-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VzMhcL+WtWlM3xRAUYDCzmPNjAnwstQC9qDs3LCQTKFYEUlJygyq0PZDcN2wf7dO 0M1EMiBGhXfirrjwYXFUug== 0000893220-02-000325.txt : 20020415 0000893220-02-000325.hdr.sgml : 20020415 ACCESSION NUMBER: 0000893220-02-000325 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLATFELTER P H CO CENTRAL INDEX KEY: 0000041719 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 230628360 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03560 FILM NUMBER: 02589030 BUSINESS ADDRESS: STREET 1: 228 S MAIN ST CITY: SPRING GROVE STATE: PA ZIP: 17362 BUSINESS PHONE: 7172254711 MAIL ADDRESS: STREET 2: 228 S MAIN ST CITY: SPRING GROVE STATE: PA ZIP: 17362 10-K 1 w58137e10-k.txt FORM 10-K - P.H. GLATFELTER COMPANY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER DECEMBER 31, 2001 1-3560
P. H. GLATFELTER COMPANY (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-0628360 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 96 SOUTH GEORGE STREET, SUITE 500 17401 YORK, PENNSYLVANIA (Zip Code) (Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (717) 225-4711 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK NEW YORK STOCK EXCHANGE (Title of each class) (Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock of the Registrant held by non-affiliates at February 27, 2002 was $465,893,015. COMMON STOCK OUTSTANDING AT MARCH 19, 2002: 43,454,214 SHARES DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference in this Report on Form 10-K: Proxy Statement dated April 9, 2002 (Part III) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [This page intentionally left blank] P. H. GLATFELTER COMPANY FORM 10-K YEAR ENDED DECEMBER 31, 2001 INDEX
PAGE ---- PART I Item 1 Business.................................................... 1 Item 2 Properties.................................................. 7 Item 3 Legal Proceedings........................................... 8 Item 4 Submission of Matters to a Vote of Security Holders......... 9 PART II Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters......................................... 11 Item 6 Selected Financial Data..................................... 12 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13 Item 7A Quantitative and Qualitative Disclosures about Market Risk........................................................ 22 Item 8 Financial Statements and Supplementary Data................. 23 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 49 PART III Item 10 Directors and Executive Officers of the Registrant.......... 49 Item 11 Executive Compensation...................................... 49 Item 12 Security Ownership of Certain Beneficial Owners and Management.................................................. 49 Item 13 Certain Relationships and Related Transactions.............. 49 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 50 SIGNATURES SCHEDULE II
PART I ITEM 1. BUSINESS Glatfelter, a paper manufacturing company, began operations in Spring Grove, Pennsylvania in 1864 and was incorporated as a Pennsylvania corporation in 1905. We have two paper mills located in the United States: Spring Grove, Pennsylvania and Neenah, Wisconsin. We also have paper mills in Gernsbach, Germany and Scaer, France and own and operate a manufacturing facility in Wisches, France and an abaca pulpmill in the Philippines. We manufacture engineered papers and specialized printing papers. Our engineered papers are used in the manufacture of a variety of products, including tea bags, metalized beverage labels, decorative laminates, food product casings, stencil papers, photo-glossy ink jet papers, greeting cards, medical dressings, highway signs and striping, billboard graphics, decorative shopping bags, playing cards, postage stamps, filters, cigarette papers, labels and surgical gowns. Sales of these papers are generally made directly to the converter of the paper. Engineered papers are manufactured in each of our mills. Most of our specialized printing paper products are directed at the uncoated free-sheet portion of the industry. Our specialized printing paper products are used principally for the printing of case bound and quality paperback books, envelope converting and commercial and financial printing. Specialized printing papers are manufactured in each of our mills except the Scaer mill. In 2001, sales of paper for book publishing and commercial printing generally were made through wholesale paper merchants, whereas sales of paper to converters and financial printers generally were made directly. Net sales to each of our customers were less than 10% of net sales during 1999, 2000 and 2001. Net sales to one customer, Central National-Gottesman Inc. (which buys paper through its division, Lindenmeyr Book Publishing), in 2001 were approximately 11% of total net sales excluding the Ecusta Division, which was sold in 2001. During August 2001, we completed the sale of our Ecusta facility in Pisgah Forest, North Carolina and its operating subsidiaries ("Ecusta Division"). The impact of this sale is described in the "Unusual Items" section of our Management's Discussion and Analysis of Financial Condition and Results of Operations (see Item 7). Prior to our sale of the Ecusta Division, approximately 49% and 25% of the Ecusta Division and Gernsbach mill's 2001 net sales, respectively, were made to a limited number of tobacco companies. Subsequent to the sale of the Ecusta Division, all tobacco papers sales of the Gernsbach mill, or approximately 19% of its net sales, were sold to the buyer of the Ecusta Division under a supply agreement. The supply agreement, which expires on July 31, 2004, calls for a reduction in supply of these papers in each year through the agreement's expiration. We plan to replace the lost volume of tobacco papers sales with other engineered papers, specifically overlay papers. In connection with this plan, we are proceeding with an investment of approximately $30 million to expand our capacity to produce overlay and other papers at the Gernsbach mill. This project will be complete upon the expiration of the supply agreement. Our decision to sell the Ecusta Division and transition our Gernsbach mill's tobacco papers sales to overlay papers greatly reduces our exposure to the difficult economic and competitive conditions facing paper suppliers of the tobacco industry. See Note 10 to our 2001 Consolidated Financial Statements in Item 8 for other sales and geographic disclosure. We are continuously developing and refining strategies to position our business for the future. Execution of these strategies is intended to result in a reorganization of our business to capitalize on our strength in customer relationships, technology and people and our leadership position in certain markets. Internally, we are working to improve the efficiency of our operations. Externally, we are looking to strengthen our business through strategic alliances and joint ventures, as well as potential acquisition opportunities or dispositions of under-performing or non-strategic assets. 1 The competitiveness of the markets in which we sell our products varies. The necessity for technical expertise limits the number of competitors for our engineered papers. There are a number of companies in the United States manufacturing specialized printing papers, and no one company holds a dominant position. Capacity in the worldwide uncoated free-sheet industry, which includes uncoated specialized printing papers, has declined in recent years and is not expected to increase significantly for the next few years. Service, product performance and technological advances are important competitive factors with respect to all our products. We believe our reputation in these areas continues to be excellent. Backlogs are generally not significant in our business, as substantially all of our customer orders are produced within 30 days of receipt. A backlog of unmade customer orders is monitored primarily for purposes of scheduling production to optimize paper machine performance. From time to time, we may determine that the backlog of unmade orders, along with high finished goods inventory levels, may be insufficient to warrant a full schedule of paper machine production. In these circumstances, certain paper machines may be temporarily shut down until backlog and inventory levels justify a resumption of operations. The principal raw material used at the Spring Grove mill is pulpwood. In 2001, we acquired approximately 75% of our pulpwood from saw mills and independent logging contractors and 25% from Company-owned timberlands located in Delaware, Maryland, Pennsylvania, and Virginia. These timberlands are maintained for the purpose of providing wood to our Spring Grove mill. Occasionally, some product from our timberlands may be sold to outside parties, but such transactions are not significant. During 2001, hardwood and softwood purchases constituted 49% and 51% of the pulpwood acquired, respectively. Hardwoods are available within a relatively short distance of our Spring Grove mill. Softwood is obtained primarily from Maryland, Delaware and Virginia. To protect our sources of pulpwood, we actively promote conservation and forest management among suppliers and woodland owners. Over the past five years, we have acquired 5,144 acres of woodlands and now supply approximately 38% of the softwood and 5% of hardwood requirements of the Spring Grove mill from our own timberland. The Spring Grove pulpmill converts pulpwood into wood pulp for use in its papermaking operations. In addition to the pulp it produces, the Spring Grove mill purchases market pulp from others. During 2001, approximately 11% of the Spring Grove mill's pulp requirements were supplied through the purchase of pulp from third parties. During 2001, approximately 71% of the Neenah mill's fiber requirements were met with pulp made at Neenah from high-grade, recycled wastepaper. The quality of different types of high-grade wastepaper varies significantly depending on the amount of contamination. It is anticipated that there will be an adequate supply of wastepaper in the future. The principal raw materials used by the Schoeller & Hoesch ("S&H") mills in Gernsbach and Scaer are purchased wood pulp and abaca pulp provided by S&H's Philippine pulpmill. The current supply of such materials is sufficient for the present operations of these mills. We plan to invest $6,000,000 in capital to expand the capacity of the abaca pulpmill by 2004 in order to meet the anticipated future needs of the Gernsbach and Scaer facilities. This expansion is part of our strategy to transition our remaining tobacco papers to long-fiber and overlay papers. Wood and other pulp purchased from others for all our current facilities comprised approximately 101,000 short tons or 24% of our total 2001 fiber requirements. The average cost of purchased pulp during 2001 was lower than in 2000. Market pulp prices decreased steadily through August 2000 and increased slightly in October. Aside from minor price decreases in the first quarter of 2002, pulp prices are expected to remain steady throughout 2002. The Spring Grove facility generates 100% of the steam and electricity required for operations. This facility also produces excess electricity, which is sold to the local power company under a long-term co-generation contract. These net energy sales were $9,661,000 in 2001. Principal fuel sources used by the Spring Grove facility are coal, recycled pulping chemicals, bark and wood waste, and oil (#2 and #6), which were used to produce approximately 59%, 35%, 5% and 1%, respectively, of the total energy generated at the Spring Grove facility in 2001. 2 During 1998, the Neenah facility began purchasing steam under a twenty-year contract from a facility of Minergy Corporation. This facility, which is located adjacent to our Neenah facility, processes paper mill sludge from our Neenah facility as well as other mills in the Neenah area. During 2001, the Neenah facility generated 21% of its required steam and purchased the balance from Minergy Corporation. The Neenah facility generates a portion of its electric power requirements (12% in 2001) and purchases the remainder. Gas was used to produce almost all of the mill's internally generated steam during 2001; fuel oil was used to generate the remainder. The Gernsbach and Scaer facilities both generate all the steam required for operations. The Gernsbach facility generated approximately 32% of its 2001 electricity and purchased the balance. Gas was used to produce almost all of Gernsbach's internally generated energy during 2001. The Scaer facility purchased all of its 2001 electric power requirements. We have approximately 2,400 active full-time employees and consider the overall relationship with our employees to be satisfactory. Hourly employees at our U.S. facilities are represented by different locals of the Paper, Allied-Industrial, Chemical and Energy Workers International Union. A five-year labor agreement that covers approximately 300 employees at the Neenah facility was ratified in August 1997 and will expire in August 2002. A five-year labor agreement that covers approximately 700 employees in Spring Grove was ratified in January 1998 and will expire in January 2003. Under these agreements, wages increase by 3% per year for the duration of the agreements. Approximately 860 of our S&H employees are represented by various unions. A labor agreement covering approximately 640 employees at the Gernsbach facility expired on February 28, 2002. A labor agreement covering approximately 140 employees at the Scaer facility expired on January 31, 2002. The terms and conditions of these expired agreements will remain in effect until the new agreements are negotiated, though any wage increase negotiated in the new agreements will be retroactive to the respective expiration dates of the old agreements. We are not directly involved in these negotiations as paper industry representatives are negotiating the agreements. This situation is not unusual in Germany and France, and we do not believe that the lack of an agreement will result in any significant operational interruptions. Approximately 50 employees at our abaca pulpmill in the Philippines are covered by a labor agreement, which expires in September 2002. Under this agreement, employees received a 2001 wage increase of 42.50 Philippine Pesos per day. The 2002 wage increase will be determined by the new agreement in September 2002. ENVIRONMENTAL MATTERS We are subject to loss contingencies resulting from regulation by various federal, state, local and foreign governmental authorities with respect to the environmental impact of our mills. To comply with environmental laws and regulations, we have incurred substantial capital and operating expenditures in past years. We anticipate that environmental regulation of our operations will continue to become more burdensome and that capital and operating expenditures necessary to comply with environmental regulations will continue, and perhaps increase, in the future. In addition, we may incur obligations to remove or mitigate any adverse effects on the environment resulting from our operations, including the restoration of natural resources, and liability for personal injury and for damages to property and natural resources. Because environmental regulations are not consistent worldwide, our ability to compete in the world marketplace may be adversely affected by capital and operating expenditures required for environmental compliance. For information with respect to such compliance, reference is made to Item 3 of this report. Compliance with governmental and environmental regulations and requirements is an absolute necessity. To meet environmental requirements, we have undertaken a variety of projects. Subject to permit approvals, we have undertaken an initiative at our Spring Grove facility under the Voluntary Advanced Technical Incentive Program set forth by the United States Environmental Protection Agency ("EPA") in the "Cluster Rule". This initiative, the "New Century Project," will require capital expenditures currently estimated at 3 approximately $32,500,000 to be incurred before April 2004. Through 2001, we have invested approximately $2,400,000 in this project including $900,000 in 2001. We estimate that $6,700,000, $18,000,000 and $5,400,000 will be spent on this project during 2002, 2003 and 2004, respectively. The Cluster Rule is a 1998 federal regulation in which the EPA aims to regulate air and water emissions from certain pulp and paper mills, including kraft pulp mills such as our Spring Grove facility. Issued under both the Clean Air Act and the Clean Water Act, the Cluster Rule establishes baseline emissions limits for toxic and non-conventional pollutant releases to both water and air. In total, we spent $1,700,000 on environmental capital projects in 2001 and we estimate spending $7,400,000, $19,900,000 and $6,800,000 in 2002, 2003 and 2004, respectively, for such projects. In our 2000 Form 10-K, we estimated environmental capital expenditures for 2001 and 2002 that were higher than the amounts noted above. Our actual 2001 and current estimates for projected environmental related capital expenditures reflect a change in the timing of these expenditures, primarily due to a delay in the receipt of permits related to several of these projects. The aggregate amount of projected environmental related capital expenditures has not changed significantly; however, a more significant amount of these expenditures is now expected to be incurred subsequent to 2002. SPRING GROVE, PENNSYLVANIA -- AIR. In 1999, EPA and the Pennsylvania Department of Environmental Protection ("Pennsylvania DEP") issued to us separate Notices of Violation ("NOVs") alleging violations of air pollution control laws, primarily for purportedly failing to obtain appropriate pre-construction air quality permits in conjunction with certain modifications to our Spring Grove facility. EPA and the Pennsylvania DEP primarily alleged that our modifications produced significant net emissions increases in certain air pollutants that should have been covered by permits containing reduced emissions limitations. For all but one of the modifications cited by EPA, we applied for and obtained from the Pennsylvania DEP the pre-construction permits that we concluded were required by applicable law. EPA reviewed those applications before the permits were issued. The Pennsylvania DEP's NOV pertained only to the modification for which we did not receive a pre-construction permit. We conducted an evaluation at the time of this modification and determined that the pre-construction permit cited by EPA and the Pennsylvania DEP was not required. We have been informed that EPA and the Pennsylvania DEP will seek substantial emissions reductions, as well as civil penalties, to which we believe we have meritorious defenses. Nevertheless, we are unable to predict the ultimate outcome of these matters or the costs involved. NEENAH, WISCONSIN -- WATER. We have previously reported with respect to potential environmental claims arising out of the presence of polychlorinated biphenyls ("PCBs") in sediments in the lower Fox River and in the Bay of Green Bay, downstream of our Neenah, Wisconsin facility. We acquired the Neenah facility in 1979 as part of the acquisition of the Bergstrom Paper Company. In part, this facility uses wastepaper as a source of fiber. At no time did the Neenah facility utilize PCBs in the pulp and paper making process, but discharges from the facility containing PCBs from wastepaper may have occurred from 1954 to the late 1970s. Any PCBs that the Neenah facility discharged into the Fox River resulted from the presence of NCR(R)-brand carbonless copy paper in the wastepaper that was received from others and recycled. As described below, various state and federal governmental agencies have formally notified seven potentially responsible parties ("PRPs"), including Glatfelter, that they are potentially responsible for response costs and "natural resource damages" ("NRDs") arising from PCB contamination in the lower Fox River and in the Bay of Green Bay, under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and other statutes. The six other identified PRPs include NCR Corporation, Appleton Papers Inc., Georgia Pacific Corp., WTM I Co. (a subsidiary of Chesapeake Corp.), Riverside Paper Company, and U.S. Paper Mills Corp. (now owned by Sonoco Products Company). CERCLA establishes a two-part liability structure that makes responsible parties liable for (1) "response costs" associated with the remediation of a release of hazardous substances and (2) NRDs related to that release. Courts have interpreted CERCLA to impose joint and several liability on responsible parties, subject to equitable allocation in certain instances. Prior to a final settlement by all responsible parties and the final cleanup of the contamination, uncertainty regarding the application of such liability will persist. 4 On October 2, 2001, the Wisconsin Department of Natural Resources ("Wisconsin DNR") and EPA issued drafts of the reports resulting from the remedial investigation and the feasibility study of the PCB contamination of the lower Fox River and the Bay of Green Bay. On that same day, the Wisconsin DNR and EPA issued a Proposed Remedial Action Plan ("PRAP") for the cleanup of the lower Fox River and the Bay of Green Bay, estimating the total costs associated with the proposed response action at $307,600,000 (without a contingency factor) over a 7-to-18-year time period. The most significant component of the estimated costs is attributable to large-scale sediment removal by dredging. Based on cost estimates of large-scale dredging response actions at other sites, we believe that the PRAP's cost projections may underestimate actual costs of the proposed remedy by over $800,000,000. We do not believe that the response action proposed by the Wisconsin DNR and EPA is appropriate or cost effective. We believe that a protective remedy for Little Lake Butte des Morts, the portion of the river that is closest of our Neenah facility, can be implemented at a much lower actual cost than would be incurred performing large-scale dredging. We also believe that an aggressive effort to remove the PCB-contaminated sediment, much of which is buried under cleaner sediment or is otherwise unlikely to move and which is abating naturally, would be environmentally detrimental and, therefore, inappropriate at all locations of the river. We have proposed to dredge and cap certain delineated areas with relatively higher concentrations of PCBs in Little Lake Butte des Morts. We have accrued an amount to cover this project, potential NRD claims, claims for reimbursement of expenses of other parties and residual liabilities. We have submitted comments to the PRAP that advocate vigorously for the implementation of environmentally protective alternatives that do not rely upon large-scale dredging. EPA, in consultation with the Wisconsin DNR, will consider comments on the PRAP and will then select a remedy to address the contaminated sediment. Because we have thus far been unable to persuade the EPA and the Wisconsin DNR of the correctness of our assessment (as evidenced by the issuance of the PRAP), we are becoming less confident that an alternative remedy totally excluding large-scale dredging will be implemented. Therefore, we have increased the reasonably possible estimate of our potential cost in this matter. The issuance of the PRAP has not materially impacted the amount we have accrued for this matter, however, as we continue to believe that ultimately we will be able to convince the EPA and the Wisconsin DNR that large-scale dredging is inappropriate. As noted above, NRD claims are theoretically distinct from costs related to the primary remediation of a Superfund site. Calculating the value of NRD claims is difficult, especially in the absence of a completed remedy of the underlying contamination. The State of Wisconsin has informally asserted claims for NRDs against the identified PRPs regarding alleged injuries to natural resources under its alleged trusteeship in the lower Fox River and the Bay of Green Bay. To date, Wisconsin has not prepared any estimates of the alleged value of its NRD settlements nor finalized any claims from which that value could be estimated. Based on available information, we believe that any NRD claims that Wisconsin may bring will likely be legally and factually without merit. The United States Fish and Wildlife Service ("FWS"), the National Oceanic and Atmospheric Administration ("NOAA"), four Indian tribes and the Michigan Attorney General also assert that they possess NRD claims related to the lower Fox River and the Bay of Green Bay. In June 1994, FWS notified the seven identified PRPs that it considered them potentially responsible for NRDs. The federal, tribal and Michigan agencies claiming to be NRD trustees have proceeded with the preparation of an NRD assessment separate from the Wisconsin DNR. While the final assessment will be delayed until after the selection of a remedy, the federal trustees released a plan on October 25, 2000 that values the NRDs for injured natural resources between $176,000,000 and $333,000,000. We believe that the federal NRD assessment is technically and procedurally flawed. We also believe that the NRD claim alleged by the federal, tribal and Michigan entities are legally and factually without merit. We are seeking settlement with the Wisconsin agencies and with the federal government for all of our potential liabilities for response costs and NRDs associated with the contamination. The Wisconsin DNR and FWS have published studies, the latter in draft form, estimating the amount of PCBs discharged by each PRP that estimate the volumetric share of the discharge from our Neenah facility to be as high as 27%. We do not 5 believe the volumetric estimates used in these studies are accurate because the studies themselves disclose that they are not accurate and are based on assumptions for which there is no evidence. We believe that our volumetric contribution is significantly lower. We further maintain that we do not believe that a volumetric allocation would constitute an equitable distribution of the potential liability for the contamination. Other factors, such as the location of contamination, location of discharge and a party's role in causing discharge must be considered in order for the allocation to be equitable. We have entered into interim cost-sharing agreements with four of the other six PRPs, pursuant to which the PRPs have agreed to share both defense costs and costs for scientific studies relating to PCBs discharged into the Lower Fox River. These interim cost-sharing agreements have no bearing on the final allocation of costs related to this matter. Based upon our evaluation of the magnitude, nature and location of the various discharges of PCBs to the river and the relationship of those discharges to identified contamination, we believe our share of any liability among the seven identified PRPs is much less than one-seventh of the whole. We also believe that additional potentially responsible parties exist other than the seven identified PRPs, which are all paper companies. For instance, certain of the identified PRPs discharged their wastewater through public wastewater treatment facilities, which we believe makes the owners of such facilities potentially responsible in this matter. We also believe that entities providing wastepaper containing PCBs to each of the recycling mills, including our Neenah facility, are also potentially responsible for this matter. We currently are unable to predict our ultimate cost related to this matter, because we cannot predict which remedy will be selected for the site, the costs thereof, the ultimate amount of NRDs, or our share of these costs or NRDs. We continue to believe it is likely that this matter will result in litigation. We maintain that the removal of a substantial amount of PCB-contaminated sediments is not an appropriate remedy. There can be no assurance, however, that we will be successful in arguing that removal of PCB-contaminated sediments is inappropriate or that we would prevail in any resulting litigation. The amount and timing of future expenditures for environmental compliance, cleanup, remediation and personal injury, NRDs and property damage liability, including but not limited to those related to the lower Fox River and the Bay of Green Bay cannot be ascertained with any certainty due to, among other things, the unknown extent and nature of any contamination, the extent and timing of any technological advances for pollution abatement, the response actions that may be required, the availability of qualified remediation contractors, equipment and landfill space and the number and financial resources of any other PRPs. We have established reserves, relating to unasserted claims, for environmental remediation and other environmental liabilities for those environmental matters for which it is probable that an assertion will be made and an obligation exists and for which the amount of the obligation is reasonably estimable. As of December 31, 2001 and December 31, 2000, we have accrued reserves of approximately $28,800,000 and $26,400,000, respectively, representing our best estimate within a range of possible outcomes, which would cover the cost of our proposed project regarding Little Lake Butte des Morts, potential NRD claims, claims for reimbursement of expenses of other parties and residual liabilities. Changes to the accrual reflect our best estimate of the ultimate outcome and considers changes in the extent and cost of the remedy, the status of negotiations with the various parties, including other PRPs, and our assessment of potential NRD claims, claims for reimbursement of expenses of other parties and residual liabilities. Based upon our assessment as to the ultimate outcome to this matter, we accrued and charged $2,400,000 to pre-tax earnings each year in 2001, 2000 and 1999. Based on analysis of currently available information and experience with respect to the cleanup of hazardous substances, we believe that it is reasonably possible that our costs associated with these matters may exceed current reserves by amounts that may prove to be insignificant or that could range, in the aggregate, up to approximately $200,000,000 over a period that is undeterminable but could range between 10 to 20 years or beyond. The upper limit of such range is substantially larger than the amount of our reserves. The estimate of the range of reasonably possible additional costs is less certain than the estimates upon which reserves are based. In order to establish the upper limit of such range, we used assumptions that are the least favorable to us among the range of assumptions pertinent to reasonably possible outcomes. We believe that the 6 likelihood of an outcome in the upper end of the range is significantly less than other possible outcomes within the range and that the possibility of an outcome in excess of the upper end of the range is remote. In our estimate of the upper end of the range, we have assumed full-scale dredging as set forth in the PRAP, at a significantly higher cost than estimated in the PRAP. We have also assumed our share of the ultimate liability to be 18%, which is significantly higher than we believe is appropriate or will occur, and a level of NRD claims and claims for reimbursement of expenses from other parties that, although reasonably possible, is unlikely. In estimating both our current reserve for environmental remediation and other environmental liabilities and the possible range of additional costs, we have not assumed that we will bear the entire cost of remediation and damages to the exclusion of other known PRPs who may be jointly and severally liable. The ability of other PRPs to participate has been taken into account, based generally on their financial condition and probable contribution. Our evaluation of the other PRPs' financial condition included the review of publicly disclosed financial information. The relative probable contribution is based upon our knowledge that at least two PRPs manufactured the paper that included the PCBs and as such, in our opinion, bear a higher level of responsibility. In addition, our assessment is based upon the magnitude, nature and location of the various discharges of PCBs to the river and the relationship of those discharges to identified contamination. We did not consider the financial condition of a smaller, non-public PRP as financial information is not available, and we do not believe its contribution to be material. We have also considered that over a number of years, certain PRPs were under the ownership of large multinational companies, who appear to retain some liability for this matter. We continue to evaluate our exposure and the level of our reserves, including, but not limited to, our potential share of the costs and NRDs (if any) associated with the lower Fox River and the Bay of Green Bay. We believe that we are insured against certain losses related to the lower Fox River and the Bay of Green Bay, depending on the nature and amount of the losses. Insurance coverage, which is currently being investigated under reservation of rights by various insurance companies, is dependent upon the identity of the plaintiff, the procedural posture of the claims asserted and how such claims are characterized. We do not know when the insurers' investigations as to coverage will be completed, and we are uncertain as to what the ultimate recovery will be and whether it will be significant in relation to the losses for which we have accrued. SUMMARY. Our current assessment is that we should be able to manage these environmental matters without a long-term, material adverse impact on us. These matters could, however, at any particular time or for any particular year or years, have a material adverse effect on our consolidated financial condition, liquidity or results of operations or could result in a default under our loan covenants. Moreover, there can be no assurance that our reserves will be adequate to provide for future obligations related to these matters, that our share of costs and/or damages for these matters will not exceed our available resources, or that such obligations will not have a long-term, material adverse effect on our consolidated financial condition, liquidity or results of operations. With regard to the lower Fox River and the Bay of Green Bay, if we are not successful in managing the matter and are ordered to implement the remedy proposed in the PRAP, such order would have a material adverse effect on our consolidated financial condition, liquidity and results of operations and would result in a default under our loan covenants. ITEM 2. PROPERTIES Our executive offices are located in York, Pennsylvania and our paper mills are located in Spring Grove, Pennsylvania; Neenah, Wisconsin; Gernsbach, Germany; and Scaer, France. The Spring Grove facility includes six uncoated paper machines with a daily capacity ranging from 18 to 305 tons and an aggregate annual capacity of about 308,000 tons of finished paper. The machines have been rebuilt and modernized from time to time. The Spring Grove facility has a Specialty Coater ("S-Coater") and an off-line combi-blade coater, which yield a potential annual production capacity for coated paper of approximately 62,000 tons. Since uncoated paper is used in producing coated paper, this does not represent an increase in the Spring Grove mill capacity. We view the S-Coater as an important asset, which will allow us to expand our more profitable engineered paper products. The Spring Grove facility also includes a pulpmill, which has a production capacity of approximately 650 tons of bleached pulp per day. 7 We also have a precipitated calcium carbonate ("PCC") plant at our Spring Grove facility. This plant produces PCC at a lower cost than could be purchased from others and lowers the need for higher-priced raw material typically used for increasing the opacity and brightness of certain papers. The Neenah facility, consisting of a paper manufacturing mill and offices, is located at two sites. The Neenah mill includes three paper machines, with an aggregate annual capacity of approximately 158,000 tons and a wastepaper de-inking and bleaching plant with an annual capacity of approximately 95,000 tons. Our subsidiary, S&H, owns and operates paper mills in Gernsbach, Germany and Scaer, France, as well as a manufacturing facility in Wisches, France. S&H also owns a pulpmill in the Philippines which supplies substantially all of the abaca pulp requirements of the S&H paper mills. The Gernsbach facility includes five uncoated paper machines with an aggregate annual lightweight capacity of about 38,000 tons. In addition, the Gernsbach facility has the capacity to produce 8,700 tons of metalized papers annually, using a lacquering machine and two metalizers. The base paper used to manufacture the metalized paper is purchased. The Scaer facility includes two paper machines with an aggregate annual lightweight capacity of approximately 4,400 tons of finished paper. The Philippine pulpmill has an aggregate annual capacity of approximately 9,300 tons of abaca pulp. Of this amount, approximately 7,700 tons are supplied to the Gernsbach and Scaer paper mills, with the remainder being sold to outside parties. The Gernsbach and Scaer paper mills obtain all of their abaca pulp from the Philippine pulpmill. The Glatfelter Pulp Wood Company, a subsidiary of ours, owns and manages approximately 115,000 acres of land, most of which is timberland. We own substantially all of the properties used in our papermaking operations, except for certain land leased from the City of Neenah under leases expiring in 2050, on which wastewater treatment, storage and other facilities and a parking lot are located. The leases with the City of Neenah cover approximately seven acres of land at an annual rent of approximately $3,500. We own our operating equipment with the exception of some leased vehicles. All of our properties, other than those which are leased, are free from any material liens or encumbrances. We consider all our buildings to be in good structural condition and well maintained and our properties to be suitable and adequate for present operations. ITEM 3. LEGAL PROCEEDINGS For a discussion of the separate NOVs issued to Glatfelter by EPA and the Pennsylvania DEP and the potential legal proceedings involving the lower Fox River and the Bay of Green Bay, see "Environmental Matters" in Item 1 of this report. In June 1999, the Pennsylvania Public Interest Research Group and several other parties (collectively, "PennPIRG") filed a citizens suit under the federal Clean Water Act and the Pennsylvania Clean Streams Law alleging that we had been operating our Spring Grove facility in violation of a 1984 wastewater discharge permit. We disagreed with this allegation; however, the parties settled the litigation, as described below, prior to the issuance of a final adjudication. In its citizens suit, PennPIRG sought civil penalties, reimbursement for costs of litigation and a reduction in the Spring Grove facility's discharge of color (a) immediately and (b) to a level lower than that achievable with the New Century Project. This project, as described in Item 1, is intended, among other things, to achieve by April 2004 a level of color in the receiving stream consistent with the level required in all similar streams in Pennsylvania. A "discharge of color" describes the presence in the facility's water effluent of materials, primarily lignins and tannins, which are natural glues and saps, found in trees, which discolor the water. The lignins and tannins are not themselves toxic, and we believe that the receiving stream is not environmentally impacted by the color. In September 2000, the Pennsylvania DEP issued a renewed permit that required us to comply with more stringent limits on color discharges than had been in place. We appealed the permit, as did PennPIRG. On October 26, 2001, the United States District Court for the Middle District of Pennsylvania approved a settlement between the parties to the citizens suit to which the Pennsylvania DEP joined. Under this settlement, the Court established a compliance schedule that would require achievement of water quality 8 limits consistent with those contemplated under the New Century Project by April 2004. We also agreed to the implementation of certain projects encompassed by the New Century Project consistent with the timetable set forth in our water discharge permit requiring completion of the projects by April 2004. These projects include improvements in brownstock washing, installation of an oxygen delignification bleaching process and 100 percent chlorine dioxide substitution. We believe these projects will enable us to achieve compliance with the final permit limits. We presently do not anticipate difficulties in implementing the New Century Project; however, we have not yet received all the required governmental approvals, nor have we installed all the necessary equipment. In addition to these projects, under the terms of the settlement, we have created a permanent endowment for certain environmental and recreational improvement projects in the Codorus Creek watershed, and have paid PennPIRG certain litigation costs related to this lawsuit. Our total cost accrued and paid under this settlement in 2001 was $2,500,000. The administrative appeals filed by Glatfelter and PennPIRG have been dismissed as moot. We are voluntarily cooperating with an investigation by the Pennsylvania DEP, which commenced in February 2002, of our Spring Grove facility related to certain discharges which are alleged to be unpermitted, to the Codorus Creek. There is no indication that these discharges had an impact on human health or on the environment. Although this investigation could result in the imposition of a fine or other punitive measures, we currently do not know what, if any, actions will be taken. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable.
EXECUTIVE OFFICERS OFFICE AGE - ------------------ ------ --- G. H. Glatfelter II......... Chairman and Chief Executive Officer(a) 50 R. P. Newcomer.............. President and Chief Operating Officer(b) 53 G. MacKenzie................ Executive Vice President and Chief Financial Officer(c) 52 C. M. Smith................. Corporate Controller(d) 43 R. S. Wood.................. Chief Strategy Officer(e) 44 J. R. Anke.................. Treasurer(f) 56 G. K. Federer............... Vice President -- Finance and Business Support(g) 44 R. L. Inners II............. Vice President -- Operations & Supply Chain(h) 43 C. L. Missimer.............. Vice President -- Environment, Health and Safety(i) 50 M. R. Mueller............... Corporate Counsel and Secretary; Director of Policy and Compliance(j) 41 D. C. Parrini............... Vice President -- Sales and Marketing(k) 37 P. M. Yaffe................. Vice President -- Government and Public Affairs(l) 53 W. T. Yanavitch............. Vice President -- Human Resources(m) 41
Officers are elected to serve at the pleasure of the Board of Directors. Except in the case of officers elected to fill a new position or a vacancy occurring at some other date, officers are generally elected at the annual meeting of the Board of Directors held immediately after the annual meeting of shareholders. - --------------- (a) Mr. Glatfelter currently serves as Chairman and Chief Executive Officer. From April 2000 to February 2001, he was Chairman, President and Chief Executive Officer. From June 1998 to April 2000, he was Chief Executive Officer and President. From September 1995 to June 1998, he was Senior Vice President. (b) Mr. Newcomer currently serves as President and Chief Operating Officer. From June 2000 to February 2001, he was Executive Vice President. From June 1998 to June 2000, he was Executive Vice President and Chief Financial Officer. From May 1997 to June 1998, he was Senior Vice President and Chief 9 Financial Officer. From September 1995 to April 1997, he was Senior Vice President, Treasurer and Chief Financial Officer. Mr. Newcomer is a director of the Burnham Corporation, Lancaster, Pennsylvania. (c) Mr. MacKenzie became Executive Vice President and Chief Financial Officer in September 2001. From November 2000 to September 2001 he was Vice Chairman of Hercules Incorporated. From April 2000 to October 2000, he was Executive Vice President and Chief Financial Officer of Hercules Incorporated. From 1999 to March 2000, he was Executive Vice President, Hercules Incorporated, President, Chemical Specialties Segment and Chief Financial Officer. From 1996 to 1999 he was Senior Vice President and Chief Financial Officer of Hercules Incorporated. Mr. MacKenzie is a member of the Board of Trustees of the Medical Center of Delaware and the Investment Committee at the University of Delaware. He is also on the board of directors of C&D Technologies, Inc., Blue Bell, Pennsylvania where he is chair of the Audit Committee and a member of the board of directors of Central Vermont Public Service Corporation. (d) Mr. Smith became Corporate Controller in September 2001. From June 2000 to September 2001 he was Chief Financial Officer and continued to serve as Assistant Secretary. From December 1999 to June 2000, he was Assistant Secretary and Vice President -- Finance. From December 1998 to December 1999, he was Vice President -- Finance. From August 1998 to December 1998, he was Vice President -- Finance, Assistant Secretary and Controller. From May 1993 to August 1998, he was Controller. (e) Mr. Wood became Chief Strategy Officer in June 2000. From December 1999 to June 2000, he was Vice President -- Administration. From August 1998 to December 1999, he was Vice President -- Administration and Secretary. From May 1997 to August 1998, he was Secretary and Treasurer. From October 1992 to May 1997, he was Secretary and Assistant Treasurer. (f) Mr. Anke became Treasurer in September 1998. From June 1997 to September 1998, he was Chief Financial Officer for the Senator John Heinz Pittsburgh Regional History Center. From September 1996 to June 1997, he was a consultant to AMSCO International, Inc. From April 1994 to September 1996, he was Vice President and Treasurer of AMSCO International, Inc., where he was responsible for treasury, insurance, retirement plan and international functions and supervised approximately forty employees. (g) Mr. Federer became Vice President -- Finance and Business Support in December 2000. From June 1997 to December 2000, he was Managing Director, Papierfabrik Schoeller & Hoesch GmbH & Co. KG. From December 1992 to June 1997, he was Director of Finance, Papierfabrik Schoeller & Hoesch GmbH & Co. KG. (h) Mr. Inners became Vice President -- Operation and Supply Chain in June 2000. From August 1998 to June 2000, he was Director of Operations, Glatfelter Division. From October 1995 to August 1998, he was Spring Grove Mill Manager. (i) Mr. Missimer became Vice President -- Environment, Health and Safety in February 2001. From July 2000 to February 2001 he was Vice President -- Environmental Affairs. From January 1999 to July 2000, he was Corporate Environmental Director. From November 1990 to January 1999, he was Assistant Corporate Environmental Manager. (j) Mr. Mueller became Corporate Counsel and Director of Policy and Compliance in June 2000 and has served as Secretary since December 1999. He was Associate Counsel from June 1998 to June 2000. From September 1996 to June 1998, he was a co-owner and Vice President of Scheller, Inc., where he was responsible for the administration of the company. (k) Mr. Parrini became Vice President -- Sales and Marketing in December 2000. From July 2000 to December 2000, he was Vice President -- Sales and Marketing, Glatfelter Division and Corporate Strategic Marketing. From June 1999 to December 2000, he was Vice President -- Sales and Marketing, Glatfelter Division. From August 1998 to June 1999, he was National Sales and Marketing Manager, Glatfelter Division. From December 1997 to August 1998, he was National Sales Manager, Glatfelter Division. From 1993 to December 1997 he was North American Sales Manager -- Technical Products & ARC Divisions, A.W. Chesterton Company, where he was responsible for sales, marketing 10 and business development for the specialty chemical and polymer composite divisions and supervised approximately thirty employees. (l) Mr. Yaffe became Vice President -- Government and Public Affairs in September 2000. From March 1997 to September 2000, he was Vice President -- Public Policy of Philadelphia Gas Works, where he was responsible for establishing advocacy communications and corporate responsibility programs and supervised approximately ten employees. From December 1995 to March 1997, he was owner of the Yaffe Group, where he consulted with clients on government relations and public affairs. (m) Mr. Yanavitch became Vice President -- Human Resources in July 2000. From October 1998 to July 2000, he was Director of Human Resources for the Ceramco and Trubyte Divisions of Dentsply, where he was responsible for all human resources activities and acted as chief spokesperson for union contracts and employee benefits. From December 1993 to October 1998, he was Director of Human Resources for the Trubyte Division of Dentsply, where he was responsible for daily human resources activities. In his positions with Dentsply, Mr. Yanavitch supervised approximately ten employees. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS COMMON STOCK PRICES AND DIVIDENDS PAID INFORMATION The table below shows the high and low prices of our common stock traded on the New York Stock Exchange under the symbol "GLT" and the dividends paid per share for each quarter during the past two years.
