S-4 1 ds4.htm FORM S-4 Form S-4
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As filed with the Securities and Exchange Commission on May 28, 2010

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

NEWPAGE CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware   2621   05-0616156

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

NewPage Corporation

8540 Gander Creek Drive

Miamisburg, Ohio 45342

(877) 855-7243

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Co-Registrants

See next page

c/o NewPage Corporation

8540 Gander Creek Drive

Miamisburg, Ohio 45342

(877) 855-7243

(Address, including zip code, and telephone number, including area code, of co-registrant’s principal executive offices)

 

 

Douglas K. Cooper, Esq.

General Counsel

8540 Gander Creek Drive

Miamisburg, Ohio 45342

(877) 855-7243

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

Michael R. Littenberg, Esq.

Schulte Roth & Zabel LLP

919 Third Avenue

New York, NY 10022

Ph: (212) 756-2000

Fax: (212) 593-5955

 

 

Approximate Date of Commencement of Proposed Offer 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:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering:  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨

  Accelerated filer  ¨

Non-accelerated filer  x (Do not check if a small reporting company)

  Small reporting company  ¨

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 
Title of Securities to be Registered    Amount
to be
Registered
   Proposed Maximum
Offering Price Per
Unit(1)
  Proposed Maximum
Aggregate Offering
Price(1)
   Amount of
Registration
Fee(2)

11.375% Senior Secured Notes due 2014

   $70,000,000    100%   $70,000,000    $4,991(4)

Guarantees related to the 11.375% Senior Secured Notes due 2014(3)

   n/a    n/a   n/a    n/a
 

 

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 of the Securities Act.
(2) Calculated pursuant to Rule 457(f) under the Securities Act.
(3) Pursuant to Rule 457(n) of the Securities Act, no additional fee is required.
(4) The registrant’s ultimate parent, NewPage Group Inc., previously paid a registration fee of $31,636.50 in connection with a registration statement on Form S-1, File No. 333-150638, initially filed on May 5, 2008. Pursuant to Rule 457(p) of the Securities Act, $4,991 of the previously paid registration fee is offset against the registration fee otherwise due for this registration statement.

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.

 

 

 


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Co-Registrants

 

Exact Name of Co-Registrant as specified in Its Charter

   State or Other
Jurisdiction of
Incorporation or
Organization
   Primary
Standard
Industrial
Classification
Code Number
   I.R.S. Employer
Identification
Number

Chillicothe Paper Inc. (Guarantor)

   Delaware    2621    05-0616154

Escanaba Paper Company (Guarantor)

   Michigan    2621    31-0735598

Luke Paper Company (Guarantor)

   Delaware    2621    11-3666265

NewPage Canadian Sales LLC (Guarantor)

   Delaware    2621    27-0015384

NewPage Consolidated Papers Inc. (Guarantor)

   Delaware    2621    16-1708330

NewPage Energy Services LLC (Guarantor)

   Delaware    4991    30-0261838

NewPage Port Hawkesbury Corp. (Guarantor)

   Nova Scotia, Canada    2621    98-0400070

NewPage Port Hawkesbury Holding LLC (Guarantor)

   Delaware    2621    16-1708330

NewPage Wisconsin System Inc. (Guarantor)

   Wisconsin    2621    39-2003332

Rumford Cogeneration, Inc. (Guarantor)

   Delaware    4991    82-0378864

Rumford Paper Company (Guarantor)

   Delaware    2621    31-1480427

Upland Resources, Inc. (Guarantor)

   West Virginia    4991    22-2092996

Wickliffe Paper Company LLC (Guarantor)

   Delaware    2621    81-0668293


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED MAY 28, 2010

PRELIMINARY PROSPECTUS

NEWPAGE CORPORATION

$70,000,000

OFFER TO EXCHANGE

$70,000,000 in Aggregate Principal Amount of 11.375% Senior Secured Notes due 2014, Series B

for all outstanding

$70,000,000 in Aggregate Principal Amount of 11.375% Senior Secured Notes due 2014, Series A

 

 

The exchange offer will expire at 12:00 midnight, New York City time,

on                     , 2010, which is 20 business days after the commencement of the exchange offer, unless extended.

 

The securities offered by this prospectus are 11.375% senior secured notes due 2014, Series B, or the New Notes, which are being issued in exchange for 11.375% senior secured notes due 2014, Series A, or the Original Notes, sold by us in our private placement that we consummated on February 24, 2010. The Original Notes were issued under the same indenture as our existing 11.375% Senior Secured Notes due 2014, which we issued in September 2009 in the aggregate principal amount of $1,700,000,000 and which we refer to in this prospectus as the “Existing Notes.” The New Notes are substantially identical to the Original Notes and are governed by the same indenture governing the Original Notes and the Existing Notes. Unless indicated otherwise, the New Notes, Original Notes and the Existing Notes are collectively referred to as the “Notes” or the “notes.”

The exchange offer expires at 12:00 midnight, New York City time, on                     , 2010, which is 20 business days after the commencement of the exchange offer, unless extended.

This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Original Notes where the Original Notes were acquired as a result of market-making activities or other trading activities. A broker-dealer that receives New Notes for its own account in exchange for Original Notes, where the Original Notes were acquired by the broker-dealer as a result of market-making or other trading activities, acknowledges that it will deliver a prospectus in connection with any resale of such New Notes. See “Plan of Distribution” on page 183 for additional information concerning the use of this prospectus.

See “Risk Factors,” beginning on page 13, for a discussion of some factors that should be considered by holders in connection with a decision to tender Original 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 Securities and Exchange Commission or any state securities commission passed on the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is                     , 2010.


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TABLE OF CONTENTS

 

INFORMATION ABOUT THE TRANSACTION

   ii

PROSPECTUS SUMMARY

   1

RISK FACTORS

   13

FORWARD-LOOKING STATEMENTS

   29

MARKET SHARE, RANKING AND OTHER DATA

   30

USE OF PROCEEDS

   31

CAPITALIZATION

   32

HISTORICAL SELECTED FINANCIAL INFORMATION AND OTHER DATA

   33

RATIO OF EARNINGS TO FIXED CHARGES

   35

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   36

THE EXCHANGE OFFER

   52

BUSINESS

   61

MANAGEMENT

   73

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   91

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

   92

DESCRIPTION OF CERTAIN INDEBTEDNESS

   95

DESCRIPTION OF NEW NOTES

   101

CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

   178

PLAN OF DISTRIBUTION

   183

LEGAL MATTERS

   184

EXPERTS

   184

AVAILABLE INFORMATION

   184

 

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INFORMATION ABOUT THE TRANSACTION

THIS PROSPECTUS INCORPORATES IMPORTANT INFORMATION ABOUT US THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS. SUCH INFORMATION IS AVAILABLE WITHOUT CHARGE TO THE HOLDERS OF OUR ORIGINAL NOTES BY CONTACTING US AT OUR ADDRESS, WHICH IS 8540 GANDER CREEK DRIVE, MIAMISBURG, OHIO 45342, OR BY CALLING US AT (877) 855-7243. TO OBTAIN TIMELY DELIVERY OF THIS INFORMATION, YOU MUST REQUEST THIS INFORMATION NO LATER THAN FIVE BUSINESS DAYS BEFORE                     , 2010, WHICH IS 20 BUSINESS DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE OFFER, UNLESS EXTENDED. ALSO SEE “AVAILABLE INFORMATION.”

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary is not complete and may not contain all of the information that is important to you. We urge you to read this entire prospectus, including the “Risk Factors” section and the financial statements and related notes included elsewhere in this prospectus.

In this prospectus, unless otherwise noted or the context otherwise requires, (i) the terms “we,” “our,” “ours,” “us,” “NewPage” and “Company” refer collectively to NewPage Corporation and its consolidated subsidiaries; (ii) the term “NewPage Holding” refers to NewPage Holding Corporation, our direct parent; (iii) the term “NewPage Group” refers to NewPage Group Inc., the direct parent of NewPage Holding; (iv) the term “predecessor” refers to the printing and writing papers business of MeadWestvaco Corporation prior to its acquisition by NewPage Corporation and (v) the term “SENA” refers to Stora Enso North America Inc. All references to the “Acquisition” refer to the acquisition of SENA by us on December 21, 2007. Following the Acquisition, SENA changed its name to NewPage Consolidated Papers Inc., or “NPCP.” References to each of SENA and NPCP are to the acquired business.

Our Company

We believe that we are the largest coated paper manufacturer in North America, based on production capacity. Coated paper is used primarily in media and marketing applications, such as high-end advertising brochures, direct mail advertising, coated labels, magazines, magazine covers and inserts, catalogs and textbooks. We currently operate 20 paper machines at ten paper mills located in Kentucky, Maine, Maryland, Michigan, Minnesota, Wisconsin and Nova Scotia, Canada. These mills, along with our distribution centers, are strategically located near major print markets, such as New York, Chicago, Minneapolis and Atlanta.

Acquisition of SENA

On December 21, 2007, NewPage acquired all of the issued and outstanding common stock of SENA from SEO. We acquired SENA in order to create a single business platform and to enable us to remain competitive in the marketplace, serve our customers more efficiently and achieve synergies from the Acquisition. The Acquisition more than doubled our production capacity and broadened our product line. In connection with the Acquisition, SEO acquired approximately 20% of the equity in NewPage Group.

Our Strategy

The key elements of our strategy include the following:

 

   

Maintain core focus on coated paper business.

 

   

Continue to reduce costs through productivity improvements.

 

   

Enhance product mix to improve margins and earnings.

 

   

Further improve cash flow and return on capital.

 

 

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Our Strengths

We believe that our core strengths include the following:

 

   

Largest North American manufacturer of coated paper products.

 

   

Well positioned to benefit from up-turn in the industry cycle.

 

   

Significant, well-invested asset base.

 

   

Attractive cost position coupled with further profit improvement initiatives.

 

   

Strong relationships with key customers.

 

   

Efficient and integrated supply chain.

 

   

Experienced management team with proven track record.

Organizational Chart

The following chart shows our organizational structure as of the date of this prospectus. All entities are 100% directly or indirectly owned unless otherwise indicated and all of the subsidiaries of NewPage Corporation shown below will be guarantors of the New Notes.

LOGO

 

(1) Excludes NewPage Group common stock that may be issued upon exercise of options outstanding or that may be granted under the NewPage Group Inc. 2008 Incentive Plan, or “NewPage Group Equity Incentive Plan.”

 

(2) Issuer of the Original Notes and the New Notes.

 

 

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Our Sponsor

Established in 1992, Cerberus Capital Management, L.P., along with its affiliates, which we collectively refer to as “Cerberus,” is one of the world’s leading private investment firms. Cerberus currently holds controlling or significant minority investments in companies around the world. Cerberus invests in divestitures, turnarounds, recapitalizations, financial restructurings, public-to-privates and management buyouts in a variety of sectors. Cerberus formed NewPage in 2005 to effect the acquisition of the coated paper operations of MeadWestvaco Corporation.

Our Corporate Information

NewPage Corporation is a Delaware corporation. Our principal executive offices are located at 8540 Gander Creek Drive, Miamisburg, Ohio 45342, and our telephone number at those offices is (877) 855-7243.

 

 

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THE EXCHANGE OFFER

 

Expiration Date

12:00 midnight, New York City time, on                     , 2010, which is 20 business days after the commencement of the exchange offer, unless we extend the exchange offer.

 

Exchange and Registration Rights

In an exchange and registration rights agreements dated February 24, 2010, the holders of our $70 million of 11.375% senior secured notes due 2014, series A, or the Original Notes, were granted exchange and registration rights. This exchange offer is intended to satisfy these rights. You have the right to exchange the Original Notes that you hold for our 11.375% senior secured notes due 2014, Series B, or the New Notes, with substantially identical terms. Once the exchange offer is complete, you will no longer be entitled to any exchange rights with respect to your Original Notes.

 

Accrued Interest on the New Notes and Original Notes

The New Notes will bear interest from December 31, 2009. Holders of Original Notes which are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on those Original Notes accrued to the date of issuance of the New Notes.

 

Conditions to the Exchange Offer

The exchange offer is conditioned upon some customary conditions, which we may waive. All conditions to which the exchange offer is subject must be satisfied or waived on or before the expiration of this offer.

 

Procedures for Tendering Original Notes

Each holder of Original Notes wishing to accept the exchange offer must:

 

   

complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; or

 

   

arrange for DTC to transmit required information in accordance with DTC’s procedures for transfer to the exchange agent in connection with a book-entry transfer.

You must mail or otherwise deliver this documentation together with the Original Notes to the exchange agent. Original Notes tendered in the exchange offer must be in denominations of principal amount of $2,000 and integral multiples of $1,000 in excess of $2,000.

 

Special Procedures for Beneficial Holders

If you beneficially own Original Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your Original Notes in the exchange offer, you should contact the registered holder promptly and instruct them to tender on your behalf. If you wish to tender on your own behalf, you must, before completing and executing the letter of transmittal for the exchange offer and delivering your Original Notes, either arrange to

 

 

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have your Original Notes registered in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time.

 

Guaranteed Delivery Procedures

You must comply with the applicable procedures for tendering if you wish to tender your Original Notes and:

 

   

time will not permit your required documents to reach the exchange agent by the expiration date of the exchange offer; or

 

   

you cannot complete the procedure for book-entry transfer on time; or

 

   

your Original Notes are not immediately available.

 

Withdrawal Rights

You may withdraw your tender of Original Notes at any time on or prior to 12:00 midnight, New York City time, on the expiration date, unless previously accepted for exchange.

 

Failure to Exchange Will Affect You Adversely

If you are eligible to participate in the exchange offer and you do not tender your Original Notes, you will not have further exchange rights and you will continue to be restricted from transferring your Original Notes. Accordingly, the liquidity of the Original Notes will be adversely affected.

 

Federal Tax Considerations

We believe that the exchange of the Original Notes for the New Notes pursuant to the exchange offer will not be a taxable event for United States federal income tax purposes. A holder’s holding period for New Notes will include the holding period for Original Notes, and the adjusted tax basis of the New Notes will be the same as the adjusted tax basis of the Original Notes exchanged. See “Certain Material U.S. Federal Income Tax Considerations.”

 

Exchange Agent

The Bank of New York Mellon, trustee under the indenture under which the New Notes will be issued, is serving as exchange agent.

 

Use of Proceeds

We will not receive any proceeds from the exchange offer.

 

 

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SUMMARY TERMS OF NEW NOTES

The summary below describes the principal terms of the New Notes. Some of the terms and conditions described below are subject to important limitations and exceptions. See “Description of New Notes” for a more detailed description of the terms and conditions of the New Notes.

 

Issuer

NewPage Corporation.

 

Securities

The form and terms of the New Notes will be the same as the form and terms of the Original Notes except that:

 

   

the New Notes will bear a different CUSIP number from the Original Notes;

 

   

the New Notes will have been registered under the Securities Act of 1933, or the Securities Act, and, therefore, will not bear legends restricting their transfer; and

 

   

you will not be entitled to any exchange or registration rights with respect to the New Notes.

The New Notes will evidence the same debt as the Original Notes. They will be entitled to the benefits of the indenture governing the Original Notes and will be treated under the indenture as a single class with the Original Notes.

 

Interest Rate

The New Notes will bear interest at a rate of 11.375% per annum. Interest will be computed on the basis of a 360-day year composed of twelve 30-day months.

 

Maturity Date

The earlier of (i) December 31, 2014 or (ii) the date that is 31 days prior to the maturity date of (a) any Second Lien Notes then outstanding; (b) any Subordinated Notes then outstanding or (c) any refinancing of any indebtedness included in items (a) or (b) of this clause (ii) then outstanding. See “Description of New Notes—Principal, Maturity and Interest.”

 

Interest Payment Dates

December 31 and June 30 of each year, commencing on June 30, 2010. Interest payments will be paid to the holders of record on the December 15 and June 15 immediately preceding the applicable interest payment date.

 

Original Issue Discount

The Original Notes were issued as part of a “qualified reopening” of the Existing Notes and thus will have the same issue date and issue price as the Existing Notes. The Existing Notes were issued with original issue discount (that is, the difference between the stated principal amount at maturity and the issue price of the Existing Notes) for federal income tax purposes and, therefore, the Original Notes were also issued with original issue discount. The New Notes should be treated as a continuation of the Original Notes for federal income tax purposes. Thus, original issue discount will accrue on Original Notes and New Notes from the issue date of the Existing Notes and be included as interest income periodically in a holder’s gross income for federal income tax purposes in advance of receipt of the cash payments to which the income is attributable. See “Certain Material U.S. Federal Income Tax Considerations.”

 

 

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Guarantees

The New Notes will be unconditionally guaranteed by all of our domestic restricted subsidiaries and NewPage Port Hawkesbury Corp. (“NewPage Port Hawkesbury”), a Canadian entity.

 

Ranking and Security

The New Notes and the related guarantees will be senior secured obligations:

 

   

secured on a first-priority basis by substantially all of our assets and those of our guarantors (other than cash, deposit accounts, accounts receivables, inventory, the capital stock of our subsidiaries and intercompany debt); see “Description of New Notes—Security;”

 

   

secured on a second-priority basis by our and our guarantors’ cash, deposit accounts, accounts receivables and inventory; see “Description of New Notes—Security;”

 

   

secured equally and ratably with, all existing and future first-priority obligations (other than with respect to any capital stock of our subsidiaries and intercompany debt that may secure other first-priority obligations);

 

   

effectively subordinated to any permitted liens other than liens securing second-priority obligations, to the extent of the value of our assets and those of our guarantors subject to those permitted liens;

 

   

effectively senior to all existing and future second-priority obligations, including our Second Lien Notes and any unsecured obligations, to the extent of the value of substantially all of our assets and those of our guarantors (other than cash, deposit accounts, accounts receivables, inventory, the capital stock of our subsidiaries and intercompany debt, if any);

 

   

junior to our revolving credit facility (the “Revolver”) to the extent of the value of our cash, deposit accounts, accounts receivables, inventory and intercompany debt, which secure the Revolver on a first lien basis; and

 

   

senior in right of payment to any of our future subordinated indebtedness or that of our guarantors, including guarantees of the 12% Senior Subordinated Notes.

As of March 31, 2010:

 

   

we had no borrowings outstanding under our Revolver; this excludes up to a maximum of $410 million of additional borrowings (after deducting for $90 million in outstanding letters of credit and not taking into account any borrowing base limitations) that would be available under the Revolver; the Revolver is secured by our cash, deposit accounts, accounts receivables and inventory;

 

   

we had $1,770 million of senior secured indebtedness outstanding under the Existing Notes and Original Notes;

 

 

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we had $1,031 million of senior secured indebtedness outstanding under the Second Lien Notes; the Second Lien Notes are secured by a second lien on substantially all of our and our domestic restricted subsidiaries’ present and future property and assets (other than cash, deposit accounts, accounts receivables, inventory, the capital stock of our subsidiaries and intercompany debt, if any);

 

   

we had $200 million of senior subordinated indebtedness, consisting solely of the 12% Senior Subordinated Notes; and

 

   

we had $149 million of capital lease obligations outstanding.

 

Optional Redemption

At any time on or after March 31, 2012, we may redeem some or all of the New Notes at the applicable redemption prices described under “Description of New Notes—Optional Redemption,” plus accrued and unpaid interest and special interest, if any, to the redemption date.

In addition, at any time prior to March 31, 2012, we may, on one or more occasions, redeem some or all of the New Notes at any time at a redemption price equal to 100% of the principal amount of the Notes redeemed, plus a “make-whole” premium as of, and accrued and unpaid interest and special interest, if any, to, the applicable redemption date.

 

Optional Redemption after Equity Offerings

At any time, on one or more occasions before March 31, 2012, we can choose to redeem up to 35% of the outstanding aggregate principal amount of the New Notes with the net cash proceeds of any one or more qualified public equity offerings by the Company or a contribution to the Company’s equity from NewPage Holding or NewPage Group from one or more qualified public equity offerings, at 111.375% of the principal amount of the New Notes plus accrued and unpaid interest and special interest, if any, to the redemption date. See “Description of New Notes—Optional Redemption.”

 

Additional Optional Redemption

At any time prior to March 31, 2012, but not more than once in any twelve-month period, we may redeem up to 10% of the original aggregate principal amount of the New Notes at a redemption price of 103%, plus accrued and unpaid interest and special interest, if any, to the redemption date, subject to certain rights of holders of the New Notes. See “Description of New Notes—Optional Redemption.”

 

Mandatory Offer to Repurchase

If we sell certain assets without applying the proceeds in a specified manner, or experience certain change of control events, each holder of New Notes may require us to repurchase all or a portion of its New Notes at the purchase prices set forth in this prospectus, plus accrued and unpaid interest and special interest, if any, to the repurchase date. See “Description of New Notes—Repurchase of New Notes at the Option of Holders.” Our Revolver may restrict us from repurchasing any of the New Notes, including any repurchase we may be required to make as a result of a change of control or certain asset sales. See

 

 

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“Risk Factors—Risks Related to the New Notes and our Indebtedness—We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture governing the New Notes.”

 

Covenants

The indenture governing the New Notes will contain covenants that will impose significant restrictions on our business. The restrictions that these covenants place on us and our restricted subsidiaries include limitations on our ability and the ability of our restricted subsidiaries to, among other things:

 

   

incur additional indebtedness or issue disqualified stock or preferred stock;

 

   

create liens;

 

   

pay dividends or make other sorts of restricted payments;

 

   

make investments;

 

   

sell assets;

 

   

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

 

   

enter into transactions with our affiliates; and

 

   

designate our subsidiaries as unrestricted subsidiaries.

These covenants are subject to a number of important exceptions and qualifications, which are described under “Description of New Notes.”

 

Exchange Offer; Registration Rights

You have the right to exchange the Original Notes for New Notes with substantially identical terms. This exchange offer is intended to satisfy that right. The New Notes will not provide you with any further exchange or registration rights.

 

Resales Without Further Registration

We believe that the New Notes issued in the exchange offer in exchange for Original Notes may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act, if:

 

   

you are acquiring the New Notes issued in the exchange offer in the ordinary course of your business;

 

   

you have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in the distribution of the New Notes issued to you in the exchange offer; and

 

   

you are not our “affiliate,” as defined under Rule 405 of the Securities Act.

Each of the participating broker-dealers that receives New Notes for its own account in exchange for Original Notes that were acquired by it as a result of market-making or other activities must acknowledge that it will deliver a prospectus in connection with the resale of the New Notes. We do not intend to list the New Notes on any securities exchange.

 

 

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Summary Historical Consolidated Financial Data

The following tables, as indicated below, set forth historical consolidated financial data for NewPage and its subsidiaries for the years ended December 31, 2007, 2008 and 2009, and the three months ended March 31, 2009 and 2010. We have derived the historical consolidated financial data for the years ended December 31, 2007, 2008 and 2009 from the audited consolidated financial statements of NewPage and its subsidiaries included elsewhere in this prospectus. We have derived the historical consolidated financial data for the three months ended March 31, 2009 and 2010 from the unaudited financial statements of NewPage and its subsidiaries included elsewhere in this prospectus.

The following summary historical consolidated financial data should be read in conjunction with “Historical Selected Financial Information and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements, and the accompanying notes thereto, included elsewhere in this prospectus.

 

    Year Ended
December 31,
2007
    Year Ended
December 31,
2008
    Year Ended
December 31,
2009
    Three Months
Ended
March 31,
2009
    Three Months
Ended
March 31,
2010
 
    (dollars in millions, except volume and price per ton)  

Statement of Operations Data:

         

Net sales

  $ 2,168      $ 4,356      $ 3,106      $ 722      $ 817   

Cost of sales

    1,895        3,979        3,171        720        849   

Selling, general and administrative expenses

    124        217        180        46        49   

Interest expense(1)

    154        277        418        67        97   

Other (income) expense net

    (2     (3     (306     —          (3
                                       

Income (loss) before income taxes

    (3     (114     (357     (111     (175

Income tax (benefit)

    4        —          (54     (3     —     
                                       

Net income (loss)

    (7     (114     (303     (108     (175

Net income (loss)—noncontrolling interests

    1        3        5        1        —     
                                       

Net income (loss) attributable to the company

  $ (8   $ (117   $ (308   $ (109   $ (175
                                       

Other Financial Data:

         

Adjusted EBITDA(2)

  $ 309      $ 581      $ 432      $ 55      $ 15   

Capital expenditures

    102        165        75        15        11   

Selected Operating Data:

         

Weighted average core paper price per ton(3)

  $ 901      $ 964      $ 910      $ 965      $ 858   

Core paper volume sold
(in thousands of short tons)

    2,143        4,105        2,949        668        792   

 

     As of March 31, 2010  
     (dollars in millions)  

Balance Sheet Data:

  

Working capital(4)

   $ 368   

Property, plant and equipment, net

     2,896   

Total assets

     3,894   

Long-term debt

     3,050   

Total debt

     3,050   

Total equity (deficit)

     (154

 

 

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(1) The year ended December 31, 2009 includes a loss on extinguishment of debt of $85 million and a reclassification adjustment of $48 million of unrealized losses on our interest rate swaps from accumulated other comprehensive income (loss) as the hedged forecasted cash flows were no longer probable of occurring as a result of the refinancing in 2009.

 

(2) EBITDA is defined as net income (loss) attributable to the company before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA for the relevant period, as adjusted primarily by (a) adding the following amounts, to the extent deducted in computing consolidated net income for such period: (i) taxes based on income or profits of NewPage Holding and its subsidiaries; (ii) Consolidated Interest Expense (as defined in the Revolver); (iii) goodwill impairment charges; (iv) non-cash compensation charges related to equity-based compensation; (v) transaction costs associated with the Revolver and our previously repaid senior secured term loan facility, the Acquisition, future permitted acquisitions and the first amendment to the Revolver; (vi) non-cash expenses in addition to depreciation and amortization; (vii) non-recurring charges in connection with any integration or restructuring related to the Acquisition or future permitted acquisitions or in connection with plant closings or the permanent shutdown or transfer of production equipment; (viii) extraordinary losses plus any net losses from certain asset sales; (ix) pre-closing non-inventoried overhead costs incurred in connection with a certain plant lock-out; (x) pre-closing costs, charges or expenses of SENA that are not recurring after the Acquisition; and (xi) transaction costs incurred in connection with an initial public offering and (b) deducting non-cash items increasing consolidated net income for such period. The Revolver has been amended to provide that the transaction costs associated with the 2010 Revolver Amendment, the offering and issuance of the Notes and in connection with any offering or issuance of additional second lien indebtedness are added to consolidated net income (to the extent such costs were deducted in computing such consolidated net income) to determine Adjusted EBITDA. See “Description of Certain Indebtedness—Revolving Credit Facility.” EBITDA and Adjusted EBITDA are not measures of our performance under GAAP, are not intended to represent net income (loss) attributable to the company, and should not be used as an alternative to net income (loss) attributable to the company as an indicator of performance. Adjusted EBITDA is shown because it is a basis upon which our management assesses performance and are primary components of certain covenants under our revolving credit facility. In addition, our management believes Adjusted EBITDA is useful to investors because it and similar measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies with substantial financial leverage.

The use of EBITDA and Adjusted EBITDA instead of net income (loss) attributable to the company has limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

   

EBITDA and Adjusted EBITDA do not reflect our current cash expenditure requirements, or future requirements, for capital expenditures or contractual commitments

 

   

EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs

 

   

EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements

 

   

our measures of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business.

 

 

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The following table presents a reconciliation of our net income (loss) attributable to the company to our EBITDA and Adjusted EBITDA:

 

     Year Ended
December 31,
2007
    Year Ended
December 31,
2008
    Year Ended
December 31
2009
    Three Months
Ended
March 31,
2009
    Three Months
Ended
March 31,
2010
 
     (dollars in millions)  

Net income (loss) attributable to the company

   $ (8   $ (117   $ (308   $ (109   $ (175

Income tax provision (benefit)

     4        —          (54     (3     —     

Interest expense

     154        277        418        67        97   

Depreciation and amortization

     134        317        277        70        68   
                                        

EBITDA

   $ 284      $ 477      $ 333      $ 25      $ (10

Equity awards

     14        18        10        3        8   

(Gain) loss on disposal and impairment of assets

     3        11        13        4        6   

Non-cash U.S. pension expense (income)

     2        (3     50        12        9   

Integration and severance costs

     6        78        23        11        2   

Other

     —          —          3        —          —     
                                        

Adjusted EBITDA

   $ 309      $ 581      $ 432      $ 55      $ 15   
                                        

 

(3) “Core paper” consists principally of coated freesheet, coated groundwood and supercalendered paper products sold in North America.

 

(4) “Working capital” is defined as current assets net of current liabilities.

 

 

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RISK FACTORS

You should carefully consider the risk factors set forth below as well as the other information contained in this prospectus before deciding whether to tender the Original Notes in exchange for the New Notes. The risks described below are what we believe to be the risks which could materially and adversely affect our business, financial condition or results of operations. If that occurs, the value of the New Notes may decline and you may lose all or part of your investment.

Risks Related to the New Notes and our Indebtedness

Our substantial level of indebtedness could adversely affect our business, financial condition or results of operations and prevent us from fulfilling our obligations under the New Notes.

We have substantial indebtedness. As of March 31, 2010, we had $3,150 million of total indebtedness and we have up to $410 million available for borrowing under our Revolver (after deducting for $90 million in outstanding letters of credit and not taking into account any borrowing base limitations). All of the borrowings under our Revolver would effectively rank senior to the New Notes and the guarantees to the extent of the value of our cash, deposit accounts, accounts receivable, inventory, intercompany debt, if any and certain other assets, which secure our Revolver on a first lien basis (the “ABL Collateral”). In addition, subject to restrictions in our existing debt instruments, we may incur additional indebtedness. If additional debt is added to our and our subsidiaries’ current debt levels, the related risks that we now face could intensify. For the year ended December 31, 2009 and the quarter ended March 31, 2010, earnings were insufficient to meet fixed charges by $363 million and $175 million, respectively.

Our substantial indebtedness could have important consequences to you, including the following:

 

   

it may be more difficult for us to satisfy our obligations with respect to the New Notes;

 

   

our ability to obtain additional financing for working capital, debt service requirements, general corporate or other purposes may be impaired;

 

   

we must use a substantial portion of our cash flow to pay interest and principal on the New Notes and our other indebtedness, which will reduce the funds available to us for other purposes;

 

   

we are more vulnerable to economic downturns and adverse industry conditions;

 

   

our ability to capitalize on business opportunities and to react to competitive pressures and changes in our industry as compared to our competitors may be compromised due to our high level of indebtedness; and

 

   

our ability to refinance our indebtedness, including the New Notes, may be limited.

In addition, prior to the repayment of the New Notes, we will be required to repay or refinance our Revolver. We cannot assure you that we or NewPage Holding will be able to refinance any of our debt on commercially reasonable terms or at all. If we were unable to make payments on or refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as:

 

   

sales of assets;

 

   

sales of equity;

 

   

negotiations with our lenders to restructure the applicable debt;

 

   

cash equity contributions from our controlling equity owner or others; and/or

 

   

commencement of voluntary bankruptcy proceedings.

Our and NewPage Holding’s debt instruments may restrict, or market or business conditions may limit, our ability to use some of our options.

 

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A portion of our debt bears interest at variable rates. If market interest rates increase, it could adversely affect our cash flow, compliance with our debt covenants or the amount of our cash interest payments.

As of March 31, 2010, we had $225 million of indebtedness consisting of Floating Rate Notes that bear interest at variable rates, representing 7% of our total indebtedness and $234 million of availability under the Revolver. If market interest rates increase, variable-rate debt will create higher debt service requirements, which could adversely affect our cash flow and compliance with our debt covenants. As of March 31, 2010, weighted-average interest rates were 6.5% on the Floating Rate Notes. Each one-eighth percentage-point change in LIBOR would result in a $0.3 million change in annual interest expense on the Floating Rate Notes and, assuming the entire Revolver were drawn, a $0.6 million change in interest expense on the Revolver, in each case, without taking into account any interest rate derivative agreements. While we may from time-to-time enter into agreements limiting our exposure to higher market interest rates, these agreements may not offer complete protection from this risk.

