to develop a secondary skill before another employee will have an opportunity to develop a third skill. D. Other Features/Comments 1. The erosion of currently held specialized maintenance skills will not be allowed. Also, specialized area skills/ownership will be maintained. 2. Overtime assignments will be made based on "primary" craft requirements, seniority, first within the area team, then other maintenance teams as required. E. Additional Maintenance Skills 1. Maintenance managers, with input from the area teams, are expected to plan and schedule their work with appropriate documentation. 2. Maintenance managers, with input from the area teams, are expected to develop necessary skills required for planning, prioritizing, scheduling and assigning work. 3. Maintenance managers, with input from the area teams, are expected to manage parts and capital spares in coordination with the storeroom. 4. Maintenance managers are expected to meet with the area team to determine if changes in maintenance resources are required for any given task or time. F. As a result of the Union's cooperation in helping develop this flex craft program, no jobs will be eliminated as a result of implementation of the flex plan program except due to group attrition as defined in the Department Consolidation Agreement. Article 32 JOINTNESS AGREEMENT 32.101 This memorandum is jointly arrived at by the Union and Company and is intended to be a guideline for an ongoing process which will enable both parties to change the labor/management relationship through a truly joint, cooperative effort. Both parties believe that changing the labor/management relationship is needed, possible, and essential to the long term well-being of the business and all people at the Eau Claire operation. 32.102 This joint effort is a proactive attempt to enhance and protect the legitimate interests of both the Union and Management. It is a true labor/management participatory program. 32.103 The purpose of Union and Management participation in this joint effort is to provide maximum job security and personal job satisfaction for all workers, to give the Union and the Company a vehicle to explore and pursue their common goals, to give workers a meaningful voice in decision making, to enhance the pride and dignity of all participants, and to help produce the highest quality products and services possible. 32.104 It is the intent of the parties to this agreement that a spirit of harmony and cooperation will prevail in the context of continuing business viability. The process will be used to improve productivity, quality and job security through more intelligent work organization and use of resources. 32.105 Management accepts the basic right of Local 42 to represent employees covered in the bargaining unit. Therefore, Local 42 will have equal authority to determine what issues will be addressed in the joint discussions. This includes issues relating to working conditions as well as other needs and concerns of the membership. Participation by Local 42 members in the design and 40 41 development of programs will be strictly voluntary. There will be no harassment or reprisals of any kind to union members because of direct or indirect involvement or lack of involvement in the joint discussions or the programs arising out of the joint discussions. The schedule and agendas for all meetings will be available to all participants at least 48 hours in advance. The Union representatives will have the right to establish agenda items. In general, the schedule and agenda will be strictly adhered to. Union members will participate in facilitating the meetings but the Company will pay all reasonable costs inherent in facilitating the meetings. The Union is also guaranteed the right to meet with its members prior to joint meetings and have full and timely access to all necessary and appropriate Company information. The use of data produced by and for the Committee will remain under joint control. Union officials will have access to all data produced through this joint process. 32.106 Top Union and site management officials must have a direct role in the process to guarantee that the policies, ideas, and procedures are acted upon. Authority for implementing proposals will be clearly defined with timelines and procedures for accountability. If gain sharing, pay for knowledge or other flexible compensation systems are designed by both the Union and Management, the compensation schemes will not be used in lieu of wage increases. The parties also agree that health and safety concerns are a priority and can be raised by either party. The goal is an injury free environment. 32.107 All labor management communications to Local 42 members pertaining to this agreement and programs developed under the agreement, by either the Company or the Union, must have prior review and approval and be signed by representatives of both parties. The Union will select any Union members given responsibility for program implementation. 32.108 The Committee and programs implemented as a result of the Committee will be reevaluated by both Management and the Union on an equal basis. Article 33 COMPANY AFFAIRS AND PROCESSES 33.101 All affairs of the Company are to be considered as confidential, and no employee is permitted to give out any information for publication or otherwise unless authorized by the Operation Manager or his authorized representative. 41 42 Signed this ______ day of ______________ , _______ , at Eau Claire, Wisconsin. UNITED PAPERWORKERS INTERNATIONAL UNION - ------------------------------ G. Eells EAU CLAIRE LOCAL NO. 42 POPE & TALBOT WI., INC. - ------------------------------ ------------------------------ D. McCombs G. Hayden - ------------------------------ ------------------------------ W. Carlson D. Spinks - ------------------------------ ------------------------------ T. Berg D. Faltynski - ------------------------------ ------------------------------ J. Jones D. Young - ------------------------------ R. Steele - ------------------------------ M. Stoner - ------------------------------ L. Cornell - ------------------------------ D. Sloop 42 43 Exhibit A SAFETY RULES It will be the duty and responsibility of every employee to observe and comply with the Safety Rules of Pope & Talbot Wis., Inc. and in addition, to perform every duty assignment with due regard for his personal safety and that of his fellow employees. These rules will be enforced by every supervisor. In addition, supervision will prescribe and employees will observe other safety precautions and procedures made necessary by specific situations. In case of EMERGENCY involving hazard to life, a supervisor or employee in charge may suspend any of these rules which he may consider temporarily necessary to permit proper handling of the specific emergency. In any such case, the person so acting will be fully accountable for the reasonableness of his actions and for any accident or interruption resulting therefrom. 1. Good housekeeping must be maintained at all times. a) Aisles kept clear. b) Materials and supplies properly stored. c) Refuse and waste properly disposed of. d) Spills cleaned up immediately. e) Equipment and facilities kept clean and orderly. 2. Fire fighting equipment must be accessible at all times. This equipment will be used for fire fighting only. 3. Safety equipment, such as eye protection, safety hats, shoes, protective clothing, hair enclosures, etc., will be worn as directed by departmental policy. 4. Smoking is not permitted except in authorized and posted smoking areas. 5. Safety shoes are required. Open toed shoes, sandals, tennis shoes and other shoes that do not provide adequate foot protection are prohibited. NO ONE IS TO WORK WITH LOOSE CLOTHING. Shirt tails must be tucked in at all times and if sleeves are rolled up they must be rolled above the elbow. 6. Hair reaching the shoulders must be enclosed in a protective covering. 7. Personnel must exercise caution when moving about the mill. Running, except in case of emergency, is prohibited. 8. Throwing of items, playing practical jokes on fellow employees, or other forms of horseplay will not be tolerated. 9. All transport vehicles will be operated with full consideration for the safety of the operator and that of other drivers and pedestrians as well. 10. No one is allowed to ride on a transport other than the operator of the vehicle. 43 44 11. Employees are forbidden to use compressed air to clean clothing and for any other purpose other than in the performance of their work. 12. Employees will not operate machines which are not part of their work and to which they are not assigned. 13. Employees will avoid standing or passing under suspended loads (hoists, parent rolls, fork trucks, etc.). 14. An employee must have all guards in place while operating any machinery or equipment. If removed, they are to be immediately replaced, or the reason for not replacing them reported to the supervisor. 15. Tools, personal safety equipment, and other equipment will be kept in good, serviceable condition. They will be inspected and checked frequently and replacement or repairs made as necessary. 16. All personnel coming in contact with hazardous chemicals will familiarize themselves with the necessary safety precautions and handle all chemicals according to authorized procedures. Material Safety Data Sheets on all chemicals used in the plant are maintained in the Medical Office. 17. Rules pertaining to lock out procedures must be followed by all personnel. 18. Unauthorized employees must not adjust or repair electrical equipment. 19. All warning signs, bulletins, and tags are for your protection, and will be obeyed. 20. Proper lifting procedures will be followed when handling any materials or equipment. Lift with the legs, keeping the back straight. 21. Unauthorized personnel must not enter posted restricted areas. 22. Report unsafe conditions to your supervisor IMMEDIATELY. 23. Every accident is to be reported to your supervisor where personal injury is involved during working hours. 24. General Safety Rules are intended to cover the major kinds of work in your department, but are not necessarily complete for every occupation. Therefore, supervisors are expected to prescribe and employees to observe additional safety procedures and precautions as required. IN CASE OF INJURY In case of injury, no matter how slight, the injured must immediately report same to his supervisor and the supervisor must make a written report to the Health & Safety Department on forms provided. Competent medical attention will be available for all injuries. The expense of any medical attention, other than that provided for by this Company or the DILHR will be paid by the injured. An employee who is entitled to compensation for an injury sustained in this Company's plant need not engage a lawyer. Upon application to the Company's physician, the employee will be given a form which he can himself forward to the DILHR and save himself unnecessary expense. ALL INJURIES MUST BE REPORTED BEFORE LEAVING COMPANY PROPERTY 44 45 EXHIBIT B PLANT AND COMPANY RULES The Company's rules for the employees are hereby mutually adopted, and it will be the duty of both parties to see that same are enforced. Such rules will be posted in each department. Any changes in rules of safety are to be posted and the Union notified of said changes. GENERAL Workmen must not permit their attention to be distracted from their work by the presence of visitors in the plant or by any unusual occurrence that does not affect them personally. Employees must not interfere with the operation of, or tamper with, lighting or heating apparatus, or with any of the water, steam, or gas valves, telephone or time stamps in any of the departments. Employees must not tamper with fire extinguishers. In case it is necessary to change the location of an extinguisher, a request in writing, giving the reason for the change, will be made by the supervisor to the maintenance manager, who will issue the proper instructions, make a record of the new location and notify the persons affected. The painting, writing or marking of signs on doors, walls, or any part of the plant is not permitted. VISITORS No visitors are permitted in the plant at any time, except with a pass properly issued according to current procedures. ALL visitors must be accompanied by a guide. SOLICITATIONS No collections, subscriptions or solicitations of any kind will be made in the plant by employees or others, without the permission of the Operation Manager or his authorized representative. TELEPHONES Plant or Company telephones must not be used for outgoing personal telephone calls, except in case of an emergency. Incoming personal telephone calls for employees will be accepted and the messages delivered to employees only when the call is of an emergency nature. CHANGE OF ADDRESS Any employee moving or changing his place of residence must turn in his new address and new telephone number to the Human Resources Department promptly. BULLETINS Notices must not be posted on Company property by employees except on the official bulletin boards. In each case permission of the Operation Manager or his authorized representative must be secured before any notice is posted. LOITERING Loitering at any time around time clocks and the time office is prohibited. 45 46 LEAVING THE PLANT No employee is to leave the plant or work area during working hours without permission of the head of his department. No employee is permitted to loiter in his department after he has completed his day's work, nor allowed to visit other departments in the plant before commencing and after completing his day's work without a signed pass from the office. An employee is not permitted to go from one department to another, except: (1) When going to or from his work. (2) In the discharge of his duty. CLEANLINESS A clean plant is a safe plant. With this in mind, every employee should give his full cooperation in keeping our plant clean. 1. Do not throw waste paper, such as candy bar wrappers, wrapping paper or sacks on the floor. 2. Be sure to properly dispose of all remains of lunches eaten at the mill. 3. Keep the restrooms sanitary and clean. 4. Keep the aisles clear. 5. Clean up slippery or greasy places. 6. Do not spit on the floor. 7. Keep drinking fountains sanitary. 8. Dispose of old, discarded clothing. This plant is your home eight hours a day, please respect it. EQUIPMENT Each employee is responsible for the cleanliness and condition of the machinery and equipment with which he works and of the location in which he works. Each employee is responsible for reporting to his supervisor any need for repairs to machines or equipment with which he works. Repeated and deliberate violation of these rules make the employee liable to disciplinary action to include two written warnings and subsequent possible discharge. MAINTAINING ORDER Unnecessary and violent arguments, fighting, or playing while on duty are considered disorderly conduct. GARNISHMENTS Employees who are repeatedly or habitually subjected to garnishments or attachments are subject to dismissal except as prohibited or regulated by State and Federal agencies. STOREROOM No material will be issued at the storeroom without a properly signed requisition or material ticket. REMOVAL OF ARTICLES FROM PLANT Nothing is to be removed from the plant without a signed release issued by an authorized person. Guards are instructed to enforce this rule and are authorized to inspect all packages and containers. FALSIFICATION OF RECORDS The falsification of time, production or other records constitutes dishonesty and subjects the employee to immediate discharge. CAUSES FOR IMMEDIATE DISCHARGE 46 47 A. Bringing intoxicants into or consuming intoxicants in the mill or on mill premises. B. Reporting for duty under influence of liquor. C. Disobedience. D. Smoking while on duty in prohibited areas. E. Deliberate destruction or removal of Company's or another employee's property. F. Neglect of duty. G. Refusal to comply with Plant and Company rules. H. Disorderly conduct. I. Dishonesty. J. Sleeping on duty. K. Giving or taking a bribe of any nature as an inducement to obtaining work or retaining a position. L. Reading of books, magazines or newspapers while on duty, except where required in the line of duty. M. Failure to report for duty without bona fide reasons. N. Horseplay with air hoses or other equipment. O. Gambling - use of cards, dice or syndicated pools and lotteries in printed form on Company premises. P. Bringing firearms, concealed weapons or explosives onto Company property. Q. Bringing or consuming illegal drugs on the mill premises, except duly prescribed drugs. R. Tampering with, marking or otherwise defacing any Company notices, bulletin boards, etc. The foregoing are not inclusive. There are other examples of unacceptable conduct which will not limit Management in its prerogative to maintain discipline and to apply disciplinary action for misconduct that is not listed but which is properly and customarily the subject of disciplinary action. If it becomes necessary to establish additional rules, employees will be notified of such mutually adapted rules by posting them on the bulletin boards. EXHIBIT C RATE SCHEDULE EFFECTIVE APRIL 1, 1997 -- MARCH 31, 2000 40 Hours Weekly Schedule The shift differential for the duration of this Agreement will be as follows: Second Shift Third Shift ------------ ----------- Effective April 1, 1997 $0.35 /hr. $0.45 /hr. Vacation replacements as defined in Article 10, Paragraph 10.4 of this Agreement will be paid $0.50 per hour less than the rate of the job on which they are working during any period of temporary employment. New employees will be $0.50 per hour less than the rate of the job they are working on during the first 30 days of employment. Base Rate Effective April 1, 1997 $13.18 Effective April 1, 1998 $13.43 Effective April 1, 1999 $13.68
- ------------------------------------------------------------------------------------------------------------ CODE JOB DEPARTMENT STRUCTURE RATE RATE RATE 4/1/97 4/1/98 4/1/99 - ------------------------------------------------------------------------------------------------------------ 1600 WTP OPERATOR BASE PAPER MAKING STOCK PREP 14.88 15.13 15.38 - ------------------------------------------------------------------------------------------------------------
47 48 - ------------------------------------------------------------------------------------------------------------ 1601 WTP OPERATOR BASE+1 PAPER MAKING STOCK PREP 14.97 15.22 15.47 - ------------------------------------------------------------------------------------------------------------ 1602 WTP OPERATOR BASE+2 PAPER MAKING STOCK PREP 15.06 15.31 15.56 - ------------------------------------------------------------------------------------------------------------ 1603 WTP OPERATOR BASE+3 PAPER MAKING STOCK PREP 15.15 15.40 15.65 - ------------------------------------------------------------------------------------------------------------ 1604 WTP OPERATOR BASE+4 PAPER MAKING STOCK PREP 15.24 15.49 15.74 - ------------------------------------------------------------------------------------------------------------ 1605 WTP OPERATOR DNR LICENSE PAPER MAKING STOCK PREP 15.35 15.60 15.85 - ------------------------------------------------------------------------------------------------------------ 1801 MATERIAL AUDITOR PAPER CONVERTIN LAB 14.38 14.63 14.88 - ------------------------------------------------------------------------------------------------------------ 1802 MATERIAL TESTER PAPER CONVERTIN LAB 14.17 14.42 14.67 - ------------------------------------------------------------------------------------------------------------ 2001 NO.1 HYDROPULPER OPERATOR PAPER MAKING STOCK PREP 14.64 14.89 15.14 - ------------------------------------------------------------------------------------------------------------ 2004 NO.4&5 HYDROPULPER OPERATOR PAPER MAKING STOCK PREP 14.64 14.89 15.14 - ------------------------------------------------------------------------------------------------------------ 2600 STOCK RUNNER-NO.4 SYSTEM PAPER MAKING STOCK PREP 15.74 15.99 16.24 - ------------------------------------------------------------------------------------------------------------ 2604 UTILITY CHEMICAL PAPER MAKING STOCK PREP 13.94 14.19 14.44 - ------------------------------------------------------------------------------------------------------------ 2701 FORKLIFT DRIVERS-YARD PAPER MAKING YARD 14.64 14.89 15.14 - ------------------------------------------------------------------------------------------------------------ 3004 CLEAN-UP/UTILITY PAPER MAKING SANITATION 13.33 13.58 13.83 - ------------------------------------------------------------------------------------------------------------ 3008 GENERAL CLEAN-UP PAPER MAKING SANITATION 13.18 13.43 13.68 - ------------------------------------------------------------------------------------------------------------ 3010 PROCESS SPECIALIST PAPER MAKING SANITATION 14.54 14.79 15.04 - ------------------------------------------------------------------------------------------------------------ 3301 MACHINE TENDER NO.3 PAPER MAKING PAPER MACHINE 16.80 17.05 17.30 - ------------------------------------------------------------------------------------------------------------ 3302 BACK TENDER NO.3 PAPER MAKING PAPER MACHINE 16.13 16.38 16.63 - ------------------------------------------------------------------------------------------------------------ 3303 THIRD HAND NO.3 PAPER MAKING PAPER MACHINE 15.73 15.98 16.23 - ------------------------------------------------------------------------------------------------------------ 3304 FOURTH HAND NO.3 PAPER MAKING PAPER MACHINE 14.88 15.13 15.38 - ------------------------------------------------------------------------------------------------------------ 3501 MACHINE TENDER NO.5 PAPER MAKING PAPER MACHINE 17.05 17.30 17.55 - ------------------------------------------------------------------------------------------------------------ 3502 BACK TENDER NO.5 PAPER MAKING PAPER MACHINE 16.44 16.69 16.94 - ------------------------------------------------------------------------------------------------------------ 3503 THIRD HAND NO.5 PAPER MAKING PAPER MACHINE 15.78 16.03 16.28 - ------------------------------------------------------------------------------------------------------------ 3504 FOURTH HAND NO.5 PAPER MAKING PAPER MACHINE 15.21 15.46 15.71 - ------------------------------------------------------------------------------------------------------------ 3508 UTILITY/PAPER MACH PAPER MAKING PAPER MACHINE 14.20 14.45 14.70 - ------------------------------------------------------------------------------------------------------------ 3702 FRONT END LOADER OPR. PAPER MAKING YARD 13.44 13.69 13.94 - ------------------------------------------------------------------------------------------------------------ 3703 YARD LABOR PAPER MAKING YARD 13.18 13.43 13.68 - ------------------------------------------------------------------------------------------------------------ 4045 FACIAL MACHINE OPER, LEVEL 3 PAPER CONVERTIN PAPER PRODUCTS 14.73 14.98 15.23 - ------------------------------------------------------------------------------------------------------------ 4049 FACIAL UTILITY/CLEAN-UP PAPER CONVERTIN PAPER PRODUCTS 13.94 14.19 14.44 - ------------------------------------------------------------------------------------------------------------ 4050 BACKSTAND OPR/MAINT. RELIEF PAPER CONVERTIN PAPER PRODUCTS 14.15 14.40 14.65 - ------------------------------------------------------------------------------------------------------------ 4304 HEAD PRINTER PAPER CONVERTIN PRINTING 15.00 15.25 15.50 - ------------------------------------------------------------------------------------------------------------ 4305 PRINTER OPERATOR/MAINTENANCE PAPER CONVERTIN PRINTING 14.49 14.74 14.99 - ------------------------------------------------------------------------------------------------------------ 4501 MAINT. SUPPORT [START-No Exp] PAPER CONVERTIN PAPER PRODUCTS 14.02 14.27 14.52 - ------------------------------------------------------------------------------------------------------------ 4502 MAINT. SUPPORT [90 N.E.] PAPER CONVERTIN PAPER PRODUCTS 14.33 14.58 14.83 - ------------------------------------------------------------------------------------------------------------ 4503 MAINT. SUPPORT [180 N.E.] PAPER CONVERTIN PAPER PRODUCTS 14.52 14.77 15.02 - ------------------------------------------------------------------------------------------------------------ 4504 MAINT. SUPPORT [270 NE-] PAPER CONVERTIN PAPER PRODUCTS 14.73 14.98 15.23 - ------------------------------------------------------------------------------------------------------------ 4505 MAINT. SUPPORT [360 NE] PAPER CONVERTIN PAPER PRODUCTS 14.97 15.22 15.47 - ------------------------------------------------------------------------------------------------------------ 4506 MAINT. SUPPORT [450 NE] PAPER CONVERTIN PAPER PRODUCTS 15.17 15.42 15.67 - ------------------------------------------------------------------------------------------------------------ 4507 MAINT. SUPPORT [540 NE] PAPER CONVERTIN PAPER PRODUCTS 15.40 15.65 15.90 - ------------------------------------------------------------------------------------------------------------ 4508 MAINT. SUPPORT [TOP RATE] PAPER CONVERTIN PAPER PRODUCTS 15.63 15.88 16.13 - ------------------------------------------------------------------------------------------------------------ 4509 MATERIAL SUPPORT OPERATOR PAPER CONVERTIN PAPER PRODUCTS 14.15 14.40 14.65 - ------------------------------------------------------------------------------------------------------------ 4510 NAPKIN SYSTEM LEVEL 1 PAPER CONVERTIN PAPER PRODUCTS 14.27 14.52 14.77 - ------------------------------------------------------------------------------------------------------------ 4511 NAPKIN SYSTEM LEVEL 2 PAPER CONVERTIN PAPER PRODUCTS 14.35 14.60 14.85 - ------------------------------------------------------------------------------------------------------------ 4512 NAPKIN SYSTEM LEVEL 3 PAPER CONVERTIN PAPER PRODUCTS 14.47 14.72 14.97 - ------------------------------------------------------------------------------------------------------------ 4513 BRT SYSTEM LEVEL 1 PAPER CONVERTIN PAPER PRODUCTS 14.59 14.84 15.09 - ------------------------------------------------------------------------------------------------------------ 4514 BRT SYSTEM LEVEL 2 PAPER CONVERTIN PAPER PRODUCTS 14.64 14.89 15.14 - ------------------------------------------------------------------------------------------------------------ 4515 BRT SYSTEM LEVEL 3 PAPER CONVERTIN PAPER PRODUCTS 14.84 15.09 15.34 - ------------------------------------------------------------------------------------------------------------ 4516 HHT SYSTEM LEVEL 1 PAPER CONVERTIN PAPER PRODUCTS 14.64 14.89 15.14 - ------------------------------------------------------------------------------------------------------------ 4517 HHT SYSTEM LEVEL 2 PAPER CONVERTIN PAPER PRODUCTS 14.74 14.99 15.24 - ------------------------------------------------------------------------------------------------------------ 4518 HHT SYSTEM LEVEL 3 PAPER CONVERTIN PAPER PRODUCTS 14.93 15.18 15.43 - ------------------------------------------------------------------------------------------------------------ 4526 MEZZANINE SUPPORT PAPER CONVERTIN PAPER PRODUCTS 14.17 14.42 14.67 - ------------------------------------------------------------------------------------------------------------ 4527 MEZZANINE SUPPORT PAPER CONVERTIN PAPER PRODUCTS 14.17 14.42 14.67 - ------------------------------------------------------------------------------------------------------------ 5010 ULF OPERATOR/MAINTENANCE PAPER CONVERTIN SHIPPING 14.52 14.77 15.02 - ------------------------------------------------------------------------------------------------------------ 5013 WAREHOUSE DRIVER PAPER CONVERTIN SHIPPING 14.12 14.37 14.62 - ------------------------------------------------------------------------------------------------------------ 5015 UTILITY COORDINATOR PAPER CONVERTIN SHIPPING 14.12 14.37 14.62 - ------------------------------------------------------------------------------------------------------------ 5016 WAREHOUSE DRIVER/ULF PAPER CONVERTIN SHIPPING 14.12 14.37 14.62 - ------------------------------------------------------------------------------------------------------------ 5017 SPOTTER DRIVER/UTILITY PAPER CONVERTIN SHIPPING 14.12 14.37 14.62 - ------------------------------------------------------------------------------------------------------------ 6002 SAMPLES CELL & MISC WAREHOUSE PAPER CONVERTIN WAREHSE & REC. 13.83 14.08 14.33 - ------------------------------------------------------------------------------------------------------------
