-----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, NJVYDxAkcKG/QVIfuGoQJj20XAvRtDvs211yjqhwoOV6EO19Q86X6YXDnLeOwoFw k3fztSJPEVifIjW+hO1Afg== 0000947871-03-002392.txt : 20031030 0000947871-03-002392.hdr.sgml : 20031030 20031030154515 ACCESSION NUMBER: 0000947871-03-002392 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20031030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BKI INTERNATIONAL INC CENTRAL INDEX KEY: 0001266915 IRS NUMBER: 621798468 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-06 FILM NUMBER: 03966679 MAIL ADDRESS: STREET 1: 1001 TILMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUCKEYE FLORIDA CORP CENTRAL INDEX KEY: 0001266757 IRS NUMBER: 593200093 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-03 FILM NUMBER: 03966675 MAIL ADDRESS: STREET 1: 1001 TILLMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BFOL 2 INC CENTRAL INDEX KEY: 0001266758 IRS NUMBER: 522283145 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-02 FILM NUMBER: 03966674 MAIL ADDRESS: STREET 1: 1001 TILLMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BFC 2 INC CENTRAL INDEX KEY: 0001266759 IRS NUMBER: 522283145 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-01 FILM NUMBER: 03966673 MAIL ADDRESS: STREET 1: 1001 TILLMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BFOL 3 LLC CENTRAL INDEX KEY: 0001266760 IRS NUMBER: 880485758 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-15 FILM NUMBER: 03966688 MAIL ADDRESS: STREET 1: 1001 TILLMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BFC 3 LLC CENTRAL INDEX KEY: 0001266761 IRS NUMBER: 880485756 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-14 FILM NUMBER: 03966687 MAIL ADDRESS: STREET 1: 1001 TILLMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUCKEYE FLORIDA LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0001266762 IRS NUMBER: 593161530 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-13 FILM NUMBER: 03966686 MAIL ADDRESS: STREET 1: 1001 TILLMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUCKEYE LUMBERTON INC CENTRAL INDEX KEY: 0001266763 IRS NUMBER: 561882960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-12 FILM NUMBER: 03966685 MAIL ADDRESS: STREET 1: 1001 TILLMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUCKEYE MT HOLLY LLC CENTRAL INDEX KEY: 0001266764 IRS NUMBER: 562158501 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-11 FILM NUMBER: 03966684 MAIL ADDRESS: STREET 1: 1001 TILLMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BKI FINANCE CORP CENTRAL INDEX KEY: 0001266765 IRS NUMBER: 621638540 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-10 FILM NUMBER: 03966683 MAIL ADDRESS: STREET 1: 1001 TILLMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERFIN SYSTEMS INC CENTRAL INDEX KEY: 0001266766 IRS NUMBER: 522086169 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-09 FILM NUMBER: 03966682 MAIL ADDRESS: STREET 1: 1001 TILLMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUCKEYE TECHNOLOGIES CANADA INC CENTRAL INDEX KEY: 0001266767 IRS NUMBER: 621849288 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-08 FILM NUMBER: 03966681 MAIL ADDRESS: STREET 1: 1001 TILLMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BKI LENDING INC CENTRAL INDEX KEY: 0001266768 IRS NUMBER: 80499992 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-07 FILM NUMBER: 03966680 MAIL ADDRESS: STREET 1: 1001 TILLMAN STREET CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUCKEYE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000899597 STANDARD INDUSTRIAL CLASSIFICATION: PULP MILLS [2611] IRS NUMBER: 621518973 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091 FILM NUMBER: 03966676 BUSINESS ADDRESS: STREET 1: PO BOX 80407 CITY: MEMPHIS STATE: TN ZIP: 38108-0407 BUSINESS PHONE: 9013208174 MAIL ADDRESS: STREET 1: PO BOX 80407 CITY: MEMPHIS STATE: TN ZIP: 38108-0407 FORMER COMPANY: FORMER CONFORMED NAME: BUCKEYE CELLULOSE CORP DATE OF NAME CHANGE: 19930326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BKI HOLDING CORP CENTRAL INDEX KEY: 0001266819 IRS NUMBER: 510374083 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-05 FILM NUMBER: 03966678 BUSINESS ADDRESS: STREET 1: 300 DELAWARE AVE STREET 2: 9TH FLOOR CITY: WILMINGTON STATE: DE ZIP: 19801 BUSINESS PHONE: 9013208100 MAIL ADDRESS: STREET 1: 1001 TILLMAN ST CITY: MEMPHIS STATE: TN ZIP: 38112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BKI ASSET MANAGEMENT CORP CENTRAL INDEX KEY: 0001266820 IRS NUMBER: 510374084 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-110091-04 FILM NUMBER: 03966677 BUSINESS ADDRESS: STREET 1: 300 DELAWARE AVE STREET 2: 9TH FLOOR CITY: WILMINGTON STATE: DE ZIP: 19801 BUSINESS PHONE: 9013208100 MAIL ADDRESS: STREET 1: 1001 TILLMAN ST CITY: MEMPHIS STATE: TN ZIP: 38112 S-4 1 s4_102903.txt REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on October 30, 2003 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- Buckeye Technologies Inc. (Exact name of registrant as specified in its charter) Delaware 2611 62-1518973 (State or Other (Primary Standard (I.R.S. Employer Jurisdiction of Industrial Classification Identification No.) Incorporation or Code Number) Organization) ---------- 1001 Tillman Street, Memphis, Tennessee 38112 (901) 320-8100 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------- SEE TABLE OF ADDITIONAL REGISTRANTS ---------- David B. Ferraro Chief Executive Officer Buckeye Technologies Inc. 1001 Tillman Street Memphis, Tennessee 38112 (901) 320-8100 Name, address, including zip code, and telephone number, including area code, of agent for service) With copies to: Sheila Jordan Cunningham Thomas J. Friedmann Senior Vice President, General Counsel Shearman & Sterling LLP Buckeye Technologies Inc. 801 Pennsylvania Avenue, NW 1001 Tillman Street Suite 900 Memphis, Tennessee 38112 Washington, D.C. 20004-2604 901-320-8100 202-508-8000 ---------- Approximate date of commencement of proposed exchange offer: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box. |_| If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| __________ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| __________
CALCULATION OF REGISTRATION FEE ==================================================================================================================================== Proposed Maximum Proposed Maximum Aggregate Amount to Offering Price Offering Amount of Title of Class of Securities to be Registered be Registered per Unit (1) Price (1) Registration Fee - ------------------------------------------------------------------------------------------------------------------------------------ 8 1/2% Senior Notes due 2013....................... $200,000,000 100% $200,000,000 $25,340 - ------------------------------------------------------------------------------------------------------------------------------------ Guarantees of 8 1/2% Senior Notes due 2013......... -- -- -- None (2) ====================================================================================================================================
(1) Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(f)(2) under the Securities Act of 1933. (2) No fee required pursuant to Rule 457(n). The co-registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the co-registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
TABLE OF ADDITIONAL REGISTRANTS State or other jurisdiction Primary standard Exact name of registrant as specified in its of incorporation or industrial classification I.R.S. Employer charter formation code number Identification No. - ----------------------------------------------- ----------------------------- --------------------------- ---------------------- Buckeye Florida Corporation(1) Delaware 2611 59-3200093 BFOL 2 Inc.(1) Florida 2611 52-2283145 BFC 2 Inc.(1) Florida 2611 52-2283147 BFOL 3 LLC(1) Delaware 2611 88-0485758 BFC 3 LLC(1) Delaware 2611 88-0485756 Buckeye Florida, Limited Partnership(1) Delaware 2611 59-3161530 Buckeye Lumberton Inc.(2) North Carolina 2611 56-1882960 Buckeye Mt. Holly LLC(3) Delaware 2670 56-2158501 BKI Lending Inc.(4) Delaware 2611 88-0499992 BKI Holding Corporation(5) Delaware 2611 51-0374083 BKI Asset Management Corporation(5) Delaware 2611 51-0374084 BKI Finance Corporation(4) Tennessee 2611 62-1638540 BKI International Inc.(6) Delaware 2611 62-1798468 Buckeye Technologies Canada Inc.(4) Delaware 2611 62-1849288 Merfin Systems Inc.(7) Delaware 2670 52-2086169
- --------------------- (1) The address and telephone number of the principal executive office is One Buckeye Drive, Perry, Florida 32348, attention: Howard Drew (850) 584-1656. The name, address and telephone number of the agent for service is Corporation Service Corporation (CSC), 1201 Hays Street Tallahassee, Florida 32301, attention: Service of Process Department (302) 636-5400. (2) The address and telephone number of the principal executive office is 1000 E. Noir Street, Lumberton, North Carolina 28359, attention: Gray Carter (910) 737-3200. The name, address and telephone number of the agent for service is Corporation Service Corporation (CSC), 327 Hillsborough Street, Raleigh, North Carolina 27603, attention: Service of Process Department (302) 636-5400. (3) The address and telephone number of the principal executive office is 100 Buckeye Drive, Mt. Holly, North Carolina 28120, attention: Dave Murphy (704) 822-6400. The name, address and telephone number of the agent for service is Corporation Service Corporation (CSC), 327 Hillsborough Street, Raleigh, North Carolina 27603, attention: Service of Process Department (302) 636-5400. (4) The address and telephone number of the principal executive offices and the name, address and telephone number of the agent for service is 639 Isbell Road, Suite 390, Reno, Nevada 89509, attention: Doris J. Krick (775) 823-3080. (5) The address and telephone number of the principal executive offices and the name, address and telephone number of the agent for service is 300 Delaware Avenue, 9th Floor, Wilmington, Delaware 19801, attention: Francis B. Jacobs, II (302) 421-7361. (6) The address and telephone number of the principal executive office is 1001 Tillman Street, Memphis, Tennessee 38112, attention: Sheila Jordan Cunningham (901) 320-8100. The name and address of the agent for service is Corporation Service Corporation (CSC), 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, attention: Service of Process Department (302) 636-5400. (7) The address and telephone number of the principal executive office is 105 Industrial Drive, King North Carolina 27021. The name, address and telephone number of the agent for service is Corporation Service Corporation (CSC) 327 Hillsborough Street, Raleigh, North Carolina 27603, attention: Steve Anderson (336) 983-4545. SUBJECT TO COMPLETION, DATED OCTOBER 30, 2003 The information in this prospectus is not complete and may be changed. Buckeye Technologies Inc. Offer to Exchange $200,000,000 8 1/2% Senior Notes due 2013 that have been registered under the Securities Act of 1933 for any and all