Servicing our indebtedness will require a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations.

Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, political, financial, competitive, legislative, regulatory and other factors that are beyond our control.

During 2009, we expended $305 million to service our indebtedness as compared to $267 million during 2008. For the quarter ended March 31, 2010, our interest expense was $97 million, compared to $67 million for the quarter ended March 31, 2009. We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under the Revolver, in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. If our cash flows and capital resources are insufficient to allow us to make scheduled payments on our indebtedness, we may need to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, or that we will be able to refinance on commercially reasonable terms or that these measures would satisfy our scheduled debt service obligations. If we are unable to generate sufficient cash flow or refinance our debt on favorable terms it could have a material adverse effect on our financial condition, the value of the outstanding debt and our ability to make any required cash payments under our indebtedness.

Our debt instruments impose significant operating and financial restrictions on us. If we default under any of these debt instruments, we may not be able to make payments on the New Notes.

The indentures and other agreements governing our debt instruments impose significant operating and financial restrictions on us. These restrictions limit our ability to, among other things:

 

   

incur additional indebtedness or guarantee obligations;

 

   

repay indebtedness (including the New Notes) prior to stated maturities;

 

   

pay dividends or make certain other restricted payments;

 

   

make investments or acquisitions;

 

   

create liens or other encumbrances;

 

   

transfer or sell certain assets or merge or consolidate with another entity;

 

   

engage in transactions with affiliates; and

 

   

engage in certain business activities.

 

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In addition to the covenants listed above, our Revolver requires the maintenance of at least $50 million of Revolver borrowing availability through the date of the delivery of the compliance certificate with respect to the fiscal quarter ending March 31, 2011 and limits our ability to make capital expenditures. Subsequent to March 31, 2011, we would have to comply with various other specified financial ratios and tests, including minimum interest and fixed charge coverage ratios and total and senior leverage ratios to the extent that NewPage’s unused borrowing availability under the revolving credit facility is below $50 million for 10 consecutive business days or $25 million for three consecutive business days.

Our ability to comply with these covenants may be affected by events beyond our control, and an adverse development affecting our business could require us to seek waivers or amendments of covenants, alternative or additional sources of financing or reductions in expenditures. We cannot assure you that such waivers, amendments or alternative or additional financings could be obtained on acceptable terms or at all. In addition, the holders of the New Notes will have no control over any waivers or amendments with respect to any debt outstanding other than the New Notes. Therefore, we cannot assure you that even if the holders of the New Notes agree to waive or amend the covenants contained in the indenture relating to the New Notes, the holders of our other debt will agree to do the same with respect to their debt instruments.

A breach of any of the covenants or restrictions contained in any of our existing or future financing agreements, including our inability to comply with the required financial covenants in our Revolver, could result in an event of default under those agreements. Such a default could allow the lenders under our financing agreements, if the agreements so provide, to discontinue lending, to accelerate the related debt as well as any other debt to which a cross acceleration or cross default provision applies, and to declare all borrowings outstanding thereunder to be due and payable. In addition, the lenders could terminate any commitments they had made to supply us with further funds. If the lenders require immediate repayments, we will not be able to repay them and also repay the New Notes in full.

We cannot assure you that the Company will be in compliance with these covenants in the periods required or that the Company will be able to refinance the Revolver in the event it cannot comply with the applicable covenants.

Lenders under our revolving credit facility may not fund their commitments.

Under the credit agreement governing our revolving credit facility, if a lender’s commitment is not honored, that portion of the lender’s commitment under the revolving credit facility will be unavailable to the extent that the lender’s commitment is not replaced by a new commitment from an alternate lender.

Lenders under our revolving credit facility are well-diversified, totaling eleven lenders at December 31, 2009. We currently anticipate that these lenders will participate in future requests for funding. However, there can be no assurance that further deterioration in the credit markets and overall economy will not affect the ability of our lenders to meet their funding commitments. Additionally, our lenders have the ability to transfer their commitments to other institutions, and the risk that committed funds may not be available under distressed market conditions could be exacerbated to the extent that consolidation of the commitments under our facilities or among its lenders were to occur.

The New Notes are not secured by all of our assets, the collateral securing the New Notes may be diluted under certain circumstances and the liens on the collateral may be subject to limitations.

Our obligation to make payments on the New Notes will be secured only by the Shared Collateral and the ABL Collateral on the basis and as described in this prospectus under the headings “Description of New Notes— Collateral Trust Agreement—Shared Collateral” and “Description of New Notes—Collateral Trust Agreement— ABL Collateral.” In particular, stock of our subsidiaries and intercompany debt, if any, will not constitute collateral for the New Notes. In addition, ABL Collateral (other than intercompany debt, if any) will constitute collateral for the New Notes on a second-priority basis.

 

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The indenture governing the Notes and our Revolver and our other security documents will permit the incurrence of additional secured indebtedness, including additional debt that shares equally and ratably in the lien in favor of the collateral trustee that secures the New Notes. Any additional debt could consist of additional loans under the Revolver, notes issued under a new indenture or additional notes issued under the indenture governing the New Notes and would be guaranteed by the same guarantors and could have security interests, with the same priority, in all of the assets that secure the New Notes. As a result, the collateral securing the New Notes would be shared by any such additional debt we may issue under the indenture, and an issuance of such additional debt would dilute the value of the collateral compared to the aggregate principal amount of notes issued. We also may acquire additional assets that do not constitute collateral for the New Notes. In addition, certain permitted liens on the collateral securing the New Notes may allow the holder of such lien to exercise rights and remedies with respect to the collateral subject to such lien that could adversely affect the value of such collateral and the ability of the collateral trustee or the holders of the New Notes to realize or foreclose upon such collateral. See “Description of New Notes—Certain Covenants—Liens.”

The lien priority provisions in the Intercreditor Agreement (as defined below) will limit the ability of holders of New Notes to exercise rights and remedies with respect to the ABL Collateral.

The rights of the holders of New Notes with respect to the ABL Collateral will be junior to the rights of the holders of obligations under our Revolver and will be substantially limited by the terms of the lien priority provisions in the Intercreditor Agreement, dated as of May 2, 2005, by and among NewPage, NewPage Holding, certain subsidiaries of NewPage, JPMorgan Chase Bank N.A., as revolving loan collateral agent and The Bank of New York Mellon, as collateral trustee (the “Intercreditor Agreement”). Under the terms of the Intercreditor Agreement, at any time that any obligations under our Revolver are outstanding, almost any action in respect of the ABL Collateral, including the exercise of rights or remedies or objection to actions taken with respect thereto, may only be taken by the collateral agent under our Revolver or the holders of the obligations under our Revolver. The collateral trustee, on behalf of the holders of obligations with junior liens on the ABL Collateral (including the holders of New Notes), will not have the ability to institute or contest such actions, even if the rights of such holders are or would be adversely affected; provided that the collateral trustee may take certain actions to create, perfect, preserve or protect (but not enforce) its junior lien in the ABL Collateral and may also take certain actions that would be available to a holder of an unsecured claim.

In addition, the Intercreditor Agreement contains certain provisions benefiting holders of obligations under our Revolver that prevent the collateral trustee from objecting to a number of important matters regarding the ABL Collateral following the filing of a bankruptcy. After such filing, the value of the ABL Collateral could materially deteriorate and the holders of New Notes would be unable to raise an objection. See “Description of New Notes—Intercreditor Agreement.”

Governmental approvals are required for proposed mortgage modifications for certain properties.

In connection with proposed mortgages and/or mortgage modification agreements with respect to real property in Nova Scotia, Canada, which we have licensed from the provincial government, we will need to successfully obtain the necessary provincial governmental approvals in order to permit the registration, creation and/or continuation of the security interests contemplated by the mortgages and/or mortgage modifications in such Nova Scotia real property. We cannot assure that all such necessary governmental approvals will in fact be obtained.

Proceeds from any sale of the collateral securing the Notes upon foreclosure or liquidation may not be sufficient to repay the Notes in full.

We have not conducted appraisals of any of our assets to determine if the value of the collateral securing the Notes equals or exceeds the amount of the Notes and the value of the collateral upon foreclosure or liquidation will depend on market and economic conditions, the availability of buyers and other factors upon foreclosure or liquidation. Accordingly, we cannot assure you that the proceeds from the sale of the collateral would be sufficient to repay holders of the New Notes all amounts owed under the New Notes.

 

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In the event of a foreclosure or liquidation of the collateral securing the New Notes, the value realized on the collateral will depend on market conditions, the availability of buyers and other factors. The collateral is by its nature illiquid, and we can therefore not assure you that the collateral can be sold in a short period of time or at all. A significant portion of the collateral, including the real property portion thereof, includes assets that may only be usable as part of the existing operating business. Accordingly, any such sale of the collateral, including the real property portion thereof, separate from the sale of NewPage as a whole, may not be feasible or of any value. We therefore cannot assure you that the proceeds from the sale of the collateral (after payment of expenses of the sale and repayment of other liens on the collateral which might under applicable law or by contract rank prior to or equally and ratably with the lien on the collateral in favor of the collateral trustee under the indenture) would be sufficient to repay holders of the New Notes all amounts owed under the New Notes.

To the extent that the proceeds of the collateral were not sufficient to repay amounts owed under the New Notes, then holders of the New Notes would have a general unsecured claim against our remaining assets, which claim would be effectively subordinated to debt secured by other assets of ours to the extent of the value of the collateral securing such other secured debt.

As of March 31, 2010, the aggregate amount of our indebtedness was $3,150 million, $1,770 million of which was pursuant to the Notes, $1,031 million of which was pursuant to our Second Lien Notes, $200 million of which was pursuant to the 12% Senior Subordinated Notes and $149 million of which was pursuant to our capital lease obligations.

The ability of the collateral trustee to foreclose on the collateral may be limited.

U.S. and Canadian bankruptcy and insolvency laws could prevent the collateral trustee from enforcing its security interest in the collateral upon the occurrence of an event of default if bankruptcy or insolvency proceedings are commenced by or against us before the collateral trustee has foreclosed, disposed of or appointed a receiver or otherwise enforced its security over the collateral. Under bankruptcy and insolvency laws, secured creditors such as the holders of the New Notes are prohibited from taking steps to enforce their security interest in the assets of a debtor in bankruptcy or insolvency proceeding without court approval. Moreover, in certain bankruptcy and insolvency proceedings debtors are permitted to continue to retain and to use the collateral (and the proceeds, products, rents or profits of such collateral). In U.S. proceedings, the secured creditor must be given “adequate protection.” The meaning of the term “adequate protection” may vary according to circumstances, but it is intended in general to protect the value of the secured creditor’s interest in the collateral. The court may find “adequate protection” if the debtor pays cash or grants additional security for any diminution in the value of the collateral as a result of the stay or repossession or disposition or any use of the collateral during the pendency of the bankruptcy case. In Canadian proceedings, the secured creditor would have to convince the court that the prejudice to the secured creditor by allowing the debtor to continue to retain and use the collateral outweighs the benefit to the debtor and all of its stakeholders by allowing the debtor to do so.

In addition, the collateral trustee may need to evaluate the impact of the potential liabilities before determining whether to enforce its security interest in the collateral because lenders and noteholders that hold a security interest in real property may be held liable under environmental laws and regulations for the costs of remediating or preventing any release or threatened release of hazardous substances at the secured property. Similarly, lenders who enforce their security interest by appointment of a receiver in Canada may be liable under employment and labor laws for employment-related costs and expenses. In this regard, the collateral trustee may decline to enforce its security interest in the collateral or exercise remedies available if it does not receive indemnification to its satisfaction from the holders of the New Notes. Finally, the collateral trustee’s ability to foreclose on the collateral on your behalf may be subject to lack of perfection, the consent of third parties, other liens and practical problems associated with the enforcement of the collateral trustee’s security interest in the collateral.

 

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The value of the collateral securing the New Notes may not be sufficient to secure post-petition interest.

In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding against us, holders of the New Notes will only be entitled to post-petition interest under the bankruptcy code to the extent that the value of their security interest in the collateral is greater than their pre-bankruptcy claim. Holders of the New Notes that have a security interest in collateral with a value equal or less than their pre-bankruptcy claim will not be entitled to post-petition interest under the bankruptcy code. We have not conducted appraisals of any of our assets in connection with this offering and cannot assure you that the value of the noteholders’ interest in their collateral equals or exceeds the principal amount of the New Notes.

The waivers in the Intercreditor Agreement and the Collateral Trust Agreement (as defined below) of rights of marshalling may adversely affect the recovery rates of holders of the New Notes in a bankruptcy or foreclosure scenario.

The New Notes and the related guarantees are secured on a second-priority basis by the ABL Collateral that secures our Revolver, and are not secured by the stock of our subsidiaries or intercompany debt, if any. The Intercreditor Agreement and the Collateral Trust Agreement dated as of May 2, 2005 among NewPage, the Pledgors from time to time party thereto, Goldman Sachs Credit Partners L.P., HSBC Bank USA, National Association, and The Bank of New York Mellon (the “Collateral Trust Agreement”) provide that, the holders of the New Notes, the trustee under the indenture governing the New Notes and the collateral trustee may not assert or enforce any right of marshalling accorded to a junior lienholder, as against the holders of priority liens. Without this waiver of the right of marshalling, holders of prior liens on the collateral securing the New Notes, such as the collateral agent under our Revolver, could be required to liquidate collateral on which the New Notes did not have a lien prior to liquidating collateral on which the New Notes have a second lien, thereby maximizing the proceeds of the collateral that would be available to repay our obligations under the New Notes. As a result of this waiver, the proceeds of sales of the collateral securing the New Notes could be applied to repay priority lien obligations before applying proceeds of other collateral securing such priority lien obligations, and the holders of the New Notes may recover less than they would have if such proceeds were applied in the order most favorable to the holders of the New Notes.

Future priority lien indebtedness may be secured by certain assets that do not secure the New Notes.

The New Notes and the guarantees will be secured by security interests in all of our and our domestic restricted subsidiaries’ and NewPage Port Hawkesbury’s assets, except for debt and equity securities, including intercompany debt, issued by us and our domestic restricted subsidiaries and NewPage Port Hawkesbury (also referred to as the “Separate Collateral”). See “Description of New Notes—Collateral Trust Agreement—Separate Collateral” for additional information. The New Notes will, however, be guaranteed by the issuers of the excluded securities and will be secured, equally and ratably with all other priority lien obligations, by all collateral owned by each such issuer of excluded securities except the Separate Collateral. However, future indebtedness that is secured equally and ratably with the New Notes could also be secured by liens on the Separate Collateral. The value of the Separate Collateral could be significant, and the New Notes will effectively rank junior to indebtedness secured by liens on, and to the extent of, the Separate Collateral. While the Collateral Trust Agreement provides for an adjustment in the ratable sharing of the proceeds from any shared collateral to compensate for the prior or simultaneous delivery of the proceeds of Separate Collateral to other holders of priority lien obligations, such adjustment will not provide any adjustment for subsequent delivery of the proceeds from the Separate Collateral to such other holders and, in certain instances, holders of the New Notes may receive less, comparatively, than such other holders.

Any future pledge of collateral might be avoidable by a trustee in bankruptcy.

Any future pledge of collateral in favor of the collateral trustee, including pursuant to security documents delivered after the date of the indenture governing the New Notes, might be avoidable by the pledgor (as debtor in possession) or by its trustee in bankruptcy if certain events or circumstances exist or occur, including, among

 

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others, if the pledgor is insolvent at the time of the pledge, the pledge permits the holders of the New Notes to receive a greater recovery than if the pledge had not been given and a bankruptcy proceeding in respect of the pledgor is commenced within 90 days following the pledge, or, in certain circumstances, a longer period.

Despite our current indebtedness level, we may still be able to incur substantially more debt, which could increase the risks associated with our substantial leverage.

As of March 31, 2010, we had $3,150 million of total indebtedness. The terms of the indenture governing the New Notes do not restrict NewPage Holding’s ability to incur additional indebtedness and permit us and NewPage Holding to incur substantial additional indebtedness in the future, including secured indebtedness. See “Description of New Notes.” Any additional debt incurred by us which is secured equally and ratably with the Revolver would be secured on a first-priority basis by the ABL Collateral, which is senior to the lien securing the New Notes. Any additional priority lien debt incurred by us would be secured equally and ratably with the New Notes. If we incur any additional indebtedness that ranks equal to the New Notes, the holders of that debt will be entitled to share equally and ratably with you and the other holders of the Notes in any proceeds of sales of the collateral securing the New Notes distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of us. If new debt is added to our, NewPage Holding’s or our subsidiaries’ current debt levels, the related risks that we now face could intensify. See “Description of Certain Indebtedness.”

Your right to receive payment on the New Notes will be effectively subordinated to the liabilities of our non-guarantor subsidiaries, including our existing unrestricted subsidiaries.

Our unrestricted subsidiaries and foreign subsidiaries will not be required to be guarantors of the New Notes, although NewPage Port Hawkesbury will be a guarantor of the New Notes. Creditors of our non-guarantor subsidiaries will generally be entitled to payment from the assets of those subsidiaries before those assets can be distributed to us. As a result, the New Notes will effectively be subordinated to the prior payment of all of the debts of our non-guarantor subsidiaries. In the event of a bankruptcy, liquidation or reorganization of any of our non-guarantor subsidiaries, holders of their indebtedness will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us. We have designated Consolidated Water Power Company (“CWPCo”) as an unrestricted subsidiary. As of March 31, 2010, the aggregate total assets of this subsidiary were $47 million, or 1% of our total assets. For the quarter ended March 31, 2010, $2 million, or less than 0.5%, of our net sales was attributable to this subsidiary.

The collateral is subject to casualty risks.

The indenture governing the New Notes, the Revolver, the indentures governing the existing secured notes and the related security documents each require, us and the guarantors to maintain adequate insurance or otherwise insure against risks to the extent customary with companies in the same or similar business operating in the same or similar locations. There are, however, certain losses, including losses resulting from terrorist acts, that may be either uninsurable or not economically insurable, in whole or in part. As a result, we cannot assure you that the insurance proceeds will compensate us fully for our losses. If there is a total or partial loss of any of the collateral securing the New Notes, we cannot assure you that any insurance proceeds received by us will be sufficient to satisfy all the secured obligations, including the New Notes.

In the event of a total or partial loss to any of the mortgaged facilities, certain items of equipment and inventory may not be easily replaced. Accordingly, even though there may be insurance coverage, the extended period needed to manufacture replacement units or inventory could cause significant delays.

We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture governing the New Notes.

Upon the occurrence of a “change of control,” as defined in the indenture governing the New Notes, we must offer to buy back the New Notes at a price equal to 101% of the principal amount, together with any accrued and unpaid interest, if any, to the date of the repurchase. Our failure to purchase, or give notice of

 

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purchase of, the New Notes would be a default under the indenture governing the New Notes, which would also be a default under our Revolver and our other existing series of notes. See “Description of New Notes—Repurchase of Notes at the Option of Holders—Change of Control.”

If a change of control occurs, it is possible that we may not have sufficient assets at the time of the change of control to make the required repurchase of New Notes or to satisfy all obligations under our other debt instruments. In order to satisfy our obligations, we could seek to refinance our indebtedness or obtain a waiver from the other lenders or you as a holder of the New Notes. We cannot assure you that we would be able to obtain a waiver or refinance our indebtedness on terms acceptable to us, if at all.

Our controlling equity holder may take actions that conflict with your interests.

A substantial portion of the voting power of the equity of our indirect parent is held by affiliates of Cerberus. Accordingly, Cerberus indirectly controls the power to elect our directors and officers, to appoint new management and to approve all actions requiring the approval of the holders of our equity (subject to certain specified consent rights of SEO under the securityholders agreement between NewPage Group and SEO), including adopting amendments to our constituent documents and approving mergers, acquisitions or sales of all or substantially all of our assets. The directors have the authority, subject to the terms of our debt, to issue additional indebtedness or equity, implement equity repurchase programs, declare dividends and make other such decisions about our equity.

In addition, the interests of our controlling equity holder could conflict with your interests if, for example, we encounter financial difficulties or are unable to pay our debts as they mature. Our controlling equity holder also may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in its judgment, could enhance its equity investment, even though these transactions might involve risks to you, as holders of the New Notes.

Federal and state laws permit courts to void guarantees under certain circumstances.

The New Notes will be guaranteed by all of our material U.S. and Canadian restricted subsidiaries. The guarantees may be subject to review under U.S. federal bankruptcy law and comparable provisions of state fraudulent conveyance laws and Canadian federal insolvency and corporate laws and provisions of provincial preference, fraudulent conveyance and corporate laws, if a bankruptcy or insolvency proceeding or a lawsuit is commenced by or on behalf of us or one of our guarantors or by our unpaid creditors or the unpaid creditors of one of our guarantors. Under these laws, a court could void the obligations under the guarantee, subordinate the guarantee of the New Notes to that guarantor’s other debt or take other action detrimental to holders of the New Notes and the guarantees of the New Notes, if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee:

 

   

issued the guarantee to delay, hinder or defraud present or future creditors;

 

   

received less than reasonably equivalent value or fair consideration for issuing the guarantee at the time it issued the guarantee;

 

   

was insolvent or rendered insolvent by reason of issuing the guarantee;

 

   

was engaged, or about to engage, in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business;

 

   

intended to incur, or believed that it would incur, debts beyond its ability to pay as they mature; or

 

   

with respect to Canadian companies in issuing the guarantee, acted in a manner that was oppressive, unfairly prejudicial to or unfairly disregarded the interests of any shareholder, creditor, director, officer or other interested party.

 

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In those cases where our solvency or the solvency of one of our guarantors is a relevant factor, the measures of insolvency will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a party would be considered insolvent if:

 

   

the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;

 

   

the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing indebtedness, including contingent liabilities, as they become absolute and mature; or

 

   

it could not pay its indebtedness as it becomes due.

We cannot be sure as to the standard that a court would use to determine whether or not a party was solvent at the relevant time, or, regardless of the standard that the court uses, that the issuance of the guarantees would not be voided or the guarantees would not be subordinated to the guarantors’ other debt. If such a case were to occur, the guarantee could also be subject to the claim that, since the guarantee was incurred for our benefit and only indirectly for the benefit of the guarantor, the obligations of the applicable guarantor were incurred for less than fair consideration.

An active public market may not develop for the New Notes, which may hinder your ability to liquidate your investment.

There is no active trading market for the Notes, and we do not intend to apply for the New Notes to be listed on any securities exchange or to arrange for any quotation on any automated dealer quotation systems. No person is obligated to make a market in the New Notes and, if it does so, it may cease its market-making in the New Notes at any time. In addition, the liquidity of the trading market in the New Notes, and the market price quoted for the New Notes, may be adversely affected by changes in the overall market for fixed income securities, and by changes in our financial performance or prospects, or in the prospects for companies in our industry in general. As a result, an active trading market for the New Notes may not develop. If no active trading market develops, you may not be able to resell your New Notes at their fair market value, or at all.

The market price for the New Notes may be volatile.

Historically, the market for non-investment grade debt has been subject to disruptions that have caused volatility in prices of securities similar to the New Notes. The market for the New Notes, if any, may be subject to similar disruptions. Any disruptions may have a negative effect on noteholders, regardless of our prospects and financial performance.

The Original Notes were issued with original issue discount for U.S. federal income tax purposes.

The Original Notes were issued with original issue discount, or OID, for federal income tax purposes. The New Notes should be treated as a continuation of the Original Notes for federal income tax purposes. Consequently, holders of the Original Notes and the New Notes will be required to include amounts in respect of OID in gross income for federal income tax purposes in advance of the receipt of the cash payments to which the income is attributable. See “Certain U.S. Federal Income and Estate Tax Considerations” for a more detailed discussion of the federal income tax consequences to the holders of Notes regarding the purchase, ownership or disposition thereof.

 

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Risks Relating to our Business

Demand for printing paper has declined due to recent macroeconomic events. Further declines in demand could have a material adverse effect on our business, financial condition and results of operations.

Deteriorating general economic conditions have had an adverse effect on the demand for our products since the second half of 2008. North American printing paper demand is primarily driven by advertising and print media usage. In particular, the demand for certain grades of coated paper is affected by spending on catalog and promotional materials by retailers and spending on magazine advertising, which affects the number of printed pages in magazines. Since the second half of 2008, advertising and print media usage has declined. As a result of lower demand in the current economic environment, sales prices began to decline during the fourth quarter of 2008 and throughout much of 2009, until stabilizing during the fourth quarter of 2009. Further declines in the general economic environment could have a material adverse effect on our business, financial condition and results of operations.

We have limited ability to pass through increases in our costs. Increases in our costs or decreases in our paper prices could adversely affect our business, financial condition and results of operations.

Our earnings are sensitive to changes in the prices of our paper products. Fluctuations in paper prices, and coated paper prices in particular, historically have had a direct effect on our net income (loss) and EBITDA for several reasons:

 

   

Market prices for paper products are a function of supply and demand, factors over which we have limited influence. We therefore have limited ability to control the pricing of our products. Market prices of grade No. 3 coated paper, 60 lb. weight, which is an industry benchmark for coated freesheet paper pricing, have fluctuated since 2000 from a high of $1,100 per ton to a low of $705 per ton. Market prices of grade No. 4 coated paper, 50 lb. weight, which is an industry benchmark for coated groundwood paper pricing, and grade SC-A, 35 lb. weight, which is an industry benchmark for supercalendered paper pricing, have generally followed similar trends. Because market conditions determine the price for our paper products, the price for our products could fall below our production costs.

 

   

Market prices for paper products typically are not directly affected by raw material costs or other costs of sales, and consequently we have limited ability to pass through increases in our costs to our customers absent increases in the market price. Thus, even though our costs may increase, our customers may not accept price increases for our products, or the prices for our products may decline.

 

   

Paper manufacturing is highly capital-intensive and a large portion of our and our competitors’ operating costs are fixed. Additionally, paper machines are large, complex systems that operate more efficiently when operated continuously. Consequently, we typically continue to run our machines whenever marginal sales exceed the marginal costs.

Our ability to achieve acceptable margins is, therefore, principally dependent on managing our cost structure and managing changes in raw materials prices, which represent a large component of our operating costs and fluctuate based upon factors beyond our control. If the prices of our products decline, or if our raw material costs increase, or both, it could have a material adverse effect on our business, financial condition and results of operations. For a further discussion of the variability of our paper prices and our costs and expenses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Selected Factors That Affect Our Operating Results.”

During 2009, the U.S. Internal Revenue Code allowed a refundable excise tax credit for alternative fuel mixtures produced for sale or for use as a fuel in a trade or business, for which we recognized income of $304 million in 2009. Weighted-average coated paper prices decreased to $911 per ton in 2009 compared to $983 per ton in 2008. We believe that generally the industry passed on most of the benefits of the alternative fuel mixture

 

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credit to customers in the form of lower prices. This credit expired at the end of 2009 and, at this time, we view any extension of this credit, or the introduction of any similar program in the foreseeable future, as unlikely. If, as a result of expiration of this credit, the prices of our products do not increase, it could have a material adverse effect on our business, financial condition and results of operations.

Most of the raw material, labor and other cost of sales at our Port Hawkesbury, Nova Scotia, mill are denominated in Canadian dollars. North American sales prices for the products produced at Port Hawkesbury are determined primarily by the U.S. dollar price per ton charged by U.S. producers. If the U.S. dollar were to weaken significantly against the Canadian dollar, it would impair the ability of the Port Hawkesbury mill to compete profitably.

The markets in which we operate are highly competitive and imports could materially adversely affect our business, financial condition and results of operations.

Our business is highly competitive. Competition is based largely on price. We compete with numerous North American paper manufacturers. We also face competition from foreign producers, some of which we believe are lower cost producers than us. Foreign overcapacity could result in an increase in the supply of paper products available in the North American market. Certain Asian producers, in particular, have significantly increased imports to the U.S. in recent years, and we believe that producers in China and Indonesia have been selling in our markets at less than fair value and have been subsidized by their governments.

Our non-U.S. competitors may develop a competitive advantage over us and other U.S. producers if the U.S. dollar strengthens in comparison to the home currency of those competitors, if the home currency of those competitors (particularly in China) is maintained by their governments at a low value compared to the U.S. dollar, if those competitors receive governmental subsidies or incentives or if ocean shipping rates decrease. If the U.S. dollar strengthens, if foreign currencies are maintained at low values, if shipping rates decrease, if foreign producers receive governmental subsidies or incentives or if overseas supply exceeds demand, imports may increase, which, in turn, would cause the supply of paper products available in the North American market to increase. An increased supply of paper could cause us to lower our prices or lose sales to competitors, either of which could have a material adverse effect on our business, financial condition and results of operations.

In addition, the following factors will affect our ability to compete:

 

   

product availability

 

   

the quality of our products

 

   

our breadth of product offerings

 

   

our ability to maintain plant efficiencies and high operating rates and thus lower our average manufacturing costs per ton

 

   

our ability to provide customer service that meets customer requirements and our ability to distribute our products on time

 

   

costs to comply with environmental laws and regulations

 

   

our ability to produce products that meet customer requirements for the use of sustainable forestry principles, recycled content and environmentally friendly energy sources

 

   

the availability or cost of chemicals, wood, energy and other raw materials and labor

Furthermore, some of our competitors have greater financial and other resources than we do or may be better positioned than we are to compete for certain opportunities.

 

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If we are unable to obtain raw materials, including petroleum-based chemicals, at favorable prices, or at all, it could adversely affect our business, financial condition and results of operations.

We have no significant timber holdings and purchase wood, chemicals and other raw materials from third parties. We may experience shortages of raw materials or be forced to seek alternative sources of supply. If we are forced to seek alternative sources of supply, we may not be able to do so on terms as favorable as our current terms or at all. The prices for many chemicals, especially petroleum-based chemicals, have had significant fluctuations over the past several years and chemical prices are expected to continue to be volatile. In addition, chemical suppliers that use petroleum-based products in the manufacture of their chemicals may, due to a supply shortage, ration the amount of chemicals available to us or we may not be able to obtain the chemicals we need at favorable prices, if at all. Chemical suppliers also may be adversely affected by, among other things, hurricanes and other natural disasters. Certain specialty chemicals that we purchase are available only from a small number of suppliers. We may experience additional cost pressures if merger and acquisition activity occurs among our major chemical suppliers. If any of our major chemical suppliers were to cease operations or cease doing business with us, we may be unable to obtain these chemicals at favorable prices, if at all.

In addition, wood prices are dictated largely by demand. The primary source for wood fiber is timber. Environmental litigation and regulatory developments have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest in Canada and the United States. In addition, future domestic or foreign legislation, litigation advanced by aboriginal groups, litigation concerning the use of timberlands, the protection of threatened or endangered species, the promotion of forest biodiversity and the response to and prevention of catastrophic wildfires and campaigns or other measures by environmental activists could also affect timber supplies. Availability of harvested timber may further be limited by factors such as fire and fire prevention, insect infestation, disease, ice and wind storms, drought, floods and other natural and man-made causes, thereby reducing supply and increasing prices. We buy wood chips from lumber producers as a byproduct of their lumber production. Declines in their business conditions could affect the availability and price of wood chips.

Any disruption in the supply of chemicals, wood or other inputs could affect our ability to meet customer demand in a timely manner and could harm our reputation. As we have limited ability to pass through increases in our costs to our customers absent increases in market prices for our products, material increases in the cost of our raw materials could have a material adverse effect on our business, financial condition and results of operations.

We are involved in continuous manufacturing processes with a high degree of fixed costs. Any interruption in the operations of our manufacturing facilities may affect our operating performance.

We seek to run our paper machines and pulp mills on a nearly continuous basis for maximum efficiency. Any unplanned plant downtime at any of our paper mills results in unabsorbed fixed costs that negatively affect our results of operations. Due to the extreme operating conditions inherent in some of our manufacturing processes, we may incur unplanned business interruptions from time to time and, as a result, we may not generate sufficient cash flow to satisfy our operational needs. In addition, many of the geographic areas where our production is located and where we conduct our business may be affected by natural disasters, including snow storms, tornadoes, forest fires and flooding. These natural disasters could disrupt the operation of our mills, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, during periods of weak demand for paper products or periods of rising costs, we may need to schedule market-related downtime, which could have a material adverse effect on our financial condition and results of operations. We took 515,000 tons of market-related downtime during 2009 and 39,000 tons of market-related downtime in the first quarter of 2010, in response to lower customer demand and in an effort to manage our inventory levels of finished goods to match customer requirements.