48 49 - ------------------------------------------------------------------------------------------------------------ 6004 RECEIVING PAPER CONVERTIN WAREHSE & REC. 14.05 14.30 14.55 - ------------------------------------------------------------------------------------------------------------ 6005 CENTRAL STORE/RECEIVING CLERK PAPER CONVERTIN WAREHOUSE 13.73 13.98 14.23 - ------------------------------------------------------------------------------------------------------------ 7000 MILLWRIGHT CENTRAL MAINT. MILLWRIGHT 16.25 16.50 16.75 - ------------------------------------------------------------------------------------------------------------ 7001 MILLWRIGHT + 1 CRAFT CENTRAL MAINT. MILLWRIGHT 16.50 16.75 17.00 - ------------------------------------------------------------------------------------------------------------ 7002 MILLWRIGHT +2 CRAFTS CENTRAL MAINT. MILLWRIGHT 16.75 17.00 17.25 - ------------------------------------------------------------------------------------------------------------ 7100 ELECTRICIAN CENTRAL MAINT. ELECTRICIAN 16.25 16.50 16.75 - ------------------------------------------------------------------------------------------------------------ 7101 ELECTRICIAN + 1 CRAFT CENTRAL MAINT. ELECTRICIAN 16.50 16.75 17.00 - ------------------------------------------------------------------------------------------------------------ 7102 ELECTRICIAN + 2 CRAFTS CENTRAL MAINT. ELECTRICIAN 16.75 17.00 17.25 - ------------------------------------------------------------------------------------------------------------ 7200 MACHINIST CENTRAL MAINT. MACHINE SHOP 16.25 16.50 16.75 - ------------------------------------------------------------------------------------------------------------ 7201 MACHINIST + 1 CRAFT CENTRAL MAINT. MACHINE SHOP 16.50 16.75 17.00 - ------------------------------------------------------------------------------------------------------------ 7202 MACHINIST + 2 CRAFTS CENTRAL MAINT. MACHINE SHOP 16.75 17.00 17.25 - ------------------------------------------------------------------------------------------------------------ 7300 PIPEFITTER CENTRAL MAINT. PIPE SHOP 16.25 16.50 16.75 - ------------------------------------------------------------------------------------------------------------ 7301 PIPEFITTER + 1 CRAFT CENTRAL MAINT. PIPE SHOP 16.50 16.75 17.00 - ------------------------------------------------------------------------------------------------------------ 7302 PIPEFITTER + 2 CRAFTS CENTRAL MAINT. PIPE SHOP 16.75 17.00 17.25 - ------------------------------------------------------------------------------------------------------------ 7400 CONSTRUCTION CENTRAL MAINT. CONSTRUCTION 16.25 16.50 16.75 - ------------------------------------------------------------------------------------------------------------ 7401 CONSTRUCTION + 1 CRAFT CENTRAL MAINT. CONSTRUCTION 16.50 16.75 17.00 - ------------------------------------------------------------------------------------------------------------ 7402 CONSTRUCTION + 2 CRAFTS CENTRAL MAINT. CONSTRUCTION 16.75 17.00 17.25 - ------------------------------------------------------------------------------------------------------------ 7500 OILER CENTRAL MAINT. OILER 16.25 16.50 16.75 - ------------------------------------------------------------------------------------------------------------ 7501 OILER + 1 CRAFT CENTRAL MAINT. OILER 16.50 16.75 17.00 - ------------------------------------------------------------------------------------------------------------ 7502 OILER + 2 CRAFTS CENTRAL MAINT. OILER 16.75 17.00 17.25 - ------------------------------------------------------------------------------------------------------------ 7600 INSTRUMENTATION TECH CENTRAL MAINT. INSTRUMENTATIO 16.25 16.50 16.75 - ------------------------------------------------------------------------------------------------------------ 7601 INSTRUMENTATION TECH + 1 CENTRAL MAINT. INSTRUMENTATIO 16.50 16.75 17.00 CRAFT - ------------------------------------------------------------------------------------------------------------ 7602 INSTRUMENTATION TECH +2 CENTRAL MAINT. INSTRUMENTATIO 16.75 17.00 17.25 CRAFTS - ------------------------------------------------------------------------------------------------------------ 7800 WELDER CENTRAL MAINT. MACHINE SHOP 16.25 16.50 16.75 - ------------------------------------------------------------------------------------------------------------ 7801 WELDER + 1 CRAFT CENTRAL MAINT. MACHINE SHOP 16.50 16.75 17.00 - ------------------------------------------------------------------------------------------------------------ 7802 WELDER + 2 CRAFTS CENTRAL MAINT. MACHINE SHOP 16.75 17.00 17.25 - ------------------------------------------------------------------------------------------------------------ 7901 1ST YEAR APPRENTICE CENTRAL MAINT. MAINTENANCE 14.72 14.97 15.22 - ------------------------------------------------------------------------------------------------------------ 7902 2ND YEAR APPRENTICE CENTRAL MAINT. MAINTENANCE 15.09 15.34 15.59 - ------------------------------------------------------------------------------------------------------------ 7903 THIRD YEAR APPRENTICE CENTRAL MAINT. MAINTENANCE 15.49 15.74 15.99 - ------------------------------------------------------------------------------------------------------------ 7904 FOURTH YEAR APPRENTICE CENTRAL MAINT. MAINTENANCE 15.89 16.14 16.39 - ------------------------------------------------------------------------------------------------------------ 8001 STEAM PLANT OPERATOR PAPER MAKING STEAM PLANT 14.88 15.13 15.38 - ------------------------------------------------------------------------------------------------------------ 8002 STEAM PLANT OPERATOR-LICENSED PAPER MAKING STEAM PLANT 15.35 15.60 15.85 - --------- ------------------------------ -------------------- ------------------- -------- --------- -------
Spare supervisor rates will be $0.15 higher than the highest regular rate within the Department. Spare tour boss rates will be $0.20 higher than the highest regular rate within the Department. Spare maintenance supervisor rates will be $0.35 higher than the highest regular rate within the Department. EXHIBIT D INSURANCE SUMMARY 1. All full-time employees and their dependents are eligible for the following health and dental benefits after meeting the eligibility requirements of Article 23. 2. There are currently two medical plans. Pope & Talbot Medical/Dental Plan o The individual deductible will change from $100 with a family limit of $300 to $250 with a family limit of $750 per calendar year. o The individual out-of-pocket expense limit, after the deductible is satisfied, will be $250 per person/$750 per family of covered expense in a calendar year. o This plan will remain at 90/10 through the contract 49 50 Pope & Talbot Dental Plan (NO medical) o There are no plan changes Valley Medical Plan o There are no plan changes, except that the Company, in consultation with the Cost Containment committee, reserves the right to change carriers provided the new plan is comparable. Contributions (all plans) o Employee contribution of $5/week will be required from employees who enroll in the Wausau Medical/Dental plan or the Valley Medical Plan. All employees will be given the option of paying the required premium contributions on a pre-tax basis through a salary reduction arrangement as provided by Internal Revenue Code Section 125. Future Changes o Contributions (effective January 1, 1998, through December 31, 1998) * Employee contributions of $6/week will be required from employees who enroll in the Wausau Medical/Dental Plan or the Valley Medical Plan. o Contributions (effective January 1, 1999, through December 31, 1999) * Employee contributions of $8/week will be required from employees who enroll in the Wausau Medical/Dental Plan or the Valley Medical Plan. b) Same as above c) The Eau Claire/Chippewa Health Protection Plan - Provider Choice. This plan is fully described in the Summary Plan Description which will be updated and given to employees. This is policy #7779-03-010001 with Wausau Insurance Companies. d) The Midelfort Health Maintenance Plan. This plan is fully described in the Summary Plan Description given to employees. This is policy #456 with the Midelfort Clinic, Inc. 3. The dental plan is the Smile Plan and is fully described in the Summary Plan Booklet given to employees. This plan will also have changes made effective January 1, 1994 and new Summary Plan Descriptions will be issued. This is policy #7771-04-010001 with Wausau Insurance Companies. 4. Effective April 1, 1997 - March 31, 2000, the Accident & Sickness benefit is provided as part of the health plans and is described in the Summary Plan Description. The current level is $370/week. 5. The prescription drug plan will be a part of the Eau Claire/Chippewa Health Protection Plan - Provider Choice. The deductible will be $10.00 for branded drugs or $5.00 for generic drugs. The program will be described in the updated Summary Plan Description. The prescription drug plan under the Midelfort Health Maintenance Plan will apply when employees elect coverage under that plan. 6. All active full-time employees after meeting the eligibility requirements in Article 23 are eligible for life and AD&D insurance amounts as follows: Effective April 1993 and through the duration of this Agreement Term Life Accidental Death & Dismemberment 50 51 7. Retired employees are eligible for $3,750 of life insurance coverage. The life insurance coverage for both active and retired employees is carried by the Principal Mutual Life Insurance Company (formerly The Bankers Life Company) and is policy number GL 28430-1B. 8. Retired employees and spouses are also eligible for health and dental coverage as described in Article 23. EXHIBIT E VACANCY PROGRESSION The following job listings represent the normal upward movement of employees to temporarily perform the duties of the next higher job in the list to provide the skills necessary to maintain productivity on equipment during those times when a person in a job is temporarily absent for sickness, vacation, etc., and are the progressions referred to in Article 10, Paragraph 10.2 and its sub-paragraph. Employees will receive the rate of the job to which they have temporarily moved up. PAPER MACHINES Machine Tender Back Tender Third Hand Fourth Hand Fifth Hand MAINTENANCE -- BY CRAFT LINE Journeyman Level 4 Apprentice Level 3 Apprentice Level 2 Apprentice Level 1 Apprentice Maintenance Helper BOX FACIAL Facial Machine Operator Level 3 (Head Operator) Backstand - - - - - - Utility BATHROOM TISSUE SYSTEMS 51 52 Winder Operator - - - - - - Wrapper Operator Casepacker Operator NAPKIN SYSTEMS System Operators MATERIAL SUPPORT SYSTEMS Mezzanine Support (Core Machine & Sealer Operator) Material Support (Utility) Material Handler/Utility MAINTENANCE SUPPORT Maintenance Support - - - - - - Lubrication Specialist Machine Operator PRINTING Head Printer Printer Operator/Maintenance STOCK PREPARATION Stock Runner Pulper Operator SHIPPING Spotter Driver/Utility-Coordinator Warehouse Driver/ULF - - - - - - Warehouse Driver WAREHOUSE AND RECEIVING Truck Driver Receiver Jobs not listed in these progressions and the bottom jobs in each progression will be filled with Labor Pool employees. 52 53 --A-- ABSENCE 28 ADJUSTMENT OF GRIEVANCES 4 arbitration 5 --B-- BULLETIN BOARDS 38 BULLETINS 45 --C-- CALL TIME 24 CAUSES FOR IMMEDIATE DISCHARGE 46 CENTRAL MAINTENANCE FLEXIBILITY 39 CHANGE OF ADDRESS 45 CHEMICAL ABUSE 17 CLEANLINESS 46 COMPANY AFFAIRS AND PROCESSES 41 Company Seniority 6 Continuous Run Operations 16 --D-- Day Workers 16 Starting and Stopping Work 16 Department Consolidation 6 --E-- EDUCATIONAL EXPENSES 38 END OF THE YEAR BONUS 38 EQUIPMENT 46 Essential Services 16 Exchanging Shifts 15 --F-- FALSIFICATION OF RECORDS 46 Filling Permanent Vacancies 9 Filling Temporary Vacancies 10 FUNERAL LEAVE 27 --G-- GARNISHMENTS 46 GENERAL PURPOSES OF AGREEMENT 3 --H-- Health Care Cost Containment 35 holiday Maintenance Work 30 HOLIDAYS 30 running notice 30 HOURS AND SCHEDULING 14 --I-- IN CASE OF INJURY 44 INSURANCE 33 A&S 50 Accident & Sickness 35 Active Employees - Duration 34 Contributions 50 Death of Employee 34 Dental 50 Disability Benefits 34 Drugs 50 Future Changes 50 Life/AD&D 50 Retired Employees 35 Summary 49 Insurance, A&S Vacation 33 --J-- JOB ALLOCATION 9 JOINTNESS AGREEMENT 40 JURY DUTY 29 --L-- Labor Pool 7 LAYOFF AND RECALL 8 LEAVING THE PLANT 45 Levels of pay Converting 19 LOITERING 45 Loss of Seniority 8 --M-- MAINTAINING ORDER 46 Maintenance Apprenticeship 12 meals 15 Millwide seniority 6 --N-- NON-DISCRIMINATION 4 --O-- OUTSIDE CONTRACTORS 27 OVERTIME 24, 26 Central Maintenance 26 emergency, unplanned 25 Required Weekend 25 53 54 --P-- Paper Machine Seniority 7 Pay Practices 20 PENSION PLAN 36 permanent reduction in force 7 Physician's Work Restrictions 13 PLANT AND COMPANY RULES 45 Premium Days 24 PREMIUM PAY 24 Profit Sharing Plan 19 Protection of Seniority 12 --R-- RATE SCHEDULE 47 Recall from temporary layoff 8 RECOGNITION 3 Relief Electrical Operator 11 Relief Positions 10 REMOVAL OF ARTICLES FROM PLANT 46 REPORTING TIME 24 Required Daily Overtime 25 Retirement Savings, 401(k) Plan 23 Retirement Savings,401(k) Plan 23 --S-- SAFETY EQUIPMENT 39 SAFETY RULES 43 Scheduling Changes 15 SENIORITY 6 SERVICE AND SAVINGS CLAUSE 38 Severance Plan 23 shift start time 24 Shift Workers Starting and Stopping Work 15 Shifts 15 SOLICITATIONS 45 Speed Clause 21 Steam Plant Licensing 13 STOREROOM 46 STRIKES AND LOCKOUTS 4 successful bids 9 --T-- TELEPHONES 45 temporary reduction in force 7 TERMS OF AGREEMENT 2 TIME KEEPING 16 TOOL REPLACEMENT 38 training rate 19 --U-- UNION MEMBERSHIP 3 --V-- vacancies that occur during the week 8 VACANCY PROGRESSION 51 vacation Hours of Pay 32 long way 32 pay 33 prorate 32 schedule 32 Vacation Replacements 11 VACATIONS 31 cancellation 32 VISITORS 45 Voluntary layoffs 8 --W-- Wage Retention 20 WAGES 19 Waste Treatment Plant Operator Licensing 13 Wire Change Manning 22 Wire Time 21 Work Week and Running Schedule 14 Worker's Comp Vacation 33 54 EX-10.14 6 LOAN AGREEMENT 1 EXHIBIT 10.14 THIS LOAN AGREEMENT is dated as of November l, 1983, between the ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF PLAINWELL (the "Issuer"), a political subdivision and body corporate and politic of the State of Michigan (the "State"), and PLAINWELL PAPER CO., INC., a corporation organized and existing under the laws of the State (the "Company"). W I T N E S S E T H : WHEREAS, the Issuer has been created under the provisions of and is empowered pursuant to Act 338, Public Acts of Michigan, 1974, as amended (the "Act"), to issue its revenue obligations t finance costs of providing certain facilities including pollution control facilities; and WHEREAS, the Company is pursuing the acquisition, construction and installation of the facilities and equipment described in Exhibit A hereto (the "Project"); and WHEREAS, on April 26, 1983, the Board of Directors of the Issuer adopted an initial resolution stating the intention of the Issuer to issue revenue bonds in an aggregate amount of not to exceed $4,000,000 to finance costs of that acquisition, construction and installation; and WHEREAS, in furtherance of the purposes of the Act, the Issuer proposes to issue its Variable Rate Demand Notes (Plainwell Paper Co., Inc. Project) (the "Notes"), pursuant to the Indenture (as hereinafter defined) to finance the costs of acquiring, constructing and installing the Project, and to sell the Notes to a purchaser or purchasers provided by the Company; and WHEREAS, the Issuer proposes to loan the proceeds from the sale of the Notes to the Company upon the terms and conditions set forth herein; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS All capitalized, undefined terms used herein shall have the same meanings as used in Article I of the hereinafter defined Indenture. In addition, the following words and phrases shall have the following meanings: "Act" means Act 338, Public Acts of Michigan, 19/4, as amended. "Company" means (i) Plainwell Paper Co., Inc., a Michigan corporation, and its successors and assigns, and (ii) any surviving, resulting or transferee corporation as provided in Section 2.2(d) hereof. "Counsel" means an attorney at law (who may be counsel to the Trustee, the Issuer, the Company or the Guarantor). 2 "Default" means any Default under this Agreement as specified in and defined by Section 8.1 hereof. "Force Majeure" means any cause or event not reasonably within the control of the Company, including without limitation the following: acts of God; strikes, lock-outs or other industrial disturbances; acts of public enemies; restraining orders of any kind of the government of the United States of America or of the State or any of their departments, agencies or officials, or any civil or military authority; insurrections; riots; landslides, earthquakes; fires; storms; droughts; floods; explosions, breakage or accident to machinery, transmission pipes or canals; civil disturbances; washouts; hurricanes; tornados; and partial or entire failure or unavailability of transportation or utilities. "Indenture" means the Indenture of Trust dated as of this date between the Issuer and the Trustee, pursuant to which the Notes are authorized to be issued, and any amendments and supplements thereto. "Issuer" means the Economic Development Corporation of the City of Plainwell and any successor. "Note Fund" means the fund created in Section 502 of the Indenture. "Notes" means the Issuer's Variable Rate Demand Notes (Plainwell Paper Co., Inc. Project). "Project" means the project described in Exhibit A hereof. "Project Costs" include those costs of the Project which are permitted to be financed under the Act and which do not result in any loss of the exemption for interest on the Notes under the Internal Revenue Code of 1954, as amended. "Term of Agreement" means the term of this Agreement as specified in Section 11.1 hereof. "Trustee" means the Trustee at the time serving under the Indenture. ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES Section 2.1. Representations, Covenants and Warranties of the Issuer. The Issuer represents, covenants and warrants that: (a) The Issuer is a political subdivision and body corporate and politic of the State duly created and existing under the Act. Under the Act, the Issuer is authorized to enter into the transactions contemplated by this Agreement and the Indenture and to carry out its obligations hereunder and thereunder. The Issuer has authorized the issuance, execution and delivery of the Notes and the execution and delivery of this Agreement and -2- 3 the Indenture. The Issuer will not take any action to interfere with any obligation it may have with respect to the Notes, or the proceedings authorizing the Notes, or this Agreement or the Indenture. (b) The Issuer agrees to provide funds from the proceeds from the sale of the Notes for the financing of the Project, and to secure the Notes by assigning this Agreement to the Trustee under the Indenture. (c) The Issuer covenants that it will not pledge the amounts derived from this Agreement other than to secure the Notes. Section 2.2. Representations, Covenants and Warranties of the Company. The Company represents, covenants, and warrants as follows: (a) The Company has been duly incorporated and is validly existing and in good standing under the laws of the jurisdiction of its incorporation, with the corporate power and authority to own its property and to carry on its business as now being conducted. (b) The Company has full power and authority to enter into this Agreement, the Remarketing Agreement and the Credit Agreement, and the execution and delivery of each of such documents have been duly authorized by all necessary corporate action. No consent or approval of or any filing with any municipal, state or federal regulatory authority is required as a condition to the execution, delivery or validity of this Agreement, the Remarketing Agreement or the Credit Agreement. (c) This Agreement, the Remarketing Agreement and the Credit Agreement constitute valid and binding agreements of the Company enforceable in accordance with their terms except that the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws affecting creditor's rights generally and by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). (d) The Company agrees that during the Term of Agreement it will maintain its existence, will continue to be a corporation in good standing in the State, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another legal entity or permit one or more other legal entities to consolidate with or merge into it, provided that the Company may, without violating the agreement contained in this Section, consolidate with or merge into another legal entity, or permit one or more legal entities to consolidate with or merge into it, or sell or otherwise transfer to another legal entity all or substantially all of its assets as an entirety and thereafter dissolve, provided (i) that such acquisition, consolidation, merger, or transfer will not affect the tax-exempt status of the interest on the Notes; and (ii) that if the surviving, resulting or transferee legal entity, as the case may be, is not the Company, then such legal entity shall be a legal entity organized and existing under the laws of one of the States of the United States of America and shall assume all of the obligations of the -3- 4 Company under the Agreement, the Remarketing Agreement and the Credit Agreement, in which event the Issuer shall release the Company in writing, concurrently with and contingent upon such acquisition, consolidation, merger or transfer. (e) Neither the execution and delivery of this Agreement, the Remarketing Agreement or the Credit Agreement, the consummation of the transactions contemplated hereby and thereby, nor the fulfillment of or compliance with the terms and conditions thereof conflicts with or results in a breach of the terms, conditions, or provisions of any restriction or any agreement or instrument to which the Company is now a party or by which the Company is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Company under the terms of any instrument or agreement. (f) There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, known to be pending or threatened against or affecting the Company or any of its officers nor to the best of the knowledge of the Company is there any basis therefor, wherein an unfavorable decision, ruling, or finding would materially adversely affect the transactions contemplated by this Agreement or which would adversely affect, in any way, the validity or enforceability of the Notes, this Agreement, the Credit Agreement, the Remarketing Agreement, or any agreement or instrument to which the Company is a party, used or contemplated for use in the consummation of the transactions contemplated hereby. Section 2.3. The Project. The Company will cause the Project to be completed in accordance with the Company's specifications and directions. It is the Company's present intention to use the Project throughout the Term of Agreement primarily in connection with its present business. The Company may use the Project during the Term of Agreement, however, for any lawful purpose if Counsel satisfactory to the Trustee renders an opinion to the Issuer and the Trustee that the use will not affect the validity or the tax-exempt nature of the Notes. The failure or inability of the Company to use the Project for the intended purposes shall not affect in any way the Company's obligations under this Agreement and shall not be deemed a breach or Default under this Agreement as long as the use does not affect the validity or tax-exempt nature of the Notes. ARTICLE III ACQUISITION AND CONSTRUCTION OF THE PROJECT; ISSUANCE OF THE NOTES Section 3.1. Agreement to Acquire, Construct and Install the Project. The Company agrees that it will acquire, construct, and install the Project with all reasonable dispatch and use its best efforts to cause the acquisition, construction and installation of the Project to be completed by October 1, 1986, or as soon thereafter as may be practicable, delays caused by Force Majeure only excepted; but if for any reason such acquisition, construction and installation is not completed by said date there shall be no resulting liability on the part of the Company and -4- 5 no diminution in or postponement of the payments required in Section 4.2 hereof to be paid by the Company. Section 3.2. Agreement to Issue Notes; Application of Note Proceeds. In order to provide funds for payment of the Project Costs, the Issuer, concurrently with the execution of this Agreement, will issue, sell, and deliver the Notes and deposit the net proceeds thereof with the Trustee in the Project Fund. Section 3.3. Disbursements from the Project Fund. The Issuer has, in the Indenture, authorized and directed the Trustee to make disbursements from the Project Fund to pay the Project Costs, or to reimburse the Company for any Project Costs paid by the Company. The Trustee shall make payments from the Project Fund upon receipt of requisitions signed by a Company Representative stating: (a) the requisition number, (b) the name and address of the Person to whom payment is due or to whom the Company has made payment for which reimbursement is to be made, (c) the amount to be paid, and (d) that each obligation has been properly incurred, is a proper charge against the Project Fund, and has not been the basis of any previous withdrawal. The requisition shall be accompanied by copies of such invoices, cancelled checks (or other evidence of payment) and similar documentation as the Trustee may reasonably request. Section 3.4. Establishment of Completion Date. The end of the Construction Period shall be evidenced to the Issuer and the Trustee by a certificate signed by a Company Representative stating that, except for amounts retained by the Trustee at the Company's direction to pay any Project Costs not then due and payable, the acquisition, construction and installation of the Project has been completed and the Project Costs have been paid. Notwithstanding the foregoing, such certificate shall state that it is given without prejudice to any rights against third parties which exist at the date of such certificate or which may subsequently come into being. Forthwith upon completion of the acquisition, construction and installation of the Project, the Company agrees to cause such certificate to be furnished to the Issuer and the Trustee. Upon receipt of such certificate, the Trustee shall retain in the Project Fund a sum equal to the amounts necessary for payment of the Project Costs not then due and payable according to such certificate. If any such amounts so retained are not subsequently used, prior to any transfer of said amounts to the Note Fund as provided below, the Trustee shall give notice to the Company of the failure to apply said funds for payment of the Project Costs. Any amount not to be retained in the Project Fund for payment of the Project Costs, and all amounts so retained but not subsequently used, shall be transferred by the Trustee into the Note Fund. The transferred amounts (the "Excess Proceeds") shall be retained in a segregated subaccount in the Note Fund for the payment or redemption of Outstanding Notes at the earliest possible date after such amounts become Available Moneys. Any provision of this Agreement or the Indenture to the contrary notwithstanding, the Excess Proceeds held in the Note Fund may not be -5- 6 invested to produce a yield (as computed under Section 1.103-13 of the Federal Income Tax Regulations) greater than the yield on the Notes. The Trustee shall have the right to request from the Company and to rely on instructions with respect to the yield on the Notes. Section 3.5. The Company Required to Pay in Event Project Fund Insufficient. In the event the moneys in the Project Fund available for payment of the Project Costs should not be sufficient to pay the Project Costs in full, the Company agrees to complete the construction of the Project and to pay that portion of the Project Costs in excess of the moneys available therefor in the Project Fund. The Company agrees that if, after exhaustion of the moneys in the Project Fund, the Company should pay any portion of the Project Costs pursuant to the provisions of this Section, the Company shall not be entitled to any reimbursement therefor from the Issuer, the Trustee or the Owners of any of the Notes, nor shall the Company be entitled to any diminution of the amounts payable under Section 4.2 hereof. Section 3.6. Investment of Moneys. Any moneys held as a part of the Project Fund shall be invested or reinvested by the Trustee, to the extent permitted by law, at the written request of and as directed by a Company Representative, in any of the investments authorized in Article VI of the Indenture. Section 3.7. The Covenants with Respect to Arbitrage. The Company covenants with the Issuer and to and for the benefit of the purchasers and Owners of the Notes that no use will be made of the proceeds from the issuance and sale of the Notes which, if such use had been reasonably expected on the date of issue of the Notes, would have caused the Notes to be classified as "arbitrage bonds" within the meaning of Section 103(c)(2) of the Code. As long as any of the Notes are Outstanding, the Company shall not willfully violate the requirements of Section 103(c) of the Code and any regulations thereunder. The Company reserves the right, however, to make any investment of proceeds authorized hereunder and under the Indenture and permitted by the laws of the State, if Section 103(c) or the regulations thereunder are repealed or relaxed or held void by final judgment of a court of competent jurisdiction, so long as the investment would not result in making the interest on the Notes subject to federal income taxation. In making