outstanding 8 1/2% Senior Notes due 2013 that have not been registered under the Securities Act of 1933 --------------------- The New Notes o The terms of the new notes are substantially identical to the old notes, except that the new notes have been registered under the Securities Act, and the transfer restrictions, exchange offer provisions and additional interest provisions relating to the old notes do not apply to the new notes. o The new notes will mature October 1, 2013. The new notes will bear interest at the rate of 8 1/2% per year. We will pay interest on the new notes on April 1 and October 1 of each year, beginning April 1, 2004. o We may redeem some or all of the new notes at any time on or after October 1, 2008 at the redemption prices described in this prospectus. In addition, on or prior to October 1, 2006, we may redeem up to 35% of the original principal amount of the notes at 108.5% of their face amount, plus accrued and unpaid interest, if any, with the net proceeds of specified equity offerings. o The new notes will be our senior unsecured obligations and will rank equal in right of payment to our existing and future senior unsecured obligations and senior to all of our existing and future senior subordinated indebtedness. The new notes will be effectively subordinated to our existing and future secured indebtedness to the extent of the assets securing that indebtedness. o The new notes will be fully and unconditionally guaranteed on a senior unsecured basis by each of our direct and indirect domestic subsidiaries that guarantees the obligations under our revolving credit facility. These guarantees will rank equally with all existing and future senior unsecured obligations of the guarantors and will be effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. o The new notes will not be listed on any securities exchange. Currently, there is no public market for the new notes. The Exchange Offer o The exchange offer will expire at 5:00 p.m., New York City time, on , 2003, unless extended. o All old notes validly tendered and not validly withdrawn under this exchange offer will be exchanged. For each old note validly tendered and not validly withdrawn under this exchange offer, the holder will receive a new note having a principal amount equal to that of the tendered old note. o Tenders of old notes may be withdrawn at any time before the expiration date of the exchange offer. o Each broker-dealer that receives new notes for its own account under this exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the new notes. ------------------------ See "Risk Factors" beginning on page 9 for a discussion of factors that you should consider in connection with this exchange offer and an exchange of old notes for new notes. We are not asking you for a proxy, and you are requested not to send us a proxy. Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined that this prospectus is accurate or complete or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. The date of this prospectus is , 2003
TABLE OF CONTENTS Where You Can Find More Information...............................................................................i Incorporation of Documents By Reference..........................................................................ii Summary...........................................................................................................1 Risk Factors......................................................................................................9 Forward-Looking Statements.......................................................................................18 Use Of Proceeds..................................................................................................19 Capitalization...................................................................................................19 Selected Consolidated Financial Data.............................................................................20 Management's Discussion And Analysis Of Financial Condition and Results Of Operations...........................22 Business ........................................................................................................33 Management.......................................................................................................42 Security Ownership Of Certain Beneficial Owners And Management...................................................45 Certain Relationships And Related Transactions...................................................................46 The Exchange Offer...............................................................................................47 Description Of Certain Indebtedness..............................................................................57 Description Of The New Notes.....................................................................................60 Registration Rights..............................................................................................91 Book-Entry; Delivery And Form....................................................................................93 U.S. Federal Income Tax Considerations...........................................................................96
----------------------------- Each broker-dealer that receives new notes for its own account under this exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the new notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act of 1933 as amended, which we refer to as the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where the old notes were acquired by the broker-dealer as a result of its market-making or other trading activities. We have agreed that, for a period of up to 180 days after the consummation of the exchange offer, or for such longer period as provided by the registration rights agreement, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." WHERE YOU CAN FIND MORE INFORMATION Buckeye has filed with the SEC a registration statement on Form S-4 under the Securities Act relating to the offering of the new notes. This prospectus is a part of that registration statement. As described below, you may obtain from the SEC a copy of the registration statement and exhibits that Buckeye has filed with the SEC. The registration statement may contain additional information that may be important to you. Statements made in this prospectus about legal documents may not necessarily be complete, and you should read it together with the documents filed as exhibits to the registration statement or otherwise filed with the SEC. Buckeye is subject to the information requirements of the Exchange Act. Under these requirements, it files unaudited quarterly reports and audited annual reports, proxy and information statements and other information with the SEC. You may read and copy all or any portion of the reports, proxy and other information statements and other information Buckeye files at the SEC's principal office in Washington, D.C. You may also obtain copies of all or any part of such documents from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on operation of the public reference rooms. The SEC also maintains a Web site which provides online access to reports, proxy and information that registrants such as Buckeye file electronically with the SEC at the address "http://www.sec.gov". In addition, you may inspect reports, proxy and other i information statements concerning Buckeye at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York, 10005, where our common stock is listed. We make available free of charge at www.bkitech.com (in the Investor Relations section) copies of materials we file with, or furnish to, the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC. The information on our Web site is not a part of this prospectus. While any old notes remain outstanding, Buckeye will make available upon request to any holder and any prospective purchaser of old notes the information pursuant to Rule 144A(d) (4) under the Securities Act during any period in which Buckeye is not subject to Section 13 or 15(d) of the Exchange Act. INCORPORATION OF DOCUMENTS BY REFERENCE The "Executive Compensation" section from Buckeye's proxy statement filed with the SEC on October 3, 2003 and any future filings Buckeye makes with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and before the expiration date of the exchange offer are "incorporated by reference" into this prospectus. This means that important information is being disclosed to you by referring you to that filing. The information incorporated by reference is considered a part of this prospectus, and subsequent information that Buckeye files with the SEC (other than any portions of the respective filings that were furnished under applicable SEC rules, rather than filed) will automatically update and supersede this information. Any information which is subsequently modified or superseded will not constitute a part of this prospectus, except as so modified or superseded. Upon written or oral request, you will be provided with a copy of the incorporated document without charge (not including exhibits to the document unless the exhibits are specifically incorporated by reference into the document). You may submit such a request for this material at Buckeye's address and telephone number: Buckeye Technologies Inc. 1001 Tillman Street Memphis, Tennessee 38112 Attention: Corporate Secretary Telephone: (901) 320-8100 Facsimile: (901) 320-8216 To obtain timely delivery of this information, you must request it no later than five business days before , 2003, the expiration date of the exchange offer. You should rely only on the information contained in, or incorporated by reference into, this prospectus. We have not authorized anyone to provide you with different information. We are only offering to exchange the old notes for new notes in jurisdictions where the exchange offer is permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus. ii SUMMARY This summary highlights key information contained elsewhere in this prospectus and may not contain all of the information that is important to you. For a more complete understanding of this offering, you should read this entire prospectus. Unless the context requires otherwise, all references in this prospectus to "we," "us, " "our" or "Buckeye" refer to Buckeye Technologies Inc. and its direct and indirect subsidiaries. As well, all references to the "old notes" refer to our 8 1/2% senior notes due 2013 that have not been registered under the Securities Act, all references to the "new notes" refer to our 8 1/2% senior notes due 2013 being offered hereby in exchange for the old notes and all references to "notes" refer to both the old notes and the new notes. We report on a June 30 fiscal year, and our 2003 fiscal year ended June 30, 2003. Our Business Buckeye is a leading producer of value-added cellulose-based specialty products. We believe that we have leading positions in many of the high-end niche markets in which we compete. We utilize