 

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Our operations require substantial ongoing capital expenditures, and we may not have adequate capital resources to fund all of our required capital expenditures.

Our business is capital intensive, and we incur capital expenditures on an ongoing basis to maintain our equipment and comply with environmental laws and regulations, as well as to enhance the efficiency of our operations. We expect to spend approximately $75 million in 2010 on capital expenditures. Our revolving credit facility limits our ability to make capital expenditures. We anticipate that cash generated from operations will be sufficient to fund our operating needs and capital expenditures for the foreseeable future and that the revolving credit facility limitation will not impair our ability to make necessary investments in capital expenditures. However, if we require additional funds to fund our capital expenditures, we may not be able to obtain them on favorable terms, or at all. If we cannot maintain or upgrade our facilities and equipment as we require or to ensure environmental compliance, it could have a material adverse effect on our business, financial condition and results of operations.

Rising energy or chemical prices or supply shortages could adversely affect our business, financial condition and results of operations.

Although a significant portion of our energy requirements is satisfied by steam produced as a byproduct of our manufacturing process, we purchase natural gas, coal and electricity to run our mills. Overall, we expect crude oil and energy costs to remain volatile for the foreseeable future. In addition, energy suppliers and chemical suppliers that use petroleum-based products in the manufacture of their chemicals may, due to supply shortages, ration the amount of energy or chemicals available to us and we may not be able to obtain the energy or chemicals we need to operate our business at acceptable prices or at all. Any significant energy or chemical shortage or significant increase in our energy or chemical costs in circumstances where we cannot raise the price of our products due to market conditions could have a material adverse effect on our business, financial condition and results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Selected Factors That Affect Our Operating Results—Cost of Sales.” Furthermore, we are required to post letters of credit or other financial assurance obligations with certain of our energy and other suppliers, which could limit our financial flexibility. Additionally, we have experienced some fuel surcharges (primarily diesel fuel) by suppliers, distributors and freight carriers. If suppliers, distributors or freight carriers impose or increase fuel surcharges, and we are not able to pass these costs through to our customers, they could have a material adverse effect on our business, financial condition and results of operations.

In addition, an outbreak or escalation of hostilities between the United States and any foreign power and, in particular, events in the Middle East, or weather events such as hurricanes, could result in a real or perceived shortage of oil or natural gas, which could result in an increase in energy or chemical prices.

We depend on a small number of customers for a significant portion of our business.

Our largest customer, xpedx, a division of International Paper Company, accounted for 19% of 2009 net sales. Our ten largest customers (including xpedx) accounted for approximately 50% of 2009 net sales. The loss of, or significant reduction in orders from, any of these customers or other customers could have a material adverse effect on our business, financial condition and results of operations, as could significant customer disputes regarding shipments, price, quality or other matters.

Furthermore, we extend trade credit to certain of our customers to facilitate the purchase of our products and rely on their creditworthiness and ability to obtain credit from lenders. Accordingly, a bankruptcy or a significant deterioration in the financial condition of any of our significant customers could have a material adverse effect on our business, financial condition and results of operations, due to a reduction in purchases, a longer collection cycle or an inability to collect accounts receivable.

 

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Litigation could be costly and harmful to our business.

We are involved in various claims and legal actions including claims and legal actions related to environmental laws and regulations. See “Legal Proceedings” for further information concerning pending legal proceedings. Although the ultimate outcome of these matters cannot be predicted with certainty, we do not believe that the currently expected outcome of any matter, lawsuit or claim that is pending or threatened, or all of them combined, will have a material adverse effect on our financial condition, results of operations or liquidity.

Rising postal costs could weaken demand for our paper products.

A significant portion of paper is used in periodicals, catalogs, fliers and other promotional materials. Many of these materials are distributed through the mail. Future increases in the cost of postage could reduce the frequency of mailings, reduce the number of pages in advertising materials or cause advertisers to use alternate methods to distribute their advertising materials. Any of the foregoing could decrease the demand for our products, which could materially adversely affect our business, financial condition and results of operations.

Developments in alternative media could adversely affect the demand for our products.

Trends in advertising, electronic data transmission and storage and the internet could have adverse effects on traditional print media, including our products and those of our customers, but neither the timing nor the extent of those trends can be predicted with certainty. Our magazine and catalog publishing customers may increasingly use, and compete with businesses that use, other forms of media and advertising and electronic data transmission and storage, particularly the internet, instead of paper made by us. As the use of these alternatives grows, demand for our paper products could decline. In addition, electronic formats for textbooks could cause demand to decline for paper textbooks.

The failure of our information technology and other business support systems could have a material adverse effect on our business, financial condition and results of operations.

Our ability to effectively monitor and control our operations depends to a large extent on the proper functioning of our information technology and other business support systems. If our information technology and other business support systems were to fail it could have a material adverse effect on our business, financial condition and results of operations.

A large percentage of our employees are unionized. Wage increases or work stoppages by our unionized employees may have a material adverse effect on our business, financial condition and results of operations.

As of March 31, 2010, we had approximately 7,500 employees. Approximately 70% of our employees were represented by labor unions. We have 17 collective bargaining agreements expiring at various times through December 1, 2012. Approximately 925 employees at the Escanaba, Michigan mill are covered under three contracts that expired in June and July of 2008 and are currently under renegotiation. In addition, three contracts covering an aggregate of approximately 550 employees at our Port Hawkesbury, Nova Scotia mill expired on May 31, 2009. The unions at this mill engage in pattern bargaining, which means that they negotiate a new contract with one industry participant before negotiating with others. The unions currently are negotiating with another paper company and have not yet begun negotiations with us. Our Port Hawkesbury, Nova Scotia, mill was closed from December 2005 until October 2006, before our ownership of the mill, due to a labor dispute.

We may become subject to material cost increases or additional work rules imposed by agreements with labor unions. This could increase expenses in absolute terms and as a percentage of net sales. In addition, work stoppages or other labor disturbances may occur in the future. Any of these factors could negatively affect our business, financial condition and results of operations.

 

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We depend on third parties for certain transportation services.

We rely primarily on third parties for transportation of our products to our customers and transportation of our raw materials to us, in particular, by train and truck. If any of our third-party transportation providers fail to deliver our products in a timely manner, we may be unable to sell them at full value. Similarly, if any of our transportation providers fail to deliver raw materials to us in a timely manner, we may be unable to manufacture our products on a timely basis. Shipments of products and raw materials may be delayed due to weather conditions, labor strikes or other events. Any failure of a third-party transportation provider to deliver raw materials or products in a timely manner could harm our reputation, negatively affect our customer relationships and have a material adverse effect on our business, financial condition and results of operations. In addition, our ability to deliver our products on a timely basis could be adversely affected by the lack of adequate availability of transportation services, especially rail capacity, whether because of work stoppages or otherwise. Additionally, we have experienced some fuel surcharges (primarily diesel fuel) by suppliers, distributors and freight carriers. If suppliers, distributors or freight carriers impose or increase fuel surcharges, and we are not able to pass these costs through to our customers, they could have a material adverse effect on our business, financial condition and results of operations.

We are subject to various regulations that could impose substantial costs upon us and may adversely affect our operating performance.

Our operations are subject to a wide range of federal, state, provincial and local general and industry specific environmental, health and safety laws and regulations, including those relating to air emissions, wastewater discharges, solid and hazardous waste management and disposal and site remediation. Compliance with these laws and regulations is a significant factor in our business and we may be subject to increased scrutiny and enforcement actions by regulators as a result of changes in federal or state administrations. We have made, and will continue to make, significant expenditures to comply with these requirements. Significant expenditures also could be required for compliance with any future laws or regulations relating to greenhouse gas or other emissions. In addition, we handle and dispose of wastes arising from our mill operations and operate a number of landfills to handle that waste. While we believe, based upon current information, that we are currently in substantial compliance with all applicable environmental laws and regulations, we could be subject to potentially significant fines, penalties or criminal sanctions for failure to comply, including with respect to the matters discussed in “Litigation could be costly and harmful to our business.” Moreover, under certain environmental laws, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of at real property, may be held liable for the cost to investigate or clean up that real property and for related damages to natural resources. We may be subject to liability, including liability for investigation and cleanup costs, if contamination is discovered at one of our paper mills or other locations where we have disposed of, or arranged for the disposal of, wastes. MeadWestvaco and SEO have separately agreed to indemnify us, subject to certain limitations, for certain environmental liabilities. There can be no assurance that MeadWestvaco or SEO will perform under any of their respective environmental indemnity obligations or that the indemnity will adequately cover us in the event of any environmental liabilities, which could have a material adverse effect on our financial condition and results of operations. Furthermore, we agreed to indemnify the purchaser of our carbonless paper business for certain environmental liabilities, subject to certain limitations. We also could be subject to claims brought pursuant to applicable laws, rules or regulations for property damage or personal injury resulting from the environmental impact of our operations, including due to human exposure to hazardous substances. Increasingly stringent environmental requirements, more aggressive enforcement actions or policies, the discovery of unknown conditions or the bringing of future claims may cause our expenditures for environmental matters to increase, and we may incur material costs associated with these matters.

Some of our operations are subject to Canadian government regulation and we are subject to foreign currency risk.

Our business includes a mill in Port Hawkesbury, Nova Scotia, and management of woodlands in Canada. Our operations in Canada are subject to Canadian laws and regulations, as well as foreign currency risk. The

 

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value of the Canadian dollar versus the U.S. dollar has fluctuated dramatically over the last two years. A significantly weaker U.S. dollar makes imports to the United States of paper products made in our Port Hawkesbury, Nova Scotia, mill unprofitable. We cannot assure you we will be able to manage our Canadian operations profitably.

We have a history of net losses and we may not generate net income in the future.

We incurred a net loss in each of the five years ended December 31, 2009 and for the three months ended March 31, 2010. As of March 31, 2010, our accumulated deficit was $697 million. In addition, SENA incurred a net loss in each of the years ended December 31, 2005 and 2006 and the nine months ended September 30, 2007. If we are unable to generate net income in satisfactory amounts or at all, this may adversely affect our business.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. Forward-looking statements may include the words “may,” “plans,” “estimates,” “anticipates,” “believes,” “expects,” “intends” and similar expressions. Although we believe that these statements are based on reasonable assumptions, they are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected or assumed in our forward-looking statements. These factors, risks and uncertainties include, among others, the following:

 

   

our substantial level of indebtedness;

 

   

changes in the supply of, demand for, or prices of our products;

 

   

general economic and business conditions in the United States and Canada and elsewhere;

 

   

the ability of our customers to continue as a going concern, including our ability to collect accounts receivable according to customary business terms;

 

   

the activities of competitors, including those that may be engaged in unfair trade practices;

 

   

changes in significant operating expenses, including raw material and energy costs;

 

   

changes in currency exchange rates;

 

   

changes in the availability of capital;

 

   

changes in the regulatory environment, including requirements for enhanced environmental compliance; and

 

   

the other factors described herein under “Risk Factors.”

Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, either to reflect new developments, or for any other reason, except as required by law.

 

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MARKET SHARE, RANKING AND OTHER DATA

Information in this prospectus concerning the paper and forest products industry and our relative position in the industry is based on independent industry analyses, management estimates and competitor announcements. Although we believe the third party market data is from reliable sources, we cannot guarantee the accuracy or completeness of the information and have not independently verified it. Industry prices for coated paper provided in this prospectus are, unless otherwise expressly noted, derived from Resource Information Systems, Inc., or “RISI,” data. “North American” data included in this prospectus that has been derived from RISI only includes data from the United States and Canada. U.S. industry pricing data represents pricing from the eastern United States only (as defined by RISI). The RISI data included in this prospectus has been derived from the following RISI publications: RISI, Cornerstone 2009-4Q database; RISI North American Graphic Paper forecast – 5-Year, March 2010; RISI Paper Trader: A Monthly Monitor of the North American Graphic Paper Market, March 2010; RISI North American Graphic Paper Capacity Report, March 2010; and RISI North American Graphic Paper Capacity Report, July 2000.

Any reference in industry statistics to grade No. 3, grade No. 4 or grade No. 5 coated paper or SC-A paper relates to 60 lb. weight, 50 lb. weight, 40 lb. weight and 35 lb. weight, respectively.

 

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USE OF PROCEEDS

We will not receive any proceeds from the exchange offer.

This exchange offer is intended to satisfy our obligations under the registration rights agreement entered into in connection with the offering of the Original Notes. In consideration for issuing the New Notes, we will receive Original Notes with like original principal amounts. The form and terms of the Original Notes are the same as the form and terms of the New Notes, except as otherwise described in this prospectus. The Original Notes surrendered in exchange for the New Notes will not result in any increase or decrease in our outstanding debt.

We used the net proceeds from the Original Notes, to repay a portion of the amount outstanding under our Revolver, to pay fees and expenses related to the Original Notes offering and for general corporate purposes.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2010.

You should read this table together with our unaudited financial statements and the related notes thereto included in this prospectus. For additional information regarding our outstanding indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”, “Description of Certain Indebtedness” and “Description of New Notes” contained in this prospectus.

 

     As of March 31, 2010  
     (dollars in millions)  

Cash and cash equivalents

   $ 13   
        

Long-term debt

  

Revolver(1)

   $ —     

11.375% Senior Secured Notes(2)

     1,672   

Floating Rate Notes

     225   

10% Notes(3)

     805   

12% Senior Subordinated Notes(4)

     199   

Capital lease

     149   
        

Total long-term debt

     3,050   

Equity (deficit)

     (154
        

Total capitalization

   $ 2,896   
        

 

(1) Excludes $90 million of outstanding letters of credit. As of March 31, 2010, there was $234 million available for borrowing, subject to borrowing base limitations, under the Revolver.

 

(2) Reflects the book amount of the $1,770 million in outstanding aggregate principal amount of Notes.

 

(3) Reflects the book amount of the $806 million in outstanding aggregate principal amount of 10% Notes.

 

(4) Reflects the book amount of the $200 million in outstanding aggregate principal amount of 12% Senior Subordinated Notes.

 

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HISTORICAL SELECTED FINANCIAL INFORMATION AND OTHER DATA

The following table sets forth selected historical combined financial data for NewPage’s predecessor for the four months ended April 30, 2005 and for NewPage for the eight months ended December 31, 2005, the years ended December 31, 2006, 2007, 2008 and 2009 and the three months ended March 31, 2009 and 2010. We have derived the historical combined financial data for the four months ended April 30, 2005 from the audited combined financial statements of the printing and writing paper business of MeadWestvaco, not included herein. We have derived the historical consolidated financial data as of and for the eight months ended December 31, 2005 and as of December 31, 2006 and 2007 and for the year ended December 31, 2006 from the audited consolidated financial statements of NewPage and its subsidiaries, not included herein. We have derived the historical consolidated financial data as of December 31, 2008 and 2009 and for the years ended December 31, 2007, 2008 and 2009 from the audited financial statements of NewPage and its subsidiaries included elsewhere in this prospectus. We have derived the historical consolidated financial data for the three months ended March 31, 2009 and 2010 from the unaudited financial statements of NewPage and its subsidiaries included elsewhere in this prospectus.

The following historical selected financial information and other data should be read in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the accompanying notes thereto contained elsewhere in this prospectus.

 

    Predecessor          Successor  
    Four Months
Ended
April 30,
2005
         Eight Months
Ended
December 31,
2005
    Year Ended
December 31,
2006
    Year Ended
December 31,
2007
    Year Ended
December 31,
2008
    Year Ended
December 31,
2009
    Three Months
Ended
March 31,
2009
    Three Months
Ended
March 31,
2010
 
    (dollars in millions)  

Net sales

  $ 582          $ 1,281      $ 2,038      $ 2,168      $ 4,356      $ 3,106      $ 722      $ 817   

Cost of sales

    538            1,152        1,825        1,895        3,979        3,171        720        849   

Selling general and administrative expenses

    31            69        112        124        217        180        46        49   

Interest expense(1)

    21            111        146        154        277        418        67        97   

Other (income) expense, net

    (2         18        (25     (2     (3     (306     —          (3
                                                                   

Income (loss) from continuing operations before income taxes

    (6         (69     (20     (3     (114     (357     (111     (175

Income tax (benefit)

    (3         (7     (4     4        —          (54     (3     —     
                                                                   

Income (loss) from continuing operations

    (3         (62     (16     (7     (114     (303     (108     (175

Income (loss) from discontinued operations

    (5         5        (16     —          —          —          —          —     
                                                                   

Net income (loss)

    (8         (57     (32     (7     (114     (303     (108     (175

Net income (loss)—noncontrolling interests

    —              —          —          1        3        5        1        —     
                                                                   

Net income (loss) attributable to the company

  $ (8       $ (57   $ (32   $ (8   $ (117   $ (308   $ (109   $ (175
                                                                   

 

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    Predecessor          Successor  
    Four Months
Ended
April 30,
2005
         Eight Months
Ended
December 31,
2005
    Year Ended
December 31,
2006
    Year Ended
December 31,
2007
    Year Ended
December 31,
2008
    Year Ended
December 31,
2009
    Three Months
Ended
March 31,
2009
    Three Months
Ended
March 31,
2010
 

Cash Flow Data:

                   

Net cash provided by (used for) operating activities

  $ 2          $ 169      $ 180      $ 278      $ 60      $ 44      $ (70   $ (4

Net cash provided by (used for) investing activities

    (17         (2,114     140        (1,588     (167     (47     7        —     

Net cash provided by (used for) financing activities

    15            1,946        (287     1,409        (31     1        61        11   

Other Financial Data:

                   

Capital expenditures

  $ 14          $ 62      $ 88      $ 102      $ 165      $ 75      $ 15      $ 11   

Balance Sheet Data(2):

                   

Working capital(3)

        $ 369      $ 278      $ 477      $ 391      $ 458      $ 438      $ 368   

Property, plant and equipment, net

          1,408        1,309        3,564        3,205        2,965        3,116        2,896   

Total assets

          2,302        1,981        4,883        4,245        4,005        4,180        3,894   

Long-term debt, less current portion

          1,555        1,289        2,909        2,900        3,030        2,963        3,050   

Total debt

          1,563        1,294        2,925        2,916        3,030        2,979        3,050   

Total equity (deficit)

          347        369        686        183        14        80        (154

 

    Combined
Successor
and Predecessor
       Successor
    Year Ended
December 31,
2005
       Year Ended
December 31,
2006
  Year Ended
December 31,
2007
  Year Ended
December 31,
2008
  Year Ended
December 31,
2009
  Three Months
Ended

March  31,
2009
  Three Months
Ended

March  31,
2010

Selected Operating Data:

                 

Weighted average core paper price(4)

  $ 891       $ 909   $ 901   $ 964   $ 910   $ 965   $ 858

Core paper volume sold (in thousands of short tons)

    1,868         2,003     2,143     4,105     2,949     668     792

 

(1) The year ended December 31, 2009 includes loss on extinguishment of debt of $85 million and a reclassification adjustment of $48 million of unrealized losses on our interest rate swaps from accumulated other comprehensive income (loss) as the hedged forecasted cash flows were no longer probable of occurring as a result of the refinancing in 2009.

 

(2) Balance sheet data is as of the end of the applicable period.

 

(3) “Working capital” is defined as current assets net of current liabilities.

 

(4) “Core paper” consists principally of coated freesheet, coated groundwood and supercalendered paper products sold in North America.

 

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RATIO OF EARNINGS TO FIXED CHARGES

The ratios of earnings to fixed charges presented below should be read together with our consolidated financial statements and related notes, “Prospectus Summary—Summary Historical Consolidated Financial Data”, “Historical Selected Financial Information and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In calculating the ratio of earnings to fixed charges, earnings consist of income (loss) before income taxes, equity income from investee plus fixed charges and distributed income of equity investee less interest capitalized and income of noncontrolling interests. Fixed charges consist of interest on indebtedness plus the amortization of deferred debt issuance costs and that portion of lease expense representative of the interest element.

 

    Combined
Successor
and Predecessor
         Successor  
    Year Ended
December 31,
2005
         Year Ended
December 31,
2006
    Year Ended
December 31,
2007
    Year Ended
December 31,
2008
    Year Ended
December 31,
2009
    Three Months
Ended
March  31,
2009
    Three Months
Ended
March  31,
2010
 

Selected Operating Data:

                 

Ratio of earnings to fixed charges (deficiency)

  $ (69       $ (23   $ (4   $ (118   $ (363   $ (112   $ (175

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with the sections entitled “Historical Selected Financial Information and Other Data” and the historical financial statements, including the related notes, appearing elsewhere in this prospectus. Statements in the discussion and analysis regarding our expectations regarding the performance of our business and any forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

Company Background

We believe that we are the largest coated paper manufacturer in North America based on production capacity. Coated paper is used primarily in media and marketing applications, such as high-end advertising brochures, direct mail advertising, coated labels, magazines, magazine covers and inserts, catalogs and textbooks. We operate 20 paper machines at ten paper mills located in Kentucky, Maine, Maryland, Michigan, Minnesota, Wisconsin and Nova Scotia, Canada.

Trends in our Business

North American printing paper demand is primarily driven by advertising and print media usage. In particular, the demand for certain grades of coated paper is affected by spending on catalog and promotional materials by retailers and spending on magazine advertising, which affects the number of printed pages in magazines. During the first quarter of 2010, North American printing paper demand increased compared to the first quarter of 2009, as a result of a partial rebound from decreased advertising spending and magazine and catalog circulation during the first quarter of 2009 largely attributable to general economic factors and inventory reductions by customers. As a result of the higher demand, our market-related downtime in the first quarter of 2010 declined to 39,000 tons compared to 149,000 tons of market-related downtime in the first quarter of 2009. We will consider the need for additional market-related downtime from time to time based on market conditions.

The available supply of coated paper in North America was lower during the first quarter of 2010 compared to the first quarter of 2009, primarily as a result of North American capacity closures. We believe imports continue to affect the North American market, placing downward pressure on North American coated paper prices as a result of low transportation costs and foreign overcapacity.

North American prices for coated paper products historically have been determined by North American supply and demand, rather than directly by raw material costs or other costs of sales. In the short term, therefore, we have limited ability to increase prices in response to increases in our costs if demand relative to supply does not remain strong. After declining throughout the first three quarters of 2009, primarily as a result of the benefits of the alternative fuel mixture credit being passed on to customers, abnormally low market pulp prices and the negative effects of imports of coated paper from China and Indonesia, we believe that pricing stabilized during the fourth quarter of 2009 and remained relatively stable into the first quarter of 2010.

In September 2009, NewPage, along with two other U.S. paper producers and the United Steelworkers Union, filed antidumping and countervailing duty petitions with the U.S. Department of Commerce and the U.S. International Trade Commission alleging that manufacturers of certain coated paper in China and Indonesia are dumping their products in the United States and that these manufacturers have been subsidized by their governments in violation of U.S. trade laws. The U.S. International Trade Commission determined by unanimous

 

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vote in November 2009 that there is a reasonable indication that the U.S. industry is being materially injured by unfairly traded Chinese and Indonesian imports. The Department of Commerce announced its preliminary countervailing duty determinations in March 2010 and its preliminary dumping determinations in April 2010. We expect that final determinations in the cases will be completed by the end of 2010. No assurance can be given when final determinations will be made, that final duties will be imposed or, if any duties are imposed, the amount of any such final duties.

Debt Refinancing and Revolver Amendments

In September 2009, we amended the senior secured credit facilities to suspend the requirements to comply with certain covenants and to increase our operating and financial flexibility. The revolving credit facility also was amended to require the maintenance of at least $50 million of borrowing availability under the revolving credit facility through the date of the delivery of the compliance certificate with respect to the fiscal quarter ending March 31, 2011 and to limit our ability to make capital expenditures.

On September 30, 2009, the term loan was repaid in full with $1,598 million of proceeds from the offering of the Existing Notes and $5 million of borrowings under our revolving credit facility.

In January, 2010, we amended our revolving credit facility to permit the incurrence of additional first-lien debt, allow for the sale of certain non-core assets in addition to the existing basket, permit the repurchase of Parity Lien Debt subject to a Consolidated Liquidity (each as defined in the Intercreditor Agreement) threshold, and to include certain transaction costs in the definition of Consolidated Adjusted EBITDA. For a more detailed discussion of the amendment, see “Description of Certain Indebtedness—Revolving Credit Facility.”

In February 2010, we issued an additional $70 million in aggregate principal amount of 11.375% senior secured notes due 2014 in a private placement that have substantially the same terms as the existing $1.7 billion 11.375% first-lien senior secured notes.

The SENA Acquisition and Restructuring

On December 21, 2007, NewPage acquired all of the issued and outstanding common stock of SENA from Stora Enso Oyj (“SEO”) (the “Acquisition”). We acquired SENA in order to create a single business platform and to enable us to remain competitive in the marketplace, serve our customers more efficiently and achieve synergies from the Acquisition. The Acquisition more than doubled our production capacity and broadened our product line. In connection with the Acquisition, SEO acquired approximately 20% of the equity in NewPage Group.

During 2008, we initiated actions to integrate the existing NewPage operations and the former SENA facilities and services that included the shutdown in 2008 of six of our less efficient, higher cash cost paper machines and the shutdown of our Chillicothe, Ohio converting facility in 2009, as well as selected headcount reductions, all of which have been substantially completed.

We completed our integration activities during the third quarter of 2009, at which time we had achieved approximately $200 million of annual synergies.

 

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Selected Factors That Affect Our Operating Results

Net Sales

Our net sales are a function of the amount of paper that we sell and the price at which we sell it. Demand for printing paper is cyclical, which results in changes in both volume and price. Paper prices historically have been a function of macroeconomic factors, such as the strength of the United States economy and import levels that are largely out of our control. Price has historically been more variable than volume and can change substantially over relatively short time periods. Coated freesheet paper is typically purchased by customers on an as-needed basis, and generally is not bought under contracts that provide for fixed prices or minimum volume commitments. Coated groundwood and supercalendered paper are typically sold to customers under contracts that provide for fixed prices and minimum volume commitments. We use substantially all of our pulp production internally and sell some excess production to external customers.

Our earnings are sensitive to price changes for our principal products, with price changes in coated paper having the greatest effect. Fluctuations in paper prices historically have had a direct effect on our results for several reasons:

 

   

Market prices for paper products are a function of supply and demand, factors over which we have limited influence.

 

   

Market prices for paper products typically are not directly affected by raw material costs or other costs of sales, and consequently there is limited ability to pass through increases in costs to customers absent increases in the market price.

 

   

The manufacturing of paper is highly capital-intensive and a large portion of operating costs is fixed. Additionally, paper machines are large, complex systems that operate more efficiently when operated continuously. Consequently, we typically continue to run our machines whenever marginal sales exceed the marginal costs.

See “Overview—Trends in our Business” for a discussion of factors that have historically affected pricing and are expected to continue to affect our pricing.

 

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Cost of Sales

The principal components of our cost of sales are chemicals, fiber, energy, labor, maintenance and depreciation and amortization. Costs for commodities, including chemicals, wood and energy, are the most variable component of cost of sales because the prices of many of the commodities that we use can fluctuate substantially, sometimes within a relatively short period of time.

Fiber. Our costs to purchase wood are affected directly by market costs of wood in our regional markets and indirectly by the effect of higher fuel costs on logging and transportation of timber to our facilities. While we have fiber supply agreements in place that ensure a portion of our wood requirements, purchases under these agreements are typically at market rates. For the year ended December 31, 2009, we produced approximately 94% of our pulp requirements, which excludes our sales of market pulp, with the remainder supplied through open market purchases and supply agreements. The price of market pulp has fluctuated significantly. Pulp prices fluctuate due to changes in worldwide consumption of pulp, pulp capacity additions, expansions or curtailments affecting the supply of pulp, changes in inventory levels by pulp consumers, which affect short-term demand, and pulp producer cost changes related to wood availability and environmental issues.

Chemicals. Certain chemicals used in the papermaking process are petroleum-based and fluctuate with the price of crude oil. The price for latex, the largest component of our chemical costs, has historically been volatile. We expect the price of latex to remain volatile.

Energy. We produce a large portion of our energy requirements from burning wood waste and other byproducts of the paper manufacturing process. For the year ended December 31, 2009, we generated approximately 45% of our energy requirements from biomass-related fuels. The remaining energy we purchase from third party suppliers consists of electricity and fuels, primarily natural gas, fuel oil and coal. We expect crude oil and energy costs to remain volatile for the foreseeable future. As prices fluctuate, we have the ability to switch between certain energy sources, within constraints, in order to minimize costs.

Our indirect wholly-owned subsidiary, CWPCo, provides electricity to our mills in central Wisconsin. CWPCo has 33.3 megawatts of generating capacity on 39 generators located in five hydroelectric plants on the Wisconsin River. CWPCo is a regulated public utility and also provides electricity to a small number of residential, light commercial and light industrial customers.

Labor costs. Labor costs include wages, salary and benefit expenses attributable to mill personnel. Mill employees at a non-managerial level are generally compensated on an hourly basis in accordance with the terms of applicable union contracts and management employees are compensated on a salaried basis. Wages, salary and benefit expenses included in cost of sales do not vary significantly over the short term. We have not experienced significant labor shortages.

Maintenance. Maintenance expense includes day-to-day maintenance, equipment repairs and larger maintenance projects, such as paper machine shutdowns for annual maintenance. Day-to-day maintenance expenses have not varied significantly from year to year. Larger maintenance projects and equipment expenses can produce year-to-year fluctuations in our maintenance expenses. In conjunction with our annual maintenance shutdowns, we incur incremental costs that are primarily comprised of unabsorbed fixed costs from lower production volumes and other incremental costs for purchased materials and energy that would otherwise be produced as part of normal operations of our mills.

Depreciation and amortization. Depreciation and amortization expense for assets associated with our mill and converting operations is included in cost of sales.

Foreign currency. We are exposed to changes in foreign currency exchange rates because most of the raw material, labor and other cost of sales at our Port Hawkesbury, Nova Scotia, mill are denominated in Canadian

 

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dollars, while North American sales prices for the products produced at the Port Hawkesbury mill are in U.S. dollars (to the extent shipped into the United States) or determined primarily by the U.S. dollar price per ton charged by U.S. producers. A stronger Canadian dollar relative to the U.S. dollar increases our costs of sales. If the U.S. dollar were to weaken significantly against the Canadian dollar, it would impair the ability of the Port Hawkesbury mill to profitably compete in the U.S. market.

Selling, General and Administrative (SG&A) Expenses

The principal components of our SG&A expenses are wages, salaries and benefits for our sales and corporate administrative personnel, travel and entertainment expenses, advertising expenses, information technology expenses and research and development expenses. Our SG&A expenses have not historically fluctuated significantly from year to year. As a result of the Acquisition, we lowered benefits costs by freezing defined benefit pension plans and reducing retiree medical benefits for salaried employees. In addition, we eliminated duplicative sales, marketing and customer service personnel and centralized our corporate administration, management, finance and human resource functions. In November 2009, we amended a postretirement benefit plan to phase out company-provided post-age 65 medical benefits for certain retirees by 2012.

Interest

Our interest expense increased as a result of the refinancing of our term loan with the Existing Notes in September 2009. Furthermore, included in interest expense in 2009 is a charge of $85 million on the extinguishment of debt in September 2009 and $48 million of unrealized losses on our interest rate swaps reclassified from accumulated other comprehensive income (loss) as a result of the retirement of the term loan in September 2009. For a description of the 2009 debt refinancing, see “Overview—Debt Refinancing and Revolver Amendments.” For periods in 2010, we expect an increase in interest expense over prior periods because the Notes have a higher interest rate than the term loan that was repaid. Because of the debt refinancing in September 2009, we no longer have sufficient variable-rate debt exposure for our outstanding interest rate swaps to qualify for hedge accounting treatment and will record the changes in fair value as an adjustment to interest expense.