investments, the Company may rely on an opinion of nationally recognized bond counsel. ARTICLE IV LOAN OF PROCEEDS TO THE COMPANY; LOAN PROVISIONS Section 4.1. Loan of Proceeds. The Issuer agrees, upon the terms and conditions contained in this Agreement, to lend to the Company the proceeds received by the Issuer from the sale of the Notes. Such proceeds shall be disbursed to or on behalf of the Company as provided in Section 3.3 hereof. -6- 7 Section 4.2. Amounts Payable. (a) The Company hereby covenants and agrees to repay the loan in installments, as follows: on or before any interest payment date for the Notes or any other date that payments are required to be made to the Trustee pursuant to Section 308 of the Indenture in order to effect redemption on the date fixed for redemption of any or all of the Notes pursuant to the Indenture, until the principal of, premium, if any, and interest on the Notes shall have been fully paid or provision for the payment thereof shall have been made in accordance with the Indenture, in immediately available funds, a sum which, together with any Available Moneys available for such payment in the Note Fund, will enable the Trustee to pay the amount payable on such date as principal of (whether at maturity or upon redemption or acceleration or otherwise), premium, if any, and interest on the Notes as provided in the Indenture; provided, however, that the obligation of the Company to make any payment hereunder shall be deemed satisfied and discharged to the extent of the corresponding payment made by the Bank to the Trustee under the Letter of Credit upon reimbursement by the Company to the Bank in full for such payment pursuant to the terms of the Credit Agreement. It is understood and agreed that all payments payable by the Company under subsection (a) of this Section are assigned by the Issuer to the Trustee for the benefit of the Owners of the Notes. The Company assents to such assignment. The Issuer hereby directs the Company and the Company hereby agrees to pay to the Trustee at the Principal Office of the Trustee all payments payable by the Company pursuant to this Section. (b) The Company will also pay the reasonable expenses of the Issuer related to the issuance of the Notes and incurred upon the written request of the Company and the reasonable fees and expenses of the Issuer caused by a Default under this Agreement. (c) The Company will also pay the reasonable fees and expenses of the Trustee under the Indenture, including those incurred in connection with the Trustee's indemnification of its agent appointed pursuant to Section 314 of the Indenture, and all other amounts which may be payable to the Trustee under Section 902 of the Indenture, such amounts to be paid directly to the Trustee for the Trustee's own account as and when such amounts become due and payable, and any reasonable expenses in connection with any redemption of the Notes. The Company will also pay the reasonable fees and expenses of the Paying Agent, any Co-Paying Agent, the Note Registrar, any Co-Note Registrar, any Authenticating Agent, and the agent of the Trustee appointed pursuant to Section 314 of the Indenture, for their services rendered under the Indenture and all advances, counsel fees and other expenses reasonably made or incurred by such Persons in connection with such services. (d) The Company covenants, for the benefit of the Owners of the Notes, to pay or cause to be paid to the Trustee such amounts as shall be necessary to enable the Trustee to pay the Purchase Price of Notes delivered to it for purchase, all as more particularly described in Sections 303, 304 and 306 of the indenture; provided, however, -7- 8 that the obligation of the Company to make any such payment hereunder shall be reduced by the amount of moneys available for such payment described in subsections (i) or (ii) of Section 311 of the Indenture; and provided, further, that the obligation of the Company to make. any payment hereunder shall be deemed to be satisfied and discharged to the extent of the corresponding payment made by the Bank to the Trustee under the Letter of Credit. In the event the Company should fail to make any of the payments required in this Section, the item or installment so in Default shall continue as an obligation of the Company until the amount in Default shall have been fully paid, and the Company agrees to pay the same with interest thereon, to the extent permitted by law, from the date when such payment was due at the Late Payment Rate. Section 4.3. Obligations of the Company Hereunder Unconditional. The obligations of the Company to make the payments required in Section 4.2 and other sections hereof and to perform and observe the other agreements contained herein shall be absolute and unconditional and shall not be subject to any defense or any right of setoff, counterclaim or recoupment arising out of any breach by the Issuer or the Trustee of any obligation to the Company, whether hereunder or otherwise, or out of any indebtedness or liability at any time owing to the Company by the Issuer or the Trustee, and, until such time as the principal of, premium, if any, and interest on the Notes shall have been fully paid or provision for the payment thereof shall have been made in accordance with the Indenture, the Company (i) will not suspend or discontinue any payments provided for in Section 4.2 hereof, (ii) will perform and observe all other agreements contained in this Agreement and (iii) except as provided in Article IX hereof, will not terminate the Term of Agreement for any cause, including, without limiting the generality of the foregoing, failure of the Company to complete the acquisition, construction, and installation of the Project, the occurrence of any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, destruction of or damage to the Project, the taking by eminent domain of title to or temporary use of any or all of the Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either thereof or any failure of the Issuer or the Trustee to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement. Nothing contained in this Section shall be construed to release the Issuer from the performance of any of the agreements on its part herein contained, and in the event the Issuer or the Trustee should fail to perform any such agreement on its part, the Company may institute such action against the Issuer or the Trustee as the Company may deem necessary to compel performance so long as such action does not abrogate the obligations of the Company contained in the first sentence of this Section. The Company may, however, at its own cost and expense and in its name or in the name of the Issuer, prosecute or defend any action or proceeding or take any other action involving third persons which the Company deems reasonably necessary in order to secure or protect the Company's right of possession, occupancy and use hereunder, and in such event the Issuer hereby agrees to cooperate fully with the Company and to take all action necessary to effect the substitution of the Company for the Issuer in any such action or proceeding if the Company shall so request. -8- 9 Section 4.4. Substitute Letter of Credit. The Company may, at any time, provide for the delivery to the Trustee of a Substitute Letter of Credit. Any Substitute Letter of Credit shall be delivered to the Trustee not less than sixty (60) days prior to expiration of the Letter of Credit it is being issued to replace; provided, however, that at least twenty (20) days but not more than sixty (60) days prior to such delivery date, the Company shall have mailed to each Owner of Notes the notice required pursuant to Section 315 of the Indenture. ARTICLE V DAMAGE, DESTRUCTION AND CONDEMNATION Section 5.1. Damage, Destruction and Condemnation. Unless the Company shall have exercised its option to terminate this Agreement pursuant to the provisions of Section 9.2(a) or Section 9.2(b) hereof, if prior to full payment of the Notes (or prior to provision for payment thereof having been made in accordance with the provisions of the Indenture) (i) the Project or any portion thereof is destroyed (in whole or in part) or is damaged by fire or other casualty or (ii) title to or any interest in, or the temporary use of, the Project or any part thereof shall be taken under the exercise of the power of eminent domain by any governmental body or by any person, firm or corporation acting under governmental authority, the Company shall be obligated to continue to pay the amounts specified in Section 4.2 hereof. ARTICLE VI SPECIAL COVENANTS Section 6.1. Further Assurances and Corrective Instruments. The Issuer and the Company agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Project or for carrying out the expressed intention of this Agreement. Section 6.2. The Issuer and the Company Representatives. Whenever under the provisions of this Agreement the approval of the Issuer or the Company is required or the Issuer or the Company is required to take some action at the request of the other, such approval or such request shall be given for the Issuer by an Issuer Representative and for the Company by a Company Representative; the Trustee and any party hereto shall be authorized to act on any such approval or request. Section 6.3. Covenants of the Company with Respect to Use of Note Proceeds. The Issuer is issuing the Notes pursuant to an exemption contained in Section 103(b)(4) of the Code. It is the intention of the parties that the interest on the Notes remain free from federal income taxation and to that end the Company covenants with the Issuer and with the Trustee for the benefit of the Owners of any Notes, that it will never, insofar as it is able, permit the use of Note proceeds so as to cause the loss of the exemption claimed. Section 6.4. Security Interest. The Company agrees to execute and file any and all financing statements or amendments thereof or continuation statements thereto necessary to -9- 10 perfect and continue the perfection of the security interest granted in the Indenture. The Company shall pay all costs of filing such instruments. ARTICLE VII REDEMPTION AND INDEMNIFICATION Section 7.1. Redemption of Notes. The Company shall have and is hereby granted the option to prepay from time to time the amounts payable under this Agreement in sums and at times sufficient to redeem or to pay or cause to be paid all or part of the Notes in accordance with the provisions of the Indenture. The Issuer, at the request of the Company, shall forthwith take all steps (other than the payment of the money required for such redemption) necessary under the applicable redemption provisions of the Indenture to effect redemption of all or part of the Outstanding Notes, as may be specified by the Company, on the date established for such redemption. Section 7.2. References to Notes Ineffective After Notes Paid. Upon payment in full of the Notes (or provision for payment thereof having been made in accordance with the provisions of the Indenture) and payment of all fees and charges of the Trustee, and payment of all amounts payable to the Bank under the Credit Agreement, all references in this Agreement to the Notes and the Trustee shall be ineffective, and neither the Trustee nor the Owners of any of the Notes shall thereafter have any rights hereunder, saving and excepting those that shall have theretofore vested or would affect the tax-exempt status of interest on the Notes. Section 7.3. The Issuer to Grant Security Interest to the Trustee. The parties hereto agree that pursuant to the Indenture, the Issuer shall assign to the Trustee in order to secure payment of the Notes all of the Issuer's right, title, and interest in this Agreement except the Issuer's rights under Sections 4.2(b) and 8.4 hereof. Section 7.4. Indemnification of the Trustee, etc. The Company shall and hereby agrees to indemnify the Trustee for, and hold the Trustee harmless against, any loss, liability or expense (including the costs and expenses of defending against any claim of liability) incurred without negligence or willful misconduct by the Trustee and arising out of or in connection with its acting as Trustee under the Indenture. ARTICLE VIII DEFAULTS AND REMEDIES Section 8.1. Defaults Defined. The following shall be "Defaults" under this Agreement and the term "Default" shall mean, whenever it is used in this Agreement, any one or more of the following events: (a) Failure by the Company to pay any amount required to be paid under subsection (a) or (d) of Section 4.2 hereof at the time specified therein. (b) Failure by the Company to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in Section -10- 11 8.1(a), for a period of thirty (30) Business Days after written notice specifying such failure and requesting that it be remedied shall have been given to the Company by the Issuer or the Trustee, unless the Issuer and the Trustee shall agree in writing to an extension of such time prior to its expiration; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Issuer and the Trustee will not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the Company within the applicable period and diligently pursued until such failure is corrected. (c) The dissolution or liquidation of the Company, except as authorized by Section 2.2 hereof, or the voluntary initiation by the Company of any proceeding under any federal or state law relating to bankruptcy, insolvency, arrangement, reorganization, readjustment of debt or any other form of debtor relief, or the initiation against the Company of any such proceeding which shall remain undismissed for sixty (60) days, or failure by the Company to promptly have discharged any execution, garnishment or attachment of such consequence as would impair the ability of the Company to carry on its operations at the Project, or assignment by the Company for the benefit of creditors, or the entry by the Company into an agreement of composition with creditors or the failure generally by the Company to pay its debts as they become due. (d) The occurrence of a Default under the Indenture or the Guaranty. (e) Any representation or warranty made by the Company herein or any statement or representation in any certificate, report or other document delivered by the Company in connection herewith shall prove to have been misleading in any material respect when made. The provisions of subsection (b) of this Section are subject to the following limitation: if by reason of Force Majeure the Company is unable in whole or in part to carry out any of its agreements contained herein (other than its obligations contained in Article IV hereof), the Company shall not be deemed in Default during the continuance of such inability. The Company agrees, however, to remedy with all reasonable dispatch the cause or causes preventing the Company from carrying out its agreement, provided that the settlement of strikes and other industrial disturbances shall be entirely within the discretion of the Company and the Company shall not be required to make settlement of strikes, lockouts and other industrial disturbances by acceding to the demands of the opposing party or parties when such course is in the judgment of the Company unfavorable to the Company. Section 8.2. Remedies on Default. Whenever any Default referred to in Section 8.1 hereof shall have happened and be continuing, the Trustee or the Issuer with the written consent of the Trustee may take one or any combination of the following remedial steps: (a) If the Trustee has declared the Notes immediately due and payable pursuant to Section 802 of the Indenture, by written notice to the Company, declare an amount equal to all amounts then due and payable on the Notes, whether by acceleration of maturity (as provided in the Indenture) or otherwise, to be immediately due and -11- 12 payable as liquidated damages under this Agreement and not as a penalty, whereupon the same shall become immediately due and payable; or (b) Take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Company under this Agreement. Any amounts collected pursuant to action taken under this Section shall be paid into the Note Fund and applied in accordance with the provisions of the Indenture. Section 8.3. No Remedy Exclusive. Subject to Section 802 of the Indenture, no remedy herein conferred upon or reserved to the Issuer is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any Default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be required in this Article. Such rights and remedies as are given the Issuer hereunder shall also extend to the Trustee, and the Trustee and the Owners of the Notes, subject to the provisions of the Indenture, shall be entitled to the benefit of all covenants and agreements herein contained. Section 8.4. Agreement to Pay Attorneys' Fees and Expenses. In the event the Company should Default under any of the provisions of this Agreement and the Issuer should employ attorneys or incur other expenses for the collection of payments required hereunder or the enforcement of performance or observance of any obligation or agreement on the part of the Company herein contained, the Company agrees that it will on demand therefor pay to the Issuer the reasonable fee of such attorneys and such other expenses so incurred by the Issuer, and any such amounts paid by the Issuer shall be added to the indebtedness secured by the Indenture. Section 8.5. No Additional Waiver Implied by One Waiver. In the event any agreement contained in this Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. ARTICLE IX OPTIONS TO TERMINATE AGREEMENT Section 9.1. Option to Terminate At Any Time. The Company shall have, and is hereby granted, the option to terminate this Agreement at any time prior to full payment of the Notes (or provision for payment thereof having been made in accordance with the provisions of the Indenture). The Company may terminate this Agreement (a) by paying or causing to be paid to the Trustee an amount equal to the sum of the following: -12- 13 (i) an amount of money which, when added to the amount then on deposit and available in the Note Fund, will be sufficient to pay, retire and redeem all the Outstanding Notes on the earliest possible redemption date after notice as provided in the Indenture including, without limitation to, the principal amount thereof, all interest to accrue to said redemption date and premium, if any, expenses of redemption, plus (ii) An amount of money equal to the Trustee's fees and expenses under the Indenture accrued and to accrue until such final payment and redemption of the Notes, plus (iii) An amount of money equal to the Issuer's fees and expenses under this Agreement accrued and to accrue until such final payment and redemption of the Notes; (b) in case of redemption, by making arrangements satisfactory to the Trustee for the giving of the required notice of redemption and (c) by giving the Issuer notice in writing of such termination, and such termination shall forthwith become effective. Section 9.2. Option to Terminate Upon the Occurrence of Certain Events. The Company shall have, and is hereby granted, the option to terminate this Agreement prior to the full payment of the Notes (or provision for payment thereof having been made in accordance with the provisions of the Indenture) at any time any of the events set forth below shall occur: (a) The Project shall have been damaged or destroyed (i) to such extent that it cannot, in the Company's judgment be reasonably restored within a period of six (6) months to the condition thereof immediately preceding such damage or destruction, or (ii) to such extent that the Company is thereby prevented, in the Company's judgment, from carrying on its normal operations at the Project for a period of six (6) months or more. (b) Title to, or the temporary use for a period of six (6) months or more of, all or substantially all the Project, or such part thereof as shall materially interfere, in the Company's judgment, with the operation of the Project for the purpose for which the Project is designed, shall have been taken under the exercise of the power of eminent domain by any governmental body or by any person, firm or corporation acting under governmental authority (including such a taking or takings as results in the Company being thereby prevented from carrying on its normal operations at the Project for a period of six (6) months or more). (c) Changes which the Company cannot reasonably control or overcome in the economic availability of materials, supplies, labor, equipment and other properties and things necessary for the efficient operation of the Project for the purposes contemplated by this Agreement shall have occurred, or technological or other changes shall have occurred which in the judgment of the Company render the continued operation of the Project uneconomic for such purposes. -13- 14 To exercise such option, the Company shall, within ninety (90) days following the event authorizing such termination, give written notice to the Issuer and the Bank, and to the Trustee if any of the Notes shall then be unpaid, and shall specify therein the date of termination, which date shall be not less than thirty (30) days nor more than ninety (90) days from the date such notice is mailed, and in case of a redemption of the Notes in accordance with the provisions of the Indenture, shall make arrangements satisfactory to the Trustee for the giving of the required notice of redemption. In order to exercise such option, the Company shall pay, or cause to be paid, on or prior to the applicable redemption date, to the Trustee, an amount equal to the sum of the following: (1) An amount of money which, when added to the amount then on deposit and available in the Note Fund, will be sufficient to pay, retire and redeem all the Outstanding Notes on the earliest possible redemption date after notice as provided in the Indenture, including, without limitation, the principal amount thereof, all interest to accrue to said redemption date and premium, if any, and expenses of redemption, plus (2) An amount of money equal to the Trustee's fees and expenses under the Indenture accrued and to accrue until such final payment and redemption of the Notes, plus (3) An amount of money equal to the Issuer's fees and expenses under this Agreement accrued and to accrue until such final payment and redemption of the Notes. Section 9.3. Payment Under Letter of Credit. The Company's obligation to make any payments under this Article IX shall be deemed satisfied and discharged to the extent of the corresponding payment made by the Bank under the Letter of Credit upon reimbursement by the Company to the Bank in full for such payment pursuant to the terms of the Credit Agreement. ARTICLE X OBLIGATION TO TERMINATE AGREEMENT IN EVENT OF A DETERMINATION OF TAXABILITY OR A DETERMINATION OF UNENFORCEABILITY Section 10.1. Obligation to Terminate Agreement. The Company shall be obligated to terminate this Agreement and accordingly cause the Notes to be redeemed, within one hundred eighty (180) days after a Determination of Taxability (as defined below) or a Determination of Unenforceability (as defined below) shall have occurred by paying or causing to be paid &n amount which, when added to other funds on deposit in the Note Fund and available for such purpose, is equal to (a) one hundred percent (100%) of the aggregate principal amount of Notes Outstanding on the redemption date plus accrued interest to the redemption date, plus (b) an amount of money equal to the Trustee's fees and expenses under the Indenture accrued and to accrue until such purchase and redemption of the Notes, plus (c) an amount of money equal to the Issuer's fees and expenses under this Agreement accrued and to accrue until such purchase and redemption of the Notes. -14- 15 A "Determination of Taxability" shall have been deemed to occur if a final decree or judgment of any federal court or a final action of the Internal Revenue Service determines that interest paid or payable on any Note is or was includable in the gross income of an Owner of the Notes for federal income tax purposes under the Code (other than an Owner who is a substantial user or related person within the meaning of Section 103(b) of the Code). No such decree, judgment, or action will be considered final for this purpose, however, unless the Company has been given written notice and, if it is so desired and is legally allowed, has been afforded the opportunity to contest the same, either directly or in the name of any Owner of a Note, and until conclusion of any appellate review, if sought. If the Trustee receives written notice from any Owner of Notes stating that (i) the Owner of Notes has been notified in writing by the Internal Revenue Service that it proposes to include the interest on any Note in the gross income of such Owner of Notes for the reasons described therein or any other proceeding has been instituted against such Owner of Notes which may lead to a final decree, judgment, or action as described herein, and (ii) such Owner of Notes will afford the Company the opportunity to contest the same, either directly or in the name of the Owner of Notes, until a conclusion of any appellate review, if sought, then the Trustee shall promptly give notice thereof to the Company, the Issuer, the Bank and the Owner of each Note Outstanding. The Trustee shall thereafter coordinate any similar requests or notices it may have received from other Owners of Notes and shall keep them informed of the progress of any administrative proceedings or litigation. A "Determination of Unenforceability" shall have been deemed to occur if, as a result of any changes in the Constitution of the State or the Constitution of the United States of America or of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal) entered after the contest thereof by the Company in good faith, this Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties as expressed in this Agreement. If a Determination of Taxability or a Determination of Unenforceability is made, the Trustee shall give notice of the redemption of the Notes at the earliest practicable date, but not later than the date specified in this Article, and in the manner provided by Section 307 of the Indenture. The Company's obligation to make any payments under this Article X shall be deemed satisfied and discharged to the extent of the corresponding payment made by the Bank under the Letter of Credit upon reimbursement by the Company to the Bank in full for such payment pursuant to the terms of the Credit Agreement. ARTICLE XI MISCELLANEOUS Section 11.1. Term of Agreement. This Agreement shall remain in full force and effect from the date hereof to and including November 1, 2007, or until such time as all of the Notes and the fees and expenses of the Issuer and the Trustee and all amounts payable to the Bank under the Credit Agreement shall have been fully paid or provision made for such payments, -15- 16 whichever is later; provided, however, that this Agreement may be terminated prior to such date pursuant to Article IX of this Agreement. Section 11.2. Notices. All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed given when delivered or mailed by registered mail, postage prepaid, addressed as follows: if to the Issuer to: Economic Development Corporation of the City of Plainwell 141 North Main Street Plainwell, Michigan 49080 Attention: President if to the Company to: Philip Morris Industrial Incorporated 100 Park Avenue New York, New York 10017 Attention: Secretary with a copy to: Philip Morris Incorporated 120 Park Avenue New York, New York 10017 Attention: Secretary if to the Bank to: First Interstate Bank 707 Wilshire Boulevard Los Angeles, California 90017 Attention: Renato Bautista, Letter of Credit Division or if to the issuer of a Substitute Letter of Credit at its address designated in writing to the Trustee. A duplicate copy of each notice, certificate or other communication given hereunder by the Issuer or the Company shall also be given to the Trustee, the Guarantor and the Bank. The Issuer, the Company, the Guarantor, the Trustee, and the Bank may, by written notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 11.3. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Company, the Bank, the Trustee, the Owners of Notes and their -16- 17 respective successors and assigns, subject, however, to the limitations contained in Sections 2.2(d) and 7.3 hereof. Section 11.4. Severability. The invalidity or unenforceability of any one or more phrases, sentences, clauses or Sections in this Agreement shall not affect the validity or enforceability of the remaining portions of this Agreement or any part thereof. Section 11.5. Amounts Remaining in Funds. Subject to the provisions of Sections 512 and 513 of the Indenture, it is agreed by the parties hereto that any amounts remaining in the Note Fund or the Project Fund, or any other fund created under the Indenture upon expiration or earlier termination of the Term of Agreement, as provided in this Agreement, after payment in full of the Notes (or provision for payment thereof having been made in accordance with the provisions of the Indenture) and the fees and expenses of the Trustee in accordance with the Indenture, shall belong to and be paid to the Company by the Trustee. Section 11.6. Amendments, Changes and Modifications. Subsequent to the issuance of Notes and prior to their payment in full (or provision for the payment thereof having been made in accordance with the provisions of the Indenture), and except as otherwise herein expressly provided, this Agreement may not be effectively amended, changed, modified, altered or terminated without the written consent of the Trustee, the Guarantor and, prior to the Letter of Credit Termination Date and payment of all amounts payable to the Bank under the Credit Agreement, the consent of the Bank if required by the provisions of the Indenture. Section 11.7. Execution in Counterparts. This Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 11.8. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State. Section 11.9. Captions. The captions and headings in this Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or Sections of this Agreement. -17- 18 IN WITNESS WHEREOF, the Issuer has caused this Agreement to be executed in its name and with its official seal hereunto affixed and attested by its duly authorized officer and the Company has caused this Agreement to be executed in its name and attested by its duly authorized officer, all as of the date first above written. [SEAL] ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF PLAINWELL Attest: By: --------------------------- --------------------------- Secretary President [SEAL] PLAINWELL PAPER CO., INC. Attest: By: --------------------------- --------------------------- Title: Title: --------------------- ------------------ -18- EX-10.15 7 INDENTURE 1 EXHIBIT 10.15 INDENTURE OF TRUST THIS INDENTURE OF TRUST is dated as of November 1, 1983, between the ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF PLAINWELL (the "Issuer"), a political subdivision and body corporate and politic of the State of Michigan (the "State"), and FIRST & MERCHANTS NATIONAL BANK, a national banking association organized and existing under the laws of the United States with its principal corporate trust office located at Richmond, Virginia (the "Trustee"), as Trustee. W I T N E S S E T H: WHEREAS, Issuer has been created under the provisions of and is empowered pursuant to Act 338, Public Acts of Michigan, 1974, as amended (the "Act"), to issue its revenue obligations to finance costs of providing certain facilities including pollution control facilities; and WHEREAS, Plainwell Paper Co., Inc., a Michigan corporation (the "Company"), is pursuing the acquisition, construction and installation of facilities and equipment described in Exhibit A to the Loan Agreement (as hereinafter defined) (the "Project"), WHEREAS, on April 26, 1983, the Board of Directors of the Issuer adopted an initial resolution stating the intention of the Issuer to issue revenue bonds in an aggregate amount of not to exceed $4,000,000 to finance costs of that acquisition, construction and installation; WHEREAS, in furtherance of the purposes of the Act, the Issuer proposes to issue its Variable Rate Demand Notes (Plainwell Paper Co., Inc. Project) (the "Notes"), pursuant to this Indenture to finance the costs of acquiring, constructing and installing the Project, to sell the Notes to a purchaser provided by the Company and to loan the proceeds from the sale thereof to the Company pursuant to a Loan Agreement (the "Agreement") of even date herewith between the Issuer and the Company; and WHEREAS, all things necessary to make the Notes when authenticated by the Trustee and issued as in this Indenture provided, the valid, binding and legal obligations of the Issuer according to the import thereof, and to constitute this Indenture a valid assignment and pledge of the payments under the Agreement (except for amounts payable to the Issuer under Sections 4.2(b), and 8.4 of the Agreement) for payment of the principal of, premium, if any, and interest on the Notes, and to constitute this Indenture a valid assignment of the rights of the Issuer under the Agreement except as otherwise stated herein, have been done and performed, and the creation, execution and delivery of this Indenture, and the issuance of the Notes, subject to the terms hereof, have in all respects been duly authorized. 2 NOW, THEREFORE, THIS INDENTURE WITNESSETH: GRANTING CLAUSES That the Issuer, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Notes by the Owners thereof, and of the sum of one dollar, lawful money of the United States of America, to it duly paid by the Trustee at or before the execution and delivery of these presents, and for other good and valuable consideration, the receipt of which is hereby acknowledged, in order to secure the payment of the principal of, premium, if any, and interest on the Notes according to their tenor and effect and to secure the performance and observance by the Issuer of all the covenants expressed or implied herein and in the Notes, does hereby assign and grant a security interest in the following to the Trustee, and its successors in trust and assigns forever, for the securing of the performance of the obligations of the Issuer hereinafter set forth: GRANTING CLAUSE FIRST The Agreement, including all extensions and renewals of the term thereof, if any, together with all right, title and interest of the Issuer in and to the Agreement, including, but not limited to, the present and continuing right to make claim for, collect, receive and receipt for any of the sums, amounts, income, revenues, issues and profits and any other sums of money payable or receivable under the Agreement (except for amounts payable to the Issuer under Sections 4.2(b), and 8.4 thereof), to bring actions and proceedings thereunder or for the enforcement thereof, and to do any and all things which the Issuer is or may become entitled to do under the Agreement. GRANTING CLAUSE SECOND All moneys and securities from time to time held by the Trustee under the terms of this Indenture. GRANTING CLAUSE THIRD Any and all other property rights and interests of every kind and nature from time to time hereafter by delivery or by writing of any kind granted, bargained, sold, alienated, demised, released, conveyed, assigned, transferred, mortgaged, pledged, hypothecated or otherwise subjected hereto, as and for additional security herewith, by the Company or any other person on its behalf or with its written consent or by the Issuer or any other person on its behalf or with its written consent, and the Trustee is hereby authorized to receive any and all such property at any and all times and to hold and apply the same subject to the terms hereof. TO HAVE AND TO HOLD all and singular the Trust Estate, whether now owned or hereafter acquired, unto the Trustee and its respective successors in said trust and assigns forever; -2- 3 IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all present and future Owners of the Notes, from time to time, issued under and secured by this Indenture without privilege, priority or distinction as to the lien or otherwise of any of the Notes over any of the other Notes except in the case of funds held hereunder for the benefit of particular Owners of Notes, and for the benefit of the Bank to the extent provided herein; PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, shall well and truly pay, or cause to be paid, the principal of, premium, if any, and interest on the Notes due or to become due thereon, at the times and in the manner set forth in the Notes according to the true intent and meaning thereof, and shall cause the payments to be made on the Notes as required under Article IV hereof, or shall provide, as permitted hereby, for the payment thereof by depositing with the Trustee the entire amount due or to become due thereon, and shall well and truly cause to be kept, performed and observed all of its covenants and conditions pursuant to the terms of this Indenture, and shall pay or cause to be paid to the Trustee all sums of money due or to become due to it in accordance with the terms and provisions hereof, then upon the final payment thereof this Indenture and the rights hereby granted shall cease, determine and be void, except to the extent specifically provided in Article VII hereof; otherwise this Indenture shall remain in full force and effect. THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that all Notes issued and secured hereunder are to be issued, authenticated and delivered and all said property, rights and interests, including, without limitation, the amounts payable under the Agreement and any other amounts hereby assigned and pledged are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as herein expressed, and the Issuer has agreed and covenanted, and does hereby agree and covenant with the Trustee and with the respective Owners of the Notes as follows: ARTICLE I DEFINITIONS All capitalized, undefined terms used herein shall have the same meaning as used in Article I of the Agreement. In addition, the following words and phrases shall have the following meanings: "Act" means Act 338, Public Acts of Michigan, 1974, as amended. "Act of Bankruptcy" means the filing of a petition in bankruptcy (or the other commencement of a bankruptcy or similar proceeding) by or against the Company or the Issuer under any applicable bankruptcy, insolvency, reorganization or similar law, now or hereafter in effect. "Agreement" means the Loan Agreement dated as of this date between the Issuer and the Company, and any amendments and supplements thereto. -3- 4 "Authenticating Agent" means any agent or agents of the Trustee which at the time shall be appointed and acting pursuant to Section 917 hereof. "Available Moneys" means (a) with respect to any payment date occurring during the term of the Letter of Credit, (i) moneys drawn under the Letter of Credit, or (ii) moneys deposited into the Note Fund pursuant to Section 503(a) hereof or moneys deposited by Company with the Trustee, in either such case, which moneys have been on deposit with the Trustee for at least 123 days during and prior to which no Act of Bankruptcy shall have occurred, or (iii) the proceeds of the sale of refunding obligations, if, in the opinion of nationally recognized counsel experienced in bankruptcy matters, the application of such moneys will not constitute a voidable preference in the event of the occurrence of an Act of Bankruptcy, or (iv) the proceeds from investment of moneys qualifying as Available Moneys under clause (i), (ii) or (iii) above, and (b) with respect to any payment date not occurring during the term of the Letter of Credit, any moneys held by the Trustee and the proceeds from the investment thereof. Notwithstanding the foregoing, when used with respect to payment of any amounts due in respect of any Bank Notes, the term "Available Moneys" shall mean any moneys held by the Trustee and the proceeds from the investment thereof, except for moneys drawn under the Letter of Credit. "Bank" means (i) First Interstate Bank of California, a banking corporation organized and existing under the laws of the State of California, in its capacity as issuer of the Letter of Credit, (ii) any Substitute Bank, and (iii) any successors and assigns in such capacity. "Bank Notes" means any and all Notes purchased by the Trustee pursuant to Section 306 hereof with moneys drawn under the Letter of Credit and delivered to the Bank pursuant to Section 312 hereof, while and so long as the Bank shall hold such Notes prior to the Conversion Date. "Bank Rate" means the interest rate in effect on the Bank Notes, as said rate is determined in accordance with Section 202(B) hereof. "Bankers Trust Business Day" means a day on which Bankers Trust Company, New York, New York, is open for the purpose of conducting a commercial banking business. "Business Day" means a day on which the Bank, the Trustee and the agent of the Trustee appointed pursuant to Section 314 hereof are each open for the purpose of conducting a commercial banking business. "Code" means the Internal Revenue Code of 1954, as amended from time to time. "Company" means (i) Plainwell Paper Co., Inc., a Michigan corporation, and (ii) any surviving, resulting, or transferee entity as provided in Section 2.2(d) of the Agreement. "Company Representative" means the Person or Persons at the time designated to act on behalf of Company by written certificate furnished to the Issuer and the Trustee containing the -4- 5 specimen signatures of such Person or Persons and signed on behalf of the Company by its President or any Vice President. Such certificate may designate an alternate or alternates. "Construction Period" means the period of time from the original issuance of the Notes to the receipt by the Trustee of the certificate of the Company referred to in Section 509 hereof. "Conversion Date" means that date on or after May 1, 1984, which shall be a Business Day, from and after which the interest rate on the Notes is converted from the Floating Rate to the Fixed Rate as a result of the exercise by the Company of the Conversion Option. "Conversion Option" means the option granted to the Company in Section 303 hereof pursuant to which the interest rate on the Notes is converted from the Floating Rate to the Fixed Rate as of the Conversion Date. "Credit Agreement" means (i) the Letter of Credit Agreement dated as of this date between the Company and First Interstate Bank of California, and any amendments and supplements thereto and (ii) the letter of credit agreement or reimbursement agreement between the Company and any Substitute Bank, and any amendments and supplements thereto. "Default" means any Default under this Indenture as specified in and defined by Section 901 hereof. "Demand Purchase Option" means the option granted to Owners of Notes to require that Notes be purchased prior to the Conversion Date pursuant to Section 306 hereof. "First Optional Redemption Date" means the November 1 occurring in the year which is a number of years after the Conversion Date equal to the number of years between the November 1 immediately following the Conversion Date (unless the Conversion Date is an November 1, in which case from such November 1) and November 1, 2007, multiplied by 1/2 and rounded up to the nearest whole number. "Fixed Rate" means the interest rate in effect on the Notes from and after the Conversion Date, as said rate is determined in accordance with Section 202(C) hereof. "Floating Rate" means the interest rate in effect on the Notes (other than Bank Notes) from the date of issuance of the Notes until (but not including) the Conversion Date, as said rate is determined in accordance with Section 202(A) hereof. "Governmental Obligations" means any of the following which are noncallable: (a) direct general obligations of, or obligations the payment of the principal of and interest on which are unconditionally guaranteed by, the United States of America; and (b) bonds, debentures or notes issued by the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Financing -5- 6 Bank, the Federal Farm Credit Banks, the Federal Land Banks, the Federal Home Loan Banks, the Farmers Home Administration, the Federal Home Loan Mortgage Association or any other comparable federal agency hereafter created to the extent that said obligations are unconditionally guaranteed by the United States of America. "Guarantor" means (i) Philip Morris Incorporated, a Virginia corporation, and (ii) any surviving, resulting or transferee entity as provided in the Guaranty. "Guaranty" means the Guaranty Agreement dated as of the date hereof between the Guarantor and the Trustee, and any amendments or supplements thereto. "Indenture" means this Indenture of Trust, pursuant to which the Notes are authorized to be issued, and any amendments and supplements hereto. "Independent Counsel" means an attorney duly admitted to practice law before the highest court of any state and who is not a full-time employee, director, officer, or partner of the Issuer, the Company or the Guarantor. "Issuer" means the Economic Development Corporation of the City of Plainwell, a political subdivision and body corporate and politic of the State, and its successors and assigns. "Issuer Representative" means the Person or Persons at the time designated to act on behalf of the Issuer by written certificate furnished to the Company and the Trustee containing the specimen signatures of such Person or Persons and signed on behalf of the Issuer by its duly authorized agent. Such certificate may designate an alternate or alternates. "Late Payment Rate" means with respect to any Note the rate of interest on such Note, and for all other purposes means thirteen percent (13%) per annum. "Letter of Credit" means (i) that certain Letter of Credit dated the date of the original issuance of the Notes issued by First Interstate Bank of California and (ii) any Substitute Letter of Credit, as further described in Section 4.4 of the Agreement. "Letter of Credit Termination Date" means the later of (i) that date upon which the Letter of Credit shall expire or terminate pursuant to its terms or the terms of the Credit Agreement, or (ii) that date to which the expiration or termination of the Letter of Credit may be extended, from time to time, either by extension or renewal of the existing Letter of Credit or the issuance of a Substitute Letter of Credit. "Moody's" means Moody's Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company, by notice to the Trustee. -6- 7 "Mandatory Tender Date" means the interest payment date immediately preceding the Letter of Credit Termination Date. "Note Fund" means the fund created in Section 502 hereof. "Note Registrar" and "Co-Note Registrar" means the Trustee and any Co-Note Registrar appointed and serving in such capacity pursuant to this Indenture. "Principal Office" of the Note Registrar or any Co-Note Registrar means, with respect to the Trustee, the Principal Office of the Trustee, and with respect to any Co-Note Registrar appointed and serving in such capacity pursuant to this Indenture, the office of such Person designated in writing to the Issuer, the Company, the Trustee, the Bank, the Paying Agent, any Co-Paying Agent and the Remarketing Agent. "Notes" means the $3,500,000 aggregate principal amount of the Issuer's Variable Rate Demand Notes (Plainwell Paper Co., Inc. Project) issued by the Issuer pursuant to this Indenture. "Officer's Certificate" means a certificate of the Issuer signed by the President or Secretary or by any other Person designated by resolution of the Issuer to act for either of those officers, either generally or with respect to the execution of any particular document or other specific matter, a certified copy of which resolution shall be filed with the Trustee. "Outstanding" or "Notes Outstanding" mean all Notes which have been authenticated and delivered by the Trustee under this Indenture, except: (a) Notes canceled after purchase in the open market or because of payment at or redemption prior to maturity; (b) Notes paid or deemed to be paid pursuant to Article VII hereof; (c) Notes in lieu of which others have been authenticated under Section 207 or Section 208 hereof; and (d) Notes in lieu of which others have been issued pursuant to Section 204(b) hereof. "Owner" means the person or persons in whose name or names a Note shall be registered on the books of the Issuer kept for that purpose in accordance with provisions of this Indenture. "Paying Agent" and "Co-Paying Agent" means the Trustee and any Co-Paying Agent appointed and serving in such capacity pursuant to this Indenture. "Principal Office" of the Paying Agent or any Co-Paying Agent means, with respect to the Trustee, the Principal Office of the Trustee, and with respect to any Co-Paying Agent appointed and serving in such capacity pursuant to this Indenture, the office of such Person designated in writing to the Issuer, the Company, the Trustee, the Bank, the Note Registrar, any Co-Note Registrar and the Remarketing Agent. -7- 8 "Person" means natural persons, firms, associations, corporations and public bodies. "Project" means the project described in Exhibit A to the Agreement. "Project Fund" means the fund created by Section 506 hereof. "Purchase Price" means an amount equal to 100% of the principal amount of any Note tendered or deemed tendered pursuant to Section 303, 304 or 306 hereof, plus, in the case of purchase pursuant to Section 306 hereof, accrued and unpaid interest thereon to the date of purchase. "Record Date" means that day which is fifteen (15) days prior to any interest payment date. "Remarketing Agent" means the Remarketing Agent acting as such under the Remarketing Agreement. "Principal Office of the Remarketing Agent" means the principal office of the Remarketing Agent designated in the Remarketing Agreement. "Remarketing Agreement" means the Remarketing Agreement dated as of the date hereof between Bankers Trust Company and the Company, and any amendments and supplements thereto. "State" means the State of Michigan. "S&P" means Standard & Poor's Corporation, a corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company, by notice to the Trustee. "Substitute Bank" means a commercial bank or savings and loan association which has issued a Substitute Letter of Credit. "Substitute Letter of Credit" means a letter of credit delivered to the Trustee in accordance with Section 4.4 of the Agreement (i) issued by the Bank or the Substitute Bank, (ii) replacing any existing Letter of Credit, (iii) dated as of a date prior to the expiration date of the Letter of Credit for which the same is to be substituted, (iv) which shall expire on a date which is 15 days after an interest payment date for the Notes and (v) issued on substantially identical terms and conditions as the then existing Letter of Credit, except that the stated amount of the Substitute Letter of Credit shall equal the sum of (A) the aggregate principal amount of Notes at the time Outstanding, plus (B) an amount equal to at least 120 days' interest (computed at the maximum interest rate applicable to the Notes) on all Notes at the time Outstanding. "Trustee" means First & Merchants National Bank, a national banking association organized and existing under the laws of the United States, and its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors -8- 9 may be a party and any successor Trustee at the time serving as successor trustee hereunder. "Principal Office of the Trustee" means the address specified in Section 1204 hereof or such other address as may be designated in writing to the Issuer, the Remarketing Agent and the Company. "Trust Estate" means the property conveyed to the Trustee pursuant to the Granting Clauses hereof. "Written Request" with reference to the Issuer shall mean a request in writing signed by the President or Secretary or any other officer or officers of the Issuer satisfactory to the Trustee. ARTICLE II THE NOTES Section 201. Authorized Amount of Notes. No Notes may be issued under the provisions of this Indenture except in accordance with this Article. The total aggregate principal amount of Notes that may be issued is hereby expressly limited to $3,500,000, except as provided in Sections 207, 208, 210 and 310 hereof. Section 202. Issuance of Notes. The Notes shall be designated "Variable Rate Demand Notes (Plainwell Paper Co., Inc. Project)". Prior to the Conversion Date, the Notes shall be issuable as fully registered notes without coupons in the denomination of $100,000 or any integral multiple of $5,000 in excess thereof; provided that the Notes may be issued in the denomination of $5,000 or any integral multiple thereof if necessary to evidence the unredeemed portion of any Note. From and after the Conversion Date, the Notes shall be issuable as fully registered notes without coupons in the denomination of $5,000 or any integral multiple thereof. Unless the Issuer shall otherwise direct, the Notes shall be lettered "R" and shall be numbered consecutively from 1 upward. Each Note shall be dated the date of its authentication and shall bear interest, payable so long as the Notes bear interest at the Floating Rate (or in the case of Bank Notes at the Bank Rate) on February 1, May 1, August 1 and November 1 of each year and on the Conversion Date, commencing February 1, 1984, and payable from and after the Conversion Date on May 1 and November 1 of each year, commencing on the May 1 or November 1 next following the Conversion Date, in each case from the interest payment dale next preceding the date thereof, unless the date thereof is a date to which interest has been paid or duly provided for, in which case from the date thereof, or unless no interest has been paid or duly provided for on the Notes, in which case from the date of first authentication and delivery of the Notes, until payment of the principal thereof has been made or duly provided for. Notwithstanding the foregoing, any Note dated after any Record Date and before the following interest payment date shall bear interest from such interest payment date, provided, however, that if the Issuer shall default in the payment of interest due on such interest payment date, then such Note shall bear interest from the next preceding interest payment date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Notes, from the date of first authentication and delivery of the Notes. -9- 10 The Notes shall mature on November 1, 2007. The Notes shall bear interest as follows: (A) Prior to the Conversion Date, the Notes (other than Bank Notes) shall bear interest at the Floating Rate. The Floating Rate shall be a variable rate of interest equal to "TENR" (hereinafter defined) plus an amount (as adjusted from time to time as hereinafter provided, the "TENR Amount") initially equal to one-quarter percent (1/4%), provided that: (i) if the Trustee and the Remarketing Agent shall have received a notice requiring the purchase of any Notes in accordance with Section 306 hereof and if the Remarketing Agent shall remarket all or a portion of such Notes pursuant to the Remarketing Agreement, the TENR Amount for all Notes shall be the TENR Amount required for the Remarketing Agent to remarket such Notes at par, which adjusted TENR Amount shall become effective as of the day next following the next announcement of TENR. In connection with any such remarketing, the Remarketing Agent shall determine what increments of 1/8th of 1% per annum will, when added to or subtracted from the TENR Amount at the time applicable to the Notes, produce the minimum interest rate per annum necessary to enable the Remarketing Agent to remarket such Notes at par; provided, that the TENR Amount shall not be more than two and one-quarter percent (2-1/4%); (ii) if the TENR Amount is adjusted pursuant to the preceding clause (i), such adjusted TENR Amount shall remain in effect until the next succeeding interest payment date or until a further adjustment to the TENR Amount is made pursuant to such clause (i) or until the interest rate hereunder is otherwise determined as provided for in this Indenture; (iii) beginning on each interest payment date, the TENR Amount applicable to all Notes (other than Bank Notes) shall again be one-quarter percent (1/4%) until such time as the TENR Amount may again be adjusted pursuant to the preceding clause (i) or until the interest rate hereunder is otherwise determined as provided for in this Indenture; (iv) if TENR shall not be announced in any week, the Notes shall bear interest at TENR for the immediately preceding week plus the then applicable TENR Amount, and if TENR shall not be announced for a second successive week, the Notes shall bear interest at the lower of (a) TENR which has been most recently announced plus the then applicable TENR Amount and (b) an alternative interest rate ("AIR") equal to 65% of the interest rate applicable to direct obligations of the United States with a maturity of thirteen weeks ("91-day Treasury Bills") determined on the basis of the weighted average per annum discount rate at which such 91-day Treasury Bills were sold at the weekly Treasury auction for any week with respect to which such rate applies to the Notes, as published by the Board of Governors of the Federal Reserve System, or (if not so published) as reported by the Department of the Treasury. If no auction shall have been conducted (or no rate published or reported) during any such week, AIR for that week shall be the same as the most recent AIR. Any change in AIR shall take effect on the Thursday immediately following the Treasury auction, and the interest rate on the Notes shall continue to be AIR (if AIR then is the lower rate) until the day after a change in -10- 11 TENR is announced. The Company shall inform the Issuer, the Trustee and the Remarketing Agent of AIR, if applicable; and (v) notwithstanding the foregoing, no adjustment shall be made to the Floating Rate during the period of five Business Days prior to an interest payment date. "TENR" means the rate announced by Bankers Trust Company, New York, New York at its principal office as the annual rate of interest which is indicative of current bid-side yields on high-quality, short-term, tax-exempt obligations, which rate shall be announced by Bankers Trust Company as of the close of business on Wednesday in each calendar week until the earlier of the Conversion Date or payment in full of the Notes or, if Wednesday in any calendar week shall not be a Bankers Trust Business Day, on the next succeeding