2001 2000 --------------------------- --------------------------- QUARTER HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS - ------- ------ ------ --------- ------ ------ --------- 1st............................ $13.22 $11.30 $.175 $14.63 $10.13 $.175 2nd............................ 16.10 12.21 .175 11.81 9.81 .175 3rd............................ 16.37 12.25 .175 12.19 10.00 .175 4th............................ 15.98 13.95 .175 13.75 9.88 .175
As of March 19, 2002, we had 2,584 shareholders of record. A number of the shareholders of record are nominees. 11 ITEM 6. SELECTED FINANCIAL DATA SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
YEARS ENDED DECEMBER 31 ---------------------------------------------------------------------- 2001 2000 1999 1998 1997 1996 -------- ---------- ---------- -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Net sales............ $635,691 $ 724,720 $ 705,491 $727,312 $585,520 $583,505 Income (loss) before accounting changes.. 6,958(b) 44,000(c) 41,425 36,133(d) 45,284 60,399 Basic earnings (loss) per share before accounting changes.. 0.16(b) 1.04(c) 0.98 0.86(d) 1.07 1.41 Diluted earnings (loss) per share before accounting changes............. 0.16(b) 1.04(c) 0.98 0.86(d) 1.07 1.41 Total assets......... 960,724 1,023,325 1,003,780 990,738 937,583 715,310 Debt................. 277,755 306,822 329,770 356,459 348,665 150,000 Cash dividends declared per common share............... $ 0.70 $ 0.70 $ 0.70 $ 0.70 $ 0.70 $ 0.70 YEARS ENDED DECEMBER 31 --------------------------------------------- 1995 1994 1993 1992 -------- --------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Net sales............ $623,709(a) $ 478,302(a) $473,509(a) $540,057(a) Income (loss) before accounting changes.. 65,828 (118,251)(e) 20,409(g) 56,544 Basic earnings (loss) per share before accounting changes.. 1.50 (2.67)(e) 0.46(g) 1.28 Diluted earnings (loss) per share before accounting changes............. 1.49 (2.67)(e) 0.46(g) 1.27 Total assets......... 673,107 650,810(f) 847,087(h) 648,464 Debt................. 150,000 174,100 150,000 10,100 Cash dividends declared per common share............... $ 0.70 $ 0.70 $ 0.70 $ 0.70
- --------------- (a)Does not reflect reclassification of prior-period shipping and handling costs from net sales to cost of products sold in accordance with recent accounting pronouncements. Pre-1996 shipping and handling costs have not been reclassified. (b)After impact of an after-tax charge relating primarily to a loss on disposition of the Ecusta Division (unusual item) of $39,709,000. (c)After impact of an after-tax restructuring charge (unusual item) of $2,120,000. (d)After impact of an after-tax charge for voluntary early retirement enhancement program (unusual item) of $5,988,000. (e)After impact of an after-tax charge for a writedown of impaired assets (unusual items) of $127,981,000. (f)After impact of a pre-tax charge for a writedown of impaired assets (unusual items) of $208,949,000. (g)After impact of an after-tax charge for rightsizing and restructuring (unusual items) of $8,430,000 and the effect of an increased federal corporate income tax rate of $3,587,000. (h)Includes an increase of $61,062,000 for the adoption of Statement of Financial Accounting Standards No. 109. OTHER FINANCIAL DATA
YEARS ENDED DECEMBER 31 -------------------------------------------------------------------------- 2001 2000 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS) Percent income before income taxes and accounting changes to net sales............. 1.8% 9.5% 9.2% 8.1% 12.6% 16.8% 17.3%(a) Cash dividends declared on common stock....... $ 29,827 $ 29,661 $ 29,538 $ 29,413 $ 29,548 $ 29,824 $ 30,701 Current assets......... 240,428 286,624 268,127 241,908 376,479 188,069 160,423 Current liabilities.... 209,315 119,184 132,631 126,876 289,943 86,183 84,008 Working capital (current assets less current liabilities).......... 31,113 167,440 135,496 115,032 86,536 101,886 76,415 Shareholders' equity... 353,469 372,703 358,124 343,929 339,358 330,623 314,820 Common shares outstanding at December 31........... 42,750 42,391 42,246 42,085 42,150 42,540 43,435 YEARS ENDED DECEMBER 31 -------------------------------- 1994 1993 1992 -------- -------- -------- (IN THOUSANDS) Percent income before income taxes and accounting changes to net sales............. --(a) 7.5%(a) 16.8%(a) Cash dividends declared on common stock....... $ 30,884 $ 30,828 $ 30,904 Current assets......... 135,369 175,941 130,527 Current liabilities.... 104,272 81,477 85,851 Working capital (current assets less current liabilities).......... 31,097 94,464 44,676 Shareholders' equity... 295,734 441,400 457,049 Common shares outstanding at December 31........... 44,200 43,987 44,057
- --------------- (a)Does not reflect reclassification of prior-period shipping and handling costs from net sales to cost of products sold in accordance with accounting pronouncements. 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD-LOOKING STATEMENTS Any statements we set forth in this annual report or otherwise made in writing or orally with regard to our goals for revenues, cost reductions and return on capital, execution of our business model in a timely manner, expectations as to industry conditions and our financial results and cash flow, demand for or pricing of our products, margin enhancement, retention of key accounts, income growth, market penetration, development of new products and new and existing markets for our products, environmental matters, implementation of our integrated information technology platform, our ability to identify and execute future acquisitions which will enhance both our business growth and return on capital and other aspects of our business may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results which might be projected, forecasted or estimated in any such forward-looking statements: (i) variations in demand for or pricing of our products; (ii) our ability to identify, finance and consummate future alliances or acquisitions; (iii) our ability to develop new, high value-added engineered products; (iv) our ability to realize cost reductions pursuant to our DRIVE project and changes to business processes contemplated by our IMPACT project; (v) changes in the cost or availability of raw materials we use, in particular market pulp, pulp substitutes and wastepaper, and changes in energy-related costs; (vi) changes in industry paper production capacity, including the construction of new mills, the closing of mills and incremental changes due to capital expenditures or productivity increases; (vii) the gain or loss of significant customers and/or on-going viability of such customers; (viii) cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damage related thereto, such as costs associated with the Notices of Violation ("NOVs") issued by the United States Environmental Protection Agency ("EPA") and the Pennsylvania Department of Environmental Protection ("Pennsylvania DEP"), the costs of natural resource restoration or damages related to the presence of polychlorinated biphenyls ("PCBs") in the lower Fox River on which our Neenah mill is located and the effect of complying with the wastewater discharge limitations of the Spring Grove mill permit; (ix) enactment of adverse state, federal or foreign legislation or changes in government policy or regulation; (x) adverse results in litigation; (xi) fluctuations in currency exchange rates; (xii) disruptions in production and/or increased costs due to labor disputes; and (xiii) our ability to enter into a new debt facility. SIGNIFICANT AND SUBJECTIVE ESTIMATES The following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to sales returns, doubtful accounts, inventories, investments and derivative financial instruments, long-lived assets, and contingencies, including environmental matters. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances; the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We believe the following represent the most significant and subjective estimates used in the preparation of our consolidated financial statements. We maintain reserves for expected sales returns and allowances based principally on our return practices and our historical experience. If actual sales returns differ from the estimated return rates projected, we may need to increase or decrease our reserves for sales returns and allowances, which could affect our reported income. 13 We maintain allowances for doubtful accounts for estimated losses resulting from our customers' failure to make required payments. If customer payments were to differ from our estimates, we may need to increase or decrease our allowances for doubtful accounts, which could affect our reported income. We maintain reserves for excess and obsolete inventories to reflect our inventory at the lower of its stated cost or market value. Our estimate for excess and obsolete inventory is based upon our assumptions about future demand and market conditions. If actual market conditions are more or less favorable than those we have projected, we may need to increase or decrease our reserves for excess and obsolete inventories, which could affect our reported income. We evaluate the recoverability of our long-lived assets, including property, equipment and intangible assets periodically or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Our evaluations include analyses based on the cash flows generated by the underlying assets, profitability information, including estimated future operating results, trends or other determinants of fair value. If the value of an asset determined by these evaluations is less than its carrying amount, a loss is recognized for the difference between the fair value and the carrying value of the asset. Future adverse changes in market conditions or poor operating results of the related business may indicate an inability to recover the carrying value of the assets, thereby possibly requiring an impairment charge in the future. Accounting for defined-benefit pension plans require various assumptions, including but not limited to, discount rates, expected rate of return on plan assets and future compensation growth rates. Our retiree medical plans also require various assumptions, which include but are not limited to, discount rates and annual rates of increase in the per-capita costs of health care benefits. We evaluate these assumptions at least once each year and make changes as conditions warrant. Changes to these assumptions will increase or decrease our reported income, which will result in changes to the assets and liabilities associated with our benefit plans. We maintain accruals for losses associated with environmental obligations when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing legislation and remediation technologies. These accruals are adjusted periodically as assessment and remediation actions continue and/or further legal or technical information develops. Such undiscounted liabilities are exclusive of any insurance or other claims against third parties. Recoveries of environmental remediation costs from other parties, including insurance carriers, are recorded as assets when their receipt is deemed probable. Refer to Note 1 to our consolidated financial statements for a discussion of our accounting policies with respect to these and other items. OVERVIEW We classify our sales into two product groups: (1) specialized printing papers and (2) engineered papers (including tobacco papers). The Glatfelter Division, which includes the Spring Grove, Pennsylvania and Neenah, Wisconsin paper mills, produces both specialized printing and engineered papers. The Schoeller & Hoesch Division ("S&H") includes paper mills in Gernsbach, Germany and Scaer, France. S&H produces specialized printing papers and engineered papers (including tobacco papers). We are in the process of changing our organization and information systems to manage our business in three separate business units: (1) engineered products, (2) printing and converting papers and (3) long fiber and overlay papers. Our information systems do not currently provide the information necessary for reporting by business unit. Such information is expected to be available by the end of 2002. Overall demand for our products was fairly stable throughout 2001. Of our two product groups, specialized printing papers typically are more influenced by the impact of changes in economic conditions. During 2001, this portion of our business experienced some decline in demand and a resulting decrease in sales volume and some selling price concessions. Despite this weakness, we had some successes during 2001, including an increase in shipments for our book publishing papers in a year when overall industry shipments were down significantly. The current outlook for our specialized printing papers is for demand to remain weak 14 throughout the first and second quarters of 2002. We believe that some improvement in conditions could occur in the third quarter of 2002. Our engineered papers tend to be less influenced by changing economic conditions. Demand for these products, excluding tobacco papers, remained fairly stable during 2001 and overall sales volume increases were realized. Pricing also remained fairly stable, although some price reductions did occur in selected markets. Our current outlook for these products is for stability to continue until mid-year, with the potential for improved conditions thereafter. After several years of declining market conditions, demand for our tobacco papers continued to weaken during the first half of 2001. In May 2001, we announced our intent to sell the Ecusta Division as the tobacco papers market was no longer compatible with our strategic direction (see "Unusual Items" below). As part of the sale, which was completed on August 9, 2001, we entered into a supply agreement with the buyer of the Ecusta Division. Under this agreement, which expires mid-year 2004, we will continue the manufacture and sale of tobacco papers at our Gernsbach, Germany facility exclusively for the buyer. This agreement allows us to transition our product mix from tobacco papers to other engineered products, more specifically to long-fiber and overlay papers. See "Capital Resources" below for a description of capital spending related to this transition. We have defined our Vision to become the global supplier of choice in specialty papers and engineered products and established goals to achieve revenue of $1 billion by 2004 with a sustainable average return on capital employed ("ROCE") of 17%. Despite our best efforts, economic conditions that have adversely affected our industry for the last several years have inhibited our progress in reaching our ROCE goal. In addition, a lack of external growth opportunities and the sale of our Ecusta Division have hindered our ability to achieve our revenue growth target. Therefore, it is doubtful that we will be able to achieve these financial goals in the foreseeable future. 2001 COMPARED TO 2000 Overall, net sales in 2001 decreased $89,029,000, or 12.3%, compared to 2000. Excluding the Ecusta Division, net sales in 2001 decreased $10,044,000, or 1.8%, compared to 2000 due to a 2.1% decrease in average net selling prices, which were slightly offset by a net sales volume increase of 0.3%. Average net selling prices decreased primarily due to lower prices because of weaker economic conditions, as well as a weaker mix of products sold and the unfavorable impact of foreign currency translation. The following net sales analysis for both product groups, specialized printing papers and engineered products, excludes the results of the Ecusta Division. Net sales of specialized printing papers were lower in 2001 than in 2000 by 7.3% due principally to a 5.1% decrease in average net selling prices in addition to a decrease in net sales volume of 2.3%. The decreased average net selling prices resulted almost entirely from lower pricing as product mix remained relatively stable. Net sales of engineered papers (excluding tobacco papers) increased by 6.2% in 2001 versus 2000, as a 10.7% increase in net sales volume was partially offset by a 4.1% decrease in average net selling prices. Lower average net selling prices were due chiefly to reduced prices, as well as the unfavorable impact of foreign currency translation and a weaker mix of products sold. The cost of products sold decreased $87,632,000, or 14.8%, in 2001 compared to 2000. Excluding the Ecusta Division, cost of products sold decreased by $5,738,000, or 1.3%. Cost of products sold was lower in 2001 versus 2000 primarily due to lower market pulp prices, savings from our DRIVE initiative (see "DRIVE and IMPACT Projects" below) and increased pension income. Pension income, which is non cash, reduced cost of products sold by $24,346,000 in 2001 compared to $22,914,000 in 2000. Partially offsetting such cost reductions were higher energy costs for 2001. See Note 8 to the Consolidated Financial Statements for disclosure related to our retirement plans, including pension income. Selling, general and administrative ("SG&A") expenses increased by $386,000 in 2001 over 2000. Excluding the Ecusta Division, SG&A expenses increased by $5,698,000 net of changes in pension income, or 11.5%, from 2000 to 2001, which was due primarily to increased salaries and professional fees related to 15 building our capabilities to effectively implement our strategic initiatives. Pension income, which is non cash, reduced SG&A expense by $6,332,000 in 2001 versus $5,195,000 in 2000. See Note 8 to the Consolidated Financial Statements. Gain from property dispositions, etc. -- net for 2001 increased to $3,598,000 from $2,029,000 in 2000. In the third quarter of 2001, we sold a 413-acre tract of land for which we received $1,729,000 in net cash proceeds resulting in a realized pre-tax gain of approximately $1,700,000. No significant sales of such properties occurred in 2000. From time to time, we divest certain tracts of our timberlands when we are offered attractive prices. While we do not actively solicit the sale of our timberlands, we are currently evaluating our overall timberland strategy. Earnings (excluding unusual items) before interest income and expense and taxes were $84,728,000 in 2001 compared to $84,524,000 in 2000. Excluding the Ecusta Division, earnings (excluding unusual items) before interest income and expense and taxes decreased by $7,891,000, or 9.2%. This was due to higher SG&A expenses and a lower gross margin, which were partially offset by higher gains from property dispositions, etc. -- net. Interest on investments and other -- net declined slightly in 2001 from 2000 from $3,820,000 to $3,589,000 primarily due to lower interest rates in 2001 compared to 2000 while higher average cash balances nearly offset such lower interest rates in 2001. Interest on debt was $15,689,000 in 2001 compared to $16,405,000 in 2000. This decrease was a result of lower average borrowings. Additionally, a stronger U.S. dollar relative to the Deutsche Mark ("DM") during 2001 caused lower reported interest expense from DM-denominated debt. 2000 COMPARED TO 1999 Overall, net sales in 2000 increased $19,229,000, or 2.7%, compared to 1999. Though net sales volume was 0.8% higher in 2000 versus 1999, the majority of the net sales increase was due to a 1.9% increase in average net selling price. Sales of specialized printing papers were higher in 2000 than 1999 by 14.4%, primarily due to a 9.3% increase in average net selling prices resulting from improved pricing and product mix. Increased demand for these papers resulted in increased net sales volume of 4.6%. Sales of engineered papers (including tobacco papers) fell by 8.2% in 2000 versus 1999, as an 8.9% decrease in net sales volume was slightly offset by a 0.7% increase in average net selling price. The decrease in sales of engineered papers was largely due to a 17.6% decrease in net sales of tobacco papers. The majority of this decrease was due to a 16.2% decrease in net sales volume. The remainder results from a 1.7% decrease in average price. This decrease in sales was in large part a result of our 1999 announcement of tobacco papers selling price increases. As we expected, subsequent to the announcement, some of our tobacco papers customers sought other suppliers. During the year 2000, Ecusta Division tobacco paper sales declined by approximately 24% compared to 1999. The cost of products sold increased by 1.8% in 2000 compared to 1999. With energy costs abnormally high and market pulp price increases uncharacteristically outpacing selling price increases, we would have expected cost of products sold from 1999 to 2000 to have increased more than the 2.7% net sales increase. Pension income, which is non cash, reduced cost of products sold by $22,914,000 in 2000 compared to $20,100,000 in 1999. In addition, implementation of the DRIVE project reduced cost of products sold. Primarily as a result of the increase in pension income and cost savings associated with the DRIVE project, gross margin as a percentage of net sales increased to 18.4% for 2000 from 17.7% for 1999. The increase in selling, general and administrative expenses of $4,011,000 in 2000 versus 1999 was due primarily to increased spending on outside consulting services relating to our DRIVE and IMPACT projects. Gain from property dispositions, etc. -- net for 2000 decreased to about half of the 1999 gain from $4,076,000 to $2,029,000. In the first quarter of 1999, we sold a 268-acre tract of timberland for $1,000,000 in cash resulting in a realized gain of $976,000. During the remainder of 1999, we sold various fully-depreciated 16 items, in addition to the rights to standing timber on select tracts of land. Subsequent to the first quarter of 1999, no single sale was material to our results of operations. No significant sales of such properties occurred in 2000. Earnings before interest income and expense and taxes were $84,524,000 (excluding the unusual item) in 2000 compared to $81,582,000 in 1999. This increase was driven primarily by improved profit margins at the Glatfelter and S&H divisions as increased sales volume spread fixed costs over a greater number of tons produced and sold. The Ecusta Division experienced lower sales volume, which decreased profit margins, thus partially negating the gains of the other divisions. The strengthening of the U.S. dollar with respect to the DM in 2000 also adversely affected earnings as foreign profits translated into fewer dollars. Finally, savings from our DRIVE project contributed to profits, but such savings were offset by the effects of a weaker economy as well as additional consulting costs incurred in 2000. Interest on investments and other -- net nearly doubled in 2000 from 1999 from $1,994,000 to $3,820,000. Our average cash holdings in 2000 were significantly higher than in 1999, yielding higher interest income. Additionally, cash was invested in higher yielding debt instruments throughout 2000 as compared to 1999. Interest on debt was $16,405,000 in 2000 compared to $18,424,000 in 1999. This decrease was a result of lower average borrowings, offset partially by higher interest rates. Such lower average borrowings were related to an 80% decrease in short-term debt stemming from payments made. Additionally, a stronger U.S. dollar relative to the DM during 2000 caused lower reported interest expense. UNUSUAL ITEMS On May 16, 2001, we announced that we had entered into an agreement to sell our Ecusta facility and two of its operating subsidiaries ("Ecusta Division"). Because our Board of Directors had committed to a plan to dispose of the Ecusta Division by accepting an offer to sell the Division, subject to certain closing conditions, at a loss, on that date the assets of the Ecusta Division were reclassified as assets held-for-disposal, and thus the carrying amount of these assets was reduced to fair value. The decision to sell the Ecusta Division was made due to the determination that the business of the Ecusta Division, principally tobacco papers, did not fit with our long-term strategic plans. On August 9, 2001, we completed the sale of the Ecusta Division including plant and equipment, inventory, accounts receivable and essentially all other operating assets and certain other receivables related to our tobacco papers business. The carrying value of the Ecusta Division totaled $61,467,000, after we recorded an impairment write down of $50,000,000 in the second quarter to reflect the fair value of the Ecusta Division. These assets were sold for $22,726,000 plus the assumption by the buyer of certain liabilities totaling $21,440,000 related to the Ecusta Division's business. The liabilities assumed by the buyer included accounts payable, accrued expenses and other liabilities related to the operation of the Ecusta Division's business. Our total charge to earnings associated with the sale was $58,408,000 including the $50,000,000 impairment charge recognized during the second quarter of 2001. The $58,408,000 pre-tax charge included $6,095,000 in transaction and other costs incurred upon sale of the Ecusta Division. Of this amount, approximately $1,900,000 related to transaction costs. The remainder related to certain liabilities accrued related to the transaction. Under the terms of the sale agreement, we are obligated to incur costs in the future related to certain long-term liabilities related to employee benefits ($2,000,000) and facility maintenance ($900,000) which would not have been necessary had we retained ownership interest in the Ecusta Division but were agreed to in order to consummate the transaction. The $58,408,000 pre-tax charge was net of a $14,988,000, pre-tax gain related to the curtailment and settlement of pension obligations and other retiree benefits related to employees who transferred to the buyer. The Ecusta Division contributed approximately $7,200,000 in operating profit during 2001 until its sale in August, had an operating loss of approximately $1,000,000 during 2000 and contributed approximately $13,300,000 in operating profit during 1999. We also recognized a $2,500,000 pre-tax charge during the second quarter of 2001 related to the settlement of an environmental matter in connection with the Spring Grove facility's wastewater discharge permit. The total unusual items recorded in 2001 were $60,908,000. 17 During the first quarter of 2000, we finalized our restructuring plan and shortly thereafter began to reduce the workforce at Ecusta. The workforce reduction was completed during the first quarter of 2001 and resulted in the reduction of over 200 salaried and hourly jobs associated with our tobacco paper production capacity. We accrued and charged to expense $3,336,000 ($2,120,000 after tax) in the first quarter of 2000 primarily as a result of the voluntary portion of this restructuring, specifically 42 salaried employees. Of this amount, $2,182,000 related to enhanced pension benefits to be paid out of our retirement plans as discussed in our disclosure of retirement and other post-retirement benefits. The remaining $1,154,000 of this charge related to severance and other employee benefits to be paid using our assets. Approximately $800,000 of these liabilities were transferred to the buyer of the Ecusta Division. Unpaid amounts as of December 31, 2001 are expected to be paid by the end of 2005. DRIVE AND IMPACT PROJECTS As of November 1, 2001, we completed the implementation of cost reduction programs designed to realize $40,000,000 at our current operations of annual cash cost savings identified during our on-going DRIVE project. Our employees generated over 7,000 cost savings ideas under DRIVE of which over 950 ideas were identified for implementation. DRIVE ideas included, among others, procurement initiatives and production process improvements to reduce the cost of raw materials, efficiency increases to improve paper machine speeds and quality yields, energy conservation programs and the outsourcing of our sheeting operation at the Neenah, Wisconsin facility. Because of the complex and highly integrated nature of our operations and the number of projects implemented, it is extremely difficult and cost prohibitive to determine the actual amount of cost savings realized. We do recognize, however, that upon completing the implementation of the DRIVE project, realized cost reductions have been largely offset by increases in on-going operating costs such as wages and salaries, fringe benefits, energy costs and professional and other costs. We continue to review our manufacturing processes for opportunities to improve efficiencies and effectiveness. Our IMPACT project is focused on identifying and implementing changes in our organization and business processes. We are currently in the second phase of IMPACT, which includes the installation of an enterprise resource planning system. This system, which will provide a common platform for purchasing, accounts payable, sales orders, cost accounting and general ledgers, among other things, is planned to be implemented at our U.S. based locations during the second quarter of 2002. Installation at our larger European locations will be completed in the fall of 2002. Total spending on the IMPACT project is expected to be approximately $49,000,000, of which approximately $45,000,000 is capital related. Through December 31, 2001, we have capitalized approximately $24,000,000 on the IMPACT project. The implementation of an enterprise resource planning system requires significant and pervasive change and thus subjects our business to significant implementation risk. Based on our progress to date, we believe we will complete an effective implementation within budget and without a material adverse impact on our business. LIQUIDITY During 2001, our cash and cash equivalents decreased by $15,051,000, principally due to cash used in financing activities and investing activities of $48,710,000 and $30,576,000, respectively. Cash used in financing activities was mainly for dividend payments and net payment of debt. Cash used in investing activities was for additions to plant, equipment and timberlands, partially offset by cash provided from net proceeds from the sale of the Ecusta Division (see "Unusual Items"). Cash used in investing and financing activities was partially offset by cash provided by operations of $63,899,000. Our Consolidated Statement of Cash Flows ("Cash Flow Statement") for 2001 reflects the pre-tax loss on the disposition of the Ecusta Division as an "unusual item." Changes in the Ecusta Division's assets and liabilities, with the exception of taxes, are not reflected as changes in assets and liabilities in the Cash Flow Statement. 18 The significant decreases reflected in our Consolidated Balance Sheet ("Balance Sheet") related to accounts receivable, inventory, plant, equipment and timberlands -- net and current liabilities from December 31, 2000 to December 31, 2001 are primarily due to the disposition of the Ecusta Division. We expect to meet all our near- and long-term cash needs from a combination of internally generated funds, cash, cash equivalents and our existing Revolving Credit Facility or other bank lines of credit and other long-term debt. We are subject to certain financial covenants under the Revolving Credit Facility and are in compliance with all such covenants. As the Revolving Credit Facility matures on December 22, 2002, it has been reclassified on the Balance Sheet to "Current portion of long-term debt." As of December 31, 2001, we had $122,515,000 of borrowings under the Revolving Credit Facility and an additional $77,485,000 was available under our Revolving Credit Facility. We intend to repay the Revolving Credit Facility during 2002 using a portion of our cash and cash equivalents as well as through borrowings under a new debt facility to be negotiated. INTEREST RATE RISK We use our Revolving Credit Facility and proceeds from the issuance of our 6 7/8% Notes to finance a significant portion of our operations. The Revolving Credit Facility provides for variable rates of interest and exposes us to interest rate risk resulting from changes in the Euro London Interbank Offered Rate. We use interest rate swap agreements to partially hedge interest rate exposure associated with the Revolving Credit Facility. All of our derivative financial instrument transactions are entered into for non-trading purposes. To the extent that our financial instruments expose us to interest rate risk and market risk, they are presented in the table below. The table presents principal cash flows and related interest rates by year of maturity for our Revolving Credit Facility, and 6 7/8% Notes and other long-term debt as of December 31, 2001. For interest rate swap agreements, the table presents notional amounts and the related reference interest rates by year of maturity. Fair values included herein have been determined based upon (1) rates currently available to us for debt with similar terms and remaining maturities, and (2) estimates obtained from dealers to settle interest rate swap agreements. The table should be read in conjunction with Notes 5 and 6 to the consolidated financial statements.
YEAR OF MATURITY ------------------------------------------------------ FAIR VALUE AT 2002 2003 2004 2005 2006 THEREAFTER TOTAL 12/31/01 -------- ------ ----- ----- ----- ---------- -------- -------- (DOLLAR AMOUNTS IN THOUSANDS) Debt: Fixed rate --............... $ 1,194 $1,058 $ 883 $ 530 $ 122 $150,000 $153,787 $152,666 Average interest rate..... 6.86% 6.87% 6.87% 6.87% 6.87% 6.87% Variable rate --............ $122,515 $ -- $ -- $ -- $ -- $ -- $122,515 $122,515 Average interest rate..... 3.80 -- -- -- -- -- Interest rate swap agreements: Variable to fixed swaps --.................. $ 45,098 $ -- $ -- $ -- $ -- $ -- $ 45,098 $ 32 Average pay rate.......... 3.42% -- -- -- -- -- Average receive rate...... 3.60% -- -- -- -- --
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires us to record the interest rate swaps from the table above on the balance sheet at fair value beginning January 1, 2001. SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Because these swaps are designated in a cash-flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income ("OCI") and are recognized in the income statement when the hedged item affects earnings. Effective January 1, 2001, we recorded $845,000 in OCI as a cumulative transition adjustment for derivatives designated in cash flow-type 19 hedges prior to adopting SFAS No. 133. As of December 31, 2001, the balance in OCI related to derivatives was $21,000. CAPITAL RESOURCES During 2001, we expended $47,845,000 on capital projects compared to $29,215,000 in 2000. Of the 2001 capital spending, approximately $18,400,000 was spent on our IMPACT project and approximately $900,000 was spent on the New Century Project. Capital spending is expected to be approximately $56,000,000 in 2002. Included in this total is an expected additional $21,000,000 capital expenditure for our IMPACT project and $6,700,000 for the New Century Project. The New Century Project will also require an estimated $18,000,000 and $5,400,000 in spending during 2003 and 2004, respectively. The total capital spending on the New Century Project is expected to be approximately $32,500,000, including $1,500,000 that was spent during preliminary phases prior to 2001. Other significant capital expenditures expected during 2002 include $6,000,000 to begin the expansion of our long-fiber and overlay papers capacity in Gernsbach and $4,200,000 to begin the expansion of our abaca pulp making capacity in the Philippines. Capital expenditures of $25,800,000 are expected on these projects in 2003. In our 2000 Form 10-K, we estimated our 2001 total capital expenditures to be $67,000,000. Actual spending was less than that amount due to the cancellation and delay of certain projects. Capital spending on environmental related projects was approximately $7,000,000 lower than expected due to the delay in the receipt of certain necessary permits. Spending on our IMPACT project in 2001 was approximately $5,600,000 less than anticipated. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 143, "Accounting for Asset Retirement Obligations," in June 2001 and issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," in August 2001. SFAS No. 141 is effective for all business combinations occurring after June 30, 2001 and requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. The adoption of SFAS No. 141 had no impact on our consolidated financial position or results of operations. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 and establishes revised reporting requirements for goodwill and other intangible assets. Upon adoption, we no longer amortize goodwill unless evidence of impairment exists; goodwill will be evaluated on at least an annual basis. As of December 31, 2001 and using the 2001 foreign exchange translation rates, we had $8,170,000 in unamortized goodwill and recorded $518,000 in goodwill amortization expense in 2001. We adopted SFAS No. 142 on January 1, 2002. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002 and applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. We will adopt SFAS No. 143 on January 1, 2003. We are currently evaluating the effects that the adoption of SFAS No. 143 may have on our consolidated financial position and results of operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. This statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and establishes new guidelines for the valuation of long-lived assets. We adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 had no impact on our consolidated financial position or results of operations. 20 ENVIRONMENTAL MATTERS We are subject to loss contingencies resulting from regulation by various federal, state, local and foreign governmental authorities with respect to the environmental impact of our mills. To comply with environmental laws and regulations, we have incurred substantial capital and operating expenditures in past years. During 2001, 2000 and 1999, we incurred approximately $15,600,000, $16,700,000 and $15,800,000, respectively, in operating costs related to complying with environmental laws and regulations. We anticipate that environmental regulation of our operations will continue to become more burdensome and that capital and operating expenditures necessary to comply with environmental regulations will continue, and perhaps increase, in the future. In addition, we may incur obligations to remove or mitigate any adverse effects on the environment allegedly resulting from our operations, including the restoration of natural resources, and liability for personal injury and for damages to property and natural resources. In particular, we remain open to negotiations with the EPA and the Pennsylvania DEP regarding the NOVs under the federal and state air pollution control laws. In addition, we continue to negotiate with the State of Wisconsin and the United States regarding natural resources damages and response costs related to the discharge of PCBs and other hazardous substances in the lower Fox River, on which our Neenah facility is located. We have settled with the Pennsylvania DEP and with the Pennsylvania Public Interest Research Group and several other parties (collectively "PennPIRG") regarding the wastewater discharge permit for our Spring Grove facility. Under this settlement, we agreed to the implementation of certain projects encompassed by the New Century Project consistent with the time table set forth in our water discharge permit, requiring completion of the project by April 2004. This settlement also required a one-time, pre-tax charge of $2,500,000 during the second quarter of 2001. We are also voluntarily cooperating with an investigation by the Pennsylvania DEP, which commenced in February 2002 of our Spring Grove facility related to certain discharges, which are alleged to be unpermitted, to the Codorus Creek. The costs associated with environmental matters are presently unknown but could be substantial and perhaps exceed our available resources. Our current assessment is that we should be able to manage these environmental matters without a long-term, material adverse impact. These matters could, however, at any particular time or for any particular year or years, have a material adverse effect on our consolidated financial condition, liquidity or results of operations or could result in a default under our loan covenants. Moreover, there can be no assurance that our reserves will be adequate to provide for future obligations related to these matters, that our share of costs and/or damages for these matters will not exceed our available resources, or that such obligations will not have a long-term, material adverse effect on our consolidated financial condition, liquidity or results of operations. With regard to the lower Fox River and the Bay of Green Bay, if we are not successful in managing the matter and are ordered to implement the remedy set forth in the proposed remedial action plan issued by the State of Wisconsin and the United States, such order would have a material adverse effect on our consolidated financial condition, liquidity and results of operations and would result in a default under our loan covenants. We have accrued an amount to cover this matter which represents our best estimate within a range of possible outcomes. Changes to the accrual reflect our best estimate of the ultimate outcome and considers changes in the extent and cost of the remedy, the status of negotiations with the various parties, including other PRPs, and our assessment of potential NRD claims, claims for reimbursement of expenses of other parties and residual liabilities. For further discussion, see Note 9 of the Consolidated Financial Statements. ENVIRONMENTAL ACHIEVEMENTS We continue to strive for ISO 14001 certification for our environmental management system as a component of our commitment to environmental excellence. ISO 14001 requires that an organization have an environmental policy that includes commitments to prevention of pollution, compliance with environmental laws and regulations and continual improvements in its environmental management systems. Our Spring Grove, Pennsylvania, Neenah, Wisconsin and Gernsbach, Germany facilities are already ISO 14001 certified. As a part of maintaining our certification, each facility's environmental management system is audited by an independent third party on an ongoing, periodic basis. We plan to have our Scaer, France facility ISO 14001 certified by the end of 2002. 21 On April 20, 1999, we announced our "New Century Project." The New Century Project is our commitment to participate at our Spring Grove facility in EPA's Advanced Technology Incentive Program under the "Cluster Rules." As described in the Capital Resources section above, we expect to spend approximately $32,500,000 prior to April 2004 to eliminate the use of elemental chlorine in our bleaching process, reduce odor emissions and improve water quality. The New Century Project demonstrates our commitment to minimizing our impact on natural resources. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See the discussion under the heading "Interest Rate Risk" in Item 7 as well as Notes 6 and 7 to our consolidated financial statements in Item 8. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA P. H. GLATFELTER COMPANY AND SUBSIDIARIES MANAGEMENT'S RESPONSIBILITY REPORT The management of P. H. Glatfelter Company has prepared and is responsible for the Company's consolidated financial statements and other corroborating information contained herein. Management bears responsibility for the integrity of these statements which have been prepared in accordance with accounting principles generally accepted in the United States and include management's best judgments and estimates. All information in this annual report consistently reflects the data contained in the consolidated financial statements. The Company maintains a system of internal controls designed to provide reasonable assurance that assets are safeguarded, transactions are executed and recorded in accordance with their authorizations, and financial records are maintained so as to permit the preparation of reliable financial statements. The system of internal controls is enhanced by written policies and procedures, an organizational structure providing appropriate segregation of duties, careful selection and training of qualified people, and periodic reviews performed by both its internal audit department and independent public auditors. The Audit Committee of the Board of Directors, consisting exclusively of directors who are not Company employees, provides oversight of financial reporting. The Company's internal audit department and independent auditors meet with the Audit Committee on a periodic basis to discuss financial reporting, audit and internal control issues and have completely free access to the Audit Committee. GEORGE H. GLATFELTER II Chairman and Chief Executive Officer GEORGE MACKENZIE Executive Vice President and Chief Financial Officer 23 INDEPENDENT AUDITORS' REPORT P. H. Glatfelter Company, Its Shareholders and Directors: We have audited the accompanying consolidated balance sheets of P. H. Glatfelter Company and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income and comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of P. H. Glatfelter Company and subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Deloitte & Touche LLP Philadelphia, Pennsylvania February 28, 2002 24 P. H. GLATFELTER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 2001, 2000 AND 1999
2001 2000 1999 -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NET SALES................................................... $635,691 $724,720 $705,491 OTHER INCOME: Energy sales -- net....................................... 9,661 9,243 9,176 Interest on investments and other -- net.................. 3,589 3,820 1,994 Gain from property dispositions, etc. -- net.............. 3,598 2,029 4,076 -------- -------- -------- Total revenues......................................... 652,539 739,812 720,737 -------- -------- -------- COSTS AND EXPENSES: Cost of products sold..................................... 503,569 591,201 580,905 Selling, general and administrative expenses.............. 60,653 60,267 56,256 Interest on debt.......................................... 15,689 16,405 18,424 Unusual items............................................. 60,908 3,336 -- -------- -------- -------- Total costs and expenses............................... 640,819 671,209 655,585 -------- -------- -------- INCOME BEFORE INCOME TAXES.................................. 11,720 68,603 65,152 -------- -------- -------- INCOME TAX PROVISION (BENEFIT): Current................................................... (8,861) 11,366 10,973 Deferred.................................................. 13,623 13,237 12,754 -------- -------- -------- Total.................................................. 4,762 24,603 23,727 -------- -------- -------- NET INCOME.................................................. $ 6,958 $ 44,000 $ 41,425 ======== ======== ======== BASIC AND DILUTED EARNINGS PER SHARE........................ $ 0.16 $ 1.04 $ 0.98 COMPREHENSIVE INCOME, NET OF TAX: NET INCOME.................................................. $ 6,958 $ 44,000 $ 41,425 OTHER COMPREHENSIVE INCOME: Foreign currency translation adjustments -- net........... (1,027) (1,451) 219 Change in interest rate swap market value -- net.......... 21 -- -- -------- -------- -------- COMPREHENSIVE INCOME........................................ $ 5,952 $ 42,549 $ 41,644 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 25 P. H. GLATFELTER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000
2001 2000 ----------- ------------- (IN THOUSANDS EXCEPT SHARE INFORMATION) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 95,501 $ 110,552 Accounts receivable (less allowance for doubtful accounts: 2001, $1,551; 2000, $1,515)............................ 60,157 72,231 Inventories............................................... 62,815 101,294 Refundable income taxes................................... 17,522 -- Prepaid expenses and other current assets................. 4,433 2,547 -------- ---------- Total current assets................................... 240,428 286,624 PLANT, EQUIPMENT AND TIMBERLANDS -- NET..................... 497,228 552,768 OTHER ASSETS................................................ 223,068 183,933 -------- ---------- Total assets........................................... $960,724 $1,023,325 ======== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt......................... $123,709 $ 1,419 Short-term debt........................................... 1,453 5,158 Accounts payable.......................................... 36,155 45,869 Dividends payable......................................... 7,481 7,430 Income taxes payable...................................... 1,853 7,328 Accrued compensation and other expenses and deferred income taxes........................................... 38,664 51,980 -------- ---------- Total current liabilities.............................. 209,315 119,184 LONG-TERM DEBT.............................................. 152,593 300,245 DEFERRED INCOME TAXES....................................... 167,623 155,360 OTHER LONG-TERM LIABILITIES................................. 77,724 75,833 -------- ---------- Total liabilities...................................... 607,255 650,622 -------- ---------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock, $.01 par value; authorized -- 120,000,000 shares; issued (including shares in treasury: 2001, 11,611,559; 2000, 11,971,208) -- 54,361,980 shares..... 544 544 Capital in excess of par value............................ 40,968 41,669 Retained earnings......................................... 488,150 511,019 Accumulated other comprehensive loss...................... (3,849) (2,843) -------- ---------- Total.................................................. 525,813 550,389 Less cost of common stock in treasury..................... (172,344) (177,686) -------- ---------- Total shareholders' equity............................. 353,469 372,703 Total liabilities and shareholders' equity........... $960,724 $1,023,325 ======== ==========
The accompanying notes are an integral part of these consolidated financial statements. 26 P. H. GLATFELTER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
ACCUMULATED COMMON CAPITAL IN OTHER TOTAL SHARES COMMON EXCESS OF RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS' OUTSTANDING STOCK PAR VALUE EARNINGS INCOME (LOSS) STOCK EQUITY ----------- ------ ---------- -------- ------------- --------- ------------- (IN THOUSANDS EXCEPT SHARES OUTSTANDING) BALANCE, JANUARY 1, 1999................... 42,085,236 $544 $42,612 $484,793 $(1,611) $(182,409) $343,929 Net income............... 41,425 41,425 Foreign currency translation adjustments............ 219 219 Cash dividends declared............... (29,538) (29,538) Delivery of treasury shares: Performance shares..... 11,440 (28) 170 142 401(k) plans........... 143,579 (273) 2,146 1,873 Employee stock options exercised -- net..... 6,000 (15) 89 74 ---------- ---- ------- -------- ------- --------- -------- BALANCE, DECEMBER 31, 1999................... 42,246,255 544 42,296 496,680 (1,392) (180,004) 358,124 Net income............... 44,000 44,000 Foreign currency translation adjustments............ (1,451) (1,451) Cash dividends declared............... (29,661) (29,661) Delivery of treasury shares: Performance shares..... 6,048 (2) 90 88 401(k) plans........... 167,769 (606) 2,498 1,892 Employee stock options exercised -- net..... 7,500 (19) 112 93 Purchase of stock for treasury............... (36,800) (382) (382) ---------- ---- ------- -------- ------- --------- -------- BALANCE, DECEMBER 31, 2000................... 42,390,772 544 41,669 511,019 (2,843) (177,686) 372,703 Net income............... 6,958 6,958 Reclassification adjustment for Ecusta sale included in net income................. 1,936 1,936 Foreign currency translation adjustments............ (2,963) (2,963) Transition adjustment for interest rate swaps.... 845 845 Change in market value of interest rate swaps.... (824) (824) Cash dividends declared............... (29,827) (29,827) Delivery of treasury shares: Performance shares..... 3,489 (9) 52 43 401(k) plans........... 118,389 (108) 1,746 1,638 Employee stock options exercised -- net..... 237,771 (584) 3,544 2,960 ---------- ---- ------- -------- ------- --------- -------- BALANCE, DECEMBER 31, 2001................... 42,750,421 $544 $40,968 $488,150 $(3,849) $(172,344) $353,469 ========== ==== ======= ======== ======= ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 27 P. H. GLATFELTER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 2001, 2000 AND 1999
2001 2000 1999 -------- -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................. $ 6,958 $ 44,000 $41,425 Items included in net income not using (providing) cash: Depreciation, depletion and amortization.................. 44,988 46,106 47,766 Loss (gain) on disposition of fixed assets................ (2,015) 467 (1,339) Unusual items............................................. 60,908 3,336 -- Expense related to 401(k) plans and other................. 1,681 1,980 2,015 Change in assets and liabilities, net of effect of unusual items: Accounts receivable....................................... (14,350) 483 (7,170) Inventories............................................... 3,801 11,351 (1,965) Other assets and prepaid expenses......................... (27,642) (24,486) (37,259) Accounts payable, accrued compensation and other expenses, deferred income taxes and other long-term liabilities............................................ (11,950) 13,540 14,213 Income taxes payable...................................... (7,756) (1,735) (543) Deferred income taxes -- noncurrent....................... 9,276 8,273 24,441 -------- -------- ------- Net cash provided by operating activities................... 63,899 103,315 81,584 -------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale or maturity of investments -- net.................... -- -- 401 Proceeds from disposal of fixed assets.................... 2,764 143 1,929 Net proceeds from sale of Ecusta Division................. 14,505 -- -- Additions to plant, equipment and timberlands............. (47,845) (29,215) (24,160) Acquisition of Scaer facility............................. -- -- (7,399) -------- -------- ------- Net cash used in investing activities....................... (30,576) (29,072) (29,229) -------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payment) of debt.......................... (21,794) (10,136) 2,828 Dividends paid............................................ (29,876) (29,624) (29,510) Purchases of common stock................................. -- (382) -- Proceeds from stock option exercises...................... 2,960 93 74 -------- -------- ------- Net cash used in financing activities....................... (48,710) (40,049) (26,608) -------- -------- ------- Effect of exchange rate changes on cash..................... 336 323 (619) Net increase (decrease) in cash and cash equivalents........ (15,051) 34,517 25,128 CASH AND CASH EQUIVALENTS: At beginning of year...................................... 110,552 76,035 50,907 -------- -------- ------- At end of year............................................ $ 95,501 $110,552 $76,035 ======== ======== ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest.................................................. $ 16,455 $ 16,848 $23,273 Income taxes.............................................. 13,385 12,626 12,119
The accompanying notes are an integral part of these consolidated financial statements. 28 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION We are manufacturers of engineered papers and specialized printing papers. Headquartered in York, Pennsylvania, our paper mills are located in Spring Grove, Pennsylvania; Neenah, Wisconsin; Gernsbach, Germany; and Scaer, France. Our products are marketed throughout the United States and in many foreign countries, either through wholesale paper merchants, brokers and agents or direct to customers. Our accounts, and those of our subsidiaries, are included in the consolidated financial statements. All intercompany transactions have been eliminated. Our operating locations have been aggregated into a single reportable segment since they have similar economic characteristics, products, production processes, types of customers and distribution methods. Certain reclassifications have been made to the prior years' consolidated financial statements to conform to those classifications used in 2001. (B) CASH AND CASH EQUIVALENTS We consider all highly liquid financial instruments with effective maturities at date of purchase of three months or less to be cash equivalents. (C) INVENTORIES Inventories are stated at the lower of cost or market. Raw materials and in-process and finished inventories of our domestic operations are valued using the last-in, first-out (LIFO) method, and the supplies inventories are valued principally using the average-cost method. Inventory at our foreign operations is valued using a method which approximates average cost. Inventories at December 31 are summarized as follows:
2001 2000 ------- -------- (IN THOUSANDS) Raw materials............................................... $13,404 $ 27,789 In-process and finished..................................... 27,376 43,819 Supplies.................................................... 22,035 29,686 ------- -------- Total....................................................... $62,815 $101,294 ======= ========
If we had valued all inventories using the average-cost method, inventories would have been $3,790,000 and $8,121,000 higher than reported at December 31, 2001 and 2000, respectively. During 2001 and 2000, we liquidated certain LIFO inventories. The effect of the liquidations did not have a significant impact on net income. At December 31, 2001, the recorded value of the above inventories was approximately $300,000 lower than inventories for income tax purposes while the recorded value of the above inventories exceeded inventories for income tax purposes by approximately $22,400,000 as of December 31, 2000. The difference at December 31, 2000 was primarily related to the Ecusta Division, which was sold during 2001. Inventory for the Ecusta Division at December 31, 2000 was $34,849,000. See Note 2. (D) PLANT, EQUIPMENT AND TIMBERLANDS Depreciation is computed for financial reporting using the straight-line method over the estimated useful lives of the respective assets and for income taxes principally using accelerated methods over lives established by statute or U.S. Treasury Department procedures. Provision is made for deferred income taxes applicable to this difference. See Notes 1(f) and 4. The range of estimated service lives used to calculate financial reporting depreciation for principal items of property, plant and equipment are as follows: Buildings................................................... 10 - 45 Years Machinery and equipment..................................... 7 - 35 Years Other....................................................... 4 - 40 Years
29 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) All timber costs related to the reforestation process, including interest, taxes, site preparation, planting, fertilization, herbicide application and thinning are capitalized. After 20 years, the timber is considered merchantable and depletion is computed on a unit rate of usage by growing area based on estimated quantities of recoverable material. For purchases of land tracts with existing timber, inventoried merchantable timber is subject to immediate depletion based upon usage. Costs related to the purchase of pre-merchantable timber are transferred to merchantable timber over a 10-year period, whereupon it is eligible for depletion. Estimated timber volume is based upon its current stage in the growth cycle. Growth and yield data is developed through the use of published growth and yield studies as well as our own historical experience. This data is used to calculate volumes for established timber stands. Timber is depleted on an actual usage basis. For purchased timber tracts, a systematic timber inventory is completed and volume is estimated for merchantable timber. Pre-merchantable timber of purchased tracts is estimated based upon its current stage in the growth cycle using growth and yield data. Maintenance and repairs are charged to income and major renewals and betterments are capitalized. At the time property is retired or sold, the cost and related reserve are eliminated and any resultant gain or loss is included in income. Plant, equipment and timberlands at December 31 are summarized as follows:
2001 2000 --------- ----------- (IN THOUSANDS) Land and buildings.......................................... $ 104,098 $ 145,323 Machinery and equipment..................................... 785,871 1,073,396 Other....................................................... 36,526 38,842 Less accumulated depreciation............................... (477,511) (737,985) --------- ----------- Total.................................................. 448,984 519,576 Construction in progress.................................... 29,592 14,674 Timberlands, less depletion................................. 18,652 18,518 --------- ----------- Plant, equipment and timberlands -- net..................... $ 497,228 $ 552,768 ========= ===========