Effects of Inflation/Deflation

While inflationary increases in certain costs, such as energy, wood and chemical costs, have had a significant effect on our operating results over the past three years, changes in general inflation have had a minimal effect on our operating results in each of the last three years. In addition, we have benefited from deflationary effects from the decline in oil prices. Sales prices and volumes have historically been more strongly influenced by supply and demand factors in specific markets than by inflationary or deflationary factors. Certain of our costs, including the prices of energy, wood and chemicals that we purchase, can fluctuate substantially, sometimes within a relatively short period of time, and can have a significant effect on our business, financial condition and results of operations. Energy, wood and chemical costs increased during 2007 and 2008 and decreased during the year ended December 31, 2009. These costs are expected to remain volatile in to 2010, but at a lower level than the peaks reached in 2008.

Seasonality

We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors common in the paper industry. Typically, the first two quarters are our slowest quarters due to lower demand for coated paper during this period. Our third quarter is typically our strongest sales quarter, reflecting an increase in sales volume as printers prepare for year-end holiday catalogs and advertising. Our accounts receivable and payable generally peak in the third quarter, while inventory generally peaks in the second quarter in anticipation of the third quarter season. Announced price increases and the general economic environment can affect historical seasonal patterns.

 

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Table of Contents

Results of Operations

The following table sets forth our historical results of operations for the years ended December 31, 2009, 2008 and 2007 and for the three months ended March 31, 2010 and 2009.

 

     Three Months
Ended
March 31,
2010
    Three Months
Ended
March 31,
2009
    Year Ended
December 31,
2009
    Year Ended
December 31,
2008
    Year Ended
December 31,
2007
 
     $     %     $     %     $     %     $     %     $     %  
     (in millions)  

Net sales

   817      100.0      722      100.0      3,106      100.0      4,356      100.0      2,168      100.0   

Cost of sales

   849      103.9      720      99.7      3,171      102.1      3,979      91.4      1,895      87.4   

Selling, general and administrative expense

   49      6.1      46      6.4      180      5.8      217      5.0      124      5.7   

Interest expense

   97      11.9      67      9.3      418      13.5      277      6.3      154      7.1   

Other (income) expense

   (3   (0.5   —        0.0      (306   (9.9   (3   (0.1   (2   (0.1
                                                            

Income (loss) before income taxes

   (175   (21.4   (111   (15.4   (357   (11.5   (114   (2.6   (3   (0.1

Income tax (benefit)

   —        0.0      (3   (0.5   (54   (1.8   —        0.0      4      0.2   
                                                            

Net income (loss)

   (175   (21.4   (108   (14.9   (303   (9.7   (114   (2.6   (7   (0.3

Net income (loss)—noncontrolling interests

   —        0.0      1      0.2      5      0.2      3      0.1      1      0.1   
                                                            

Net income (loss) attributable to the company

   (175   (21.4   (109   (15.1   (308   (9.9   (117   (2.7   (8   (0.4
                                                            

Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

Net sales for the first quarter of 2010 were $817 million compared to $722 million for the first quarter of 2009, an increase of $95 million or 13%. Net sales were affected primarily by higher sales volume of core paper ($136 million) and other non-core paper, partially offset by lower average core paper prices ($101 million) in the first quarter of 2010 compared to the first quarter of 2009. Core volume is principally coated freesheet, coated groundwood and supercalendered paper products sold in North America. Average core paper prices decreased to $858 per ton in the first quarter of 2010 compared to $965 per ton in the first quarter of 2009. Core paper sales volume increased to 792,000 tons in the first quarter of 2010 compared to 668,000 tons in the first quarter of 2009 as a result of decreased advertising spending and magazine and catalog circulation during the first quarter of 2009 largely attributable to general economic factors and inventory reductions by customers. We took 39,000 tons of market-related downtime in the first quarter of 2010 compared to 149,000 tons of market-related downtime in the first quarter of 2009. We will consider the need for additional downtime from time to time based on market conditions.

Cost of sales for the first quarter of 2010 was $849 million compared to $720 million for the first quarter of 2009, an increase of $129 million or 18%. The increase was primarily a result of higher core paper sales volume ($98 million) and higher volumes of other non-core paper, partially offset by lower levels market-related downtime. Gross margin (loss) for the first quarter of 2010 decreased to (3.9)% compared to 0.3% for the first quarter of 2009 primarily as a result of lower average core paper sales prices ($101 million). Maintenance expense at our mills totaled $71 million and $68 million in the first quarter of 2010 and 2009.

Selling, general and administrative expenses increased to $49 million for the first quarter of 2010 from $46 million for the first quarter of 2009, primarily as a result of $5 million higher stock compensation expense. As a percentage of net sales, selling, general and administrative expenses decreased in the first quarter of 2010 to 6.1% from 6.4% in the first quarter of 2009.

 

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Interest expense for the first quarter of 2010 was $97 million compared to $67 million for the first quarter of 2009. The increase resulted primarily from higher interest rates on outstanding debt. Because of the debt refinancing in September 2009 and the Original Notes in February 2010, we expect an increase in interest expense over prior year periods because the Notes have a higher interest rate than the term loan that was repaid.

Other (income) expense was $(3) million for the first quarter of 2010 and zero for the first quarter of 2009. The amount recognized in the first quarter of 2010 includes $11 million of net (gain) loss on disposal and impairment of assets, offset by $(13) million of (income) recognized for alternative fuel mixture tax credits as income recognition criteria was met during the quarter.

Income tax expense (benefit) for the first quarter of 2010 and 2009 was zero and $(3) million. For the first quarter of 2010 and 2009, we recorded a valuation allowance against our net deferred income tax benefit for federal income taxes and for certain states as it was more likely than not that we would not realize those benefits. For the first quarter ended March 31, 2010 and 2009, we have allocated zero and $2 million of tax expense to other comprehensive income (loss) and the corresponding offset as an allocation to tax benefit from operations.

Net income (loss) attributable to NewPage was $(175) million in the first quarter of 2010 compared to $(109) million in the first quarter of 2009. The decreases were primarily a result of significantly lower sales pricing.

2009 Compared to 2008

Net sales for 2009 were $3,106 million compared to $4,356 million for 2008, a decrease of $1,250 million, or 29%. The decrease in net sales reflects lower sales volume of coated paper ($874 million), lower coated paper prices ($194 million) and lower revenues from other papers caused by lower paper prices and lower volumes in 2009 compared to 2008. Weighted-average core paper prices decreased to $910 per ton in 2009 compared to $964 per ton in 2008. However, we believe that pricing stabilized during the fourth quarter of 2009. We believe that the benefits of the alternative fuel mixture credit were passed on to customers in the form of lower sales prices. In addition to the effects of the alternative fuel mixture credit, we believe some of the decline in pricing in 2009 resulted from the negative effects of imports of coated paper from China and Indonesia. Core paper sales volume decreased to 2,949,000 tons in 2009 compared to 4,105,000 tons in 2008. Our volume for core paper was lower primarily because of lower demand for catalog and promotional materials by retailers and lower spending on magazine advertising during 2009, as a result of general economic factors and the effect of a greater share of imports from China and Indonesia. As a result of these factors, we took 515,000 tons of market-related downtime during 2009, including 104,000 tons during the fourth quarter to reduce our inventory levels of finished goods to match customer requirements. During 2008, we took 91,000 tons of market-related downtime.

Cost of sales for 2009 was $3,171 million compared to $3,979 million for 2008, a decrease of $808 million, or 20%. The decrease was primarily a result of lower coated paper sales volume ($650 million). Gross margin for 2009 decreased to (2.1)% compared to 8.6% for 2008, primarily as a result of significantly lower sales volume, lower sales prices and the effects of taking market-related downtime, partially offset by productivity improvement initiatives and lower input costs resulting primarily from lower crude oil prices. Included in cost of sales for 2008 was $22 million for accelerated depreciation, $5 million for inventory write-offs and $5 million of employee-related costs associated with our restructuring plans.

Maintenance expense at our mills totaled $291 million in 2009 compared to $346 million in 2008. The decrease in maintenance expense was driven primarily as a result of the shutdown of paper machines in 2008 as part of our restructuring activities and from actions taken to reduce the costs of maintenance activities.

Selling, general and administrative expenses decreased to $180 million for 2009 from $217 million for 2008, primarily as a result of lower costs related to the integration of the two businesses, stock compensation and restructuring charges. As a percentage of net sales, selling, general and administrative expenses increased to 5.8% in 2009 from 5.0% in 2008.

 

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Interest expense for 2009 was $418 million compared to $277 million for 2008. Included in interest expense for 2009 is a loss of $85 million on the extinguishment of debt and $48 million of unrealized losses on our interest rate swaps reclassified from accumulated other comprehensive income (loss) as a result of the retirement of the term loan in September 2009. For future periods, we expect an increase in interest expense over prior periods because the Notes have a higher interest rate than the term loan that was repaid. Because of the debt refinancing in September 2009, we no longer have sufficient variable-rate debt exposure for our outstanding interest rate swaps to qualify for hedge accounting treatment and record the changes in fair value as an adjustment to interest expense.

Other (income) expense was $(306) million for 2009 and $(3) million for 2008. The amount recognized in 2009 was primarily the result of $304 million of income recognized for alternative fuel mixture tax credits. At this time, we view any extension of this credit, or the introduction of any similar program in the foreseeable future, as unlikely.

Income tax expense (benefit) for 2009 and 2008 was $(54) million and zero. We have recorded a valuation allowance against our net deferred income tax benefits as it is unlikely that we will realize those benefits. For purposes of allocating the income tax benefit to income (loss) before taxes, amounts of other comprehensive income result in income tax expense recorded in other comprehensive income and the offsetting amount as an allocation to tax benefit from operations. For 2009, we have allocated $41 million of tax expense to other comprehensive income (loss) and the corresponding offset as an allocation to tax benefit from operations. The amounts for 2009 include the reclassification to income tax (benefit) of all amounts previously allocated to accumulated other comprehensive income (loss) related to the interest rate swap cash flow hedges. Also included in 2009 is a tax benefit of $12 million, reflecting the decreases to our state deferred tax liabilities as a result of changes in the company’s distribution channels that have occurred as part of our integration with NPCP.

Net income (loss) attributable to NewPage was $(308) million in 2009 compared to $(117) million in 2008. The decreases were primarily a result of significantly lower sales volumes and pricing, partially offset by the alternative fuel mixture tax credits and productivity improvements.

2008 Compared to 2007

Net sales for 2008 were $4,356 million compared to $2,168 million for 2007. The increase was primarily a result of the Acquisition, which had net sales of $2,491 million in 2007 (prior to the Acquisition). In addition, net sales were affected by lower sales volume of coated paper on a combined basis ($700 million) in 2008, partially offset by higher average coated paper prices ($297 million). Average core paper prices increased to $964 per ton in 2008 from $901 per ton in 2007. Core paper sales volume increased to 4,105,000 tons in 2008 from 2,143,000 tons in 2007. The volume increase was primarily from the acquired operations and was partially offset by a decline in coated paper demand resulting primarily from lower demand for catalog and promotional materials by retailers and lower spending on magazine advertising. We took 91,000 tons of market-related downtime for coated paper during 2008. During 2007, we took 27,000 tons of market-related downtime for coated paper.

Cost of sales for 2008 was $3,979 million compared to $1,895 million for 2007. The increase was primarily a result of the Acquisition, which had cost of sales of $2,445 million in 2007 (prior to the Acquisition). In addition, we had higher costs of production in 2008, primarily as a result of inflation in wood, energy, chemicals and transportation costs ($266 million). The increase was partially offset by the effect on cost of sales of lower coated paper sales volume on a combined basis ($564 million). Depreciation and amortization expense related to the fixed assets acquired in the Acquisition was $75 million lower in 2008 than in 2007 as a result of the purchase price allocation. As a result of the foregoing, gross margin for 2008 decreased to 8.6% compared to 12.6% for 2007. Included in cost of sales for 2008 was $22 million for accelerated depreciation, $5 million for inventory write-offs and $5 million of employee-related costs associated with our restructuring plans.

Maintenance expense at our mills totaled $346 million in 2008 compared to $169 million in 2007. The increase in maintenance expense was driven primarily as a result of the Acquisition. In addition, in conjunction

 

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with our annual maintenance shutdowns, we had incremental costs of approximately $30 million in 2008 and 2007 that were primarily comprised of unabsorbed fixed costs from lower production volumes and other incremental costs for purchased materials and energy that would otherwise be produced as part of normal operations of our mills.

Selling, general and administrative expenses were $217 million for 2008 compared to $124 million for 2007. The increase in 2008 was primarily as a result of the Acquisition, which had $87 million of selling, general and administrative expenses in 2007 (prior to the Acquisition), higher stock compensation expense of $4 million related to the stock option plan approved in December 2007 and $2 million of restructuring charges. As a percentage of net sales, selling, general and administrative expenses decreased to 5.0% in 2008 from 5.7% in 2007.

Interest expense for 2008 was $277 million compared to $154 million for 2007. The increase was primarily a result of higher average outstanding debt balances resulting from the financing for the Acquisition, partially offset by lower interest rates.

Income tax expense (benefit) was zero in 2008 and $4 million in 2007. For the years ended December 31, 2008 and 2007, we recorded a valuation allowance against our net deferred income tax benefit for federal income taxes and for certain states as it was more likely than not that we would not realize those benefits as a result of our history of losses.

Net income (loss) attributable to NewPage was $(117) million in 2008 compared to $(8) million in 2007. The change was primarily driven by the Acquisition and the effects of lower customer demand and inflation in input costs, partially offset by higher sales prices.

Liquidity and Capital Resources

In September 2009, NewPage and NewPage Holding amended the senior secured credit facilities to obtain more favorable financial covenants. We paid consent fees totaling $15 million in order to amend the senior secured credit facilities and agreed to higher interest rates, as well as certain other changes to the facilities.

Later in September 2009, NewPage issued $1,700 million of Existing Notes for proceeds of $1,598 million (the “2009 Notes Offering”). The net proceeds of the 2009 Notes Offering, together with approximately $5 million of borrowings under our revolving credit facility, were used to repay all amounts outstanding under our term loan and to pay fees and expenses of the 2009 Notes Offering.

In February 2010, we issued an additional $70 million in aggregate principal amount of 11.375% senior secured notes due 2014 in a private placement that have substantially the same terms as the Existing Notes.

Available Liquidity

As of March 31, 2010, our principal sources of liquidity include cash generated from operating activities and availability under our revolving credit facility. The amount of borrowings and letters of credit available to NewPage pursuant to the revolving credit facility is limited to the lesser of $500 million or an amount determined pursuant to a borrowing base ($374 million as of March 31, 2010).

In September 2009, as part of the amendment of the revolving credit facility, we agreed to maintain a minimum of $50 million of availability through March 2011 and to limit capital expenditures. After that date, to the extent that NewPage’s unused borrowing availability under the revolving credit facility is below $50 million

 

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for 10 consecutive business days or $25 million for three consecutive days), NewPage is required to comply with specified financial ratios and tests, including a minimum interest and fixed charge coverage ratios and maximum senior and total leverage ratios.

As of March 31, 2010, we had $234 million available for borrowing in excess of the $50 million required minimum, after reduction for $90 million in letters of credit. As of March 31, 2010, there were no outstanding borrowings under the revolving credit facility. We have not experienced, and do not currently anticipate that we will experience, any limitations in our ability to access funds available under our revolving credit facility. In an effort to manage credit risk exposures under our debt and derivative instruments, we regularly monitor the credit-worthiness of the counterparties to these agreements. We believe our cash flow from operations, available borrowings under our revolving credit facility and cash and cash equivalents will be adequate to meet our liquidity needs for the next twelve months. However, given the uncertainty of the current economic environment, we cannot assure you that our business will generate sufficient cash flows from operations or that future borrowings will be available to us under our revolving credit facility in an amount sufficient to enable us to fund our liquidity needs. See “Risk Factors” for a discussion of various risks and uncertainties which could affect our ability to generate sufficient cash flows to meet our liquidity needs.

Aggregate indebtedness as of March 31, 2010 totaled $3,150 million. We expect an increase in interest expense over prior year periods because the Notes have a higher interest rate than the term loan that was repaid. Beginning in 2012, our debt service requirements will substantially increase as a result of scheduled payments of our indebtedness. We anticipate that we will seek to refinance our indebtedness prior to that time or retire portions of indebtedness with issuances of equity securities, proceeds from the sale of assets or cash generated from operations. Our ability to operate our business, service our debt requirements and reduce our total debt will depend upon our future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, many of which are beyond our control, as well as the availability of revolving credit borrowings and other borrowings to refinance our existing indebtedness.

Cash Flows

Cash provided by (used for) operating activities was $(4) million during the first quarter of 2010 compared to $(70) million during the first quarter of 2009, which was primarily the result of changes in inventory levels. Finished goods inventory increased during the first quarter of 2009 as a result of low sales volumes and inventory reductions by customers and declined in the first quarter of 2010 as we continued our inventory reduction efforts that began in the fourth quarter of 2009 to reduce our finished goods inventory levels to match customer requirements. Investing activities in 2010 include spending of $11 million for capital expenditures and the receipt of $11 million of proceeds from the sales of assets. Financing activities in 2010 included the issuance of $70 million of Original Notes (proceeds of $67 million) used to repay existing borrowings under the revolver and for general corporate purposes.

Cash provided by operating activities was $44 million during 2009 compared to $60 million during 2008, primarily the result of the decline in sales demand and lower pricing, largely offset by $289 million of cash received from the alternative fuel mixture credits. Investing activities in 2009 include spending of $75 million for capital expenditures and the receipt of $28 million of proceeds from the sales of assets. Financing activities in 2009 included the issuance of $1,700 million of Existing Notes (proceeds of $1,598 million) used to repay the term loan and to pay fees and expenses related to the Notes Offering. We had net borrowings of $52 million under the revolving credit facility as of December 31, 2009, that were used to pay fees and expenses related to the amendments of our senior secured credit facilities, to repay a portion of the term loan and for working capital purposes.

Cash provided by operating activities was $60 million during 2008 compared to $278 million during 2007. The decrease was primarily the result of a decline in sales demand and a resulting investment in inventory and payments for severance and closure costs, as well as costs for integration of the NPCP business into the existing

 

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NewPage operations. In response to these challenges, we accelerated and completed the shutdown of operations at our Kimberly and Niagara, Wisconsin mills in the third quarter of 2008. In addition, we took coated paper market-related downtime at other locations. Investing activities in 2008 included $165 million for capital expenditures. Financing activities in 2008 included a $7 million loan to our parent company, an $8 million distribution from Rumford Cogeneration Company L.P. to the limited partners and $16 million in scheduled payments on our long-term debt. Cash and cash equivalents decreased by $140 million during 2008 to $3 million at December 31, 2008.

Capital Expenditures

In order to preserve liquidity in 2009, we significantly reduced our capital expenditures. Capital expenditures for the year ended December 31, 2009 were $75 million compared to $165 million for the year ended December 31, 2008. Capital expenditures were $11 million and $15 million for the first quarter ended March 31, 2010 and 2009, respectively. In 2010, we expect to incur approximately $75 million in capital expenditures. We expect to fund our capital expenditures from cash flows from operations and our revolving credit facility. Our revolving credit facility limits the amount of capital expenditures we can incur. We do not believe that this limit or our lower level of expected capital expenditures will negatively affect our ability to meet the requirements of our customers.

Compliance with environmental laws and regulations is a significant factor in our business. During 2009, we did not incur any capital expenditures associated with maintaining compliance with applicable environmental laws and regulations or to meet new regulatory requirements. Furthermore, we do not expect to incur any environmental capital expenditures in 2010. Environmental compliance may require increased capital and operating expenditures over time as environmental laws or regulations, or interpretations thereof, change or the nature of our operations require us to make significant additional expenditures.

Financial Discussion

In 2009, we continued to achieve cost savings from operating efficiencies, synergies and other restructuring activities that resulted from the acquisition of SENA. In an effort to manage costs and cash flows in 2009, we implemented a wage freeze in 2009 for all salaried exempt and non-exempt employees, reduced 2008 bonuses paid in 2009, suspended the matching contribution for our salaried 401(k) plan effective June 1, 2009 and significantly reduced our capital expenditures from $165 million in 2008 to $75 million in 2009. In November 2009, we amended a postretirement benefit plan to phase out company-provided post-age 65 medical benefits for certain retirees by 2012. We recorded an adjustment to reduce the benefit liability by $57 million in the fourth quarter of 2009 with an offset to other comprehensive income (loss). This adjustment is the net result of the reduction in benefits from the plan amendment, partially offset by changes in actuarial assumptions as of the November 2009 re-measurement date. This amendment is expected to result in a reduction in other postretirement benefit costs of approximately $15 million per year. During the first quarter of 2010, we continued to achieve cost savings from production and operating efficiencies, synergies and other restructuring activities that resulted from the acquisition of Stora Enso North America. We also continued evaluating ways to raise capital through the issuance and refinancing of debt and through the sale of nonstrategic assets.

In April 2010, NewPage Port Hawkesbury Corp. (“NPPH”), an indirect wholly-owned subsidiary of NewPage, announced that it entered into an agreement with Nova Scotia Power Inc. (“NSPI”) to sell certain assets including a boiler at the Port Hawkesbury, Nova Scotia, mill for a cash sales price of Canadian $80 million. We expect to recognize a gain on the transaction, which is expected to close in the third quarter of 2010 and is subject to customary conditions, including the receipt of regulatory approvals. In addition, NSPI and NPPH signed a term sheet for NPPH to construct for NSPI a 60 MW biomass cogeneration utility plant for the generation of electricity by December 31, 2012 for approximately Canadian $93 million. NSPI and NPPH also entered into a management, operations and maintenance agreement related to NPPH operating the utility assets for NSPI.

 

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In February 2010, Consolidated Water Power Company (“CWPCo”), an indirect wholly-owned subsidiary of NewPage, announced that it signed an agreement with Wisconsin Rapids Water Works Lighting Commission to sell the CWPCo utility transmission and distribution assets (“CWPCo Utility”). The purchase price will be equal to the net book value of the assets at the time of closing, which is subject to regulatory approvals. In March 2010, CWPCo announced that it entered into a nonbinding letter of intent to sell five hydroelectric projects to Great Lakes Utilities for a net cash sales price of approximately $70 million. The closing of the transaction is subject to completion of the CWPCO Utility sale, execution of a sales agreement with Great Lakes Utilities and regulatory approval. We anticipate closing the sale of the hydroelectric assets in the fourth quarter of 2010. We continue to hold and operate the assets in the normal course of our operations.

We have various investments held by our defined-benefit pension plan trusts. The returns on these assets have generally matched the broader market. We are monitoring the effects of the market decline in 2008 on our minimum pension funding requirements and pension expense for future periods. We do not anticipate material increases in our minimum funding requirements during 2010.

The U.S. Internal Revenue Code allowed a refundable excise tax credit for alternative fuel mixtures produced for sale or for use as a fuel in a trade or business. The credit was equal to fifty cents per gallon of alternative fuel contained in the mixture and expired on December 31, 2009. We have received payments of $289 million through December 31, 2009. Income recognized for the credit is included in net income (loss) attributable to the company. We recognized $304 million and $13 million of income in other (income) expense for the year ended December 31, 2009 and the quarter ended March 31, 2010, respectively, for alternative fuel mixtures used through December 31, 2009. At this time, we view any extension of this credit, or the introduction of any similar program in the foreseeable future, as unlikely. We believe that the benefits of the alternative fuel mixture credit were passed on to customers in the form of lower sales prices in 2009.

In January 2010, the compensation committee approved and adopted the NewPage Corporation 2010 Executive Long-Term Incentive Plan (“LTIP”). The LTIP and the individual award agreements under the LTIP provide for a service award and a performance award to various executives. The service award is payable if the participant remains as an employee of NewPage or its affiliates through December 31, 2012. The performance award is payable if the participant remains as an employee of NewPage or its affiliates through December 31, 2012, and if we achieve annual performance goals established each year by the compensation committee during the three years ended December 31, 2012. The participant will receive a pro rata share of the total award if, prior to December 31, 2012, the participant’s employment is terminated by us without cause or by the participant for good reason, each as defined in the LTIP. The participant will receive the entire award if, prior to December 31, 2012, a change in control occurs, as defined by the LTIP. We expect that the LTIP will result in an annual decrease in income before taxes of approximately $7 million beginning in 2010.

Off-balance sheet arrangements

We do not have any off-balance sheet arrangements.

 

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Contractual Commitments

The following table reflects our contractual commitments associated with our debt and other obligations as of December 31, 2009, on a pro forma basis after giving effect to the issuance of the Original Notes:

 

(in millions)

   Total    2010    2011-12    2013-14    There-
After

Contractual Obligations

              

Long-term debt(1)

   $ 3,161    $ —      $ 1,031    $ 2,130    $ —  

Interest expense(2)

     1,352      328      600      424      —  

Operating leases

     26      8      11      4      3

Fiber supply agreements(3)

     498      147      98      80      173

Other purchase obligations

     456      130      114      93      119

Pension/postretirement plans

     442      27      71      61      283

Other long-term obligations

     76      —        30      7      39
                                  

Total

   $ 6,011    $ 640    $ 1,955    $ 2,799    $ 617
                                  

Other Commercial Commitments

              

Standby letters of credit(4)

   $ 94    $ 94    $ —      $ —      $ —  
                                  

Total

   $ 94    $ 94    $ —      $ —      $ —  
                                  

 

(1) Amounts shown represent scheduled maturities and do not take into account any acceleration of indebtedness resulting from mandatory payments required for events such as asset sales or under the excess cash flows provisions of our financing instruments.

 

(2) Amounts include contractual interest payments using the interest rates as of December 31, 2009 applicable to our variable-rate debt and stated fixed interest rate for fixed-rate debt.

 

(3) The contractual commitments consist of the minimum required expenditures to be made pursuant to the fiber supply agreements.

 

(4) We are required to post letters of credit or other financial assurance obligations with certain of our energy and other suppliers.

Quantitative And Qualitative Disclosures About Market Risk

Interest Rate Risk

As of March 31, 2010 and December 31, 2009, $225 million and $277 million of our debt consisted of borrowings with variable interest rates. If market interest rates increase, variable-rate debt will create higher debt service requirements, which could adversely affect our cash flow or compliance with our debt covenants. The potential annual increase in interest expense resulting from a 100 basis point increase in quoted interest rates on our debt balances outstanding at March 31, 2010 and December 31, 2009 would be $2 million and $3 million, respectively.

Critical Accounting Estimates

Our principal accounting policies are described in the Summary of Significant Accounting Policies in the notes to consolidated financial statements filed with the accompanying consolidated financial statements. The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management believes the accounting estimates discussed below represent those accounting estimates requiring the exercise of judgment where a different set of judgments could result in the greatest changes to reported results.

 

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Income taxes. We recognize deferred tax assets and liabilities based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the enacted tax laws. Furthermore, we evaluate uncertainty in our tax positions and only recognize benefits when we believe our tax position is more likely than not to be sustained upon audit. The amount we recognize is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

We have tax filing requirements in many states and are subject to audit in these states, as well as at the federal level in both the U.S. and Canada. Tax audits by their nature are often complex and can require several years to resolve. In the preparation of our consolidated financial statements, management exercises judgments in estimating the potential exposure of unresolved tax matters. While actual results could vary, in management’s judgment we have adequately accrued the ultimate outcome of these unresolved tax matters.

We evaluate the need for a valuation allowance for deferred tax assets by assessing whether it is more likely than not that we will realize our deferred tax assets in the future. The assessment of whether or not a valuation allowance is necessary often requires significant judgment, including forecasts of future taxable income and the evaluation of tax planning initiatives. Adjustments to the valuation allowance are made to earnings in the period when the assessment is made.

Pension and other postretirement benefits. We provide retirement benefits for certain employees through employer- and employee-funded defined benefit plans. Benefits earned are a function of years worked and average final earnings during an employee’s pension-eligible service. Certain of the pension benefits are provided in accordance with collective bargaining agreements.

Assumptions used in the determination of defined benefit pension expense and other postretirement benefit expense, including the discount rate, the long-term expected rate of return on plan assets and increases in future medical costs, are evaluated by management, reviewed with the plans’ actuaries at least annually and updated as appropriate. Actual asset returns and medical costs that are more favorable than assumptions can have the effect of lowering future expense and cash contributions, and conversely, actual results that are less favorable than assumptions could increase future expense and cash contributions. In accordance with U.S. GAAP, actual results that differ from assumptions are accumulated and amortized over future periods and, therefore, affect expense in future periods. Unrecognized prior service cost and actuarial gains and losses in the defined benefit pension and other postretirement benefit plans subject to amortization are amortized over the average remaining service of the participants.

Assumptions used in determining defined benefit pension and other postretirement benefit expense are important in determining the costs of our plans. The expected long-term rates of return on plan assets were derived based on the capital market assumptions for each designated asset class under the respective trust’s investment policy. The capital market assumptions reflect a combination of historical performance analysis and the forward-looking return expectations of the financial markets. A 0.5 percentage-point decrease in the weighted-average long-term expected rate of return on plan assets would increase 2010 net pension expense by approximately $6 million, while a 0.5 percentage-point increase in the weighted-average long-term expected rate of return on plan assets would decrease 2010 net pension expense by approximately $6 million.

The assumed discount rates used in determining the benefit obligations were determined by reference to the yield on zero-coupon corporate bonds rated Aa or AA maturing in conjunction with the expected timing and amount of future benefit payments. A 0.5 percentage-point decrease in the weighted-average discount rates would increase 2010 net pension expense by approximately $7 million, while a 0.5 percentage-point increase in the weighted-average discount rates would decrease 2010 net pension expense by approximately $7 million. The effect on other postretirement benefit expense would be negligible from such changes in the weighted-average discount rates. With respect to benefit obligations, a 0.5 percentage-point decrease in the weighted-average discount rates would increase pension benefit obligations by approximately $91 million and would increase other postretirement benefit obligations by approximately $5 million, while a 0.5 percentage-point increase in the

 

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weighted-average discount rates would decrease pension benefit obligations by approximately $82 million and would decrease other postretirement benefit obligations by approximately $5 million.

Equity compensation. We use the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the stock price as well as assumptions regarding a number of other variables. These variables include the stock price, expected stock price volatility over the term of the awards and projected employee stock option exercise behaviors (term of option).

We estimate the value of the underlying stock by examining the value of comparable market values for others in our industry and making adjustments for our capital structure and by utilizing discounted cash flows analysis. We estimate the volatility of our common stock by considering volatility of appropriate peer companies and adjusting for factors unique to our stock, including the effect of debt leverage. We estimate the expected term of options granted by incorporating the contractual term of the options and employees’ expected exercise behaviors.

Derivative financial instruments. We periodically use derivative financial instruments as part of our overall strategy to manage exposure to market risks associated with interest rate, foreign currency exchange rate and natural gas price fluctuations. We measure the fair values of our interest rate swaps using observable interest rate yield curves for comparable assets and liabilities at commonly quoted intervals. We measure the fair values of our foreign currency forward contracts based on current quoted market prices for similar contracts. We measure the fair values of our natural gas contracts based on natural gas futures contracts priced on the New York Mercantile Exchange. We recognize the unwind value of derivative financial instruments as the fair value. This means that the fair value for purchased contracts is based on the amount we could receive from the counterparty to settle the contract. Fair value at any point in time is based upon periodic confirmation of values received from the counterparty. We regularly monitor the credit-worthiness of the counterparties to these agreements to manage the risk of non-performance.

Environmental and legal liabilities. We record accruals for estimated environmental liabilities when remedial efforts are probable and the costs can be reasonably estimated. These estimates reflect assumptions and judgments as to the probable nature, magnitude and timing of required investigation, remediation and monitoring activities as well as availability of insurance coverage and contribution by other potentially responsible parties. Due to the numerous uncertainties and variables associated with these assumptions and judgments, and changes in governmental regulations and environmental technologies, accruals are subject to substantial uncertainties and actual costs could be materially greater or less than the estimated amounts. We record accruals for other legal contingencies, which are also subject to numerous uncertainties and variables associated with assumptions and judgments, when the contingency is probable of occurring and reasonably estimable.

Restructuring and other charges. We periodically record charges for the reduction of our workforce, the closure of manufacturing facilities and other actions related to business improvement and productivity initiatives. These events require estimates of liabilities for employee separation payments and related benefits, demolition, facility closures and other costs, as well as an estimate of the value that could be received from disposal of affected assets. These assumptions could differ from actual costs incurred or value received.