our expertise in polymer chemistry, leading research and development and advanced manufacturing facilities to develop and produce innovative and proprietary products for our customers. We sell our products to a wide array of technically demanding niche markets in which we believe our proprietary products, manufacturing processes and commitment to customer technical service give us a competitive advantage. We believe we are the only manufacturer in the world offering cellulose-based specialty products made from both wood and cotton and utilizing wetlaid and airlaid technologies. As a result, we believe we produce and market a broader range of cellulose-based specialty products than any of our competitors. We produce tailored products designed to meet individual customer requirements. Our focus on specialty niches allows us to establish long term supply positions with key customers. We operate manufacturing facilities in the United States, Canada, Germany, Ireland and Brazil. Cellulose is a natural fiber derived from trees and other plants that is used in the manufacture of a wide array of products. The total cellulose market generally can be divided into two categories: commodity and specialty. Manufacturers use commodity cellulose to produce bulk paper and packaging materials, the markets for which are very large but highly cyclical. Specialty cellulose is used to impart unique chemical or physical characteristics to a diverse range of highly engineered products. Specialty cellulose generally commands higher prices, and demand for specialty cellulose is less cyclical than demand for commodity cellulose. We believe the more demanding performance requirements for products requiring specialty cellulose limit the number of participants in our niche markets. Our focus on niche specialty cellulose markets has enabled us to maintain positive cash flows even during cyclical downturns in the commodity cellulose markets. Buckeye, which has manufactured cellulose-based specialty products for over 75 years, participates in the specialty cellulose market. This market has estimated annual sales of $7 billion and accounts for an estimated 3% of the total cellulose market. There are currently only a small number of producers that can meet the technical demands of the specialty cellulose market. In fact, we believe that world-wide production capacity for high-purity wood cellulose recently decreased significantly due to the closure of a competitor's facility and, as a result, the fundamentals of the high-purity cellulose industry should improve. Buckeye's cellulose-based specialty products can be broadly grouped into four categories: o chemical cellulose, which comprised 30% of our net sales in fiscal 2003, is used to impart purity, strength and viscosity in the manufacture of diverse products, such as food casings, rayon industrial cord, acetate fibers and plastics, as well as thickeners for personal care products, food and pharmaceuticals; o customized fibers, which comprised 17% of our net sales in fiscal 2003, are used to provide porosity, color permanence and tear resistance in automotive, laboratory and industrial filters, premium letterhead, currency paper and personal stationery products and are used in the manufacture of cosmetic cotton products such as cotton balls and cotton swabs; 1 o fluff pulp, which comprised 22% of our net sales in fiscal 2003, is used to increase absorbency and fluid transport in products such as disposable diapers, feminine hygiene products and incontinence products; and o nonwoven materials, which comprised 31% of our net sales in fiscal 2003, are used to enhance absorbency, fluid management and strength in feminine hygiene products, wipes, table top items, food pads, incontinence and household cleaning products. --------------------- We are incorporated in Delaware, and our principal executive offices are located at 1001 Tillman Street, Memphis, Tennessee 38112. Our telephone number is (901) 320-8100. 2 The Exchange Offer On September 22, 2003, we completed an offering of $200,000,000 aggregate principal amount of our 8 1/2% Senior Notes due 2013 in a transaction exempt from registration under the Securities Act. In connection with that offering, we entered into a registration rights agreement with the initial purchasers of the old notes in which we agreed to commence this exchange offer. For a more complete description of the terms of the exchange offer, see "The Exchange Offer" in this prospectus.
Securities Offered................................... $200,000,000 aggregate principal amount of our 8 1/2% senior notes due 2013 registered under the Securities Act. The terms of the new notes offered in the exchange offer are substantially identical to those of the old notes, except that the transfer restrictions, exchange offer provisions and additional interest provisions relating to the old notes do not apply to the new notes. The Exchange Offer................................... We are offering new notes in exchange for a like principal amount of our old notes. We are offering these new notes to satisfy our obligations under a registration rights agreement which we entered into with the initial purchasers of the old notes. You may tender your outstanding notes for exchange by following the procedures described under the heading "The Exchange Offer." The exchange offer is not subject to any federal or state regulatory requirements other than securities laws. Expiration Date; Tenders; Withdrawal................. The exchange offer will expire at 5:00 p.m., New York City time, on , 2003, unless we extend it. We do not currently intend to extend the exchange offer. However, if we elect to extend the exchange offer on one or more occasions, we will not extend the exchange offer for more than an aggregate of 30 days. You may withdraw any old notes that you tender for exchange at any time prior to the expiration date of the exchange offer. We will accept any and all old notes validly tendered and not validly withdrawn before the expiration date. See "The Exchange Offer--Procedures for Tendering Old Notes" and "-- Withdrawal of Tenders of Old Notes" for a more complete description of the tender and withdrawal period. U.S. Federal Income Tax Consequences................. Your exchange of old notes for new notes to be issued in the exchange offer will not result in any gain or loss to you for U. S. federal income tax purposes. See "U.S. Federal Income Tax Considerations" for a summary of U.S. federal income tax consequences associated with the exchange of old notes for new notes and the ownership and disposition of those new notes. Use of Proceeds...................................... We will not receive any cash proceeds from the exchange offer. Exchange Agent....................................... The Bank of New York
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Shelf Registration................................... If applicable interpretations of the staff of the SEC do not permit us to effect the exchange offer, or upon the request of any holder of old notes under certain circumstances, we will be required to file, cause to become effective, a shelf registration statement under the Securities Act which would cover resales of old notes. See "Registration Rights." Consequence of Failure to Exchange Your Old Notes....................................... Old notes that are not exchanged in the exchange offer will continue to be subject to the restrictions on transfer that are described in the legend on the old notes. In general, you may offer or sell your old notes only if they are registered under, or offered or sold under an exemption form, the Securities Act and applicable state securities laws. We do not currently intend to register the old notes under the Securities Act. Following consummation of the exchange offer, we will not be required to register under the Securities Act any old notes that remain outstanding except in the limited circumstances in which we are obligated to file a shelf registration statement for certain holders of old notes not eligible to participate in the exchange offer pursuant to the registration rights agreement. In addition, upon consummation of the exchange offer, we will not be obligated to pay additional interest on the old notes. If your old notes are not tendered and accepted in the exchange offer, it may become more difficult for you to sell or transfer your old notes. Interest on any old notes that are not tendered for exchange in the exchange offer will continue to accrue at a rate equal to 8 1/2% per year. Consequences of Exchanging Your Old Notes; Who May Participate in the Exchange Offer....................................... Based on interpretation of the staff of the SEC, we believe that you will be allowed to resell the new notes that we issue in the exchange offer if: o you are acquiring the new notes in the ordinary course of your business; o you are not participating in and do not intend to participate in a distribution of the new notes; o you have no arrangement or understanding with any person to participate in a distribution of the new notes; and o you are not one of our "affiliates," as defined in Rule 405 under the Securities Act. If any of these conditions are not satisfied, (1) you will not be eligible to participate in the exchange offer, (2) you should not rely in the interpretations of the staff of the SEC in connection with the exchange offer and (3) you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of your notes.
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If you are a broker-dealer and you will receive new notes for your own account in exchange for old notes that you acquired as a result of market-making activities or other trading activities, you will be required to acknowledge that you will deliver a prospectus in connection with any resale of the new notes. See "Plan of Distribution" for a description of the prospectus delivery obligations of broker-dealers in the exchange offer. In accordance with the conditions, if you are a broker-dealer that acquired the old notes directly from us in the initial offering and not as a result of market-making activities, you will not be eligible to participate in the exchange offer. Conditions of the Exchange Offer..................... Notwithstanding any other term of the exchange offer, or any extension of the exchange offer, we do not have to accept for exchange, or exchange new notes for, any old notes, and we may terminate the exchange offer before acceptance of the old notes, if in our reasonable judgment: o the exchange offer would violate applicable law or any applicable interpretation of the staff of the SEC; o any action or proceeding has been instituted or threatened in any court or by any governmental agency that might materially impair our ability to proceed with the exchange offer, or any material adverse development has occurred with respect to us; or o we have not obtained any governmental approval which we deem necessary for the consummation of the exchange offer.