Plant and equipment -- net for the Ecusta Division at December 31, 2000 was $52,577,000. (E) INVESTMENTS IN DEBT SECURITIES Long-term investments, which are due over a remaining 13-year period and are classified as held-to-maturity, are included in "Other assets" on the Consolidated Balance Sheets at December 31, 2001 and 2000. The investments consist of approximately $10,300,000 in U.S. Treasury and government obligations at both December 31, 2001 and 2000. The fair market value of such investments approximated the amortized cost, and therefore, there were no significant unrealized gains or losses as of December 31, 2001 and 2000. (F) INCOME TAX ACCOUNTING We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. The impact on deferred taxes of changes in tax rates and laws, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated financial statements in the period of enactment. See Note 4. (G) FAIR VALUE OF FINANCIAL INSTRUMENTS The amounts reported on the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, other assets, short-term debt and long-term debt approximate fair value. (H) VALUATION OF LONG-LIVED ASSETS We evaluate long-lived assets for impairment periodically or when a specific event indicates that the carrying value of an asset may not be recoverable. Recoverability is 30 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) assessed based on estimates of future cash flows expected to result from the use and eventual disposition of the asset. If the sum of expected undiscounted cash flows is less than the carrying value of the asset, an impairment loss is recognized. The impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. (I) ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of management's estimates and assumptions. Management believes the estimates and assumptions used in the preparation of these consolidated financial statements are reasonable, based upon currently available facts and known circumstances, but recognizes that actual results may differ from those estimates and assumptions. See Note 9. (J) REVENUE RECOGNITION We recognize revenue on product sales upon shipment and on energy sales when electricity is delivered to our customer. Certain costs associated with the production of electricity, such as fuel, labor, depreciation and maintenance are netted against the energy sales for presentation on the Consolidated Statements of Income and Comprehensive Income. Our current contract to sell electricity generated in excess of our own use expires in the year 2010 and requires that the customer purchase all of our excess electricity up to a certain level. The price for the electricity is determined pursuant to a formula and varies depending upon the amount sold in any given year. (K) ENVIRONMENTAL LIABILITIES Accruals for losses associated with environmental obligations are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing legislation and remediation technologies. These accruals are adjusted periodically as assessment and remediation actions continue and/or further legal or technical information develops. Accrued environmental liabilities are classified as "Other long-term liabilities" on the Consolidated Balance Sheets. Such undiscounted liabilities are exclusive of any insurance or other claims against third parties. Recoveries of environmental remediation costs from other parties, including insurance carriers, are recorded as assets when their receipt is deemed probable. We have not recorded any such recoveries. Costs related to environmental remediation are charged to expense. Environmental costs are capitalized if the costs extend the life of the asset, increase its capacity and/or mitigate or prevent contamination from future operations. See Note 9. (L) STOCK-BASED COMPENSATION We account for stock-based compensation in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation." Compensation expense for stock options is measured as the excess, if any, of the average quoted market price of our stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation expense for both restricted stock and performance stock awards is recognized ratably over the performance period based on changes in quoted market prices of Glatfelter stock and the likelihood of achieving the performance goals. This variable plan accounting recognition is due to the uncertainty of achieving performance goals and determining the resulting number of shares to ultimately be issued. See Note 7. (M) DERIVATIVE FINANCIAL INSTRUMENTS We use interest rate swap agreements to manage our exposure to fluctuations in interest rates. Amounts to be paid or received under interest rate swap agreements are recognized as interest expense or interest income during the period in which they accrue. We do not hold any derivative financial instruments for trading purposes. The credit risks associated with our interest rate swap agreements are controlled through the evaluation and monitoring of creditworthiness of the counterparties. Although we may be exposed to losses in the event of nonperformance by counterparties, we do not expect such losses, if any, to be significant. See Notes 1(o) and 6. (N) FOREIGN CURRENCY TRANSLATION Our subsidiaries outside the United States use their local currency as the functional currency. Accordingly, translation gains and losses and the effect of exchange rate changes on transactions designated as hedges of net foreign investments are included as a component of other 31 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) comprehensive income (loss). Transaction gains and losses are included in income in the period in which they occur. (O) RECENT ACCOUNTING PRONOUNCEMENTS On January 1, 2001, we adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated in a fair-value hedge, changes in the fair value of the derivative and the hedged item are recognized in earnings. If the derivative is designated as a cash-flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income ("OCI") and are recognized in the income statement when the hedged item affects earnings. SFAS No. 133 defines new requirements for designation and documentation of hedging relationships, as well as ongoing effectiveness assessments and measurements to use hedge accounting. The ineffective portion of a hedging derivative's change in fair value is immediately recognized in earnings. For a derivative that does not qualify as a hedge, changes in fair value are recognized in earnings. The adoption of SFAS No. 133 on January 1, 2001 resulted in an $845,000 increase in OCI as a cumulative transition adjustment for derivatives designated in cash flow-type hedges prior to adopting SFAS No. 133. Due to our limited use of derivative instruments, the effect on earnings of adopting SFAS No. 133 was immaterial. The Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 143, "Accounting for Asset Retirement Obligations," in June 2001 and issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," in August 2001. SFAS No. 141 is effective for all business combinations occurring after June 30, 2001 and requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. The adoption of SFAS No. 141 had no impact on our consolidated financial position or results of operations. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 and establishes revised reporting requirements for goodwill and other intangible assets. Upon adoption, we no longer amortize goodwill unless evidence of impairment exists; goodwill will be evaluated on at least an annual basis. As of December 31, 2001 and using the 2001 foreign exchange translation rates, we had $8,170,000 in unamortized goodwill and recorded $518,000 in goodwill amortization expense in 2001. We adopted SFAS No. 142 on January 1, 2002. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002 and applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. We will adopt SFAS No. 143 on January 1, 2003. We are currently evaluating the effects that the adoption of SFAS No. 143 may have on our consolidated financial position and results of operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. This statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and establishes new guidelines for the valuation of long-lived assets. We adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 had no impact on our consolidated financial position or results of operations. 32 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. UNUSUAL ITEMS On May 16, 2001, we announced that we had entered into an agreement to sell our Ecusta facility and two of its operating subsidiaries ("Ecusta Division"). Because our Board of Directors had committed to a plan to dispose of the Ecusta Division by accepting an offer to sell the Division, subject to certain closing conditions, at a loss, on that date the assets of the Ecusta Division were reclassified as assets held-for-disposal, and thus the carrying amount of these assets was reduced to fair value. The decision to sell the Ecusta Division was made due to the determination that the business of the Ecusta Division, principally tobacco papers, did not fit with our long-term strategic plans. On August 9, 2001, we completed the sale of the Ecusta Division including plant and equipment, inventory, accounts receivable and essentially all other operating assets and certain other receivables related to our tobacco papers business. The carrying value of the Ecusta Division totaled $61,467,000, after we recorded an impairment write down of $50,000,000 in the second quarter to reflect the fair value of the Ecusta Division. These assets were sold for $22,726,000 plus the assumption by the buyer of certain liabilities totaling $21,440,000 related to the Ecusta Division's business. The liabilities assumed by the buyer included accounts payable, accrued expenses and other liabilities related to the operation of the Ecusta Division's business. Our total charge to earnings associated with the sale was $58,408,000 including the $50,000,000 impairment charge recognized during the second quarter of 2001. The $58,408,000 pre-tax charge included $6,095,000 in transaction and other costs incurred upon sale of the Ecusta Division. Of this amount, approximately $1,900,000 related to transaction costs. The remainder related to certain liabilities accrued related to the transaction. Under the terms of the sale agreement, we are obligated to incur costs in the future related to certain long-term liabilities related to employee benefits ($2,000,000) and facility maintenance ($900,000) which would not have been necessary had we retained ownership interest in the Ecusta Division but were agreed to in order to consummate the transaction. The $58,408,000 pre-tax charge was net of a $14,988,000, pre-tax gain related to the curtailment and settlement of pension obligations and other retiree benefits related to employees who transferred to the buyer. The Ecusta Division contributed approximately $7,200,000 in operating profit during 2001 until its sale in August, had an operating loss of approximately $1,000,000 during 2000 and contributed approximately $13,300,000 in operating profit during 1999. A calculation of the unusual item related to the sale of the Ecusta Division is as follows (in thousands): Asset impairment recognized................................. $(50,000) Loss recognized upon sale Consideration received.................................... $ 44,166 Book value of net assets sold............................. (61,467) -------- (17,301) Transaction and other costs............................... (6,095) Gain on retiree benefit plans............................. 14,988 -------- Loss on disposition excluding impairment charge........ (8,408) (8,408) -------- -------- Total loss on disposition................................. $(58,408) ========
We also recognized a $2,500,000 pre-tax charge during the second quarter of 2001 related to the settlement of an environmental matter in connection with the Spring Grove facility's wastewater discharge permit. See Note 9. The total unusual items recorded in 2001 were $60,908,000. During the first quarter of 2000, we finalized our restructuring plan and shortly thereafter began to reduce the workforce at Ecusta. The workforce reduction was completed during the first quarter of 2001 and resulted 33 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) in the reduction of over 200 salaried and hourly jobs associated with our tobacco paper production capacity. We accrued and charged to expense $3,336,000 ($2,120,000 after tax) in the first quarter of 2000 primarily as a result of the voluntary portion of this restructuring, specifically 42 salaried employees. Of this amount, $2,182,000 related to enhanced pension benefits to be paid out of our retirement plans as discussed in our disclosure of retirement and other post-retirement benefits (see Note 8). The remaining $1,154,000 of this charge related to severance and other employee benefits to be paid using our assets. Approximately $800,000 of these liabilities were transferred to the buyer of the Ecusta Division. Unpaid amounts as of December 31, 2001 are expected to be paid by the end of 2005. The following schedule summarizes the activity of the liability since the initial accrual (in thousands):
Balance recorded during first quarter of 2000............... $1,154 Amount paid during 2000................................... (82) ------ Balance as of December 31, 2000............................. $1,072 Amount transferred to buyer of Ecusta Division............ (807) Amount paid during 2001................................... (93) ------ Balance as of December 31, 2001............................. $ 172 ======
NOTE 3. EARNINGS PER SHARE ("EPS") Basic EPS excludes the dilutive impact of common stock equivalents and is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS includes the effect of potential dilution from the issuance of common stock, pursuant to common stock equivalents, using the treasury stock method. A reconciliation of our basic and diluted EPS follows with the net income and share amounts in thousands:
2001 2000 1999 SHARES SHARES SHARES ------- ------- ------- Basic EPS factors....................................... 42,577 42,342 42,173 Effect of potentially dilutive employee incentive plans: Restricted stock awards............................... 97 82 3 Performance stock awards.............................. 18 59 131 Employee stock options................................ 154 -- 124 ------- ------- ------- Diluted EPS factors..................................... 42,846 42,483 42,431 ======= ======= ======= Net income.............................................. $ 6,958 $44,000 $41,425 Basic and diluted EPS................................... $ 0.16 $ 1.04 $ .98
The 2001 and 2000 basic and diluted EPS of $0.16 and $1.04, respectively, as presented on the Consolidated Statements of Income and Comprehensive Income, reflect an after-tax charge (unusual item) of $0.93 per share primarily related to the sale of the Ecusta Division in 2001 and the negative impact of an after- tax restructuring charge (unusual item) of $.05 per share for 2000 (see Note 2). NOTE 4. INCOME TAXES Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The effects of income taxes are measured based on effective tax law and rates. 34 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following are domestic and foreign components of pre-tax income for the years ended December 31:
2001 2000 1999 ------- ------- ------- (IN THOUSANDS) United States........................................... $ (525) $59,653 $55,911 Foreign................................................. 12,245 8,950 9,241 ------- ------- ------- Total pre-tax income.................................... $11,720 $68,603 $65,152 ======= ======= =======
The income tax provision for the years ended December 31 consists of the following:
2001 2000 1999 ------- ------- ------- (IN THOUSANDS) Current: Federal............................................... $(8,893) $ 9,939 $ 6,953 State................................................. -- -- 217 Foreign............................................... 32 1,427 3,803 ------- ------- ------- Total current tax provision........................ (8,861) 11,366 10,973 ------- ------- ------- Deferred: Federal............................................... 7,777 9,729 11,735 State................................................. 1,604 1,822 2,197 Foreign............................................... 4,242 1,686 (1,178) ------- ------- ------- Total deferred tax provision....................... 13,623 13,237 12,754 ------- ------- ------- Total income tax provision.............................. $ 4,762 $24,603 $23,727 ======= ======= =======
We have deferred income taxes of $0 and $1,217,000 on undistributed earnings of foreign subsidiaries as of December 31, 2001 and 2000, respectively. At December 31, 2001, unremitted earnings of subsidiaries outside the United States totaling $7,071,000 were deemed to be permanently reinvested. No deferred tax liability has been recognized with regard to the remittance of such earnings. It is not practicable to estimate the income tax liability that might be incurred if such earnings were remitted to the United States. The net deferred tax amounts reported on our Consolidated Balance Sheets as of December 31 are as follows:
2001 2000 --------------------------------------- -------- FEDERAL STATE FOREIGN TOTAL TOTAL -------- ------- ------- -------- -------- (IN THOUSANDS) Current asset..................... $ 2,546 $ 480 $ 441 $ 3,467 $ 1,295 Current liability................. -- -- 381 381 4,033 Long-term asset................... -- -- 13,666 13,666 20,917 Long-term liability............... 126,481 23,912 17,230 167,623 155,360
35 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following are components of the net deferred tax balances as of December 31:
2001 2000 --------------------------------------- -------- FEDERAL STATE FOREIGN TOTAL TOTAL -------- ------- ------- -------- -------- (IN THOUSANDS) Deferred tax assets: Current......................... $ 2,546 $ 480 $ 441 $ 3,467 $ 6,667 Long-term....................... 21,815 4,120 13,666 39,601 46,886 -------- ------- ------- -------- -------- $ 24,361 $ 4,600 $14,107 $ 43,068 $ 53,553 ======== ======= ======= ======== ======== Deferred tax liabilities: Current......................... $ -- $ -- $ 381 $ 381 $ 9,405 Long-term....................... 148,296 28,032 17,230 193,558 181,329 -------- ------- ------- -------- -------- $148,296 $28,032 $17,611 $193,939 $190,734 ======== ======= ======= ======== ========
The tax effects of temporary differences as of December 31 are as follows:
2001 2000 -------- -------- (IN THOUSANDS) Deferred tax assets: Reserves.................................................. $ 13,390 $ 15,484 Compensation.............................................. 5,496 7,334 Post-retirement benefits.................................. 9,974 10,349 Property.................................................. 6,527 8,626 Pension................................................... 804 2,906 Inventories............................................... 136 -- Net operating loss carryforwards.......................... 9,100 9,366 Other..................................................... 992 1,320 -------- -------- Subtotal.................................................... 46,419 55,385 Valuation allowance....................................... (3,351) (1,832) -------- -------- Total deferred tax assets................................... 43,068 53,553 -------- -------- Deferred tax liabilities: Property.................................................. 122,994 127,906 Pension................................................... 69,275 50,745 Inventories............................................... -- 8,735 Other..................................................... 1,670 3,348 -------- -------- Total deferred tax liabilities.............................. 193,939 190,734 -------- -------- Net deferred tax liabilities................................ $150,871 $137,181 ======== ========
36 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation between the income tax provision, computed by applying the statutory federal income tax rate of 35% to income before income taxes, and the actual income tax provision for the years ended December 31 follows:
2001 2000 1999 ------ ------- ------- (IN THOUSANDS) Federal income tax provision at statutory rate........... $4,102 $24,011 $22,803 State income taxes, net of federal income tax benefit.... 1,043 1,185 1,569 Tax effect of exempt earnings of foreign sales corporation............................................ (33) (90) (713) Other.................................................... (350) (503) 68 ------ ------- ------- Actual income tax provision.............................. $4,762 $24,603 $23,727 ====== ======= =======
At December 31, 2001, we had net operating loss ("NOL") carryforwards for foreign and state income tax purposes of $26,360,000 and $35,777,000, respectively, which relate to foreign and state NOL deferred tax assets of $5,749,000 and $3,351,000, respectively. These foreign and state NOL carryforwards are available to offset future taxable income, if any. A valuation allowance of $3,351,000 has been recorded against these NOL deferred tax assets due to the uncertainty regarding our ability to utilize the state NOL carryforwards. The foreign NOL carryforwards do not expire, and the state NOL carryforwards expire between 2004 and 2021. NOTE 5. BORROWINGS Long-term debt at December 31 is summarized as follows:
2001 2000 --------- -------- (IN THOUSANDS) Revolving Credit Facility, due December 22, 2002............ $ 122,515 $146,249 6 7/8% Notes, due July 15, 2007, interest payable semiannually.............................................. 150,000 150,000 Other Notes, various........................................ 3,787 5,415 --------- -------- Total long-term debt........................................ 276,302 301,664 Less current portion........................................ (123,709) (1,419) --------- -------- Long-term debt, excluding current portion................... $ 152,593 $300,245 ========= ========
The aggregate maturities of long-term debt as of December 31, 2001 are as follows (in thousands): 2002...................................................... $123,709 2003...................................................... 1,058 2004...................................................... 883 2005...................................................... 530 2006...................................................... 122 Thereafter................................................ 150,000 -------- $276,302 ========
On December 22, 1997, we entered into a $200,000,000 multi-currency revolving credit facility ("Revolving Credit Facility") with a syndicate of major lending institutions. The Revolving Credit Facility enables us to borrow up to the equivalent of $200,000,000 in certain currencies in the form of revolving credit loans with a final maturity date of December 22, 2002, and with interest periods determined, at our option, on a daily or one- to six-month basis. Interest on the revolving credit loans is at variable rates based, at our option, 37 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) on the Eurocurrency Rate or the Base Rate (lender's prime rate), plus applicable margins. Margins are based on the higher of our debt ratings as published by Standard & Poor's and Moody's. We are subject to certain financial covenants under the Revolving Credit Facility and are in compliance with all such covenants as of December 31, 2001. We must pay an annual administrative fee of $25,000 as well as an annual facility fee of $200,000. As of December 31, 2001, we had $122,515,000 of borrowings under the Revolving Credit Facility and thus $77,485,000 was available under the Revolving Credit Facility. We intend to repay the Revolving Credit Facility during 2002 using a portion of our cash and cash equivalents as well as through borrowings under a new debt facility to be negotiated. We had $3,030,000 of letters of credit outstanding as of December 31, 2001. We bear the credit risk on this amount to the extent that we do not comply with the provisions of certain agreements. The letters of credit do not reduce the amount available under our lines of credit. On July 22, 1997, we issued $150,000,000 principal amount of 6 7/8% Notes due July 15, 2007. Interest on the 6 7/8% Notes is payable semiannually on January 15 and July 15. The 6 7/8% Notes are redeemable, in whole or in part, at our option at any time at a calculated redemption price plus accrued and unpaid interest to the date of redemption, and constitute unsecured and unsubordinated indebtedness. The net proceeds from the sale of the 6 7/8% Notes were used primarily to repay certain short-term unsecured debt and related interest. NOTE 6. INTEREST RATE SWAP AGREEMENTS In January 1999, we entered into two interest rate swap agreements, each having a total notional principal amount of DM 50,000,000 (approximately $22,549,000 as of December 31, 2001). Under these agreements, which were effective April 6, 1999 and July 6, 1999 and which expire December 22, 2002, we receive a floating rate of the three-month DM/Euro LIBOR plus twenty basis points and pay a fixed rate of 3.41% and 3.43%, respectively, for the term of the agreements. We recognized net interest income of $783,000 and $461,000 in 2001 and 2000, respectively, and net interest expense of $167,000 in 1999 related to these agreements. As of December 31, 2001, our gain from termination of these interest rate swap agreements would have been $32,000. Both of our interest rate swap agreements convert a portion of our borrowings from a floating rate to fixed-rate basis. Although we can terminate either of our swap agreements at any time, we intend to hold both of our swap agreements until maturity. NOTE 7. KEY EMPLOYEE LONG-TERM INCENTIVE PLAN On April 23, 1997, the common shareholders amended the 1992 Key Employee Long-Term Incentive Plan ("1992 Plan") to authorize, among other things, the issuance of up to 5,000,000 shares of Glatfelter common stock to eligible participants. The 1992 Plan provides for restricted stock awards, non-qualified stock options, performance shares, incentive stock options and performance units. To date, there have been no grants of incentive stock options or performance units. RESTRICTED STOCK AWARDS During December 2001, December 2000, December 1999 and December 1998, 64,430, 81,780, 101,730 and 60,465 shares, respectively, of common stock were awarded under the 1992 Plan. Awarded shares are subject to forfeiture, in whole or in part, if the recipient ceases to be an employee within a specified time period. The shares awarded under the 1992 Plan are also subject to forfeiture if defined minimum earnings levels are not met. We may reduce the number of shares otherwise required to be delivered by an amount that would have a fair market value equal to the taxes we withhold on delivery. We may also, at our discretion, elect to pay to the recipients in cash an amount equal to the fair market value of the shares that would otherwise be required to be delivered. We recognized expense of $856,000 in 2001, $936,000 in 2000, including $512,000 related to "Unusual Items" described in Note 2, and $262,000 in 1999 related to these awards. Each Restricted Stock Award has a 38 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) four-year vesting period. The shares awarded in December 2001 under the 1992 Plan cease to be subject to forfeiture by the end of 2005. PERFORMANCE SHARES On January 1, 1996, January 1, 1997 and January 1, 1998, we awarded, under the 1992 Plan, 44,860, 40,060 and 45,740 shares, respectively, subject to certain conditions, to certain key employees to be issued in whole or in part depending on our degree of success in achieving certain financial performance goals during defined four-year performance periods. Based upon the financial performance levels achieved during the periods ended December 31, 1999, 2000 and 2001, 27,668, 16,492 and 16,178 shares, respectively, were earned for distribution. During February 2000, in lieu of delivering 27,668 shares of common stock, we elected to pay cash equal to the fair value of 21,620 shares as of December 31, 1999, and deliver 6,048 shares from treasury. During February 2001, in lieu of delivering 16,492 shares of common stock, we elected to pay cash equal to the fair value of 13,003 shares as of December 31, 2000, and deliver 3,489 shares from treasury. During February 2002, in lieu of delivering 16,178 shares of common stock, we elected to pay cash equal to the fair value of 10,139 shares as of December 31, 2001, and deliver 6,039 shares from treasury. We recognized income of $127,000 and $169,000 in 2001 and 2000, respectively, and expense of $357,000 in 1999 related to these performance stock awards. The fair market value per share of the shares granted during 1998, 1997 and 1996 was $18.38, $17.88 and $17.16, respectively. NON-QUALIFIED STOCK OPTIONS The following summarizes the activity with respect to non-qualified options to purchase shares of common stock granted under the 1992 Plan during the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999 ---------------------------- ---------------------------- ---------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE --------- ---------------- --------- ---------------- --------- ---------------- Outstanding at beginning of year......................... 3,650,682 $14.49 3,293,215 $14.86 3,216,580 $15.32 Options granted.............. 569,100 15.45 636,600 12.90 467,850 13.28 Options exercised............ (237,771) 12.40 (7,500) 12.34 (6,000) 12.40 Options canceled............. (245,829) 14.26 (271,633) 15.37 (385,215) 16.82 --------- --------- --------- Outstanding at end of year..... 3,736,182 14.79 3,650,682 14.49 3,293,215 14.86 ========= ========= ========= Exercisable at end of year..... 1,982,233 15.72 1,921,332 15.82 1,293,709 17.54
The following table summarizes information about stock options outstanding at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------------------- ------------------------------- NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED RANGE OF OUTSTANDING AS REMAINING AVERAGE EXERCISABLE AS AVERAGE EXERCISE PRICE OF 12/31/01 CONTRACTUAL LIFE EXERCISE PRICE OF 12/31/01 EXERCISE PRICE - -------------- -------------- ---------------- -------------- -------------- -------------- $10.78 - $12.95.......... 1,539,237 7.4 years $12.56 587,971 $12.31 $12.96 - $18.78.......... 2,196,945 5.5 years 16.34 1,394,262 17.15 --------- --------- 3,736,182 6.3 years 14.79 1,982,233 15.72 ========= =========
An additional 409,705 options became exercisable January 1, 2002, at a weighted-average exercise price of $12.73. The weighted-average fair value of options granted during 2001, 2000, and 1999 was $3.84, $2.60 and $3.06, respectively, on the date of grant. The fair value of each option on the date of grant is estimated 39 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) using the Black-Scholes option pricing model with expected lives of ten years and the following weighted-average assumptions:
2001 2000 1999 ---- ---- ---- Risk-free interest rate..................................... 5.57% 5.61% 6.26% Expected dividend yield..................................... 4.58% 7.61% 5.36% Expected volatility......................................... 29.7% 42.0% 30.0%
Options typically become exercisable for 25% of the shares of common stock issuable on exercise thereof, beginning January 1 of the year following the date of grant, assuming six months has passed, with options for an additional 25% of such shares becoming exercisable on January 1 of each of the next three years. Options not exercisable in this format are exercisable in full either six months or one year from the date of grant. All options expire on the earlier of termination or, in some instances, a defined period subsequent to termination of employment, or ten years from the date of grant. The exercise price represents the average quoted market price of Glatfelter common stock on the date of grant, or the average quoted market prices of Glatfelter common stock on the first day before and after the date of grant for which quoted market price information was available if such information was not available on the date of grant. PRO FORMA INFORMATION We account for these plans under APB Opinion No. 25, under which no compensation cost has been recognized for the non-qualified stock options and for which compensation cost has been recognized for stock awards, as described in Note 1(l). Had compensation cost for these plans been determined consistent with SFAS No. 123, our net income and EPS for the years ended December 31, 2001, 2000, and 1999 would have been reduced to the following pro forma amounts:
2001 2000 1999 -------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE INFORMATION) Net income: As reported............................................ $6,958 $44,000 $41,425 Pro forma.............................................. 5,444 42,656 39,960 EPS: Reported -- basic and diluted.......................... $ 0.16 $ 1.04 $ .98 Pro forma -- basic..................................... 0.13 1.01 .95 Pro forma -- diluted................................... 0.13 1.00 .94
NOTE 8. RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS We have trusteed noncontributory defined benefit pension plans covering substantially all our employees. The benefits are based, in the case of certain plans, on average salary and years of service and, in the case of other plans, on a fixed amount for each year of service. Plan provisions and funding meet the requirements of the Employee Retirement Income Security Act of 1974. Pension income of $44,702,000, $25,927,000 and $20,490,000 was recognized in 2001, 2000, and 1999, respectively. Before the impact of unusual items discussed in Note 2, pension income for 2001 and 2000 was $30,678,000 and $28,109,000, respectively. We provide certain health care benefits to eligible retired employees. These benefits include a comprehensive medical plan for retirees prior to age 65 and fixed supplemental premium payments to retirees over age 65 to help defray the costs of Medicare. The plan is not funded; claims are paid as incurred. 40 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the status of our defined benefit pension plans and other post-retirement benefit plans at December 31, 2001 and 2000 (in thousands):
PENSION BENEFITS OTHER BENEFITS -------------------- ------------------- 2001 2000 2001 2000 -------- --------- -------- -------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year........... $246,023 $ 241,563 $ 38,291 $ 32,221 Service cost...................................... 4,630 5,254 854 806 Interest cost..................................... 16,084 16,016 2,320 2,140 Plan amendments................................... 1,175 1,281 -- -- Actuarial (gain) loss............................. 6,827 (5,451) 2,044 7,243 Benefits paid..................................... (15,557) (14,822) (4,283) (4,119) Unusual items (Note 2)............................ (35,412) 2,182 (5,966) -- -------- --------- -------- -------- Benefit obligation at end of year................. $223,770 $ 246,023 $ 33,260 $ 38,291 ======== ========= ======== ======== CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year.... $557,910 $ 564,271 $ -- $ -- Actual return on plan assets...................... (40,826) 5,774 -- -- Employer contributions............................ 2,483 2,687 4,283 4,119 Benefits paid..................................... (15,557) (14,822) (4,283) (4,119) Unusual items (Note 2)............................ (45,412) -- -- -- -------- --------- -------- -------- Fair value of plan assets at end of year.......... $458,598 $ 557,910 $ -- $ -- ======== ========= ======== ======== RECONCILIATION OF THE FUNDED STATUS: Funded status..................................... $234,828 $ 311,887 $(33,260) $(38,291) Unrecognized transition asset..................... (4,029) (5,753) -- -- Unrecognized prior service cost................... 13,077 19,148 (882) (1,422) Unrecognized (gain) loss.......................... (72,187) (200,500) 9,419 13,193 -------- --------- -------- -------- Net amount recognized............................. $171,689 $ 124,782 $(24,723) $(26,520) ======== ========= ======== ======== AMOUNTS RECOGNIZED ON THE CONSOLIDATED BALANCE SHEETS CONSIST OF: Prepaid benefit cost.............................. $182,524 $ 134,916 $ -- $ -- Accrued benefit liability......................... (10,835) (10,134) (24,723) (26,520) -------- --------- -------- -------- Prepaid (accrued) benefit cost.................... $171,689 $ 124,782 $(24,723) $(26,520) ======== ========= ======== ========
The net prepaid pension cost for qualified pension plans is included in "Other assets," and the accrued pension cost for non-qualified pension plans and accrued post-retirement benefit costs are principally included in "Other long-term liabilities" on the Consolidated Balance Sheets at December 31, 2001 and 2000. 41 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net periodic benefit (income) cost includes the following components (in thousands):
PENSION BENEFITS OTHER BENEFITS ------------------------------ ------------------------ 2001 2000 1999 2001 2000 1999 -------- -------- -------- ------ ------ ------ Service cost........................ $ 4,630 $ 5,254 $ 4,877 $ 854 $ 806 $ 741 Interest cost....................... 16,084 16,016 15,977 2,320 2,140 2,153 Expected return on plan assets...... (45,806) (42,350) (35,735) -- -- -- Amortization of transition asset.... (1,725) (1,724) (1,724) -- -- -- Amortization of prior service cost.............................. 1,540 1,829 1,746 (169) (212) (212) Recognized actuarial (gain) loss.... (5,401) (7,134) (5,631) 445 280 351 -------- -------- -------- ------ ------ ------ Net periodic benefit (income) cost.............................. (30,678) (28,109) (20,490) 3,450 3,014 3,033 Unusual item (Note 2)............... (14,024) 2,182 -- (964) -- -- -------- -------- -------- ------ ------ ------ Total net periodic benefit (income) cost.............................. $(44,702) $(25,927) $(20,490) $2,486 $3,014 $3,033 ======== ======== ======== ====== ====== ======
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $25,055,000, $22,083,000 and $0, respectively, as of December 31, 2001 and $23,271,000, $20,708,000 and $0, respectively, as of December 31, 2000. The assumptions used in computing the information above were as follows:
PENSION BENEFITS OTHER BENEFITS ------------------ ------------------ 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ---- Discount rate -- benefit expense....................... 7.0% 7.0% 7.5% 7.0% 7.0% 7.5% Expected long-term rate of return on plan assets....... 9.0% 9.0% 9.0% -- -- -- Discount rate -- benefit obligation.................... 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% Future compensation growth rate........................ 3.5% 3.5% 3.5% -- -- --
For measurement purposes, a 5.5%, 5.5% and 6.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001, 2000 and 1999 respectively. The rate is assumed to remain level at 5.5% going forward. A one percentage-point change in assumed health care cost trend rates would have the following effects:
2001 2000 ------------------------- ------------------------- 1% INCREASE 1% DECREASE 1% INCREASE 1% DECREASE ----------- ----------- ----------- ----------- (IN THOUSANDS) Effect on post-retirement benefit obligation... $2,822 $(2,465) $2,793 $(2,429) Effect on total of service and interest cost components................................... 330 (282) 273 (233)
We maintain 401(k) plans for certain hourly and salaried employees. Employees may contribute up to 15% of their salary to these plans, subject to certain restrictions. We will match a portion of the employee's contribution, subject to certain limitations, in the form of shares of Glatfelter common stock into the Glatfelter stock fund maintained under the 401(k) plans. During 2001, 2000 and 1999, we contributed shares of Glatfelter common stock valued at $1,409,000, $1,681,000, and $1,626,000, respectively, to these 401(k) plans. NOTE 9. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS We are subject to loss contingencies resulting from regulation by various federal, state, local and foreign governmental authorities with respect to the environmental impact of our mills. To comply with environmental 42 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) laws and regulations, we have incurred substantial capital and operating expenditures in past years. We anticipate that environmental regulation of our operations will continue to become more burdensome and that capital and operating expenditures necessary to comply with environmental regulations will continue, and perhaps increase, in the future. In addition, we may incur obligations to remove or mitigate any adverse effects on the environment resulting from our operations, including the restoration of natural resources, and liability for personal injury and for damages to property and natural resources. Because environmental regulations are not consistent worldwide, our ability to compete in the world marketplace may be adversely affected by capital and operating expenditures required for environmental compliance. Subject to permit approvals, we have undertaken an initiative at our Spring Grove facility under the Voluntary Advanced Technical Incentive Program set forth by the United States Environmental Protection Agency ("EPA") in the "Cluster Rule." This initiative, the "New Century Project," will require capital expenditures currently estimated at approximately $32,500,000 to be incurred before April 2004. Through 2001, we have invested approximately $2,400,000 in this project including $900,000 in 2001. We estimate that $6,700,000, $18,000,000 and $5,400,000 will be spent on this project during 2002, 2003 and 2004, respectively. The Cluster Rule is a 1998 federal regulation in which the EPA aims to regulate air and water emissions from certain pulp and paper mills, including kraft pulp mills such as our Spring Grove facility. Issued under both the Clean Air Act and the Clean Water Act, the Cluster Rule establishes baseline emissions limits for toxic and non-conventional pollutant releases to both water and air. SPRING GROVE, PENNSYLVANIA -- WATER. We intend the New Century Project, among other things, to achieve by April 2004 a level of color in the receiving stream consistent with the level required in all similar streams in Pennsylvania. In June 1999, the Pennsylvania Public Interest Research Group and several other parties (collectively, "PennPIRG") filed a citizens suit under the federal Clean Water Act and the Pennsylvania Clean Streams Law alleging that we had been operating our Spring Grove facility in violation of a 1984 wastewater discharge permit. We disagreed with this allegation; however, the parties settled the litigation, as described below, prior to the issuance of a final adjudication. In its citizens suit, PennPIRG sought civil penalties, reimbursement for costs of litigation and a reduction in the Spring Grove facility's discharge of color (a) immediately and (b) to a level lower than that achievable with the New Century Project. A "discharge of color" describes the presence in the facility's water effluent of materials, primarily lignins and tannins, which are natural glues and saps, found in trees, which discolor the water. The lignins and tannins are not themselves toxic, and we believe that the receiving stream is not environmentally impacted by the color. In September 2000, the Pennsylvania Department of Environmental Protection ("Pennsylvania DEP") issued a renewed permit that required us to comply with more stringent limits on color discharges than had been in place. We appealed the permit, as did PennPIRG. On October 26, 2001, the United States District Court for the Middle District of Pennsylvania approved a settlement between the parties to the citizens suit to which the Pennsylvania DEP joined. Under this settlement, the Court established a compliance schedule that would require achievement of water quality limits consistent with those contemplated under the New Century Project by April 2004. We also agreed to the implementation of certain projects encompassed by the New Century Project consistent with the timetable set forth in our water discharge permit requiring completion of the projects by April 2004. These projects include improvements in brownstock washing, installation of an oxygen delignification bleaching process and 100 percent chlorine dioxide substitution. We believe these projects will enable us to achieve compliance with the final permit limits. We presently do not anticipate difficulties in implementing the New Century Project; however, we have not yet received all the required governmental approvals, nor have we installed all the necessary equipment. In addition to these projects, under the terms of the settlement, we have created a permanent endowment for certain environmental and recreational improvement projects in the Codorus Creek watershed, and have 43 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) paid PennPIRG certain litigation costs related to this lawsuit. Our total cost accrued and paid under this settlement was $2,500,000 (see Note 2). The administrative appeals filed by Glatfelter and PennPIRG have been dismissed as moot. We are voluntarily cooperating with an investigation by the Pennsylvania DEP, which commenced in February 2002, of our Spring Grove facility related to certain discharges, which are alleged to be unpermitted, to the Codorus Creek. There is no indication that these discharges had an impact on human health or on the environment. Although this investigation could result in the imposition of a fine or other punitive measures, we currently do not know what, if any, actions will be taken. SPRING GROVE, PENNSYLVANIA -- AIR. In 1999, EPA and the Pennsylvania DEP issued to us separate Notices of Violation ("NOVs") alleging violations of air pollution control laws, primarily for purportedly failing to obtain appropriate pre-construction air quality permits in conjunction with certain modifications to our Spring Grove facility. EPA and the Pennsylvania DEP primarily alleged that our modifications produced significant net emissions increases in certain air pollutants that should have been covered by permits containing reduced emissions limitations. For all but one of the modifications cited by EPA, we applied for and obtained from the Pennsylvania DEP the pre-construction permits that we concluded were required by applicable law. EPA reviewed those applications before the permits were issued. The Pennsylvania DEP's NOV pertained only to the modification for which we did not receive a pre-construction permit. We conducted an evaluation at the time of this modification and determined that the pre-construction permit cited by EPA and the Pennsylvania DEP was not required. We have been informed that EPA and the Pennsylvania DEP will seek substantial emissions reductions, as well as civil penalties, to which we believe we have meritorious defenses. Nevertheless, we are unable to predict the ultimate outcome of these matters or the costs involved. NEENAH, WISCONSIN -- WATER. We have previously reported with respect to potential environmental claims arising out of the presence of polychlorinated biphenyls ("PCBs") in sediments in the lower Fox River and in the Bay of Green Bay, downstream of our Neenah, Wisconsin facility. We acquired the Neenah facility in 1979 as part of the acquisition of the Bergstrom Paper Company. In part, this facility uses wastepaper as a source of fiber. At no time did the Neenah facility utilize PCBs in the pulp and paper making process, but discharges from the facility containing PCBs from wastepaper may have occurred from 1954 to the late 1970s. Any PCBs that the Neenah facility discharged into the Fox River resulted from the presence of NCR(R)-brand carbonless copy paper in the wastepaper that was received from others and recycled. As described below, various state and federal governmental agencies have formally notified seven potentially responsible parties ("PRPs"), including Glatfelter, that they are potentially responsible for response costs and "natural resource damages" ("NRDs") arising from PCB contamination in the lower Fox River and in the Bay of Green Bay, under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and other statutes. The six other identified PRPs include NCR Corporation, Appleton Papers Inc., Georgia Pacific Corp., WTM I Co. (a subsidiary of Chesapeake Corp.), Riverside Paper Company, and U.S. Paper Mills Corp. (now owned by Sonoco Products Company). CERCLA establishes a two-part liability structure that makes responsible parties liable for (1) "response costs" associated with the remediation of a release of hazardous substances and (2) NRDs related to that release. Courts have interpreted CERCLA to impose joint and several liability on responsible parties, subject to equitable allocation in certain instances. Prior to a final settlement by all responsible parties and the final cleanup of the contamination, uncertainty regarding the application of such liability will persist. On October 2, 2001, the Wisconsin Department of Natural Resources ("Wisconsin DNR") and EPA issued drafts of the reports resulting from the remedial investigation and the feasibility study of the PCB contamination of the lower Fox River and the Bay of Green Bay. On that same day, the Wisconsin DNR and EPA issued a Proposed Remedial Action Plan ("PRAP") for the cleanup of the lower Fox River and the Bay 44 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of Green Bay, estimating the total costs associated with the proposed response action at $307,600,000 (without a contingency factor) over a 7-to-18-year time period. The most significant component of the estimated costs is attributable to large-scale sediment removal by dredging. Based on cost estimates of large- scale dredging response actions at other sites, we believe that the PRAP's cost projections may underestimate actual costs of the proposed remedy by over $800,000,000. We do not believe that the response action proposed by the Wisconsin DNR and EPA is appropriate or cost effective. We believe that a protective remedy for Little Lake Butte des Morts, the portion of the river that is closest of our Neenah facility, can be implemented at a much lower actual cost than would be incurred performing large-scale dredging. We also believe that an aggressive effort to remove the PCB-contaminated sediment, much of which is buried under cleaner sediment or is otherwise unlikely to move and which is abating naturally, would be environmentally detrimental and, therefore, inappropriate at all locations of the river. We have proposed to dredge and cap certain delineated areas with relatively higher concentrations of PCBs in Little Lake Butte des Morts. We have accrued an amount to cover this project, potential NRD claims, claims for reimbursement of expenses of other parties and residual liabilities. We have submitted comments to the PRAP that advocate vigorously for the implementation of environmentally protective alternatives that do not rely upon large-scale dredging. EPA, in consultation with the Wisconsin DNR, will consider comments on the PRAP and will then select a remedy to address the contaminated sediment. Because we have thus far been unable to persuade the EPA and the Wisconsin DNR of the correctness of our assessment (as evidenced by the issuance of the PRAP), we are becoming less confident that an alternative remedy totally excluding large-scale dredging will be implemented. Therefore, we have increased the reasonably possible estimate of our potential cost in this matter. The issuance of the PRAP has not materially impacted the amount we have accrued for this matter, however, as we continue to believe that ultimately we will be able to convince the EPA and the Wisconsin DNR that large-scale dredging is inappropriate. As noted above, NRD claims are theoretically distinct from costs related to the primary remediation of a Superfund site. Calculating the value of NRD claims is difficult, especially in the absence of a completed remedy of the underlying contamination. The State of Wisconsin has informally asserted claims for NRDs against the identified PRPs regarding alleged injuries to natural resources under its alleged trusteeship in the lower Fox River and the Bay of Green Bay. To date, Wisconsin has not prepared any estimates of the alleged value of its NRD claims settlements nor finalized any settlements from which that value could be estimated. Based on available information, we believe that any NRD claims that Wisconsin may bring will likely be legally and factually without merit. The United States Fish and Wildlife Service ("FWS"), the National Oceanic and Atmospheric Administration ("NOAA"), four Indian tribes and the Michigan Attorney General also assert that they possess NRD claims related to the lower Fox River and the Bay of Green Bay. In June 1994, FWS notified the seven identified PRPs that it considered them potentially responsible for NRDs. The federal, tribal and Michigan agencies claiming to be NRD trustees have proceeded with the preparation of an NRD assessment separate from the Wisconsin DNR. While the final assessment will be delayed until after the selection of a remedy, the federal trustees released a plan on October 25, 2000 that values their NRDs for injured natural resources between $176,000,000 and $333,000,000. We believe that the federal NRD assessment is technically and procedurally flawed. We also believe that the NRD claim alleged by the federal, tribal and Michigan entities are legally and factually without merit. We are seeking settlement with the Wisconsin agencies and with the federal government for all of our potential liabilities for response costs and NRDs associated with the contamination. The Wisconsin DNR and FWS have published studies, the latter in draft form, estimating the amount of PCBs discharged by each PRP that estimate the volumetric share of the discharge from our Neenah facility to be as high as 27%. We do not believe the volumetric estimates used in these studies are accurate because the studies themselves disclose 45 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) that they are not accurate and are based on assumptions for which there is no evidence. We believe that our volumetric contribution is significantly lower. We further maintain that we do not believe that a volumetric allocation would constitute an equitable distribution of the potential liability for the contamination. Other factors, such as the location of contamination, location of discharge and a party's role in causing discharge must be considered in order for the allocation to be equitable. We have entered into interim cost-sharing agreements with four of the other six PRPs, pursuant to which the PRPs have agreed to share both defense costs and costs for scientific studies relating to PCBs discharged into the Lower Fox River. These interim cost-sharing agreements have no bearing on the final allocation of costs related to this matter. Based upon our evaluation of the magnitude, nature and location of the various discharges of PCBs to the river and the relationship of those discharges to identified contamination, we believe our share of any liability among the seven identified PRPs is much less than one-seventh of the whole. We also believe that additional potentially responsible parties exist other than the seven identified PRPs, which are all paper companies. For instance, certain of the identified PRPs discharged their wastewater through public wastewater treatment facilities, which we believe makes the owners of such facilities potentially responsible in this matter. We also believe that entities providing wastepaper containing PCBs to each of the recycling mills, including our Neenah facility, are also potentially responsible for this matter. We currently are unable to predict our ultimate cost related to this matter, because we cannot predict which remedy will be selected for the site, the costs thereof, the ultimate amount of NRDs, or our share of these costs or NRDs. We continue to believe it is likely that this matter will result in litigation. We maintain that the removal of a substantial amount of PCB-contaminated sediments is not an appropriate remedy. There can be no assurance, however, that we will be successful in arguing that removal of PCB-contaminated sediments is inappropriate or that we would prevail in any resulting litigation. The amount and timing of future expenditures for environmental compliance, cleanup, remediation and personal injury, NRDs and property damage liability, including but not limited to those related to the lower Fox River and the Bay of Green Bay, cannot be ascertained with any certainty due to, among other things, the unknown extent and nature of any contamination, the extent and timing of any technological advances for pollution abatement, the response actions that may be required, the availability of qualified remediation contractors, equipment and landfill space and the number and financial resources of any other PRPs. We have established reserves, relating to unasserted claims, for environmental remediation and other environmental liabilities for those environmental matters for which it is probable that an assertion will be made and an obligation exists and for which the amount of the obligation is reasonably estimable. As of December 31, 2001 and December 31, 2000, we have accrued reserves of approximately $28,800,000 and $26,400,000, respectively, representing our best estimate within a range of possible outcomes, which would cover the cost of our proposed project regarding Little Lake Butte des Morts, potential NRD claims, claims for reimbursement of expenses of other parties and residual liabilities. This accrual is included in "Other long-term liabilities" on the Consolidated Balance Sheets. Changes to the accrual reflect our best estimate of the ultimate outcome and considers changes in the extent and cost of the remedy, the status of negotiations with the various parties, including other PRPs, and our assessment of potential NRD claims, claims for reimbursement of expenses of other parties and residual liabilities. Based upon our assessment as to the ultimate outcome to this matter, we accrued and charged $2,400,000 to pre-tax earnings each year in 2001, 2000 and 1999. Based on analysis of currently available information and experience with respect to the cleanup of hazardous substances, we believe that it is reasonably possible that our costs associated with these matters may exceed current reserves by amounts that may prove to be insignificant or that could range, in the aggregate, up to approximately $200,000,000 over a period that is undeterminable but could range between 10 to 20 years or beyond. The upper limit of such range is substantially larger than the amount of our reserves. The estimate of the range of reasonably possible additional costs is less certain than the estimates upon which 46 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) reserves are based. In order to establish the upper limit of such range, we used assumptions that are the least favorable to us among the range of assumptions pertinent to reasonably possible outcomes. We believe that the likelihood of an outcome in the upper end of the range is significantly less than other possible outcomes within the range and that the possibility of an outcome in excess of the upper end of the range is remote. In our estimate of the upper end of the range, we have assumed full-scale dredging as set forth in the PRAP, at a significantly higher cost than estimated in the PRAP. We have also assumed our share of the ultimate liability to be 18%, which is significantly higher than we believe is appropriate or will occur, and a level of NRD claims and claims for reimbursement of expenses from other parties that, although reasonably possible, is unlikely. In estimating both our current reserve for environmental remediation and other environmental liabilities and the possible range of additional costs, we have not assumed that we will bear the entire cost of remediation and damages to the exclusion of other known PRPs who may be jointly and severally liable. The ability of other PRPs to participate has been taken into account, based generally on their financial condition and probable contribution. Our evaluation of the other PRPs' financial condition included the review of publicly disclosed financial information. The relative probable contribution is based upon our knowledge that at least two PRPs manufactured the paper that included the PCBs and as such, in our opinion, bear a higher level of responsibility. In addition, our assessment is based upon the magnitude, nature and location of the various discharges of PCBs to the river and the relationship of those discharges to identified contamination. We did not consider the financial condition of a smaller, non-public PRP as financial information is not available, and we do not believe its contribution to be material. We have also considered that over a number of years, certain PRPs were under the ownership of large multinational companies, who appear to retain some liability for this matter. We continue to evaluate our exposure and the level of our reserves, including, but not limited to, our potential share of the costs and NRDs (if any) associated with the lower Fox River and the Bay of Green Bay. We believe that we are insured against certain losses related to the lower Fox River and the Bay of Green Bay, depending on the nature and amount of the losses. Insurance coverage, which is currently being investigated under reservation of rights by various insurance companies, is dependent upon the identity of the plaintiff, the procedural posture of the claims asserted and how such claims are characterized. We do not know when the insurers' investigations as to coverage will be completed, and we are uncertain as to what the ultimate recovery will be and whether it will be significant in relation to the losses for which we have accrued. SUMMARY. Our current assessment is that we should be able to manage these environmental matters without a long-term, material adverse impact on us. These matters could, however, at any particular time or for any particular year or years, have a material adverse effect on our consolidated financial condition, liquidity or results of operations or could result in a default under our loan covenants. Moreover, there can be no assurance that our reserves will be adequate to provide for future obligations related to these matters, that our share of costs and/or damages for these matters will not exceed our available resources, or that such obligations will not have a long-term, material adverse effect on our consolidated financial condition, liquidity or results of operations. With regard to the lower Fox River and the Bay of Green Bay, if we are not successful in managing the matter and are ordered to implement the remedy proposed in the PRAP, such an order would have a material adverse effect on our consolidated financial condition, liquidity and results of operations and would result in a default under our loan covenants. During 2001, 2000 and 1999, we expended approximately $1,700,000, $2,600,000 and $2,600,000, respectively, on environmental capital projects. We estimate total expenditures of $7,400,000 and $19,900,000 for environmental capital projects in 2002 and 2003, respectively. During 2001, 2000 and 1999, we incurred approximately $15,600,000, $16,700,000 and $15,800,000, respectively, in operating costs related to complying with environmental laws and regulations. 47 P. H. GLATFELTER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) We are also involved in other lawsuits. The ultimate outcome of these lawsuits cannot be predicted with certainty, however, we do not expect that such lawsuits will have a material adverse effect on our consolidated financial position, results of operations or liquidity. NOTE 10. OTHER SALES AND GEOGRAPHIC INFORMATION We sell a significant portion of our specialized printing papers through wholesale paper merchants. No individual customer accounted for more than 10% of our net sales in 2001, 2000 or 1999. Excluding the net sales of the Ecusta Division, net sales to one customer in 2001 were approximately 11% of total net sales. Our 2001, 2000 and 1999 net sales to external customers and location of net plant, equipment and timberlands as of December 31, 2001, 2000 and 1999 are summarized below. Net sales are attributed to countries based upon origin of shipment. The net sales information below includes the results of the Ecusta Division through August 9, 2001. Plant and equipment -- net for the Ecusta Division at December 31, 2000 and 1999 were $52,577,000 and $52,876,000, respectively. See Note 2.