 

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Recently Issued Accounting Standards

Variable interest entity

In June 2009, the Financial Accounting Standards Board issued new guidance on the accounting for a variable interest entity (“VIE”). This guidance requires a qualitative approach to identifying a controlling financial interest in a VIE, and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. This guidance is effective for us as of January 1, 2010. The effect of the adoption of this guidance did not have a material effect on our consolidated financial position, results of operations or cash flows.

 

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THE EXCHANGE OFFER

General

We sold the Original Notes on February 24, 2010 in a transaction exempt from the registration requirements of the Securities Act.

In connection with the sale of Original Notes, the holders of the Original Notes became entitled to the benefits of an exchange and registration rights agreement dated February 24, 2010, or the Registration Rights Agreement.

Under the Registration Rights Agreement, we became obligated to file a registration statement in connection with an exchange offer within 120 days after the original issue date of the Original Notes, or the Closing Date, and use all commercially reasonable best efforts to cause the exchange offer registration statement to become effective within 210 days after the Closing Date. The exchange offer being made by this prospectus, if consummated within the required time periods, will satisfy our obligations under the Registration Rights Agreement. This prospectus, together with the letter of transmittal, is being sent to all beneficial holders known to us. References to the “Notes” in this prospectus refer to the New Notes, Original Notes and Existing Notes, collectively.

Terms of the Exchange Offer

Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, we will accept all Original Notes properly tendered and not withdrawn on or prior to the expiration date. We will issue $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of outstanding Original Notes accepted in the exchange offer. Holders may tender some or all of their Original Notes pursuant to the exchange offer. Original Notes tendered in the exchange offer must be in denominations of principal amount of $2,000 and integral multiples of $1,000 in excess of $2,000.

Based on no-action letters issued by the staff of the Securities and Exchange Commission (the “SEC”) to third parties, we believe that holders of the New Notes issued in exchange for Original Notes may offer for resale, resell and otherwise transfer the New Notes, other than any holder that is an affiliate of ours within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act. This is true as long as the New Notes are acquired in the ordinary course of the holder’s business, the holder has no arrangement or understanding with any person to participate in the distribution of the New Notes and neither the holder nor any other person is engaging in or intends to engage in a distribution of the New Notes. A broker-dealer that acquired Original Notes directly from us cannot exchange the Original Notes in the exchange offer. Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the New Notes cannot rely on the no-action letters of the staff of the SEC and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

Each broker-dealer that receives New Notes for its own account in exchange for Original Notes, where Original Notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See “Plan of Distribution” for additional information.

We will be deemed to have accepted validly tendered Original Notes when, as and if we have given oral or written notice of the acceptance of those Original Notes to the exchange agent. The exchange agent will act as agent for the tendering holders of Original Notes for the purposes of receiving the New Notes from us and delivering New Notes to those holders. Pursuant to Rule 14e-1(c) of the Exchange Act, we will promptly deliver the New Notes upon consummation of the exchange offer or return the Original Notes if the exchange offer is withdrawn.

 

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If any tendered Original Notes are not accepted for exchange because of an invalid tender or the occurrence of the conditions set forth under “—Conditions” without waiver by us, certificates or any of those unaccepted Original Notes will be returned, without expense, to the tendering holder of any of those Original Notes promptly practicable after the expiration date.

Holders of Original Notes who tender in the exchange offer will not be required to pay brokerage commissions or fees or, in accordance with the instructions in the letter of transmittal, transfer taxes with respect to the exchange of Original Notes, pursuant to the exchange offer. We will pay all charges and expenses, other than taxes applicable to holders in connection with the exchange offer. See “—Fees and Expenses.”

Shelf Registration Statement

If (i) because of any change in law or in currently prevailing interpretations of the staff of the SEC, we are not permitted to effect the exchange offer; or (ii) the exchange offer has not been completed within 255 days following the Closing Date; or (iii) certain holders of the Original Notes are prohibited by law or SEC policy from participating in the exchange offer; or (iv) in certain circumstances, certain holders of the registered New Notes so request; or (v) in the case of any holder that participates in the exchange offer, such holder does not receive New Notes on the date of the exchange that may be sold without restriction under state and federal securities laws, then we will, in lieu of or in addition to conducting the exchange offer, file a shelf registration statement covering resales of the Original Notes and New Notes under the Securities Act as soon as reasonably practicable, but no later than 45 business days after the time of such obligation to file arises. We agree to use all commercially reasonable efforts (a) to cause the shelf registration statement to become or be declared effective no later than 150 days after the shelf registration statement is filed and (b) use our reasonable best efforts to keep the shelf registration statement effective (other than during any blackout period) until the earlier of two years after the shelf registration becomes effective or such time as all of the applicable Original Notes and New Notes have been sold thereunder.

We will, in the event that a shelf registration statement is filed, provide to each holder copies of the prospectus that is a part of the shelf registration statement, notify each such holder when the shelf registration statement for the Original Notes and New Notes has become effective and take certain other actions as are required to permit unrestricted resales of the New Notes. We agree to supplement or make amendments to the shelf registration statement as and when required by the registration form used for the shelf registration statement or by the Securities Act or rules and regulations under the Securities Act for shelf registrations. We agree to furnish to certain holders copies of any such supplement or amendment prior to its being used or promptly following its filing. A holder that sells Original Notes and/or New Notes pursuant to the Shelf Registration Statement will be required to be named as a selling security holder 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 Registration Rights Agreement that are applicable to such a holder (including certain indemnification rights and obligations).

Notwithstanding anything to the contrary in the Registration Rights Agreement, upon notice to the holders of the Original Notes and New Notes, we may suspend use of the prospectus included in any Shelf Registration statement in the event that and for a period of time, or blackout period, not to exceed an aggregate of 60 days in any twelve-month period if our board of directors determines that there is a valid business purpose for suspension of the Shelf Registration statement.

 

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Special Interest

If we fail to meet the targets listed in the three paragraphs immediately following this paragraph, then additional interest, or Special Interest, shall become payable in respect of the Original Notes and/or New Notes as follows (each event referred to in clauses (A) and (B) of each of the numbered paragraphs below constituting a registration default, and each period during which the registration default(s) has occurred and is continuing is a registration default period):

1. if (A) a registration statement on an appropriate registration form with respect to the exchange offer, or the Exchange Offer Registration Statement, is not filed with the SEC on or prior to 120 days after the Closing Date or (B) notwithstanding that we have consummated or will consummate an exchange offer, we are required to file a shelf registration statement and such shelf registration statement is not filed on or prior to the date required by the Registration Rights Agreement, then commencing on the day after either such required filing date, Special Interest shall accrue on the principal amount of the Original Notes and/or New Notes at a rate of 0.25% per annum for the first 90 days of the registration default period, at a rate of 0.50% per annum for the second 90 days of the registration default period, at a rate of 0.75% per annum for the third 90 days of the registration default period, and at a rate of 1.0% thereafter for the remaining portion of the registration default period; or

2. if (A) the Exchange Offer Registration Statement is not declared effective by the SEC on or prior to 210 days after the issue date of the Original Notes or (B) notwithstanding that we have consummated or will consummate an Exchange Offer, we are required to file a Shelf Registration Statement and such Shelf Registration Statement is not declared effective by the SEC on or prior to the date required by the Registration Rights Agreement, then, commencing on the day after either such required effective date, Special Interest shall accrue on the principal amount of the Original Notes and/or New Notes at a rate of 0.25% per annum for the first 90 days of the registration default period, at a rate of 0.50% per annum for the second 90 days of the registration default period, at a rate of 0.75% per annum for the third 90 days of the registration default period, and at a rate of 1.0% thereafter for the remaining portion of the registration default period; or

3. if (A) the exchange offer has not been completed within 45 business days after the initial effective date of the Exchange Offer Registration Statement relating to the exchange offer or (B) any exchange registration statement or shelf registration statement required under the Registration Rights Agreement is filed and declared effective but thereafter is either withdrawn by us or becomes subject to an effective stop order issued pursuant to Section 8(d) of the Securities Act suspending the effectiveness of such registration statement (except as specifically permitted in the Registration Rights Agreement and including any blackout period permitting therein), then Special Interest shall accrue on the principal amount of the Original Notes and/or New Notes at a rate of 0.25% per annum for the first 90 days of the registration default period, at a rate of 0.50% per annum for the second 90 days of the registration default period, at a rate of 0.75% per annum for the third 90 days of the registration default period, and at a rate of 1.0% thereafter for the remaining portion of the registration default period;

provided, however, (x) that the Special Interest rate on the Original Notes and New Notes may not accrue under more than one of the foregoing clauses (1)—(3) at any one time and at no time shall the aggregate amount of Special Interest accruing exceed 1.0% per annum and (y) Special Interest shall not accrue under clause (3)(B) above during the continuation of a blackout period; provided, further, however, that (a) upon the filing of the Exchange Offer Registration Statement or a shelf registration statement (in the case of clause (1) above), (b) upon the effectiveness of the Exchange Offer Registration Statement or a shelf registration statement (in the case of clause (2) above), or (c) upon the exchange of New Notes for all notes tendered (in the case of clause (3) (A) above), or upon the effectiveness of the shelf registration statement which had ceased to remain effective (in the case of clause (3) (B) above), Special Interest on the Original Notes and New Notes as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue.

No Special Interest shall accrue with respect to Original Notes and New Notes that are not Registerable Securities, as defined in the Registration Rights Agreement.

 

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Any amounts of Special Interest due pursuant to clause (1), (2) or (3) above will be payable in cash on the same original interest payment dates as the Notes.

Expiration Date; Extensions; Amendment

The term “expiration date” means 12:00 midnight, New York City time, on                  , 2010, which is 20 business days after the commencement of the exchange offer, unless we extend the exchange offer, in which case the term “expiration date” means the latest date to which the exchange offer is extended.

In order to extend the expiration date, we will notify the exchange agent of any extension by oral or written notice and will issue a public announcement of the extension, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date.

We reserve the right:

 

(a) to delay accepting of any Original Notes, to extend the exchange offer or to terminate the exchange offer and not accept Original Notes not previously accepted if any of the conditions set forth under “—Conditions” shall have occurred and shall not have been waived by us, if permitted to be waived by them, by giving oral or written notice of the delay, extension or termination to the exchange agent, or

 

(b) to amend the terms of the exchange offer in any manner deemed by them to be advantageous to the holders of the Original Notes.

We will notify you as promptly as practicable of any delay in acceptance, extension, termination or amendment. If the exchange offer is amended in a manner determined by us to constitute a material change, we will promptly disclose the amendment in a manner intended to inform the holders of the Original Notes of the amendment. Depending upon the significance of the amendment, we may extend the exchange offer if it otherwise would expire during the extension period. Any such extension will be made in compliance with Rule 14d-4(d) of the Exchange Act.

Without limiting the manner in which we may choose to publicly announce any extension, amendment or termination of the exchange offer, we will not be obligated to publish, advertise, or otherwise communicate that announcement, other than by making a timely release to an appropriate news agency.

Procedures for Tendering

To tender in the exchange offer, a holder must:

 

   

complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal;

 

   

have the signatures on the letter of transmittal guaranteed if required by instruction 3 of the letter of transmittal; and

 

   

mail or otherwise deliver the letter of transmittal or the facsimile in connection with a book-entry transfer, together with the Original Notes and any other required documents.

To be validly tendered, the documents must reach the exchange agent by or before 12:00 midnight New York City time, on the expiration date. Delivery of the Original Notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of the book-entry transfer must be received by the exchange agent on or prior to the expiration date.

The tender by a holder of Original Notes will constitute an agreement between that holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal.

Delivery of all documents must be made to the exchange agent at its address set forth below. Holders may also request their brokers, dealers, commercial banks, trust companies or nominees to effect the tender for those holders.

 

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The method of delivery of Original Notes and the letter of transmittal and all other required documents to the exchange agent is at the election and risk of the holders. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery to the exchange agent by or before 12:00 midnight, New York City time, on the expiration date. No letter of transmittal or Original Notes should be sent to us.

Only a holder of Original Notes may tender Original Notes in the exchange offer. The term “holder” with respect to the exchange offer means any person in whose name Original Notes are registered on our books or any other person who has obtained a properly completed bond power from the registered holder.

Any beneficial holder whose Original Notes are registered in the name of its broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on its behalf. If the beneficial holder wishes to tender on its own behalf, it must, prior to completing and executing the letter of transmittal and delivering its Original Notes, either make appropriate arrangements to register ownership of the Original Notes in the holder’s name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time.

Signatures on a letter of transmittal or a notice of withdrawal must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States referred to as an “eligible institution,” unless the Original Notes are tendered: (a) by a registered holder who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or (b) for the account of an eligible institution. In the event that signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, the guarantee must be by an eligible institution.

If the letter of transmittal is signed by a person other than the registered holder of any Original Notes listed therein, those Original Notes must be endorsed or accompanied by appropriate bond powers and a proxy which authorizes that person to tender the Original Notes on behalf of the registered holder, in each case signed as the name of the registered holder or holders appears on the Original Notes.

If the letter of transmittal or any Original Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, they should indicate that when signing, and unless waived by us, submit evidence satisfactory to us of their authority to act with the letter of transmittal.

All questions as to the validity, form, eligibility, including time of receipt, and withdrawal of the tendered Original Notes will be determined by us in our sole discretion. This determination will be final and binding. We reserve the absolute right to reject any Original Notes not properly tendered or any Original Notes our acceptance of which, in the opinion of counsel for us, would be unlawful. Our 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 Original Notes, must be cured within such time as the we shall determine. None of us, the exchange agent or any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Original Notes, nor shall any of them incur any liability for failure to give notification. Tenders of Original Notes will not be deemed to have been made until irregularities have been cured or waived. Any Original 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 without cost by the exchange agent to the tendering holders of Original Notes, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date.

In addition, we reserve the right in our sole discretion to:

 

(a) purchase or make offers for any Original Notes that remain outstanding subsequent to the expiration date or, as set forth under “—Conditions,” to terminate the exchange offer in accordance with the terms of the Registration Rights Agreement; and

 

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(b) to the extent permitted by applicable law, purchase Original Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers may differ from the terms of the exchange offer.

By tendering Original Notes pursuant to the exchange offer, each holder will represent to us that, among other things,

 

(a) the New Notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of such holder;

 

(b) the holder is not engaged in and does not intend to engage in a distribution of the New Notes;

 

(c) the holder has no arrangement or understanding with any person to participate in the distribution of such New Notes; and

 

(d) the holder is our “affiliate”, as defined under Rule 405 of the Securities Act, or, if the holder is an affiliate, will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable.

Book-Entry Transfer

We understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the Original Notes at the depository trust company, or DTC, for the purpose of facilitating the exchange offer, and upon the establishment of those accounts, any financial institution that is a participant in DTC’s system may make book-entry delivery of Original Notes by causing DTC to transfer the Original Notes into the exchange agent’s account with respect to the Original Notes in accordance with DTC’s procedures for transfers. Although delivery of the Original Notes may be effected through book-entry transfer into the exchange agent’s account at the DTC, 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 the procedures. Delivery of documents to the depository trust company does not constitute delivery to the exchange agent.

Guaranteed Delivery Procedures

Holders who wish to tender their Original Notes and

 

(a) whose Original Notes are not immediately available or

 

(b) who cannot deliver their Original Notes, the letter of transmittal or any other required documents to the exchange agent on or prior to the expiration date, may effect a tender if:

 

  (1) the tender is made through an eligible institution;

 

  (2) on or prior to the expiration date, the exchange agent receives from the 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 of the Original Notes, the certificate number or numbers of the Original Notes and the principal amount of Original Notes tendered stating that the tender is being made thereby, and guaranteeing that, within three business days after the expiration date, the letter of transmittal, or facsimile thereof, together with the certificate(s) representing the Original Notes to be tendered in proper form for transfer and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and

 

  (3) the properly completed and executed letter of transmittal, or facsimile thereof, together with the certificate(s) representing all tendered Original Notes in proper form for transfer and all other documents required by the letter of transmittal are received by the exchange agent within three business days after the expiration date.

 

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Withdrawal of Tenders

Except as otherwise provided in this prospectus, tenders of Original Notes may be withdrawn at any time by or prior to 12:00 midnight, New York City time, on the expiration date.

To withdraw a tender of Original Notes in the exchange offer, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth in this prospectus by 12:00 midnight, New York City time, on the expiration date. Any such notice of withdrawal must:

 

(a) specify the name of the depositor, who is the person having deposited the Original Notes to be withdrawn;

 

(b) identify the Original Notes to be withdrawn, including the certificate number or numbers and principal amount of the Original Notes or, in the case of Original Notes transferred by book-entry transfer, the name and number of the account at DTC to be credited;

 

(c) be signed by the holder in the same manner as the original signature on the letter of transmittal by which such Original Notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee with respect to the Original Notes register the transfer of such Original Notes into the name of the depositor withdrawing the tender; and

 

(d) specify the name in which any such Original Notes are being registered if different from that of the depositor.

All questions as to the validity, form and eligibility, including time of receipt, of withdrawal notices will be determined by us, and our determination will be final and binding on all parties. Any Original Notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no New Notes will be issued with respect to the Original Notes withdrawn unless the Original Notes so withdrawn are validly retendered. Any Original Notes which have been tendered but which are not accepted for exchange will be returned to their holder without cost to the holder as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn Original Notes may be retendered by following one of the procedures described above under “—Procedures for Tendering” at any time on or prior to the expiration date.

Conditions

Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or exchange, any New Notes for any Original Notes, and may terminate or amend the exchange offer on or before the expiration date, if the exchange offer violates any applicable law or interpretation by the staff of the SEC.

If we determine in our reasonable discretion that the foregoing condition exists, we may:

 

   

refuse to accept any Original Notes and return all tendered Original Notes to the tendering holders;

 

   

extend the exchange offer and retain all Original Notes tendered prior to the expiration of the exchange offer, subject, however, to the rights of holders who tendered the Original Notes to withdraw their tendered Original Notes; or

 

   

waive such condition, if permissible, with respect to the exchange offer and accept all properly tendered Original Notes which have not been withdrawn.

If a waiver constitutes a material change to the exchange offer, we will promptly disclose the waiver by means of a prospectus supplement that will be distributed to the holders, and we will extend the exchange offer as required by applicable law.

Pursuant to the Registration Rights Agreement, we are required to file with the SEC a shelf registration statement with respect to the Original Notes and New Notes as soon as reasonably practicable but no later than

 

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the 45th business day after the time such obligation to file arises, as per Section 2(b) of the Registration Rights Agreement and thereafter use all commercially reasonable efforts to cause the shelf registration statement to be declared effective on or prior to the 150th day after the filing date, if:

 

(1) the exchange offer is not permitted by law or applicable interpretations of the staff of the SEC; or

 

(2) the exchange offer has not been completed within 255 days following the Closing Date; or

 

(3) in certain circumstances, certain holders of the registered New Notes so request; or

 

(4) in the case of any holder that participates in the exchange offer, such holder does not receive New Notes on the date of the exchange that may be sold without restriction under state and federal securities laws.

Exchange Agent

The Bank of New York Mellon has been appointed as exchange agent for the exchange offer, and is also the trustee under the indenture under which the New Notes will be issued. Questions and requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to The Bank of New York Mellon, addressed as follows:

By Registered or Certified Mail; Hand or Overnight Delivery:

THE BANK OF NEW YORK MELLON

Corporate Trust operations—Reorg Unit

101 Barclay Street Floor 7E

New York, New York 10286

By Facsimile Transmission:

(Eligible Institutions Only)

(212) 298-1915

Attn: Randolph Holder

For Information or to Confirm by Telephone Call

(212) 815-5098

Fees and Expenses

We have agreed to bear the expenses of the exchange offer pursuant to the Registration Rights Agreement. We have 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. We, 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 with providing the services.

We will pay the cash expenses to be incurred in connection with the exchange offer. These expenses include fees and expenses of The Bank of New York Mellon, as exchange agent, accounting and legal fees and printing costs, among others.

Accounting Treatment

The New Notes will be recorded at the same carrying value as the Original Notes as reflected in our accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by us. The expenses of the exchange offer and the unamortized expenses related to the issuance of the Original Notes will be amortized over the term of the New Notes.

 

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Consequences of Failure to Exchange

Holders of Original Notes who are eligible to participate in the exchange offer but who do not tender their Original Notes will not have any further registration rights, and their Original Notes will continue to be restricted for transfer. Accordingly, such Original Notes may be resold only:

 

(a) to us, upon redemption of the Original Notes or otherwise;

 

(b) so long as the Original Notes are eligible for resale pursuant to Rule 144A under the Securities Act to a person inside the United States whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A, in a transaction meeting the requirements of Rule 144A;

 

(c) in accordance with Rule 144 under the Securities Act, or under another exemption from the registration requirements of the Securities Act, and based upon an opinion of counsel reasonably acceptable to us;

 

(d) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act; or

(e) under 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.

Regulatory Approvals

We do not believe that the receipt of any material federal or state regulatory approval will be necessary in connection with the exchange offer, other than the effectiveness of the exchange offer registration statement under the Securities Act.

Other

Participation in the exchange offer is voluntary and holders of Original Notes should carefully consider whether to accept the terms and condition of this exchange offer. Holders of the Original Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take with respect to the exchange offer.

 

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BUSINESS

General

We believe that we are the largest coated paper manufacturer in North America, based on production capacity. Coated paper is used primarily in media and marketing applications, such as high-end advertising brochures, direct mail advertising, coated labels, magazines, magazine covers and inserts, catalogs and textbooks. We currently operate 20 paper machines at ten paper mills located in Kentucky, Maine, Maryland, Michigan, Minnesota, Wisconsin and Nova Scotia, Canada. These mills, along with our distribution centers, are strategically located near major print markets, such as New York, Chicago, Minneapolis and Atlanta.

We believe our scale and efficiencies are unmatched within the industry, with annual production capacity of approximately 4.4 million short tons of paper, including approximately 3.2 million short tons of coated paper, approximately 1.0 million short tons of supercalendered and other uncoated paper and approximately 200,000 short tons of specialty paper. Most of our pulp is produced internally in order to reduce the amount of pulp purchased from third parties, and we sell our excess hardwood pulp to third parties in the United States and internationally. This integration helps to insulate us from fluctuations in earnings caused by changes in pulp prices. In addition, energy derived from renewable energy sources, including biomass and pulp production, helps reduce our dependence on fossil fuels.

We have long-standing relationships with many leading publishers, commercial printers, retailers and paper merchants. Our key customers include Condé Nast Publications, The McGraw-Hill Companies, Meredith Corporation, News America Group, Pearson Education, Rodale Inc. and Time Inc. in publishing; Quad/Graphics, R.R. Donnelley & Sons Company and World Color Press Inc. in commercial printing; Sears Holdings Corporation and Williams-Sonoma, Inc. in retailing; and paper merchants Lindenmeyr, a division of Central National-Gottesman Inc., Unisource Worldwide, Inc. and xpedx, a division of International Paper Company. Key customers for specialty paper products include Avery Dennison Corporation and Vacumet Corp.

Industry Overview

The North American paper industry is cyclical and prices for paper, like other cyclical products, are largely affected by the relation of demand to available supply.

North American coated paper demand is primarily driven by advertising and print media usage. In particular, the demand for certain grades of coated paper is affected by spending on catalog and promotional materials by retailers and spending on magazine advertising, which affects the number of printed pages in magazines. Advertising spending and magazine and catalog circulation tend to rise when gross domestic product (“GDP”) in the United States is robust and typically decline in a sluggish economy. During 2009, North American coated paper demand declined significantly from the prior year reflecting decreased advertising spending and magazine and catalog circulation largely attributable to general economic factors and inventory reductions by coated paper users. North American coated paper users purchased approximately 9 million short tons of coated paper in 2009 compared with approximately 12 million short tons of coated paper in 2008.

In North America, coated paper supply is determined by both local production and imports, principally from Europe and Asia. Imports have become a structural part of the North American coated paper marketplace. The volume of coated paper imports from Europe and Asia is a function of worldwide supply and demand for coated paper, the exchange rate of the U.S. dollar relative to other currencies, especially the Euro, market prices in North America and other markets and the cost of ocean-going freight. From January 2008 through December 2009, mills and machines in North America with gross coated paper capacity of approximately 2 million tons have been shuttered or switched to other grades. In addition, the industry has also taken significant levels of market-related downtime and temporary shutdowns.

 

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According to RISI, operating rates for North American coated paper manufacturers, which are a function of North American supply and demand were 80% in 2009 as a result of weak demand. RISI projects the average coated paper operating rate will improve in 2010 to 88% and settle at an average of 91% from 2011 through 2014.

After generally rising from June 2004 to September 2008, coated paper prices in the United States significantly declined through October 2009 as a result of poor demand, the negative effects of imports of coated paper from China and Indonesia and the alternative fuel mixture tax credits compared to supply before leveling off in the fourth quarter of 2009. When coated paper manufacturers announce price increases, they generally take effect over a period of time. Whether a price increase is successful depends on supply, demand and other competitive factors in the marketplace. RISI forecasts the average price of grade No. 3, 60-pound coated paper to decrease to $916 per ton in 2010 from $946 per ton in 2009 and the average price of grade No. 4, 50-pound coated paper to decrease to $859 per ton in 2010 from $896 per ton in 2009. RISI forecasts the prices of both grades to begin to increase during 2010 and through 2014.

Business Strategy

The key elements of our strategy include the following:

Maintain core focus on coated paper business. We believe we are one of the most efficient coated paper manufacturers in North America. We believe that by focusing primarily on coated paper, we are able to reduce operating costs, generate greater economies of scale and provide a higher level of customer service. Additionally, with our geographic locations and size of facilities, we are able to reduce delivery costs and provide larger shipment sizes. We also have a product line of supercalendered uncoated groundwood papers, a complementary lower cost alternative to coated paper primarily for magazines, catalogs and retail inserts.

Continue to reduce costs through productivity improvements. Over the last several years, we have significantly reduced our costs by consolidating operations and focusing on operational efficiency. During 2008, we announced restructuring plans that included the shutdown in 2008 and early 2009 of six of our less efficient, higher cash cost paper machines, as well as selected headcount reductions. Since 2000, we have implemented best practices across our mill system and have focused on maximizing overall profitability, rather than on a mill-by-mill basis. According to RISI, for the fourth quarter of 2009, our cash cost per ton excluding delivery represented an advantage of 8%, or $49 per ton, over the North American average. This is lower than our historical cost advantage due to low pulp prices, which disproportionately benefit non-integrated paper producers. As pulp prices return to third quarter 2008 levels, we expect our cash cost advantage to return to the levels attained in the third quarter of 2008, during which RISI estimated that we had a cash cost per ton advantage of 14%, or $84 per ton, excluding delivery. Over the past three years, we have also invested heavily in our Lean Six Sigma initiatives to improve the operating efficiency and productivity of our mills. We believe that Lean Six Sigma initiatives and selective capital projects will enhance our ability to further decrease production costs per ton and to increase operating cash flow and margins.

Enhance product mix to improve margins and earnings. We continue to seek opportunities to increase sales of higher-margin grades of coated paper, such as higher-end grades of coated papers and ultra light-weight coated groundwood papers. We intend to implement this strategy by pursuing increased sales to our existing customers as well as to new customers, in particular printers, publishers and paper merchants.

Further improve cash flow and return on capital. Since the inception of our company, we have focused on increasing our cash flow and our return on capital, including through the strategy initiatives discussed above. We also adopted and have continued to implement a capital expenditure plan that is focused on attractive investment projects. In addition, we believe, based on our current business plans, capital structure, tax position

 

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and existing tax law, that we will not be required to pay material U.S. federal income taxes prior to 2013. We believe that our current productivity initiatives and mill closures described herein, coupled with more favorable pricing projections for coated paper, will enhance our ability to generate cash flow and improve our return on capital. We intend to use our excess cash flow to repay debt and finance continued improvements in our operations.

Business Strengths

We believe that our core strengths include the following:

Largest North American manufacturer of coated paper products. Our mills have a total annual production capacity of approximately 4.4 million short tons of paper. We represented approximately 35% of 2009 North American coated paper production capacity, according to RISI. We believe that our broad product portfolio, well-known brands and service will help us to remain a leading supplier of coated paper products.

Well positioned to benefit from up-turn in the industry cycle. We believe that we are well positioned to benefit from an up-turn in the coated paper industry as a result of our product breadth and long-standing customer relationships.

Significant, well-invested asset base. We have a significant asset base and some of our paper machines are among the newest in North America. We have invested significantly in our mills in order to maintain our facilities and to increase our productivity. We have also improved our cost position by consistently closing higher cost facilities. As a result, we believe that our paper mills are among the most efficient in the industry, enabling us to more efficiently serve our customers.

Attractive cost position coupled with further profit improvement initiatives. As of March 31, 2010, 90% of our non-specialty coated paper machines were in the top 20% of efficiency of all non-specialty coated paper machines in North America, Europe and Asia based on the cash cost of delivered product to Chicago, as reported by RISI. We have significantly reduced, and intend to continue to reduce, our costs through our award-winning Lean Six Sigma initiatives, capital projects, economies of scale with respect to our central services and ensuring that orders are filled using the most cost effective machines. We believe that we will be able to further enhance our operating efficiency and profitability as a result of the initiatives described above, as well as our ability to generate a substantial portion of our energy needs internally and adjust our mix of internally and externally sourced energy and our production of low cost pulp through our integrated pulp operations.

Strong relationships with key customers. We have long-standing relationships with many leading publishers, paper merchants, commercial printers and retailers. We believe our sales strategy, which includes both direct sales to our larger customers and sales to merchants, who then resell our products, has reduced sales costs and enhanced customer service. Our relationships with our five largest customers, which contributed approximately half of our net sales for 2009, average over 30 years. We seek to continue to enhance our relationships with our key customers by providing them with a high level of value-added customer service.

Efficient and integrated supply chain. We believe that the location of our mills and distribution centers near major print markets, such as New York, Chicago, Minneapolis and Atlanta, affords us the ability to more quickly and cost-effectively deliver our products to those markets. In addition, we believe that our fully-implemented integrated enterprise resource planning, or ERP, system enables us to run our operations cost-effectively through better planning of manufacturing runs and tracking of costs and inventory. Our ERP system also enhances our customer service, because it gives many of our customers the ability to order products and to track the real-time progress of their orders online.

 

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Experienced management team with proven track record. Our chairman of the board and senior management team averages approximately 14 years of experience in the paper and forest products industry. Our chairman, Mark A. Suwyn, who has been with our Company since 2005, previously was the chairman and chief executive officer of Louisiana-Pacific Corporation, a building product materials manufacturing company that he headed from 1996 to 2004. Prior to Louisiana-Pacific, Mr. Suwyn served as an executive vice president at International Paper. In addition, our president and chief executive officer, E. Thomas Curley, has 30 years of proven leadership experience with four multinational corporations. Mr. Curley was president of the Rolls-Royce Energy business from 2002 to 2009, and prior to that Mr. Curley worked for Cooper Cameron Corporation and Caterpillar Inc. Mr. Curley also spent 15 years with General Electric Company. In addition to strong general management skills, Mr. Curley brings extensive leadership experience within a broad spectrum of corporate environments and competitive markets, as well as demonstrated success in improving business financial performance.

Products

Our portfolio of core paper products includes coated freesheet, coated groundwood, supercalendered, newsprint and specialty papers. Specialty papers are primarily used in labels and packaging. We offer the broadest coated paper product selection of any North American paper manufacturer. We also sell uncoated paper and market pulp. Our brands are some of the most recognized brands in the industry. Substantially all of our 2009 sales were within North America and approximately 91% were within the United States. Our principal product is coated paper, which represented approximately 80% of our net sales for the year ended December 31, 2009.

Coated Paper

We believe that we are the largest coated paper manufacturer in North America based on production capacity. As of December 31, 2009, our mills have total annual production capacity of approximately 3.2 million short tons of coated paper. Coated paper is used primarily in media and marketing applications, including corporate annual reports, high-end advertising brochures, magazines, catalogs and direct mail advertising. Coated paper has a higher level of smoothness than uncoated paper. Increased smoothness is typically achieved by applying a clay-based coating on the surface of the paper and processing that paper under heat and pressure. As a result, coated paper achieves higher reprographic quality and printability.