The New Notes The summary below describes the principal terms of the new notes. Some of the terms and conditions described below are subject to important limitations and exceptions. You should carefully read the "Description of the Notes" section of this prospectus for a more detailed description of the new notes. Issuer........................... Buckeye Technologies Inc. Notes Offered.................... Up to $200,000,000 aggregate principal amount of 8 1/2% Senior Notes due 2013. Maturity Date.................... October 1, 2013. Guarantees....................... Each of our direct and indirect domestic subsidiaries that guarantees our obligations under our revolving credit facility will guarantee the new notes with unconditional guarantees that will be unsecured. Subject to limited exceptions, each subsidiary that guarantees any of our indebtedness will be required to guarantee the new notes on the same basis. Interest Payment Dates........... April l and October 1 of each year, beginning April 1, 2004. 5 Ranking ......................... The new notes will be our unsecured senior obligations and will rank equally with all of our existing and future senior unsecured debt and senior to any of our subordinated debt. The guarantees of the new notes by our subsidiaries will rank equally to all of such non-guarantor subsidiaries' existing and future senior unsecured obligations. The new notes and the guarantees thereof will be effectively subordinated to all secured indebtedness of ours and the guarantors to the extent of the assets securing such indebtedness. As of June 30, 2003, pro forma for the notes and the application of the proceeds therefrom, we estimate that Buckeye Technologies Inc. and the guarantors would have had $170.8 million of secured debt. The new notes will also be structurally subordinated to all indebtedness and other obligations, including trade payables, of the non-guarantor subsidiaries. On the same pro forma basis described above, as of June 30, 2003, such non-guarantor subsidiaries would have had $63.2 million of outstanding indebtedness. As of and for the twelve months ended June 30, 2003, the non-guarantor subsidiaries accounted for approximately 32% of our net sales and 49% of our consolidated assets. See "Summary Consolidated Financial Data" and "Capitalization." Optional Redemption.............. We may redeem some or all of the new notes at any time on or after October 1, 2008 at the redemption prices set forth under "Description of the Notes -- Optional Redemption." We may redeem up to 35% of the new notes on or prior to October 1, 2006 from the proceeds of certain equity offerings at 108.50% of their principal amount, plus accrued and unpaid interest, if any, to the date of redemption. We may make that redemption only if, after such redemption, at least 65% of the aggregate principal amount of the notes originally issued remains outstanding and the redemption occurs within 60 days of the date of the equity offering closing. See "Description of the Notes -- Optional Redemption." Change in Control Offer.......... Upon the occurrence of a change in control, you will have the right, as holders of the new notes, to require us to repurchase some or all of your new notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. See "Description of the Notes -- Certain Covenants -- Purchase of Notes Upon a Change in Control." Restrictive Covenants............ The indenture governing the new notes will contain covenants limiting, among other things, our ability and the ability of our restricted subsidiaries to: o incur additional debt; o pay dividends on our capital stock or the capital stock of certain of our subsidiaries or repurchase our capital stock; o make certain investments; o enter into certain types of transactions with affiliates; o limit use of assets as security in other transactions; and o sell certain assets or merge with or into other companies. These covenants are subject to important exceptions and qualifications. See "Description of the Notes." 6 SUMMARY CONSOLIDATED FINANCIAL DATA The following table sets forth our summary financial data for the fiscal years ended June 30, 1999, 2000, 2001, 2002 and 2003. We have derived the summary financial data for the fiscal years ended June 30, 1999 and 2000 from our audited financial statements. We have derived the summary financial data for the fiscal years ended June 30, 2001, 2002 and 2003 from our audited financial statements included elsewhere in this prospectus. You should read the data set forth in the following table in conjunction with our consolidated financial statements and the related notes thereto, included elsewhere in this prospectus, and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Year Ended June 30, ------------------------------------------------------------------------- 1999 2000(a) 2001(b) 2002(c) 2003(d) ----------- ------------ ------------------ ------------ ------------- (in thousands) Operating Data: Net sales ................................. $ 650,295 $ 755,544 $ 731,528 $ 635,218 $ 641,082 Cost of goods sold......................... 491,703 563,911 574,055 557,963 558,221 Gross margin............................... 158,592 191,633 157,473 77,255 82,861 Selling, research and administrative expenses .................................. 45,568 54,725 46,326 37,101 37,896 Impairment of long-lived assets............ - - - 9,984 36,503 Restructuring costs........................ - - - 1,605 1,636 Operating income........................... 113,024 136,908 111,147 28,565 6,826 Interest income............................ 390 741 1,097 535 1,062 Interest expense and amortization of debt costs...................................... (39,263) (43,485) (45,853) (48,586) (47,526) Foreign exchange, amortization of intangibles and other...................... (3,821) (5,047) (2,062) (3,438) (2,378) Income (loss) before income taxes and cumulative effect of change in accounting.. 70,330 89,117 64,329 (22,924) (42,016) Income tax expense (benefit)............... 22,312 30,000 21,055 (8,420) (17,122) Income (loss) before cumulative effect of change in accounting....................... 48,018 59,117 43,274 (14,504) (24,894) Cumulative effect of accounting change(e).. - - 3,249 (11,500) - Net income (loss).......................... 48,018 59,117 46,523 (26,004) (24,894) Other data: Depreciation, depletion and amortization of intangibles and debt costs.............. $ 43,953 $ 49,477 $ 51,724 $ 49,442 $ 51,529 Capital expenditures ...................... 51,549 68,561 153,033 35,972 28,424 Ratio of earnings to fixed charges (f)..... 2.7x 3.0x 2.2x 0.5x 0.2x Balance sheet data: Cash and cash equivalents.................. $ 8,768 $ 20,945 $ 12,932 $ 56,006 $ 49,977 Working capital(g)......................... 129,118 110,112 143,164 236,738 214,979 Total assets............................... 756,247 939,409 1,075,550 1,134,737 1,110,655 Senior debt(h)............................. 42,897 124,429 253,879 294,923 254,501 Total debt................................. 441,214 532,875 654,679 701,218 664,475 Stockholders' equity....................... 177,419 213,979 230,022 253,660 261,884
- ---------- (a) Includes the operations of Walkisoft from October 1, 1999, its date of acquisition. 7 (b) Includes the operations of our cotton cellulose plant in Americana, Brazil from August 1, 2000, its date of acquisition. See note 3 to our consolidated financial statements. (c) Includes a pretax charge of $11.6 million ($7.6 million after tax) for restructuring and impairment costs. See note 4 to our consolidated financial statements. (d) Includes a pretax charge of $38.1 million ($24.7 million after tax) for restructuring and impairment costs. See note 4 to our consolidated financial statements. (e) The 2002 cumulative effect of change in accounting relates to a goodwill impairment charge for our converting plant at King, North Carolina under the transition rules of FAS 142. See note 2 to our consolidated financial statements. The 2001 cumulative effect of change in accounting relates to a change in depreciation methods from straight-line to units-of-production for some cotton cellulose and airlaid nonwovens equipment. See note 2 to our consolidated financial statements. (f) For purposes of determining the ratio of earnings to fixed charges, we define earnings to be the sum of (1) net income (loss) from operations before income taxes, (2) the cumulative effect of change in accounting principles, (3) fixed charges (excluding capitalized interest) and (4) amortization of capitalized interest. Fixed charges consist of (1) interest expense, (2) amortization of debt issuance costs, (3) capitalized interest and (4) that portion of rental expense we believe to be representative of interest. (g) Reflects current assets less current liabilities. (h) Reflects indebtedness under our revolving credit facility, our receivables-based credit facility, the Canadian loan, the German credit facility, the UPM-Kymmene seller note and other unsubordinated indebtedness. 8 RISK FACTORS Before you decide to tender your old notes, you should carefully consider these risk factors, as well as the other information contained in this prospectus. The risks described below are not the only ones facing our company. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the adverse events described in the "Risk Factors" section actually occurs, our business, results of operations and financial condition could be materially adversely affected, the trading price, if any, of our securities could decline and you might lose all or part of your investment. Risks Related to Our Substantial Indebtedness Our substantial indebtedness could adversely affect our financial health. We have a high level of debt in relation to our stockholders' equity. As of June 30, 2003, on a pro forma basis for the notes and the application of the proceeds therefrom, our total debt would have been approximately $672.7 million and our stockholders' equity would have been $261.9 million. Our high level of debt could have a significant adverse future effect on our business. For example: o we may have limited ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our growth strategy, research and development costs or other purposes; o a substantial portion of our cash flow may be used to pay principal and interest on our debt, which will reduce the funds available for working capital, capital expenditures, acquisitions and other purposes; o we may be more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; o our high debt level and the various covenants contained in the indentures related to the notes and our senior subordinated notes and the documents governing our other existing indebtedness may place us at a relative competitive disadvantage as compared to some of our competitors; and o our hedging activities may not protect us from fluctuations in interest and currency rates. Our borrowings under our revolving credit facility and our receivables-based credit facility bear interest at floating rates, which could result in higher interest expense in the event of an increase in interest rates. Despite our indebtedness levels, we and our subsidiaries may be able to incur substantially more indebtedness, which may increase the risks created by our substantial indebtedness. The terms of our revolving credit facility and the indentures governing the notes and our existing senior subordinated notes do not fully prohibit us or our subsidiaries from incurring additional indebtedness. If we or our subsidiaries are in compliance with the financial covenants set forth in our revolving credit facility and the indentures governing the notes and our senior subordinated notes, we and our subsidiaries may be able to incur substantial additional indebtedness. If we or any of our subsidiaries incur additional indebtedness, the related risks that we and they now face may intensify. See "Description of Certain Indebtedness" and "Description of