2001 2000 1999 ------------------------------ ------------------------------ ------------------------------ PLANT, EQUIPMENT PLANT, EQUIPMENT PLANT, EQUIPMENT AND AND AND NET SALES TIMBERLANDS -- NET NET SALES TIMBERLANDS -- NET NET SALES TIMBERLANDS -- NET --------- ------------------ --------- ------------------ --------- ------------------ United States........ $477,437 $390,869 $567,520 $432,499 $543,436 $445,376 Germany.............. 129,228 89,473 121,352 103,286 128,969 118,053 Other foreign countries.......... 29,026 16,886 35,848 16,983 33,086 18,784 -------- -------- -------- -------- -------- -------- Total........... $635,691 $497,228 $724,720 $552,768 $705,491 $582,213 ======== ======== ======== ======== ======== ========
Net sales information by product groups for the years ending December 31 follows:
2001 2000 1999 -------------- -------------- -------------- (IN THOUSANDS) Specialized Printing Papers.................. $341,955 54% $391,087 54% $341,990 48% Engineered Papers (including tobacco papers).................................... 293,736 46% 333,633 46% 363,501 52% -------- --- -------- --- -------- --- Total................................... $635,691 100% $724,720 100% $705,491 100% ======== === ======== === ======== ===
NOTE 11. QUARTERLY RESULTS (UNAUDITED)
GROSS PROFIT IN BASIC AND DILUTED NET SALES IN THOUSANDS THOUSANDS NET INCOME IN THOUSANDS EARNINGS PER SHARE ----------------------- ------------------- ------------------------ ------------------ 2001 2000 2001 2000 2001 2000 2001 2000 ---------- ---------- -------- -------- ---------- --------- ------- ------ First................ $185,646 $187,658 $ 39,725 $ 33,507 $ 15,364 $10,644(d) $ 0.36 $0.25(d) Second............... 170,287 184,397 32,227 39,844 (22,472)(a) 14,038 (0.53)(a) 0.33 Third................ 145,301 178,042 29,357 25,777 4,541(b) 7,179 0.11(b) 0.17 Fourth............... 134,457 174,623 30,813 34,391 9,525 12,139 0.22 0.29 -------- -------- -------- -------- -------- ------- ------ ----- Total................ $635,691 $724,720 $132,122 $133,519 $ 6,958(c) $44,000(d) $ 0.16(c) $1.04(d) ======== ======== ======== ======== ======== ======= ====== =====
- --------------- (a) After impact of an after-tax charge primarily for the impairment of Ecusta assets (unusual item) of $33,595,000. (b) After impact of an after-tax charge for the loss on the sale of Ecusta (unusual item) of $6,114,000. (c) After impact of an after-tax charge primarily for the loss on the sale of Ecusta (unusual item) of $39,709,000. (d) After impact of an after-tax charge for restructuring charge (unusual item) of $2,120,000. 48 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) Directors. The information with respect to directors required under this Item is incorporated herein by reference to pages 4, 5 and 25 of our Proxy Statement, dated April 9, 2002. (b) Executive Officers of the Registrant. The information with respect to the executive officers required under this Item is set forth in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION. The information required under this Item is incorporated herein by reference to pages 9 through 21 of our Proxy Statement, dated April 9, 2002. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required under this Item is incorporated herein by reference to pages 22 through 24 of our Proxy Statement, dated April 9, 2002. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required under this Item is incorporated herein by reference to page 21 of our Proxy Statement, dated April 9, 2002. 49 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Our Consolidated Financial Statements as follows are included in Part II, Item 8: Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2001, 2000 and 1999 Consolidated Balance Sheets, December 31, 2001 and 2000 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements for the Years Ended December 31, 2001, 2000 and 1999 2. Financial Statement Schedules (Consolidated) are included in Part IV: For Each of the Three Years in the Period Ended December 31, 2001: II -- Valuation and Qualifying Accounts (see S-1) Schedules other than those listed above are omitted because of the absence of conditions under which they are required or because the required information is included in the Notes to the Consolidated Financial Statements. Our individual financial statements are not presented inasmuch as we are primarily an operating company and our consolidated subsidiaries are essentially wholly-owned. 3. Executive Compensation Plans and Arrangements: see Exhibits (10)(a) through (10)(n), described below. Exhibits:
NUMBER DESCRIPTION OF DOCUMENTS ------ ------------------------ (2) Amended and Restated Acquisition Agreement dated as of August 9, 2001 by and among Purico (IOM) Limited, RF & Son Inc., RFS US Inc. and RFS Ecusta Inc., as Buyers, and P. H. Glatfelter Company and Mollanvick, Inc., as Sellers (incorporated by reference to Exhibit 2 of our Form 8-K dated August 24, 2001). (3)(a) Articles of Amendment dated April 27, 1977, including restated Articles of Incorporation (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1993) as amended by Articles of Merger dated January 30, 1979 (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated May 12, 1980 (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated September 23, 1981 (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated August 2, 1982 (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated July 29, 1983 (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1993); by Articles of Amendment dated April 25, 1984 (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1994); a Statement of Reduction of Authorized Shares dated October 15, 1984 (incorporated by reference to Exhibit (3)(b)
50
NUMBER DESCRIPTION OF DOCUMENTS ------ ------------------------ of our Form 10-K for the year ended December 31, 1984); a Statement of Reduction of Authorized Shares dated December 24, 1985 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1985); by Articles of Amendment dated April 23, 1986 (incorporated by reference to Exhibit (3) of our Quarterly Report on Form 10-Q for the quarter ended March 31, 1986); a Statement of Reduction of Authorized Shares dated July 11, 1986 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1986); a Statement of Reduction of Authorized Shares dated March 25, 1988 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1987); a Statement of Reduction of Authorized Shares dated November 9, 1988 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1988); a Statement of Reduction of Authorized Shares dated April 24, 1989 (incorporated by reference to Exhibit 3(b) of our Form 10-K for the year ended December 31, 1989); Articles of Amendment dated November 29, 1990 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1990); Articles of Amendment dated June 26, 1991 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1991); Articles of Amendment dated August 7, 1992 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1992); Articles of Amendment dated July 30, 1993 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1993); and Articles of Amendment dated January 26, 1994 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1993). (3)(b) Articles of Incorporation, as amended through January 26, 1994 (restated for the purpose of filing on EDGAR) (incorporated by reference to Exhibit (3)(c) of our Form 10-K for the year ended December 31, 1993). (3)(c) By-Laws as amended through March 8, 2002. (4)(a) Indenture, dated as of July 22, 1997, between P. H. Glatfelter Company and The Bank of New York, relating to the 6 7/8% Notes due 2007 (incorporated by reference to Exhibit 4.1 to our Form S-4 Registration Statement, Reg. No. 333-36395). (4)(b) Registration Rights Agreement, dated as of July 22, 1997, among P. H. Glatfelter Company, Bear, Stearns & Co. Inc. and BT Securities Corporation, relating to the 6 7/8% Notes due 2007 (incorporated by reference to Exhibit 4.3 to our Form S-4 Registration Statement, Reg. No. 333-36395). (9) P. H. Glatfelter Family Shareholders' Voting Trust dated July 1, 1993 (incorporated by reference to Exhibit 1 of the Schedule 13D filed by P. H. Glatfelter Family Shareholders' Voting Trust dated July 1, 1993). (10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted as of January 1, 1994, as amended and restated December 19, 2000 and effective January 1, 2001 (incorporated by reference to Exhibit (10)(a) of our Form 10-K for the year ended December 31, 2000). (10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award Plan, as amended and restated June 24, 1992 (incorporated by reference to Exhibit (10)(c) of our Form 10-K for the year ended December 31, 1992). (10)(c) P. H. Glatfelter Company Supplemental Executive Retirement Plan, as amended and restated effective April 23, 1998 and further amended December 20, 2000 (incorporated by reference to Exhibit (10)(c) of our Form 10-K for the year ended December 31, 2000). (10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective May 22, 1986 (incorporated by reference to Exhibit (10)(e) of our Form 10-K for the year ended December 31, 1987).
51
NUMBER DESCRIPTION OF DOCUMENTS ------ ------------------------ (10)(e) Description of Executive Salary Continuation Plan (incorporated by reference to Exhibit (10)(g) of our Form 10-K for the year ended December 31, 1990). (10)(f) P. H. Glatfelter Company Supplemental Management Pension Plan, effective as of April 23, 1998 (incorporated by reference to Exhibit (10)(f) of our Form 10-K for the year ended December 31, 1998). (10)(g) P. H. Glatfelter Company 1992 Key Employee Long-Term Incentive Plan, as amended December 20, 2000 (incorporated by reference to Exhibit (10)(g) of our Form 10-K for the year ended December 31, 2000). (10)(h) P. H. Glatfelter Company Deferred Compensation Plan for Directors, effective as of April 22, 1998 (incorporated by reference to Exhibit (10)(h) of our Form 10-K for the year ended December 31, 1998). (10)(i) Change in Control Employment Agreement by and between P. H. Glatfelter Company and George H. Glatfelter II, dated as of December 31, 2000 (incorporated by reference to Exhibit (10)(i) of our Form 10-K for the year ended December 31, 2000). (10)(j) Change in Control Employment Agreement by and between P. H. Glatfelter Company and Robert P. Newcomer, dated as of December 31, 2000 (along with a Schedule of Change in Control Employment Agreements by and between P. H. Glatfelter Company and other employees which have not been filed as exhibits to this Form 10-K. (10)(k) Employment Agreement by and between P. H. Glatfelter Company and Gerhard K. Federer, dated as of January 31, 2001. (10)(l) Termination of Employment Contract by and between P. H. Glatfelter Company and Robert L. Miller, dated as of March 22, 2001. (10)(m) Termination of Employment Contract by and between P. H. Glatfelter Company and Leland R. Hall, dated as of April 24, 2001. (10)(n) Termination of Employment Contract by and between P. H. Glatfelter Company and Robert S. Wood, dated as of February 13, 2002. (10)(o) Loan Agreement, dated February 24, 1997, between P. H. Glatfelter Company, as borrower, and GWS Valuch, Inc., as lender (incorporated by reference to Exhibit (10)(h) of our Form 10-K for the year ended December 31, 1996). (10)(p) Agreement between the State of Wisconsin and Certain Companies Concerning the Fox River, dated as of January 31, 1997, among P. H. Glatfelter Company, Fort Howard Corporation, NCR Corporation, Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin (incorporated by reference to Exhibit (10)(i) of our Form 10-K for the year ended December 31, 1996). (10)(q) Credit Agreement, dated as of December 22, 1997, among P. H. Glatfelter Company, various subsidiary borrowers, Bankers Trust Company, as Agent, and various lending institutions with Deutsche Bank AG, as Documentation Agent, PNC Bank, National Association, as Syndication Agent, and First National Bank of Maryland and Wachovia Bank, N.A., as Managing Agents (incorporated by reference to Exhibit (10)(j) of our Form 10-K for the year ended December 31, 1997). (10)(r) First Amendment to Credit Agreement dated as of August 6, 2001 by and among P. H. Glatfelter Company, various subsidiaries of the Company party hereto, the financial institutions party to the Credit Agreement dated as of December 22, 1997 in their capacities as lenders, and Bankers Trust Company, as agent for the lenders (incorporated by reference to Exhibit 10 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001). (10)(s) Supply and Service Agreement dated as of August 1, 2001 by and among Purico GmbH, Purico (IOM) Limited and Papierfabrik Schoeller & Hoesch GmbH & Co.
52
NUMBER DESCRIPTION OF DOCUMENTS ------ ------------------------ (10)(t) Arrangement Letter by and between P. H. Glatfelter Company and Accenture LLP, dated as of January 16, 2001. (21) Subsidiaries of the Registrant (23) Consent of Independent Auditors
(b) On October 2, 2001, we filed a Form 8-K dated October 2, 2001 to update certain environmental matters disclosed in prior periodic filings. 53 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. P. H. GLATFELTER COMPANY (Registrant) March 27, 2002 By /s/ G. H. GLATFELTER II ------------------------------------ G. H. Glatfelter II Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated:
DATE SIGNATURE CAPACITY - ---- --------- -------- March 27, 2002 /s/ G. H. GLATFELTER II Principal Executive Officer and Director ------------------------------------------ G. H. Glatfelter II March 27, 2002 /s/ G. MACKENZIE Principal Financial Officer ------------------------------------------ G. MacKenzie March 27, 2002 /s/ C. M. SMITH Principal Accounting Officer ------------------------------------------ C. M. Smith March 27, 2002 /s/ R. E. CHAPPELL Director ------------------------------------------ R. E. Chappell March 27, 2002 /s/ K. DAHLBERG Director ------------------------------------------ K. Dahlberg March 27, 2002 /s/ N. DEBENEDICTIS Director ------------------------------------------ N. DeBenedictis March 27, 2002 /s/ P. G. FOULKROD Director ------------------------------------------ P. G. Foulkrod March 27, 2002 /s/ G. H. GLATFELTER Director ------------------------------------------ G. H. Glatfelter March 27, 2002 /s/ R. S. HILLAS Director ------------------------------------------ R. S. Hillas March 27, 2002 /s/ M. A. JOHNSON II Director ------------------------------------------ M. A. Johnson II March 27, 2002 /s/ R. J. NAPLES Director ------------------------------------------ R. J. Naples
DATE SIGNATURE CAPACITY - ---- --------- -------- March 27, 2002 /s/ R. P. NEWCOMER Director ------------------------------------------ R. P. Newcomer March 27, 2002 /s/ R. L. SMOOT Director ------------------------------------------ R. L. Smoot
SCHEDULE II P. H. GLATFELTER COMPANY AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2001 VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCES FOR --------------------------------------------------------- DOUBTFUL ACCOUNTS SALES DISCOUNTS AND DEDUCTIONS ------------------------ ------------------------------ 2001 2000 1999 2001 2000 1999 ------ ------ ------ -------- -------- -------- (IN THOUSANDS) Balance, beginning of year.......... $1,515 $1,227 $1,532 $ 1,069 $ 2,152 $ 2,135 Other(a)............................ (240) (70) PROVISION........................... 861 809 111 11,499 17,845 15,076 Write-offs, recoveries and discounts allowed........................... (585) (521) (416) (10,874) (18,928) (15,059) ------ ------ ------ -------- -------- -------- Balance, end of year................ $1,551 $1,515 $1,227 $ 1,624 $ 1,069 $ 2,152 ====== ====== ====== ======== ======== ========
- --------------- (a) Relates primarily to the disposition of the Ecusta Division. The provision for doubtful accounts is included in administrative expense and the provision for sales discounts and deductions is deducted from sales. The related allowances are deducted from accounts receivable. S-1
EXHIBIT INDEX (2) Amended and Restated Acquisition Agreement dated as of August 9, 2001 by and among Purico (IOM) Limited, RF & Son Inc., RFS US Inc. and RFS Ecusta Inc., as Buyers, and P. H. Glatfelter Company and Mollanvick, Inc., as Sellers (incorporated by reference to Exhibit 2 of our Form 8-K dated August 24, 2001). (3)(a) Articles of Amendment dated April 27, 1977, including restated Articles of Incorporation (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1993) as amended by Articles of Merger dated January 30, 1979 (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated May 12, 1980 (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated September 23, 1981 (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated August 2, 1982 (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated July 29, 1983 (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1993); by Articles of Amendment dated April 25, 1984 (incorporated by reference to Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended December 31, 1994); a Statement of Reduction of Authorized Shares dated October 15, 1984 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1984); a Statement of Reduction of Authorized Shares dated December 24, 1985 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1985); by Articles of Amendment dated April 23, 1986 (incorporated by reference to Exhibit (3) of our Quarterly Report on Form 10-Q for the quarter ended March 31, 1986); a Statement of Reduction of Authorized Shares dated July 11, 1986 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1986); a Statement of Reduction of Authorized Shares dated March 25, 1988 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1987); a Statement of Reduction of Authorized Shares dated November 9, 1988 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1988); a Statement of Reduction of Authorized Shares dated April 24, 1989 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1989); Articles of Amendment dated November 29, 1990 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1990); Articles of Amendment dated June 26, 1991 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1991); Articles of Amendment dated August 7, 1992 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1992); Articles of Amendment dated July 30, 1993 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1993); and Articles of Amendment dated January 26, 1994 (incorporated by reference to Exhibit (3)(b) of our Form 10-K for the year ended December 31, 1993). (3)(b) Articles of Incorporation, as amended through January 26, 1994 (restated for the purpose of filing on EDGAR) (incorporated by reference to Exhibit (3)(c) of our Form 10-K for the year ended December 31, 1993). (3)(c) By-Laws as amended through March 8, 2002. (4)(a) Indenture, dated as of July 22, 1997, between P. H. Glatfelter Company and The Bank of New York, relating to the 6-7/8% Notes due 2007 (incorporated by reference to Exhibit 4.1 to our Form S-4 Registration Statement, Reg. No. 333-36395). (4)(b) Registration Rights Agreement, dated as of July 22, 1997, among P. H. Glatfelter Company, Bear, Stearns & Co. Inc. and BT Securities Corporation, relating to the 6-7/8% Notes due 2007
(incorporated by reference to Exhibit 4.3 to our Form S-4 Registration Statement, Reg. No. 333-36395). (9) P. H. Glatfelter Family Shareholders' Voting Trust dated July 1, 1993 (incorporated by reference to Exhibit 1 of the Schedule 13D filed by P. H. Glatfelter Family Shareholders' Voting Trust dated July 1, 1993). (10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted as of January 1, 1994, as amended and restated December 19, 2000 and effective January 1, 2001 (incorporated by reference to Exhibit (10)(a) of our Form 10-K for the year ended December 31, 2000). (10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award Plan, as amended and restated June 24, 1992 (incorporated by reference to Exhibit (10)(c) of our Form 10-K for the year ended December 31, 1992). (10)(c) P. H. Glatfelter Company Supplemental Executive Retirement Plan, as amended and restated effective April 23, 1998 and further amended December 20, 2000 (incorporated by reference to Exhibit (10)(c) of our Form 10-K for the year ended December 31, 2000). (10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective May 22, 1986 (incorporated by reference to Exhibit (10)(e) of our Form 10-K for the year ended December 31, 1987). (10)(e) Description of Executive Salary Continuation Plan (incorporated by reference to Exhibit (10)(g) of our Form 10-K for the year ended December 31, 1990). (10)(f) P. H. Glatfelter Company Supplemental Management Pension Plan, effective as of April 23, 1998 (incorporated by reference to Exhibit (10)(f) of our Form 10-K for the year ended December 31, 1998). (10)(g) P. H. Glatfelter Company 1992 Key Employee Long-Term Incentive Plan, as amended December 20, 2000 (incorporated by reference to Exhibit (10)(g) of our Form 10-K for the year ended December 31, 2000). (10)(h) P. H. Glatfelter Company Deferred Compensation Plan for Directors, effective as of April 22, 1998 (incorporated by reference to Exhibit (10)(h) of our Form 10-K for the year ended December 31, 1998). (10)(i) Change in Control Employment Agreement by and between P. H. Glatfelter Company and George H. Glatfelter II, dated as of December 31, 2000 (incorporated by reference to Exhibit (10)(i) of our Form 10-K for the year ended December 31, 2000). (10)(j) Change in Control Employment Agreement by and between P. H. Glatfelter Company and Robert P. Newcomer, dated as of December 31, 2000 (along with a Schedule of Change in Control Employment Agreements by and between P. H. Glatfelter Company and other employees which have not been filed as exhibits to this Form 10-K). (10)(k) Employment Agreement by and between P. H. Glatfelter Company and Gerhard K. Federer, dated as of January 31, 2001. (10)(l) Termination of Employment Contract by and between P. H. Glatfelter Company and Robert L. Miller, dated as of March 22, 2001. (10)(m) Termination of Employment Contract by and between P. H. Glatfelter Company and Leland R. Hall, dated as of April 24, 2001.
(10)(n) Termination of Employment Contract by and between P. H. Glatfelter Company and Robert S. Wood, dated as of February 13, 2002. (10)(o) Loan Agreement, dated February 24, 1997, between P. H. Glatfelter Company, as borrower, and GWS Valuch, Inc., as lender (incorporated by reference to Exhibit (10)(h) of our Form 10-K for the year ended December 31, 1996). (10)(p) Agreement between the State of Wisconsin and Certain Companies Concerning the Fox River, dated as of January 31, 1997, among P. H. Glatfelter Company, Fort Howard Corporation, NCR Corporation, Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin (incorporated by reference to Exhibit (10)(i) of our Form 10-K for the year ended December 31, 1996). (10)(q) Credit Agreement, dated as of December 22, 1997, among P. H. Glatfelter Company, various subsidiary borrowers, Bankers Trust Company, as Agent, and various lending institutions with Deutsche Bank AG, as Documentation Agent, PNC Bank, National Association, as Syndication Agent, and First National Bank of Maryland and Wachovia Bank, N.A., as Managing Agents (incorporated by reference to Exhibit (10)(j) of our Form 10-K for the year ended December 31, 1997). (10)(r) First Amendment to Credit Agreement dated as of August 6, 2001 by and among P. H. Glatfelter Company, various subsidiaries of the Company party hereto, the financial institutions party to the Credit Agreement dated as of December 22, 1997 in their capacities as lenders, and Bankers Trust Company, as agent for the lenders (incorporated by reference to Exhibit 10 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001). (10)(s) Supply and Service Agreement dated as of August 1, 2001 by and among Purico GmbH, Purico (IOM) Limited and Papierfabrik Schoeller & Hoesch GmbH & Co. (10)(t) Arrangement Letter by and between P. H. Glatfelter Company and Accenture LLP, dated as of January 16, 2001. (21) Subsidiaries of the Registrant (23) Consent of Independent Auditors (b) On October 2, 2001, we filed a Form 8-K dated October 2, 2001 to update certain environmental matters disclosed in prior periodic filings.