Coated paper consists of both coated freesheet and coated groundwood, which generally differ in price and quality. The chemically-treated pulp used in freesheet applications produces brighter and smoother paper than the mechanical pulp used in groundwood papers. Coated freesheet papers comprised 58% of the coated paper we produced in 2009. We produce coated freesheet papers in No. 1, No. 2 and No. 3 grades for higher-end uses such as corporate annual reports and high-end advertising, as well as coated one-side paper (C1S), which is used primarily for label and specialty applications.

Coated groundwood papers, which represented 42% of the coated paper we produced in 2009, are typically lighter and less expensive than our coated freesheet products. We produce coated groundwood papers in No. 3, No. 4 and No. 5 grades for use in applications requiring lighter paper stock such as magazines, catalogs and inserts.

Each of the paper grades that we manufacture are produced in a variety of weights, sizes and finishes. The coating process changes the gloss, ink absorption qualities, texture and opacity of the paper to meet each customer’s performance requirements. Most of the coated paper that we manufacture is shipped in rolls, with the rest cut into sheets.

 

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Supercalendered Paper

Supercalendered paper is uncoated paper with pigment filler passed through a supercalendering process in which alternating steel and cotton-covered rolls “iron” the paper, giving it a gloss and smoothness similar to coated paper. Our supercalendered paper is primarily used for magazines, catalogs, advertisements, inserts and flyers. We produce supercalendered paper primarily in SC-A and SC-A+ grades.

Newsprint Paper

Newsprint paper is uncoated groundwood paper used primarily for printing daily newspapers and other publications. We are a niche supplier of newsprint paper serving the North American and select international markets in the publishing and printing industry for major end-uses such as inserts and fliers for retail customers.

Specialty Paper

Specialty paper consists of both coated and uncoated paper designed and produced to meet the specific packaging, printing and labeling needs of customers with diverse and specialized paper needs. Specialty papers consist of two primary product lines: technical papers and packaging papers.

Technical papers consist of face papers, thermal transfer, direct thermal base papers and release liners for use in self-adhesive labels. Packaging papers are designed to protect, transport and identify a wide range of products.

Flexible packaging papers are often used as part of a multilayer package construction, in combination with film, foil, extruded coatings, board and other materials. For example, flexible packaging papers are used in pouch, lidding, bag, product packaging and spiral can applications.

Other Products

We also produce uncoated paper and market pulp to enhance our manufacturing efficiency by filling unused capacity, such as when we have excess capacity on a paper machine but not on a coater. Uncoated paper typically is used for business forms and stationery, general printing paper and photocopy paper. We primarily sell uncoated paper to paper merchants, business forms manufacturers and converters. We use substantially all of our pulp production internally and sell some of the excess production to external customers.

 

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Manufacturing

We operate 20 paper machines at ten paper mills located in Kentucky, Maine, Maryland, Michigan, Minnesota, Wisconsin and Nova Scotia, Canada. All of these paper mills are at least partially-integrated mills, meaning that they produce paper, pulp and energy. Most of the energy produced at these mills is for internal use. As of December 31, 2009, our mills have total annual production capacity of approximately 4.4 million short tons of paper, including approximately 3.2 million short tons of coated paper, approximately 1 million short tons of uncoated paper and approximately 200,000 short tons of specialty paper. With the exception of our Port Hawkesbury, Nova Scotia, mill, substantially all of our long-lived assets are located within the United States. The following table lists the paper products produced at each of our mills, as well as each mill’s approximate annual paper capacity, as of December 31, 2009:

 

Mill Location

  

Products

   Paper Capacity
(short tons/year)

Biron, Wisconsin

   Coated paper    400,000

Duluth, Minnesota

   Supercalendered paper    260,000

Escanaba, Michigan

   Coated and uncoated paper    845,000

Luke, Maryland

   Coated and specialty paper    530,000

Port Hawkesbury, Nova Scotia

   Supercalendered paper and newsprint    590,000

Rumford, Maine

   Coated and specialty paper    570,000

Stevens Point, Wisconsin

   Specialty paper    170,000

Whiting, Wisconsin

   Coated paper    260,000

Wickliffe, Kentucky

   Coated, specialty and uncoated paper    255,000

Wisconsin Rapids, Wisconsin

   Coated paper    520,000

During 2008, we shut down six of our less efficient, higher cash cost paper machines. We reallocated production of paper grades across our remaining combined machine base, resulting in the operation of machines in narrower ranges of paper grades around their peak production. In addition, we completed the shutdown of our Chillicothe, Ohio converting facility in February 2009 and transferred production to our remaining two converting facilities. As a result of the restructuring activities undertaken, we reduced our overall workforce by approximately 11% from December 31, 2007 to December 31, 2009.

Through reallocation of production among our combined mills, we are producing products in closer proximity to our customers to reduce freight costs. In addition, we continue to implement best practices across our combined mill system and focus on increasing our overall profitability, rather than independently at each individual mill.

Paper machines are large, complex systems that operate more efficiently when operated continuously. Paper machine production and yield decline when a machine is stopped for any reason. Therefore, we organize our manufacturing processes so that our paper machines and most of our paper coaters run almost continuously throughout the year. Some of our paper machines also offer the flexibility to change the type of paper produced on the machine, which allows easier matching of production schedules and seasonal and geographic demand swings.

The first step in the production of paper is to produce pulp from wood. Pulp for groundwood and supercalendered paper is produced using a mechanical or thermo-mechanical process. Pulp for freesheet paper is produced by placing wood chips that are mixed with various chemicals into digester “cooking” vessels. The pulp is then washed and bleached. To turn the pulp into paper, it is processed through a paper machine. Hardwood and softwood pulp is blended based on the desired paper characteristics.

To produce coated paper, uncoated paper is put through a coating process. Our mills have both on-machine coaters, which are integrated with the paper machines, and separate off-machine coaters. On-machine coaters

 

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generally are considered to be more efficient, while off-machine coaters generally are considered to have more flexibility. After the coating process is complete, the coated paper is slit and wound into rolls to be sold to customers. We also have converting facilities at which we convert some of these rolls into sheets.

Paper production is energy intensive. During 2009, we produced approximately 45% of our energy requirements by means of biomass-related fuels, which included black liquor, wood waste and bark. The energy we purchased from outside suppliers consisted of a portion of our electricity, natural gas, fuel oil, steam, petroleum coke, tire-derived fuel and coal. The majority of our coal needs are purchased under long-term supply contracts, while the other purchased fuels are priced based on current market rates. We periodically enter into fixed priced contracts or financial hedges for a portion of our estimated future natural gas requirements.

Our wholly-owned subsidiary, Consolidated Water Power Company, or CWPCo, provides energy to our mills in central Wisconsin. CWPCo has 33.3 megawatts of generating capacity on 39 generators located in five hydroelectric plants on the Wisconsin River. CWPCo is a regulated public utility and also provides electricity to a small number of residential, light commercial and light industrial customers.

We also are the general partner and have a 40% investment in Rumford Cogeneration Company L.P., a joint venture created to generate power for us at our Rumford, Maine, mill and for public sale. During 2009, we purchased the partnership interest of one limited partner. We also entered into an agreement in 2009 to purchase the remaining partnership interests for $6 million by December 31, 2010.

Raw Materials and Suppliers

Pulp and wood fiber are the primary raw materials used in making paper. Pulp is the generic term that describes the cellulose fiber derived from wood. These fibers may be separated by mechanical, thermo-mechanical or chemical processes. The processes we use at our mills to produce pulp for freesheet paper involve removing the lignin, which bind the wood fibers, to leave cellulose fibers. We use most of our pulp production internally to reduce the amount of pulp purchased from third parties. We sell our excess hardwood pulp, which we refer to as market pulp, to third parties in the United States and internationally.

The primary sources of wood fiber are timber and its byproducts, such as wood chips. We are a party to various fiber supply agreements to supply our mills with hardwood, softwood, aspen pulpwood and wood chips. These agreements require the counterparty to sell to the mills, and require the mills to purchase, a designated minimum number of tons of pulpwood and wood chips during the specified terms of the arrangement, which have various expiration dates from December 31, 2010 to December 31, 2053. The aggregate annual purchase requirement under these agreements is approximately 3 million tons in 2010, approximately 2 million tons per year from 2011 to 2015, approximately 1 million tons per year from 2016 to 2020 and approximately 300,000 tons per year from 2021 to 2026. In 2020, all of the agreements terminate with the exception of an agreement with respect to our Rumford, Maine, mill, which terminates in 2053. For all of the pulpwood agreements, we may purchase a substantial portion of any additional pulpwood harvested by the counterparty during each year. The prices to be paid under these agreements are determined by formulas based upon market prices in the relevant regions and are subject to periodic adjustments based on procedures stipulated in each agreement. The amount of timber we receive under these agreements has varied, and is expected to continue to vary, according to the price and supply of wood fiber for sale on the open market and the harvest levels the timberland owners deem appropriate in the management of the timberlands.

Our Port Hawkesbury, Nova Scotia mill manages approximately 1,500,000 acres of land licensed from the Province of Nova Scotia and 59,000 acres of land we own in Nova Scotia. All wood harvested from the licensed lands must be used in our Port Hawkesbury mill unless otherwise agreed to by the Province of Nova Scotia. The license is for a 50 year period, renewable every 10 years, and currently expires in July 2051. The license may be terminated by the Province of Nova Scotia if the Port Hawkesbury mill is not operational for a continuous period of two years.

 

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We seek to fulfill substantially all of our wood needs with timber that is harvested by professional loggers trained in certification programs that are designed to promote sustainable forestry. We do not accept wood from old growth forests, forests of exceptional conservation value or rainforests. We do not accept illegally harvested or stolen wood. We have formally notified our outside wood chip suppliers that we expect their wood supply will be produced by trained loggers in compliance with sustainable forestry principles. Our goal is to ensure that sustainable forestry-trained loggers are used to supply essentially all of the wood to our mills. We oppose and, through our participation in the American Forest and Paper Association, World Resources Institute and other organizations, are working to stop illegal logging in the United States and worldwide.

Chemicals used in the production of paper include latex and starch, which are used to affix coatings to paper; calcium carbonate, which brightens paper; titanium, which makes paper opaque; and other chemicals used to bleach or color paper. We purchase these chemicals from various suppliers. We believe that the loss of any one or any related group of chemical suppliers would not have a material adverse effect on our business, financial condition or results of operations.

Customers

We have long-standing relationships with many leading publishers, commercial printers, retailers and paper merchants. Our ten largest customers accounted for approximately half of our net sales for 2009. Our key customers include Condé Nast Publications, The McGraw-Hill Companies, Meredith Corporation, News America Group, Pearson Education, Rodale Inc. and Time Inc. in publishing; Quad/Graphics, R.R. Donnelley & Sons Company and World Color Press Inc. in commercial printing; Sears Holdings Corporation and Williams-Sonoma, Inc. in retailing; and paper merchants Lindenmeyr, a division of Central National-Gottesman Inc., Unisource Worldwide, Inc. and xpedx, a division of International Paper Company. Key customers for specialty paper products include Avery Dennison Corporation and Vacumet Corp.

During 2009, xpedx accounted for 19% of net sales. No other customer accounted for more than 10% of our 2009 net sales.

Sales, Marketing and Distribution

We sell our paper products primarily in the United States and Canada, using three sales channels:

 

   

direct sales, which consist of sales made directly to end-use customers, primarily large companies such as publishers, printers and retailers

 

   

merchant sales, which consist of sales made to paper merchants and brokers, who in turn sell to end-use customers

 

   

specialty sales, which consist of sales made to packaging and label manufacturers

Across the three channels of our sales network, sales professionals are compensated with a salary and bonus plan based on account profitability and individual assignments. As part of our customer service, we seek to provide value-added services to customers. For example, within the merchant channel, we work closely with customers to meet specifications and to utilize joint marketing efforts when appropriate.

We also emphasize technical support as part of our commitment to customers. We seek to enhance efficiency for customers by enabling them to interact with us online, including through order access, planning, customer data exchange and consumption estimation tools.

The locations of our paper mills and distribution centers also provide certain logistical advantages as a result of their close proximity to several major print markets, including New York, Chicago, Minneapolis and Atlanta, which affords us the ability to more quickly and cost-effectively deliver our products to those markets. We have two major distribution facilities located in Bedford, Pennsylvania and Sauk Village, Illinois. In total, we own one

 

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warehouse and lease space in approximately 50 warehouses. Paper merchants also provide warehouse and distribution systems to service the needs of commercial print customers. We use third parties to ship our products by truck and rail. In addition, we utilize integrated tracking systems that track all of our products through the distribution process. Customers can access order tracking information over the internet. Most of our products are delivered directly to printers or converters, regardless of sales channel.

Competition

The North American paper industry is highly competitive. We compete based on a number of factors, including price, product availability, quality, breadth of product offerings, customer service and distribution capabilities. When a coated paper manufacturer announces a price increase, it generally takes effect over time. Whether a price increase is successful depends on supply, demand and other competitive factors in the marketplace.

Our primary competitors for coated paper are AbitibiBowater Inc., Appleton Coated LLC, Sappi Limited, UPM-Kymmene Corporation and Verso Paper, Inc. Our primary competitors for supercalendered paper are AbitibiBowater Inc., Catalyst Paper Corporation and Irving Paper Ltd. Our primary competitors for newsprint are AbitibiBowater Inc. and Catalyst Paper Corporation.

The competition in the specialty paper category is diverse and highly fragmented, varying by product end use. Our primary competitors for specialty paper products are Boise Cascade LLC, Dunn Paper Inc., Fraser Papers Inc., International Paper Company, UPM-Kymmene Corporation and Wausau Paper Corp.

Some of our competitors have greater financial and other resources than we do or may be better positioned than we are to compete for certain opportunities. We also believe that our competitors in China and Indonesia have been selling their products in our markets at less than fair value and have been subsidized by their governments. In September 2009, NewPage, along with two other U.S. paper producers and the United Steelworkers Union, filed antidumping and countervailing duty petitions with the U.S. Department of Commerce and the U.S. International Trade Commission alleging that manufacturers of certain coated paper in China and Indonesia are dumping their products in the United States and that these manufacturers have been subsidized by their governments in violation of U.S. trade laws.

The U.S. International Trade Commission determined by unanimous vote in November 2009 that there is a reasonable indication that the U.S. industry is being materially injured by unfairly traded Chinese and Indonesian imports. The Department of Commerce announced its preliminary countervailing duty determinations in March 2010 and its preliminary dumping determinations in April 2010. We expect that final determinations in the cases will be completed by the end of 2010.

If the Department of Commerce makes a final determination that dumping or subsidies are present and the International Trade Commission determines that the domestic industry has been injured as a result, the Department of Commerce will impose final duties on the covered products imported from these countries in order to offset the effects of the dumping and subsidies. No assurance can be given as to when these determinations will be made, that final duties will be imposed or as to the amount of any final duties that may be imposed.

Information Technology Systems

We use integrated information technology systems that help us manage our product pricing, customer order processing, customer billing, raw material purchasing, inventory management, production controls and shipping management, as well as our human resources management and financial management. Our information technology systems utilize principally third-party software. As part of the reorganization plan associated with the Acquisition, we migrated the acquired mills to our existing information technology system and integrated NPCP’s order management, purchasing, inventory and finance information systems with our existing systems and completed this action during the third quarter of 2009.

 

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Intellectual Property

In general, paper production does not rely on proprietary processes or formulas, except in highly specialized or custom grades. We hold foreign and domestic patents as a result of our research and product development efforts and also have the right to use certain other patents and inventions in connection with our business. We also own registered trademarks for some of our products. Although, in the aggregate, our patents and trademarks are important to our business, financial condition and results of operations, we believe that the loss of any one or any related group of intellectual property rights would not have a material adverse effect on our business, financial condition or results of operations.

Employees

As of March 31, 2010, we had approximately 7,500 employees. Approximately 70% of our employees were represented by labor unions, principally by the United Steelworkers, the International Brotherhood of Electrical Workers, the Communications, Energy and Paperworkers Union of Canada, the International Association of Machinists and Aerospace Workers, the United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada, the Teamsters, Chauffeurs, Warehousemen and Helpers, and the Office & Professional Employees’ International Union.

We have 17 collective bargaining agreements expiring at various times through December 1, 2012. Approximately 925 employees at the Escanaba, Michigan mill are covered under three contracts that expired in June and July of 2008 and are currently under renegotiation. In addition, three contracts covering an aggregate of approximately 550 employees at our Port Hawkesbury, Nova Scotia mill expired on May 31, 2009. The unions at this mill engage in pattern bargaining, which means that they negotiate a new contract with one industry participant before negotiating with others. The unions currently are negotiating with another paper company and have not yet initiated negotiations with us.

We have not experienced any significant work stoppages or employee-related problems that had a material effect on our operations over the last five years. We consider our employee relations to be good. Our Port Hawkesbury, Nova Scotia, mill was closed from December 2005 until October 2006, before our ownership of the mill, due to a labor dispute.

Environmental and Other Governmental Regulations

Our operations are subject to federal, state, provincial and local environmental laws and regulations in the United States and Canada, such as the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or CERCLA. Among the activities subject to environmental regulation are the emissions of air pollutants; discharges of wastewater and stormwater; generation, use, storage, treatment and disposal of, or exposure to, materials and waste; remediation of soil, surface water and ground water contamination; and liability for damages to natural resources. In addition, we are required to obtain and maintain environmental permits and approvals in connection with our operations. Many environmental laws and regulations provide for substantial fines or penalties and criminal sanctions for failure to comply with orders and directives requiring that certain measures or actions be taken to address environmental issues.

Certain of these environmental laws, such as CERCLA and analogous state and foreign laws, provide for strict liability, and under certain circumstances joint and several liability, for investigation and remediation of releases of hazardous substances into the environment, including soil and groundwater. These laws may apply to properties presently or formerly owned or operated by or presently or formerly under the charge, management or control of an entity or its predecessors, as well as to conditions at properties at which wastes attributable to an entity or its predecessors were disposed. Under these environmental laws, a current or previous owner or operator

 

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of real property or a party formerly or previously in charge, management or control of real property, and parties that generate or transport hazardous substances that are disposed of at real property, may be held liable for the cost to investigate or clean up that real property and for related damages to natural resources.

We handle and dispose of wastes arising from our mill operations, including by the operation of a number of landfills. We may be subject to liability, including liability for investigation and cleanup costs, if contamination is discovered at one of these mills, landfills, or at another location where we have disposed of, or arranged for the disposal of, waste. While we believe, based upon current information, that we are in substantial compliance with applicable environmental laws and regulations, we could be subject to potentially significant fines or penalties for failing to comply with environmental laws and regulations. MeadWestvaco and SEO have separately agreed to indemnify us for certain environmental liabilities related to the properties acquired from them, subject to certain limitations. We agreed to indemnify the purchaser of our carbonless paper business for certain environmental liabilities, subject to certain limitations.

Compliance with environmental laws and regulations is a significant factor in our business. Environmental compliance may require significant capital or operating expenditures over time as environmental laws or regulations, or interpretation thereof, change or the nature of our operations require us to make significant additional expenditures. We did not incur any capital expenditures in 2009 to maintain compliance with applicable environmental laws and regulations and to meet new regulatory requirements and we do not expect to incur any environmental capital expenditures in 2010.

Our operations also are subject to a variety of worker safety laws in the United States and Canada. The Occupational Safety and Health Act, U.S. Department of Labor Occupational Safety and Health Administration regulations and analogous state and provincial laws and regulations mandate general requirements for safe workplaces for all employees. We believe that we are operating in material compliance with applicable employee health and safety laws.

Properties

Our corporate headquarters is located in Miamisburg, Ohio. We own the mills where we produce our paper products and own the converting facilities where we convert rolls of paper to sheets. We believe that we have sufficient capacity at our manufacturing facilities to meet our production needs for the foreseeable future. In addition, we lease space or have third-party arrangements to utilize space in approximately 50 warehouse facilities. All of our owned facilities (except those owned by CWPCo) are pledged as collateral under our various debt agreements. The following table lists the purpose of each of our significant facilities, as well as whether the facility is owned or leased:

 

Location

  

Purpose

  

Owned or
Leased/Expiration

Miamisburg, Ohio

   Corporate headquarters    Leased/2017

Biron, Wisconsin

   Paper mill    Owned

Duluth, Minnesota

   Paper mill    Owned

Escanaba, Michigan

   Paper mill    Owned

Luke, Maryland

   Paper mill    Owned

Luke, Maryland

   Warehouse and converting    Owned

Port Hawkesbury, Nova Scotia

   Paper mill    Owned

Rumford, Maine

   Paper mill    Owned

Stevens Point, Wisconsin

   Paper mill    Owned

Whiting, Wisconsin

   Paper mill    Owned

Wickliffe, Kentucky

   Paper mill    Owned

Wisconsin Rapids, Wisconsin

   Paper mill, warehouse and converting    Owned

 

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Legal Proceedings

In September 2009, NewPage, along with two other U.S. paper producers and the United Steelworkers Union, filed antidumping and countervailing duty petitions with the U.S. Department of Commerce and the U.S. International Trade Commission alleging that manufacturers of certain coated paper in China and Indonesia are dumping their products in the United States and that these manufacturers have been subsidized by their governments in violation of U.S. trade laws.

The U.S. International Trade Commission determined by unanimous vote in November 2009 that there is a reasonable indication that the U.S. industry is being materially injured by unfairly traded Chinese and Indonesian imports. The Department of Commerce announced its preliminary countervailing duty determinations in March 2010 and its preliminary dumping determinations in April 2010. We expect that final determinations in the cases will be completed by the end of 2010.

If the Department of Commerce makes a final determination that dumping or subsidies are present and the International Trade Commission determines that the domestic industry has been injured as a result, the Department of Commerce will impose final duties on the covered products imported from these countries in order to offset the effects of the dumping and subsidies. No assurance can be given as to when these determinations will be made, that final duties will be imposed or as to the amount of any final duties that may be imposed.

We are involved in various other litigation and administrative proceedings that arise in the ordinary course of business. Although the ultimate outcome of these matters cannot be predicted with certainty, we do not believe that the currently expected outcome of any matter, lawsuit or claim that is pending or threatened, or all of them combined, will have a material adverse effect on our financial condition, results of operations or liquidity.

 

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MANAGEMENT

Directors and Executive Officers

The following are the names, ages and a brief account of the business experience of our directors and executive officers as of the date of this prospectus.

 

Name

   Age   

Position

Mark A. Suwyn

   67    Chairman of the Board

E. Thomas Curley

   54    Director, President and Chief Executive Officer

Robert M. Armstrong

   71    Director

Ronald C. Kesselman

   67    Director

Charles E. Long

   70    Director

James R. Renna

   39    Director

John W. Sheridan

   55    Director

Lenard B. Tessler

   58    Director

Alexander M. Wolf

   35    Director

George J. Zahringer, III

   57    Director

Daniel A. Clark

   51    Senior Vice President, Business Excellence and Chief Information Officer

Douglas K. Cooper

   62    Vice President, General Counsel and Secretary

Michael T. Edicola

   52    Vice President, Human Resources

George F. Martin

   53    Senior Vice President, Operations

Michael L. Marziale

   52    Senior Vice President, Marketing, Strategy and General Management

Barry R. Nelson

   45    Senior Vice President, Sales

David J. Prystash

   48    Senior Vice President and Chief Financial Officer

Mark A. Suwyn has been the chairman of the board of directors of NewPage and NewPage Holding since May 2005 and has been the chairman of the board of directors of NewPage Group since October 2007. Mr. Suwyn was the chief executive officer of NewPage from April 2006 to March 2009 and also acted in that capacity on an interim basis from March 2006 to April 2006 and from January 2010 to February 2010. From November 2004 to May 2005, Mr. Suwyn served as a consultant for Cerberus Capital Management through Marsuw, LLP, a company for which he was the founder and president. Mr. Suwyn was chairman and chief executive officer of Louisiana-Pacific Corporation from 1996 until October 2004. Mr. Suwyn serves as a board member of Ballard Power Systems Inc. and BlueLinx Holdings, Inc. He previously served on the board of directors of United Rentals Inc. from September 2004 until July 2007 and Unocal Corporation from January 2004 until August 2005.

E. Thomas Curley has been a member of the board of directors of NewPage, NewPage Holding and NewPage Group since February 2010. Mr. Curley has been president and chief executive officer since February 2010. From January 2002 to March 2009, Mr. Curley served as president of the Rolls-Royce Energy business, which provides gas compression and power generation equipment and services to the oil and gas industry. Prior to that, Mr. Curley served as president of Oil & Gas for the Rolls-Royce energy business from 1999 to January 2002. Mr. Curley’s career includes 15 years of operating experience at General Electric Company in seven locations and 15 positions in increasing management responsibilities, three years at Caterpillar Inc. running the Hydraulics business and three years at a division of Cooper Cameron Corporation. Mr. Curley also teaches at Ohio State University’s Fisher College of Business.

Robert M. Armstrong has been a member of the board of directors of NewPage and NewPage Holding since April 2006 and a member of the board of directors of NewPage Group since October 2007. Mr. Armstrong serves on the board and audit committee of the Quantitative Group of Mutual Funds. Mr. Armstrong has been a private consultant since 1998.

 

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Ronald C. Kesselman has been a member of the board of directors of NewPage, NewPage Holding and NewPage Group since May 2010. Mr. Kesselman has a 40-year career in senior executive and management positions with consumer products and food processing companies, including past service as chairman and chief executive officer of Elmer Products, Inc. from 1995 to 2003 and chief executive officer of the Berwind Consumer Products Group from 2003 through 2004 after the sale of Elmer’s to the Berwind Group. Mr. Kesselman currently serves on the boards of directors of American Italian Pasta Company, a pasta manufacturing and marketing company, Imperial Sugar Company, a sugar manufacturing and marketing company, and Inventure Group, Inc., a manufacturer and marketer of snack foods and related food products.

Charles E. Long has been a member of the board of directors of NewPage and NewPage Holding since March 2008 and a member of the board of directors of NewPage Group since December 2007. Mr. Long is a former vice chairman of Citicorp and its principal subsidiary, Citibank. Mr. Long held various positions during his career with Citicorp, which began in 1972 and from which he retired in 1998. Mr. Long is also a director of The Drummond Company. He previously served on the board of directors of Introgen Therapeutics, Inc. from January 2001 through May 2009.

James R. Renna has been a member of the board of directors of NewPage, NewPage Holding and NewPage Group since April 2008. Mr. Renna has been a financial executive with Cerberus Operations Inc. since May 2006. Prior to that he was a corporate vice president of MCI Communications from December 2002 to March 2006. Mr. Renna served as a senior director of MCI WorldCom from July 1998 to June 2002.

John W. Sheridan has been a member of the board of directors of NewPage and NewPage Holding since August 2005 and a member of the board of directors of NewPage Group since October 2007. In February 2006, Mr. Sheridan was appointed president and chief executive officer of Ballard Power Systems, Inc., a fuel cell manufacturer, after serving as interim chief executive officer since October 2005. Mr. Sheridan has served on the board of Ballard Power Systems, Inc. since May 2001, serving as chairman of the board from June 2004 until February 2006. From December 2003 to May 2004, Mr. Sheridan served in various positions at Ballard Power Systems Inc. Mr. Sheridan served as the president and chief operating officer of Bell Canada from 2000 to November 2003.

Lenard B. Tessler has been a member of the board of directors of NewPage and NewPage Holding since May 2005 and a member of the board of directors of NewPage Group since October 2007. Mr. Tessler has been a managing director of Cerberus Capital Management, L.P. from May 2001 to the present. Prior to joining Cerberus, he was a founding partner of TGV Partners, a private investment partnership formed in April 1990. Mr. Tessler serves as a member of the board of directors of LNR Property Corp. He previously served on the boards of directors of BlueLinx Holdings Inc. and Anchor Glass Container Corporation.

Alexander M. Wolf has been a member of the board of directors of NewPage and NewPage Holding since May 2005 and a member of the board of directors of NewPage Group since October 2007. Mr. Wolf has been a managing director of Cerberus Capital Management, L.P. since March 2006, a senior vice president from April 2004 through February 2006 and a vice president from December 2001 through March 2004. He previously served on the board of directors of Anchor Glass Container Corporation.

George J. Zahringer, III has been a member of the board of directors of NewPage and NewPage Holding since May 2007 and a member of the board of directors of NewPage Group since October 2007. Since June 2008, Mr. Zahringer has been a managing director and client advisor at Deutsche Bank Securities Inc. Prior to that, Mr. Zahringer was a senior managing director of Bear Stearns & Co., Inc. and served in its Private Client Services Division since 1979. Mr. Zahringer serves as a member of the board of directors of Freedom Group, Inc.

Daniel A. Clark has been senior vice president, business excellence and chief information officer since December 2007. Prior to that, Mr. Clark was chief information officer and vice president of order management since May 2005. Prior to that, Mr. Clark was employed by MeadWestvaco’s Papers Group as vice president of

 

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order management from January 2002 to May 2005. Prior to that, Mr. Clark was vice president of order management for the Mead Corporation Paper Division from June 2000 to January 2002. Previously, he was the senior leader for the implementation of the enterprise resource system for the Mead Corporation Paper Division since February 1999.

Douglas K. Cooper has been vice president, general counsel and secretary since November 2005. Prior to that, Mr. Cooper was counsel with Arent Fox PLLC, a law firm, from September 2004 through October 2005. From September 2003 to August 2004, Mr. Cooper was in private law practice. Prior to that, he was senior vice president, law and secretary for GDX Automotive, an automotive component supplier, from September 2001 to August 2003. Previously, he served as executive vice president, general counsel and secretary for Peregrine Incorporated since 1997.

Michael T. Edicola has been vice president, human resources since November 2007. Prior to that, Mr. Edicola served as vice president, human resources for Baxter International Corporation from July 2004 through December 2006. Previously, Mr. Edicola was vice president of human resources at Zebra Technologies Corporation since September 1999.

George F. Martin has been senior vice president, operations since December 2007. Prior to that Mr. Martin was vice president, operations since April 2006. Prior to that, Mr. Martin served as vice president, coated operations from May 2005 to March 2006. From February 2003 through April 2005, Mr. Martin was vice president of operations at the Escanaba mill of MeadWestvaco’s Papers Group. From February 2002 through January 2003, Mr. Martin was director of integration for MeadWestvaco’s Papers Group. Previously, he was production manager of the Luke Mill of Westvaco since 1997.

Michael L. Marziale has been senior vice president, marketing strategy and general management since December 2007. Prior to that, Mr. Marziale was vice president of business development and chief technology officer from August 2006 to December 2007. Mr. Marziale was vice president and general manager, carbonless systems and chief technology officer from May 2005 through July 2006. Prior to that, he was general manager, carbonless systems of MeadWestvaco’s Papers Group since September 2002. From February 2002 through August 2002, Mr. Marziale was mill manager of the Wickliffe Mill of MeadWestvaco’s Papers Group and prior to that was mill manager of the Wickliffe Mill of Westvaco since 1999.

Barry R. Nelson has been senior vice president, sales since January 2008. Mr. Nelson was vice president, printing sales since May 2005. Prior to that, Mr. Nelson was vice president, printing sales of MeadWestvaco’s Papers Group from August 2002 to May 2005. Prior to that, Mr. Nelson was executive vice president of Forest Express from August 2000 to August 2002. Previously, he was vice president of order management for the Mead Corporation Paper Division since 1997.

David J. Prystash has been senior vice president and chief financial officer since September 2008. Prior to that, Mr. Prystash was controller, global product development at Ford Motor Company from January 2005 to September 2008. From June 2003 to December 2004, he was executive director, preowned and vehicle remarketing strategy at Ford. From August 2001 to May 2003 he served as controller, North American product programs at Ford. Previously, Mr. Prystash was executive director of corporate business development at Ford from January 2000 to August 2001. From April 2006 until September 2008, he was a member of our board of directors.