the Notes -- Certain Covenants -- Limitation on Indebtedness." We may not be able to generate a sufficient amount of cash flow to meet our debt obligations, including the notes. Our ability to make scheduled payments or to refinance our obligations with respect to the notes and our other debt will depend on our financial and operating performance, which, in turn, is subject to prevailing economic conditions and to certain financial, business and other factors beyond our control. If our cash flow and capital resources are insufficient to fund our debt obligations, we could face substantial liquidity problems and may be 9 forced to reduce or delay scheduled expansions and capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. We cannot assure you that our operating performance, cash flow and capital resources will be sufficient to repay our debt in the future. In the event that we are required to dispose of material assets or operations or restructure our debt to meet our debt and other obligations, we cannot assure you as to the terms of any such transaction or how quickly any such transaction could be completed. If we cannot make scheduled payments on our debt, we will be in default and, as a result: o our debt holders could declare all outstanding principal and interest to be due and payable; o our senior secured debt lenders could terminate their commitments and commence foreclosure proceedings against our assets; and o we could be forced into bankruptcy or liquidation. If our operating performance declines in the future, we may need to obtain waivers from the required lenders under our revolving credit facility to avoid being in default. If we breach our covenants under the revolving credit facility and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under the revolving credit facility, the lenders could exercise their rights as described above and we could be forced into bankruptcy or liquidation. The restrictive covenants in our revolving credit facility and the indentures governing the notes and our senior subordinated notes and any of our future indebtedness could adversely restrict our financial and operating flexibility and subject us to other risks. The revolving credit facility and the indentures governing the notes and our senior subordinated notes contain affirmative and negative covenants that limit our and our subsidiaries' ability to take certain actions. Our revolving credit facility requires us to maintain specified financial ratios and satisfy other financial conditions. Our revolving credit facility and the indentures governing the notes and our senior subordinated notes restrict our and our subsidiaries' ability to: o incur additional debt; o pay dividends or make other distributions, repurchase our capital stock or subordinated debt; o make certain investments; o create liens; o enter into certain types of transactions with affiliates; o restrict dividend or other payments by our subsidiaries to us; o use assets as security in other transactions; and o sell certain assets or merge with or into other companies. These restrictions may limit our ability to operate our businesses and may prohibit or limit our ability to enhance our operations or take advantage of potential business opportunities as they arise. The breach of any of these covenants by us or the failure by us to meet any of these conditions could result in a default under any or all of such indebtedness. In the event of a default, depending upon the actions taken by the lenders under the revolving credit facility, we could be prohibited from making any payments of principal, premium, if any, or interest on securities which are subordinate to the facility, and such default could trigger a cross-default with respect to the notes offered by this prospectus. In addition, the lenders could elect to declare all amounts borrowed under the facility, together with accrued and unpaid interest, to be due and payable. We obtained an amendment to the revolving credit facility on July 28, 2003 to modify the financial covenants from June 30, 2003 through March 31, 2005. As of June 30, 2003, we were in compliance with the covenants and restrictions 10 contained in our debt agreements. However, our ability to continue to comply with such agreements may be affected by events beyond our control, including prevailing economic, financial and industry conditions. In addition, if we are unable to generate sufficient cash flow from operations, we may be required to refinance outstanding debt or to obtain additional financing. We cannot assure you that a refinancing would be possible or that any additional financing could be obtained on acceptable terms. If we cannot satisfy the fixed charge coverage test contained in the indentures related to our senior subordinated notes and the notes, our ability to refinance a portion of our revolving credit facility and, consequently, our ability to incur additional indebtedness to fund our operations will be restricted. The indentures governing our senior subordinated notes limit our ability to incur additional debt unless, at the time of such incurrence, we meet a specified fixed charge ratio or such debt meets the definition of "Permitted Indebtedness" in the indentures. At March 31, 2002, our fixed charge coverage ratio (as defined in the senior subordinated note indentures) fell below 2:1, and we remained below this 2:1 ratio as of June 30, 2003. Falling below the 2:1 ratio does not breach any covenant and is not an event of default under any of our debt agreements. However, as specified in those indentures, until such time as this ratio again equals or exceeds 2:1, we can only incur debt that is Permitted Indebtedness. We incurred a portion of our revolving credit facility as Permitted Indebtedness and a portion under the 2:1 ratio. We cannot assure you that our fixed charge coverage ratio will again exceed 2:1 or that the borrowing capacity permitted under these indentures, together with other sources of cash, will be sufficient to fund our operations in the future. Risks Related to the Notes The notes and the guarantees will be effectively subordinated to our secured debt. Our obligations under the notes, and the obligations of the subsidiary guarantors under their respective guarantees, are unsecured. As a result, the notes will be effectively subordinated to all of our and the guarantors' secured debt to the extent of the value of the collateral securing such debt. Our obligations under our revolving credit facility are secured by liens on substantially all of our assets located in the United States as described in "Description of Certain Indebtedness." The notes also will be effectively subordinated to any other secured debt that we or the subsidiary guarantors may incur. As of June 30, 2003, after giving pro forma effect to the notes and the application of the proceeds therefrom, we and the subsidiary guarantors would have had approximately $170.8 million of secured debt outstanding, substantially all of which represents our and our subsidiaries' obligations under the revolving credit facility, based on borrowings at the time of the closing of the notes offering. If we could not repay amounts due under this facility, the lenders could proceed against the collateral securing that indebtedness. In that event, any proceeds received upon a realization of the collateral would be applied first to amounts due under our revolving credit facility before any proceeds would be available to make payments on the notes. If there is a default, the value of this collateral may not be sufficient to repay both the lenders under our revolving credit facility and the holders of the notes. We may not have sufficient funds or be permitted by our revolving credit facility to purchase the notes upon a change in control. Upon a change in control, we will be required to make an offer to purchase all outstanding notes. However, we cannot assure you that we will have or will be able to borrow sufficient funds at the time of any change in control to make required repurchases of notes, or that restrictions in our revolving credit facility or other senior secured indebtedness we may incur in the future would permit us to make the required repurchases. For the foreseeable future, we expect covenants in our revolving credit facility will not permit us to make the required repurchases. 11 The notes and the subsidiary guarantees may not be enforceable because of fraudulent conveyance laws. The notes and the subsidiary guarantees may be subject to review under U.S. federal bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of our unpaid creditors. Generally, under these laws, if in such a case or lawsuit a court were to find that at the time we issued the notes or a subsidiary of ours issued a guarantee: o we issued the notes or such subsidiary issued a guarantee with the intent of hindering, delaying or defrauding current or future creditors; or o we or any subsidiary guarantor received less than reasonably equivalent value of fair consideration for issuing the notes or a guarantee of the notes, as the case may be, and we or such subsidiary guarantor: o were insolvent or were rendered insolvent by reason of the issuance of the notes or such subsidiary guarantee; o were engaged, or were about to engage, in a business or transaction for which our, or such subsidiary guarantor's, remaining assets constituted unreasonably small capital to carry on our or such subsidiary guarantor's business; or o intended to incur, or believed that we, or such subsidiary guarantor, would incur indebtedness or other obligation beyond the ability to pay such indebtedness or obligation as it matured (as all of those terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes); then the court could void the notes or such subsidiary guarantee, as the case may be, or subordinate the amounts owing under the notes or such subsidiary guarantee to our presently existing or future indebtedness or take other actions detrimental to you. The measure of insolvency for purposes of these considerations will vary depending upon the law of the jurisdiction that is being applied in any such proceeding. Generally, a company would be considered insolvent if, at the time it incurred indebtedness or issued a guarantee: o it could not pay its debt or contingent liabilities as they become due; o the sum of its debts (including contingent liabilities) is greater than its assets, at fair valuation: or o the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured. If a note or guarantee is voided as a fraudulent conveyance or is found to be unenforceable for any other reason, you will not have a claim against us or such subsidiary guarantor. We believe that, at the time of the issuance of the new notes and related guarantees, neither we nor any of the subsidiary guarantors will be insolvent or rendered insolvent by the issuance of the new notes or such subsidiary guarantee, and that neither we nor any of the subsidiary guarantors will be lacking sufficient capital to operate effectively or be unable to pay obligations on the new notes or such subsidiary guarantees as they mature or become due. Some of our subsidiaries are guaranteeing the notes. The guarantors of the notes include only some of our subsidiaries. However, our historical consolidated financial information (including our consolidated financial statements included elsewhere in this prospectus) and the pro forma consolidated financial information included in this prospectus are presented on a consolidated basis, including all of our consolidated subsidiaries. As of and for the year ended June 30, 2003, our non- 12 guarantor subsidiaries accounted for approximately 32% of our net sales and 49% of our consolidated assets. On the same pro forma basis, our non-guarantor subsidiaries would have had $63.2 million of indebtedness as of June 30, 2003, all of which would have been structurally senior to the notes. Because a substantial