EX-3.C 3 w58137ex3-c.txt BYE-LAWS EXHIBIT 3(c) [P. H. GLATFELTER COMPANY LOGO] As amended by the Board of Directors at a meeting held March 8, 2002 P. H. GLATFELTER COMPANY BY-LAWS ARTICLE I MEETINGS OF SHAREHOLDERS AND RECORD DATE 1.1 ANNUAL MEETING. An annual meeting of shareholders for the election of directors and the transaction of such other business as may properly come before the meeting shall be held on the fourth Wednesday in April of each year at 10:00 A.M. If the day fixed for the meeting is a legal holiday, the meeting shall be held at the same hour on the next succeeding full business day which is not a legal holiday. 1.2 SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. 1.3 PLACE. The annual meeting of shareholders shall be held at the principal office of the Company. Other meetings of shareholders may be held at such place in Pennsylvania or elsewhere as the Board of Directors may designate. 1.4 NOTICE. Written notice stating the place, day and hour of each meeting of shareholders and, in the case of a special meeting, the general nature of the business to be transacted shall be given by the Secretary at least ten days before the meeting to each shareholder of record entitled to vote at the meeting. 1.5 QUORUM. Except as otherwise provided in the Articles of Incorporation, the presence in person or by proxy of shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast on a particular matter shall constitute a quorum for the purpose of considering such matter at a meeting of shareholders, but less than a quorum may adjourn from time to time to reconvene at such time and place as they may determine. When a quorum is present, except as may be otherwise specified in the Articles of Incorporation or provided by law, all matters shall be decided by the vote of the holders of a majority of the votes entitled to be cast at the meeting, in person or by proxy. 1.6 RECORD DATES. The Board of Directors may fix a time not more than ninety days prior to the date of any meeting of shareholders, or the date fixed for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or go into effect, as a record date for the determination of the shareholders entitled to notice of or to vote at any such meeting, or to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares. In such case, only such shareholders as shall be shareholders of record at the close of business on the date so fixed shall be entitled to notice of or to vote at such meeting, or to receive payment of such dividend or distribution, or to receive such allotment of rights, or to exercise such rights in respect to any change, conversion or exchange of shares, as the case may be, notwithstanding any transfer of any shares on the books of the Company after the record date so fixed. ARTICLE II DIRECTORS 2.1 NUMBER AND TERM. The Board of Directors shall consist of eleven persons, comprising three classes of directors of which two classes shall consist of four directors each and one class shall consist of three directors. 2.2 AGE QUALIFICATION. No person, other than an officer or employee of the Company, shall be elected or reelected a director after reaching 72 years of age; provided, however, that at the 1999 annual meeting of shareholders George H. Glatfelter may be reelected a director for one additional three-year term. When the term of any director, other than George H. Glatfelter or an officer or employee of the Company, extends beyond the date when the director reaches 72 years of age, such director shall resign from the Board of Directors effective at the annual meeting of shareholders next succeeding his 72nd birthday. 2.3 VACANCIES. In the case of any vacancy in the Board of Directors by death, resignation or for any other cause, including an increase in the number of directors, the Board may fill the vacancy by choosing a director to serve until the next selection of the class for which such director has been chosen and until his successor has been selected and qualified or until his earlier death, resignation or removal. 2.4 ANNUAL MEETING. An annual meeting of the Board of Directors shall be held each year as soon as practicable after the annual meeting of shareholders, at the place where such meeting of shareholders was held or at such other place as the Board of Directors may determine, for the purposes of organization, election of officers and the transaction of such other business as shall come before the meeting. No notice of the meeting need be given. 2.5 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such times and at such places as the Board of Directors may determine. 2.6 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer or the President. Notice of every special meeting shall be given to each director not later than the second day immediately preceding the day of such meeting in the case of notice by mail, telegram or courier service, and not later than the day immediately preceding the day of such meeting in the case of notice delivered personally or by telephone, telex, TWX or facsimile transmission. Such notice shall state the time and place of the meeting, but, except as otherwise provided in the by-laws, neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice, or waiver of notice, of such meeting. 2.7 QUORUM. A majority of the directors in office shall constitute a quorum for the transaction of business but less than a quorum may adjourn from time to time to reconvene at such time and place as they may determine. 2.8 COMPENSATION. Directors shall receive such compensation for their services as shall be fixed by the Board of Directors. 2.9 COMMITTEES. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Company. The Board may designate one or more directors as alternate members of any Committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee to the extent provided in such resolution shall have and exercise the authority of the Board of Directors in the management of the business and affairs of the Company. 2.10 PARTICIPATION IN MEETINGS BY COMMUNICATIONS EQUIPMENT. One or more directors may participate in a meeting of the Board of Directors or a committee of the Board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. 2.11 LIABILITY OF DIRECTORS. A director of the Company shall not be personally liable for monetary damages for any action taken, or any failure to take any action, on or after January 27, 1987 unless he has breached or failed to perform the duties of his office as provided for under Section 1713 of the Pennsylvania Business Corporation Law of 1988, as amended, and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. Any repeal, amendment, or modification of this Paragraph shall be prospective only and shall not increase, but may decrease, the liability of a director with respect to actions or failures to act occurring prior to such change. 2.12 OFFICERS. The officers of the Company shall be a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, a Treasurer, a Controller and such other officers as the Board of Directors may deem advisable. In the absence or disability of the Chairman of the Board and the Chief Executive Officer, the President, a Director designated by the Board or the officer or officers in the order designated by the Board of Directors shall have the authority and perform the duties of the Chairman of the Board and Chief Executive Officer. Any two or more offices may be held by the same person. 2.13 TERM. Each officer shall hold office until his successor is elected or appointed and qualified or until his death, resignation or removal by the Board of Directors. 2.14 AUTHORITY, DUTIES AND COMPENSATION. All officers shall have such authority, perform such duties and receive such compensation as may be provided in the by-laws or as may be determined by the Board of Directors. 2.15 CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the Board of Directors and of the Executive Committee and shall perform such other duties as may be assigned by the Board of Directors. 2.16 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the chief executive officer of the Company and shall preside at all meetings of the shareholders and, if a director of the Company, in the absence or disability of the Chairman of the Board, or if that office is vacant, shall preside at all meetings of the Board of Directors and of the Executive Committee. He or she shall be responsible for the general management of the business of the Company, subject to the control of the Board of Directors. In the absence or disability of the President, or if that office is vacant, the Chief Executive Officer shall have the authority and perform the duties of the President. 2.17 PRESIDENT. The President shall perform such duties as may be assigned by the Board of Directors and, in the absence or disability of the Chief Executive Officer, or if that office is vacant, shall have the authority and perform the duties of the Chief Executive Officer. 2.18 VICE PRESIDENT. In the absence or disability of the Chief Executive Officer and the President, or any other officer or officers, the Vice Presidents in the order designated by the Board of Directors shall have the authority and perform the duties of the Chief Executive Officer, the President or other officer as the case may be. 2.19 SECRETARY. The Secretary shall give notice of meetings of the shareholders, of the Board of Directors and of the Executive Committee, attend all such meetings and record the proceedings thereof. In the absence or disability of the Secretary, an Assistant Secretary or any other person designated by the Board of Directors or the Chief Executive Officer shall have the authority and perform the duties of the Secretary. 2.20 TREASURER. The Treasurer shall have charge of the securities of Company and the deposit and disbursement of its funds, subject to the control of the Board of Directors. In the absence or disability of the Treasurer, as Assistant Treasurer or any other person designated by the Board of Directors of the Chief Executive Officer shall have the authority and perform the duties of the Treasurer. 2.21 CONTROLLER. The Controller shall be the principal accounting officer and shall keep books recording the business transactions of the Company. He shall be in charge of the accounts of all of its offices and shall promptly report and properly record in the books of the Company all relevant date relating to the Company's business. ARTICLE III INDEMNIFICATION 3.1 INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS. The Company shall indemnify any director or officer of the Company or any of its subsidiaries who was or is an "authorized representative" of the Company (which shall mean for the purposes of Paragraphs 3.1. through 3.7, a director or officer of the Company, or a person serving at the request of the Company as a director, officer, partner, fiduciary or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and who was or is a "party" (which shall include for purposes of Paragraphs 3.1 through 3.7 the giving of testimony or similar involvement) or is threatened to be made a party to any "proceeding" (which shall mean for purposes of Paragraphs 3.1 through 3.7 any threatened, pending or completed action, suit, appeal or other proceeding of any nature, whether civil, criminal, administrative or investigative, whether formal or informal, and whether brought by or in the right of the Company, its shareholders or otherwise) by reason of the fact that such person was or is an authorized representative of the Company to the fullest extent permitted by law, including without limitation indemnification against expenses (which shall include for purposes of Paragraphs 3.1 through 3.7 attorneys' fees and disbursements), damages, punitive damages, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such proceeding unless the act or failure to act giving rise to the claim is finally determined by a court to have constituted willful misconduct or recklessness. If an authorized representative is not entitled to indemnification in respect of a portion of any liabilities to which such person may be subject, the Company shall nonetheless indemnify such person to the maximum extent for the remaining portion of the liabilities. 3.2 ADVANCEMENT OF EXPENSES. The Company shall pay the expenses (including attorneys' fees and disbursements) actually and reasonably incurred in defending a proceeding on behalf of any person entitled to indemnification under Paragraph 3.1 in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Company as authorized in Paragraphs 3.1 through 3.7 and may pay such expenses in advance on behalf of any employee or agent on receipt of a similar undertaking. The financial ability of such authorized representative to make such repayment shall not be prerequisite to the making of an advance. 3.3 EMPLOYEE BENEFIT PLANS. For purposes of Paragraphs 3.1 through 3.7, the Company shall be deemed to have requested an officer or director to serve as fiduciary with respect to an employee benefit plan where the performance by such person of duties to the Company also imposes duties on, or otherwise involves services by, such person as a fiduciary with respect to the plan; excise taxes assessed on an authorized representative with respect to any transaction with an employee benefit plan shall be deemed "fines"; and action taken or omitted by such person with respect to an employee benefit plan in the performance of duties for a purpose reasonably believed to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Company. 3.4 SECURITY FOR INDEMNIFICATION OBLIGATIONS. To further effect, satisfy or secure the indemnification obligations provided herein or otherwise, the Company may maintain insurance, obtain a letter of credit, act as self-insurer, create a reserve, trust, escrow, cash collateral or other fund or account, enter into indemnification agreements, pledge or grant a security interest in any assets or properties of the Company, or use any other mechanism or arrangement whatsoever in such amounts, at such costs, and upon such other terms and conditions as the Board of Directors shall deem appropriate. 3.5 RELIANCE UPON PROVISIONS. Each person who shall act as an authorized representative of the Company shall be deemed to be doing so in reliance upon the rights of indemnification provided by these Paragraphs 3.1 through 3.7. 3.6 AMENDMENT OR REPEAL. All rights of indemnification under Paragraphs 3.1 through 3.7 shall be deemed a contract between the Company and the person entitled to indemnification under these Paragraphs 3.1 through 3.7 pursuant to which the Company and each such person intend to be legally bound. Any repeal, amendment or modification hereof shall be prospective only and shall not limit, but may expand, any rights or obligations in respect of any proceeding whether commenced prior to or after such change to the extent such proceeding pertains to actions or failures to act occurring prior to such change. 3.7 SCOPE. The indemnification, as authorized by these Paragraphs 3.1 through 3.7, shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in any other capacity while holding such office. The indemnification and advancement of expenses provided by or granted pursuant to these Paragraphs 3.1 through 3.7 shall continue as to a person who has ceased to be an officer or director in respect of matters arising prior to such time, and shall inure to the benefit of the heirs and personal representatives of such person. ARTICLE IV STOCK CERTIFICATES AND CORPORATE SEAL 4.1 EXECUTION. Certificates of shares of capital stock of the Company shall be signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer, but where a certificate is signed by a transfer agent or a registrar, the signature of any corporate officer may be facsimile, engraved or printed. 4.2 SEAL. The Company shall have a corporate seal which shall bear the name of the Company and State and year of its incorporation. The seal shall be in the custody of the Secretary and may be used by causing it or a facsimile to be impressed or reproduced upon or affixed to any document. ARTICLE V NOTICES 5.1 FORM OF NOTICE. Whenever written notice is required to be given to any person by law, the Articles of Incorporation or these by-laws, it may be given to such person either personally or by telephone or by sending a copy thereof by first class or express mail, postage prepaid, or by telegram (with messenger service specified), telex or TWX (with answerback received) or courier service, charges prepaid, or by facsimile transmission, to the address (or the telex, TWX or facsimile number) appearing on the books of the Company or, in the case of a director, to the address supplied by the director to the Company for the purpose of notice. If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched or, in the case of facsimile transmission, when received. A notice of meeting shall specify the place, day and hour of the meeting. 5.2 WAIVER OF NOTICE. Any notice required to be given under these by-laws may be effectively waived by the person entitled thereto by written waiver signed before or after the meeting to which such notice would relate or by attendance at such meeting otherwise than for the purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. ARTICLE VI AMENDMENTS 6.1 AMENDMENTS. These by-laws may be amended or repealed and new by-laws may be adopted by the affirmative vote of a majority of the directors of the Company or by the affirmative vote of shareholders entitled to cast a majority of the votes which all shareholders are entitled to cast at any annual, regular or special meeting of directors or shareholders, as the case may be; provided, however, that new by-laws may not be adopted and these by-laws may not be amended or repealed in any way that limits indemnification rights, increases the liability of directors or changes the manner or vote required for any such adoption, amendment or repeal, except by the affirmative vote of the shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast thereon. In the case of a meeting of shareholders, written notice shall be given to each shareholder entitled to vote thereat that the purpose, or one of the purposes, of the meeting is to consider the adoption, amendment or repeal of the by-laws. ARTICLE VII EMERGENCY BY-LAWS 7.1 WHEN OPERATIVE. The emergency by-laws provided by the following Paragraphs shall be operative during any emergency resulting from warlike damage or an attack on the United States or any nuclear or atomic disaster, notwithstanding any different provision in the preceding Paragraphs of the by-laws or in the Articles of Incorporation of the Company or in the Pennsylvania Business Corporation Law. To the extent not inconsistent with these emergency by-laws, the by-laws provided in the preceding Paragraphs shall remain in effect during such emergency and upon the termination of such emergency the emergency by-laws shall cease to be operative unless and until another such emergency shall occur. 7.2 MEETINGS. During any such emergency: (a) Any meeting of the Board of Directors may be called by any director. Whenever any officer of the Company who is not a director has reason to believe that no director is available to participate in a meeting, such officer may call a meeting to be held under the provisions of this Paragraph. (b) Notice of each meeting called under the provisions of this Paragraph shall be given by the person calling the meeting or at his request by any officer of the Company. The notice shall specify the time and the place of the meeting, which shall be the head office of the Company at the time if feasible and otherwise any other place specified in the notice. Notice need be given only to such of the directors as it may be feasible to reach at the time and may be given by such means as may be feasible at the time, including publication or radio. If given by mail, messenger, telephone or telegram, the notice shall be addressed to the director at his residence or business address or such other place as the person giving the notice shall deem suitable. In the case of meetings called by an officer who is not a director, notice shall also be given similarly, to the extent feasible, to the persons named on the list referred to in part (c) of this Paragraph. Notice shall be given at least two days before the meeting if feasible in the judgment of the person giving the notice and otherwise the meeting may be held on any shorter notice he shall deem suitable. (c) At any meeting called under the provisions of this Paragraph, the director or directors present shall constitute a quorum for the transaction of business. If no director attends a meeting called by an officer who is not a director and if there are present at least three of the persons named on a numbered list of personnel approved by the Board of Directors before the emergency, those present (but not more than the seven appearing highest in priority on such list) shall be deemed directors for such meeting and shall constitute a quorum for the transaction of business. 7.3 LINES OF SUCCESSION. The Board of Directors, during as well as before any such emergency, may provide, and from time to time modify, lines of succession in the event that during such an emergency any or all officers or agents of the Company shall for any reason be rendered incapable of discharging their duties. 7.4 OFFICES. The Board of Directors, during as well as before any such emergency, may, effective in the emergency, change the head office or designate several alternative head offices or regional offices, or authorize the officers so to do. 7.5 LIABILITY. No officer, director or employee acting in accordance with these emergency by-laws shall be liable except for willful misconduct. 7.6 REPEAL OR CHANGE. These emergency by-laws shall be subject to repeal or change by further action of the Board of Directors or by action of the shareholders, except that no such repeal or change shall modify the provisions of the next preceding Paragraph with regard to action or inaction prior to the time of such repeal or change. ARTICLE VIII PENNSYLVANIA ACT 36 OF 1990 8.1 FIDUCIARY DUTY. Subsections (a) through (d) of Section 1715 of the Pennsylvania Business Corporation Law of 1988, as amended, shall not be applicable to the Company. 8.2 CONTROL-SHARE ACQUISITIONS. Subchapter G of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended, (relating to control-share acquisitions), shall not be applicable to the Company. 8.3 DISGORGEMENT. Subchapter H of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended, (relating to disgorgement by certain controlling shareholders following attempts to acquire control), shall not be applicable to the Company. EX-10.J 4 w58137ex10-j.txt CHANGE IN CONTROL EMPLOYMENT EXHIBIT 10(j) CHANGE IN CONTROL EMPLOYMENT AGREEMENT AGREEMENT by and between P. H. Glatfelter Company (the "Company"), and Robert P. Newcomer (the "Employee"), dated as of the 31 day of December, 2000. The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company and its subsidiaries will have the continued dedication of the Employee, notwithstanding the possibility, threat, or occurrence of a Change in Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a threatened or pending Change in Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change in Control, and to provide the Employee with compensation arrangements upon a Change in Control that provide the Employee with individual financial security and which are competitive with those of other comparably situated companies and, in order to accomplish these objectives, the Board has authorized the Company to enter into this Agreement. NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. EFFECTIVE DATE. (a) The "Effective Date" shall be the first date during the "Change in Control Period" (as defined in Section 1(b)) on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change in Control occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or anticipation of a Change in Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination. (b) The "Change in Control Period" is the period commencing on the date hereof and ending on the second anniversary of such date; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the Change in Control Period shall be automatically extended so as to terminate two years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice that the Change in Control Period shall not be so extended. 2. CHANGE IN CONTROL. For the purpose of this Agreement, a "Change in Control" shall mean: (a) The acquisition, directly or indirectly, other than from the Company, by any person, entity or "group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), excluding, for this purpose, the Company, its subsidiaries, any employee benefit plan of the Company or its subsidiaries, and any purchaser or group of purchasers who are descendants of, or entities controlled by descendants of, P. H. Glatfelter which acquires beneficial ownership of voting securities of the Company) (a "Third Party") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the Incumbent Directors who are directors at the time of such vote shall be, for purposes of this Agreement, an Incumbent Director; or (c) Consummation of (i) a reorganization, merger or consolidation, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation (other than the acquiror) do not, immediately thereafter, beneficially own more than 50% of the combined voting power of the reorganized, merged or consolidated company's then outstanding voting securities entitled to vote generally in the election of directors, or (ii) a liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company (whether such assets are held directly or indirectly) to a Third Party. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Employee in its employ, and the Employee hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the second anniversary of such date (the "Employment Period"). 4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the Employment Period, (A) the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Employee's services shall be performed at the location where the Employee was employed immediately preceding the Effective Date or any office or location less than forty (40) miles from such location. (ii) During the Employment Period, excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Employee hereunder, to use the Employee's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (b) COMPENSATION. (i) Base Salary. During the Employment Period, the Employee shall receive a base salary ("Base Salary") at a monthly rate at least equal to the highest monthly base salary paid or payable to the Employee by the Company during the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other key employees of the Company and its subsidiaries in the same salary grade (or, if there are no salary grades, to other key employees of the Company and its subsidiaries in comparable positions). Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Employee under this Agreement. Base Salary shall not be reduced after any such increase. (ii) Annual Bonus. In addition to Base Salary, the Employee shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (an "Annual Bonus"), either pursuant to the Company's Management Incentive Plan or otherwise, in cash at least equal to the sum of (a) the target bonus paid or payable to the Employee under the Company's Management Incentive Plan for the last full fiscal year preceding the fiscal year in which the Effective Date occurs and (b) a profit-sharing bonus equal to 7.5% of Employee's actual annual base compensation for the fiscal year in which the Effective Date occurs. (iii) Incentive, Savings and Retirement Plans. In addition to Base Salary and Annual Bonus payable as hereinabove provided, the Employee shall be entitled to participate during the Employment Period in all incentive, savings and retirement plans, practices, policies and programs applicable to other key employees of the Company and its subsidiaries (including the 1992 Key Employee Long-Term Incentive Plan). Such plans, practices, policies and programs, in the aggregate, shall provide the Employee with compensation, benefits and reward opportunities at least as favorable as the most favorable of such compensation, benefits and reward opportunities provided by the Company to the Employee under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as provided at any time thereafter with respect to other key employees of the Company and its subsidiaries in the same salary grade (or, if there are no salary grades, to other key employees of the Company and its subsidiaries in comparable positions). (iv) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its subsidiaries (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs), at least as favorable as the most favorable of such plans, practices, policies and programs of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries in the same salary grade (or, if there are no salary grades, to other key employees of the Company and its subsidiaries in comparable positions). (v) Expenses. During the Employment Period, the Employee shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by the Employee in accordance with the most favorable policies, practices and procedures of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries in the same salary grade (or, if there are no salary grades, to other key employees of the Company and its subsidiaries in comparable positions). (vi) Fringe Benefits. During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries in the same salary grade (or, if there are no salary grades, to other key employees of the Company and its subsidiaries in comparable positions). (vii) Vacation. During the Employment Period, the Employee shall be entitled to paid holidays and vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its subsidiaries as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries in the same salary grade (or, if there are no salary grades, to other key employees of the Company and its subsidiaries in comparable positions). 5. TERMINATION. (a) DEATH OR DISABILITY. This Agreement shall terminate automatically upon the Employee's death. If the Company determines in good faith that the Disability of the Employee has occurred (pursuant to the definition of "Disability" set forth below), it may give to the Employee written notice of its intention to terminate, or its intention to cause its subsidiary to terminate, the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" means disability as defined in the Company's Long Term Disability Plan (or, if the Company does not have such a plan, a disability which, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably)). (b) CAUSE. The Company may terminate the Employee's employment for "Cause." For purposes of this Agreement, "Cause" means (i) an act or acts of personal dishonesty taken by the Employee and intended to result in substantial personal enrichment of the Employee at the expense of the Company, (ii) repeated violations by the Employee of the Employee's obligations under Section 4(a) of this Agreement which are demonstrably willful and deliberate on the Employee's part and which are not remedied in a reasonable period of time after receipt of written notice from the Company, (iii) violation by the Employee of any of the Company's policies, including, but not limited to, policies regarding sexual harassment, insider trading, confidentiality, substance abuse and conflicts of interest, which violation could result in the termination of the Employee's employment; or (iv) the conviction of the Employee of a felony. (c) GOOD REASON. The Employee's employment may be terminated by the Employee for Good Reason. For purposes of this Agreement, "Good Reason" means (i) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement; (iii) the Company's requiring the Employee to be based at any office or location other than that described in Section 4(a)(i)(B) hereof, except for travel reasonably required in the performance of the Employee's responsibilities; (iv) any purported termination by the Company of the Employee's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement; provided that within fifteen (15) days after the occurrence of any of the events listed in clauses (i), (ii), (iii), (iv) or (v) above the Employee delivers written notice to the Company of his intention to terminate for Good Reason specifying in reasonable detail the facts and circumstances claimed to give rise to the Employee's right to terminate his employment for Good Reason and the Company shall not have cured such facts and circumstances within thirty (30) days after delivery of such notice by the Employee to the Company (unless the Company shall have waived its right to cure by written notice to the Employee), and provided further that within fifteen (15) days after the expiration of such thirty (30) day period or the date of receipt of such waiver notice, if earlier, the Employee delivers a Notice of Termination to the Company under Section 5(d) based on the same Good Reason specified in the notice of intent to terminate delivered to the Company under this Section 5(c). For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Employee shall be conclusive. (d) NOTICE OF TERMINATION. Any termination by the Company for Cause or by the Employee for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). The failure by the Employee to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance in enforcing his rights hereunder. (e) DATE OF TERMINATION. "Date of Termination" means the date of receipt of the Notice of Termination or any later date specified therein as permitted by Section 5(d), as the case may be; provided, however, that (i) if the Employee's employment is terminated by the Company or a subsidiary of the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company or such subsidiary notifies the Employee of such termination and (ii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH. If the Employee's employment is terminated during the Employment Period by reason of the Employee's death, this Agreement shall terminate without further obligations to the Employee's legal representatives under this Agreement, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including, for this purpose (i) the Employee's full Base Salary through the Date of Termination at the rate in effect on the Date of Termination, (ii) any compensation previously deferred by the Employee (together with any accrued interest thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (such amounts are hereinafter referred to as "Accrued Obligations"). All such Accrued Obligations shall be paid to the Employee's estate or beneficiary, as applicable, in a lump sum in cash within 30 days after the Date of Termination. (b) DISABILITY. If the Employee's employment is terminated during the Employment Period by reason of the Employee's Disability, this Agreement shall terminate without further obligations to the Employee, other than Accrued Obligations. All such Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days after the Date of Termination. (c) TERMINATION FOR CAUSE; TERMINATION BY EMPLOYEE OTHER THAN FOR GOOD REASON. If, during the Employment Period, the Employee's employment is terminated for Cause, or, if the Employee terminates employment other than for Good Reason, this Agreement shall terminate without further obligations to the Employee, other than Accrued Obligations. All such Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days after the Date of Termination. (d) TERMINATION FOR GOOD REASON; TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR DISABILITY. If, during the Employment Period, the Company terminates the Employee's employment other than for Cause, Disability, or death, or if the Employee terminates his employment for Good Reason: (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) to the extent not theretofore paid, the Employee's Base Salary through the Date of Termination; and (B) the product of the Annual Bonus paid to the Employee for the last full fiscal year before the Date of Termination and a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365; and (C) the product of (x) two and (y) the sum of (1) the Employee's annual Base Salary at the highest rate in effect at any time during the period beginning 90 days before the Effective Date through the Date of Termination and (2) the Annual Bonus paid to the Employee for the last full fiscal year before the Date of Termination; and (D) in the case of compensation previously deferred by the Employee, all amounts previously deferred (together with any accrued interest thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company; and (ii) for a period of two years after the Date of Termination, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at levels substantially equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Employee's employment had not been terminated, including health, disability and life insurance, in accordance with the most favorable plans, practices, programs or policies of the Company and its subsidiaries in effect during the 90-day period immediately preceding the Date of Termination or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees in the same salary grade (or, if there are no salary grades, to other key employees of the Company and its subsidiaries in comparable positions) and their families; provided, however, that the Company may, at its election, pay to the Employee an amount in cash equal to the Company's cost of providing any of such benefits for such period, in lieu of continuing to provide the benefits. For purposes of eligibility for retiree benefits pursuant to such plans, practices, programs and policies and for purposes of health benefit continuation coverage pursuant to Section 601 et seq of ERISA ("COBRA"), the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period. (iii) in the event that the Employee has not, as of the Date of Termination, earned sufficient vesting service to have earned (A) a nonforfeitable interest in his matching contribution account under the P. H. Glatfelter Company 401(k) Retirement Savings Plan (the "401(k) Plan"), and (B) a nonforfeitable interest in his accrued benefit under the terms of the P. H. Glatfelter Company Retirement Plan for Salaried Employees (the "Retirement Plan") and, if applicable, the Restoration Pension (the "Restoration Pension") under the terms of the P. H. Glatfelter Supplemental Early Retirement Plan and/or the Management Incentive Plan Adjustment Supplement (the "MIP Adjustment Supplement") under the P. H. Glatfelter Company Supplemental Management Pension Plan (or any successors to those plans), the Company shall pay to the Employee a lump sum in cash within 30 days after the Date of Termination in an amount equal to the sum of: (A) the Employee's unvested matching contribution account under the 401(k) Plan, valued as of the Date of Termination; and (B) the actuarial present value of the Employee's unvested normal retirement pension under the Retirement Plan and, as applicable, the Restoration Pension and the MIP Adjustment Supplement, based on the Employee's accrued benefit under those plans as of the Date of Termination, as determined by the Company's actuary utilizing actuarial equivalency factors for determining single sum amounts under the terms of the Retirement Plan. In the event that the Employee should return to employment with the Company and acquire a vested, nonforfeitable interest in any of the plans with respect to which the payment in this subsection (iii) is determined, the Employee shall return an amount equal to the payment made under this subsection, within 30 days of demand by the Company. (iv) If the Employee is, as of the Date of Termination, a participant in the P. H. Glatfelter Company Supplemental Management Pension Plan (the "SMPP") with at least five years of vesting service (as measured for purposes of the Retirement Plan), then the Company shall be obligated to contribute funds, to the extent it has not already done so, to the Trust serving as a funding vehicle for that plan (the P. H. Glatfelter Company Nonqualified Plans Master Trust) as follows: (A) If the Employee is a participant in the MIP Adjustment Supplement under the SMPP, the Company shall fund the Trust with sufficient assets to pay the Employee's accrued benefit under the MIP Adjustment Supplement within five days of the Date of Termination. (B) If the Employee is eligible to elect to receive the Early Retirement Supplement under the SMPP, the Company shall fund the Trust with sufficient assets to pay the Employee's accrued benefit under the Early Retirement Supplement, within five days following the later to occur of (1) the Date of Termination or (2) the benefit commencement date with respect to the Employee's Early Retirement Supplement. The Company shall have no obligation under this Section 6(d) unless the Employee executes and delivers to the Company a valid general release agreement in a form reasonably acceptable to the Company in which the Employee releases the Company from any and all possible liability, including, without limitation, any and all liability based on the Employee's employment or the termination of his employment. 7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company or its subsidiaries and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any stock option or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program. 8. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement. 9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by Deloitte & Touche LLP, or such other firm of independent accountants engaged to audit the Company's financial statements (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days after the Date of Termination or such earlier time as is requested by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this Section 9(b), shall be paid to the Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that a Gross-Up Payment which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the thirty-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 9(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. CONFIDENTIAL INFORMATION. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its subsidiaries, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its subsidiaries and which shall not be or become public knowledge (other than by acts by the Employee or his representatives in violation of this Agreement). After termination of the Employee's employment with the Company, the Employee shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. 11. SUCCESSORS. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company (whether such assets are held directly or indirectly) to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or any breach hereof, shall be settled in accordance with the terms of this Section 12. All claims by the Employee for benefits under this Agreement shall first be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Employee in writing within thirty (30) days and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Employee for a review of the decision denying a claim and shall further allow the Employee to appeal to the Board a decision of the Board within thirty (30) days after notification by the Board that the Employee's claim has been denied. Any further dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation or alleged breach hereof, shall be settled by arbitration in accordance with Employment Dispute Resolution Rules of the American Arbitration Association (or such other rules as may be agreed upon by the Employee and the Company). The place of the arbitration shall be Philadelphia, Pennsylvania and judgment upon the award rendered by the arbitrator(s) may be entered by any court having jurisdiction thereof. Such an award shall be binding and conclusive upon the parties hereto. 13. LEGAL EXPENSES. The Company agrees to reimburse the Employee, to the full extent permitted by law, for all costs and expenses (including without limitation reasonable attorneys' fees) which the Employee may reasonably incur as a result of any contest of the validity or enforceability of, or the Company's liability under, any provision of this Agreement, plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that such payment shall be made only if the Employee prevails on at least one material issue. 14. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: Robert P. Newcomer 1380 Detwiler Drive York, PA 17404 If to the Company: P. H. Glatfelter Company 96 South George Street York, PA 17401 Attention: William T. Yanavitch or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision hereof. (f) This Agreement contains the entire understanding of the Company and the Employee with respect to the subject matter hereof and supersedes all other agreements or understandings between the Company and the Employee relating to the subject matter hereof, but only during the Employment Period. IN WITNESS WHEREOF, the Employee has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written. /S/ Robert P. Newcomer ------------------------------- Robert P. Newcomer P. H. GLATFELTER COMPANY By /S/ Robert S. Wood ------------------ SCHEDULE In accordance with Instruction 2 to Item 601 of Regulation S-K, the Registrant has omitted filing Change in Control Employment Agreements by and between P. H. Glatfelter Company and the following employees as exhibits to this Form 10-K because they are identical to the Change in Control Employment Agreement by and between P. H. Glatfelter Company and Robert P. Newcomer, dated as of December 31, 2000, which is included as Exhibit 10(j) to this Form 10-K: 1. John R. Anke, dated as of December 31, 2000. 2. Gerhard K. Federer, dated as of December 31, 2000. 3. Robert L. Inners II, dated as of December 31, 2000. 4. George MacKenzie, dated as of December 31, 2001. 5. Carroll L. Missimer, dated as of December 31, 2000. 6. Markus R. Mueller, dated as of December 31, 2000. 7. Dante C. Parrini, dated as of December 31, 2000. 8. Mark W. Pitts, dated as of December 31, 2000. 9. Werner Ruckenbrod, dated as of December 31, 2000. 10. C. Matthew Smith, dated as of December 31, 2000. 11. Peter M. Yaffe, dated as of December 31, 2001. 12. William T. Yanavitch, dated as of December 31, 2000. EX-10.K 5 w58137ex10-k.txt EMPLOYMENT AGREEMENT EXHIBIT 10(k) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made this 31st day of January, 2001, by and between P. H. GLATFELTER COMPANY, a Pennsylvania corporation ("EMPLOYER"), and GERHARD FEDERER, ("EMPLOYEE"). WHEREAS, Employee is presently employed by Employer's subsidiary pursuant to the Geschaftsfuhrer-Anstellungsvertrag, Altersversorgungsvertrag and Schiedsvertrag entered into by Employee and S&H Verwatltungsgesellschaft mbH, dated December 17, 1999 (together the "Old Employment Agreements), and the parties desire to terminate the Old Employment Agreements and enter into a new agreement (the "Agreement") based on the terms and conditions set forth below. NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties agree as follows: 1. TERMINATION OF OLD EMPLOYMENT AGREEMENT. The parties agree that the Old Employee Agreements shall be terminated concurrently with the effective date of this Agreement and shall be of no further force or effect. The parties hereto waive and release all rights they may have under the Old Employment Agreements as of the effective date hereof. 2. EMPLOYMENT AND DUTIES. Employer employs Employee in an executive capacity with the initial title of Vice President of Finance - Business Support, subject to the control of its Board of Directors. Employee shall perform such duties as set forth in the documents entitled "Position Description for Vice President of Finance - Business Support" as amended and Finance Organization - proposed as of 11/17/00", as amended, which are attached hereto as Addendum E and Addendum F, respectively, and are incorporated herein by this reference, and other or additional duties as shall be assigned to him from time to time by such Board of Directors or his immediate supervisor. a) Employee will be responsible for returning to Schoeller & Hoesch in Gernsbach, Germany at least six (6) times during the period between March 1, 2001 and August 1, 2001 in order to ensure an orderly transition of Employee's business responsibilities at Schoeller & Hoesch. Employee shall not remain in Germany for longer than 10 consecutive working days during the March 1, 2001 - August 1, 2001 transition time-frame. 3. CONDITIONS PRECEDENT. This Agreement is contingent upon the Employee's medical and other necessary clearances through the U.S. Immigration and Naturalization Agency. Employer agrees to coordinate the application for any and all necessary visa and/or work permits required by Employee and to cover Employee's costs in obtaining the appropriate work permits or visas for Employee as well as Employee's spouse and dependents. 4. COMPENSATION AND BENEFITS. During the term of this Agreement, Employer shall pay Employee a salary at the base rate of $ 199,224, and other benefits as outlined on Addendum "A" attached hereto. 5. EXTENT OF SERVICES. Employee shall devote his entire attention and energy to the business and affairs of Employer and shall not be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, unless Employer consents to Employee's involvement in such business activity in writing. This restriction shall not be construed as preventing Employee from investing his assets in a form or manner that will not require Employee's services in the operation of any of the companies in which such investments are made. 6. TERM. Unless earlier terminated, this Agreement shall run from March 1, 2001 until June 30, 2004, subject to the following: a) DEATH. If Employee's employment terminates by reason of his death, Employer shall only be obligated to make the payments required under its Pension Plan as amended from time to time in addition to salary and benefits due to employee up to the date of Employee's death. b) DISABILITY. In the event Employee should suffer a disability that is determined to qualify him for benefits under the short and/or long- term disability plan or program maintained by Employer for salaried employees (as applicable, the "Disability Plan"), Employee shall be paid, during the period of time he is determined to so disabled and qualified for benefits under the Disability Plan but not in excess of twelve (12) months, an amount equal to the difference between (i) his base salary at the time his disability commenced and (ii) the benefit paid from the Disability Plan (including other income benefits, if any, taken into account in determining the Disability Plan's benefit) for the same period of time. 7. SEVERANCE. If Employer terminates Employee's employment prior to June 30, 2004, Employee's base salary will be paid until the expiration of this Agreement (June 30, 2004), and for the following 12 calendar months, however, subject to the following: a) TERMINATION FOR CAUSE: If Employer terminates Employee's employment prior to June 30 for cause, which includes, but is not limited to, willful failure to perform Employee's duties, dishonest conduct in the performance of Employee's duties, incompetence, insubordination, gross negligence, violation of any express direction, violation of any rule or regulation established by Employer from time to time or breach of any covenant contained in this Employment Agreement, no further compensation will be paid. b) CHANGE IN CONTROL AGREEMENT: If the Employee has entered into a Change in Control Employment Agreement ("Change in Control Agreement") with the Employer which provides for the payment of base salary for a period of time following a Change in Control (as defined in the Change in Control Agreement) or as the result of employment termination by reason of a Change in Control, the obligation of the Employer to pay base salary in the event of severance under this Paragraph shall be reduced dollar for dollar by the amount of base salary payable for the same period of time under the Change in Control Agreement. If Employee resigns or voluntarily terminates his employment prior to June 30, 2004, the payment of his salary and any associated benefits will stop as of the date of the termination. Upon expiration of this Agreement on June 30, 2004, if Employee elects not to continue employment with Employer after such date, Employee will give notice of not less than 6 months prior to such date. Employee will receive a severance payment equal to five (5) months base salary, with no further accrual of nor entitlement to benefits associated with such severance payment. 8. RESTRICTIVE COVENANT. During the term of this Agreement and for a period of one (1) year thereafter, Employee shall not, either as an individual on his own account or as a partner, joint venturer, employee, agent, officer, director or shareholder, directly or indirectly: a) enter into or engage in any business competitive with that of Employer within any area of the global market in which Employer is then doing business, providing Employee has had access to any of Employer's trade secrets or Confidential Information (as defined in Paragraph 9 below) during the course of his employment with Employer; nor b) solicit or attempt to solicit any of Employer's customers with the intent or purpose to perform services for such customers which are the same or similar to those provided to the customer by Employer or to sell to such customers goods which are the same or similar to those provided to the customer by Employer; nor c) solicit or attempt to solicit any of Employer's employees with the intent or purpose to employ or contract with such employees to perform services for a business competitive with that of the Employer within any area of the global market in which the Employer is then doing business. 9. CONFIDENTIAL INFORMATION. Employee shall treat as trade secrets all confidential information acquired during employment, including information relating to the relationship of the Company to its customers or suppliers (including, without limitation, the identity of any customer or supplier), the development, manufacturing, marketing, pricing, costs, capabilities, capacities and business plans related to the products or business of the Company that is not in the public domain, as well as other proprietary information of any nature created, used or developed in the business of or related to the company (hereinafter "Confidential Information") that Employee acquires during employment, and shall not use any such Confidential Information for Employee's benefit, nor disclose it, nor any part of it, to any other person, firm, corporation or organization not connected with the Company, except as authorized in writing by the Company. 10. RETURN OF DOCUMENTS. Upon termination of Employee's employment with or without cause, Employee shall immediately return and deliver to Employer and shall not retain any originals or copies (including electronic formats) of any books, papers, price lists, customer contracts, bids, customer lists, files, notebooks or any other documents containing any of the Confidential Information or otherwise relating to Employee's performance of duties under this Agreement. Employee further acknowledges and agrees that all such documents are the Employer's sole and exclusive property. 11. RESIGNATIONS. Upon termination of Employee's employment with or without cause, Employee shall resign as an officer and director of Employer and will thereafter refuse election as an officer or director of Employer. 12. EXPENSES. Employee is authorized to incur only such expenses for promoting Employer's business as Employer may, from time to time, deem reasonable and appropriate. Employer will reimburse Employee for all such expenses in accordance with applicable law and Employer policies upon Employee's presentation of receipts for expenses and an itemized account therefor. 13. NOTICE. All notices, demands and communications required, desired or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given on the date received, if delivered personally, or on the third day after mailing, if sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the parties at the addresses set forth below or to such other person at such location as either party hereto may subsequently designate in a similar manner. If to Employee: Gerhard Federer Vice President - Finance and Business Support 96 S. George Street York, PA 17401 If to Employer: P. H. Glatfelter Company Attn: Vice President - Human Resources . 96 S. George Street York, PA 17401 14. CONSTRUCTION OF AGREEMENT. This Agreement shall be interpreted, construed and governed by and under the laws of the State of Pennsylvania, and Employee unconditionally submits to the jurisdiction of the courts located in the State of Pennsylvania in all matters relating to or arising from this Agreement. a) If any provision or clause of this Agreement or the application thereof to either party is held to be invalid by a court of competent jurisdiction, then such provision shall be severed herefrom, and such invalidity shall not affect any other provision of this Agreement, the balance of which shall remain in and have its intended full force and effect. b) In the event that the provisions of Paragraphs 8 or 9 of this Agreement shall ever be deemed to exceed the time or geographical limits permitted by applicable law, then such provisions shall be reformed to the maximum time and geographical limits permitted by applicable law. c) References herein to "Paragraphs" or "Subparagraphs" mean the various paragraphs and subparagraphs of this Agreement. The headings and titles of the Paragraphs of this Agreement are not a part of this Agreement, but are for convenience only and are not intended to define, limit or construe the contents of the various Paragraphs. The term "including" means including, without limitation, unless the context clearly indicates otherwise. d) If any party hereto defaults in the performance of its covenants, agreements, or other obligations described in this Agreement, then in addition to any and all other rights or remedies which the non-defaulting party may have against the defaulting party, the defaulting party will be liable to and will pay to the non-defaulting party a sum equal to the non-defaulting party's court costs and the reasonable fees of its attorneys and their support staff incurred in enforcing the covenants, agreements and other obligations of the defaulting party in this Agreement. e) This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof, and there are no understandings, representations or warranties of any kind between the parties except as expressly set forth herein. This Agreement specifically supercedes and replaces the Old Employment Agreements entered into by the parties dated December 17, 1999. f) This Agreement may not be modified except by a writing duly signed by both parties hereto. g) Neither this Agreement nor any right or obligation of Employee hereunder may be assigned by Employee without the prior written consent of Employer. Subject thereto, this Agreement and the covenants and conditions herein contained shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and permitted assigns. h) All references herein to payment or sums money shall mean in U.S. currency unless otherwise indicated. All references herein to calendar year, month, week or day shall mean the calendar and parts thereof as observed in the U.S. All references herein to date and time shall mean the date and time in York, Pennsylvania, U.S. i) This Agreement and the Addenda hereto (Attachments "A" through "F"), may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one and the same agreement. j) The waiver by either party of a breach or default by the other party of any provision of this Agreement shall not operate or be construed as a waiver of any other, continuing or subsequent breach or default by such party. WHEREFORE, the parties hereto have executed this Agreement as of the date first set forth above. P. H. Glatfelter Company Date: January 31, 2001 By: /S/ William T. Yanavitch ------------------------ William T. Yanavitch Vice President -- Human Resources Employee: By: /S/ Gerhard Federer Date: January 31, 2001 ------------------- Gerhard Federer Attachment A: COMPENSATION AND BENEFITS Attachment B: RELOCATION AND RELATED ALLOWANCES Attachment C: CORPORATE POLICY, RELOCATION (Present Exempt Salaried Employees), effective 8-1-99 Attachment D: Attachment E: CORPORATE POLICY, INTERNATIONAL ASSIGNMENTS (Present Exempt Salaried Employees) Attachment E: Position Description for Vice President of Finance -- Business Support" Attachment F: Finance Organization EX-10.L 6 w58137ex10-l.txt TERMINATION OF EMPLOYMENT CONTRACT EXHIBIT 10(l) February 28, 2001 Mr. Robert L. Miller 600 Robin Hill Circle York, PA 17404 Re: Employment Agreement Dear Bob: This letter will set forth the basis of your continuing employment at the P. H. Glatfelter Company (the "Company"). This letter is intended as a confidential statement of your employment arrangement with the Company and supersedes all prior understandings and agreements whether written or oral. The terms of your Employment Agreement, which are contingent on your execution of the General Release Agreement attached hereto, are as follows: 1. Effective as of June 2000, you had been promoted to the position of Vice President - Special Projects, reporting to the President of the Company. You have accepted and you hereby continue to accept such employment and agree to serve the Company on a full-time basis and to perform your duties faithfully, diligently and to the best of your ability. Through February 28, 2002, you further agree to fully cooperate with the officers and directors of the Company to the best of your ability and not to engage in outside for profit business or commercial activity without the prior written consent of the President of the Company. 