Board of Directors

The full board of directors has responsibility for general oversight of risks. The board regularly receives reports at meetings from the CEO and other members of senior management on areas of risk facing the Company. In addition, as part of its charter, the audit committee discusses major financial, environmental, health and safety risk exposures with management and steps taken to monitor and control exposures including risk assessment and risk management policies.

 

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The full board of directors performs annual self-assessments and reviews all nominees for election to the board. All nominees, other than a Stora Enso Oyj appointee, are identified for board membership by members of the board or by our controlling shareholder. Stora Enso Oyj retains the right to appoint a director to the board for as long as it owns at least 75% of the shares acquired on the date of the Acquisition. The board does not have a formal policy regarding diversity. Members of the board bring high levels of integrity and diverse backgrounds including financial expertise, relevant professional business experience and owner-oriented perspectives that contribute to board heterogeneity.

The specific attributes of each director considered for membership on the board of directors included the following:

 

   

for Mr. Suwyn, his background, experience and judgment as chief executive officer of a publicly owned company, as a director of various companies and his deep knowledge of the forest products industry;

 

   

for Mr. Curley, his background, experience and judgment as president and chief operating officer of several major industrial businesses;

 

   

for Mr. Armstrong, his background, experience and judgment as chief financial officer of a group of investment funds and his expertise as a private consultant;

 

   

for Mr. Kesselman, his background, experience and judgment as a director of and senior executive with public and private companies in the consumer products and food industries;

 

   

for Mr. Long, his background, experience and judgment as vice chairman of a large financial institution and a director of several companies;

 

   

for Mr. Renna, his background, experience and judgment as a financial executive with our principal shareholder and as a senior officer of a large communications company;

 

   

for Mr. Sheridan, his background, experience and judgment as a director of and executive officer with large industrial and communication companies;

 

   

for Mr. Tessler, his background, experience and judgment as a managing director of our principal shareholder, as a director at companies in several industries and as a founder of a private investment firm;

 

   

for Mr. Wolf, his background, experience and judgment as a managing director of our principal shareholder; and

 

   

for Mr. Zahringer, his background, experience and judgment concerning financial markets as a managing director at major securities trading firms.

The boards of directors of NewPage Holding and NewPage have established joint audit, compensation and compliance committees.

Our audit committee consists of Mr. Armstrong, Mr. Long and Mr. Sheridan. As of December 31, 2009, all of the audit committee members were independent directors. Mr. Sheridan serves as the chairman of the audit committee. Duties of the audit committee include:

 

   

appointing or replacing independent accountants

 

   

meeting with our independent accountants to discuss the planned scope of their examinations, the adequacy of our internal controls and our financial reporting

 

   

reviewing the results of the annual examination of our consolidated financial statements and periodic internal audit examinations

 

   

reviewing and approving the services and fees of our independent accountants

 

   

monitoring and reviewing our compliance with applicable legal requirements

 

   

performing any other duties or functions deemed appropriate by our board of directors

 

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Our board of directors has designated Mr. Armstrong as our audit committee financial expert.

Our compensation committee consists of Mr. Long and Mr. Wolf. Mr. Wolf serves as the chairman of the compensation committee. Duties of the compensation committee include administration of our stock option plans and approval of compensation arrangements for our executive officers.

Our compliance committee consists of Mr. Renna, Mr. Suwyn and Mr. Zahringer. Mr. Zahringer serves as the chairman of the compliance committee. Duties of the compliance committee include the oversight of our policies, programs and procedures to ensure compliance with relevant laws.

Code of Ethics

We have adopted a code of ethics for all associates, including our chief executive officer, chief financial officer, controller and treasurer, addressing business ethics and conflicts of interest. A copy of the code of ethics has been posted on our website at www.newpagecorp.com.

Compensation Discussion and Analysis

General Philosophy

The compensation committee has responsibility for establishing, monitoring and implementing our compensation philosophy. We compensate our executive officers named in the Summary Compensation Table, who we refer to as our “Executives,” through a combination of base salary, bonus plan awards, long-term incentive awards, equity ownership, stock options and various other benefits, all designed to be competitive with comparable employers and to align each Executive’s compensation with the long-term interests of our stockholders. Base salary and bonus plan awards are determined and paid annually and are designed to reward current performance. Through various vesting and lock-up restrictions, long-term incentive awards, equity ownership and stock options are designed to reward longer-term performance. We may also use discretionary executive bonus awards for special situations. Our process for setting annual Executive compensation consists of the compensation committee establishing overall compensation targets for each Executive and allocating that compensation between base salary and annual bonus compensation. Other Executive bonus compensation is designed as “at-risk” pay to be earned based on the achievement of company-wide performance objectives, personal performance objectives, the Executive’s demonstrated adherence to our core values and other factors deemed relevant by the compensation committee. The same compensation policies apply to all Executives. Differences in the level of compensation result from the Executive’s position in the company, individual performance and external market considerations relevant to the position.

Targeted Overall Annual Cash Compensation

Under our compensation structure, the mix of base salary and annual bonus compensation for each Executive varies depending upon his position with the company. The targeted allocation between base salary and bonus award at target levels is as follows:

 

      Base
Salary
    Target
Bonus
Award
 

President and Chief Executive Officer

   50   50

Other Executives

   55–70   30–45

In allocating annual cash compensation between these elements, we believe that a significant portion of the compensation of our Executives—the level of management having the greatest ability to influence our performance—should be performance-based and therefore “at risk.” In making this allocation, we relied in part upon the advice of Frederick W. Cook & Co., which we refer to as “Cook,” and its survey findings and analysis,

 

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which validate this approach. We do not utilize Cook for services other than setting compensation for our Executives and senior leadership team.

Compensation-Setting Process

The compensation committee approves all compensation and awards to Executives, as well as other members of our senior leadership team, and has retained Cook as its compensation advisor. Generally, the compensation committee reviews data from Cook regarding compensation for our chief executive officer and considers prior year performance, then-current compensation and, following discussions with the chief executive officer, establishes his compensation levels. For the remaining Executives, our chief executive officer makes recommendations to the compensation committee based on individual performance during the prior year and competitive data from surveys, available public information and Cook. The other Executives do not play a role in setting their own compensation except to discuss their individual performance with the chief executive officer.

Each year Cook prepares a study for the compensation committee that compares the compensation of individual Executives to the compensation for similar positions at the following peer group companies, or Peer Group, which are in the forest products industry and have market capitalizations comparable to what we believe our market capitalization would have been as a public company at the beginning of that year, as presented in proxy statements of those companies filed during the prior year: Bemis Company, Inc., Crown Holdings Inc., Domtar Inc., Graphic Packaging Corporation, Greif Inc., MeadWestvaco Corporation, Packaging Corporation of America, Pactiv Corporation, Rock-Tenn Company, Sealed Air Corporation, Sonoco Products Company, Temple-Inland Inc. and Verso Paper, Inc. For 2009, the Cook study also compared the compensation of individual Executives to 2008 national survey data gathered by two independent compensation consultants; Hewitt and Towers Perrin. The Hewitt and Towers Perrin surveys each covered in excess of one hundred companies participating across all industries. The compensation committee did not review the individual surveys used by Cook to prepare its study nor did it know the names of the companies included in the surveys. The Cook study was used by the chief executive officer and the compensation committee to help determine appropriate compensation levels for all Executives for 2009. The compensation committee reviews total, short-term and long-term compensation annually with a view to aligning it with the 50th percentile of the selected Peer Group.

For purposes of setting 2009 base salary, each Executive was reviewed against his contribution to key 2008 initiatives involving our business as well as overall company performance. Key initiatives during 2009 for all Executives included the following:

 

   

completing the integration of two similar-sized organizations in a manner that did not disrupt operations or customers, while also taking actions to realize the synergies from the combination

 

   

accelerating and achieving productivity initiatives and associated cost savings

 

   

reviewing and adjusting market channels to reflect our broader product line and market presence

 

   

responding to the major downturn in demand for our products caused by the recession without a significant adverse impact on EBITDA

The performance of each Executive was also reviewed for performance against company values including safety, integrity, results, teamwork, communication, judgment and change. A summary of key individual achievements of the Executives in 2009 is presented below.

MARK A. SUWYN During the first quarter of 2009, in his role as our chairman and chief executive officer, Mr. Suwyn led the assessment with the compensation committee of each other Executive’s individual performance against company opportunities, our overall performance, and the specific responsibilities of the Executive’s position. As our executive chairman during the balance of 2009, Mr. Suwyn performed several key roles for the company. His primary role was to ensure a smooth transition of responsibilities to Mr. Willett in his new position as chief executive officer. Mr. Suwyn also played the lead role in filing key trade cases seeking dumping and

 

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countervailing duties against certain coated paper products in sheet form exported to the U.S. from China and Indonesia. He actively represented the company with the American Forest & Paper Association, the industry trade association involved in coordinating our industry’s responses to evolving environmental regulation and other key matters impacting our industry. Finally, he led our board of directors in its deliberations and decisions.

DAVID J. PRYSTASH Mr. Prystash provided key leadership in improving our operating effectiveness and capital structure in 2009. Mr. Prystash made significant enhancements in the timing and efficiency of our internal financial reporting. Mr. Prystash also improved our working capital position by reducing inventory levels and improving the credit and collection processes. New processes were implemented around capacity scheduling and cost reductions. Addressing our capital structure, Mr. Prystash successfully obtained amendments from our senior lenders and subsequently led the issuance of $1.7 billion of new first-lien debt in September 2009 that was used to refinance our term loan and thereby eliminate restrictive financial maintenance covenants. Mr. Prystash also initiated and led the application to the Internal Revenue Service for the alternative fuel mixture tax credit, which generated income of $304 million in 2009.

GEORGE F. MARTIN Mr. Martin was responsible for all paper mill operations, purchasing, engineering and environment, health and safety activities. During the year, he assumed additional responsibilities for order management functions. He also provides leadership to our continuing productivity and cost reduction initiatives in close concert with the Lean Six Sigma team. As a cornerstone of this effort, he led a major strategic initiative in sourcing of materials, resulting in significant benefits to the company. Our paper mills performed efficiently despite a dynamic market and significant product line changes. Furthermore, Mr. Martin initiated measures to add talented personnel in key positions in his organization.

MICHAEL L. MARZIALE Mr. Marziale led the commercial group that planned and led our specific product, brand and channel strategies. This included close cooperation with our operations, research and development and sales organizations to design and implement, on a tight timeline, specific plans tailored to our equipment and the needs of our customers. Several new grades were introduced into alternative markets to offset the drop in coated paper demand. He provided leadership to the general management team by guiding paper machine uptime and downtime decisions, product pricing and general market strategies to deal with the sudden and prolonged downturn in demand. He worked closely with the legal team to launch the trade cases seeking dumping and countervailing duties against certain coated paper products in sheet form exported to the U.S. from China and Indonesia. Mr. Marziale was also responsible for leading our strategic initiatives and research and development areas.

MICHAEL T. EDICOLA Mr. Edicola provided the overall human resources strategy and leadership and functional guidance for all human resources activities, including talent management, leadership development and succession planning, performance management, employee and labor relations, compensation and benefits, staffing and retention, and training and development initiatives. Mr. Edicola managed restructuring events, merged organizations and implemented cost containment initiatives. Additionally, he integrated the human resources function of the historical NewPage business and SENA by implementing common policies, tools and materials and focused on reducing overall costs. He implemented several process improvements in order to more efficiently add value in the human capital arena.

RICHARD D. WILLETT, JR. Mr. Willett led several initiatives to deal with the sudden and prolonged downturn in industry demand. He initiated a joint effort with the U.S. Postal Service and key printers and catalog companies to reduce postal rates and encourage additional catalog shipments. He instituted detailed processes that allowed us to respond quickly to volatile markets through a combination of market-related downtime, mill closures and growth into non-traditional markets. Mr. Willett also coordinated efforts to successfully restructure our senior secured term loan to remove restrictive covenants that allowed us to significantly reduce inventory levels in the fourth quarter of 2009. In addition, Mr. Willett continued to lead the implementation of our Lean Six Sigma effort that helped reduce costs by over $100 million during the year. Finally, he initiated and guided efforts to enhance the experience our customers have when dealing with us.

 

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Base Salaries

We have established an annual base salary for each Executive that is designed to be competitive by position relative to the marketplace. Base salary compensates each Executive for the primary responsibilities of his position. Base salary is set at levels that we believe enable us to attract and retain talent. Pursuant to each Executive’s employment agreement, his base salary may be increased periodically but may not be decreased. The compensation committee reviews each element of compensation separately but also reviews the effect of any change in base salary on the target percentages relative to total annual compensation. Base salary differences among individual Executives reflect their differing roles in the company and the market pay for those roles.

Our senior management recommended to the compensation committee that no annual salary increases be granted to the Executives or other members of the senior leadership team for 2009. This recommendation was not based on individual performance, but as a result of company performance against targets and the desire to conserve cash and manage costs during the worst market downturn seen in many decades. The compensation committee concurred with management’s recommendation.

Mr. Willett’s base salary was reviewed and increased when he was promoted to chief executive officer and was elected to serve on the board in March 2009. His base salary was determined by the compensation committee based principally on the competitive marketplace for similar positions in Peer Group companies and the challenges of his new position.

Annual Bonus Compensation

Annual bonus compensation for each Executive is established by the compensation committee in its sole discretion. Our practice is to pay cash bonus awards based upon the achievement of our annual financial performance goals, our strategic performance initiatives and individual performance objectives. Each Executive’s employment agreement designates an individual bonus target for that Executive, expressed as a percentage of base salary. The compensation committee reviews these bonus targets annually, and may increase a bonus target in its discretion as part of its overall evaluation of compensation. Pursuant to each Executive’s employment agreement, his bonus target may be increased periodically but may not be decreased.

The company’s bonus program consists of a profit sharing plan and a performance excellence plan. This approach is intended to afford broad participation in rewards through the profit sharing plan based on achievement of our financial performance goals, while making additional bonus compensation available through the performance excellence plan to a more limited group of senior managers who can help determine and are responsible for implementing our overall business strategy.

The profit sharing plan includes all of the Executives and all other exempt salaried employees. Each year the compensation committee establishes minimum, target and maximum percentages of salary to be awarded if the compensation committee determines that our financial performance objectives for the year are met, along with any other criteria established at the discretion of the compensation committee. These financial performance objectives consisted of EBITDA and Debt Reduction for 2009. We define “EBITDA” for these purposes as net earnings plus interest, taxes, depreciation and amortization, as adjusted for non-cash items and other items that are allowed at the discretion of the compensation committee. We define “Debt Reduction” as the change in our total indebtedness minus available cash balances. The compensation committee selected these objectives as guidelines because they are the primary financial metrics by which our Executives are evaluated by our principal stockholder. For 2009, EBITDA and Debt Reduction were each weighted at 50%. The weightings were based on their relative importance to our company.

 

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Each objective for 2009 is measured separately against a threshold, target and maximum goal as follows:

 

 

(in millions)

   Threshold    Target    Maximum

EBITDA

   $ 600    $ 650    $ 700

Debt Reduction

     250      300      350

The actual results are used by the compensation committee as a general guideline to determine the funding for the plan. If the compensation committee determines that the threshold goals are met or exceeded, funding will generally range from 50% to 150% of target for each objective, depending on results achieved. Generally, no funding will occur for any objective as to which the threshold goal has not been met. After consideration of these factors, the compensation committee, in its discretion, determines the funding level to be used for the year. All participants receive the same percentage of their base salary in any distribution under the plan. Applying these guidelines, the compensation committee evaluated our overall 2009 performance and did not award a bonus under the profit sharing plan based on the company’s overall financial performance against targets.

Each of the Executives and a select group of our salaried employees participated in the performance excellence plan in 2009. The compensation committee first determines the aggregate amount available under the plan. The committee then considers the recommendations of senior management and selects from the group of eligible participants those individuals who will receive a bonus. Finally, the committee considers the recommendations of senior management and determines the amount of the bonus award for each of the individuals selected.

The targeted annual bonus pool under this plan is based on the aggregate targets for the plan participants as a group, determined by reference to the participants’ base compensation. One half of the annual bonus pool is funded without regard to the financial performance objectives. The other half of the funding is determined by the compensation committee in its discretion based on the achievement of the same financial objectives as under the profit sharing plan and giving consideration to the same weighting and the same threshold, target and maximum levels as in that plan. Plan funding for 2009 was determined by the compensation committee in its discretion and set at a 70% funding level.

The compensation committee in its discretion, after consulting with the chief executive officer, selects Executives who will receive bonus awards and individual bonus awards for those Executives selected, based on the Executive’s individual performance goals and his adherence to our core values described above. There is no minimum or maximum limit on any individual award. The bonus award for each Executive was determined by the compensation committee in its discretion, after consulting with the chief executive officer, based on the Executive’s performance against his individual performance goals and his adherence to our core values that support those goals, and is shown in the Summary Compensation Table.

For 2010, the compensation committee established financial performance objectives consisting of a combination of EBITDA (50%) and Debt Reduction (50%). Due to a weak economy and economic outlook, we believe that it will be a challenge to achieve the target financial goals in 2010 for funding of both the profit sharing and performance excellence plans at their target funding levels. The maximum financial goals were designed to be difficult to achieve, and we believe that they will be.

Long-Term Incentive Plan

On January 15, 2010, the compensation committee approved and adopted a long-term incentive plan, or LTIP. The purpose of the LTIP is to help attract and retain individuals of outstanding ability to serve in key executive positions with the Company and its subsidiaries. The plan is designed to help motivate participants to maintain a long-term outlook by providing cash incentives through the granting of awards that vest over multiple years. The LTIP and the individual award agreements under the LTIP provide for a service award and a

 

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performance award. The service award is time-based and payable if the participant remains as an employee through December 31, 2012. The performance award is payable if the participant remains as an employee through December 31, 2012, and if the Company achieves annual performance goals established each year by the compensation committee during the three years ending December 31, 2012. The participant will receive a pro rata share of the total award if, prior to December 31, 2012, the participant’s employment is terminated by us without cause or by the participant for good reason, each as defined in the LTIP. The participant will receive the entire award if, prior to December 31, 2012, a change in control occurs, as defined in the LTIP.

For 2010, the compensation committee established performance objectives consisting of a combination of Core Share Growth (one-third weighting), Cost Advantage per Ton (one-third) and Asset Monetization (one- third). Core Share Growth is defined as an increase in our share of sales of coated paper in the U.S. and Canada. Cost Advantage per Ton is defined as the cash cost per ton of paper compared to similar competitors in the U.S. and Canada. Asset Monetization is defined as the receipt of proceeds from the sale of non-strategic assets.

Equity Ownership

We believe that it is a customary and competitive practice to include an equity-based element of compensation in the overall compensation package extended to executives in similarly-situated companies.

Equity ownership is intended to motivate Executives to make stronger business decisions, improve financial performance, focus on both short-term and long-term objectives and encourage behaviors that protect and enhance the corporate interest. The amount of each individual stock option award is determined by the compensation committee based on a number of factors, including the expected contribution of each Executive to the future success of our company, the other compensation, including options, being earned and held by that Executive and the amount of NewPage Group common stock owned by that Executive.

In February 2010, the compensation committee amended the outstanding stock options to change the exercise price to $2.00 per share and vest the unearned performance-based options for 2008 and 2009. These actions were taken in order to ensure that the equity-based compensation remained a vital component of the overall compensation package of the Executives and other participants. Prior to the modification, the options were significantly out-of-the-money and had substantially lost their ability to retain and influence the long-term performance of the participants due to the underlying value of the equity. The effects of the modifications will be recognized beginning in 2010.

Upon Mr. Willett’s resignation as chief executive officer on January 18, 2010, all of his outstanding options became vested and exercisable in accordance with his stock option award agreement.

Further information on equity ownership can be found in “Equity Awards.”

Severance and Change in Control Benefits

We may terminate an Executive’s employment without “cause” at any time, and an Executive may resign for “good reason,” each as defined in the Executive’s employment agreement. We believe that in these situations we should provide reasonable severance benefits to assist the Executive with this transition, recognizing that it may take time for an Executive to find comparable employment elsewhere.

Additionally, the employment agreements with Mr. Marziale and Mr. Martin provide for additional termination benefits in the event of termination by us without cause or by the Executive for good reason within 12 months following the acquisition by NewPage Holding or its subsidiaries of the stock or assets of a business enterprise of at least substantially the same revenue and total assets as NewPage Holding on a consolidated basis. This approach also helps align the interests of these Executives with the interests of our stockholders by providing additional compensation for completing a transaction that may be in the best interests of our stockholders but might otherwise be detrimental to those Executives.

 

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The amount and type of severance benefits available to our Executives is described in “Termination Benefits.” The Executive employment agreements were modified effective January 1, 2009 to comply with the requirements of Section 409A of the Internal Revenue Code.

Mr. Willett’s severance in 2010 was determined by the compensation committee based on his four years of service with us and the treatment of other similarly situated executives, as well as by reference to the separation benefits in his prior employment agreement, which expired April 17, 2009, and was not renewed. See “Termination Benefits—Severance Benefits for Former Chief Executive Officer.”

Other Benefits

Our Executives participate in a tax-qualified defined contribution plan, which includes individual and employer matching contributions, as well as various health and welfare benefit plans, all on the same basis as other salaried employees. We suspended the employer matching contribution to this plan, effective June 1, 2009, for all salaried exempt employees, including our Executives, and we plan to restore the matching contribution effective July 1, 2010. Our objective with these other benefits is to offer all salaried employees, including our Executives, a benefits package that is competitive within our industry and labor markets.

Compensation and Risk

Our compensation policies and practices do not foster risk taking above the level of risk otherwise associated with our business model. The annual bonus compensation plan is based on metrics established at the sole discretion of the compensation committee. Metrics for the annual bonus plan have focused on EBITDA and Debt Reduction. The LTIP instituted in 2010 focuses on the achievement of long-term goals established at the sole discretion of the compensation committee requiring, in large part, sustained performance for payout. Further, for general control purposes, our compensation is assessed annually against compensation offered by peer companies. As a consequence of all the foregoing, our compensation policies and practices are not reasonably likely to have a material adverse effect on us.

 

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Compensation Summary

The following table sets forth information concerning the compensation for our former chief executive officers, our chief financial officer, and our other three most highly compensated executive officers at the end of 2009.

SUMMARY COMPENSATION TABLE

 

Name and Principal Position

  Year   Salary(1)   Bonus(2)   Stock
Awards(3)
  Option
Awards(4)
  Non-Equity
Incentive Plan
Compensation
  All Other
Compensation(5)
  Total

Mark A. Suwyn

  2009   $ 775,000   $ —     $ —     $ 362,624   $ 200,000   $ 47,438   $ 1,385,062

Executive Chairman, Former President and Chief Executive Officer(6)

  2008     775,000     —       —       1,562,186     —       81,397     2,418,583
  2007     772,916     —       3,388,141     4,471,497     600,000     82,504     9,315,058
               
               

David J. Prystash

  2009     415,000     85,000     —       526,737     450,000     19,626     1,496,363

Senior Vice President and Chief Financial Officer

  2008     114,754     85,000     —       6,307,228     —       60,666     6,567,648
               

George F. Martin

  2009     296,000     —       —       99,811     300,000     15,219     711,030

Senior Vice President, Operations

  2008     296,000     —       —       429,987     —       28,440     754,427
  2007     272,253     —       791,234     1,230,746     300,000     32,142     2,626,375

Michael L. Marziale

  2009     288,000     —       —       99,811     280,000     4,800     672,611

Senior Vice President, Marketing, Strategy and General Management

  2008     288,000     —       —       429,987     —       38,663     756,650
  2007     241,618     50,000     791,234     1,230,746     400,000     52,512     2,766,110
               

Michael T. Edicola

  2009     285,000     —       —       76,778     240,000     48,033     649,811

Vice President, Human Resources

               

Richard D. Willett, Jr.

Former President and Chief Executive Officer(6)

  2009     617,614     —       —       866,790     1,000,000     25,662     2,510,066
  2008     500,000     —       —       3,734,140     —       23,857     4,257,997
  2007     463,750     —       896,756     10,688,363     800,000     40,061     12,888,930
               

 

(1) Represents base salary actually earned during the year.

 

(2) For Mr. Prystash, the amount for 2009 represents a bonus paid to compensate him for a retention bonus from his former employer that was forfeited when he accepted employment with us and the amount for 2008 represents a bonus paid upon his commencing employment as senior vice president and chief financial officer. For Mr. Marziale, the amount for 2007 represents a bonus paid for his efforts in connection with the acquisition of SENA and other strategic initiatives.

 

(3) Represents the amount of equity compensation expensed during the year in accordance with generally accepted accounting principles. See “Equity Awards” for more information.

 

(4) Represents the amount of grant-date fair value for equity compensation granted during the year in accordance with generally accepted accounting principles. See the notes to the financial statements for the assumptions used in the valuation of the options. See “Equity Awards” for more information. The amounts shown are based on the fair value at the date the award is granted using the Black-Scholes option pricing model. This fair value is calculated based on assumptions at the time of the grant and does not represent the ultimate value to be realized by the Executive, if any. No executive received any value from the exercise of options during the periods shown. We believe it was unlikely that these stock options would have been exercised at the exercise price in effect at December 31, 2009.

 

(5) See the following table, which provides further details about All Other Compensation.

 

(6) Effective March 19, 2009, Mr. Willett replaced Mr. Suwyn as our chief executive officer. Effective January 18, 2010, Mr. Willett resigned as our president and chief executive officer and Mr. Suwyn was appointed to serve as our chief executive officer in addition to his duties as chairman until February 8, 2010, when Mr. Curley was appointed as president and chief executive officer.

 

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ALL OTHER COMPENSATION

 

Name

   Year    Company
Contributions
to Retirement
Savings Plan
   Relocation(1)    Other(2)    Total All
Other
Compensation

Mark A. Suwyn

   2009    $ 9,429    $ —      $ 38,009    $ 47,438
   2008      15,757      —        65,640      81,397
   2007      11,250      —        71,254      82,504

David J. Prystash

   2009      6,917      —        12,709      19,626
   2008      6,916      —        53,750      60,666

George F. Martin

   2009      4,933      —        10,286      15,219
   2008      24,150      —        4,290      28,440
   2007      28,125      —        4,017      32,142

Michael L. Marziale

   2009      4,800      —        —        4,800
   2008      24,150      10,743      3,770      38,663
   2007      26,070      25,030      1,412      52,512

Michael T. Edicola

   2009      4,750      —        43,283      48,033

Richard D. Willett, Jr.

   2009      9,538      —        16,124      25,662
   2008      15,757      —        8,100      23,857
   2007      11,250      16,873      11,938      40,061

 

(1) Relocation expense includes tax gross-ups of $900 for Mr. Marziale in 2008 and $7,472 and $7,150 for Mr. Marziale and Mr. Willett in 2007.

 

(2) “Other” for Mr. Suwyn in 2009 consists of (i) $24,705 paid to him in reimbursement of personal travel expenses to and from our Dayton headquarters and temporary living expenses in Dayton, as negotiated in conjunction with Mr. Suwyn’s acceptance of employment as our chief executive officer and (ii) $13,304 for financial planning. “Other” for Mr. Prystash and Mr. Willett in 2009 consists of amounts paid to them in reimbursement of personal travel expenses to and from our Dayton headquarters and temporary living expenses in Dayton and for financial planning. “Other” for Mr. Martin in 2009 consists of amounts paid for financial planning. “Other” for Mr. Edicola in 2009 consists of amounts paid to him in reimbursement of personal travel expenses to and from our Dayton headquarters and temporary living expenses in Dayton.

Employment Agreements

The compensation committee approved an employment agreement for Mr. Suwyn, effective January 18, 2010, that provides for continuation of Mr. Suwyn’s current annual base salary of $775,000 through December 31, 2010, and an annual base salary of $500,000 for 2011 and future years, subject to adjustment by the board at its discretion. The employment agreement also continues Mr. Suwyn’s bonus eligibility under our performance excellence plan and our profit sharing plan for performance in 2010, after which he will no longer be eligible for a bonus under those plans.

Each of Messrs. Edicola, Martin, Marziale and Prystash is party to an employment agreement under which each is entitled to a minimum annual base salary and each is assigned a minimum bonus target, expressed as a percentage of base salary. For 2009, bonus targets for Messrs. Edicola, Martin, Marziale and Prystash were 45%, 65%, 65% and 75%, respectively. See “Termination Benefits” for information concerning the severance benefits payable under our Executive employment agreements and other terms applicable in connection with the termination of an Executive’s employment with us.

 

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Equity Awards

GRANTS OF PLAN-BASED AWARDS

 

Name

  Grant
Date
  Estimated Future Payments
Under Non-Equity Incentive
Plan Awards(1)
    Estimated Future Payments
Under Equity Incentive Plan

Awards
  All Other
Option
Awards:
Number of
Securities
Underlying
Options

(#)
  Exercise
or Base
Price of
Option
Awards
($/sh)
  Grant
Date

Fair Value
of Option
Awards(2)
    Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
  Target
(#)
  Maximum
(#)
     

Mark A. Suwyn

    $ 27,125 (3)    $ 54,250 (3)    $ 81,375 (3)             
      —          720,750 (4)      None (5)              
  03/02/2009         —     121,382   121,382   —     $ 21.22   $ 362,624

David J. Prystash

      14,525 (3)      29,050 (3)       43,575 (3)             
      —          282,200 (4)      None (5)              
  02/23/2009               23,130     21.22     80,303
  03/02/2009         —     141,043   141,043   —       21.22     446,434

George F. Martin

      12,600 (3)      25,200 (3)       37,800 (3)             
      —          208,800 (4)      None (5)              
  03/02/2009         —     33,410   33,410   —       21.22     99,811

Michael L. Marziale

      10,080 (3)      20,160 (3)       30,240 (3)             
      —          167,040 (4)      None (5)              
  03/02/2009         —     33,410   33,410   —       21.22     99,811

Michael T. Edicola

      9,975 (3)       19,950 (3)       29,925 (3)             
      —          108,300 (4)      None (5)              
  03/02/2009         —     25,700   25,700   —       21.22     76,778

Richard D. Willett, Jr.

      22,750 (3)      45,500 (3)       68,250 (3)             
      —          604,500 (4)      None (5)              
  03/02/2009         —     290,143   290,143   —       21.22     866,790

 

(1) The amounts shown represent the estimated possible payment at the time of grant.

 

(2) The “grant date fair value” of the options was determined in accordance with generally accepted accounting principles and will be recognized over the three-year vesting period. See the notes to the financial statements for information on the material terms of the awards and the assumptions used in determining the grant date fair value.

 

(3) Amounts represent the estimated range of payout under the profit sharing plan. See “Compensation Discussion and Analysis—Annual Bonus Compensation” for more information about the plan.

 

(4) Amounts represent the estimated range of payout under the performance excellence plan. See “Compensation Discussion and Analysis—Annual Bonus Compensation” for more information about the plan.

 

(5) There is no limit on the maximum amount that could be awarded to any one Executive, subject to the aggregate amount approved under the plan for all participants. See “Compensation Discussion and Analysis—Annual Bonus Compensation” for more information about the plan.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

Name

   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable(1)
   Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(1)
   Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
   Option
Exercise
Price ($)
   Option
Exercise
Date

Mark A. Suwyn

   242,764    121,382    242,764    $ 21.22    12/21/2017

David J. Prystash

   133,333    266,667    133,333      21.22    09/22/2018
   7,710    15,419    7,710      21.22    02/23/2019

George F. Martin

   66,819    33,410    66,819      21.22    12/21/2017

Michael L. Marziale

   66,819    33,410    66,819      21.22    12/21/2017

Michael T. Edicola

   51,399    25,700    51,399      21.22    12/21/2017

Richard D. Willett, Jr.

   580,287    290,143    580,287      21.22    12/21/2017

 

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NewPage Group Equity Incentive Plan

On December 21, 2007, each Executive then employed by us was granted non-qualified options to purchase NewPage Group common stock under the NewPage Group equity incentive plan. Vesting of one-half of these stock options is time-based in three equal annual installments commencing December 31, 2008. The other half of the stock options have performance-based vesting and will vest in three equal annual installments commencing December 31, 2008, but only if annual EBITDA and Debt Reduction performance targets, as established by the compensation committee, are met. However, upon a change of control or if we complete an initial public offering, a portion of the stock options will vest upon the change of control or the completion of the initial public offering, as applicable. Finally, the stock options will vest on each vesting date only if the Executive remains employed by us on that vesting date. Because the performance targets are determined annually by the compensation committee, we have only considered the performance-based stock options as granted when the compensation committee sets the performance targets for the applicable year.