portion of our operations is conducted by the non-guarantor subsidiaries, our cash flow and our ability to service debt, including our and the subsidiary guarantors' ability to pay the interest on and principal of the notes when due, depend to a significant extent upon interest payments, cash dividends and distributions or other transfers from the non-guarantor subsidiaries. In addition, any payment of interest, dividends, distributions, loans or advances by the non-guarantor subsidiaries to us and to the subsidiary guarantors, as applicable, could be subject to restrictions on dividends or repatriation of earnings under applicable local law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in which those non-guarantor subsidiaries operate. Moreover, payments to us and the subsidiary guarantors by the non-guarantor subsidiaries will be contingent upon these subsidiaries' earnings. Our non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the notes or the guarantees or to make any funds available for such payment, whether by dividends, loans, distributions or other payments. Any right that we or the subsidiary guarantors have to receive any assets of any of the non-guarantor subsidiaries upon the liquidation or reorganization of those subsidiaries, and the consequent rights of holders of notes to realize proceeds from the sale of any of those subsidiaries' assets, will be effectively subordinated to the claims of that subsidiary's creditors, including trade creditors and holders of debt of that subsidiary. An active trading market for the new notes may not develop, which may impair their liquidity and reduce their market price. The new notes are a new issue of securities for which there is currently no trading market. We cannot assure you that an active trading market for the new notes will develop or be sustained. We do not intend to list the new notes on any national securities exchange or Nasdaq. If an active trading market for the new notes fails to develop or be sustained, the liquidity and trading prices of the new notes could be adversely affected. Even if an active trading market for the new notes were to develop, the new notes may trade at prices lower than their face value. Whether or not the new notes trade at such lower prices will depend on many factors, some of which are beyond our control, including: o prevailing interest rates; o demand for high-yield debt securities generally; o general economic conditions; o our financial condition, performance and future prospects; and o prospects for companies in our industry generally. To the extent that old notes are tendered and accepted in the exchange offer, the trading market for old notes which are not tendered and for tendered-but-unaccepted old notes could be adversely affected due to the limited aggregate principal amount of old notes that we expect to remain outstanding following the completion of the exchange offer. Generally, when there are fewer outstanding securities of an issue, there is less demand to purchase that security, which results in a lower price for that security. Conversely, if many old notes are not tendered, or are tendered but unaccepted, the trading market for the few new notes issued could be adversely affected. See "Plan of Distribution" and "The Exchange Offer" for further information regarding the distribution of the new notes and the consequences of failure to participate in the exchange offer. 13 If you do not exchange your old notes for new notes, your ability to sell or otherwise transfer the old notes will remain restricted, which could reduce their value. The old notes were not registered under the Securities Act or under the securities laws of any state. Therefore, they may not be resold, offered for resale, or otherwise transferred unless they are subsequently registered or resold pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws. If you do not exchange your old notes for new notes pursuant to the exchange offer, you will not be able to resell, offer to resell, or otherwise transfer the old notes unless they are registered under the Securities Act or unless you resell them, offer to resell them or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act. In addition, we will no longer be required under the registration rights agreement to register the old notes under the Securities Act except under limited circumstances. Risks Related to our Business and Industry Exposure to highly cyclical products creates volatility in pricing and profits. If our research and development efforts do not result in the commercialization of new, proprietary products, we will continue to depend to a significant extent on sales of highly cyclical products such as fluff pulp, which could result in volatility in our sales prices and profits. Market fluctuations in the availability and cost of raw materials are beyond our control and may adversely impact our business. Amounts we pay for wood and cotton fiber represent the largest component of our variable costs of production. The availability and cost of these materials fluctuate due to factors beyond our control, including weather conditions and overall market demand for cellulose products. Significant decreases in availability, or increases in the cost of wood or cotton fiber, to the extent that we are not able to reflect such developments in the prices for our products, could materially and adversely affect our business, results of operations and financial condition. Increases in cost of raw materials can significantly reduce our cash flow from operations. Further, electricity, natural gas and chemical purchases are significant elements of our operating costs, and volatility in their prices can reduce our operating income. Compliance with extensive general and industry-specific environmental laws and regulations requires significant resources, and the significant associated costs may adversely impact our business. Our operations are subject to extensive general and industry specific federal, state, local and foreign environmental laws and regulations. We devote significant resources to maintaining compliance with these laws and regulations. We expect that, due to the nature of our operations, we will be subjected to increasingly stringent environmental requirements (including standards applicable to wastewater discharges and air emissions) and will continue to incur substantial costs to comply with these requirements. Because it is difficult to predict the scope of future requirements, we can offer no assurance that we will not incur material environmental compliance costs or liabilities in the future. Our failure to comply with environmental laws or regulations could subject us to penalties or other sanctions which could materially affect our business, results of operations or financial condition. Our plant near Perry, Florida, which we call the "Foley Plant," discharges treated wastewater into the Fenholloway River. Under the terms of a 1995 agreement with the Florida Department of Environmental Protection, which was approved by the U.S. Environmental Protection Agency (which we refer to as the "EPA"), we agreed to a comprehensive plan to attain Class III ("fishable/swimmable") status for the Fenholloway River under applicable Florida law and regulations. We call this agreement the "Fenholloway Agreement." It requires us: o to make process changes within the Foley Plant to reduce the coloration of its wastewater discharge, o to restore certain wetlands areas, 14 o to relocate the wastewater discharge point into the Fenholloway River to a point closer to the mouth of the river and o to provide oxygen enrichment to treated wastewater prior to discharge at the new location. We have already made significant expenditures and completed the in-plant process changes required by the Fenholloway Agreement. We estimate, based on 1997 projections, that we may incur additional capital expenditures of approximately $40 million over the next several years to comply with our remaining obligations under the Fenholloway Agreement. The EPA has requested additional environmental studies to identify possible alternatives to the relocation of the wastewater discharge point to determine if more cost-effective technologies are available to address both Class III water quality standards for the Fenholloway River and anticipated EPA "cluster rules" applicable to wastewater discharges from dissolving kraft pulp mills, like the Foley Plant. We have deferred complying with the other requirements of the Fenholloway Agreement until EPA objections to the renewal permit are satisfactorily resolved. Consequently, the capital expenditures required to complete any remaining modifications may be further delayed, and our total capital expenditures may increase if costs increase or if we are required by the "cluster rules" or other regulations to implement other modifications. While the EPA has not yet finalized the wastewater standards under the "cluster rules" applicable to dissolving kraft pulp mills like the Foley Plant, the EPA has issued air emission standards applicable to the Foley Plant. In addition, the EPA has proposed boiler air emission standards that could apply to the Foley Plant. We cannot estimate accurately the cost of future compliance, but we could incur substantial capital expenditures in fiscal year 2005 and thereafter. These possible expenditures could have a material adverse effect on our business, results of operations or financial condition. Because approximately 74% of our sales are made to customers outside the United States, we are subject to the economic and political conditions of foreign nations. We have manufacturing facilities in five countries and sell products in approximately 60 countries. In fiscal 2003, sales of our products outside the United States represented approximately 74% of our sales. The weak global economy has recently negatively impacted our sales and may continue to do so in the future. In addition, although approximately 85% of our sales for the year ended June 30, 2003 were denominated in U.S. dollars, we expect to face increased risks associated with operating in foreign countries as we expand globally, including: o the risk that foreign currencies will be devalued or that currency exchange rates will fluctuate; o the risk that limitations will be imposed on our ability to convert foreign currencies into U.S. dollars or on our foreign subsidiaries' ability to remit dividends and other payments to the United States; o the risk that our foreign subsidiaries will be required to pay withholding or other taxes on remittances and other payments to us or that the amount of any such taxes will be increased; o the risk that certain foreign countries may experience hyperinflation or severe economic downturns; and o the risk that foreign governments may impose duties and tariffs on our products or increase restrictions on our ability to invest, adjust our work force levels or otherwise impair our operating flexibility. If our significant customer fails to perform under our supply agreements, our business could be adversely impacted. We supply Procter & Gamble, our largest single customer, with fluff pulp and airlaid nonwovens. Our sales to Procter & Gamble accounted for approximately 26%, 20% and 20% of our net sales in fiscal 2001, 2002 and 2003, respectively. In the event that Procter & Gamble fails to perform under existing supply agreements for any reason, or fails to continue to purchase these products from us in substantial volumes, our results of operations and financial condition could be materially and adversely affected. 