2. You will be employed as Vice President - Special Projects through September 30, 2001, unless your position terminates earlier under the circumstances described below. Thereafter, you will be put on a paid leave of absence lasting until February 28, 2002, unless your employment terminates earlier under paragraphs 4 or 5 below. 3. The position of Vice President - Special Projects will be a salary grade 20 and your compensation for your employment to and through February 28, 2002, will consist of the following: (a) a salary based on a minimum annual rate of $219,197, to be adjusted during the employment term pursuant to this Agreement at the prerogative of the Compensation Committee of the Board of Directors (after consultation with the President/CEO), payable on the regular pay dates of the Company; and (b) the standard benefits and perquisites made available from time to time to executives of the Company with similar years of service and level of responsibilities, subject to the discretion of the Compensation Committee of the Board. 4. The Company will have the right to terminate your employment under this Agreement at any time, immediately upon providing you with notice of the cause for the termination. "Cause" will include but not be limited to: willful failure to perform; dishonest or grossly negligent conduct in the performance of your duties; incompetence; insubordination; violation of any express direction; violation of any rule or regulation established by the Company from time to time; or breach of any provision contained in this Agreement. In the event of such a termination for cause, the Company shall have no further obligation under this Agreement, except the obligation to pay you an amount equal to the portion of your compensation as defined in paragraph 3 as may be accrued and unpaid on the date of termination. 5. If you die or become totally disabled during your employment on or prior to February 28, 2002 under this Agreement, you will be treated as any other executive employee of the Company under the same circumstances. 6. So long as your employment continues to and through February 28, 2002 and you retire effective as of that date, you will receive the following payments and benefits: (a) The Company will, effective as of March 1, 2002, provide you and your spouse with retiree medical benefits in accordance with the terms and conditions of the Company's program of retiree medical benefits for salaried employees in effect from time to time. You will be responsible for payment of your share of the cost of this coverage in the same manner as any other retiree; (b) Beginning as of March 1, 2002, you will receive, on a monthly basis payable as a joint and 75% survivor annuity with your spouse to whom you are married on February 28, 2002, the FAC Pension under the Company's Supplemental Executive Retirement Plan (the "SERP"). The monthly amount of the FAC Pension will be determined based on your Final Average Compensation as of February 28, 2002 and your Benefit Years as of that date and, for purposes of determining the reduction in this monthly benefit on account of its early commencement, by assuming you attained age 60 on March 1, 2002. In determining your Final Average Compensation as defined in paragraph 2.15 of the SERP, there shall be taken into account the Foreign Service Premium you have received during your foreign assignment; (c) You will be eligible for benefits under the SERP, subject to its terms and conditions (including without limitation Section 3.3), as modified by paragraph 6(b) above. Your participation in the Company's other benefit plans, including without limitation, the Retirement Plan for Salaried Employees, dental plan, 401(k) Savings Plan, long-term disability plan and life insurance plan, however, will end on February 28, 2002; (d) After your separation from service on February 28, 2002, the Company will pay to you, in a lump sum, the amounts that would be due to you under the Company's Management Incentive Plan and the Company's profit sharing program (based on a full-year-2001 compensation) as soon as administratively practicable after those payments become due for the year 2001. You will not receive any incentive bonus or profit sharing payment for the portion of 2002 in which you are employed; and (e) With respect to the performance and/or restricted shares in which you are vested based on service through February 28, 2002, after your separation from service and as soon as administratively practicable after the date of the Company determines that the performance criteria for your performance and/or restricted shares have been satisfied, the Company will in its sole discretion, either distribute to you shares of Company common stock corresponding to such performance and/or restricted shares, or pay to you in a single sum the cash value of the restricted share award. (f) After your separation from service on February 28, 2002, you will be permitted to exercise any stock options that have been granted to you as of that date, and which are vested as of that date, through the earlier of their stated expiration date and February 28, 2005. (g) After your separation from service on February 28, 2002, the Company will continue to pay for an annual executive physical examination for you until you reach age 57. 7. Upon the mutual agreement of you and the CEO of the Company, you will be placed on a fully paid leave of absence on October 1, 2001, or in the sole discretion of the CEO of the Company, at any time before October 1, 2001, with such leave of absence ending on February 28, 2002. You agree to remain available during your leave of absence period to advise or assist the Company, or otherwise to perform such duties as may be reasonably requested of you by the Company. 8. You hereby agree that the Change in Control Employment Agreement dated as of December 31, 2000, by and between yourself and the Company, will be terminated effective as of the earlier of September 30, 2001 or the first day of your leave of absence according to paragraph 7 above. 9. You hereby resign as an Officer of the Company as of the earlier of September 30, 2001 or the first day of your leave of absence according to paragraph 7 above. 10. During and after your employment with the Company, you will not engage in any activities or make any statements that may disparage or reflect negatively on the Company, its Board of Directors, Officers or Employees. 11. You will keep the terms and conditions of this Agreement confidential, except that you may reveal the terms and conditions of this Agreement to your spouse, attorney and financial advisor, if any, so long as they first agree not to disclose them to anyone else. The Company will make reasonable efforts to keep the terms and conditions of this Agreement confidential and to limit disclosure on a need-to-know basis. The parties, however, understand that, by way of example and not of limitation, the Company may need to disclose the terms and conditions of this Agreement to the Company's independent auditors, the Board of Directors and as required by applicable securities laws. 12. Both during and after your employment with the Company, you will cooperate with any reasonable request of the Company to participate in the preparation for, response to, prosecution of and/or defense of any pending, actual or threatened litigation involving the Company. If the Company requests such participation after your employment ends, it will reimburse you for all reasonable out-of-pocket expenses you incur as a result of such cooperation. 13. You represent and warrant that by September 30, 2001 (or the first day of your leave of absence according to paragraph 7 above), you will have delivered to the Company all property of the Company or any related entities of any kind or character, which shall include, but not be limited to, all identification cards, equipment, books, keys, journals, records, computers, customer lists, publications, files, computer disks, memoranda and documents of any kind or description, or any other such property that may be in your possession. 14. You represent and warrant that you will comply with all terms in your Employee's Agreement dated May 18, 1982, and the Company Corporate Disclosure and Securities Trading Policy as in effect from time to time. In addition to any existing obligation under your Employee's Agreement, the Corporate Disclosure and Securities Trading Policy or under the common law, you represent and warrant for all time that all confidential information of the Company and/or any related entities (whether written, graphic, oral, committed to memory or otherwise) in your possession, including without limitation, information relating to the operations or marketing plans of the Company and/or any related entities, shall remain strictly confidential and secret so long as that information has not been published in a form generally available to the public. 15. If you breach your obligations set forth in this Agreement, in addition to all other remedies available to the Company, all payments due you under this Agreement, except for your salary and benefits through your termination date, will cease, and you will reimburse the Company the full amount of any and all amounts paid to you pursuant to this Agreement after the termination of your employment and you will reimburse the Company for the expenses it incurs in connection with any lawsuit based on your breach, including attorneys' fees and costs. (As required by regulations issued by the EEOC, the foregoing sentence does not apply with respect to a claim under the Federal Age Discrimination in Employment Act). In addition, if you breach your obligations set forth in paragraphs 10, 11, 12, 13 or 14 above, the Company also shall be entitled to temporary and permanent injunctive relief to restrain any further breach of those obligations. If the Company breaches its obligations set forth in this Agreement, in addition to all other remedies available to you, the Company will reimburse you for the expenses you incur in connection with any lawsuit based on the Company's breach, including reasonable attorneys' fees and costs. 16. You agree to execute the General Release Agreement attached hereto as Exhibit A, and acknowledge that this Employment Agreement shall not be effective unless you do so. 17. You agree that this Agreement shall be deemed to be made in, and in all respects to be interpreted, construed and governed by and in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect of the principles of conflicts of law under Pennsylvania law. You also agree to submit to the jurisdiction of the state and federal courts located in Pennsylvania in the event that there is any claim that you have breached this Agreement. 18. This Agreement is personal to you and the Company's commitments to you described herein may not be assigned to, or be enforced by, anyone else. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. If you are in agreement with the foregoing terms of employment, and you intend to be legally bound hereby, please sign and return one copy of this letter to me, and also sign and return to me the attached General Release Agreement. We look forward to your continued contributions to the Company. THE P. H. GLATFELTER COMPANY BY: /S/ William T. Yanavitch ------------------------ William T. Yanavitch I HEREBY ACCEPT AND AGREE TO THE TERMS OF THIS LETTER AGREEMENT /S/ Robert L. Miller - -------------------- Robert L. Miller Date: March, 22, 2001 EXHIBIT A GENERAL RELEASE AGREEMENT I, Robert L. Miller, for myself, my heirs, executors, administrators and assigns, if any, for and in consideration of the benefits described in the foregoing Employment Agreement dated February 28, 2001 (the "Employment Agreement"), and other good and valuable consideration, do hereby state that: 1. I agree to and accept the terms of the Employment Agreement extended to me dated February 28, 2001. 2. I waive, release and forever discharge the P. H. Glatfelter Company (as defined below) of and from any and all Claims (as defined below). I agree not to file a lawsuit to assert any such Claim. (As required by regulations issued by the EEOC, the foregoing sentence does not apply with respect to a claim under the Age Discrimination in Employment Act.) This release covers all Claims arising from the beginning of time up to and including the date of this General Release Agreement, but does not cover claims for unemployment compensation benefits, claims relating to the validity or enforcement of the Employment Agreement or this General Release Agreement or claims for any accrued benefit under the terms of any employee benefit plan within the meaning of the Employee Retirement Income Security Act maintained by the P. H. Glatfelter Company. The following provisions further explain this general release and promise not to sue: Definition of "Claims." "Claims" include without limitation all actions or demands of any kind that I now have, or may have or claim to have in the future. More specifically, Claims include rights, causes of action, damages, penalties, losses, attorneys' fees, costs, expenses, obligations, agreements, judgments and all other liabilities of any kind or description whatsoever, either in law or in equity, whether known or unknown, suspected or unsuspected. The nature of Claims covered by this release and promise not to sue includes without limitation all actions or demands in any way based on my employment with the P. H. Glatfelter Company, the terms and conditions of such employment or my separation from employment (except as stated above). More specifically, all of the following are among the types of Claims that will be barred by this release and promise not to sue (except as stated above): - Contract Claims (whether express or implied); - Tort Claims, such as for defamation or emotional distress; - Claims under federal, state and municipal laws, regulations, ordinances or court decisions of any kind; - Claims of discrimination, harassment or retaliation, whether based on race, color, religion, gender, sex, age, sexual orientation, handicap and/or disability, national origin or any other legally protected class; - Claims under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, the Family and Medical Leave Act and similar state and local laws; - Claims under the Employee Retirement Income Security Act, the Fair Labor Standards Act, state wage payment laws and state wage and hour laws; - Claims for wrongful discharge; and - Claims for attorneys' fees, litigation expenses and/or costs. Definition of "P. H. Glatfelter Company." The "P. H. Glatfelter Company" includes without limitation the P. H. Glatfelter Company and its respective past, present and future parents, affiliates, subsidiaries, divisions, predecessors, successors, assigns, employee benefit plans and trusts, if any. It also includes all past, present and future managers, members, directors, officers, partners, agents, employees, attorneys, representatives, consultants, associates, fiduciaries, plan sponsors, administrators and trustees of each of the entities listed in the preceding sentence. I acknowledge that I have carefully read and understand the provisions of this General Release Agreement and the Employment Agreement, that I have had twenty-one (21) days from the date I received a copy of the General Release Agreement and the Employment Agreement to consider entering into this General Release Agreement and accepting the Employment Agreement, that if I sign and return this General Release Agreement before the end of the twenty-one (21) day period that I will have voluntarily waived my right to consider the Agreement for the full twenty-one (21) days and that I have executed this General Release Agreement voluntarily and with full knowledge of its significance, meaning and binding effect. I also acknowledge that P. H. Glatfelter Company has advised me in writing to consult with an attorney of my own choosing with regard to entering into this General Release Agreement and accepting the Employment Agreement. Finally, I acknowledge that my decision to enter into this General Release Agreement has not been influenced in any way by fraud, duress, coercion, mistake or misleading information. I acknowledge that I may revoke this General Release Agreement within seven (7) days of my execution of this document by submitting a written notice of my revocation to William Yanavitch, Vice President - Human Resources, P. H. Glatfelter Company. I also understand that this General Release Agreement, and the Employment Agreement to which it relates, shall not become effective or enforceable until the expiration of that seven (7) day period. IN WITNESS WHEREOF, and with the intention of being legally bound hereby, I have executed this General Release Agreement on the 22nd day of March, 2001. /S/ Robert L. Miller -------------------- Robert L. Miller EX-10.M 7 w58137ex10-m.txt TERMINATION OF EMPLOYMENT CONTRACT-LELAND R. HALL EXHIBIT 10(m) February 23, 2001 Mr. Leland Hall 27 Little John Drive York, PA 17404 Re: Employment Agreement Dear Lee: This letter will set forth the basis of your continuing employment at the P. H. Glatfelter Company (the "Company"). This letter is intended as a confidential statement of your employment arrangement with the Company and supersedes all prior understandings and agreements whether written or oral. The terms of your Employment Agreement, which are contingent on your execution of the General Release Agreement attached hereto, are as follows: 1. Effective as of July 2000, you had been promoted to the position of Vice President New Product Development, initially reporting to the (COO and now reporting to the VP Sales and Marketing). You have accepted and you hereby continue to accept such employment and agree to serve the Company on a full-time basis and to perform your duties faithfully, diligently and to the best of your ability. Through April 30, 2002, you further agree to fully cooperate with the officers and directors of the Company to the best of your ability and not to engage in outside for profit business or commercial activity without the prior written consent of the President of the Company. 2. You will be employed as Vice President New Product Development through the transition and orientation of the Director of New Product Development which is anticipated to be completed no earlier that June 1 and no later than December 31, 2001, unless your position terminates earlier under the circumstances described below. Thereafter, you will be put on a paid leave of absence lasting until April 30, 2002, unless your employment terminates earlier under paragraphs 4 or 5 below. 3. The position of Vice President New Product Development will be a salary grade 20 and your compensation for your employment to and through April 30, 2002, will consist of the following: (a) a salary based on a minimum annual rate of $225,492, which may be increased during the employment term pursuant to this Agreement at the prerogative of the Compensation Committee of the Board of Directors (after consultation with the President/CEO), payable on the regular pay dates of the Company; and (b) the standard benefits and perquisites made available from time to time to executives of the Company with similar years of service and level of responsibilities, subject to the discretion of the Compensation Committee of the Board. 4. The Company will have the right to terminate your employment under this Agreement at any time, immediately upon providing you with notice of the cause for the termination. "Cause" will include but not be limited to: willful failure to perform; dishonest or grossly negligent conduct in the performance of your duties; incompetence; insubordination; violation of any express direction; violation of any rule or regulation established by the Company from time to time; or breach of any provision contained in this Agreement. In the event of such a termination for cause, the Company shall have no further obligation under this Agreement, except the obligation to pay you an amount equal to the portion of your compensation as defined in paragraph 3 as may be accrued and unpaid on the date of termination. 5. If you die or become totally disabled during your employment on or prior to April 30, 2002 under this Agreement, you will be treated as any other executive employee of the Company under the same circumstances. 6. So long as your employment continues to and through April 30, 2002 and you retire effective as of that date, you will receive the following payments and benefits: (a) The Company will, effective as of May 1, 2002, provide you and your spouse with retiree medical benefits in accordance with the terms and conditions of the Company's program of retiree medical benefits for salaried employees in effect from time to time. You will be responsible for payment of your share of the cost of this coverage in the same manner as any other retiree; (b) Your participation in the Company's other benefit plans, including without limitation, the Retirement Plan for Salaried Employees, dental plan, 401k Savings Plan, long-term disability plan and life insurance plan will end of April 30, 2002. (You will receive separate notice regarding your right, as an alternative to receiving the retiree medical benefits described in item (a) able, to elect to continue your Company group medical coverage at your own expense under Cobra); (c) After your separation from service on April 30, 2002, the Company will pay to you, in lump sum, the amounts that would be due to you under the Company's Management Incentive Plan (50% deferred for 2001) and the Company's profit sharing program as soon as administratively practicable after those payments become due for the year 2001. You will not receive any incentive bonus or profit sharing payment for the portion of 2002 in which you are employed, and (d) You will be deemed as vested, on a pro-rata basis, with respect to outstanding Restricted stock awards which have not vested as of April 30, 2002; specifically: (I) your stock award of 4,456 shares due to vest on 12/31/02 shall be deemed to have vested as to seventy-five percent (75%) of said shares; (ii) your stock award of 4,710 shares due to vest as of 12/31/03 shall be deemed to vested as to fifty percent (50%) of said shares; and (iii) your stock award of 5,000 shares due to vest as of 12/31/04 shall be deemed to have vested as to twenty - five percent (25%) of said shares. As soon as administratively practicable after the date of the Company determines that the performance criteria for your performance and/or restricted shares have been satisfied, the Company will either distribute to you shares of Company common stock corresponding to such performance and/or restricted shares, or pay to you in a single sum the cash value of the restricted share award or provide a combination of shares and cash, in accordance with the same options available as of April 30, 2002, to other executives who remain in the Company's employment. (e) After your separation from service on April 30, 2002, you will be permitted to exercise any stock options that have been granted to you, and which are vested as of that date, through the earlier of their respective stated expiration date or April 30, 2005. 7. Upon successful recruitment and orientation of the Director of New Product Development but no later than December 31, 2001, you will be placed on a leave of absence with pay through April 30, 2002 You agree to remain available during your leave of absence period to advise or assist the Company, or otherwise to perform such duties as may be reasonably requested of you by the Company. 8. You hereby agree that the Change in Control Employment Agreement dated as of December 31, 2000, by and between yourself and the Company, will be terminated effective as of the first day of your leave of absence according to paragraph 7 above. 9. You hereby resign as an Officer of the Company effective the day before the first day of your leave of absence according to paragraph 7 above. 10. During and after your employment with the Company, you will not engage in any activities or make any statements that may disparage or reflect negatively on the Company, its Board of Directors, Officers or Employees. 11. You will keep the terms and conditions of this Agreement confidential, except that you may reveal the terms and conditions of this Agreement to your spouse, attorney and financial advisor, if any, so long as they first agree not to disclose them to anyone else. The Company will make reasonable efforts to keep the terms and conditions of this Agreement confidential and to limit disclosure on a need-to-know basis. The parties, however, understand that, by way of example and not of limitation, the Company may need to disclose the terms and conditions of this Agreement to the Company's independent auditors, the Board of Directors and as required by applicable securities laws. 12. Both during and after your employment with the Company, you will cooperate with any reasonable request of the Company to participate in the preparation for, response to, prosecution of and/or defense of any pending, actual or threatened litigation involving the Company. If the Company requests such participation after your employment ends, it will reimburse you for all reasonable out-of-pocket expenses you incur as a result of such cooperation. 13. You represent and warrant that by September 30, 2001 (or the first day of your leave of absence according to paragraph 7 above), you will have delivered to the Company all property of the Company or any related entities of any kind or character, which shall include, but not be limited to, all identification cards, equipment, books, keys, journals, records, computers, customer lists, publications, files, computer disks, memoranda and documents of any kind or description, or any other such property that may be in your possession. 14. You represent and warrant that you will comply with all terms in your Employee's Agreement dated May 18, 1982, and the Company Corporate Disclosure and Securities Trading Policy as in effect from time to time. In addition to any existing obligation under your Employee's Agreement, the Corporate Disclosure and Securities Trading Policy or under the common law, you represent and warrant for all time that all confidential information of the Company and/or any related entities (whether written, graphic, oral, committed to memory or otherwise) in your possession, including without limitation, information relating to the operations or marketing plans of the Company and/or any related entities, shall remain strictly confidential and secret so long as that information has not been published in a form generally available to the public. 15. If you breach your obligations set forth in this Agreement, in addition to all other remedies available to the Company, all payments due you under this Agreement, except for your salary and benefits through your termination date, will cease, and you will reimburse the Company the full amount of any and all amounts paid to you pursuant to this Agreement after the termination of your employment and you will reimburse the Company for the expenses it incurs in connection with any lawsuit based on your breach, including attorneys' fees and costs. (As required by regulations issued by the EEOC, the foregoing sentence does not apply with respect to a claim under the Federal Age Discrimination in Employment Act). In addition, if you breach your obligations set forth in paragraphs 10, 11, 12, 13 or 14 above, the Company also shall be entitled to temporary and permanent injunctive relief to restrain any further breach of those obligations. If the Company breaches its obligations set forth in this Agreement, in addition to all other remedies available to you, the Company will reimburse you for the expenses you incur in connection with any lawsuit based on the Company's breach, including reasonable attorneys' fees and costs. 16. You agree to execute the General Release Agreement attached hereto as Exhibit A, and acknowledge that this Employment Agreement shall not be effective unless you do so. 17. You agree that this Agreement shall be deemed to be made in, and in all respects to be interpreted, construed and governed by and in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect of the principles of conflicts of law under Pennsylvania law. You also agree to submit to the jurisdiction of the state and federal courts located in Pennsylvania in the event that there is any claim that you have breached this Agreement. 18. This Agreement is personal to you and the Company's commitments to you described herein may not be assigned to, or be enforced by, anyone else. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. If you are in agreement with the foregoing terms of employment, and you intend to be legally bound hereby, please sign and return one copy of this letter to me, and also sign and return to me the attached General Release Agreement. We look forward to your continued contributions to the Company. THE P. H. GLATFELTER COMPANY BY: /S/ William T. Yanavitch ------------------------ William T. Yanavitch I HEREBY ACCEPT AND AGREE TO THE TERMS OF THIS LETTER AGREEMENT /S/ Leland R. Hall - ------------------ Leland R. Hall Date: April 24, 2001 EXHIBIT A GENERAL RELEASE AGREEMENT I, Robert L. Miller, for myself, my heirs, executors, administrators and assigns, if any, for and in consideration of the benefits described in the foregoing Employment Agreement dated February 28, 2001 (the "Employment Agreement"), and other good and valuable consideration, do hereby state that: 1. I agree to and accept the terms of the Employment Agreement extended to me dated February 28, 2001. 2. I waive, release and forever discharge the P. H. Glatfelter Company (as defined below) of and from any and all Claims (as defined below). I agree not to file a lawsuit to assert any such Claim. (As required by regulations issued by the EEOC, the foregoing sentence does not apply with respect to a claim under the Age Discrimination in Employment Act.) This release covers all Claims arising from the beginning of time up to and including the date of this General Release Agreement, but does not cover claims for unemployment compensation benefits, claims relating to the validity or enforcement of the Employment Agreement or this General Release Agreement or claims for any accrued benefit under the terms of any employee benefit plan within the meaning of the Employee Retirement Income Security Act maintained by the P. H. Glatfelter Company. The following provisions further explain this general release and promise not to sue: Definition of "Claims." "Claims" include without limitation all actions or demands of any kind that I now have, or may have or claim to have in the future. More specifically, Claims include rights, causes of action, damages, penalties, losses, attorneys' fees, costs, expenses, obligations, agreements, judgments and all other liabilities of any kind or description whatsoever, either in law or in equity, whether known or unknown, suspected or unsuspected. The nature of Claims covered by this release and promise not to sue includes without limitation all actions or demands in any way based on my employment with the P. H. Glatfelter Company, the terms and conditions of such employment or my separation from employment (except as stated above). More specifically, all of the following are among the types of Claims that will be barred by this release and promise not to sue (except as stated above): - Contract Claims (whether express or implied); - Tort Claims, such as for defamation or emotional distress; - Claims under federal, state and municipal laws, regulations, ordinances or court decisions of any kind; - Claims of discrimination, harassment or retaliation, whether based on race, color, religion, gender, sex, age, sexual orientation, handicap and/or disability, national origin or any other legally protected class; - Claims under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, the Family and Medical Leave Act and similar state and local laws; - Claims under the Employee Retirement Income Security Act, the Fair Labor Standards Act, state wage payment laws and state wage and hour laws; - Claims for wrongful discharge; and - Claims for attorneys' fees, litigation expenses and/or costs. Definition of "P. H. Glatfelter Company." The "P. H. Glatfelter Company" includes without limitation the P. H. Glatfelter Company and its respective past, present and future parents, affiliates, subsidiaries, divisions, predecessors, successors, assigns, employee benefit plans and trusts, if any. It also includes all past, present and future managers, members, directors, officers, partners, agents, employees, attorneys, representatives, consultants, associates, fiduciaries, plan sponsors, administrators and trustees of each of the entities listed in the preceding sentence. I acknowledge that I have carefully read and understand the provisions of this General Release Agreement and the Employment Agreement, that I have had twenty-one (21) days from the date I received a copy of the General Release Agreement and the Employment Agreement to consider entering into this General Release Agreement and accepting the Employment Agreement, that if I sign and return this General Release Agreement before the end of the twenty-one (21) day period that I will have voluntarily waived my right to consider the Agreement for the full twenty-one (21) days and that I have executed this General Release Agreement voluntarily and with full knowledge of its significance, meaning and binding effect. I also acknowledge that P. H. Glatfelter Company has advised me in writing to consult with an attorney of my own choosing with regard to entering into this General Release Agreement and accepting the Employment Agreement. Finally, I acknowledge that my decision to enter into this General Release Agreement has not been influenced in any way by fraud, duress, coercion, mistake or misleading information. I acknowledge that I may revoke this General Release Agreement within seven (7) days of my execution of this document by submitting a written notice of my revocation to William Yanavitch, Vice President - Human Resources, P. H. Glatfelter Company. I also understand that this General Release Agreement, and the Employment Agreement to which it relates, shall not become effective or enforceable until the expiration of that seven (7) day period. IN WITNESS WHEREOF, and with the intention of being legally bound hereby, I have executed this General Release Agreement on the 24th day of April, 2001. /S/ Leland R. Hall ------------------ Leland R. Hall EX-10.N 8 w58137ex10-n.txt TERMINATION OF EMPLOYMENT CONTRACT-ROBERT S. WOOD EXHIBIT 10(n) MEMORANDUM TO: Robert S. Wood FROM: William Yanavitch II DATE: January 24, 2002 This offer (the "Severance Offer") is being made to you concerning your separation from employment with the Glatfelter Company (the "Company"). This Severance Offer is intended as a confidential statement and supersedes all prior understandings and agreements whether written or oral. In recognition of your contributions to the Company and to aid you in your transition to new employment, you are being offered the following: You will continue to be employed as Chief Strategy Officer through March 31, 2002 at which time your employment will end unless your position terminates earlier under paragraph 3. Your duties will be to perform such special projects as are assigned to you by George MacKenzie. During the term of your employment you agree to perform the duties assigned to you faithfully, diligently and to the best of your ability, and to cooperate fully with the officers and directors of the Company. It, however, is understood that you will devote a significant portion of time during your work days to search for a new position, including taking time off for research purposes, consultations with outplacement professionals, and interviews. Notwithstanding the other terms of this paragraph 1, the Company reserves the right to place you on a paid leave of absence until March 31, 2002. Throughout your employment, the Company will provide you with an office and facilities commensurate with your position. Except as specified herein, you will continue to receive your base salary, at the annual rate of $211,752, and benefits provided other employees at your grade level through March 31, 2002, and payment of 2001 Management Incentive, Profit-Sharing and Long-Term Incentive awards that are payable in 2002. The Company will pay you the amounts that are due to you under the Company's Management Incentive Plan ("MIP") and the Company profit sharing plan ("Profit Sharing Plan") as soon as administratively practicable after each such payment becomes due for the year 2001. You will continue to vest in and be paid prior awards (such as your performance share awards) through March 31, 2002, except as further provided herein. Previously deferred Management Incentive Plan compensation plus accrued interest will be paid to you no later than April 30, 2002. The Company will have the right to terminate your employment for Cause, as further set forth herein. "Cause" means, for purposes of this Severance Offer, conduct materially injurious to the Company, following notice thereof and reasonable opportunity to cure. In the event of such a termination for Cause, the Company shall have no further obligation under this Memorandum, except the obligation to pay you an amount equal to the portion of your compensation as defined in paragraph 2 as may be accrued and unpaid on the date of termination. If you die or become totally disabled during your employment hereunder, you will be treated as any other executive employee of the Company under the same circumstances except to the extent set forth in this severance offer or Exhibit A hereto. So long as you do not voluntarily terminate your employment before March 31, 2002 and terminates effective as of that date, you will receive the following payments and benefits: Beginning April 1, 2002, the Company will pay you severance pay on a monthly basis at 100% of your current base salary, minus legally required withholdings and deductions, for a total of 31 weeks (the "Severance Period"), without regard to whether you obtain another position. These severance payments will be made on or about the last day of each month. The Severance Period will be extended until no later than April 1, 2003 for so long as you have not undertaken new full-time employment in a substantially similar position. In lieu of any further award under the MIP or Profit Sharing Plan on account of service after 2001, the Company will pay you an additional amount of $225,000. Such additional payment will be made on or about March 31, 2002 and will be eligible compensation under the Company's 401(k) savings plan. With respect to the Company's Key Employee Long-Term Incentive Plan (the "LTIP"): After your separation from employment on March 31, 2002, you will be eligible under this agreement to exercise the stock options previously granted to you under the LTIP as of that date and which are vested as of that date, at any time until the earlier of April 1, 2005 (three years from the termination date) and the stated expiration of the date of such stock options. You may elect to exercise stock options(s) within this period by notifying the Company, in writing, regarding your cashless exercise of such option(s). When you notify the Company of the exercise, the Company will pay to you, in a single sum as soon as administratively practicable, an amount of cash equal to the difference between the exercise price of the stock option(s) and the closing price of Company common stock on the date you notify the Company regarding your cashless exercise of the option(s) multiplied by the number of shares with respect to which options are then exercised. In the event of your death before April 1, 2005, a cashless exercise of such stock option(s) may be made by the legal representative of your estate for a period of one year from the date of death (or stated expiration date of the option, if shorter). The Company will pay you an additional amount of $115,000 in consideration of and in lieu of any further grant of stock options and any further vesting in stock options currently held by you after March 31, 2002. Such payment shall be made on or about March 31, 2002. The Company will pay you $259,000 in lieu of any further grant of restricted stock and in respect of all shares of restricted stock held by you, whether or not vested. Such payment shall be made on or about March 31, 2002, and your rights to and under such shares of restricted stock shall be cancelled as of that date. Throughout your employment and through the Severance Period, you may elect to continue your health and/or dental benefits under the Company's regular health and dental plans, and the Company will pay the portion of the premium for those benefits that it would have paid if you had stayed employed through the earlier of the end of the Severance Period and the date you become covered under comparable benefit plans provided to you in connection with any new employment you obtain. If you elect such coverage, any "employee" portion of your health and dental coverage will be deducted from your compensation and severance payments. Coverage under COBRA will formally be offered at the conclusion of the severance period. If you elect coverage under COBRA, you will be responsible for the full amount of the COBRA premiums. Except as specifically described herein, your participation in the Company's life insurance, pension and disability plans, as well as any other benefit plan, will terminate on April 1, 2002. . The company will pay you $_5000__ in a lump sum payment no later than April 30, 2002 to enable you to purchase basic and supplemental group life and long term disability coverage through a personal policy. You will continue to be covered under the Company's long-term disability (LTD) benefit program through your March 31, 2002 termination date, subject to the following sentence. If you become disabled prior to April 1, 2002, any severance pay you receive under paragraph 5(a) will be reduced, dollar for dollar, by any short or long-term disability benefit payable with respect to the same period of time. Your active participation in the Company's 401(k) Savings Plan (the "401(k) Plan") will end as of your March 31, 2002 termination date. You will not be permitted to defer amounts from your severance pay to the 401(k) Plan. You will have the same options as any other terminated employee to request and receive distribution of your 401(k) Plan account (which can be rolled over to an individual retirement account or another employer's qualified plan that accepts rollovers), or to keep your 401(k) Plan account invested for distribution at a later date. See your 401(k) Plan booklet for details. The Company will provide you with a professional outplacement package with Quinlivan & Company, which will be arranged and paid for by the Company. It is designed to assist you with your career transition. Included in this package is office space at the Quinlivan & Company office for research purposes. The Company will pay the cost of financial planning and legal services reasonably incurred in the negotiation and review of this Severance Offer and to update your estate plan. The Company will pay any costs incurred by you to enforce the performance of this Severance Offer. The Company will provide relocation assistance, in an amount not to exceed $15,000, to facilitate your move to another location outside the greater York area where your new employer picks up the principal expenses. This assistance will cover incidental expenses and items that may or may not be covered under the new employer's relocation policy. The Company will provide a relocation allowance similar in most respects to the Company's policy for current exempt employees, in the event the costs of your relocation are not provided for under the terms of your new employment. Eligibility for this relocation assistance is available until September 1, 2003. Specific relocation issues should be addressed to the attention of William Yanavitch. You are currently eligible for participation in the Final Average Compensation Pension under Article V of the Company's Supplemental Executive Retirement Plan (the "FAC Pension"), to supplement your vested pension under the Company's Retirement Plan for Salaried Employees. In lieu of any FAC Pension for which you may become eligible in the future, and in order to provide you with an enhanced early retirement benefit even though you are leaving the Company before attaining age 55, the Company will provide you with an enhanced early retirement benefit ("Enhanced Pension") that is designed to approximate the FAC Pension based on (i) your years of credited service through the date your Severance Period ends (not later than December 31, 2002 if the Severance Period is extended plus a service bonus to cause your total years of service under the plan to be 27.5), and (ii) your Final Average Compensation based on your compensation including your severance pay and service bonus payable in lieu of profit sharing and management incentive, increased by $15,000. The amount of this Enhanced Pension payable either to you, or in the event of your death, your spouse, is set forth in Exhibit A. This Enhanced Pension will begin to be paid as of the first day of the month beginning on or next following your 55th birthday or at such later time as you may elect. This benefit is outlined more fully on the attached Exhibit A. Your Enhanced Pension will not be forfeited in the event you accept employment within the paper industry. The Company will pay the cost of your executive physical in August 2002. The Company will provide you with a mutually agreed upon letter of reference if requested and such other personal references as appropriate. All such requests for references must be directed to William Yanavitch, Vice President of Human Resources. The Company will issue a mutually agreed upon statement announcing your leaving. You and the Company will not issue any statement which publicly or privately disparages the conduct or reputation of the other. The Company at its expense will provide you with a laptop computer, a facsimile machine, and a cellular phone for your use through the earlier of your severance period or commencement of new employment. The Company will provide, on a nontaxable basis, executive development at a nationally recognized program agreed upon by you. The cost of such program shall not exceed $15,000. In exchange for all amounts, benefits and other property paid to you or for your benefit under the Severance Offer: You hereby agree that the Change in Control Employment Agreement dated as of December 31, 2000 by and between the Company and yourself is terminated as of your last day of employment, provided, however, that the terms section 6(d)(iv) thereof (relating to the funding of the Company's Supplemental Executive Retirement Plan) of such agreement, and any other provision of the Change in Control Employment Agreement relating to the vesting and funding of any benefit following a change in control (as defined therein), shall remain effective with respect to you through the end of the Severance Period. The foregoing notwithstanding, any amount payable to you or for your benefit under this Severance Offer which remains unpaid on the date of any "change in control", as such term is defined in the change in Control Employment Agreement, shall be accelerated and paid in full, without any adjustment, on or before the date of the change in control. You will execute the General Release Agreement attached as Exhibit B. By doing so, you will be releasing the Company from any and all claims that you possibly could assert, including without limitation, any and all claims based on your employment or the termination of your employment (including without limitation, any and all claims under the federal Age Discrimination in Employment Act, Title VII of the Civil Rights Act, the Americans with Disabilities Act and state and local discrimination laws), except for claims based on the enforcement or validity of this agreement being offered to you, for unemployment compensation and for any accrued benefits under an employee benefit plan maintained by the Company under the Employee Retirement Income Security Act. You hereby resign as an Officer of the Company effective your last day of employment. You will notify the Company in writing by delivering a letter to Bill Yanavitch upon your obtaining a new position (whether as an employee, consultant or as self-employed). You also will report your starting date and the name and address of the entity (or person) with which you obtain a new position and report whether you are covered under a health or dental plan. You represent and warrant that you will comply with all of the terms of the agreement concerning inventions and confidential information and you will preserve the confidential nature of all trade secrets and other proprietary information of the Company. You also represent and warrant that by your last day of employment, you will deliver to the Company, all Company keys, equipment, books, journals, records, computers, customer lists, publications, files, computer disks, memoranda and documents of any kind or description and other materials acquired during the course of your employment and not make use of or disclose to anyone, without the prior written consent of the Company, any information or documents concerning or related to the Company, whether confidential or not, that you have acquired to date, except as provided for under paragraph 5(n) of this Severance Offer. You represent and warrant that you will comply with all terms in your Employee's Agreement dated May 3,1982, and the Company Corporate Disclosure and Securities Trading Policy all as delivered to you. In addition to any existing obligation under your Employee's Agreement, the Corporate Disclosure and Securities Trading Policy or under the common law, you represent and warrant for all time that all confidential information of the Company and/or any related entities (whether written, graphic, oral, committed to memory or otherwise) in your possession, including without limitation, information relating to the operations or marketing plans of the Company and/or any related entities, shall remain strictly confidential and secret so long as that information has not been published in a form generally available to the public. You will not discuss the Company's business, prospects, methods of operation or other similar topics, to the extent such topics are confidential or proprietary, with anyone other than the officers and board of directors of the Company. You also will not engage in any activities or make any statements that may disparage or reflect negatively on the Company, its officers, directors or shareholders. You will keep the terms and conditions of the Severance Offer confidential, except that you may reveal the terms and conditions of this Severance Offer to your spouse, attorney and financial advisor or such other party approved by the Company, so long as they first agree not to disclose them to anyone else. The Company will make reasonable efforts to keep the terms and conditions of this Severance Offer confidential and to limit disclosure on a need-to-know basis. The parties, however, understand that, by way of example and not limitation, the Company may need to disclose the terms and conditions of this Severance Offer to the Company's independent auditors, the Board of Directors and as required by applicable law. Both during and after your employment with the Company, you will cooperate with any reasonable request of the Company to participate in the preparation for, response to, prosecution of and/or defense of any pending, actual or threatened litigation involving the Company. If the Company requests such participation after your employment ends, it will reimburse you for all reasonable out-of-pocket expenses you incur as a result of such cooperation. If the Company determines that you have breached your obligations set forth in this Memorandum, the Company shall give you written notice thereof any 14 days' opportunity to cure. If you fail to cure such breach, the Company may bring an action to recoup any amounts paid or payable after March 31, 2002, which shall be repaid by you following a determination by a court having jurisdiction of the matter (and exhaustion of any appeals therefrom) that you in fact breached your obligations hereunder. (As required by regulations issued by the EEOC, the foregoing sentence does not apply with respect to a claim under the Federal Age Discrimination in Employment Act). In addition, if you breach your obligations set forth in subparagraphs 6(d), (e), (f), (g) or (h) above, the Company also shall be entitled to seek temporary and permanent injunctive relief to restrain any further breach of those obligations following notice and opportunity to cure. You agree that your agreement with respect to the Severance Offer shall be deemed to be made in the Commonwealth of Pennsylvania and it shall be interpreted, construed and governed by the laws of Pennsylvania, without giving effect to the principles of conflicts of law under Pennsylvania law. You also agree to submit to the jurisdiction of the state and federal courts located in Pennsylvania in the event there is any claim that you have breached this agreement. Please consider this offer for up to 21 days from today January 24, 2002 until February 13, 2002. You must notify the Company of your acceptance of this Severance Offer by returning a signed and notarized copy of the General Release Agreement attached as Exhibit B] by no later than 5:00 p.m. on February 13, 2002 to William Yanavitch. If you return it before February 13, 2002, you will be voluntarily waiving your right to consider it for the entire 21-day period. In addition, you will have 7 days after you return a signed copy of the General Release Agreement to revoke it by submitting a signed revocation notice to Bill Yanavitch if you choose to do so. Upon the expiration of that 7 day period, the General Release Agreement will become effective. If you do not return a signed and notarized copy of the General Release Agreement to William Yanavitch by 5:00 p.m. on February 13, 2002, or if you revoke the General Release Agreement within the 7 day revocation period, you will not receive the separation payments and enhanced benefits described in this Agreement. You should consult with your personal attorney whether to sign the required General Release Agreement. On behalf of the Company, I thank you for your past service and I wish you well in your future endeavors. Exhibit A ENHANCED DEFERRED PENSION BENEFIT FOR ROBERT S. WOOD Introduction Robert S. Wood ("Wood") is an employee of P.H. Glatfelter Company (the "Company") and is a participant in the Final Average Compensation Pension (the "FAC Pension") under Article V of the P.H. Glatfelter Company Supplemental Executive Retirement Plan (the "SERP"). Wood will terminate employment with the Company effective March 31, 2002. Because Wood, who was born on February 16, 1958, will not have attained age 55 at the time of his termination of employment, he will not qualify for an early retirement FAC Pension under the terms of the SERP. The Company will provide an enhanced deferred compensation pension for Wood (the "Enhanced Pension"), which is intended to approximate the benefit that would be payable (but for Wood's termination of employment prior to age 55) under the FAC Pension. Such Enhanced Pension, which will be payable following Wood's attainment of age 55 or at such later time as he may elect, is provided in partial consideration for Wood's acceptance of the terms and conditions of the Severance Offer, including his relinquishment of entitlement to the FAC Pension, and his execution of a certain General Release Agreement, all as described in the Memorandum from William Yanavitch to Wood dated January 24, 2002 (the "Severance Offer"). Enhanced Pension Paid in Lieu of FAC Pension The Enhanced Pension paid in accordance with this Exhibit A will be paid in lieu of the FAC Pension under the SERP, and Wood will be ineligible for said FAC Pension. Amount of Enhanced Pension The Enhanced Pension shall be $109,800 per year, payable in the form and at the time set forth in this Exhibit A. The parties have agreed to the specific amount provided in the preceding sentence as a matter of convenience, and it shall be conclusive. The Enhanced Pension shall not be modified even if (and to the extent) the FAC pension would have actually differed from the Enhanced Pension, unless the company in its sole discretion determines that a greater amount would have been payable under the FAC pension, in which case the Enhanced Pension will be modified accordingly. The Enhanced Pension is being paid independent of any retirement benefit Wood has accrued under the Company's tax-qualified salaried retirement plan; for this reason, the Enhanced Benefit will not be offset by any other retirement benefits. Commencement of Enhanced Pension The Enhanced Pension shall be paid by the Company on a monthly basis, beginning on March 1, 2013 or such other time that Wood may elect (the "Pension Commencement Date"). Form of Benefit The Enhanced Pension will be paid monthly for Wood's lifetime beginning on the Pension Commencement Date. If Wood is married on the Pension Commencement Date, and Wood's spouse survives him, payments will continue for her lifetime in a monthly amount equal to 75% of the monthly amount of the Enhanced Pension payable to Wood immediately prior to his death. If Wood is unmarried on the Pension Commencement Date, his benefit shall be paid in the form of an annuity for his life, subject to any further agreement between Wood and the Company. If the Pension Commencement Date is later than March 1, 2013, the Enhanced Pension will be increased by dividing the Enhanced Pension by .825 multiplied by (1-(2.5% multiplied by the number of whole years plus any portion thereof by which the Pension Commencement Date preceeds March 1, 2020). For example, if Wood elected to commence his Enhanced Pension on March 1, 2015, the amount of the benefit would be $116,455; $109,8000 / .825 (1-(2.5%*5 years). The Enhanced Pension will be paid at any other time or in any other manner only as the parties may agree or as provided under section 5.6, Form of Benefit, of the SERP with respect to SERP participants generally. Payment of the Enhanced Pension will be made subject to all required tax withholdings. Surviving Spouse's Benefit If Wood dies prior to the Pension Commencement Date, his surviving spouse shall receive a survivor's benefit ("Survivor's Benefit"). The Survivor's Benefit shall be a monthly pension for the life of the spouse and shall begin as of the first day of the month following Wood's death. The Survivor's Benefit shall be $93,200 per year until March 1, 2013 and $85,700 per year thereafter until the death of Wood's spouse. The survivor's benefit will be paid independent of any retirement benefit Wood's spouse would be eligible to receive under the Company's tax qualified retirement plan; for this reason the survivor's benefit will not be offset by any other retirement benefits payable to Wood's spouse. Payment of the Survivor's Benefit will be made subject to all required tax withholdings. No Restriction on Activities The SERP sets forth certain confidentiality and noncompetition obligations as a condition of payment of benefits under the SERP. The Enhanced Pension is not subject to any such conditions. The Company specifically acknowledges that Wood may accept employment within the paper (or any other) industry and will not forfeit the Enhanced Pension in whole or part on account of any future employment or professional activities. Rules and Assumptions of Enhanced Pension The Enhanced Pension shall be subject to the same rules and assumptions as apply to the SERP generally except as specifically set forth herein or in the Severance Offer. Administration and Funding The Enhanced Pension and the Survivor's Benefit shall be administered by the Company, which has the authority and discretion to execute the terms and conditions of these benefits. The Enhanced Pension and/or Survivor's Benefit shall be paid subject to the conditions set forth in the Severance Offer and General Release Agreement. The Enhanced Pension and/or Survivor's Benefit will be paid from the general assets of the Company. Except as otherwise set forth herein or in the Severance Offer, the Company shall be under no obligation to set aside or earmark particular assets for the payment of this benefit. However, in the event of a change in control, as defined for purposes of the SERP, the Company shall fund or otherwise provide for the Enhanced Pension and Survivor's benefit hereunder in the same manner as it provides for any benefits payable under the SERP. EXHIBIT B GENERAL RELEASE AGREEMENT I, Robert S. Wood, for myself, my heirs, executors, administrators and assigns, if any, for and in consideration of the benefits described in the foregoing Memorandum dated February 13, 2002 (the "Severance Offer"), and other good and valuable consideration, do hereby state that: 1. I agree to and accept the terms of the Severance Offer. 