Upon Mr. Prystash’s commencement of employment, he was granted non-qualified options to purchase NewPage Group common stock under the equity incentive plan upon the same terms as the other Executives, except that the vesting of the options is over three equal annual installments commencing December 31, 2009. Following his commencement of employment, Mr. Prystash’s stock options received as a director on December 21, 2007 expired. In February 2009, the compensation committee granted Mr. Prystash non-qualified options with similar terms to replace those that expired.

In February 2010, the compensation committee amended the outstanding stock options to change the exercise price to $2.00 per share and vest the unearned performance-based options for 2008 and 2009.

Upon Mr. Willett’s termination of employment, all of his outstanding options became vested and exercisable in accordance with his stock option award agreement.

Each Executive is subject to a five-year lock-up agreement with NewPage Group with respect to his vested options and the underlying shares of NewPage Group common stock, subject to certain limited exceptions.

Termination Benefits

Severance Benefits

Severance benefits are specified in each Executive’s employment agreement.

For Executives other than Mr. Suwyn, if we terminate their employment without “cause” or if the Executive resigns for “good reason,” the Executive will continue to receive base salary and benefits to the date of termination and will receive the following additional benefits after executing, and not revoking, a general release:

 

   

For Messrs. Edicola and Prystash, a cash amount equal to two times their base salary. For Messrs. Martin and Marziale, a cash amount equal to (a) twice their base salary less the initial purchase price of their NewPage Group common stock, or (b) three times their base salary less the initial purchase price of their common stock if the termination of employment occurs within 12 months after an acquisition by NewPage Holding or its subsidiaries of the stock or assets of a business enterprise of at least substantially the same revenue and total assets as NewPage Holding on a consolidated basis. In addition, for Messrs. Martin and Marziale, if at the time of termination the fair market value of their NewPage Group common stock is less than the purchase price they paid for that common stock, they will also receive a payment equal to that difference.

 

   

The pro rata portion of his annual bonus award for the year of termination. This would be paid at the time of termination based on (a) the bonus award from the prior year if the date of termination is prior to June 1, or (b) what his bonus award would have been had he not been terminated if the date of termination is on or after June 1.

 

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Continuation of health and welfare benefits for 24 months after the termination date

 

   

Payment for unused accrued vacation time for the year in which termination occurs

 

   

Outplacement services for 12 months

As defined in the employment agreements, “cause” includes commission of a felony, willful and fraudulent conduct, dishonesty resulting in personal gain, and other serious misconduct, and “good reason” includes reduction of base salary or bonus target, required relocation farther than 50 miles and other significant adverse employer actions.

If an Executive’s termination is caused by death or disability, the Executive or his estate will receive the pro rata portion of his annual bonus award and payment of unused accrued vacation time. If an Executive termination is initiated by us for cause or by the Executive without good reason, the Executive will not be entitled to any severance payments other than salary and benefits accrued through the termination date.

Mr. Suwyn’s employment agreement provides for a severance payment of $2,000,000 upon his death while serving as our chairman or chief executive officer or upon termination of his position as our chairman and as our chief executive officer (regardless of whether he remains as a director), unless the termination is for cause, after executing and not revoking a general release.

Mr. Willett ceased serving as an executive officer in January 2010. A summary of his compensation and severance arrangement is included under “Severance Benefits for Former Chief Executive Officer.”

Non-Competition and Non-Solicitation Provisions

Each Executive is subject to certain non-competition and non-solicitation restrictions following termination of employment for any reason. For Messrs. Suwyn, Edicola and Prystash these restrictions run for two years and for the remaining Executives these restrictions run for one year following termination.

Equity Ownership Implications upon Termination

If Mr. Suwyn’s employment as our chairman is terminated by us without cause or if he resigns as our chairman for good reason (each as defined in his employment agreement and summarized above), NewPage Group or NewPage Investments LLC must, upon request, purchase his common stock for fair market value, subject to certain exceptions. If Mr. Suwyn dies, if his employment as our chairman is terminated by us with cause or as a result of disability, or if he resigns as our chairman without good reason, NewPage Group or NewPage Investments LLC may, but are not required to, repurchase his NewPage Group common stock at fair market value unless we have then completed an initial public offering.

If Messrs. Martin’s or Marziale’s employment is terminated by us without cause or if any of them resigns for good reason (each as defined in his employment agreement and summarized above), NewPage Group or NewPage Investments LLC must, upon request, purchase his common stock for fair market value, subject to certain exceptions. If Messrs. Martin or Marziale dies, his employment is terminated by us for cause or as a result of disability or if any of them resigns without good reason, NewPage Group or NewPage Investments LLC may, but are not required to, repurchase his NewPage Group common stock at fair market value unless we have then completed an initial public offering.

 

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Termination Benefits Summary

Below is the summary of the estimated termination benefits that would have been paid to each current Executive as of December 31, 2009 in the various circumstances listed:

TERMINATION BENEFITS

 

Name

   Termination
With

Cause(1)
   Termination
Without
Cause(2)
   Death or
Disability(3)
   Significant
Acquisition(4)

Mark A. Suwyn

           

Cash severance(5)

   $ 59,615    $ 2,059,615    $ 2,059,615    $ 2,059,615

Health and welfare benefits

     —        —        —        —  

Purchase of stock

     2,762,627      2,762,627      2,762,627      2,762,627
                           

Total

   $ 2,822,242    $ 4,822,242    $ 4,822,242    $ 4,822,242
                           

David J. Prystash

           

Cash severance(5)

   $ 31,923    $ 1,311,923    $ 481,923    $ 1,311,923

Health and welfare benefits

     —        26,036      —        26,036

Outplacement benefits

     —        10,500      —        10,500
                           

Total

   $ 31,923    $ 1,348,459    $ 481,923    $ 1,348,459
                           

George F. Martin

           

Cash severance(5)

   $ 41,538    $ 933,787    $ 341,538    $ 1,293,787

Health and welfare benefits

     —        17,420      —        17,420

Outplacement benefits

     —        10,500      —        10,500

Purchase of stock

     645,138      645,138      645,138      645,138
                           

Total

   $ 686,676    $ 1,606,845    $ 986,676    $ 1,966,845
                           

Michael L. Marziale

           

Cash severance(5)

   $ 33,231    $ 761,479    $ 313,231    $ 1,049,479

Health and welfare benefits

     —        18,158      —        18,158

Outplacement benefits

     —        10,500      —        10,500

Purchase of stock

     645,138      645,138      645,138      645,138
                           

Total

   $ 678,369    $ 1,435,275    $ 958,369    $ 1,723,275
                           

Michael T. Edicola

           

Cash severance(5)

   $ 21,923    $ 831,923    $ 261,923    $ 831,923

Health and welfare benefits

     —        25,287      —        25,287

Outplacement benefits

     —        10,500      —        10,500
                           

Total

   $ 21,923    $ 867,710    $ 261,923    $ 867,710
                           

 

(1) Includes termination by us for cause and resignation by the Executive without good reason. For purposes of this column, we have assumed that NewPage Group would elect to repurchase the common stock, which is valued at fair value at December 31, 2009.

 

(2) Includes termination by us without cause and resignation by the Executive with good reason. For purposes of this column, we have assumed that the Executive would elect to require NewPage Group to repurchase the common stock, which is valued at fair value at December 31, 2009.

 

(3) For purposes of this column, we have assumed that NewPage Group would elect to repurchase the common stock, which is valued at fair value at December 31, 2009.

 

(4) Includes termination by us without cause and resignation by the Executive with good reason, in each case within 12 months following the acquisition by NewPage Holding or its subsidiaries of the stock or assets of a business enterprise of at least substantially the same revenue and total assets as NewPage Holding on a consolidated basis. For purposes of this column, we have assumed that the Executive would elect to require NewPage Group to repurchase the common stock, which is valued at fair value at December 31, 2009.

 

(5) Cash severance includes payment for unused accrued vacation time and the annual bonus award for the year of termination. For purposes of this table, we have assumed that each Executive would receive a full year of his annual vacation pay. We have assumed for purposes of this table that Mr. Suwyn’s employment agreement was in effect as of December 31, 2009.

 

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Severance Benefits for Former Chief Executive Officer

Mr. Willett’s employment with us terminated on January 18, 2010. Under Mr. Willett’s separation agreement, he received a severance payment equal to $1,300,000, payment for his annual bonus payment of $1,000,000 under the performance excellence plan for performance in 2009, payment for accrued but unused vacation in 2010 equal to $2,500, continued health and welfare benefits through January 18, 2012 (comprised of medical, dental, life insurance and accidental death and dismemberment insurance benefits) with a total aggregate cost to us of approximately $26,525, financial advisory services with a total cost to us of approximately $9,285 and outplacement services with a cost to us of approximately $30,000. Mr. Willett will also remain eligible for a prorated bonus payment for performance in 2010. Under his separation agreement, NewPage Group agreed not to acquire Mr. Willett’s NewPage Group common stock. Mr. Willett remains subject to certain non-competition and non-solicitation restrictions through January 18, 2012. Mr. Willett’s separation benefits were determined by the compensation committee based on his four years of service with us and the treatment of other similarly situated executives, as well as by reference to the separation benefits in his prior employment agreement, which expired April 17, 2009 and was not renewed.

Compensation of Directors

Our directors who are not employees of NewPage Holding, NewPage, Cerberus or a Cerberus affiliate receive an annual retainer of $50,000 plus $1,250 for attending each board or committee meeting and $10,000 per year for serving as a member and $20,000 per year for serving as a chairman of a committee. In addition, on December 21, 2007, these directors and Mr. Williams each received an award of non-qualified options to purchase 46,259 shares of NewPage Group common stock on the same terms as the Executives. Mr. Long received an award of non-qualified options to purchase 46,259 shares during 2008 on the same terms as the Executives. See “—Equity Awards—NewPage Group Equity Incentive Plan.” Except as set forth in the table below, no director received compensation for their services as our director.

2009 DIRECTOR COMPENSATION

 

Name

   Fees
Earned or
Paid in Cash
   Option
Awards(1)
   All Other
Compensation
   Total

Robert M. Armstrong

   $ 72,500    $ 23,033    $ —      $ 95,533

Charles E. Long

     90,000      23,033      —        113,033

John W. Sheridan

     92,500      23,033      —        115,533

Michael S. Williams(2)

     46,250      23,033      —        69,283

George J. Zahringer, III

     90,000      23,033      —        113,033

 

(1) Of the 46,259 option granted to each director listed above, options to purchase 23,130 shares, 7,710 shares and 7,710 shares were deemed granted for accounting purposes pursuant to generally accepted accounting principles in 2007, 2008 and 2009. Because the performance targets are determined annually by the compensation committee, we have only considered the performance-based stock options as granted when the compensation committee sets the performance targets for the applicable year. As of December 31, 2009, outstanding options of 15,420 shares were exercisable by each of the directors, other than Mr. Williams.

 

(2) Mr. Williams resigned as a director in August 2009 and his options subsequently expired.

Compensation Committee Interlocks and Insider Participation

As of March 31, 2010, our compensation committee consisted of Charles E. Long and Alexander M. Wolf. None of our executive officers has a relationship that would constitute an interlocking relationship with executive officers or directors of another entity or insider participation in compensation decisions.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

NewPage is a wholly-owned subsidiary of NewPage Holding, which is a wholly-owned subsidiary of NewPage Group.

The following table sets forth information with respect to the beneficial ownership of NewPage Group as of May 10, 2010 by:

 

   

each person who is known by us to beneficially own 5% or more of the NewPage Group common stock;

 

   

each member of the board of directors of NewPage Group, NewPage Holding and NewPage;

 

   

each of the Executives; and

 

   

all directors of NewPage Group, NewPage Holding and NewPage and executive officers of NewPage and NewPage Holding as a group.

Beneficial ownership is determined in accordance with the rules of the SEC and includes stock options that could be exercised within 60 days. To our knowledge, each of the holders listed below has sole voting and investment power as to the NewPage Group common stock owned unless otherwise noted.

 

     Shares of NewPage
Group

Beneficially Owned
     Number    %

Stephen Feinberg(1)(2)

   42,861,029    76.6

Stora Enso Oyj(3)

   11,251,326    20.1

Daniel A. Clark

   290,606    *

George F. Martin

   290,606    *

Michael L. Marziale

   290,606    *

David J. Prystash

   282,086    *

Mark A. Suwyn

   1,157,700    2.1

Richard D. Willett, Jr.

   206,278    *

Robert M. Armstrong

   30,840    *

E. Thomas Curley

   —      —  

Charles E. Long

   30,840    *

James R. Renna

   —      —  

John W. Sheridan

   30,840    *

Lenard B. Tessler

   —      —  

Alexander M. Wolf

   —      —  

George J. Zahringer, III

   30,840    *

Directors and executive officers as a group (16 persons)

   2,737,280    4.9

 

 * Denotes beneficial ownership of less than 1%.

 

(1) One or more affiliates of Cerberus own 76.6% of the common stock of NewPage Group. Stephen Feinberg exercises sole voting and investment authority over all of NewPage Group common stock owned by the affiliates of Cerberus. Thus, pursuant to Rule 13d-3 under the Exchange Act, Stephen Feinberg is deemed to beneficially own 76.6% of the common stock of NewPage Group.

 

(2) The address for Mr. Feinberg is c/o Cerberus Capital Management, L.P., 299 Park Avenue, New York, New York 10171.

 

(3) The address for SEO is Kanavaranta 1 Fl-00160, Helsinki, Finland.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Policies and Procedures

We and our audit committee have adopted written procedures regarding related party transactions. Pursuant to those procedures, any related party transaction that would be required to be reported in accordance with the rules of the SEC in this annual report, and any material amendment to such a related party transaction, must first be presented to and approved by our chief executive officer, our chief financial officer and our general counsel and then by the audit committee before we make a binding commitment to the related party. For each related party transaction presented for approval, we will consider all relevant factors, including whether the proposed transaction would be entered into in the ordinary course of our business on customary business terms, whether any related party has been or will be involved in the negotiation or administration of the proposed transaction on our behalf, and whether the proposed transaction appears to have been negotiated on an arms’-length basis without interference or influence on us by any related party. We may condition our approval on any restrictions we deem appropriate, including receiving assurances from any related party that he or she will refrain from participating in the negotiation of the proposed transaction on our behalf and in the ongoing management of the business relationship on our behalf should the proposed transaction be approved. If after a transaction has been completed we discover that it is a related party transaction, we will promptly advise management and our audit committee. In that case, we may honor the contractual commitment if entered into in good faith by an authorized representative of ours, but we may impose appropriate restrictions on the continued maintenance of the business relationship similar to those described above. If our chief executive officer, chief financial officer, general counsel or any member of our audit committee has a direct or indirect interest in a proposed transaction, that individual must disclose his interest in the proposed transaction and refrain from participating in the approval process.

Related Party Transactions

Consulting Arrangements with Rapid Change Technologies

M. Daniel Suwyn, the son of Mark A. Suwyn, our chairman, is the principal owner of Rapid Change Technologies. We paid Rapid Change Technologies $747,000 for consulting and training services in 2009. Rapid Change Technologies developed a training program and a process to improve communication skills, consensus building and problem-solving abilities. Rapid Change Technologies also facilitated the training of our employees on improving communication skills, resolving conflict and developing a process to improve productivity/operations through greater collaboration between hourly employees and supervisors/management. The terms of this arrangement were determined on an arms’-length basis, and we believe that they are comparable to terms that would have been obtained from an unaffiliated third party.

Cerberus Arrangements

Cerberus retains consultants that specialize in operations management and support and who provide Cerberus with consulting advice concerning portfolio companies in which funds and accounts managed by Cerberus or its affiliates have invested. From time to time, Cerberus makes the services of these consultants available to Cerberus portfolio companies. We reimbursed Cerberus $1,019,000 for these services in 2009. These services were provided at rates not greater than the fees that Cerberus paid to the applicable consultant, together with reimbursement of out-of-pocket expenses incurred by the consultant in providing those services. We believe that the terms of these consulting arrangements are comparable to terms that would have been obtained from an unaffiliated third party. Depending upon the nature of the assignment, consultants retained by us also provided services for Cerberus and other entities affiliated with Cerberus, including other Cerberus portfolio companies, at the same time as they performed consulting services to us, but the consultants’ duty of loyalty in their performance of their consulting services for us was solely to us. Any future consulting services of Cerberus consultants will be subject to the review and approval procedures described above.

 

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Affiliates of Cerberus

During 2009, we maintained commercial arrangements with entities that are or at the time were owned or controlled by Cerberus. These include the following:

 

   

Commercial Finance LLC, an affiliate of GMAC LLC, is one of the lenders under our revolving credit facility that we entered into on December 21, 2007. They have committed $70 million, of which a portion is currently used to support letters of credit. We paid a total of $1,229,000 in consent fees, commitment fees and interest to Commercial Finance LLC in 2009. As of December 31, 2009, there was $52 million outstanding under the revolving credit facility, of which Commercial Finance LLC’s share was $7 million.

These transactions were entered into in the ordinary course of our business. We believe that these transactions were negotiated on an arms’-length basis, on substantially the same terms that could have been obtained from an unrelated party, and are not material to our results of operations or financial position.

In connection with a tender offer by NPI for our second-lien notes, NPI and NewPage entered into a dealer managers agreement, dated July 15, 2009, with Citigroup Global Markets Inc., Banc of America Securities LLC, Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co. and Barclays Capital Inc. (the “Dealer Managers”). Pursuant to the dealer managers agreement, NewPage agreed to indemnify the Dealer Managers for liabilities arising out of material misstatements or omissions in the tender offer documents, breaches of representations and warranties by NPI or NewPage, and all other losses as a result of the dealer managers acting as a dealer manager or providing financial advisory services in connection with the tender offer.

SEO Arrangements

Corenso Arrangements. Prior to the closing of the Acquisition, Stora Enso North America Corp., now called NewPage Wisconsin System Inc. (“NewPage Wisconsin”) and Corenso North America Corp., a wholly-owned subsidiary of SEO that was not part of the Acquisition, which we refer to as “Corenso,” entered into the arrangements described below. Corenso manufactures core boards, cores and tubes for use by manufacturers of paper and board, textile yarn, plastic film, flexible packaging and metal foil.

 

   

NewPage Wisconsin and Corenso entered into real estate lease agreements with respect to the portion of the Wisconsin Rapids mill currently used in Corenso’s operations and NewPage Wisconsin is providing steam, process water and process water effluent treatment to Corenso operations at the leased facility

 

   

NewPage Wisconsin and Corenso entered into a supply agreement pursuant to which Corenso will continue to supply cores to NewPage Wisconsin on mutually agreed terms

NewPage Group PIK Notes. In connection with the Acquisition, NewPage Group issued $200 million in aggregate principal amount of NewPage Group PIK Notes to SEO. The NewPage Group PIK Notes mature on December 21, 2015. Interest on the NewPage Group PIK Notes accrues at a rate per annum, reset semi-annually, equal to LIBOR plus 7.0%. Interest on the NewPage Group PIK Notes compounds semi-annually in arrears on May 1 and November 1 of each year and is payable by the issuance of additional NewPage Group PIK Notes. The NewPage Group PIK Notes have customary redemption provisions, including upon a change in control, and customary events of default.

Loans to NewPage Group

In connection with the separation from NewPage of Jason W. Bixby, our former senior vice president and chief financial officer, we loaned $1.5 million to NewPage Group in February 2009 to enable NewPage Group to satisfy its repurchase obligations.

 

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Director Independence

Although we do not currently have securities listed on a national securities exchange or on an inter-dealer quotation system, we have selected the definition promulgated by the New York Stock Exchange, or NYSE, to determine which of our directors qualify as independent. Using the independence tests promulgated by the NYSE, our board of directors has determined that Messrs. Armstrong, Long, Sheridan and Zahringer are independent directors. In making its determination regarding Mr. Sheridan, the board of directors considered that our chairman and former chief executive officer, Mr. Suwyn, currently serves as a member of the board of directors of a company in which Mr. Sheridan currently serves as an executive officer. Examining all of the relevant facts and circumstances, our board of directors determined that this relationship did not and would not impair Mr. Sheridan’s independence.

Under the NYSE rules, we are considered a “controlled company” because more than 50% of our respective voting power is held by a single person. Accordingly, even if we were a listed company, we would not be required by NYSE rules to maintain a majority of independent directors on their respective board of directors, nor would we be required to maintain a compensation committee or a nominating committee comprised entirely of independent directors. As a result, we do not maintain a nominating committee and our compensation committee includes one independent director, Mr. Long.

 

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DESCRIPTION OF CERTAIN INDEBTEDNESS

The following is a summary of the material provisions of the instruments evidencing our material indebtedness. It does not include all of the provisions of our material indebtedness, does not purport to be complete and is qualified in its entirety by reference to the provisions of the instruments and agreements described.

Revolving Credit Facility

On December 21, 2007, we and NewPage Holding entered into a $500 million Revolver, which was amended on September 11, 2009 and further amended on January 28, 2010 (the “2010 Revolver Amendment”).

Structure. The Revolver consists of a revolving credit facility of $500 million. As of March 31, 2010, NewPage’s availability under the Revolver was $234 million, consisting of a borrowing base of $374 million, reduced by the $50 million minimum availability required and outstanding letters of credit totaling $90 million.

Subject to customary conditions, amounts available under the Revolver may be borrowed, repaid and reborrowed until the maturity date thereof. The Revolver may be utilized to fund our working capital, to fund permitted acquisitions and capital expenditures and for other general corporate purposes. A portion of the Revolver may be made available in the form of swing line loans or for the issuance of letters of credit. The maximum amount that may be borrowed and outstanding at any time under the Revolver (including undrawn letters of credit) may not exceed a borrowing base, as described below.

Borrowing Base. The amount of loans and letters of credit available to us pursuant to the Revolver is limited to the lesser of the maximum amount available under the Revolver, which is $500 million, or an amount determined pursuant to a borrowing base. The borrowing base at any time is equal to 85% of the book value of eligible accounts receivable, plus the lesser of (i) 75% of the lower of cost or market value of eligible inventory or (ii) 85% of the net recovery cost percentage of the lower of cost or market value of such eligible inventory, minus certain reserves established by the collateral agent under the Revolver. The administrative agent and the collateral agent have the right to change these advance rates under certain circumstances. The eligibility of accounts receivable and inventory for inclusion in the borrowing base is determined in accordance with certain customary criteria specified pursuant to the Revolver. For purposes of the borrowing base, “net recovery cost percentage” is the percentage determined by dividing the net amount that would be recovered in an orderly liquidation of the inventory, as determined from the most recent inventory appraisal conducted under the terms of the Revolver, by the lower of cost or market value of the inventory covered by such appraisal. The Revolver provides that the lenders can conduct (i) one collateral appraisal and one inventory appraisal per annum (or for any year in which excess availability for any 10 consecutive day period is less than $105 million, two of each such appraisals per year) or (ii) following the occurrence and during the continuation of an Event of Default or when the total utilization of revolving commitments exceeds the revolving commitments or the borrowing base then in effect, more frequent appraisals at the collateral agent’s reasonable request, in each case, at our expense in an amount not to exceed (so long as no Event of Default shall exist) $125,000 per appraisal.

Maturity and Prepayment. The Revolver has a maturity of the first to occur of: (i) December 21, 2012 (the “Revolver Final Maturity Date”); (ii) the date the commitment to make revolving loans under the Revolver is reduced to zero as a result of voluntary commitment reduction or certain mandatory prepayments; (iii) the date the commitment to make revolving loans under the Revolver is terminated as the result of an event of default; and (iv) the earliest date that is 181 days prior to the scheduled maturity date (determined on the date that is 271 days prior to any scheduled maturity date referenced in this clause (iv), without regard to any events (including refinancings or extensions) occurring after such determination date) of any of (a) the Notes, (b) the Second Lien Notes, (c) the 12% Senior Subordinated Notes (d) the NewPage Holding floating rate senior unsecured PIK Notes due 2013 (the “NewPage Holding PIK Notes”) or (e) any refinancing of any indebtedness included in items (a), (b), (c) or (d) in this clause (iv) (which would include the New Notes). NewPage may request in the future an extension of the final maturity date of the portion of the Revolver held by each revolving lender (which may be subject to an increase in the applicable interest rate margin and undrawn commitment fee payable to all revolving lenders and extension fees payable to extending revolving lenders).

 

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The Revolver is subject to mandatory prepayment and the letters of credit will be cash collateralized or replaced to the extent that such extensions of credit exceed (i) the maximum Revolver amount or (ii) the then-current borrowing base.

Interest. The Revolver bears interest, at our option, at a rate per annum equal to either: (i) the base rate, plus an applicable margin or (ii) the adjusted Eurodollar rate, plus an applicable margin. The applicable margin for the Revolver is 3.50% per annum above the LIBOR rate or 2.50% per annum above the base rate. The loans and other amounts not paid when due under the Revolver bear interest at the rate otherwise applicable plus an additional 2% per annum during the continuance of such payment event of default.

Guarantees and Security. The amounts outstanding under the Revolver are guaranteed by NewPage Holding and each of its existing and future direct and indirect subsidiaries, including foreign subsidiaries (but only to the extent that a guarantee by a foreign subsidiary is not prohibited by applicable law or does not have adverse tax consequences to NewPage Holding or any member of its consolidated tax group). In addition, regulated entities and any utility holding companies are not required to deliver guarantees under the Revolver. Subject to certain customary exceptions, we and each of the guarantors granted to the lenders under the Revolver a first-priority security interest in and lien on their present and future cash, deposit accounts, domestic accounts receivable, inventory and intercompany debt owed to us and each of our guarantors.

Fees. Certain customary fees are payable to the lenders and the agents under the Revolver, including, without limitation, a commitment fee on the unused amount of the Revolver and letter of credit fees and issuer fronting fees. The commitment fee on the unused amount of the Revolver is 0.50% per annum. In addition, NewPage paid a one-time fee to each lender that consented to the 2010 Revolver Amendment equal to 0.05% times the revolving commitment of such consenting lender.

Covenants. The Revolver contains various customary affirmative and negative covenants (subject to customary exceptions), including, but not limited to, restrictions on our ability and the ability of NewPage Holding and its subsidiaries to (i) dispose of assets; (ii) incur additional indebtedness and guarantee obligations; (iii) repay other indebtedness; (iv) pay certain restricted payments and dividends; (v) create liens on assets or agree to restrictions on the creation of liens on assets; (vi) make investments, loans or advances; (vii) restrict distributions from our subsidiaries; (viii) make certain acquisitions; (ix) engage in mergers or consolidations; (x) enter into sale and leaseback transactions; (xi) engage in certain transactions with subsidiaries of NewPage that are not guarantors under the Revolver or with affiliates; or (xii) amend the terms of any of our existing notes and otherwise restrict corporate activities.

The 2010 Revolver Amendment modified these covenants as follows:

 

   

the covenants restricting indebtedness and liens were amended to permit (i) the issuance of the Original Notes, (ii) the incurrence of additional secured debt in an aggregate principal amount at any time outstanding not to exceed $5 million and (iii) the incurrence or issuance of additional second lien indebtedness so long as such indebtedness is used to repay, repurchase or refinance the Second Lien Notes and pay other amounts, including fees and expenses, related thereto;

 

   

the covenants generally were amended to provide for (i) treatment of the Original Notes and the New Notes under the covenants on a basis consistent with the Existing Notes and (ii) treatment of any additional second lien indebtedness under the covenants on a basis consistent with the Second Lien Notes;

 

   

the covenant restricting the disposition of assets was amended to permit the disposition of certain hydroelectric assets, assets relating to the development, construction and operation of a biomass fueled, steam and electric generating facility and other related assets; and

 

   

the restricted payments covenant was amended to (i) permit the repayment, prepayment, purchase or redemption of the Second Lien Notes with the proceeds of additional second lien indebtedness, (ii) permit the repayment, prepayment, purchase or redemption of the Second Lien Notes in open market or privately negotiated transactions in an amount not to exceed $1.5 million, (iii) permit the

 

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repurchase or redemption or other acquisition and, in each case, retirement of any Parity Lien Debt (as defined in the Intercreditor Agreement) or any unsecured indebtedness so long as Consolidated Liquidity (as defined in the Existing Notes is not less than $150 million (on a pro forma basis after taking into account any such restricted payments) as of (x) the date of any offer to repurchase, redeem or otherwise acquire any such indebtedness and (y) the date of any such restricted payment, and otherwise on terms and conditions consistent with the terms and conditions of the Existing Notes and (iv) provide that certain prepayments, repayments, purchases, redemptions, retirements or cancellations of any consolidated total debt which constitute a usage of certain restricted payment baskets shall not have the effect of reducing the amount of consolidated excess cash flow for purposes of determining capacity under certain other restricted payment baskets.

Financial Covenants. As discussed below, under the Revolver, to the extent that the unused borrowing availability under the Revolver is below (i) $50 million for 10 consecutive business days in any fiscal quarter or (ii) $25 million for 3 consecutive business days in any fiscal quarter, NewPage is required to comply with certain financial ratios and tests as follows:

 

   

Minimum Interest Coverage Ratio. The interest coverage ratio is the ratio of NewPage’s Consolidated Adjusted EBITDA (as defined in the Revolver) to its Consolidated Cash Interest Expense (as defined in the Revolver) for the trailing four quarters.

 

   

Fixed Charge Coverage Ratio. The fixed charge coverage ratio is the ratio of NewPage’s Consolidated Adjusted EBITDA to its Consolidated Fixed Charges (as defined in the Revolver) for the trailing four quarters.

 

   

Total Leverage Ratio. The total leverage ratio is the ratio of NewPage’s Consolidated Total Debt (as defined in the Revolver) to its Consolidated Adjusted EBITDA for the trailing four quarters.

 

   

Senior Leverage Ratio. The senior leverage ratio is the ratio of NewPage’s Consolidated Senior Debt (as defined in the Revolver) to its Consolidated Adjusted EBITDA for the trailing four quarters.

 

   

Capital Expenditures. Capital expenditures are expenditures that are required by generally accepted accounting principles to be reflected in our financial statements in the purchase of property and equipment. Our annual capital expenditures are not permitted to exceed certain specified amounts.

Consolidated Adjusted EBITDA, as used in the Revolver, is defined as consolidated net income for the relevant period, as adjusted primarily by (a) adding the following amounts, to the extent deducted in computing consolidated net income for such period: (i) taxes based on income or profits of NewPage Holding and its subsidiaries; (ii) Consolidated Interest Expense (as defined in the Revolver); (iii) goodwill impairment charges; (iv) non-cash compensation charges related to equity-based compensation; (v) transaction costs associated with the Revolver and our previously repaid senior secured term loan facility, the Acquisition, future permitted acquisitions and the first amendment to the Revolver; (vi) non-cash expenses in addition to depreciation and amortization; (vii) non-recurring charges in connection with any integration or restructuring related to the Acquisition or future permitted acquisitions or in connection with plant closings or the permanent shutdown or transfer of production equipment; (viii) extraordinary losses plus any net losses from certain asset sales; (ix) pre-closing non-inventoried overhead costs incurred in connection with a certain plant lock-out; (x) pre-closing costs, charges or expenses of SENA that are not recurring after the Acquisition; and (xi) transaction costs incurred in connection with an initial public offering and (b) deducting non-cash items increasing consolidated net income for such period. The Revolver has been amended to provide that the transaction costs associated with the 2010 Revolver Amendment, the offering and issuance of the Notes and in connection with any offering or issuance of additional second lien indebtedness are added to consolidated net income (to the extent such costs were deducted in computing such consolidated net income) to determine Consolidated Adjusted EBITDA.

Compliance with the interest coverage ratio, total leverage ratio and senior leverage ratio covenants contained in the Revolver was suspended until the fiscal quarter ending June 30, 2010. Compliance with the fixed charge coverage ratio contained in the Revolver was suspended until the fiscal quarter ending March 31, 2011. The applicable levels of such covenants following the suspension period and through maturity are as follows:

 

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