15 Our industries are highly competitive and price fluctuations could diminish our sales volume and revenues. The market for cellulose-based specialty products is highly competitive. The industries in which we compete are particularly sensitive to price fluctuations, as well as other factors including product performance, technical service and quality. To the extent that one or more of our competitors become more successful with respect to any key competitive factor, we could lose customers and our sales could decline. In addition, due to the tendency of certain customers to diversify their suppliers, we could be unable to increase or maintain sales volumes with particular customers. Many of our competitors are less leveraged and have financial and other resources greater than ours and are able to better withstand adverse business cycles. If our facilities and processes are not as cost-effective as those of our competitors, we may need to close such facilities temporarily or permanently and suffer a consequent reduction in our revenues. We are subject to the cyclicality of our industry. The demand and pricing of our products, particularly fluff pulp, are influenced by the much larger market for papermaking pulps, which is highly cyclical. The markets for cellulose-based specialty products are sensitive to both changes in general global economic conditions and to changes in industry capacity. Both of these factors are beyond our control. The price of these products can fluctuate significantly when supply and demand become imbalanced for any reason. These pricing fluctuations and the general cyclicality of the industries in which we compete can heavily influence our financial performance. We cannot assure you that current prices will be maintained, that any price increases will be achieved or that industry capacity utilization will reach favorable levels. The demand, cost and prices for our products may thus fluctuate substantially in the future and downturns in market conditions could have a material adverse effect on our business, results of operations and financial condition. If our negotiations with the representatives of the unions, to which many of our employees belong, are not successful, operations at many of our facilities could be interrupted. On September 1, 2003, we employed approximately 1,830 individuals at our facilities. We have collective bargaining agreements in place or under negotiation (1) at the Foley Plant with the Paper, Allied-Industrial, Chemical and Energy Workers International Union, AFL-CIO (PACE), Local No. 1192; (2) at our cotton cellulose plant in Memphis, Tennessee (which we refer to as the Memphis Plant) with Local Union 910 Pulp and Processing Workers and the Retail, Wholesale, and Department Store Union, AFL-CIO; and (3) at our airlaid plant in Vancouver, Canada (which we refer to as the Delta Plant) with the Communication, Energy and Paperworkers Union of Canada, Local 433. As of September 1, 2003, the Foley Plant had approximately 490 hourly employees, the Memphis Plant had approximately 150 hourly employees and the Delta Plant had approximately 105 hourly employees. These labor agreements expired or expire as follows: Foley Plant, March 21, 2008; Delta Plant, June 30, 2003; and the Memphis Plant, March 18, 2006. The hourly employees at our Lumberton, North Carolina, cotton cellulose plant have voted to be represented by PACE, and we are in the process of negotiating a labor agreement for the operations that will remain at that site (16 employees). Works councils provide employee representation for non-management workers at our cotton cellulose plants in Glueckstadt, Germany and Americana, Brazil, and at our airlaid plant in Steinfurt, Germany. The workforces at our plants in Gaston and King, North Carolina and Cork, Ireland are not represented by labor unions. An extended interruption of operations at any of our facilities could have a material adverse effect on our business. We depend on proprietary products and technologies, may not be able to protect our intellectual property rights adequately and may be sued for infringement of intellectual property. We rely on patent, trademark, copyright and trade secrecy laws to protect the proprietary aspects of our business. These legal measures afford limited protection and may not prevent our competitors from gaining access 16 to our intellectual property and proprietary information. Any of our patents may be challenged, invalidated, circumvented or rendered unenforceable. Furthermore, we cannot assure you that any pending patent application held by us will result in an issued patent, or that if patents are issued to us, such patents will provide meaningful protection against competitors or competitive technologies. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of our proprietary rights. Any such litigation could result in substantial expense, may reduce our profits and may not adequately protect our intellectual property rights. In addition, we may be exposed to litigation by third parties in the future based on claims that our products infringe their intellectual property rights. If we do not prevail in such litigation, we could incur significant liabilities, we could be required to seek licenses from third parties on unfavorable terms or be required to redesign our products to avoid using the disputed technology. We are dependent on key personnel. Our continued success will depend largely on the efforts and abilities of our executive officers and certain other key employees. If, for any reason, these officers or key employees do not remain with us, our operations could be adversely affected until suitable replacements with appropriate experience can be found. 17 FORWARD-LOOKING STATEMENTS You should carefully review the information contained in this prospectus. In this prospectus, statements that are not reported financial results or other historical information are "forward-looking statements." Forward-looking statements give current expectations or forecasts of future events and are not guarantees of future performance. They are based on our management's expectations that involve a number of business risks and uncertainties, including economic, competitive, governmental and technological factors affecting our operations, prices and other factors, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. You can identify these forward-looking statements by the fact that they do not relate strictly to historic or current facts. They use words such as "anticipate," "estimate," "project," "intend," "plan," "believe" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to: o volatility in prices and profits due to exposure to highly cyclical products; o impact of market fluctuations on the availability and cost of raw materials; o impact of general and industry specific environmental laws and regulations; o impact of global economic and political conditions; o fluctuations in foreign currency exchange rates, particularly in the U.S.$/euro exchange rate; o failure of our significant customers to perform under our supply agreements; o sensitivity to price fluctuations in our competitive industry; the cyclical nature of our industry; o increased labor costs and labor disruptions; o failure to obtain or protect our intellectual property rights; o dependence on key personnel; and o the other risks and uncertainties described in this prospectus under "Risk Factors." We cannot guarantee that any forward-looking statements will be realized, although we believe that we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and assumptions that may prove to be inaccurate. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove to be inaccurate, actual results could vary materially from those anticipated, estimated or projected. You should bear this in mind as you consider any forward-looking statements. When considering these forward-looking statements, you should also keep in mind the risk factors and other cautionary statements contained in this prospectus and the documents we have incorporated by reference. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. 18 USE OF PROCEEDS This exchange offer is intended to satisfy our obligations under the registration rights agreement. We will not receive any proceeds from the exchange offer. You will receive, in exchange for old notes validly tendered and accepted for exchange pursuant to the exchange offer, new notes in the same principal amount as the old notes. Old notes validly tendered and accepted for exchange pursuant to the exchange offer will be retired and cancelled and cannot be reissued. Accordingly, the issuance of the new notes will not result in any increase of our outstanding debt. CAPITALIZATION The following table sets forth our capitalization on (1) an actual basis at June 30, 2003 and (2) on an as adjusted basis to reflect the offering of the old notes and the application of the proceeds from the offering of the old notes. You should read this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.
June 30, 2003 -------------------------- Actual As adjusted ----------- ----------- (audited) (unaudited) (in thousands) Cash and cash equivalents (1) .................................................. $ 49,977 $ 49,977 ======== ======== Short-term debt: Current portion of long-term debt (1) (4) ...................................... $ 41,718 $ 41,718 -------- -------- Long-term debt: Revolving credit facility (1) (2) .............................................. $207,500 $165,500 Other .......................................................................... 7,000 7,000 8 1/2% senior subordinated notes due 2005....................................... 149,816 - 9 1/4% senior subordinated notes due 2008....................................... 99,688 99,688 8% senior subordinated notes due 2010 (3)....................................... 155,470 155,470 8 1/2% senior notes due 2013 ................................................... - 200,000 -------- -------- Total long-term debt (4)..................................................... 619,474 627,658 Capital lease obligation..................................................... 3,283 3,283 -------- -------- Total debt ..................................................................... $664,475 $672,659 -------- -------- Total stockholders' equity...................................................... 261,884 261,884 Total capitalization ........................................................... $926,359 $934,543 ======== ========
- ---------- (1) Subsequent to June 30, 2003 we used cash on hand and borrowings under our receivables-based credit facility to repay amounts outstanding under our revolving credit facility. At September 30, 2003, we had $26.3 million of cash and cash equivalents, $132.5 million outstanding under our revolving credit facility and $24.8 million outstanding under our receivables-based credit facility. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity." (2) Upon application of a portion of the net proceeds of this offering to repay amounts outstanding under the revolving credit facility, the amount available under the revolving credit facility has been permanently reduced by $40.0 million. See "Description of Certain Indebtedness." (3) We have estimated the fair market value of our interest rate swap based on current interest rates, market value and current pricing of financial instruments with similar terms. (4) Certain bank debt is denominated in Canadian dollars. We have translated this amount into U.S. dollars at June 30, 2003 exchange rates of CDN$1.35 = U.S.$1.00. 19 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth our selected consolidated financial data for the fiscal years ended June 30, 1999, 2000, 2001, 2002 and 2003. We have derived the selected consolidated financial data for the fiscal years ended June 30, 1999 and 2000 from our audited financial statements. We have derived the selected consolidated financial data for the fiscal years ended June 30, 2001, 2002 and 2003 from our audited financial statements included elsewhere in this prospectus. You should read the data set forth in the following table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with our consolidated financial statements and the related notes, included elsewhere in this prospectus.