2. I waive, release and forever discharge the P. H. Glatfelter Company (as defined below) of and from any and all Claims (as defined below). I agree not to file a lawsuit to assert any such Claim. This release and promise not to sue covers all Claims arising from the beginning of time up to and including the date of this Agreement, but does not cover claims relating to the validity or enforcement of this Agreement or the terms of the Severance Offer, claims for unemployment compensation, or claims for any accrued benefit under the terms of any employee benefit plan within the meaning of the Employee Retirement Income Security Act maintained by the P. H. Glatfelter Company, except that it will apply to any severance benefits that otherwise might be payable outside of this Severance Offer. The following provisions further explain this general release and promise not to sue: Definition of "Claims." "Claims" include without limitation all actions or demands of any kind that I now have, or may have or claim to have in the future. More specifically, Claims include rights, causes of action, damages, penalties, losses, attorneys' fees, costs, expenses, obligations, agreements, judgments and all other liabilities of any kind or description whatsoever, either in law or in equity, whether known or unknown, suspected or unsuspected. The nature of Claims covered by this release and promise not to sue includes without limitation all actions or demands in any way based on my employment with the P. H. Glatfelter Company, the terms and conditions of such employment or my separation from employment (except as stated above in paragraph 2). More specifically, all of the following are among the types of Claims that will be barred by this release and promise not to sue (except as stated above in paragraph 2): - Contract Claims (whether express or implied); - Tort Claims, such as for defamation or emotional distress; - Claims under federal, state and municipal laws, regulations, ordinances or court decisions of any kind; - Claims of discrimination, harassment or retaliation, whether based on race, color, religion, gender, sex, age, sexual orientation, handicap and/or disability, national origin or any other legally protected class; - Claims under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, the Family and Medical Leave Act and similar state and local laws; - Claims under the Employee Retirement Income Security Act, the Fair Labor Standards Act, state wage payment laws and state wage and hour laws; - Claims for wrongful discharge; and - Claims for attorneys' fees, litigation expenses and/or costs. Definition of "P. H. Glatfelter Company." The "P. H. Glatfelter Company" includes without limitation the P. H. Glatfelter Company and its respective past, present and future parents, affiliates, subsidiaries, divisions, predecessors, successors, assigns, employee benefit plans and trusts, if any. It also includes all past, present and future managers, members, directors, officers, partners, agents, employees, attorneys, representatives, consultants, associates, fiduciaries, plan sponsors, administrators and trustees of each of the entities listed in the preceding sentence. I acknowledge that I have carefully read and I understand the provisions of this General Release Agreement and the Severance Offer, that I have had twenty-one (21) days from the date I received a copy of the General Release Agreement and the Severance Offer to consider entering into this General Release Agreement and accepting the Severance Offer, that if I sign and return this General Release Agreement before the end of the twenty-one (21) day period that I will have voluntarily waived my right to consider the Agreement for the full twenty-one (21) days and that I have executed this General Release Agreement voluntarily and with full knowledge of its significance, meaning and binding effect. I also acknowledge that P. H. Glatfelter Company has advised me in writing to consult with an attorney of my own choosing with regard to entering into this General Release Agreement and accepting the Severance Offer. Finally, I acknowledge that my decision to enter into this General Release Agreement has not been influenced in any way by fraud, duress, coercion, mistake or misleading information and that I have not relied on any information except what is set forth in this General Release Agreement and the Severance Offer. I acknowledge that I may revoke this General Release Agreement within seven (7) days of my execution of this document by submitting a written notice of my revocation to William Yanavitch, Vice President of Human Resources, P. H. Glatfelter Company. I also understand that this General Release Agreement shall not become effective or enforceable until the expiration of that seven (7) day period. IN WITNESS WHEREOF, and with the intention of being legally bound hereby, I have executed this General Release Agreement on the 13th day of February, 2002. /s/ Robert S. Wood ------------------ Robert S. Wood EX-10.S 9 w58137ex10-s.txt SUPPLY AND SERVICE AGREEMENT EXHIBIT 10(S) SUPPLY AND SERVICE AGREEMENT This Agreement is made as of August 1, 2001, between Purico GmbH, a German corporation (the "Buyer"), Purico (IOM) Limited, a company organized under the laws of the Isle of Man ("Guarantor"), and Papierfabrik Schoeller & Hoesch GmbH & Co. KG, a German limited partnership (the "Seller"). WHEREAS, Seller is engaged, among other things, in the manufacture and sale of cigarette paper and other paper products and Seller's parent has determined to sell its cigarette paper businesses; WHEREAS, Buyer, in order to ensure a steady and reliable source of supply of the Products desires to purchase from Seller, and Seller is able and willing to manufacture and supply exclusively to Buyer for a period of three (3) years (subject to extension), the Products on the terms and conditions described in this Agreement; WHEREAS, in conjunction with such supply arrangements, Seller agrees to provide certain services to Buyer to facilitate the transition of Seller's cigarette paper business to Buyer; and WHEREAS, Buyer and Seller have agreed on a three (3) year period for supply of the Products (subject to extension) in order to provide Buyer a sufficient period of time to create alternative capacity to produce the Products and to provide Seller a sufficient period to transition out of producing the Products; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows: 1. DEFINITIONS. "Acquisition Agreement" shall mean the Agreement for purchase of certain assets and assumption of certain liabilities of the Ecusta business of P.H. Glatfelter Company by and among Seller's parent, P.H. Glatfelter Company, Guarantor and certain affiliates thereof. "Customer" shall mean a cigarette manufacturer which is a customer for the Products of Seller as of the date hereof and any customer of Buyer after the date hereof for Products supplied by Seller. "Effective Date" shall mean the date first written above. "First Contract Year" shall mean the twelve (12) month period beginning on the Effective Date. "Monthly Target" shall be as defined in Section 7.2. "Party" or "Parties" shall mean Buyer, Guarantor and/or Seller. "Products" shall mean the grades of the tobacco paper products set forth on Exhibit A, to be manufactured by Seller exclusively for Buyer in accordance with the terms of this Agreement. The term "Products" shall also include any and all improvements and modifications to the Products which Buyer and Seller may make by mutual agreement during the term of this Agreement. "Sales Agents" shall mean those currently under contract with Seller as of the date hereof to provide sales and distribution services for the Products. "Second Contract Year" shall mean the twelve (12) month period beginning on the first anniversary of the Effective Date. "Third Contract Year" shall mean the twelve (12) month period beginning on the second anniversary of the Effective Date. 2. AGREEMENT TO SUPPLY. Seller shall sell exclusively to Buyer, and Buyer shall purchase, the Products in the quantities set forth in Section 7 of this Agreement. The Products shall be produced in accordance with each Customer's specifications as further provided in accordance with Section 3 of this Agreement, incorporating only such changes to the Product specifications used by Seller as of the date hereof in producing Products for Customers as of the date hereof and such improvements and modifications to the Products as Buyer and Seller may mutually determine and agree upon from time to time. Inspection and packaging of the Products shall at all times be conducted by Seller in its own manufacturing facilities. Buyer shall not place Seller's brand on any of its products other than those Products sold under this Agreement. Seller shall place its brand (and trademarks) on the Products and consistent with past practice Buyer shall be entitled to sell the Products using such brand and trademarks. In no event shall Buyer acquire any rights under this Agreement to any trademark, service mark or other intellectual property right of Seller. Seller agrees to provide Buyer with the specifications and technical manufacturing information specific to the Products which are necessary to manufacture the Products. 3. ORDER PROCESSING. For each order for Products to be sold under this Agreement, Buyer shall deliver to Seller a purchase order consistent with past practice at least thirty (30) days prior to the anticipated shipping date. Each purchase order shall provide the volume ordered and all specifications for each Product by grade in sufficient detail for the production of the Products, which specifications shall include packaging and converting information, the quality of the materials to be used and the performance standards of each of the Products. Where no specification for packaging is provided, Seller shall package the Product consistent with past practice. Each purchase order shall also set forth the customers' names or customer's name, the date of delivery to Buyer, the date of delivery to Buyer's customer, shipping information, invoice information and all other information which is necessary to produce invoices (in the form currently provided, by Seller unless otherwise notified to Seller by Buyer), ship the Products and produce documents necessary to procure a Letter of Credit (if applicable). The Products covered 2 by a purchase order shall have been previously qualified and approved by the customer. Seller shall supply the Products in accordance with the specifications, and shall not materially deviate from these specifications without the prior express written consent of Buyer. Subject to the Monthly Targets set forth in Section 7, Seller guarantees fulfillment of each order for Products which is delivered to Seller at least 30 days prior to shipping and which sets forth the information required under this Section, provided that each month 5% of the Monthly Target may be ordered up to but not less than five days prior to shipping. 4. PURCHASE PRICE. 4.1 UNIT PRICE. The unit price for each of the Products is set forth on the Exhibit A, which prices shall be subject to adjustment in accordance with the provisions of Sections 4.2 and 4.3 of this Agreement. The unit price for each of the Products for the Third Contract Year shall increase by the amounts set forth in Exhibit A in addition to the other price adjustments described herein. 4.2 PULP PRICE ADJUSTMENTS. The unit price of each of the Products as provided on Exhibit A shall be adjusted on January 1, 2002 and every six months thereafter during the term of this Agreement to reflect changes in the prices of pulp over the immediately preceding six-month period (each, a "Pulp Price Adjustment"). The Pulp Price Adjustment for each of the Products shall be determined in the following way: (i) PULP PRICE CHANGES. The change in price for each fiber type (the "Pulp Price Changes") shall be determined by dividing the DM or Euro equivalent of the six-month average prices for such fiber type by the base price for such fiber types as defined on Exhibit E. The initial six-month average prices shall be based on the prices for the six months beginning July 1, 2001 as announced on the first day of each such month (i.e., July 1, August 1, September 1, etc.) The six-month average price shall then become the base price for the subsequent six-month period. The six-month average prices shall be determined by averaging the month beginning prices for such fiber types for each of the six months following the Effective Date, and for every six months thereafter. Such monthly prices shall be provided for each six-month period based on Seller's cost for such fiber types as of that date, and as adjusted to DM equivalent as appropriate. (ii) PRODUCT PRICE CHANGES. The Pulp Price Adjustment shall be determined by multiplying (a) the percentage for each fiber type set forth on Exhibit E for each Product by (b) the applicable Pulp Price Change minus one. The new Product Prices shall then be determined by multiplying (x) the Pulp Price Adjustment for each Product plus one by (y) the base Product prices. The resulting prices shall become the applicable prices for the following six-month period. Additionally, the resulting fiber type percentages shall be adjusted to reflect the Pulp Price Changes for the previous six months. (iii) PRICING EXAMPLE. Exhibit F provides an illustration of this Pulp Price Adjustment mechanism. 3 (iv) NOTICE. Seller shall provide Buyer with a schedule for the calculation of the Pulp Price Adjustment for each Product fifteen days prior to the beginning of each new six-month period. (v) BAT. In the event British American Tobacco p.l.c. ("BAT") ceases to purchase all of the Products from Buyer during the First Contract Year, the base prices set forth on Exhibit E will be modified by the mutual consent of the Parties to reflect the loss of this volume and its impact on base pulp price levels. 4.3 AGREEMENT EXTENSION PRICE ADJUSTMENT. In the event this Agreement does not terminate on the third anniversary of the Effective Date, the Parties shall negotiate in good faith annual adjustments to the prices set forth on Exhibit A to reflect changes in material and manufacturing costs of Seller in producing the Products. Such price adjustments shall take effect on the third anniversary of the Effective Date and each anniversary thereafter and shall be in addition to any Pulp Price Adjustments. 4.4 PAYMENT TERMS. Buyer shall remit to Seller the invoice amount of the Products sold to Buyer on payment terms of net forty-five (45) days. Any amount due and payable under this Agreement which remains unpaid when due shall bear interest until paid at the annual rate of LIBOR for Euros plus 2%. Unless otherwise agreed, the payment shall be made in the same currency as indicated on the invoice. 4.5 VAT. All prices quoted in this Agreement and any Exhibit thereto are net prices without value-added tax and shall be paid together with value-added tax (where applicable) at its statutory rate prevailing from time to time. 5. EXCLUSIVITY. The Products shall be manufactured and sold by Seller solely and exclusively to Buyer. In addition, Seller shall not manufacture or sell tipping paper and standard plug wrap except to Buyer. For the purposes of this Agreement, "tipping paper" means: papers manufactured for wrapping cigarette filters; and "standard plug wrap" means: low porosity papers (below 2000 coresta units) used for combining a cigarette column with a cigarette filter. The exclusivity obligations set forth in this Section 5 shall survive for a period ending five (5) years from the Effective Date; provided that in the event of termination of this Agreement by Seller pursuant to Section 13, Seller shall be permitted to sell the Product for a period of six months or, if longer, the remainder of the initial term of this Agreement, in order to sell its inventory and transition its business to other products. Notwithstanding the foregoing, this Section 5 shall not restrict Seller from rendering consulting or other services to manufacturers of porous plug wrap manufacturing equipment. For purposes of this Agreement, "porous plug wrap" means: papers with a porosity above 2000 coresta units used for combining a cigarette column with a cigarette filter. 6. DELIVERY AND ACCEPTANCE. 6.1 DELIVERY. Unless otherwise specified in the purchase order, all Products purchased under this Agreement shall be delivered F.O.B. Seller's Gernsbach plant per the date of delivery specified by the Buyer on the purchase order, subject to the provisions of Section 3. 4 Title to the Products shall pass from Seller to Buyer when the Products are delivered to Seller's warehouse to be held on behalf of Buyer or, if the Products are not delivered to Seller's warehouse, when the Products leave Seller's premises. Risk of loss to the Products shall pass from Seller to Buyer when the Products leave Seller's premises. Upon delivery of each order for Product, Seller shall provide all documentation reasonably necessary for transportation, quality control documentation (as required by the Customer), customs and any letter of credit for such order.Seller shall arrange for all necessary transportation of Products to Buyer's customers or to Buyer, at Buyer's sole expense. Buyer agrees that it will accept all of the Products meeting the specifications established pursuant to Section 3 of this Agreement, subject to the other terms and conditions that are specified in this Agreement. Seller agrees to provide technical consulting services to help Buyer convert one of its paper machines to manufacture Porous Plug Wrap, provided that the Parties agrees in advance on the fees for such services. 6.2 RETURNS. All complaints about or returns of the Products shall be made using the following procedures: (i) Complaints of defects shall be made to Seller in writing. Samples are considered as proof only when they have been taken in accordance with these procedures and in the presence of an agent instructed by Seller. Seller shall make such agents available within a reasonable period of time after the request of Buyer. (ii) Upon receipt of any complaint from the Customer regarding the Products, Buyer shall immediately give written notice of any form of defects which are obviously different from those stipulated, including but not limited to delivery of different Products or quantities. Notice of hidden defects of any kind and the delivery of the Products or quantities which are not obviously different from those stipulated shall be given promptly upon their discovery but no later than sixty (60) days from delivery to Customer, unless such defect could not have reasonably been discovered within such sixty (60) day period. The Products shall be deemed to be approved if no complaint is made within sixty (60) days from delivery. The Products shall be deemed to be approved if the Customer mixes the Products with other suppliers' goods or with other substances or arranges for them to be modified except under normal manufacturing and/or testing processes. (iii) In the event of a defect for which Seller is responsible in accordance with the foregoing paragraphs, Buyer may request a refund for the purchase price of the Products. In the event Seller rejects in writing Buyer's notification of defect, Buyer's warranty claims shall expire two months after Seller has rejected in writing the notification of defect unless Buyer objects within two months of Seller's objection. Buyer may make no claims for damages against Seller except as set forth under this Section or Section 15. (iv) Buyer or Seller may not offset against any form of counter-claim unless the counter-claim to be offset has been recognized by Seller or Buyer, as applicable, or legally established; provided that this restriction shall not apply to outstanding claims in excess of 10% of the Monthly Target for such Product. 5 7. QUANTITIES. 7.1 GENERAL. Seller shall sell Products in such quantities as ordered by Buyer up to the Monthly Targets provided below for each Product. Buyer shall purchase Products in quantities no less than the monthly minimum volumes provided below for each Product. Calculation of fulfillment of all Monthly Targets and monthly minimums shall be based upon Product purchased by Buyer; for this purpose a purchase of Product shall be deemed to occur when the Product is shipped by Seller to Buyer. 7.2 PURCHASE REQUIREMENTS. The Monthly Targets and monthly minimum amounts for the First Contract Year shall be as follows:
- ------------------------------------------------------ First 6 Months Second 6 Months -------------- --------------- - ------------------------------------------------------ Cigarette papers (aggregate sales of 100% woodpulp and mixed pulp) - ------------------------------------------------------ Monthly Target 958 tons 833 tons - ------------------------------------------------------ Monthly Minimum 750 tons 750 tons - ------------------------------------------------------ High porous plug wrap - ------------------------------------------------------ Monthly Target 225 tons 183 tons - ------------------------------------------------------ Monthly Minimum 135 tons 165 tons - ------------------------------------------------------
In the event BAT ceases to purchase the Products from Buyer during the First Contract Year, at the option of Buyer the Monthly Target and monthly minimum amounts above may be reduced by one hundred ninety two (192) tons for cigarette papers and fifty-three (53) tons for high porous plug wrap. The Monthly Targets and monthly minimum amounts shall also be reduced in the event that a Customer ceases to purchase one or more Products due to Seller's material failure to deliver such Products meeting the specifications set forth in the applicable purchase orders and/or a material failure to deliver the Products on the applicable delivery dates. The amount of such reductions in Monthly Targets and monthly minimum amounts shall be equal to the average monthly purchases of the applicable Products by such Customer for the three (3) full months immediately preceding such termination by the Customer. The Monthly Target and monthly minimum amounts for the Second Contract Year and the Third Contract Year shall be negotiated by Seller and Buyer in good faith and established at least one hundred twenty (120) days prior to the first anniversary of the Effective Date and the second anniversary of the Effective Date, respectively. The Second Contract Year Monthly Target amounts for cigarette papers in the aggregate shall be no more than eight hundred thirty three (833) tons and no less than six hundred sixty six (666) tons and the Monthly Target amount for high porous plug wrap shall be no more than one hundred fifty (150) tons, 6 provided that Buyer may permanently reduce the Monthly Target for high porous plug wrap below 150 tons by giving Seller four (4) months prior written notice. The Third Contract Year Monthly Target amounts for cigarette papers in the aggregate shall be no more than two hundred sixty-seven (267) tons and the Monthly Target amount for high porous plug wrap shall be no more than one hundred fifty (150) tons, provided that Buyer may permanently reduce the Monthly Target for cigarette papers below two hundred sixty seven (267) tons and may permanently reduce the Monthly Target for high porous plug wrap below one hundred fifty (150) tons in either case by giving Seller six (6) months prior written notice; and provided further that if Buyer reduces the Monthly Target for high porous plug wrap below 150 tons pursuant to the previous sentence, the Monthly Target shall not exceed such lesser amount for the Third Contract Year. The monthly minimum amounts for each Product for the Second Contract Year and the Third Contract Year shall be 90% of the Monthly Targets. The Monthly Targets and monthly minimum amounts for each Product for any period after the Third Contract Year shall be negotiated in good faith by the Parties. 7.3 MONTHLY PURCHASE REQUIREMENTS. Each month Buyer shall purchase at least the monthly minimum amounts and no more than 110% of the Monthly Target for each Product. Each month Seller shall sell to Buyer the Products ordered by Buyer provided that Seller shall have no obligation to sell more than 110% of the Monthly Target for a Product during any month unless otherwise agreed. 7.4 VOLUME FORECASTS. Buyer shall provide Seller with a good faith written estimate of Buyer's requirements for the next three months for each Product by grade at least fifteen (15) days prior to the start of each month (the "Rolling Forecast"). Such Rolling Forecasts are solely for production planning purposes and are not intended, nor should such reports be interpreted, as actual purchase orders. 7.5 FAILURE TO MEET VOLUME REQUIREMENTS. In the event that Buyer fails to purchase the monthly minimum for any Product for any such month, in order to reimburse Seller for a portion of the damages sustained by Seller due to such shortfall, Buyer shall pay to Seller within thirty (30) days of the end of such month a Shortfall Payment. Each Shortfall Payment shall be an amount calculated for such Product as follows: (i) for each kilogram which is not purchased by Buyer below the monthly minimum but at or above 50% of the Monthly Target, Buyer shall pay 0.2 DM ([EURO]0.102) to Seller; and (ii) for each kilogram which is not purchased by Buyer below 50% of the Monthly Target, Buyer shall pay 0.4 DM ([EURO]0.205) to Seller. For the avoidance of doubt, for the amount which is not purchased by Buyer between the monthly minimum and 100% of the Monthly Target, Buyer shall pay nothing. An example of a calculation of a Shortfall Payment is set forth on Exhibit B. 7 8. SERVICES. 8.1 GENERAL. Seller shall provide to Buyer the services set forth below at the costs to Buyer set forth on Exhibit C. Buyer shall pay for such services monthly within thirty (30) days of the end of each month. Either Party may terminate any such services on one hundred eighty (180) days advance written notice to the other Party. 8.2 INVOICING. Seller shall produce and mail invoices for all Products delivered by Buyer to its customers based upon the terms and conditions of such sale, and shall provide copies of such invoices to Buyer. Such invoices shall be in a form substantially similar to the invoices delivered by Seller to Buyer with each shipment of Product to Buyer, provided that such invoices shall use Buyer's logo, heading and payment terms. 8.3 SHIPPING. Seller shall make all arrangements on behalf (including customary unloading and/or loading) of Buyer for transportation of the Products to Buyer's customers per the due date specified on the purchase order or any new due date that has been agreed, provided that all third party expenses related to transportation of the Products shall be paid by Buyer. 8.4 TECHNICAL. Seller shall provide laboratory and technical support for Product applications upon the reasonable request of Buyer. 8.5 INFORMATION TECHNOLOGY. Seller shall provide information technology services necessary to create and print order confirmations using Buyer's logo to be sent to Customers with the same design and format as Seller's current order confirmation. Seller will continue to provide electronic data information (EDI) communication with Customers with capabilities consistent with the EDI capabilities of Seller as of the date hereof. Seller will also produce printed information for sales by Customer and Product group as currently defined, finished goods inventory and accounts receivable by Customer. These services will be provided starting within ninety (90) days of the Effective Date and will continue for the term of this Agreement, subject to Section 8.1. 8.6 WAREHOUSE. Seller shall provide warehouse space and warehouse management for storage of 650 tons of Products by Buyer free of cost to Buyer. The warehouse space shall be an undesignated portion of the warehouse space owned or leased by Seller, provided that such space will store 650 tons of Product. Buyer shall have access to such warehouse for purposes of inspecting its Products at reasonable business hours and pursuant to such reasonable guidelines as Seller shall establish in good faith, taking into account the reasonable business needs of Buyer. Notwithstanding anything else herein, Seller shall continue to provide such warehouse space for storage of 650 tons of Products for a period of up to ninety (90) days after termination of this Agreement, provided that Buyer shall pay a reasonable fee to Seller for administrative services related to such warehouse storage of Product for such period. 8.7 LIMITATION OF LIABILITY. The limit of Seller's liability (whether in contract, tort, negligence, strict liability in tort or by statute or otherwise) to Buyer or to any third party concerning performance or non-performance by Seller of the services provided under Section 8 of this Agreement (other than Section 8.6), for any and all claims other than claims for 8 Seller's willful misconduct, shall not in the aggregate exceed the fees paid by Buyer to Seller hereunder for such services. Buyer's exclusive remedy for any claim arising out of a breach regarding the services provided under Section 8 of this Agreement (except Section 8.6), other than a claim covered by Section 15.2 hereof, shall be for Seller, upon receipt of written notice, to use commercially reasonable efforts to cure the breach at its expense, and failing that, the return of total fees paid to Seller for the services provided under Section 8 of this Agreement up to the amount of damages suffered by Buyer. 9. PERSONNEL AND SALES AGENTS. 9.1 PERSONNEL. Buyer intends to hire the following cigarette product related personnel of Seller ("Buyer Intended Hires"): Thomas Interthal Thomas Rheinschmidt (Sales Manager) Rene Kaeschner (Customer Service Representative) Thomas Fritzsching Seller shall use commercially reasonable efforts to assign to Buyer each employment agreement currently in force between a Buyer Intended Hire and Seller, subject to any restrictions on such assignment under such agreement and applicable law. In the event one or more employment agreements may not be assigned but the Buyer Intended Hires are willing to enter into new employment agreements with Buyer, Seller shall cooperate with Buyer to facilitate the negotiation of new employment agreements between Buyer and such Buyer Intended Hires. In the event one or more Buyer Intended Hires in the marketing function decline to be hired by Buyer after good faith negotiations by Buyer, Seller and Buyer shall negotiate in good faith to amend this Agreement to expand the services rendered by Seller to include sales and customer service support. The services to be rendered by Seller to Buyer shall be equivalent to the work performed by such Buyer Intended Hires who remain as employees of Seller ("Retained Employees") and shall be provided by Seller until the earlier of termination of this Agreement or termination of any such Retained Employee's employment with Seller. Buyer shall pay to Seller a fee for such additional services equal to the fully burdened cost to Seller of continuing to employ such the Retained Employees for so long as such services are provided to Buyer. Buyer shall defend, indemnify and hold harmless Seller and its directors, officers and employees from and against any and all claims, judgments, damages, penalties, fines, costs, costs of defense and attorneys' fees arising out of actions of Retained Employees after the Effective Date. 9.2 SALES AGENTS. For those Sales Agents who only sell the Products for the Seller , Seller shall use commercially reasonable efforts to assign to Buyer each contract it has with such Sales Agent, subject to any restrictions on such assignment under applicable law or the applicable agreement. As to any Sales Agent whose contract is not assigned to Buyer, Seller shall cooperate with Buyer in Buyer's negotiation of a contract with such Sales Agent for sale or distribution of Products. Buyer shall cooperate with Seller in Seller's negotiation of contracts with Sales Agents for sale of products other than Products. Each Party shall inform the other of the terms of any such new contracts with Sales Agents. 9 9.3 REIMBURSEMENT. Seller shall reimburse Buyer for all amounts paid by Buyer to any court or governmental authority or attorney's fees as a result of actions taken by Thomas Interthal prior to the Effective Date in the scope of his employment with Seller prior to the Effective Date, and for all amounts paid by Buyer to Thomas Interthal to reimburse him for such payments, to the extent such payments are made pursuant to the Employment Agreement dated December 22, 2000 between Seller and Thomas Interthal, provided that any settlement of such action shall be subject to the consent of Seller not to be unreasonably withheld. 10. TERM AND TERMINATION. This Agreement shall take effect upon the Effective Date and shall continue in full force and effect until three (3) years from such date unless terminated pursuant to Section 13. If, however, neither party gives written notice of termination six months prior to the expiration date or any extension of it, the term of this Agreement shall automatically be extended for successive periods of six (6) months from the date of expiration then in effect; provided, however, that in the event the Parties are unable to agree in writing on the price and maximum and minimum volumes for each Product for any one year extension by the date which is 120 days prior to the beginning of such extension, this Agreement shall terminate upon expiration of the current Contract Year, provided that in no event shall this Agreement continue for more than five years. The rights and obligations set forth in Sections 5, 12 and 21 of this Agreement shall survive the termination for the periods indicated therein. 11. PURCHASE OF EQUIPMENT, INVENTORY AND ACCOUNTS RECEIVABLE. 11.1 EQUIPMENT. On August 9, 2001 (the "Transfer Date"), title to the converting and lab equipment listed on Exhibit D, including all spare parts (the "Equipment") shall transfer to Buyer at no additional cost under this Agreement. Seller represents and warrants that it has good and marketable title to the Equipment, free and clear of all liens, claims, charges, security interests and encumbrances. The equipment shall be transferred by Seller to Buyer in its condition on the Transfer Date, as is, with all faults, if any, with the express understanding of Buyer that except as provided in the foregoing sentence Seller makes no representations or warranties of any kind, directly or indirectly, express or implied, as to the Equipment, including its quality, condition or fitness for any particular purpose, on the Transfer Date or at the end of the lease period described in Section 11.3. 11.2 INVENTORY. Upon expiration of this Agreement, Seller shall sell and Buyer shall purchase all of Seller's finished goods inventory of the Products at a price to be negotiated by the Parties. 11.3 LEASE-BACK OF EQUIPMENT. Buyer hereby leases to Seller the Equipment as of the Transfer Date until the termination of this Agreement, at no cost to Seller other than as set forth in this Section 11.3. Title to the Equipment shall remain with Buyer at all times after the Transfer Date and Seller shall have no right, title or interest to the Equipment except as set forth herein. The Equipment shall at all times be personal property notwithstanding that any such Equipment may now or hereafter be affixed to realty. The Equipment shall not be removed from Seller's principal place except in the following manner: (1) #6 Slitter shall be relocated on the later of (i) one hundred eighty (180) days after the Effective Date and (ii) the date on which 10 the Monthly Target for cigarette papers is reduced below 950 tons; (2) #3 and #7 Slitters shall be relocated at the termination of this Agreement or any extended period provided for in Section 10; and (3) any other Slitters may be relocated prior to the termination of this Agreement only by mutual agreement of the Parties based on the Targets under this Agreement in order for Buyer to maintain its supply of the finished paper products for its Customers. Seller shall use the Equipment in the manner for which it was intended, solely for Seller's business purposes, and in compliance with all applicable laws and regulations. Seller shall keep the Equipment in good working order, ordinary wear and tear excepted, and shall furnish all parts, maintenance and servicing for the Equipment at its own expense as required for normal operation of the Equipment and consistent with past practice. Seller shall be responsible for all other costs related to the operation of such equipment during the lease period, including the cost of providing and maintaining insurance for such equipment. 11.4 INSURANCE FOR EQUIPMENT. For so long as any item of equipment remains on Seller's Property, Seller shall keep the Equipment insured against theft and all risks of loss or damage from every cause whatsoever for not less than the replacement cost of the Equipment. Seller shall pay the premiums for such insurance and be responsible for all deductible portions thereof. In the event of loss or damage of all or a portion of the Equipment, Seller shall replace the Equipment with comparable equipment with the same or more capacity and in similar operating condition as the Equipment for the duration of the lease. 11.5 TRANSPORTATION. Buyer shall pay all costs related to the disassembly and removal of the Equipment and shall pay all transportation costs for shipment of the Equipment and inventory to Buyer or its designee pursuant to this Section 11. 11.6 ACCOUNTS RECEIVABLE. On the Transfer Date, Seller shall sell, transfer and assign and Buyer shall purchase all of the accounts receivable related to the Seller's cigarette paper business on the books of Seller as of the close of business on the day before the Transfer Date (the "Accounts Receivable"). The purchase price for the Accounts Receivable shall be part of the aggregate purchase price paid by Purico and its affiliates to P.H. Glatfelter Company under the Acquisition Agreement. In the event that after one hundred twenty days (120 days) the amount of Accounts Receivables which Buyer and its affiliates collect is less than DM 8,875,600, Seller shall promptly reimburse Buyer for the difference; in the event that Buyer collects Accounts Receivable which are greater than DM 8,875,600, Buyer shall promptly reimburse Seller for the difference. Any Account Receivable received by Buyer more than one hundred twenty (120) days after the Transfer Date shall be promptly remitted by Buyer to Seller. 11.7 AUDIT. Buyer shall keep and maintain complete and accurate records and books of account documenting all Accounts Receivable collected by Buyer or its affiliates. Buyer and any relevant affiliates shall permit independent accountants retained by Seller, upon reasonable prior written notice, to have access to Buyer's and its affiliates' records and books and premises for the sole purpose of determining the amount of Accounts Receivable collected pursuant to Section 11.6. Such examination shall be conducted during regular business hours and at the Seller's own expense. If such examination reveals that such costs or payments have been misstated, any adjustment shall be promptly refunded or paid, as appropriate. The Seller shall pay the fees and expenses of the accountant engaged to perform the audit, unless such audit reveals a discrepancy of five percent (5%) or more for the period examined which is to the 11 disadvantage of the Seller, in which case the Buyer shall pay all reasonable costs and expenses incurred by the Seller in the course of making such determination, including the fees and expenses of the accountant. 12. CONFIDENTIAL INFORMATION. Buyer and Seller acknowledge that during the course of performance of this Agreement, each may learn confidential and proprietary information regarding the other's business, costs, products, practices, procedures, operations or plans (collectively "Confidential Information"). Confidential Information shall not be deemed to include information which (i) is already rightfully and lawfully known to the Party prior to disclosure, (ii) is already public information or otherwise generally available, (iii) is subsequently disclosed to the receiving Party by a third person not under any obligations of confidentiality as to such information, or (iv) is subsequently developed independently by the receiving Party. All other information exchanged is deemed to be Confidential Information. Except as required by legal process, law, statute or regulation, no Party will disclose Confidential Information to any third person or entity, or use Confidential Information for any purpose other than performance of its obligations under this Agreement without prior written consent having been obtained from the Party to whom the Confidential Information belongs. Each Party shall be liable to the other for any breach of this Section 12 by such Party's directors, officers, employees, agents and representatives. 13. BREACHES AND REMEDIES. 13.1 VOLUNTARY TERMINATION. Either Party may terminate this Agreement by giving written notice of termination to the other Party, at any time, upon or after the filing by the other Party of a petition in bankruptcy or insolvency, or upon the commencement of any other voluntary proceeding or action whether by or against the Party under the relevant law on insolvency or bankruptcy, or upon the expiration of sixty (60) days following the commencement of any involuntary proceeding if after such sixty (60) days such proceeding has not been dismissed or withdrawn, or after the making by the other Party of any assignment or attempt of assignment for the benefit of creditors, or upon or after the institution of any proceedings for the liquidation or winding up of the other Party's business, or for the termination of its corporate charter. In the event of the giving of such notice, this Agreement shall terminate immediately upon the receipt of that notice by the notified Party. Upon the occurrence of any of the events enumerated in this Section, any pending purchase orders may be cancelled at the option of the terminating party. 13.2 TERMINATION FOR BREACH. If a Party (the "Defaulting Party") fails to comply with any material term or condition of this Agreement, other than a failure by Buyer to order the minimum amounts of each Product set forth in Section 7, the other Party (the "Non-Defaulting Party") may provide written notice to the Defaulting Party stating the nature of such failure (the "Default Notice"). If the Default Notice relates to (i) a failure by the Defaulting Party to pay any amount due and payable to the Non-Defaulting Party and the Defaulting Party fails to pay such sum within fifteen (15) days after receipt of the Default Notice or (ii) a failure by Seller to deliver Product on the delivery date meeting the specifications set forth in the applicable purchase order and the Seller fails to deliver Product meeting the specifications set forth in the applicable purchase order within seven (7) days after receipt of the Default Notice or 12 (iii) a failure by Defaulting Party to comply with any other material term or condition of this Agreement and such failure is not cured within thirty (30) days after the Defaulting Party's receipt of the Default Notice, or in the event of a cure which requires in excess of thirty (30) days to complete, if the Defaulting Party has not substantively commenced such cure within such thirty (30) day period and thereafter does not promptly and diligently prosecute the cure to completion, the Non-Defaulting Party in any such case shall be entitled to either suspend or terminate this Agreement and pursue any other remedies it may have under this Agreement. 13.3 EFFECT OF WAIVER. Any waiver by either Party of a breach of any term or condition of this Agreement shall not constitute a waiver of any subsequent breach of the same or any other term or condition of this Agreement. 14. ASSIGNABILITY. This Agreement or any rights or obligations hereunder may not be assigned by any of the Parties to any third party without the prior written consent of the other Party, provided that Buyer or Seller may assign this Agreement to an affiliate, in which event the transferee shall agree in writing that this Agreement and all of its provisions shall be binding upon that transferee as if the transferee were an original signatory to this Agreement. Notwithstanding any assignment permitted by this Section 14, the Guaranty in Section 20 hereof shall remain in effect. 15. INDEMNIFICATION. 15.1 BUYER. Buyer shall defend, indemnify and hold harmless Seller and its directors, officers and employees from and against any and all claims, judgments, damages, losses, penalties, fines and costs of defense (including attorneys' fees) asserted by third Parties arising out of Buyer's negligence, or willful misconduct or acts or omissions in its use or sale of Products provided by Seller, other than claims arising from Seller's negligence, willful misconduct or failure to manufacture the Products in accordance with Customer's specifications. 15.2 SELLER. Seller shall defend, indemnify and hold harmless Buyer and its directors, officers and employees from and against any and all claims, judgments, damages, losses, penalties, fines and costs of defense (including attorneys' fees) asserted by third Parties arising out of Seller's negligence, willful misconduct or failure to manufacture the Products in accordance with Buyer's or customer's specifications, other than those claims arising from Buyer's negligence, willful misconduct or acts or omissions in its use or sale of Products provided by Seller. 15.3 NO CONSEQUENTIAL DAMAGES. In no event shall Seller or Buyer be liable to the other for any special or consequential damages arising out of or in connection with this Agreement, except for the damage suffered by Buyer as a result of a claim by a Customer which arises from the Seller's material failure to perform under the terms of this Agreement, provided that Buyer and Seller agree in good faith, such agreement not to be unreasonably withheld by Seller, that payment of such damages is necessary to preserve relations with the Customer. 15.4 NOTICE. To receive the foregoing indemnities, the party seeking indemnification must promptly notify the other in writing of a claim or suit and provide 13 reasonable cooperation (at the indemnifying party's expense) and full authority to defend or settle the claim or suit. The indemnifying party shall have no obligation to indemnify the indemnified party under any settlement made without the indemnifying party's written consent. 16. INDEPENDENT CONTRACTORS. The relationship of the Parties is that of independent contractors, and neither Party will incur any debts or make any commitments for the other party except to the extent expressly provided in this Agreement. Nothing in this Agreement is intended to create or will be construed as creating between the Parties the relationship of joint venturers, co-partners, employer/ employee or principal and agent. 17. REPRESENTATIONS AND WARRANTIES. 17.1 ORGANIZATION, AUTHORITY AND AUTHORIZATION OF SELLER. Seller is a partnership duly formed and in good standing under the laws of Germany and has full power and authority as a partnership to execute and deliver this Agreement and any documents contemplated hereby, effect the transactions contemplated hereby and thereby and has duly authorized the execution, delivery and performance of this Agreement and any document contemplated hereby by all necessary partnership action. Seller has full power and authority as a partnership necessary to carry on its business as now conducted, to own or lease and operate its properties as and in places where such business is now conducted and such properties are now owned, leased or operated. This Agreement has been duly executed and delivered by Seller and constitutes the valid and legally binding obligations of Seller, enforceable against it in accordance with its terms. 17.2 NO VIOLATIONS BY SELLER. The execution, delivery and performance of this Agreement by Seller and the performance of the transactions contemplated hereby and thereby do not and will not result in a breach or violation of any provision of the governance document of Seller or in a material violation of any statute, rule, regulation governmental permit or ordinance applicable to Seller or violate or result in a breach of or constitute an event of default (or an event which might, upon the passage of time or the giving of notice, or both, constitute an event of default) under any provision of, result in acceleration or cancellation of any obligation under, or give rise to a right by any party to terminate or amend its obligations under, any mortgage, deed of trust, conveyance to secure debt, note, loan, indenture, lien, material lease, agreement, instrument, order, judgment, decree or other material arrangement or commitment to which Seller is a party or by which its assets or properties are bound, or violate any order, judgment, decree, rule or regulation of any court or any governmental agency or body having jurisdiction over Seller or any of its assets or properties, except for such consents, approvals, orders or authorizations, registrations, declarations or filings where failure of compliance would not, individually or in the aggregate, have a material adverse effect on the ability of Seller to consummate the transactions contemplated hereby. No consent, approval, order or authorization of or registration, declaration or filing with, any person is required by Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby or thereby, except for such consents, approvals, orders or authorizations, registrations, declarations or filings where failure of compliance would not, 14 individually or in the aggregate, have a material adverse effect on the ability of Seller to consummate the transactions contemplated hereby. 17.3 ORGANIZATION, AUTHORITY AND AUTHORIZATION OF BUYER. Buyer is a corporation duly formed and in good standing under the laws of Germany and has full power and authority as a corporation to execute and deliver this Agreement and any documents contemplated hereby, effect the transactions contemplated hereby and thereby and has duly authorized the execution, delivery and performance of this Agreement and any document contemplated hereby by all necessary partnership action. Buyer has full power and authority as a corporation necessary to carry on its business as now conducted, to own or lease and operate its properties as and in places where such business is now conducted and such properties are now owned, leased or operated. This Agreement has been duly executed and delivered by Buyer and constitutes the valid and legally binding obligations of Buyer, enforceable against it in accordance with its terms. 17.4 NO VIOLATIONS BY BUYER. The execution, delivery and performance of this Agreement by Buyer and the performance of the transactions contemplated hereby and thereby do not and will not result in a breach or violation of any provision of the governance document of Buyer or in a material violation of any statute, rule, regulation governmental permit or ordinance applicable to Buyer or violate or result in a breach of or constitute an event of default (or an event which might, upon the passage of time or the giving of notice, or both, constitute an event of default) under any provision of, result in acceleration or cancellation of any obligation under, or give rise to a right by any party to terminate or amend its obligations under, any mortgage, deed of trust, conveyance to secure debt, note, loan, indenture, lien, material lease, agreement, instrument, order, judgment, decree or other material arrangement or commitment to which Buyer is a party or by which its assets or properties are bound, or violate any order, judgment, decree, rule or regulation of any court or any governmental agency or body having jurisdiction over Buyer or any of its assets or properties, except for such consents, approvals, orders or authorizations, registrations, declarations or filings where failure of compliance would not, individually or in the aggregate, have a material adverse effect on the ability of Buyer to consummate the transactions contemplated hereby. No consent, approval, order or authorization of or registration, declaration or filing with, any person is required by Buyer in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby or thereby, except for such consents, approvals, orders or authorizations, registrations, declarations or filings where failure of compliance would not, individually or in the aggregate, have a material adverse effect on the ability of Buyer to consummate the transactions contemplated hereby. 18. ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with the Acquisition Agreement and the letter agreement pertaining to this Agreement entered into as of the Effective Date, is the entire understanding between the Parties with respect to the subject matter hereof and supersedes any contracts, agreements or understandings (oral or written) of the Parties with respect to the subject matter hereof. No part of this Agreement may be amended, altered or otherwise modified unless done so in a writing duly executed by the Parties to this Agreement. 15 19. FORCE MAJEURE. If the performance of any part of this Agreement by Seller or Buyer is prevented, hindered or delayed by reason of any cause or causes beyond the control of Seller or Buyer, as the case may be, and which cannot be overcome by due diligence, including, but not limited to, acts of God, floods, storms, earthquakes, hurricanes, tornadoes, or other severe weather or climatic conditions, acts of public enemy, war, blockades, insurrection, vandalism or sabotage, fire, accident, wreck, explosion, strike or labor dispute, embargoes or governmental laws, orders, or regulations which cause interruption in production or delivery of Product at or from Seller's plant, the party affected shall be excused from such performance to the extent that it is necessarily prevented, hindered or delayed during the continuance of any such happening or event, and this Agreement shall be suspended so long as and to the extent that any such cause prevents or delays its performance. 20. GUARANTEE. In consideration for the payment of $1.8 million from Seller or its affiliate to Guarantor by wire transfer in immediately available funds on the Transfer Date and to induce Seller to enter into this Agreement, Guarantor hereby irrevocably and unconditionally guarantees to Seller and becomes surety to Seller for the punctual and full payment of all amounts due from Buyer to Seller and the performance of all other obligations of Buyer, whether now existing or hereafter arising, pursuant to this Agreement. Seller may enforce this guarantee directly again the Guarantor, and the Guarantor shall waive any right or remedy to require that any action be brought against Buyer or any other person or entity before proceeding against the Guarantor. Seller may pursue its rights and remedies under this Agreement in whatever order, or collectively. Without limiting the generality of the foregoing, the obligations of Guarantor hereunder shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by: (a) any amendment, modification or supplement to this Agreement provided such amendment, modification or supplement has been agreed by Guarantor; (b) any exercise or nonexercise of or delay in exercising any right, remedy, power or privilege under or in respect of this Agreement, or any waiver, consent, indulgence or other action or inaction in respect thereof; (c) any bankruptcy, insolvency, arrangement, composition, assignment for the benefit of creditors or similar proceeding commenced by or against Buyer; (d) any extension of time for payment or performance of any of the obligations under this Agreement; (e) the genuineness, validity or enforceability of this Agreement; (f) the release of Buyer from performance or observance of any of the agreements, covenants, terms or conditions contained in this Agreement by operation of law; 16 (g) the failure of Seller to keep Guarantor advised of Buyer's financial condition, regardless of the existence of any duty to do so; or (h) any other circumstances which might otherwise constitute a legal or equitable discharge of a guaranty or surety. 21. GOVERNING LAW; JURISDICTION. This Agreement shall be construed and interpreted in accordance with, and the rights and obligations of the Parties shall be determined by, the laws of the Federal Republic of Germany. The Parties consent to the exclusive jurisdiction of the courts in Frankfurt, a.M. for all matters arising out of or relating to this Agreement; provided, however, that Seller shall have the right to bring legal action against the Guarantor before any other court having jurisdiction over the Guarantor or its assets. 22. NOTICES. Unless otherwise indicated differently, all notices, requests, information or demands which any party may desire or may be required to give to any other party under this Agreement, shall be in writing and shall be personally delivered or sent via e-mail, telegram, telex, telecopy, or first class certified registered mail, postage prepaid return receipt requested, and sent to the party at its address appearing below or such other address as either party shall subsequently inform the other party by written notice given as described above; provided, however, that notices from Buyer providing purchase order information need not be sent by certified mail: If to Buyer: John Scott Analyst House 20-26 Peel Rd Douglas, Isle of Man IM99 1AP, United Kingdom With a copy to: Nat Puri Christopher Karras 6 Union Road Dechert Nottingham, NG3 1FH 4000 Bell Atlantic Tower United Kingdom 1717 Arch Street Philadelphia, PA 19103 215-994-4000 If to Seller: Werner Ruckenbrod Managing Director Hordener Landstrasse 3-7 76593 Gernsbach, Germany 49-7224-66471 (fax)
17 with a copy to: Markus Mueller Corporate Counsel and Secretary 96 South George Street Suite 500 York, Pennsylvania 17401 001-717-846-2419 (fax)