Bankers Trust Business Day. TENR shall be effective during the period from and including the day next succeeding the day on which Bankers Trust Company announces TENR to and including the day on which Bankers Trust Company next announces TENR. TENR shall be communicated by Bankers Trust Company to the Trustee and the Remarketing Agent on the same day that TENR is announced. The Remarketing Agent shall inform the Trustee and the Bank in writing of any adjustments to the TENR Amount required by clause (i) above. The Trustee shall inform the Issuer and the Company of TENR and of any such adjustments to the TENR Amount. TENR is a Service Mark of Bankers Trust Company, New York, New York. Anything herein to the contrary notwithstanding, the Floating Rate shall in no event exceed 1'% per annum. The announcement of TENR or any adjustments to the TENR Amount or the determination of AIR as contemplated by the foregoing paragraphs shall be conclusive and binding upon the Trustee, the Issuer, the Company and the Owners of the Notes. (B) Prior to the Conversion Date the Bank Notes shall bear interest at the Bank Rate. The Bank Rate shall be a variable rate of interest equal to sixty-five percent (65%) of the Bank Prime Rate. "Bank Prime Rate" means the rate announced by the Bank from time to time at its principal office as its prime rate, the Bank Prime Rate to change as such prime rate changes. The announcement of the Bank Prime Rate as contemplated by the foregoing paragraph shall be conclusive and binding upon the Trustee, the Issuer, the Paying Agent, any Co-Paying Agent, the Company and the Bank. (C) From and after the Conversion Date, until the maturity of the Notes, the Notes shall bear interest at the Fixed Rate. The Fixed Rate shall be a fixed annual interest rate on the Notes established by the Remarketing Agent as the rate of interest for which the Remarketing Agent has received commitments on or prior to the 20th day preceding the Conversion Date to purchase all the Outstanding Notes on the Conversion Date at a price of par without discount or at a premium not to exceed the then customary underwriting discount (but in no event may the premium exceed 3 percent). -11- 12 (D) Interest on Notes which bear interest at the Floating Rate and on the Bank Notes shall be computed on the basis of a 360-day year, actual number of days elapsed. Interest on Notes which bear interest at the Fixed Rate shall be computed on the basis of a 360-day year of twelve 30-day months. The principal of and premium, if any, on the Notes shall be payable in lawful money of the United States of America at the Principal Office of the Trustee, or of its successor in trust. Payment of interest on the Notes shall be made to the Owner thereof on the applicable Record Date by check mailed to such Owner at his address as it appears on the registration books of the Issuer or at such other address as is furnished to the Trustee in writing by such Owner, or in such other manner as may be mutually acceptable to the Trustee and the Owner of any Note. Section 203. Execution; Limited Obligation. The Notes shall be executed on behalf of Issuer with the manual or facsimile signature of its President and shall have impressed or imprinted thereon the official seal of the Issuer and be attested with the manual or facsimile signature of the Secretary of the Issuer. All authorized facsimile signatures shall have the same force and effect as if manually signed. In case any officer whose signature or facsimile of whose signature appears on the Notes shall cease to hold that office before the delivery of the Notes, the signature or facsimile shall nevertheless be valid and sufficient for all purposes, the same as if the officer had remained in office until delivery. The Notes shall not be general obligations of the Issuer but limited and special obligations payable solely from the amounts payable under the Agreement and other amounts specifically pledged therefor under this Indenture, and shall be a valid claim of the respective Owners thereof only against the Note Fund and other moneys held by the Trustee and the amounts payable under the Agreement or otherwise pledged therefor, which amounts are hereby pledged, assigned and otherwise secured for the equal and ratable payment of the Notes and shall be used for no other purpose than to pay the principal of, premium, if any, and interest on the Notes except as may be otherwise expressly authorized in this Indenture. Section 204. Authentication. (a) No Note shall be valid or obligatory for any purpose or entitled to any security or benefit under this Indenture unless and until a certificate of authentication on such Note substantially in the form set forth on Exhibits A, B and C attached hereto shall have been duly executed by the Trustee, and such executed certificate of the Trustee upon any such Note shall be conclusive evidence that such Note has been authenticated and delivered under this Indenture. The Trustee's certificate of authentication on any Note shall be deemed to have been executed by it if signed by an authorized signatory of the Trustee, but it shall not be necessary that the same signatory execute the certificate of authentication on all of the Notes. (b) In the event any Note is deemed tendered to the Trustee as provided in Section 303 or 304 hereof but is not physically so tendered, the Issuer shall execute and the Trustee shall authenticate a new Note of like denomination as that deemed tendered. Section 205. Form of Notes. The Notes which bear interest at the Floating Rate prior to the Conversion Date and all Bank Notes and the Trustee's certificate of authentication to be endorsed thereon are to be in substantially the form set forth on Exhibit A attached hereto, with -12- 13 appropriate variations, omissions and insertions as permitted or required by this Indenture. The Notes which bear interest at the Floating Rate from and after the Mandatory Tender Date and the Trustee's certificate of authentication to be endorsed thereon are to be in substantially the form set forth on Exhibit B attached hereto, with appropriate variations, omissions and insertions as permitted or required by this Indenture. The Notes which bear interest at the Fixed Rate and the Trustee's certificate of authentication to be endorsed thereon are to be in substantially the form set forth on Exhibit C attached hereto, with appropriate variations, omissions and insertions as permitted or required by this Indenture. Section 206. Delivery of Notes. Upon the execution and delivery of this Indenture, the Issuer shall execute and deliver to the Trustee Notes in the aggregate principal amount of $3,500,000 and the Trustee shall authenticate the Notes and deliver them as directed by the Issuer as hereinafter in this Section provided. Prior to the delivery by the Trustee of the Notes there shall be filed with the Trustee: 1, A copy, certified by the Secretary of the Issuer, of the resolution adopted by the Issuer authorizing the execution and delivery of the Agreement and this Indenture and the issuance of the Notes. 2. An original, executed copy of the Agreement. 3. An original, executed counterpart of the Guaranty. 4. The Letter of Credit. 5. The approving opinion of bond counsel. 6. A Written Request of the Issuer to the Trustee requesting the Trustee to authenticate and deliver the Notes to the purchaser and for the purchase price therein identified. Upon payment of the proceeds to the Trustee, the Trustee shall deposit the proceeds in the Project Fund pursuant to Article V hereof. Section 207. Mutilated Lost Stolen or Destroyed Notes. In the event any Note is mutilated lost, stolen or destroyed; the Issuer shall execute and the Trustee shall authenticate a new Note of like date and denomination as that mutilated, lost, stolen or destroyed, provided that, in the case of any mutilated Note, such mutilated Note shall first be surrendered to the Issuer or the Trustee, and in the case of any lost, stolen or destroyed Note, there first shall be furnished to the Issuer and the Trustee evidence of such loss, theft or destruction satisfactory to the Issuer and the Trustee, together with an indemnity satisfactory to them. In the event any such Note shall have matured, the Trustee, instead of issuing a duplicate Note, may pay the same without surrender thereof, making such requirements as it deems fit for its protection, including a lost instrument bond. The Issuer and the Trustee may charge the Owner of such Note with their reasonable fees and expenses for such service. In executing a new Note, the Issuer may rely -13- 14 conclusively upon a representation by the Trustee that the Trustee is satisfied with the adequacy of the evidence presented concerning the mutilation, loss, theft or destruction of any Note. Section 208. Transfer of Notes; Persons Treated as Owners. The Issuer shall cause to be kept books for the transfer of the Notes as provided in this Indenture, and the Trustee is hereby constituted and appointed and agrees to act as the Note Registrar of the Issuer for and in respect of the Notes. Upon surrender for transfer of any Note at the Principal Office of the Trustee, duly endorsed for transfer or accompanied by an assignment duly executed by the Owner or his attorney duly authorized in writing, the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Note or Notes in authorized denominations for a like aggregate principal amount. In each case, the Trustee may require the payment by the Owner of the Note requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The Trustee shall not be required to exchange or register a transfer of (a) any Notes during the 15-day period next preceding the selection of Notes to be redeemed and thereafter until the date of the mailing of a notice of redemption of Notes selected for redemption, or (b) any Notes selected, called or being called for redemption in whole or in part except, in the case of any Notes to be redeemed in part, the portion thereof not so to be redeemed; provided that the foregoing shall not apply to the registration of transfer of any Note which has been tendered to the Trustee pursuant to Section 306 hereof, and in any such case, for purposes of selection for redemption, the Note so tendered and the Note issued to the transferee thereof pursuant to Section 312(b) hereof shall be deemed and treated as the same Note. The Trustee, the Issuer, the Company and any agent of the Trustee, the Issuer and the Company may treat the person in whose name a Note is registered as the absolute Owner thereof for all purposes, and neither the Issuer, the Trustee, the Company nor any agent of the Trustee, the Issuer or the Company shall be bound by any notice or knowledge to the contrary, but such registration may be changed as hereinabove provided. All payments made to the Owner shall be valid and effectual to satisfy and discharge the liability upon such Note to the extent of the sum or sums so paid. Section 209. Destruction of Notes. Whenever any Outstanding Note shall be delivered to the Trustee for cancellation pursuant to this Indenture, or for replacement pursuant to Section 207 hereof, such Note shall be promptly canceled and cremated or otherwise destroyed by the Trustee, and counterparts of a certificate of destruction evidencing such cremation or other destruction shall be furnished by the Trustee to the Issuer and the Company. Section 210. Temporary Notes. Until Notes in definitive form are ready for delivery, the Issuer may execute, and upon the request of the Issuer, the Trustee shall authenticate and deliver, subject to the provisions, limitations and conditions set forth above, one or more Notes in temporary form, whether printed, typewritten, lithographed or otherwise produced, substantially in the form of the definitive Notes, with appropriate omissions, variations and insertions, and in authorized denominations. Until exchanged for Notes in definitive form, such Notes in temporary form shall be entitled to the lien and benefits of this Indenture. Upon the presentation and surrender of any Note or Notes in temporary form, the Issuer shall, at the -14- 15 request of the Trustee, execute and deliver to the Trustee, and the Trustee shall authenticate and deliver, in exchange therefor, a Note or Notes in definitive form. Such exchange shall be made by the Trustee without making any charge therefor to the Owner of such Note in temporary form. Notwithstanding the foregoing, Notes in definitive form may be issued hereunder in typewritten form. ARTICLE III REDEMPTION OF NOTES BEFORE MATURITY; CONVERSION OF INTEREST RATE; MANDATORY TENDER OF NOTES; PURCHASE OF NOTES Section 301. Extraordinary Redemption. The Notes are callable for redemption in the event (1) the Company shall be obligated to cause the Notes to be redeemed as provided in Article X of the Agreement, or (2) the Company shall exercise its option to cause the Notes to be redeemed as provided in Section 9.2 of the Agreement. If called for redemption at any time pursuant to (1) or (2) above, the Notes shall be subject to redemption in whole by the Issuer prior to maturity on 60 days' prior notice, at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date. Section 302. Optional Redemption by the Company. On or prior to the Conversion Date, the Notes are subject to redemption by the Issuer, at the option of the Company, at any time on or after May 1, 1984, in whole or in part, less than all of such Notes to be selected in such manner as the Trustee shall determine (except as otherwise provided in Section 310 hereof), at the redemption price of 100% of the principal amount thereof plus accrued interest to the redemption date. After the Conversion Date, the Notes are subject to redemption by the Issuer, at the option of the Company, on or after the First Optional Redemption Date, in whole at any time or in part on any interest payment date, less than all of such Notes to be selected in such manner as the Trustee shall determine (except as otherwise provided in Section 310 hereof), at the redemption prices (expressed as percentages of principal amount) set forth in the following table plus accrued interest to the redemption date: Redemption Dates Prices - ---------------- ------ First Optional Redemption Date through the following 103% October 31 First Anniversary of the First Optional Redemption Date 102% through the following October 31 Second Anniversary of the First Optional Redemption Date 101% through the following October 31 Third Anniversary of the First Optional Redemption Date 100% and thereafter -15- 16 Section 303. Conversion of Interest Rate on Conversion Date. The interest rate on the Notes shall be converted from the Floating Rate to the Fixed Rate upon the exercise by the Company of the Conversion Option, and the Notes shall be subject to mandatory tender by the Owners thereof on the Conversion Date. To exercise the Conversion Option, the Company shall instruct the Trustee to deliver or mail by first class mail a notice at least twenty (20) days but not more than sixty (60) days prior to the Conversion Date to the Owner of each Note at the address shown on the registration books. Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. Said notice shall state in substance the following: 1. The Conversion Date. 2. The Fixed Rate which will take effect on the Conversion Date. 3. That from and after the Conversion Date the Demand Purchase Option will not be available to Owners of Notes. 4. That all Owners of Notes who have not given notice of their desire to retain Notes as provided in this Section shall be deemed to have tendered their Notes for purchase on the Conversion Date. 5. That, if then in effect, the Letter of Credit will expire fifteen (15) days after the Conversion Date. Any Owner of Notes desiring to retain Notes after the Conversion Date must notify the Company and the Trustee in writing which notice must be received no later than fifteen (15) days prior to the Conversion Date. Said notice shall state in substance the following: (a) The numbers and principal amounts of the Notes which the Owner thereof wishes to retain after the Conversion Date; (b) That the Owner thereof recognizes that the events set forth in 1 through 5 above will occur; (c) If the Letter of Credit is then in effect but will expire fifteen (15) days after the Conversion Date, that the Owner thereof recognizes that the rating, if any, assigned to the Notes based on the Letter of Credit will no longer apply to the Notes; and (d) That the Owner thereof wishes to continue to own said Notes specified in (a) above after the Conversion Date. Owners of Notes not providing the Trustee and the Company with the notice described above shall be required to tender their Notes to the Trustee for purchase at the Purchase Price; provided, however, if the Principal Office of the Trustee is not in The City of New York, delivery of any Note may be made to an agent of the Trustee in The City of New York in accordance with the provisions of Section 314 hereof. Any Notes not so tendered on the -16- 17 Conversion Date ("Untendered Notes"), for which there has been irrevocably deposited in trust with the Trustee from the sources described in Section 311 an amount of moneys sufficient to pay the Purchase Price of the Untendered Notes, shall be deemed to have been purchased pursuant to this Section 303. IN THE EVENT OF A FAILURE BY AN OWNER OF NOTES (OTHER THAN AN OWNER OF NOTES WHO HAS GIVEN NOTICE AS PROVIDED ABOVE) TO TENDER ITS NOTES ON OR PRIOR TO THE CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT ( INCLUDING ANY INTEREST TO ACCRUE SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNTENDERED NOTES, AND ANY UNTENDERED NOTES SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. At any time prior to the first interest payment date following the Conversion Date, an Owner of Notes who has given notice of its desire to continue to hold Notes as provided above may deliver said Notes to the Trustee, and upon such delivery, the Trustee shall exchange said Notes for replacement Notes in the form of Exhibit C hereto, as applicable. Such exchange shall be made by the Trustee without making any charge therefor to the Owner of such Note. As a condition to the giving of notice as provided in this Section 303, the Company shall provide the Trustee with an opinion of nationally recognized bond counsel to the effect that the proposed conversion of the interest rate on the Notes will not adversely affect the exemption of the interest on the Notes from federal income taxation. Section 304. The Mandatory Tender of Notes on Mandatory Tender Date. The Notes shall be subject to mandatory by the Owners thereof on the Mandatory Tender Date. The Company shall deliver or mail by first class mail a notice at least twenty (20) days but not more than sixty (60) days prior to the Mandatory Tender Date to the Owner of each Note at the address shown on the registration books. Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. Said notice shall state in substance the following: 1. The Mandatory Tender Date. 2. That the Floating Rate will continue to be in effect after the Mandatory Tender Date. 3. That all Owners of Notes who have not given notice of their desire to retain Notes as provided in this Section shall be deemed to have tendered their Notes for purchase on the Mandatory Tender Date. 4. That the Letter of Credit will expire fifteen (15) days after the Mandatory Tender Date. Any Owner of Notes desiring to retain Notes after the Mandatory Tender Date must notify the Company and the Trustee in writing which notice must be received no later than -17- 18 fifteen (15) days prior to the Mandatory Tender Date. Said notice shall state in substance the following: (a) The numbers and principal amounts of the Notes which the Owner thereof wishes to retain after the Mandatory Tender Date; (b) That the Owner thereof recognizes that the events set forth in 1 through 4 above will occur; (c) That the Owner thereof recognizes that the rating, if any, assigned to the Notes based on the Letter of Credit will no longer apply to the Notes; and (d) That the Owner thereof wishes to continue to own said Notes specified in (a) above after the Mandatory Tender Date. Owners of Notes not providing the Trustee and the Company with the notice described above shall be required to tender their Notes to the Trustee for purchase at the Purchase Price; provided, however, if the Principal Office of the Trustee is not in The City of New York, delivery of any Note may be made to an agent of the Trustee in The City of New York in accordance with the provisions of Section 314 hereof. Any Notes not so tendered on the Mandatory Tender Date ("Untendered Notes"), for which there has been irrevocably deposited in trust with the Trustee from the sources described in Section 311 an amount of moneys sufficient to pay the Purchase Price of the Untendered Notes, shall be deemed to have been purchased pursuant to this Section 304. IN THE EVENT OF A FAILURE BY AN OWNER OF NOTES (OTHER THAN AN OWNER OF NOTES WHO HAS GIVEN NOTICE AS PROVIDED ABOVE) TO TENDER ITS NOTES ON OR PRIOR TO THE MANDATORY TENDER DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE SUBSEQUENT TO THE MANDATORY TENDER DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNTENDERED NOTES, AND ANY UNTENDERED NOTES SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. At any time prior to the first interest payment date following the Mandatory Tender Date, an Owner of Notes who has given notice of its desire to continue to hold Notes as provided above may deliver said Notes to the Trustee, and upon such delivery, the Trustee shall exchange said Notes for replacement Notes in the form of Exhibit B hereto. Such exchange shall be made by the Trustee without making any charge therefor to the Owner of such Note. At the option of the Company the Conversion Date may coincide with the Mandatory Tender Date, in which case the notices of the Company required pursuant to Section 303 and Section 304 hereof may be appropriately combined into a single notice, and the notices of Owners of Notes desiring to retain Notes after such Conversion Date and Mandatory Tender Date required pursuant to Section 303 and Section 304 hereof may be appropriately combined into a single notice. -18- 19 Section 305. Notices to the Bank and Rating Agencies. In addition to the notices required in Section 303 and Section 304 hereof, the Company shall provide the Bank and Moody's or S&P, as appropriate, if the Notes shall then be rated by Moody's or S&P, with prompt written notice of the conversion pursuant to Section 303 hereof or the mandatory tender pursuant to Section 304 hereof. Further, the Company shall provide Moody's or S&P, as appropriate, if the Notes shall then be rated by Moody's or S&P, with prompt written notice following the effective date of such event of (i) any change of the Trustee, (ii) any change of the Bank, (iii) any material amendments to this Indenture or the Agreement, or (iv) the redemption in whole of the Notes. Section 306. Demand Purchase Option. On or prior to the Conversion Date, the Trustee shall be required to purchase at the Purchase Price any Note from the Owner thereof upon: (i) delivery to the Trustee at its Principal Office and to the Remarketing Agent at its Principal Office of a notice (said notice to be irrevocable and effective upon receipt) which (1) states the aggregate principal amount of the Notes to be purchased; and (2) states the date on which such Notes are to be purchased, which date shall be a Business Day not prior to the seventh (7th) day next succeeding the date of delivery of such notice and which date shall be prior to the Conversion Date; and (ii) delivery to the Trustee at its Principal Office at or prior to 10:00 A.M., New York City time, on the date designated for purchase in the notice described in (i) above of such Notes to be purchased, with an appropriate endorsement for transfer or accompanied by a blank bond power, and if such Notes are to be purchased prior to the next succeeding interest payment date and after the Record Date in respect thereof, a due-bill-check, in form satisfactory to Trustee, for interest due on such interest payment date; provided, however, if the Principal Office of the Trustee is not in The City of New York, delivery of any Note, any blank bond power, any due-bill-check or any funds for the purchase of Notes may be made to an agent of the Trustee in The City of New York in accordance with the provisions of Section 314 hereof. Section 307. Notice of Redemption. Notice of the call for redemption, identifying the Notes or portions thereof to be redeemed, shall be given by the Trustee by mailing a copy of the redemption notice by registered or certified mail at least fifteen (15) days but not more than sixty (60) days prior to the date fixed for redemption to the Owner of each Note to be redeemed in whole or in part at the address shown on the registration books. Any notice mailed as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. Section 308. Redemption Payments. On or prior to any date fixed for redemption, Available Moneys shall be on deposit with the Trustee to pay, and the Trustee is hereby authorized and directed to apply such funds to the payment of, the principal of the Notes or portions thereof called, together with accrued interest thereon to the redemption date and any required premium. Upon the giving of notice and the deposit of Available Moneys for redemption at the required times prior to the date fixed for redemption, as provided in this -19- 20 Article, interest on the Notes or portions thereof thus called shall no longer accrue after the date fixed for redemption. Section 309. Cancellation. All Notes which have been redeemed shall not be reissued but shall be canceled and cremated or otherwise destroyed by the Trustee in accordance with Section 209 hereof. Section 310. Partial Redemption of Notes. (a) Upon surrender of any Note for redemption in part only, the Issuer shall execute and the Trustee shall authenticate and deliver to the Owner thereof a new Note or Notes of authorized denominations, in an aggregate principal amount equal to the unredeemed portion of the Note surrendered. (b) In case a Note is of a denomination larger than $5,000, a portion of such Note ($5,000 or any integral multiple thereof) may be redeemed, but Notes shall be redeemed only in the principal amount of $5,000 or any integral multiple thereof; provided that prior to the Conversion Date the references in this paragraph to $5,000 shall be deemed to be references to $100,000. (c) Notwithstanding anything to the contrary contained in this Indenture, whenever the Notes are to be redeemed in part, Notes which are Bank Notes at the time of selection of Notes for redemption shall be selected for redemption prior to the selection of any other Notes. If the aggregate principal amount of Notes to be redeemed exceeds the aggregate principal amount of Bank Notes at the time of selection, the Trustee may select for redemption Notes in an aggregate principal amount equal to such excess in such manner as the Trustee may determine. Section 311. Funds for Purchase of Notes Delivered to the Trustee. On the date Notes are to be purchased pursuant to 303, 304 or 306 hereof, such Notes shall be purchased at the Purchase Price only from the funds listed below. Subject to the provisions of Section 513(b) funds for the payment of the Purchase Price shall be derived from the following sources in the order of priority indicated: (i) moneys deposited into the Note Fund pursuant to Section 503(a) hereof which constitute Available Moneys; (ii) the proceeds of the sale of such Notes which have been remarketed by the Remarketing Agent to any entity other than the Company or the Issuer; (iii) moneys drawn by the Trustee under the Letter of Credit; and (iv) any other moneys furnished to the Trustee and available for such purpose. -20- 21 Section 312. Delivery of Notes. (a) Notes purchased with moneys described in Section 311(i) hereof shall be delivered to the Trustee for cancellation. (b) Notes purchased with moneys described in Section 311(ii) hereof shall be delivered by the Trustee to or upon the order of the purchasers thereof. (c) Notes purchased with moneys described in Section 311(iii) hereof shall be delivered by the Trustee to the Bank pursuant to the Credit Agreement. (d) Notes purchased with moneys described in Section 311(iv) shall, at the direction of the Company, be (A) delivered as instructed by the Company, (B) delivered to the Trustee for cancellation or (C) delivered to the Company; provided, however, that any Notes so purchased after the selection thereof by the Trustee for redemption shall be delivered to the Trustee for cancellation. (e) The Trustee shall deliver to the person to whom the Trustee is to deliver such Notes the due-bill-checks, if any, delivered to the Trustee with such Notes in accordance with Section 306 hereof. Notes delivered as provided in this Section shall be registered in the manner directed by the recipient thereof. Section 313. Delivery of Proceeds of Sale of Notes. The proceeds of the sale of any Notes delivered to the Trustee pursuant to Section 303, 304 or 306 hereof, to the extent not required to pay the Purchase Price thereof in accordance with Section 311 hereof, shall be paid to or upon the order of the Company. Section 314. Trustee's Agent. Anything contained in this Article III to the contrary notwithstanding, if at any time the Principal Office of the Trustee is not located in The City of New York, any Note to be purchased, any blank bond powers, if any, any due-bill-check, if any, and any moneys for the purchase of such Notes shall be delivered to the Principal Office of an agent of the Trustee appointed by the Trustee pursuant to this Section 314, and such delivery will constitute delivery to the Trustee for the purposes of Section 303, Section 304 and Section 306 hereof. The Trustee agrees that it will at all times prior to the Conversion Date maintain its Principal Office in The City of New York or appoint an agent with its Principal Office in the City of New York for purposes of this Section 314. Such agent shall be a corporation or a banking association authorized to conduct a commercial banking business in The City of New York. The Trustee agrees that it will promptly notify, in writing, the Issuer, the Company, the Bank, the Guarantor, the Remarketing Agent, the Paying Agent, any Co-Paying Agent, the Co-Note Registrar, and any Note Registrar, of the appointment of and the address of the Principal Office of any agent appointed pursuant to this Section 314. All actions to be taken by the Trustee under this Indenture may be taken by an agent of the Trustee and the Trustee shall have no liability with respect to acts or omissions of its agents unless the Trustee has actual knowledge of the agents gross negligence or willful misconduct. When acting in accordance -21- 22 with the terms of this Indenture as provided in this Section 314, the Trustee's agent shall be subject to the terms and conditions set forth in Article IX hereof with respect to actions taken by the Trustee. Section 315. Notice With Respect to Substitute Letter of Credit. The Company, at least twenty (20) days but not more than sixty (60) days prior to the date of delivery to the Trustee of a Substitute Letter of Credit pursuant to Section 4.4 of the Agreement, shall instruct the Trustee to deliver or mail by first class mail to the Owner of each Note at the address shown on the registration books the notice described below. Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. Said notice shall state in substance the following: 1. The proposed date of delivery to the Trustee of the Substitute Letter of Credit. 2. The date of the Substitute Letter of Credit. 3. The expiration date of the existing Letter of Credit for which the Substitute Letter of Credit is to be substituted. 4. The name of the commercial bank or savings and loan association which is issuing the Substitute Letter of Credit, and a brief description thereof. 5. If the Notes are then rated by Moody's or S&P, either (a) that any ratings of the Notes by Moody's or S&P may be withdrawn or reduced from such ratings then prevailing, or (b) such ratings of the Notes by Moody's or S&P as shall have been based on such Substitute Letter of Credit. 6. That any Owner of Notes may exercise the Demand Option Purchase pursuant to Section 306 of the Indenture. ARTICLE IV GENERAL COVENANTS Section 401. Payment of Principal, Premium, if any, and Interest. The Issuer covenants that it will promptly pay or cause to be paid the principal of, premium, if any, and interest on every Note issued under this Indenture at the place, on the dates, and in the manner provided herein and the said Notes according to the true intent and meaning thereof, but solely from the amounts pledged therefor which are from time to time held by the Trustee in the Note Fund. The principal of, premium, if any, and interest on the Notes are payable from the amounts to be paid under the Agreement and otherwise as provided herein and in the Agreement, which amounts are hereby specifically pledged to the payment thereof in the manner and to the extent herein specified, and nothing in the Notes or in this Indenture shall be construed as pledging any other funds or assets of the Issuer. -22- 23 Section 402. Performance of Covenants; Issuer. The Issuer covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture and in the Agreement, in any and every Note executed, authenticated and delivered hereunder and in all of its proceedings pertaining hereto. The Issuer covenants that it is duly authorized under the Constitution and laws of the State, including particularly and without limitation the Act, to issue the Notes authorized hereby and to execute this Indenture, to assign the Agreement, and to pledge the amounts to be paid under the Agreement and other amounts hereby pledged in the manner and to the extent herein set forth, that all action on its part for the issuance of the Notes and the execution and delivery of this Indenture has been duly and effectively taken, and that the Notes in the hands of the Owners thereof are and will be valid and enforceable obligations of the Issuer according to the terms thereof and hereof. Section 403. Instruments of Further Assurance. The Issuer will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such indentures supplemental hereto and such further acts, instruments and transfers as the Trustee may reasonably require for the better assuring, transferring, conveying, pledging, assigning and confirming unto the Trustee all and singular the amounts pledged hereby to the payment of the principal of, premium, if any, and interest on the Notes. The Issuer, except as herein provided, will not convey, encumber or otherwise dispose of the amounts, revenues and receipts payable under the Agreement or its rights under the Agreement. Section 404. Recording and Filing. The Company has agreed pursuant to the Agreement that it will cause all financing statements related to this Indenture and all supplements thereto and the Agreement and all supplements thereto, as well as such other security agreements, financing statements and all supplements thereto and other instruments as may be required from time to time to be kept, to be recorded and filed in such manner and in such places as may from time to time be required by law in order to preserve and protect fully the security of the Owners of the Notes and the rights of the Trustee hereunder, and to take or cause to be taken any and all other action necessary to perfect the security interest created by this Indenture. Section 405. List of Owners of Note. The Trustee will keep on file a list of names and addresses of the Owners of all Notes as from time to time registered on the registration books maintained by the Trustee as Note Registrar, together with-the principal amount and numbers of such Notes. At reasonable times and under reasonable regulations established by the Trustee, said list may be inspected and copied for any purpose by the Company or by Owners (or a designated representative thereof) of twenty-five percent (25%) or more in aggregate principal amount of Outstanding Notes, such ownership and the authority of such designated representative to be evidenced to the satisfaction of the Trustee. Section 406. Rights Under Agreement. The Agreement, a duly executed counterpart of which has been filed with the Trustee, sets forth the covenants and obligations of the Issuer and the Company, and reference is hereby made to the Agreement for a detailed statement of said covenants and obligations of the Company thereunder, and the Issuer agrees that the Trustee in its name or in the name of the Issuer may enforce all rights of the Issuer and all obligations of the -23- 24 Company under and pursuant to the Agreement for and on behalf of the Owners of Notes, whether or not the Issuer is in Default hereunder. ARTICLE V REVENUES AND FUNDS Section 501. Source of Payment of Notes. The Notes herein authorized and all payments by the Issuer hereunder are not general obligations of the Issuer but are limited obligations payable from the amounts to be paid under the Agreement and otherwise as provided herein and in the Agreement. The payments provided in Section 4.2(a) and (d) of the Agreement are to be remitted directly to the Trustee for the account of the Issuer and deposited in the Note Fund. Such payments, sufficient in amount to insure the prompt payment of the principal and Purchase Price of, premium, if any, and interest on the Notes, are pledged to such payment. Section 502. Creation of Note Fund. There is hereby created by the Issuer and ordered established with the Trustee a trust fund to be designated "Note Fund", which shall be used to pay when due the principal and Purchase Price of, premium, if any, and interest on the Notes. Section 503. Payments into Note Fund. There shall be deposited into the Note Fund from time to time the following: (a) any amount in the Project Fund directed to be paid into the Note Fund in accordance with the provisions of Section 3.4 of the Agreement or Section 508 hereof; (b) all payments specified in Section 4.2(a) and (d) of the Agreement; (c) any moneys drawn under the Letter of Credit which moneys shall be deposited in a subaccount of the Note Fund and shall not be commingled with any other moneys held by the Trustee, (d) amounts deposited into the Note Fund pursuant to Section 918(b) hereof; and (e) all other moneys received by the Trustee under and pursuant to any of the provisions of the Agreement or the Guaranty which are required to be or which are accompanied by directions that such moneys are to be paid into the Note Fund. Section 504. Use of Moneys in Note Fund. Except as provided in Sections 311, 512 and 918 hereof, moneys in the Note Fund shall be used solely for the payment of the principal of, premium, if any, and interest on the Notes and for the redemption of the Notes prior to maturity. Subject to the provisions of Section 513 hereof, funds for such payments of the principal and Purchase Price of and premium, if any, and interest on the Notes shall be derived from the following sources in the order of priority indicated: (i) amounts deposited into the Note Fund pursuant to Section 503(a) hereof which constitute Available Moneys; -24- 25 (ii) moneys drawn by the Trustee under the Letter of Credit; and (iii) any other moneys furnished to Trustee and available for such purpose. Notwithstanding the foregoing, amounts deposited into the Note Fund in accordance with Section 3.4 of the Agreement shall be applied only to the payment of the principal of, or the portion of the Purchase Price corresponding to the principal of, the Notes. [NOTE: TEXT OF PAGE 28 MISSING IN ORIGINAL DOCUMENT] thereof, or otherwise, if Available Moneys sufficient to pay any such Note shall have been made available to the Trustee for the benefit of the Owner thereof, all liability of the Issuer to the Owner thereof for the payment of such Note shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such funds, without liability for interest thereon, for the benefit of the Owner of such Note who shall thereafter be restricted exclusively to such funds, for any claim of whatever nature on his part under this Indenture or on, or with respect to, such Note. Any moneys so deposited with and held by the Trustee not so applied to the payment of Notes within five (5) years after the date on which the same shall have become due shall be repaid by the Trustee to the Company upon direction of the Company Representative, and thereafter Owners of Notes shall be entitled to look only to the Company for payment, and then only to the extent of the amount so repaid, and all liability of the Trustee with respect to such money shall thereupon cease, and the Company shall not be liable for any interest thereon and shall not be regarded as a trustee of such money. Section 511. Moneys to be Held in Trust. All moneys required to be deposited with or paid to the Trustee for the account of any fund referred to in any provision of this Indenture or the Agreement shall be held by the Trustee in trust, and shall, while held by the Trustee, constitute part of the Trust Estate and be subject to the lien and security interest created hereby. Section 512. Repayment to the Bank and the Company from Note Fund or the Project Fund. Any amounts remaining in the Note Fund, the Project Fund, or any other fund created hereunder after payment in full of the principal and Purchase Price of, premium, if any, and interest on the Notes, the fees, charges and expenses of the Trustee, the Paying Agent, any Co-Paying Agent, the Note Registrar and any Co-Note Registrar and all other amounts required to be paid hereunder shall be paid immediately to the Bank to the extent of any indebtedness of the Company to the Bank under the Credit Agreement, and, after repayment of all such indebtedness, to the Company. Section 513. Letter of Credit. (a) During the term of the Letter of Credit, the Trustee shall draw moneys under the Letter of Credit in accordance with the terms thereof (x) to the extent moneys described in Section 504(i) hereof are not available therefor, to pay principal and Purchase Price of, premium, -25- 26 if any, and interest on the Notes, and (y) to the extent moneys described in Section 311(i) and (ii) hereof are not available therefor, to pay the Purchase Price of Notes. (b) Notwithstanding any provision to the contrary which may be contained in this Indenture, including, without limitation, Section 513(a), (i) in computing the amount to be drawn under the Letter of Credit on account of the payment of principal or Purchase Price of, or premium, if any, or interest on the Notes, the Trustee shall exclude any such amounts in respect of any Notes which are Bank Notes on the date such payment is due, and (ii) amounts drawn by the Trustee under the Letter of Credit shall not be applied to the payment of the principal or Purchase Price of, or premium, if any, or interest on, any Notes which are Bank Notes on the date such payment is due. ARTICLE VI INVESTMENT OF MONEYS Any moneys held as part of the Note Fund, the Project Fund, or any other fund shall be invested and reinvested by the Trustee in any of the following qualified investments: (i) obligations of the United States of America, or (ii) obligations the principal and interest of which are guaranteed by the United States of America, or (iii) obligations of any agency of the United States of America, or (iv) certificates of deposit or bankers acceptances issued by, or time deposits with, any bank, trust company or national banking association (including the Trustee, any affiliate of the Trustee, the Paying Agent or any Co-Paying Agent) having a combined capital and surplus of at least $5,000,000, or (v) contracts for the purchase and sale of obligations of the type specified in (i) above or (vi) commercial paper which has been classified for rating purposes by Moody's as Prime-1 or by S & P as A-1 (other than commercial paper of the Company, the Guarantor or any subsidiary of either). Any such investments shall be held by or under the control of the Trustee. The Trustee may make any and all such investments through its own bond or investment department or the bond or investment department of any bank or trust company under common control with the Trustee. All such investments shall at all times be a part of the fund (the Project Fund or the Note Fund, as the case may be) from which the moneys used to acquire such investments shall have come, and all income and profits on such investments shall be credited to, and losses thereon shall be charged against, such funds. Such investments in the Project Fund shall be made in accordance with Section 3.6 of the Agreement and shall be made so as to mature or be subject to redemption at the option of the owner thereof on or prior to the date or dates that the Company anticipates that moneys therefrom will be required. The Trustee shall sell and reduce to cash a sufficient amount of such investments whenever the cash balance in the Project Fund is insufficient to pay a requisition when presented, or whenever the cash balance in the Note Fund is insufficient to pay the principal or Purchase Price of, premium, if any, and interest on the Notes when due. The Issuer covenants and certifies to and for the benefit of the Owners of the Notes from time to time Outstanding that so long as any of the Notes remain Outstanding, the Issuer shall not direct that moneys on deposit in any fund or account in connection with the Notes (whether or not such moneys were derived from the proceeds of the sale of the Notes or -26- 27 from any other sources), be used in a manner which will cause the Notes to be classified as "arbitrage bonds" within the meaning of Section 103(c)(2) of the Code. The Trustee shall have no liability with respect to losses on investments made pursuant to Company direction made in accordance with this Article VI. ARTICLE VII DISCHARGE OF LIEN If the Issuer shall pay or cause to be paid, in accordance with the provisions of this Indenture, to the Owners of the Notes, the principal of, premium, if any, and interest due or to become due thereon at the times and in the manner stipulated therein, and if the Issuer shall not then be in Default in any of the other covenants and promises in the Notes and in this Indenture expressed as to be kept, performed and observed by it or on its part, and if the Issuer shall pay or cause to be paid to the Trustee all sums of money due or to become due according to the provisions hereof then, these presents and the estate and rights hereby granted shall cease, determine and be void, whereupon the Trustee shall cancel and discharge the lien of this Indenture, and execute and deliver to the Issuer such instruments in writing as shall be requisite to release the lien hereof, and reconvey, release, assign and deliver unto the Issuer any and all of the estate, right, title and interest in and to any and all rights or property conveyed, assigned or pledged to the Trustee or otherwise subject to the lien of this Indenture, except amounts in the Note Fund or Project Fund required to be paid to the Bank and the Company under Section 512 hereof and except cash held by the Trustee for the payment of the principal or Purchase Price of, premium, if any, or interest on particular Notes. Notwithstanding the foregoing, if upon the payment of all Notes (other than Bank Notes) in accordance with the provisions of this Indenture, the Bank shall notify the Trustee that the Bank has not been paid in full all amounts payable to the Bank under the Credit Agreement, then the Trustee shall execute and deliver to the Bank such instruments in writing as shall be requisite to convey, assign and deliver unto the Bank any and all of the estate, right, title and interest of the Trustee in and to the Trust Estate, except for cash held by the Trustee for the payment of the principal or Purchase Price of, premium, if any, or interest on particular Notes. The following provisions of this Article shall apply only from and after the later of the Conversion Date and the Letter of Credit Termination Date: Any Note shall be deemed to be paid within the meaning of this Article and for all purposes of this Indenture when (a) payment of the principal of and premium, if any, on such Note, plus interest thereon to the due date thereof (whether such due date is by reason of maturity or upon redemption as provided herein) either (i) shall have been made or caused to be made with Available Moneys in accordance with the terms thereof, or (ii) shall have been provided by irrevocably depositing with the Trustee, in trust and irrevocably set aside exclusively for such payment, (1) Available Moneys sufficient to make such payment or (2) Governmental Obligations purchased with Available Moneys maturing as to principal and interest in such amount and at such time as will insure the availability of sufficient moneys to make such payment, and (b) all necessary and proper fees, compensation and expenses of the Trustee and the Issuer pertaining to the Notes with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Trustee. At such -27- 28 times as a Note shall be deemed to be paid hereunder, as aforesaid, such Note shall no longer be secured by or entitled to the benefits of this Indenture, except for the purposes of any such payment from such Available Moneys or Governmental Obligations. Notwithstanding the foregoing, no deposit under clause (a)(ii) of the immediately preceding paragraph shall be deemed a payment of such Notes as aforesaid until (a) proper notice of redemption of such Notes shall have been previously given in accordance with Article III of this Indenture, or in the event said Notes are not by their terms subject to redemption within the next succeeding sixty (60) days, until the Company shall have given the Trustee on behalf of the Issuer, in form satisfactory to the Trustee, irrevocable instructions to notify, as soon as practicable, the Owners of the Notes, in accordance with Article III hereof, that the deposit required by (a)(ii) above has been made with the Trustee and that said Notes are deemed to have been paid in accordance with this Article and stating the maturity or redemption date upon which moneys are to be available for the payment of the principal of and the applicable redemption premium, if any, on said Notes, plus interest thereon to the due date thereof; or (b) the maturity of such Notes. All moneys so deposited with the Trustee as provided in this Article may also be invested and reinvested, at the direction of the Company, in Governmental Obligations, maturing in the amounts and times as hereinbefore set forth, and all income from all Governmental Obligations in the hands of the Trustee pursuant to this Article which is not required for the payment of the Notes and interest and premium, if any, thereon with respect to which such moneys shall have been so deposited shall be deposited in the Note Fund as and when realized and collected for use and application as are other moneys deposited in the Note Fund. The Issuer hereby covenants that no deposit will knowingly be made which would cause the Notes to be treated as arbitrage bonds within the meaning of Section 103(c)(2) of the Code. Notwithstanding any provision of any other Article of this Indenture which may be contrary to the provisions of this Article, all moneys or Governmental Obligations set aside and held in trust pursuant to the provisions of this Article for the payment of Notes (including interest and premium thereon, if any) shall be applied to and used solely for the payment of the particular Notes "including the Purchase Price thereof and interest and premium thereon, if any) with respect to which such moneys or Governmental Obligations have been so set aside in trust. Anything in Article XI hereof to the contrary notwithstanding, if moneys or Governmental Obligations have been deposited or set aside with the Trustee pursuant to this Article for the payment of Notes and such Notes shall not have in fact been actually paid in full, no amendment to the provisions of this Article shall be made without the consent of the Owner of each Note affected thereby. -28- 29 ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES OF THE TRUSTEE AND OWNERS OF NOTES Section 801. Defaults. If any of the following events occur, it is hereby declared to constitute a "Default": (a) Default in the due and punctual payment of interest on any Note; (b) Default in the due and punctual payment of the principal of or premium, if any, on any Note, whether at the stated maturity thereof, or upon proceedings for redemption thereof, or upon the maturity thereof by declaration; (c) Default in the due and punctual payment of the Purchase Price of any Note at the time required by Section 303, 304 or 306 hereof; (d) At any time prior to the Letter of Credit Termination Date, receipt by the Trustee, following a drawing under the Letter of Credit to pay interest or the portion of the Purchase Price corresponding to interest on the Notes, of notice from the Bank that the Letter of Credit will not be reinstated (in respect of interest) to an amount equal to at least 120 days' interest on all Outstanding Notes; (e) Receipt by the Trustee of notice from the Bank that an "Event of Default" has occurred under the Credit Agreement; (f) At any time after the Letter of Credit Termination Date, the occurrence of a Default under the Agreement or the Guaranty; or (g) At any time after the Letter of Credit Termination Date, default in the performance or observance of any other of the covenants, agreements or conditions on the part of the Issuer in this Indenture or in the Notes contained and failure to remedy the same after notice thereof pursuant to Section 812 hereof. Section 802. Acceleration. Upon the occurrence of (i) any Default under subsection (a), (b), (c), (f) or (g) of Section 801, the Trustee may, and at the written request of the Owners of not less than twenty-five percent (25%) in aggregate principal amount of Outstanding Notes shall, or (ii) any Default under subsection (d) or (e) of Section 801, the Trustee shall, by notice in writing delivered to the Issuer, the Company and the Guarantor, declare the principal of all Notes and the interest accrued thereon to the date of such acceleration immediately due and payable. Upon any declaration of acceleration hereunder, the Trustee shall immediately declare the payments required to be made by the Company under Section 4.2 of the Agreement to be immediately due and payable and, prior to the Letter of Credit Termination Date, shall draw moneys under the Letter of Credit to pay the principal of all Outstanding Notes and the accrued interest thereon to the date of acceleration to the extent required by Section 504 hereof. -29- 30 The provisions of this Section 802 are subject to the conditions that (i) with respect to a Default under subsection (e) of Section 801, any waiver of any Event of Default under the Credit Agreement and rescission and annulment of its consequences and (ii) with respect to a Default under subsection (d) of Section 801, receipt by the Trustee of written notice from the Bank that the Letter of Credit has been reinstated (in respect of interest) to an amount equal to at least 120 days' interest on all Outstanding Notes, shall constitute a waiver of the corresponding Default under this Indenture and a rescission and annulment of the consequences thereof. No such waiver, rescission and annulment shall extend to or affect any subsequent Default or impair any right or remedy consequent thereon. Notwithstanding the foregoing, no waiver, rescission or annulment of a Default hereunder shall be made if the Bank shall theretofore have honored in full a drawing under the Letter of Credit in respect of such Default. Section 803. Other Remedies Rights of Owners of Notes. Subject to the provisions of Section 802 hereof, upon the occurrence of a Default, the Trustee may pursue any available remedy at law or in equity to enforce the payment of the principal of, premium, if any, and interest on the Outstanding Notes. Subject to the provisions of Section 802 hereof, if a Default shall have occurred and be continuing and if requested so to do by the Owners of twenty-five percent (25%) in aggregate principal amount of Outstanding Notes and provided the Trustee is indemnified as provided in Section 901(k) hereof, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Section and by Section 802 hereof, as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Owners of Notes. Subject to the provisions of Section 802 hereof, no remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or to the Owners of Notes) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Owners of Notes hereunder or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any Default shall impair any such right or power or shall be construed to be a waiver of any such Default or acquiescence therein; such right or power may be exercised from time to time as often as may be deemed expedient. No waiver of any Default hereunder, whether by the Trustee or by the Owners of Notes, shall extend to or shall affect any subsequent Default or shall impair any rights or remedies consequent thereon. Section 804. Right of Owners of Notes to Direct Proceedings. Subject to the provisions of Section 802 hereof, anything in this Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the Outstanding Notes shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the -30- 31 enforcement of the terms and conditions of this Indenture, or for the appointment of a receiver or any other proceedings hereunder, provided that such direction shall not be otherwise than in accordance with the provisions of law and of this Indenture. Section 805. Appointment of Receivers. Upon the occurrence of a Default and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Owners of Notes under this Indenture, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the Trust Estate and of the revenues, earnings, income, products and profits thereof, pending such proceedings, with such powers as the court making such appointment shall confer. Section 806. Waiver. Upon the occurrence of a Default, to the extent that such rights may then lawfully be waived, neither the Issuer, nor anyone claiming through or under it, shall set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption laws of any jurisdiction now or hereafter in force, in order to prevent or hinder the enforcement of this Indenture, and the Issuer, for itself and all who may claim through or under it, hereby waives, to the extent that it lawfully may do so, the benefit of all such laws. Section 807. Application of Moneys. All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article shall, after payment of the costs and expenses of the proceedings resulting in the collection of such moneys and of the expenses, liabilities and advances incurred or made by the Trustee, be deposited in the Note Fund and applied as follows: (a) Unless the principal of all the Notes shall have become or shall have been declared due and payable, all such moneys shall be applied: FIRST - To the payment to the Persons entitled thereto of all installments of interest then due on the Notes, in the order of the maturity of the installments of such interest (with interest on overdue installments of such interest, to the extent permitted by law, at the Late Payment Rate) and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or privilege; and SECOND - To the payment to the Persons entitled thereto of the unpaid principal of and premium, if any, on any of the Notes which shall have become due (other than Notes matured or called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), (with interest on overdue installments of principal and premium, if any, to the extent permitted by law, at the Late Payment Rate) and, if the amount available shall not be sufficient to pay in full Notes due on any particular date, then to the payment ratably, according to the amount of principal due on such date, to the persons entitled thereto without any discrimination or privilege; and -31- 32 THIRD - To be held for the payment to the Persons entitled thereto as the same shall become due of the principal of and premium, if any, and interest on the Notes which may thereafter become due either at maturity or upon call for redemption prior to maturity and, if the amount available shall not be sufficient to pay in full Notes due on any particular date, together with interest and premium, if any, then due and owing thereon, payment shall be made ratably according to the amount of interest, principal and premium, if any, due on such date to the Persons entitled thereto without any discrimination or privilege. (b) If the principal of all the Notes shall have become due or shall have been declared due and payable, all such moneys shall be applied to the payment of the principal and interest then due and unpaid upon the Notes, without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Note over any other Note, ratably, according to the amounts due, respectively, for principal and interest, to the Persons entitled thereto without any discrimination or privilege, with interest on overdue installments of interest or principal, to the extent permitted by law, at the Late Payment Rate. (c) If the principal of all the Notes shall have been declared due and payable and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article, then, subject to the provisions of Section 807(b) hereof, in the event that the principal of all the Notes shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of Section 807(a) hereof. Whenever moneys are to be applied pursuant to the provisions of this Section, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an interest payment date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date, and shall not be required to make payment to the Owner of any Note until such Note shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Whenever the principal of, premium, if any, and interest on all Notes have been paid under the provisions of this Section and all expenses and charges of the Trustee have been paid, any balance remaining in the Note Fund shall be paid to the Company or the Bank as provided in Section 512 hereof. Notwithstanding anything to the contrary herein or otherwise, moneys drawn under the Letter of Credit shall be applied only to the payment of principal or Purchase Price of, premium, if any, and accrued interest on the Notes. -32- 33 Section 808. Remedies Vested in Trustee. All rights of action (including the right to file proof of claims) under this Indenture or under any of the Notes may be enforced by the Trustee without the possession of any of the Notes or the production thereof in any trial or other proceeding relating thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants any Owners of the Notes, and any recovery of judgment shall be for the equal and ratable benefit of the Owners of the Outstanding Notes. Section 809. Rights and Remedies of Owners of Notes. No Owner of any Note shall have any right to institute any suit, action or proceeding at law or in equity for the enforcement of this Indenture or for the execution of any trust hereof or for the appointment of a receiver or any other remedy hereunder, unless (subject to the provisions of Section 802 hereof) (i) a Default has occurred of which the Trustee has been notified as provided in Section 1001(h) hereof, or of which by said subsection it is deemed to have notice, (ii) the Owners of twenty-five percent (25%) in aggregate principal amount of Outstanding Notes shall have made written request to the Trustee and shall have offered tit reasonable opportunity either to proceed to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in their own name or names and they have offered to the Trustee indemnity as provided in Section 901(k), and (iii) the Trustee shall thereafter fail or refuse to exercise the powers hereinbefore granted, or to institute such action, suit or proceeding in its own name. Such notification, request and offer of indemnity are hereby declared in every case at the option of the Trustee to be conditions precedent to the execution of the powers and trusts of this Indenture, and to any action or cause of action for the enforcement of this Indenture, or for the appointment of a receiver or for any other remedy hereunder; it being understood and intended that no one or more Owners of the Notes shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of this Indenture by their action or to enforce any right hereunder except in the manner herein provided, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal and ratable benefit of the Owners of all Outstanding Notes. However, nothing contained in this Indenture shall affect or impair the right of any Owner of Notes to enforce the payment of the principal of, premium, if any, and interest on any Note at and after the maturity thereof, or the obligation of the Issuer to pay the principal of, premium, if any, and interest on each of the Notes issued hereunder to the respective Owners thereof at the time and place, from the source and in the manner in the Notes expressed. No Owner of any Note shall have any right to institute any suit, action or proceeding in equity or at law to enforce a drawing under the Letter of Credit. Section 810. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case, the Issuer, the Trustee and the Owners of Notes shall be restored to their former positions and rights hereunder, respectively, with regard to the property subject to this Indenture, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken. Section 811. Waivers of Default. Subject to the provisions of the last paragraph of Section 802 hereof, the Trustee may in its discretion waive any Default hereunder and its -33- 34 consequences and rescind any declaration of acceleration of principal, and shall do so upon the written request of the Bank and the Owners of (1) more than two-thirds (2/3) in aggregate principal amount of all Outstanding Notes in respect of which Default in the payment of principal or interest, or both, exists or (2) more than two-thirds (2/3) in aggregate principal amount of all Outstanding Notes in the case of any other Default; provided, however, that any Default under subsection (e) of Section 801 hereof may only be waived upon the written request of the Bank (and in such case the consent of the Owners of the Notes shall not be required); and provided further that there shall not be waived any Default in the payment of the principal of or interest on any Outstanding Notes unless prior to such waiver or rescission, all arrears of principal and interest (other than principal of or interest on the Notes which became due and payable by declaration of acceleration), with interest at the Late Payment Rate on overdue installments, to the extent permitted by law, and all expenses of the Trustee in connection with such Default shall have been paid or provided for. In case of any waiver or rescission described above, or in case any proceeding taken by the Trustee on account of any such Default shall have been discontinued or abandoned or determined adversely, then and in every such case the Issuer, the Trustee and the Owners of Notes shall be restored to their former positions and rights hereunder, respectively, but no such waiver or rescission shall extend to any subsequent or other Default, or impair any right consequent thereon. Section 812. Notice of Defaults under Section 801(g); Opportunity to Cure Such Defaults. Anything herein to the contrary notwithstanding, no Default under Section 801(g) hereof shall be deemed a Default until notice of such Default shall be given to the Issuer, the Guarantor and the Company by the Trustee or by the Owners of not less than twenty-five percent (25%) in aggregate principal amount of all Outstanding Notes, and the Issuer, the Guarantor and the Company shall have had thirty (30) days after receipt of such notice to correct said Default or to cause said Default to be corrected and shall not have corrected said Default or caused said Default to be corrected within the applicable period; provided, however, if said Default be such that it cannot be corrected within the applicable period, it shall not constitute a Default if corrective action is instituted by the Issuer, the Guarantor or the Company within the applicable period and diligently pursued until the Default is corrected. With regard to any Default concerning which notice is given to the Issuer, the Guarantor and the Company under the provisions of this Section, the Issuer hereby grants the Guarantor and the Company full authority for account of the Issuer to perform any covenant or obligation alleged in said notice to constitute a Default, in the name and stead of the Issuer with full power to do any and all things and acts to the same extent that the Issuer could do and perform any such things and acts and with power of substitution. Section 813. Cooperation of Issuer. In the event of a Default hereunder, the Issuer shall cooperate with the Trustee and use its best efforts to protect the Owners of Notes. -34- 35 ARTICLE IX THE TRUSTEE; PAYING AGENT AND CO-PAYING AGENT; NOTE REGISTRAR AND CO-NOTE REGISTRAR; AND AUTHENTICATING AGENT Section 901. Acceptance of The Trusts. The Trustee hereby accepts the trusts imposed upon it by this Indenture, and agrees to perform said trusts, but only upon and subject to the following express terms and conditions: (a) The Trustee, prior to the occurrence of a Default and after the curing of all Defaults which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case a Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in the exercise of such rights and powers as an ordinary, prudent man would exercise or use in the conduct of his own affairs. (b) The Trustee may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys, agents, receivers or employees, but shall be answerable for the conduct of the same in accordance with the standard specified above, and shall be entitled to advice of counsel concerning its duties hereunder, and may in all cases pay such reasonable compensation to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trusts hereof. The Trustee may act upon the opinion or advice of any attorney (who may be the attorney or attorneys for the Issuer, the Company or the Guarantor) selected by the Trustee in the exercise of reasonable care. The Trustee shall not be responsible for any loss or damage resulting from any action or inaction taken or not taken, as the case may be, in good faith in reliance upon such opinion or advice. (c) The Trustee shall not be responsible for any recital herein or in the Notes (except with respect to the certificate of the Trustee endorsed on the Notes) or for the validity of the execution by the Issuer of this Indenture or of any supplements hereto or instruments of further assurance, or for the sufficiency of the security for the Notes issued hereunder or intended to be secured hereby, and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions or agreements on the part of the Company under the Agreement or the part of the Guarantor under the Guaranty Agreement except as hereinafter set forth; but the Trustee may require of the Issuer and the Company full information and advice as to the performance of the covenants, conditions and agreements aforesaid and as to the condition of the property herein conveyed. The Trustee shall have no obligation to perform any of the duties of the Issuer under the Agreement. (d) The Trustee, the Paying Agent, any Co-Paying Agent, the Note Registrar and any Co-Note Registrar, in its individual capacity, may in good faith buy, sell, own, hold or deal in any of the Notes issued hereunder, and may join in any action which any -35- 36 Owner of Notes may be entitled to take with like effect as if it did not act in any such capacity hereunder. (e) The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed to be genuine and correct and to have been signed or sent by the proper person or persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the Owner of any Note shall be conclusive and binding upon all future Owners of the same Note and upon Notes issued in exchange therefor or in place thereof. (f) As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon an Officer's Certificate of the Issuer or a certificate signed by the Company Representative as sufficient evidence of the facts therein contained and prior to the occurrence of a Default of which the Trustee has been notified as provided in Section 901(h) hereof, or of which by said subsection it is deemed to have notice, shall also be at liberty to accept a similar certificate to the effect that any particular dealing, transaction or action is necessary or expedient, but may at its discretion secure such further evidence deemed by it to be necessary or advisable, but shall in no case be bound to secure the same. The Trustee may accept a certificate of such officials of the Issuer who executed the Notes (or their successors in office) under the seal of the Issuer to the effect that a resolution in the form therein set forth has been adopted by the Issuer as conclusive evidence that such resolution has been duly adopted and is in full force and effect. (g) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful default. (h) The Trustee shall not be required to take notice or be deemed to have notice of any Default hereunder except for Defaults specified in subsections (a), (b), (c), (d)- or (e) of Section 801 hereof, unless the Trustee shall be specifically notified in writing of such Default by the Issuer, the Bank or by the Owners of at least twenty-five percent (25%) in aggregate principal amount of Outstanding Notes, and all notices or other instruments required by this Indenture to be delivered to the Trustee, must, in order to be effective, be delivered at the Principal Office of the Trustee, and in the absence of such notice so delivered the Trustee may conclusively assume there is no Default except as aforesaid. (i) The Trustee shall not be required to give any bonds or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. (j) Notwithstanding anything elsewhere in this Indenture with respect to the authentication of any Notes, the withdrawal of any cash, the release of any property or any action whatsoever within the purview of this Indenture, the Trustee shall have the right, but shall not be required, to demand any showings, certificates, opinions, appraisals -36- 37 or other information, or corporate action or evidence thereof, in addition to that by the terms hereof required as a condition of such action, deemed desirable by the Trustee for the purpose of establishing the right of the Issuer to the authentication of any Notes, the withdrawal of any cash or the taking of any other action by the Trustee. (k) Before taking any action under this Indenture or under the Agreement, the Trustee may require that a satisfactory indemnity bond be furnished for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or willful default in connection with any such action. (l) All moneys received by the Trustee, the Paying Agent or any Co-Paying Agent shall, until used or applied or invested as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent otherwise required herein or required by law. Section 902. Fees, Charges and Expenses of the Trustee. The Trustee shall be entitled to payment and reimbursement for reasonable fees for its services rendered hereunder and all advances, counsel fees and other expenses reasonably made or incurred by the Trustee in connection with such services. Upon a Default, but only upon a Default, the Trustee shall have a first lien with right of payment prior to payment on account of principal of, premium, if any, and interest on any Note upon the Trust Estate (exclusive of the proceeds of any drawing under the Letter of Credit) for the foregoing fees, charges and expenses incurred by the Trustee. When the Trustee incurs expenses or renders services after the occurrence of a Default hereunder caused by the occurrence of a "Default" specified in Section 8.1(c) of the Agreement, the expenses and the compensation for the services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law. Issuer shall have no liability to pay any fees, charges or other expenses of the Trustee hereinabove mentioned except from the amounts pledged under this Indenture. Section 903. Notice to Owners of Notes if Default Occurs. If a Default occurs of which the Trustee has been notified as provided in Section 901(h) hereof, or of which by said subsection it is deemed to have notice, then the Trustee shall promptly give notice thereof to the Guarantor, the Bank, and the Owner of each Note. Section 904. Intervention by the Trustee. In any judicial proceeding which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of Owners of the Notes, the Trustee may intervene on behalf of Owners of Notes and shall do so if requested in writing by the Bank or the Owners of at least twenty-five percent (25%) of the aggregate principal amount of Outstanding Notes. Section 905. Successor Trustee. Any corporation or association into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, shall be and become successor Trustee hereunder and vested with all of the title to -37- 38 the Trust Estate and all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 906. Resignation by the Trustee. The Trustee and any successor Trustee may at any time resign from the trusts hereby created by giving thirty (30) days' notice to the Issuer, the Guarantor, the Bank, the Company, and to the Owner of each Note. Such resignation shall not take effect until the appointment of a successor Trustee or temporary Trustee by the Owners of Notes or by the Issuer. Section 907. Removal of the Trustee. The Trustee may be removed at any time by an instrument or concurrent instruments in writing delivered to the Trustee and to the Issuer, the Company, the Guarantor, any Co-Paying Agent, any Co-Note Registrar and the Bank and signed by the Owners of a majority in aggregate principal amount of Outstanding Notes. Section 908. Appointment of Successor Trustee by Owners of Notes. In case the Trustee hereunder shall resign or be removed, or be dissolved, or shall be in the course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor may be appointed by the Owners of a majority in aggregate principal amount of Outstanding Notes by an instrument or concurrent instruments in writing signed by such Owners, or by their attorneys in fact duly authorized, a copy of which shall be delivered personally or sent by registered mail to the Guarantor, the Issuer, the Company, any Co-Paying Agent, any Co-Note Registrar and the Bank. In case of any such vacancy, the Issuer, by an instrument executed, attested and sealed by those of its officials who executed and attested the Notes or their successors in office, may appoint a temporary successor Trustee to fill such vacancy until a successor Trustee shall be appointed by the Owners of Notes in the manner above provided; and such temporary successor Trustee so appointed by the Issuer shall immediately and without further act be superseded by the Trustee appointed by the Owners of Notes. If no successor Trustee has accepted appointment in the manner provided in Section 1009 hereof within ninety (90) days after the Trustee has given notice of resignation to the Issuer and the Owner of each Note, the Trustee may petition any court of competent jurisdiction for the appointment of a temporary successor Trustee; provided that any Trustee so appointed shall immediately and without further act be superseded by a Trustee appointed by the Issuer or the Owners of Notes as provided above. Every successor Trustee appointed pursuant to the provisions of this Section shall be, if there be such an institution willing, qualified and able to accept the trust upon customary terms, a bank or trust company within or without the State, in good standing and having a reported capital and surplus of not less than $10,000,000. Section 909. Acceptance by Any Successor Trustee. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its or his predecessor and also to the Issuer and the Company an instrument in writing accepting such appointment hereunder, and thereupon such successor, without any further act, deed or conveyance, shall become fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessor; but such predecessor shall, nevertheless, on the written request of the Issuer, or of its successor, -38- 39 execute and deliver an instrument transferring to such successor all the estates, properties, rights, powers and trusts of such predecessor hereunder; and every predecessor Trustee shall deliver all securities and moneys held by it as Trustee hereunder to its successor. Should any instrument in writing from the Issuer be required by any successor Trustee for more fully and certainly vesting in such successor the estate, rights, powers and duties hereby vested or intended to be vested in the predecessor, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer. The resignation of any Trustee and the instrument or instruments removing any Trustee and appointing a successor hereunder, together with all other instruments provided for in this Article, shall be filed or recorded by the successor Trustee in each recording office where the Indenture shall have been filed or recorded. Section 910. Appointment of Co-Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in case of litigation under this Indenture or the Agreement and in particular in case of the enforcement thereof on Default, or in case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein or therein granted to the Trustee or hold title to the Trust Estate, as herein granted, or take any other action which may be desirable or necessary in connection therewith, the Trustee may appoint an additional individual or institution as a separate or Co-Trustee, in which event each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture or the Agreement to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or Co-Trustee, but only to the extent necessary to enable such separate or Co-Trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or Co-Trustee shall run to and be enforceable by either of them. Should any deed, conveyance or instrument in writing from the Issuer be required by the separate or Co-Trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate or Co-Trustee, or a successor to either, shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate or Co-Trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new Trustee or successor to such separate or Co-Trustee. Any Co-Trustee appointed by the Trustee pursuant to this Section may be removed by the Trustee, in which case all powers, rights and remedies vested in a Co-Trustee shall again vest in the Trustee as if no such appointment of a Co-Trustee had been made. Section 911. Trustee Protected in Relying Upon Resolution, etc. The resolutions, opinions, certificates and other instruments provided for herein may be accepted by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for the release of property and the withdrawal of moneys hereunder. -39- 40 Section 912. Paying Agent; Co-Paying Agent. The Trustee is hereby appointed Paying Agent for the Notes. The Issuer may, with the approval of the Company, appoint one or more Co-Paying Agents for the Notes, subject to the conditions set forth in Section 913 hereof. Each Co-Paying Agent shall designate to the Trustee its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Company, the Guarantor, the Trustee and the Bank under which each such Co-Paying Agent will agree, particularly: (a) to hold all sums held by it for the payment of the principal or Purchase Price of, premium, if any, or interest on Notes in trust for the benefit of the Owners of Notes -until such sums shall be paid to such Owners of Notes or otherwise disposed of as herein provided; (b) to keep such books and records as shall be consistent with prudent industry practice, to make such books and records available for inspection by the Issuer, the Trustee, the Company and the Guarantor at all reasonable times and, upon the request of the Paying Agent, to promptly furnish copies of such books and records to the Paying Agent; and (c) upon the request of the Paying Agent, to forthwith deliver to the Paying Agent all sums so held in trust by such Co-Paying Agent. The Issuer shall cooperate with the Trustee and the Company to cause the necessary arrangements to be made and to be thereafter continued whereby funds derived from the sources specified in Section 504 will be made available for payment when due of the Notes as presented at the Principal Offices of the Paying Agent and any Co-Paying Agent. Section 913. Qualifications of Paying Agent and Co-Paying Agents; Resignation, Removal. The Paying Agent and any Co-Paying Agent shall be corporations duly organized under the laws of the United States of America or any state or territory thereof, having a combined capital stock, surplus and undivided profits of at least $10,000,000 and authorized by law to perform all the duties imposed upon it by this Indenture. The Paying Agent and any Co-Paying Agent may at any time resign or be discharged of the duties and obligations created by the Indenture by giving at least sixty (60) days notice to the Issuer, the Company, the Guarantor and the Trustee. The Paying Agent and any Co-Paying Agent may be removed at any time, at the direction of the Company, by an instrument signed by the Issuer and the Company and filed with the Paying Agent or such Co-Paying Agent, as the case may be, and with the Trustee, the Note Registrar, any Co-Note Registrar, the Remarketing Agent and the Bank. In the event of the resignation or removal of the Paying Agent or any Co-Paying Agent, the Paying Agent or such Co-Paying Agent, as the case may be, shall pay over, assign and deliver any moneys held by it in such capacity to its successor or, if there be no successor, to the Trustee. In the event that the Paying Agent shall resign or be removed, or be dissolved, or if the property or affairs of the Paying Agent shall be taken under the control of any state or federal -40- 41 court or administrative body because of bankruptcy or insolvency, or for any other reason, and the Issuer shall not have appointed its successor as Paying Agent, the Trustee shall ipso facto be deemed to be the Paying Agent for all purposes of this Indenture until the appointment by the Issuer of the Paying Agent or successor Paying Agent, as the case may be. Section 914. Note Registrar; Co-Note Registrar. The Trustee is hereby appointed Note Registrar for the Notes. The Issuer may, with the approval of the Note Registrar and the Company, appoint a Co-Note Registrar to perform one or more functions of the Note Registrar under this Indenture, subject to the conditions set forth in Section 915 hereof. Any such Co-Note Registrar shall designate to the Trustee its Principal Office and signify its acceptance of the duties imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Company, the Guarantor and the Trustee under which such Co-Note Registrar will agree, particularly, to keep such books and record as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Company, the Guarantor and the Trustee at all reasonable times. The Issuer shall cooperate with the Trustee and the Company to cause the necessary arrangements to be made and to be thereafter continued whereby Notes, executed by the Issuer and authenticated by the Trustee, shall be made available for exchange, registration and registration of transfer at the Principal Office of the Note Registrar. The Issuer shall cooperate with the Trustee, the Note Registrar and the Company to cause the necessary arrangements to be made and thereafter continued whereby the Paying Agent, any Co-Paying Agent and the Remarketing Agent shall be furnished such records and other information, at such times, as shall be required to enable the Paying Agent, any Co-Paying Agent and the Remarketing Agent to perform the duties and obligations imposed upon them hereunder. Section 915. Qualifications of Note Registrar and Co-Note Registrar; Resignation; Removal. The Note Registrar and any Co-Note Registrar shall be a corporation organized under the laws of the United States of America or any state or territory thereof, having a combined capital stock, surplus and undivided profits of at least $10,000,000 and authorized by law to perform all the duties imposed upon it by this Indenture. The Note Registrar and any Co-Note Registrar may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least sixty (60) days notice to the Issuer, the Company, the Guarantor and the Trustee. The Note Registrar and any Co-Note Registrar may be removed at any time, at the direction of the Company, by an instrument signed by the Issuer and the Company and filed with the Note Registrar or such Co-Note Registrar, as the case may be, and with the Trustee, the Paying Agent, any Co-Paying Agent, the Remarketing Agent and the Bank. In the event that the Note Registrar shall resign or be removed, or be dissolved, or if the property or affairs of the Note Registrar shall be taken under the control of any state or federal court or administrative body because of bankruptcy or insolvency, or for any other reasons, and the issuer shall not have appointed its successor as Note Registrar, the Trustee shall ipso facto be deemed to be the Note Registrar for all purposes of this Indenture until the appointment by the Issuer of the Note Registrar or successor Note Registrar, as the case may be. -41- 42 Section 916. Several Capacities. Anything in this Indenture to the contrary notwithstanding, the same entity may serve hereunder as the Trustee, the Paying Agent or a Co-Paying Agent and the Note Registrar or a Co-Note Registrar and may serve as the Remarketing Agent, the agent appointed by the Trustee pursuant to Section 314, the Bank or any agent appointed by the Bank and any other combination of such capacities, to the extent permitted by law. Section 917. Authenticating Agent. The Trustee may (and at the request of the Issuer with the consent of the Company shall) appoint one or more Authenticating Agents with power to act on its behalf and subject to its direction in the authentication and delivery of Notes pursuant to Sections 203, 204, 206, 207, 208, 210 and 310 as fully to all intents and purposes as though any such Authenticating Agent had been expressly authorized by said Sections to authenticate and deliver Notes. One such Authenticating Agent shall at all times be a corporation having its principal office in The City of New York, organized under the laws of the United States or of any state or territory thereof authorized under such laws to act as Authenticating Agent, having a combined capital stock, surplus and undivided profits of at least $10,000,000. Wherever reference is made in this Indenture to the authentication and delivery of Notes by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by its Authenticating Agent appointed hereunder and a certificate of authentication executed on behalf of the Trustee by its Authenticating Agent appointed hereunder. Any corporation into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authenticating Agent shall be a party, or any corporation succeeding to the corporate trust business of any Authenticating Agent, shall be the successor of such Authenticating Agent hereunder, if such successor corporation is otherwise eligible under this Section 917, without the execution or filing of any paper or any further act on the part of the parties hereto or such Authenticating Agent or such successor corporation. Any Authenticating Agent may at any time resign as Authenticating Agent by giving written notice of resignation to the Trustee, the Company and the Issuer. The Trustee may at any time terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Issuer, the Company, the Guarantor, the Paying Agent, any Co-Paying Agent, the Note Registrar, any Co-Note Registrar and the Remarketing Agent. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section 917, the Trustee may, and upon the request of the Issuer with the consent of the Company shall, promptly appoint a successor Authenticating Agent eligible under this Section 917, shall give written notice of such appointment to the Issuer, the Company, the Guarantor, the Paying Agent, any Co-Paying Agent, the Note Registrar, any Co-Note Registrar and the Remarketing Agent and shall mail notice of such appointment to all Owners of Notes as their names and addresses appear on the registration books. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall -42- 43 become vested with all rights, powers, duties and responsibilities of its predecessor hereunder, with like effect as if originally named as Authenticating Agent herein. The Trustee agrees to pay to any Authenticating Agent from time to time reasonable compensation for its services, and the Trustee shall be entitled to be reimbursed for such payments, subject to Section 1002 hereof. The provisions of Sections 208 and 901 hereof shall be applicable to any Authenticating Agent. If an appointment is made pursuant to this Section 917, the Notes shall have endorsed thereon in lieu of the certificate of authentication set forth in Exhibits A, B and C hereto, an alternate certificate of authentication in the following form: "This Note is one of the Notes of the issue described in the within-mentioned Indenture of Trust. FIRST & MERCHANTS NATIONAL BANK, As Trustee By ________________________________ Authenticating Agent By ________________________________ Authenticating Officer Section 918. Purchase of Notes by the Trustee. The Trustee hereby agrees, and, where applicable, will cause each of its agents to agree, that it will: (a) hold all Notes delivered to it pursuant to Sections 303, 304 or 306 hereof in trust for the benefit of the respective Owners of Notes which shall have so delivered such Notes until moneys representing the Purchase Price of such Notes shall have been delivered to or for the account of or to the order of such Owners of Notes, (b) hold all moneys delivered to it hereunder for the purchase of Notes in a separate subaccount within the Note Fund, in trust for the benefit of the Person or entity which shall have so delivered such moneys until the Notes purchased with such moneys shall have been delivered to or for the account of such Person or entity; (c) deliver to the Company, the Guarantor and the Bank a copy of each notice delivered to it in accordance with Section 306 hereof and, immediately upon the delivery to it of Notes in accordance with said Section 306, give telephonic or telegraphic notice to the Company and the Bank specifying the principal amount of the Notes so delivered; and -43- 44 (d) draw moneys under the Letter of Credit in accordance with the terms thereof to the extent required by Sections 311 and 513 hereof to provide for timely payment of the Purchase Price of Notes. ARTICLE X SUPPLEMENTAL INDENTURES Section 1001. Supplemental Indentures Not Requiring Consent of Owners of Notes. The Issuer and the Trustee may and without consent of, or notice to, any of the Owners of Notes or the Bank, enter into an indenture or indentures supplemental to this Indenture for any one or more of the following purposes: (a) To cure any ambiguity or formal defect or omission in this Indenture; (b) To grant to or confer upon the Trustee for the benefit of the Owners of Notes any additional rights, remedies, powers or authorities that may lawfully be granted to or conferred upon the Owners of Notes or the Trustee; (c) To subject to this Indenture additional revenues, properties or collateral; (d) To modify, amend or supplement this Indenture or any indenture supplemental hereto in such manner as to permit the qualification hereof and thereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect or to permit the qualification of the Notes for sale under the securities laws of any of the states of the United States of America; (e) To evidence the appointment of a separate or Co-Trustee or the succession of a new Trustee hereunder; or (f) To effect any other change herein which, in the judgment of the Trustee, is not to the prejudice of the Trustee, the Bank or the Owners of Notes. Section 1002. Supplemental Indentures Requiring Consent of Owners of Notes. Exclusive of supplemental indentures permitted by Section 1001 hereof and subject to the terms and provisions contained in this Section, and not otherwise, the Bank and the Owners of not less than two-thirds (2/3) in aggregate principal amount of the Outstanding Notes shall have the right, from time to time, anything contained in this Indenture to the contrary notwithstanding, to consent to and approve the execution by the Issuer and the Trustee of such other indenture or indentures supplemental hereto as shall be deemed necessary and desirable by the Issuer for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this Indenture or in any supplemental indenture; provided, however, that nothing in this Section or in Section 1001 hereof contained shall permit, or be construed as permitting, without the consent of the Bank and the Owners of all Notes Outstanding, (a) an extension of the maturity of the principal of, or the interest on, any Note issued hereunder, or (b) a reduction in the principal amount or Purchase Price of, or redemption premium on, any Note or the rate of interest thereon, or (c) a privilege or priority of any Note or -44- 45 Notes over any other Note or Notes, or (d) a reduction in the aggregate principal amount of the Notes required for consent to such supplemental indentures or any modifications or waivers of the provisions of this Indenture, or the Agreement, or (e) the creation of any lien ranking prior to or on a parity with the lien of this Indenture on the Trust Estate or any part thereof, except as hereinbefore expressly permitted, or (f) the deprivation of the Owner of any Outstanding Note of the lien hereby created on the Trust Estate. If at any time the Issuer shall request the Trustee to enter into any such supplemental indenture for any of the purposes of this Section, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such supplemental indenture to be given to the Bank, the Guarantor and to the Owners of the Notes as provided in Section 307 hereof. Such notice shall briefly set forth the nature of the proposed supplemental indenture and shall state that copies thereof are on file at the Principal Office of the Trustee for inspection by all Owners of Notes. If, within sixty (60) days or such longer period as shall be prescribed by the Issuer following such notice, the Bank and the Owners of not less than two-thirds (2/3) in aggregate principal amount of the Notes Outstanding at the time of the execution of any such supplemental indenture shall have consented to and approved the execution thereof as herein provided, no Owner of any Note shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the Issuer from executing the same or from taking any action pursuant to the provisions thereof. Upon the execution of any such supplemental indenture as in this Section permitted and provided, this Indenture shall be and be deemed to be modified and amended in accordance therewith. Anything herein to the contrary notwithstanding, a supplemental indenture under this Article shall not become effective unless and until the Company and the Guarantor shall have consented to the execution and delivery of such supplemental indenture. In this regard, the Trustee shall cause notice of the proposed execution of any such supplemental indenture together with a copy of the proposed supplemental indenture to be mailed to the Company at least fifteen (15) Business Days prior to the proposed date of execution and delivery of any such supplemental indenture. The Company shall be deemed to have consented to the execution and delivery of any such supplemental indenture if the Trustee does not receive a letter of protest or objection thereto signed by or on behalf of the Company or the Guarantor on or before the fifteenth (15th) Business Day after the mailing of said notice. ARTICLE XI AMENDMENT OF AGREEMENT OR GUARANTY Section 1101. Amendments to Agreement or Guaranty Not Requiring Consent of Owners of Notes. The Issuer and the Trustee may, and without the consent of or notice to the Owners of Notes or the Bank, consent to any amendment, change or modification of the Agreement or the Guaranty as may be required (i) by the provisions of the Agreement, the Guaranty or this Indenture, (ii) for the purpose of curing any ambiguity or formal defect or omission in the Agreement or the Guaranty, (iii) so as to more precisely identify the Project, or to substitute or add additional improvements or equipment to the Project, or additional rights or interests in property acquired in accordance with the provisions of the Agreement, (iv) to enter -45- 46 into an indenture or indentures supplemental hereto as provided in Section 1101 hereof, or (v) in connection with any other change therein which, in the judgment of the Trustee, is not to the prejudice of the Trustee, the Bank or the Owners of Notes. Section 1102. Amendments to Agreement or Guaranty Requiring Consent of Owners of Notes. Except for the amendments, changes or modifications as provided in Section 1101 hereof, neither the Issuer nor the Trustee shall consent to any other amendment, change or modification of the Agreement or the Guaranty without mailing of notice and the written approval or consent of the Bank and the Owners of not less than two-thirds (2/3) in aggregate principal amount of the Outstanding Notes given as in this Section provided, provided that the consent of the Bank and the Owners of all Notes Outstanding is required for any amendment, change or modification of the Agreement or the Guaranty that would permit the termination or cancellation of the Agreement or the Guaranty or a reduction in or postponement of the payments under the Agreement or the Guaranty or any change in the provisions relating to payment thereunder. If at any time the Issuer and the Company shall request the consent of the Trustee to any such proposed amendment, change or modification of the Agreement or the Guaranty, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of such proposed amendment, change or modification to be given in the same manner as provided by Section 1002 hereof with respect to supplemental indentures. Such notice shall briefly set forth the nature of such proposed amendment, change or modification and shall state that copies of the instrument embodying the same are on file at the Principal Office of Trustee for inspection by all Owners of Notes. ARTICLE XII MISCELLANEOUS Section 1201. Consents of Owners of Notes. Any consent, request, direction, approval, objection or other instrument required by this Indenture to be signed and executed by the Owners of Notes may be in any number of concurrent documents and may be executed by such Owners of Notes in person or by agent appointed in writing. Proof of the execution of any such consent, request, direction, approval, objection or other instrument or of the written appointment of any such agent or of the ownership of Notes, if made in the manner provided in this Section, shall be sufficient for any of the purposes of this Indenture, and shall be conclusive in favor of the Trustee with regard to any action taken by it under such request or other instrument. The fact of ownership of Notes and the amount or amounts, numbers and other identification of such Notes, and the date of owning the same shall be proved by the registration books of the Issuer maintained by the Trustee pursuant to Section 208 hereof. The fact and date of the execution by any such person of any instrument may be proved by the certificate of any notary public or other officer of any jurisdiction within the United States of America authorized to take acknowledgments of deeds to be recorded in such jurisdiction that the person executing such instrument acknowledged to him the execution thereof, or by an affidavit of a witness to such execution sworn to before any such notary or other such officer or by a certificate of any officer of any trust company, bank, banker or recognized securities dealer or broker, satisfactory to the Trustee, who witnessed such execution, or in any other manner satisfactory to the Trustee. If such execution is by an officer of a corporation, association or -46- 47 trust, trustee of a trust or a member of a partnership on behalf of such corporation, association, trust or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. Section 1202. Limitation of Rights. With the exception of any rights herein expressly conferred, nothing expressed or mentioned in or to be implied from this Indenture or the Notes is intended or shall be construed to give to any person or company other than the parties hereto the Bank and the Owners of the Notes, any legal or equitable right, remedy or claim under or with respect to this Indenture or any covenants, conditions and provisions herein contained; this Indenture and all of the covenants, conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto, the Bank and the Owners of the Notes as herein provided. Section 1203. Severability. If any provision of this Indenture shall be held or deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative or unenforceable to any extent whatever. Section 1204. Notice. Any notice, request, complaint, demand, communication or other paper shall be sufficiently given and shall be deemed given when delivered or mailed by registered or certified mail, postage prepaid, or sent by telegram, addressed as follows: if to the Issuer, to Economic Development Corporation of the City of Plainwell, 141 North Main Street, Plainwell, Michigan 49080, Attention: President; if to the Trustee, to First & Merchants National Bank, F&M Center, 12th and Main Streets, Richmond, Virginia 23219, Attention: Corporate Trust Department. A duplicate copy of each notice required to be given hereunder by the Trustee to either the Issuer or the Company shall also be given to the other, to the Bank and the Guarantor. The Issuer, the Company, the Trustee, the Guarantor, and the Bank may designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 1205. Payments Due on Saturdays, Sundays and Holidays. In any case where the date of maturity of interest on or principal of the Notes or the date fixed for purchase or redemption of any Notes shall not be a Business Day, then payment of principal, Purchase Price, premium, if any, or interest need not be made on such date but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for purchase or redemption, and no interest shall accrue for the period after such date. Section 1206. Certain References Ineffective After Letter of Credit Termination Date. From and after the Letter of Credit Termination Date, upon receipt by the Trustee of a certificate from the Bank stating that all amounts payable to the Bank under the Credit Agreement have been paid in full, all references to the Bank, the Credit Agreement, or the Letter of Credit in the Agreement, this Indenture, the Guaranty, and the Notes shall be ineffective. Section 1207. Counterparts. This Indenture may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. -47- 48 Section 1208. Applicable Provisions of Law. This Indenture shall be governed by and construed in accordance with the laws of the State; provided, however, that the rights and obligations of the Trustee shall be governed in accordance with the laws of the State of New York. Section 1209. Rules of Interpretation. Unless expressly indicated otherwise, references to Sections or Articles are to be construed as references to Sections or Articles of this instrument as originally executed. Use of the words "herein," "hereby," "hereunder," "hereof," "hereinbefore," "hereinafter" and other equivalent words refer to this Indenture and not solely to the particular portion in which any such word is used. Section 1210. Captions. The captions and headings in this Indenture are for convenience only and in no way define, limit or describe the scope or intent of any provisions or Sections of this Indenture. IN WITNESS WHEREOF, the Issuer has caused these presents to be executed in its corporate name and with its official seal hereunto affixed and attested by its duly authorized official; and to evidence its acceptance of the trusts hereby created, the Trustee has caused these presents to be executed in its corporate name and with its corporate seal hereunto affixed and attested by its duly authorized officer, as of the date first above written. [SEAL] ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF PLAINWELL Attest:______________________ By:___________________________ Secretary President [SEAL] FIRST & MERCHANTS NATIONAL BANK, as Trustee Attest:______________________ By:___________________________ Authorized Officer Authorized Officer -48- 49 EXHIBIT A (FORM OF PRE-CONVERSION, PRE-MANDATORY TENDER NOTE) UNITED STATES OF AMERICA ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF PLAINWELL VARIABLE RATE DEMAND NOTE (PLAINWELL PAPER CO., INC. PROJECT) THIS NOTE IS SUBJECT TO MANDATORY TENDER AT THE TIMES AND IN THE MANNER HEREINAFTER DESCRIBED, AND MUST BE SO TENDERED OR WILL BE DEEMED TO HAVE BEEN SO TENDERED UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN. KNOW ALL MEN BY THESE PRESENTS that the Economic Development Corporation of the City of Plainwell (the "Issuer"), a political subdivision and body corporate and politic of the State of Michigan, for value received, promises to pay from the source and as hereinafter provided, to or registered assigns, on November 1, 2007, upon surrender hereof, the principal sum of ____________________ Dollars, and in like manner to pay interest on said sum at the rate described below on February 1, May 1, August 1, and November 1 of each year and on the Conversion Date (hereinafter defined), commencing February 1, 1984, from the interest payment date next preceding the date hereof, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date hereof, or unless no interest has been paid or duly provided for on the Notes (as hereinafter defined), in which case from the date of the first authentication and delivery of the Notes, until payment of the principal hereof has been made or duly provided for. Notwithstanding the foregoing, if this Note is dated after any date which is fifteen days prior to any interest payment date (a "Record Date") and before the following interest payment date, this Note shall bear interest from such interest payment date, provided, however, that if the Issuer shall default in the payment of interest due on such interest payment date, then this Note shall bear interest from the next preceding interest payment date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Notes from the date of the first authentication and delivery of the Notes. The principal of premium, if any, and interest on this Note are payable in lawful money of the United States of America at the principal corporate trust office of First & Merchants National Bank in Richmond, Virginia, as trustee together with its successors in trust, (the "Trustee") or at the duly designated office of any successor Trustee under the Indenture of Trust dated as of November 1, 1983, between the Issuer and the Trustee (which Indenture, as from time to time amended and supplemented, is hereinafter referred to as the "Indenture"). Payment of interest on this Note shall be made on each interest payment date to the registered owner thereof as of the applicable -A-1- 50 Record Date and shall be paid by check mailed to the registered owner at his address as it appears on the registration books of the Issuer or at such other address as is furnished to the Trustee in writing by such registered owner, or in such other manner as may be mutually acceptable to the Trustee and the registered owner of this Note. This Note shall bear interest as follows: (A) Prior to the Conversion Date (hereinafter defined), this Note (so long as this Note shall not be a "Bank Note" as hereinafter defined) shall bear interest at the "Floating Rate." The "Floating Rate" shall be a variable rate of interest equal to "TENR" (hereinafter defined) plus an amount (as adjusted from time to time as hereinafter provided, the "TENR amount") initially equal to one-quarter percent (1/4%), provided that: (i) if the Trustee and the Remarketing Agent under the Remarketing Agreement (hereinafter defined) shall have received a notice requiring the purchase of any Note pursuant to the exercise of the Demand Purchase Option (hereinafter defined) and if the Remarketing Agent shall remarket all or a portion of such Notes pursuant to the Remarketing Agreement dated as of November 1, 1983 between Plainwell Paper Co., Inc., a Michigan corporation (the "Company"), and Bankers Trust Company as Remarketing Agent (which remarketing agreement, as from time to time amended and supplemented, is hereinafter referred to as the "Remarketing Agreement"), the TENR Amount for all Notes shall be the TENR Amount required for the Remarketing Agent to remarket such Notes at par, which adjusted TENR Amount shall become effective as of the day next following the next announcement of TENR. In connection with any such remarketing, the Remarketing Agent shall determine what increments of 1/8th of 1% per annum will, when added to or subtracted from the TENR Amount at the time applicable to the Notes, produce the minimum interest rate per annum necessary to enable the Remarketing Agent to remarket such Notes at par; provided, that the TENR Amount shall not be more than two and one-quarter percent (2-1/4%); (ii) if the TENR Amount is adjusted pursuant to the preceding clause (i), such adjusted TENR Amount shall remain in effect until the next succeeding interest payment date or until a further adjustment to the TENR Amount is made pursuant to such clause (i) or until the interest rate hereunder is otherwise determined as provided for in the Indenture; (iii) beginning on each interest payment date, the TENR Amount applicable to the Notes shall again be one-quarter percent (1/4%) until such time as the TENR Amount may again be adjusted pursuant to the preceding clause (i) or until the interest rate hereunder is otherwise determined as provided for in the Indenture; (iv) if TENR shall not be announced in any week, the Notes shall bear interest at TENR for the immediately preceding week plus the then applicable TENR Amount, and if TENR shall not be announced for a second successive week, the Notes shall bear interest at the lower of (a) TENR which has been most recently announced plus the term applicable TENR Amount and (b) an alternative interest rate ("AIR") equal to 65% of the -A-2- 51 interest rate applicable to direct obligations of the United States with a maturity of thirteen weeks ("91-day Treasury Bills") determined on the basis of the weighted average per annum discount rate at which such 91-day Treasury Bills were sold at the weekly Treasury auction for any week with respect to which such rate applies to the Notes as published by the Board of Governors of the Federal Reserve System, or (if not so published) as reported by the Department of the Treasury. If no auction shall have been conducted (or no rate published or reported) during any such week, AIR for that week shall be the same as the most recent AIR. Any change in AIR shall take effect on the Thursday immediately following the Treasury auction, and the interest rate on the Notes shall continue to be AIR (if AIR then is the lower rate) until the day after a change in TENR is announced; and (v) notwithstanding the foregoing, no adjustment shall be made to the Floating Rate during the period of five Business Days (as defined in the Indenture) prior to an interest payment date. -A-3- EX-23.1 8 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23.1 Consent of Ernst & Young LLP, Independent Auditors We consent to the references to our firm under the captions "Experts," "Summary Historical Financial and Other Data of the Company and Specialty Paper Division" and "Selected Historical Financial and Other Data of the Company and Specialty Paper Division" and to the use of our reports dated March 19, 1998 and our report dated March 29, 1998, in Amendment No. 1 to the Registration Statement (Form S-4 No. 333-51857) and related Prospectus of PLAINWELL INC. for the registration of $130,000,000 11% Senior Subordinated Notes. Milwaukee, Wisconsin ERNST & YOUNG LLP July 21, 1998 EX-23.2 9 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report, dated April 6, 1998, with respect to the financial statements of the Consumer Products Division (an operating division of Pope & Talbot, Inc.) included in this Amendment No. 1 to Form S-4 of PLAINWELL INC. (No. 333-51857), and to all references to our Firm included in or made a part of this registration statement. /s/ ARTHUR ANDERSEN LLP -------------------------------------- Portland, Oregon July 21, 1998 -----END PRIVACY-ENHANCED MESSAGE-----