All notices, requests, information or demands so given shall be deemed effective upon receipt or, if mailed, upon receipt or the expiration of the third day following the date of mailing, whichever occurs first, except that any notice of change in address shall be effective only upon receipt by the party to whom the notice is addressed. 23. SEVERABILITY. In the event any provision of this Agreement conflicts with the law under which this Agreement is to be construed, such provision shall be deleted from the Agreement, and the Agreement shall be construed to give effect to the remaining provisions thereof. 24. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 18 In witness, the Parties, intending to be legally bound, have caused this Agreement to be executed in their corporate names by their duly authorized officers as of the Effective Date. PAPIERFABRIK SCHOELLER & HOESCH GmbH & CO. KG /S/ WERNER RUCKENBROD --------------------- Name: Title: PURICO GmbH /S/ N.R. PURI ------------- Name: Title: PURICO (IOM) LIMITED /S/ UPENDRA PURI ---------------- Name: Title: EX-10.T 10 w58137ex10-t.txt ARRANGEMENT LETTER EXHIBIT 10(t) January 16, 2001 Mr. George H. Glatfelter II Chairman, President and Chief Executive Officer P. H. Glatfelter Company 96 South George St Suite 500 York, PA 17401 Dear George: We appreciate the opportunity to assist the P. H. Glatfelter Company ("P. H. Glatfelter") with the execution of the detailed design and implementation phases of its Project IMPACT ("IMPACT"). This letter ("Arrangement Letter") with an effective date of October 3, 2000 documents the parties mutual understanding as to how Accenture LLP ("Accenture"), formerly known as Andersen Consulting, with an office located at 161 N. Clark Street, Chicago, IL 60601, will assist P. H. Glatfelter with the Project as further described below (the "Project"). The Project Workplan, to be mutually amended in writing by the parties from time to time (the "Workplan") is attached hereto as Exhibit 1 and is incorporated into this Arrangement Letter by this reference. Please note that on January 1, 2001, Andersen Consulting's name changed to Accenture With this name change, all provisions in this Arrangement Letter will remain in full force and effect. BACKGROUND During the planning phase of IMPACT, Accenture supported the P. H. Glatfelter Project team in its recommendation of an information technology solution together with changes in business organization and processes to help support the realization of P. H. Glatfelter's vision. As a result of these recommendations, Accenture has been contracted to aid in the detailed design and implementation of the technology solution, organization and process changes. 2. PROJECT OBJECTIVES P. H. Glatfelter's Project objectives are as follows: - - Design and implement an organization below the Vice President level that aligns the new processes with the vision and strategy - - Develop the detailed processes and organization designs required to implement the New Product Development business process - - Prototype components of the Finance, Requisition-to-Payment, and Order-to-Cash processes with the Enterprise Resource Planning (ERP) Application of choice using an Accenture -solution center - - Develop and implement the business processes, change management, and technology architecture designs to support the implementation of an ERP solution for the business processes of Finance, Requisition-to-Payment, and Order-to-Cash - - Implement a customer-direct web site for the book publishing business of P. H. Glatfelter and implement an ongoing approach for hosting the site (likely using 3rd party hosting services to be determined by P. H. Glatfelter ) 3. PROJECT SCOPE 3.1 ORGANIZATION DESIGN Building on the work previously completed by Accenture, the scope of this effort will provide a detailed organization design below the Vice President level and a transition plan for the new organization. This effort will focus on the Corporate Headquarters, Spring Grove, Ecusta, Neenah, Gernsbach, and P.D.C. locations. P. H. Glatfelter will assume responsibility for assigning individuals to their new jobs. Specifically excluded from the scope of organizational design are Compensation Design and Compilation, Recruiting, and Career Development References to a detailed scope document entitled 'Organization Design Scope', to be mutually amended in writing by the parties from time to time is incorporated herein by this reference. 3.2 SALES AND OPERATIONS PLANNING PROCESS REENGINEERING (S&OP) This step will focus on the Sales and Operations Planning process. The effort will establish enhanced processes, create new, Microsoft Excel based tool (decision support management report), performance measurement tracking and an implementation plan. This effort will also coordinate with the organizational design step. Excluded from the scope will be any automated tool support for planning and scheduling beyond the use of the spreadsheet decision tool. References to a detailed scope document, 'Sales and Operations Planning Scope', to be mutually amended in writing by the parties from time to time is incorporated herein by reference. 3.3 ERP PROTOTYPE (JUMPSTART) This step will yield a prototype of a subset of the Finance, Order to Cash and Requisition to Payment business processes, using representative P. H. Glatfelter data. The prototype will be used as an input to the ERP detailed design work and will not be a production ready tool. References to a detailed scope document, 'ERP Jumpstart Scope', to be mutually amended in writing by the parties from time to time is incorporated herein by reference. The jumpstart technical environment for the ERP software will be hosted out of the Accenture data center in Cincinnati. 3.4 ERP IMPLEMENTATION The scope for this phase will consist of the following (to be detailed in a separate document entitled, 'ERP Implementation Scope', to be mutually amended in writing by the parties from time to time and is incorporated by reference herein): 3.4.1 Business processes: - - Requisition to Payment - Manage Master Data - Manage Supply Sourcing - Manage Purchasing - Manage Raw Materials - Manage Accounts Payable - - Finance - Manage General Ledger - Manage Assets - Close - Manage and Report Costs - Manage and Report Finance - - Order to Cash - Plan Sales & Operations - Manage Sales Orders - Manage Finished Goods Inventory - Manage Accounts Receivable 3.4.2 PROGRAMMED ELEMENTS: It is assumed that a number of reports, interfaces, conversions, extensions and forms will be designed and implemented during this phase. The quantities of these programmed elements can be found in the table below:
- ---------------------------------------------------- ERP Global Estimating Model Estimate Number - ---------------------------------------------------- Number of Reports 20 - ---------------------------------------------------- Number of Interfaces - ERP to Non-ERP 30 - ---------------------------------------------------- Number of Interfaces - Non-ERP to ERP 28 - ---------------------------------------------------- Number of Conversions 70 - ---------------------------------------------------- Number of EDI Interfaces 8 - ---------------------------------------------------- Number of Forms 25 - ---------------------------------------------------- - ---------------------------------------------------- Total 550 - ----------------------------------------------------
The development environment will continue to be hosted within the Accenture data center in Cincinnati for a period of 9 months. 3.5 CUSTOMER DIRECT WEB-SITE A web site will be developed, which allows P. H. Glatfelter's customers to transact business directly with P. H. Glatfelter. This web site will use a channel management application from Click Commerce and will initially be interfaced with existing systems within P. H. Glatfelter; once the Order to Cash process is automated using ERP, then the web site will be interfaced with the ERP application. The web site will be hosted by a 3rd party to be determined and contracted by P. H. Glatfelter. It will support the book publishing business within the Glatfelter division only. Based on prior discussions with P. H. Glatfelter team members, the Project has been broken down into three separate phases. The scope of these phases are detailed in a separate scope document which is incorporated herein by reference. 3.6 GENERAL SCOPE CONSIDERATIONS 3.6.1 Locations P. H. Glatfelter operating locations included in the scope of the Project are as follows: - - Corporate Headquarters in York, PA - - Spring Grove, PA Mill - - Ecusta, NC Mill - - Neenah, WI Mill - - Gernsbach, Germany - - Papiers de Cascadec, France Excluded from the scope of the Project is the P. H. Glatfelter Timberlands (other than the integration of raw material purchasing ). 3.6.2 Processes Excluded from scope are the following processes: - - Payroll / Human Resources - - eProcurement - - Advanced Planning and Scheduling (APS) - - Customer Relationship Management (CRM) - - Manufacturing Execution System (MES) other than for order entry as required - - Data Warehousing - - T&E (travel and entertainment) - - Time & Attendance 3.7 PROJECT SCOPE CONTROL PROCESS We recognize that scope management is a critical success factor of this Project. The following process will be followed to manage any scope request changes. - - Request for change is made to the Program Management team - - Program Management reviews the request for change and discusses with the appropriate teams involved during a weekly scope review meeting. - - Teams review request, assess impact to scope, cost, and timeline. - - If such change is approved by both parties, it will be documented in writing and signed by both parties, thereby modifying the relevant scope document. 4. PROJECT APPROACH 4.1 ORGANIZATION DESIGN Deliverable creation will follow a phased approach that incorporates interim workshops and decision points where the P. H. Glatfelter Steering Committee is actively involved in evaluating progress, sanctioning subsequent activities and redirecting resources in an attempt to achieve our mutually agreed upon objectives. The phases of the organization design are as follows: - - Process Refinement - - Role, Function, and Structure Development - - Detailed Organization Development - - Transition Plan 4.2 SALES AND OPERATIONS PLANNING The decision support management report (Microsoft Excel spreadsheet) will provide an integrated link between Sales and Marketing, and Manufacturing. Creation of the decision support management report will follow an iterative approach that incorporates interim releases of this report. The S&OP sponsor team (COO, CFO, VP Supply Chain Management, VP Marketing and Sales, ) is actively involved in evaluating progress, sanctioning subsequent activities and redirecting resources in an attempt to achieve the mutually agreed upon objectives. For each iteration, the following activities will take place: - Define content requirements - Data collection - Build and/or enhance features in the S&OP decision support management reports Concurrent with the development of S&OP decision support management reports, the S&OP team will work closely with P. H. Glatfelter personnel at various levels to set up the processes for report generation, and report review meetings. 4.3 ERP PROTOTYPE (JUMPSTART) The ERP prototype will be executed primarily out of an Accenture solution center using Accenture development resources. Requirements will initially be gathered from key users (to be determined by P. H. Glatfelter) through workshops. Progress on construction of the prototype will be reviewed with the users at least once every two weeks. Development will be iterative based on the feedback from these review sessions. P. H. Glatfelter staff will be able to access the jumpstart system directly from the corporate offices in York (PA). Once completed, the prototype may be used as a basis for detailed ERP design, and as a communication vehicle within P. H. Glatfelter. 4.4 ERP IMPLEMENTATION The overall approach will be accomplished in several segments of work, all of which will be documented within a common tool set (the 'Method Delivery Manager', ("MDM"), to be provided by Accenture to P. H. Glatfelter). - - Global Design - representatives from each P. H. Glatfelter division will work together in York (PA) to make ERP design decisions which are common to each division and geography. The design will be translated into ERP configuration where the ERP application can directly support the design. In the case that ERP cannot directly support the design programming specifications will be written (e.g. interfaces, forms, reports). This design phase will be run on a workshop basis and it is anticipated that much of the ERP configuration will be done remotely at an Accenture solution center. - - Region-Specific Design - this will incorporate those elements of the design which are not common across the divisions and / or regions. It is anticipated that this work may happen in both the US and Europe. - - Development and Programming - all development for reports, interfaces, conversions, extensions and forms will follow a very structured path including functional and technical specifications, programming, unit and acceptance testing. - - System Testing - a four pass approach to system testing will be undertaken. The first pass will consist of the configuration done within the ERP application. The second and third passes will consist of the programmed elements. The final pass will constitute a user acceptance test to be signed off by key users. - - Training - the approach to training will primarily be 'train the trainer'. Training materials will be specified and developed throughout the Project and initial classes will focus on business users from within P. H. Glatfelter who will then in turn train others within the business. The training materials will include classroom based aids, together with on-line exercises. - - Data Conversion - a 3rd party consultancy will be retained by P. H. Glatfelter to manage and facilitate much of the data cleanup, reconciliation and conversion tasks associated with materials, vendors and customers. They will work directly with users to get the existing legacy data to a stage where it can be transferred automatically into the ERP application using conversion programs developed in the programming phase. Conversion itself will be a multi-pass approach where business users review the data after each pass in a temporary environment to ensure that final production data is of the appropriate quality. - - Rollout - will be mill by mill in a sequence to be agreed upon by both parties. 4.5 CUSTOMER DIRECT WEB SITE The following six key work streams make up the approach necessary to implement the Customer Direct Web site. - - Project kickoff. Conduct business interviews and technical interviews. Design the customer direct web site. - - Build and Unit Test. Sign off on the design. - - Complete assembly and staging test. - - Complete & sign off acceptance test. Go live with customer direct web site. - - Post "go live" support. P. H. Glatfelter acknowledges that production support activities will be required after the software release. Seven months of production support for customer direct website by Accenture are included in this Arrangement Letter. The parties currently contemplate that these production support activities will consist of addressing production data issues, supporting users, supporting training activities, developing minor enhancements to the application, applying vendor software updates, and performance tuning the application, database, server operating systems, and network. Accenture will work with P. H. Glatfelter to develop a mutually agreeable approach and plan for supporting the application after launch. 4.6 GENERAL APPROACH CONSIDERATIONS A Program Management team will manage the projects using issue management, scope management, status reporting and resource management processes with a consistent set of tools. 5. PROJECT TIMING 5.1 ORGANIZATION DESIGN The duration of this step will be approximately 4 months and will end with an implementation of the deliverables developed during that period currently estimated to be implemented by January 31st 2001. 5.2 S&OP The duration of this step will be approximately 4 months and will end with an implementation of the deliverables developed during that period, curently estimated to be implemented by January 31st 2001. 5.3 ERP PROTOTYPE The duration of this step will be approximately 4 months and will end with an implementation of the deliverables developed during that period, currently estimated to be implemented by January 31st 2001. 5.4 ERP IMPLEMENTATION Global design will commence in February 2001, following the January 15th milestone. It is anticipated that the rollouts will be completed by September 30th, 2002. 5.5 CUSTOMER DIRECT WEB SITE Work is scheduled to complete by August 2001 for the version of the web site which is interfaced to the legacy systems; the final version will coincide with the ERP rollouts for the Glatfelter division. 5.6 PROJECT TIMING - GENERAL The Program Management team will meet with the P. H. Glatfelter Steering Committee during the course of this Project as outlined in the Workplan to review: - - Progress towards milestones - - Resource needs for the next stage - - Scope changes - - Business condition changes which would impact the Project - - Key milestones as listed below - January 15, 2001 Organization Design /ERP Readiness Review - June 15, 2001 ERP Build Readiness Review - November 16, 2001 First Mill Rollout Readiness Reviews - January 18, 2002 Second Mill Rollout Readiness Review - May 17, 2002 Third Mill Rollout Review - July 12, 2002 Fourth Mill Rollout Readiness Review Upon completion of each of these milestones P. H. Glatfelter will approve and sign-off the completion of the Project to date. The Workplan describes activities related to the delivery of these milestones. 6. PROJECT DELIVERABLES 6.1 ORGANIZATION DESIGN The activities will yield the following deliverables that will align the organization around the business processes required to realize P. H. Glatfelter's vision: - Detailed organization structure below the Vice President level - Roles and responsibilities - Governance guidelines - Job Descriptions - Key Performance Indicators to align the structure - Organization Chart - Transition plan to the new organization - Training Gap Analysis - Training Plan - Recruiting Plan - Implementation Plan - Communication Plan In building these deliverables, Accenture is responsible for creating and facilitating workshops, defining approach, methodology and templates and providing management of consulting resources. P. H. Glatfelter is responsible for approving the interim and final deliverables, participating in workshops, providing business content, presenting results to the steering committee. Furthermore, it is responsible for compensation design and compilation, recruiting, career development and assigning individuals to positions in the new organization. 6.2 SALES AND OPERATIONS PLANNING - The following deliverables will result from the implementation of the Sales & Operations Planning process: Detailed process flow diagrams with activities and responsibilities - Decision support management reports (Microsoft Excel Spreadsheet) for the 30, 60, and 90 day plan - Data interface from legacy systems - Identification of organizational impact resulting from process changes and incorporation into the organization design project - Key Performance Indicators for process measurement and continuous improvement - Implementation Plan In building these deliverables, Accenture is responsible for creating and facilitating workshops, defining approach, methodology and templates, building the decision support management tool and providing management of consulting resources. P. H. Glatfelter is responsible for the data interface from legacy systems, participating in workshops, providing business content, approving the interim and final deliverables and presenting results to the steering committee. Accenture and P. H. Glatfelter will be jointly responsible for the creation of all other deliverables. 6.3 ERP PROTOTYPE The following deliverables will result from the implementation of the ERP prototype: - Draft of ERP Organizational Elements - Draft of Master Data Key Mapping - Prototype of ERP core business transactions within Finance, Order to Cash, Requisition to Pay with supporting configuration and business process documentation - Recommendation on level of support for order entry and manufacturing within ERP (i.e. define the interface point with the MES) In building these deliverables, Accenture is responsible for creating and facilitating workshops, defining approach, methodology and templates, drafting the ERP organization elements and master data key mapping, building the SAP prototype and providing management of consulting resources. Furthermore, Accenture will be responsible for hosting the ERP technical environment from its Cincinnati data center. P. H. Glatfelter is responsible for participating in workshops, providing business content, approving the interim and final deliverables and presenting results to the steering committee. Accenture and P. H. Glatfelter will be jointly responsible for the recommendation on the order entry decision, together with ensuring connectivity between Accenture and P. H. Glatfelter offices. 6.4 ERP IMPLEMENTATION The following deliverables will result from the ERP implementation:
- ----------------------------------------------------------------------------------------------------------- AC Responsibility PHG Responsibility - ----------------------------------------------------------------------------------------------------------- Detailed workplan and methodology Primary Secondary - ----------------------------------------------------------------------------------------------------------- Business process documentation Secondary Primary - ----------------------------------------------------------------------------------------------------------- ERP configuration rationales Primary Secondary - ----------------------------------------------------------------------------------------------------------- Functional design specifications Primary (ERP) Primary (Legacy) - ----------------------------------------------------------------------------------------------------------- Technical design specifications Primary (ERP) Primary (Legacy) - ----------------------------------------------------------------------------------------------------------- Code for reports, interfaces, conversions, enhancements, and forms Primary (ERP) Primary (Legacy) - ----------------------------------------------------------------------------------------------------------- Test plan and testing supporting documentation Secondary Primary - ----------------------------------------------------------------------------------------------------------- Data cleansing and conversion Secondary Primary - ----------------------------------------------------------------------------------------------------------- Training plan and end user training materials Primary Secondary - ----------------------------------------------------------------------------------------------------------- Communication plan and communication materials Secondary Primary - ----------------------------------------------------------------------------------------------------------- Final ERP configured solution Primary Secondary - -----------------------------------------------------------------------------------------------------------
Generally, in building these deliverables, Accenture is responsible for creating and facilitating workshops, defining approach, methodology and templates, providing the MDM documentation tool and providing management of consulting resources. Also, P. H. Glatfelter is responsible for participating in workshops, providing business content, approving the interim and final deliverables and presenting results to the steering committee. Note that the parties agree that any ABAP development which requires the participation of SAP America, Inc. ("SAP") resources will be jointly agreed to in writing by the parties prior to SAP resources participating in any such development work. 6.5 CUSTOMER DIRECT WEB SITE The following deliverables will result from the Customer Web Site development: - Functional Design - Site Map - Technical Architecture - Unit Test Plans - System Test Approach & Scripts - Web Site There is a joint responsibility for the creation of the functional design and system test scripts. Andersen Consulting has primary responsibility for the creation of all other deliverables. P. H. Glatfelter will be responsible for the review and approval of the deliverables. 6.6 OTHER DELIVERABLES 6.6.1 IT sourcing alternatives Accenture will provide P. H. Glatfelter executives with IT capability sourcing alternatives for consideration during appropriate phases of the ERP implementation and on-going technical support of ERP and related systems. Such alternatives may include, but will not be limited to, use of solution centers, strategic alliances, and building local third-party relationships. Alternative services may include, but are not limited to, implementation, testing, data conversion, conversion support, post-conversion stabilization support, problem management, user support, maintenance and development. P.H. Glatfelter will be solely responsible for the selection and negotiation of all strategic and third party relationships that it determines are appropriate. 6.6.2 Knowledge transfer Development of key resources within P. H. Glatfelter is recognized as a success factor for Project IMPACT. Accenture will, where both parties agree are appropriate, provide opportunity for key P. H. Glatfelter personnel to learn new and additional skills relating to business processes and technical components of the ERP implementation. The P. H. Glatfelter IT Project Manager will, with input and assistance from the Accenture Program Manager, design, implement and track a reasonable and acceptable knowledge transfer program. The Program Management Team will be responsible for measuring the execution of this program by milestones. It is the sole responsibility of P. H. Glatfelter personnel in this program to absorb, retain and demonstrate proficiency of these new and additional skills. 7. PROJECT ASSUMPTIONS The following assumptions have been used to develop this Arrangement Letter and should be considered an integral part of this Arrangement Letter. If any of these assumptions prove to be invalid and Accenture is aware thereof, Accenture will provide notice to P.H. Glatfelter to correct and both parties will agree to the impact on the fees, schedule, and staffing prior to continuation of the Project. 7.1 ERP IMPLEMENTATION - - P. H. Glatfelter will have established their own on-site internal technical environment (in Spring Grove, PA) by June 1, 2001 or will have sourced the technical environment from alternative source. Hardware and tools acquisition will also be completed by this time. Costs for hardware / tools will be the responsibility of P. H. Glatfelter. - - Data conversion services provider will be selected by P. H. Glatfelter by January 1st 2001 in order to meet catalog and data conversion requirements for the next phase. P. H. Glatfelter will cause the third party to be involved during the design process to insure that conversion requirements are appropriately addressed. - - Project team training on the ERP software will be provided by the ERP vendor and conducted by P. H. Glatfelter. P. H. Glatfelter team members will attend the appropriate training for their respective roles. - - Estimated effort for ERP assumes a common global design across all sites. Specific requirements for each location will be minor and limited to specific business requirements to local regulations and/or customer differences. - - Any changes to the requirements after confirmation will go through the change control process as noted above. If the implementation of particular features of the software are not possible due to either limitations in the base software package, the effort involved to customize the software, or if implementing the selected features would jeopardize achieving the overall objectives of the Project, Accenture will discuss implementation alternatives with P. H. Glatfelter. These alternatives may include manual process work-arounds, delaying certain functions and features of the application until a future software release, or utilizing other software packages for some functionality. 7.2 CUSTOMER DIRECT WEBSITE - - P. H. Glatfelter shall be solely responsible for the compliance of the Click Commerce software and any associated portal activity and internet service with any applicable laws, rules or regulations relating to such activity imposed by relevant governmental authorities, including but not limited to the following topics as they apply to use of the Click Commerce software and any associated services on the internet: (a) data privacy (b) trademark and unfair competition laws, (c) advertising , (d) currency translation, (e) transaction reporting, (f) censorship, (g) import/export, and (h) taxation. - - P. H. Glatfelter shall be solely responsible for obtaining all authorizations and/or licenses necessary from third parties to enable and support all content, framing and/or linking functions associated with any eCommerce or portal development and activity associated with the Project. - - P. H. Glatfelter shall be solely responsible for performing all legal searches, and for bearing all costs and expenses associated with such search(es), to ensure that any names, icons, or other symbols used in the P. H. Glatfelter internet service offering, whether provided by Accenture, P. H. Glatfelter, or any other party ("Symbols"), do not infringe upon any copyrights, service marks, trademarks, registered names or intellectual property rights. P. H. Glatfelter shall be solely responsible for determining whether or not any such Symbol infringes any such rights. - - P. H. Glatfelter has completed the evaluation of Click Commerce software and has determined that it meets all its requirements. 7.3 GENERAL ASSUMPTIONS - - The Project will be a joint team effort of Accenture and P. H. Glatfelter resources (the "Project Team") - - The Project team will continue to use Accenture's MDM for the completion of the work. Accenture will provide to the P. H. Glatfelter team access and usage of the MDM to support the documentation of key business decisions and for the overall management of the Project. - - P. H. Glatfelter will provide adequate numbers of licenses of project management software to facilitate project and budget control reporting. - - P. H. Glatfelter will continue to provide adequate facilities, equipment, systems connectivity and work space for all Project personnel. - - P. H. Glatfelter will identify change agents for each of the operating facilities and will work with the teams to confirm key process designs and begin taking ownership of process related activities at the mill. Process Owners will be identified to facilitate design of processes across mills / functional units and to work with the Change Agent Network, Sponsors, Steering Committee and Project team to ensure process outcomes are defined and realized. - - P. H. Glatfelter will be responsible for insuring that all P. H. Glatfelter staffing of personnel is completed consistent with the Project work plans. - - P. H. Glatfelter shall have the option of acquiring hardware and software required for the Project through Accenture's affiliated entity, Proquire LLC, subject to a separate agreement, as long as the price or license fee for such third party products is the same as or lower than the price at which P. H. Glatfelter can obtain such third party hardware or software. Accenture, as agent for Proquire, may invoice, collect, and receive from P. H. Glatfelter all sums that are or become due to Proquire, including taxes and shipping charges, as applicable. - - If Accenture personnel perform services pursuant to this Arrangement Letter outside the city, state, province, or country in which such personnel are based, P. H. Glatfelter shall reimburse Accenture for increased tax and reasonable compliance costs incurred by Accenture personnel as a result of providing such services ("Compensatory Taxes"). - - As the Project is a long term Project, the parties recognize that various aspects of the scope are currently unknown; may need to be further defined; and may change throughout the course of the Project. The formal change control process will be followed by the Project Team. Changes to design decisions and scope will have an impact on resources, fees and timeline, and will be reviewed and approved in advance according to the agreed upon process (see Section 3.7). - - As of the date of this Arrangement Letter, the Project has been estimated at a total of 11,964 days of Accenture activities, on which the fees have been estimated. - - P. H. Glatfelter will negotiate with all third party software licensors, including but no limited, to Click Commerce and the ERP vendors, and will be responsible for procuring the required software licenses, documentation, and support contracts on or before December 4, 2000. - - P. H. Glatfelter will be responsible for obtaining any consents necessary for Accenture's access in order to perform its obligations under this Arrangement Letter. Accenture will work with P. H. Glatfelter to identify where the consents are required for Accenture to conduct its work. Accenture will use its best endeavors to fulfill any reasonable requirements on its part for P. H. Glatfelter to obtain such consent. - - Accenture is not responsible for delays that are imposed by P. H. Glatfelter or other entities, including Click Commerce and the ERP vendor or any other consulting groups or vendors. As these systems are dependent upon other P. H. Glatfelter applications, appropriate, timely assistance from the responsible P. H. Glatfelter organizations and third party groups will be required. - - P. H. Glatfelter shall be responsible for its operation and use of the deliverables. P. H. Glatfelter understands and agrees that it will be responsible for determining whether the services and deliverables provided by Accenture hereunder, including any revised business processes implemented pursuant to this Arrangement Letter, (i) meet P. H. Glatfelter's business requirements, (ii) comply with all federal, state and local laws, ordinances, codes, regulations and policies applicable to P. H. Glatfelter, and (iii) comply with P. H. Glatfelter's applicable internal guidelines, long-term goals and any related third party agreements. - - P. H. Glatfelter shall provide Accenture with access to client personnel and facilities sufficient for Accenture to fulfill its obligations hereunder. Accenture will provide P. H. Glatfelter with prior notice of problems that it is encountering related to access to client personnel and facilities. - - To assist the Project team, background information will need to be made available by P. H. Glatfelter for discussions with people in key areas. This material would include: organization/staffing, standards, procedure and process documentation (i.e., change management, problem management, fault management), operations architecture, application profiles, web hosting service descriptions, operations management products, service/operational level agreements, etc. Any information requested by Accenture and not available to the Project Team or inaccurately provided to the Project Team may result in additional costs, delays, or limitations in functionality. - - Accenture will provide a software selection process to support P. H. Glatfelter's selection of the software. P. H. Glatfelter will be solely responsible for selecting all Project software vendors. - - P. H. Glatfelter is solely responsible for the adoption, successful operation and appropriate staffing for these software selection processes, which will need to be in place and fully operational prior to the first ERP conversion date as specified in the workplan. 8. TESTING AND ACCEPTANCE OF DELIVERABLES 8.1 DELIVERABLES ASSOCIATED WITH SYSTEM DEVELOPMENT Accenture will provide example test plans and criteria from previous projects of similar complexity; P. H. Glatfelter will provide Company-specific data and test scenarios. From these, the parties agree to develop mutually agreeable test procedures consisting of multiple passes. Each pass is designed to progressively designate and fix high, medium and low level errors. The final pass shall be a 'user acceptance' pass, whereby the system shall be deemed to have been 'accepted' by P. H. Glatfelter if no high priority errors are generated. (High priority is defined as of sufficient concern to either party such that the 'go-live' of the system shall be postponed). Following the go-live, Accenture will continue to provide support to the P. H. Glatfelter team with the aim of handing over support completely to P. H. Glatfelter within a period of 3 months. For this to happen it is assumed that P. H. Glatfelter will identify reasonably sufficient personnel by the start of the system testing phase to staff the support organization, and that Accenture will supply reasonably sufficient training to these personnel. The only basis for rejection of deliverables will be failure of the deliverables to substantially conform to the acceptance criteria, in accordance with the acceptance procedures. If Accenture does not receive written notice of material nonconformance with the specifications within 30 days of delivery to P.H. Glatfelter for testing, all deliverables will be deemed accepted in full. 8.2 NON-SYSTEMS RELATED WORK The deliverables are subject to frequent management review and mutual agreement. Each deliverable can only be rejected for failure to comply with the scope as outlined in the attached scope documents, and / or reasonable quality. Procedures to ensure review of the of the Project by P. H. Glatfelter Steering Committee members have been outlined under Project Timing. 9. PROJECT TEAM STAFFING 9.1 ACCENTURE STAFFING Barry Jennings, the client partner responsible for the consulting relationship with P. H. Glatfelter, will have overall responsibility for Accenture service to P. H. Glatfelter on this Project. Don Berkemeyer, a senior partner from the Accenture Natural Resources practice, will perform the role of the Accenture Quality Assurance partner. John Poisson will be the Accenture program manager. John's program responsibilities will include managing the integration efforts among the work modules and between Accenture and P.H. Glatfelter teams. Nigel Blower will be the engagement partner responsible for the day to day delivery of Accenture's ERP prototype and ERP implementation. Alan O'Rear will be responsible for senior executive coaching, advising on technology issues and direction, and assisting P. H. Glatfelter in the identification, screening and training of a CIO. Alan will assist P. H. Glatfelter IT Management in the development of basic operating processes to support the ERP implementation during development as well as post implementation.-P. H. Glatfelter may choose to eliminate or replace Alan's services upon notice in writing (30 day notice) with no further financial obligation. Such replacement is subject to availability. Accenture will provide an appropriate mix of personnel to fill the Project team positions. These team members will collectively be sufficiently proficient in ERP, process, change management, and technology across each of the Project areas. The personnel time requirements for the completion of the Project deliverables as set forth herein is estimated to be as follows:
- --------------------------------------------------------- Resource Requirements P. H. Glatfelter Accenture (days) (days) - --------------------------------------------------------- Program Management 2,088 1,580 - --------------------------------------------------------- Alan O'Rear 0 260 - --------------------------------------------------------- Technology / Infrastructure 2,840 1,040 - --------------------------------------------------------- Jumpstart 184 480 - --------------------------------------------------------- ERP Global Design 1,910 990 - --------------------------------------------------------- ERP Implementation 8,030 6,010 - --------------------------------------------------------- Organization Design & NPD 1,106 530 - --------------------------------------------------------- S&OP 230 250 - --------------------------------------------------------- Customer Direct 550 824 - --------------------------------------------------------- Total 16,938 11,964 - ---------------------------------------------------------
9.2 P. H. GLATFELTER STAFFING P. H. Glatfelter participation will include sponsorship through the steering committee. The steering committee will be composed of the CEO, CFO, COO, CIO, and CSO. The steering committee will meet on a periodic basis and provide direction and overall confirmation of Project deliverables. Robert Newcomer will be the P. H. Glatfelter program manager. He will provide direction to the Project on a day to day basis. He will be assisted by a P.H. Glatfelter subject matter expert and approximately 40 full-time P. H. Glatfelter personnel as described in the Project Resource list (See above). P. H. Glatfelter will provide staffing for the Project office. Additional P. H. Glatfelter subject matter experts will be involved part-time to review key Project deliverables and provide insight into P. H. Glatfelter business events. 10. PROJECT FEES Based on the current understanding of the scope, Accenture's fees are estimated to be $25,028,832, plus actual out-of-pocket expenses for items such as travel, lodging, per diem, PCs, engagement control, and report preparation. We estimate expenses will be about $3,800,000. In addition, monthly operating and support expenses for the development of an environment in our Solution Center network will be approximately $70,000 per month (12 months) for total estimated expenses of $840,000. As these are estimated amounts, actual fees may differ. Accenture's compensation will be based on services performed and expenses incurred. Applicable taxes related to this Arrangement Letter , if any, will be additional. Invoices will be generated on a monthly basis based on estimated fees and reconciled the following month. The parties agree that if the Project and deliverables as identified in this Arrangement Letter without Change Orders i) are be completed on or before September 30th, 2002 and ii) within the estimated fee amounts reflected in this Arrangement Letter, P. H. Glatfelter shall pay Accenture a bonus payment of $500,000. The parties further agree that if the Project is not completed by September 30th, 2002 for reasons that are predominantly attributable to Accenture and as agreed to by the parties, the final monthly payment will be withheld until the Project is completed. The parties acknowledge that Change Orders executed throughout the course of the Project may affect the September 30th, 2002 completion date and agree that any such orders to revise the Project will also include amended completion dates which accurately reflect any Project revisions due to Change Orders. The Project will be governed by the terms and conditions set forth in Attachment A, which is incorporated into this Arrangement Letter by this reference. * * * * * We appreciate very much this opportunity to continue working with P. H. Glatfelter. We are excited to help you develop this design. If you have any questions regarding this material, please contact Barry Jennings at (312) 693-4740 or Nigel Blower at (215) 587-7956. Very truly yours, ACCENTURE LLP By /S/ Barry D. Jennings --------------------- Barry D. Jennings, Partner Agreed and Accepted: P. H. Glatfelter COMPANY By /s/ George Glatfelter II ------------------------ George Glatfelter II, Chief Executive Officer Date: January 16, 2001 ---------------- ATTACHMENT A TERMS AND CONDITIONS 1. Payment. Accenture will bill P. H. Glatfelter monthly as noted above. P. H. Glatfelter will pay Accenture within thirty days after the invoice is received. Should any invoice remain unpaid for more than thirty days (other than payments withheld as set forth in Section 10 above), interest shall be paid by P. H. Glatfelter at a rate of 1.5% per month. Any taxes arising out of this Arrangement Letter other than those on Accenture's net income and employment and agent related taxes (excluding Compensatory Taxes) shall be P. H. Glatfelter's responsibility. In the event of any good faith dispute with regard to a portion of an invoice, the undisputed portion shall be paid as provided herein. Upon resolution of the disputed portion, any amounts owed to Accenture shall be paid with interest at the rate set forth above accruing from the date such amounts were originally due. 2. Confidential Information. In connection with the Project, each party will have access to confidential information made available by the other party; each party shall protect such confidential information in the same manner as it protects its own confidential information of like kind, but in no event shall either party exercise less than reasonable care in protecting such confidential information. Access to the confidential information shall be restricted to Accenture and P. H. Glatfelter personnel engaged in a use permitted hereby or unless forced by legal authority, in which event the party receiving a subpoena or other validly issued administrative or judicial process requesting confidential information of the other party shall provide prompt notice to the other of such receipt sufficient to give the other party time to consent to such disclosure. Unless the disclosing party notifies the other party that any such subpoena is quashed, the party receiving the subpoena shall thereafter be entitled to comply with such subpoena or other process to that extent permitted by law. The confidential information of the discloser may be used by the receiver only in connection with this Project and may not be copied or reproduced without the discloser's prior written consent. Nothing in this Arrangement Letter shall prohibit or limit either party's use of information (including, but not limited to, ideas, concepts, know-how, techniques, and methodologies) (i) previously known to it without obligation of confidence, (ii) independently developed by or for it, (iii) acquired by it from a third party which is not, to its knowledge, under an obligation of confidence with respect to such information, or (iv) which is or becomes publicly available through no breach of this Arrangement Letter. All confidential information made available hereunder, including copies thereof, shall be returned or destroyed upon the first to occur of (a) completion of the services or (b) request by the discloser, unless the receiver is otherwise allowed to retain such confidential information. Accenture may retain, subject to the terms of this Section, one copy of P. H. Glatfelter's confidential information required for compliance with its record keeping or quality assurance requirements. 3. Ownership. Subject to payment in full of the fees related to the Deliverables specified herein, notwithstanding any withholding payment as set forth in Section 10 above, and except for those Accenture preexisting materials, ideas, tools, processes, methodologies, approaches, concepts, techniques, and any modifications or enhancements thereto (collectively, the "Accenture Materials") which P. H. Glatfelter acknowledges and agrees are solely owned by Accenture, the copyright to all original tangible materials (excluding modifications to the SAP base software which rights will be mutually agreed to in an amendment to this Arrangement Letter) , including any written materials, originated and prepared for P. H. Glatfelter by Accenture personnel pursuant to this Arrangement Letter (the "Deliverables") shall belong exclusively to P. H. Glatfelter. Accenture retains all other intellectual property rights in and to the Deliverables. Accenture agrees that any patent it receives related to its intellectual property rights in the Deliverables will not diminish the rights granted to P.H. Glatfelter hereunder. P. H. Glatfelter hereby grants to Accenture, subject to the confidentiality provisions herein, a nonexclusive, irrevocable, perpetual, fully paid up royalty free, worldwide right and license to use, sublicense, copy, modify and prepare derivative works of the Deliverables for use throughout the course of its consulting services. P. H. Glatfelter acknowledges that Accenture and SAP are currently negotiating ownership and reuse rights for i) the software deliverables that are originally developed by joint Accenture and SAP resources pursuant to this Arrangement Letter, and ii) the software deliverables consisting of modifications and extensions to the SAP base software (hereinafter referred to as the "Secondary Deliverables"). Accenture and P. H. Glatfelter currently contemplate that based on the outcome of the Accenture and SAP negotiations, P. H. Glatfelter shall have, upon delivery, a license to use, copy, modify and prepare derivative works of such Secondary Deliverables, and P. H. Glatfelter agrees to amend this Arrangement Letter upon conclusion of the Accenture and SAP negotiations to address such rights. (b) To the extent that Accenture has incorporated any Accenture Materials into the Deliverables or Secondary Deliverables, P. H. Glatfelter shall have, upon delivery, an irrevocable, perpetual, nonexclusive, paid-up, world-wide right and license to use, copy, modify and prepare derivative works of the Accenture Materials to the extent necessary to use the Deliverables and Secondary Deliverables in question. 4. Residual Knowledge. Subject to the confidentiality obligations herein and provided that Accenture does not infringe the rights granted in Section 3 above, in no event shall Accenture be precluded from developing for itself, or for others, materials which are competitive with the Deliverables and Secondary Deliverables, irrespective of their similarity to the Deliverables and Secondary Deliverables. In addition, both parties shall be free to use its general knowledge, skills and experience, and any ideas, concepts, know-how and techniques that are used in the course of the Project. 5. Employees. To allow Accenture to be able to manage its participation in the Project most effectively, Accenture reserves the right to determine the personnel to perform the work although Accenture will attempt to honor P. H. Glatfelter's requests for specific individuals. Accenture and P. H. Glatfelter agree to establish a quality review process that will address employee performance deficiencies and the potential replacement on the Project. 6. Limitation of Liability. Each party's liability under this Arrangement Letter shall not exceed, in the case of Accenture's liability, the fees for services rendered by Accenture for that segment of work giving rise to the liability or, in the case of P. H. Glatfelter, the fees payable to Accenture for that segment of work giving rise to the liability. In no event shall either party be liable to the other for any indirect, special, incidental, consequential, exemplary or punitive damages or for any form of damages other than direct damages. Any action by either party must be brought within two (2) years after the cause of action arose and was identified within 30 days after the work causing rise to the action was performed. The parties agree that they will look only to the assets of the other party in connection with any liabilities hereunder and in no event shall they have any claim against any shareholder, partner, or holder of an ownership interest in the other party in connection with this Arrangement Letter. 7. Indemnification. (a) Each party shall indemnify, defend and hold harmless the other, its employees, principals (partners, shareholders or holders of an ownership interest, as the case may be) and agents, from and against any third party claims, demands, loss, damage or expense relating to bodily injury or death of any person or damage to real and/or tangible personal property directly caused by the negligence or willful misconduct of the indemnifying party, its personnel or agents in connection with the performance of the Services hereunder. (b) P. H. Glatfelter shall defend, indemnify and hold harmless Accenture and its partners and employees from and against any loss, claim, damage or liabilities (or actions in respect thereof that may be asserted by any third party) that may result from any third party claims arising out of or relating to Accenture's service or any use by P. H. Glatfelter of any Deliverable and will reimburse Accenture for all reasonable expenses (including counsel fees) as incurred by Accenture in connection with any such action or claim, except to the extent any such claim is covered by the indemnity obligation of Accenture set forth in paragraph (c) below. (c) If P. H. Glatfelter promptly notifies Accenture in writing of a third party claim against P. H. Glatfelter that any Deliverable or Secondary Deliverable developed by Accenture hereunder infringes a copyright, trademark or a trade secret of any third party, Accenture will defend such claim at its expense (including P.H. Glatfelter legal counsel expenses and fees) and will pay any costs or damages that may be finally awarded against P. H. Glatfelter. Accenture will not indemnify P. H. Glatfelter, however, if the claim of infringement is caused by (1) P. H. Glatfelter's misuse or modification of the Deliverable or the Secondary Deliverable; (2) P. H. Glatfelter's failure to use corrections or enhancements made available by Accenture; (3) P. H. Glatfelter's use of the Deliverable or the Secondary Deliverable in combination with any product or information not owned or developed by Accenture, other than products or information developed by SAP resources; (4) P. H. Glatfelter's distribution, marketing or use for the benefit of third parties of the Deliverable or the Secondary Deliverable or (5) information, direction, specification or materials provided by P. H. Glatfelter or any third party, other than SAP resources. If any Deliverable is or Secondary Deliverables, or in Accenture's opinion is likely to be, held to be infringing, Accenture shall at its expense and option either (i) procure the right for P. H. Glatfelter to continue using it, (ii) replace it with a non-infringing equivalent, (iii) modify it to make it non-infringing or (iv) direct the return of the Deliverable or the Secondary Deliverable and refund to P. H. Glatfelter the fees paid for such Deliverable or Secondary Deliverable less a reasonable amount for P. H. Glatfelter's use of the Deliverable or Secondary Deliverable up to the time of return. The foregoing remedies constitute P. H. Glatfelter's sole and exclusive remedies and Accenture's entire liability with respect to infringement. 8. Use of Name. Neither party shall use the other party's name outside its organization in connection with its use of the Deliverables or otherwise without the express written consent, which may be withheld by either party in its sole discretion. 9. Force Majeure. Neither party shall be liable for any delays or failures in performance (other than payment obligations hereunder) due to circumstances beyond its reasonable control. 10. Independent Contractor. In connection with this Arrangement Letter, each party is an independent contractor and as such will not have any authority to bind or commit the other. Nothing herein shall be deemed or construed to create a joint venture, partnership, fiduciary or agency relationship between the parties for any purpose. 11. Warranty. Accenture warrants that (i) its services will be performed in a workmanlike manner and (ii) the delivered items developed by Accenture for P. H. Glatfelter under this Arrangement Letter shall substantially conform to the agreed to specifications. Accenture shall, at no cost to P. H. Glatfelter, reperform any work not in compliance with this warranty brought to its attention within ninety (90) days after that work is performed. P. H. Glatfelter's exclusive remedy for a breach of this warranty shall be for Accenture, upon receipt of written notice, to use commercially reasonable efforts to cure the breach at its expense, and failing that, the return of fees paid to Accenture for the work related to the breach. THE PRECEDING IS ACCENTURE'S ONLY WARRANTY CONCERNING THE SERVICES AND ANY WORK PRODUCT, AND IS MADE EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR OTHERWISE. 12. Disputes. The parties agree that in the event of a dispute under this Arrangement Letter, they will work together in good faith first, to resolve the matter internally by escalating it to higher levels of management and, then if necessary, to use a mutually agreed alternative dispute resolution technique prior to resorting to litigation. This provision shall not apply to disputes involving confidentiality or infringement of intellectual property rights (in which case either party shall be free to seek available remedies in any forum). 13. Non-Solicitation of Employees. Each party agrees not to solicit, offer work to, employ or contract with any of the other party's personnel during the term of that individual's involvement on the Project and for a period of twelve (12) months following that individual's participation on the Project without first obtaining the written consent of the other party. 14. Termination. This Arrangement Letter may be terminated by either party upon written notice if the other party breaches any material term or condition herein and such breach remains uncorrected for thirty (30) days following written notice from the other party specifying the breach. P. H. Glatfelter may at any time and without cause terminate this Arrangement Letter by giving Accenture (30) days' prior written notice of termination. Upon such termination, P. H. Glatfelter shall pay Accenture for all services rendered and reasonable, documented expenses incurred by Accenture prior to the date of termination, and any demobilization or other costs resulting from such early termination. In the event of termination by P. H. Glatfelter without cause or termination by Accenture due to a breach by P. H. Glatfelter, P. H. Glatfelter shall also pay Accenture for those nonrefundable costs committed to by Accenture, and other reasonable and documented demobilization costs incurred by Accenture as a result of such early termination with respect to the Project. 15. Scope Changes. Changes to the scope of the services shall be made only in a writing executed by authorized representatives of both parties. Accenture shall have no obligation to commence work and P. H. Glatfelter will have no liability to pay in connection with any future scope change until the fee and/or schedule impact of the change is agreed upon by the parties in writing. 16. This Arrangement Letter and attachments constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all other communications, whether written or oral. This Arrangement Letter may be modified or amended only by a writing signed by both parties. P. H. Glatfelter acknowledges that it is entering into this Arrangement Letter solely on the basis of the agreements and representations contained herein, and for its own purposes and not for the benefit of any third party. 17. This Arrangement Letter shall be governed by and construed in accordance with the laws of Illinois, without giving effect to conflict of law rules. The parties agree that any legal proceedings in connection with this Arrangement Letter shall be filed in the courts in the City of New York. 18. Accenture shall have no responsibility, obligation or liability to a licensee of P. H. Glatfelter with respect to P. H. Glatfelter's licensed products. 19. This Arrangement Letter shall not be assignable by either party without the prior written consent of the other. 20. Any notice or other communication given pursuant to this Arrangement Letter shall be in writing and shall be effective either when delivered personally to the party for whom intended, or five (5) days following deposit of the same into the United States mail (certified mail, return receipt requested, or first class postage prepaid), facsimile (with confirmation of delivery) or overnight delivery services ( with confirmation of delivery), addressed to such party at the address set forth on the initial page of this Arrangement Letter. Either party may designate a different address by notice to the other given in accordance herewith. EX-21 11 w58137ex21.txt SUBSIDARIES OF THE REGISTRANT EXHIBIT 21 LIST OF SUBSIDIARIES
State or Country ---------------- of Incorporation ---------------- Balo-I Industrial, Inc. Philippines Glenn-Wolfe, Inc. Delaware Mollanvick, Inc. Delaware Newtech Pulp Inc. Philippines Papcel-Kiew Ukraine Papcel-Papier und Cellulose, Germany Technologie und Handels-GmbH Papeteries de Cascadec S.A. France Papierfabrik Schoeller & Hoesch Germany Auslandsbeteiligungen GmbH Papierfabrik Schoeller & Hoesch Germany GmbH & Co. KG PHG Tea Leaves, Inc. Delaware PHG Verwaltungsgesellschaft mbH Germany S&H Verwaltungsgesellschaft mbH Germany Schoeller & Hoesch N.A., Inc. Delaware Schoeller & Hoesch S.A.R.L. France Spring Grove Water Company Pennsylvania The Glatfelter Pulp Wood Company Maryland Transwelt, Inc. Pennsylvania Unicon-Papier-und Kunststoffhandels GmbH Germany
EX-23 12 w58137ex23.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT P. H. Glatfelter Company: We consent to the incorporation by reference in the Registration Statements of P. H. Glatfelter Company on Form S-8 (Registration Nos. 33-25884, 33-37198, 33-49660, 33-53338, 33-54409, 33-62331, 333-12089, 333-26587, 333-34797, 333-53977 and 333-66991) of our report dated February 28, 2002, appearing in this Annual Report on Form 10-K of P. H. Glatfelter Company for the year ended December 31, 2001. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania March 25, 2002 -----END PRIVACY-ENHANCED MESSAGE-----