Year Ended June 30, ----------------------------------------------------------------- 1999 2000(a) 2001(b) 2002(c) 2003(d) ---------- ---------- ------------- ----------- ---------- (In thousands) Operating Data: Net sales ......................................... $650,295 $755,544 $731,528 $ 635,218 $641,082 Cost of goods sold ................................ 491,703 563,911 574,055 557,963 558,221 Gross margin ...................................... 158,592 191,633 157,473 77,255 82,861 Selling, research and administrative expenses ....................................... 45,568 54,725 46,326 37,101 37,896 Impairment of long-lived assets ................... - - - 9,984 36,503 Restructuring costs .............................. - - - 1,605 1,636 Operating income ................................. 113,024 136,908 111,147 28,565 6,826 Interest income .................................. 390 741 1,097 535 1,062 Interest expense and amortization of debt costs ..................................... (39,263) (43,485) (45,853) (48,586) (47,526) Foreign exchange, amortization of intangibles and other .......................... (3,821) (5,047) (2,062) (3,438) 2,378 Income (loss) before income taxes and cumulative effect of change in accounting ..................................... 70,330 89,117 64,329 (22,924) (42,016) Income tax expense (benefit) ..................... 22,312 30,000 21,055 (8,420) (17,122) Income (loss) before cumulative effect of change in accounting ....................... 48,018 59,117 43,274 (14,504) (24,894) Cumulative effect of accounting change(e) ..................................... - - 3,249 (11,500) - Net income (loss) ................................. 48,018 59,117 46,523 (26,004) (24,894) Other data: Depreciation, depletion and amortization of intangibles and debt costs ......................................... $ 43,953 $ 49,477 $51,724 $ 49,442 $51,529 Capital expenditures .............................. 51,349 68,561 153,033 35,972 28,424 Ratio of earnings to fixed charges(f) ............. 2.7x 3.0x 2.2x 0.5x 0.2x Balance sheet data: Cash and cash equivalents ......................... $ 8,768 $ 20,945 $ 12,932 $ 56,006 $ 49,977 Working capital(g) ................................ 129,118 110,112 143,164 236,738 214,979 Total assets ...................................... 756,247 939,409 1,075,550 1,134,737 1,110,655 Senior debt(h) .................................... 42,897 124,429 253,879 294,923 254,501 Total debt ....................................... 441,214 532,875 654,679 701,218 664,475 Stockholders' equity ............................. 177,419 213,979 230,022 253,660 261,884
- ---------- (a) Includes the operations of Walkisoft from October 1, 1999, its date of acquisition. (b) Includes the operations of Americana from August 1, 2000, its date of acquisition. See note 3 to our consolidated financial statements. (c) Includes a pretax charge of $11.6 million ($7.6 million after tax) for restructuring and impairment costs. See note 4 to our consolidated financial statements. 20 (d) Includes a pretax charge of $38.1 million ($24.7 million after tax) for restructuring and impairment costs. See note 4 to our consolidated financial statements. (e) The 2002 cumulative effect of change in accounting relates to a goodwill impairment charge for our converting plant at King, North Carolina under the transition rules of FAS 142. The 2001 cumulative effect of change in accounting relates to a change in depreciation methods from straight-line to units-of-production for some cotton cellulose and airlaid nonwovens equipment. See note 2 to our consolidated financial statements. (f) For purposes of determining the ratio of earnings to fixed charges, we define earnings to be the sum of (1) net income (loss) from operations before income taxes, (2) the cumulative effect of change in accounting principles, (3) fixed charges (excluding capitalized interest) and (4) amortization of capitalized interest. Fixed charges consist of (1) interest expense, (2) amortization of debt issuance costs, (3) capitalized interest and (4) that portion of rental expense we believe to be representative of interest. (g) Reflects current assets less current liabilities. (h) Reflects indebtedness under our revolving credit facility, our receivables-based credit facility, the Canadian loan, the German credit facility, the UPM-Kymmene seller note and other unsubordinated indebtedness. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with the financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements which reflect the expectations, beliefs, plans and objectives of management about future financial performance and assumptions underlying our judgments concerning the matters discussed below. These statements, accordingly, involve estimates, assumptions, judgments and uncertainties. In particular, this pertains to our management's comments on financial resources, capital spending and the outlook for our business. Our actual results could differ from those discussed in the forward-looking statements. Factors that could cause or contribute to any differences include those discussed below and elsewhere in this prospectus, particularly in "Risk Factors." Overview Buckeye Technologies Inc. and its subsidiaries manufacture value-added cellulose-based specialty products in the United States, Canada, Germany, Ireland and Brazil and sell these products in worldwide markets. On August 1, 2000, we acquired the cotton cellulose business of Fibra, S.A. (Americana) located in Americana, Brazil. During fiscal years 2003 and 2002, we decided to reduce overhead expenses and streamline our manufacturing and headquarters operations. These decisions are reflected in our restructuring program and in our recent announcement concerning the discontinuation of production of cotton linter pulp at our Lumberton, North Carolina facility. Critical accounting policies This discussion and analysis is based upon our consolidated financial statements. We describe our critical and significant accounting policies more fully in note 1 to our consolidated financial statements, included elsewhere in this prospectus. Some of our accounting policies require us to make significant estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates underlying our financial statements requires the exercise of management's judgment. Actual results could differ from those estimates, and any such differences may be material to our financial results. Our management exercises critical judgment in the application of our accounting policies in the following areas, which significantly affect our financial condition and results of operation. Our management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of our board of directors and with our independent auditors. Inventories We state our inventories at the lower of cost or market. In assessing the ultimate realization of inventories, we must make judgments as to future demand requirements and estimated market values and compare that with the current cost of inventory. If actual market conditions are less favorable than those projected, we may be required to write down inventory. Depreciation We provide for depreciation on our production machinery and equipment at our cotton cellulose and airlaid nonwovens plants using the units-of-production depreciation method. Under this method, we calculate depreciation based on the expected productive hours of the assets and, in any case, subject to a minimum level of depreciation. If the estimated productive hours of these assets change in the future, we may have to adjust depreciation expense per unit of production accordingly. We use the straight-line method for the determining depreciation on our other capital assets. 22 Long-lived assets We review our long-lived assets for impairment when circumstances indicate that the carrying value of an asset may not be recoverable. For assets that are to be held and used, we recognize an impairment when the estimated undiscounted cash flows associated with the asset or group of assets is less than its or their carrying value. If there is an impairment, we write down the asset to its fair value and record as a loss the difference between the carrying value and fair value. We determine fair values based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. We carry assets to be disposed of at the lower of carrying value or estimated net realizable value. See note 4 of our consolidated financial statements for information concerning impairment charges. We have made acquisitions in the past that included a significant amount of goodwill and other intangible assets. On July l, 2001, we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"), and, as a consequence, discontinued the amortization of goodwill. Under the guidelines of SFAS No. 142, goodwill is subject to an annual impairment test based on its estimated fair value. We will continue to amortize other intangible assets that meet certain criteria over their useful lives, and these assets will also be subject to an impairment test based on estimated fair value. We typically base our estimates of fair value on operating earnings and adjust these by a discount factor in valuing future cash flows. The determination of an impairment loss is complex and requires that we make many assumptions and estimates. If our estimates of future cash flows or the underlying assumptions and estimates change, we may need to record additional impairment losses in the future. Planned maintenance shutdowns We accrue the cost of periodic planned maintenance shutdowns over the period between shutdowns, based on our estimates of incremental spending and fixed overhead cost. If we revise our estimates of the costs of such shutdowns, or if the period between shutdowns changes, then we may be required to adjust the amount of such accruals. Results of operations Historically, we reported our financial results in one segment. Although the materials, processes, customers, distribution methods and regulatory environment for our nonwoven materials and specialty fibers businesses are very similar, we believe it is appropriate to disclose nonwoven materials as a separate reporting segment from specialty fibers. The specialty fiber segment is an aggregation of cellulosic fibers based on both wood and cotton. We make financial decisions and allocate resources based on the sales and operating income of each segment. We allocate selling, research and administration expense to each segment, and we use the resulting operating income to measure the performance of the segments. We exclude items that are not included in measuring business performance, such as restructuring costs, asset impairment and certain financing and investing costs. Net sales Net sales in fiscal 2003 were $641.1 million, an increase of $5.9 million or 0.9% over fiscal 2002 of $635.2 million. We attribute this increase to higher volume and sales prices for fluff pulp and airlaid nonwoven materials, which were partially offset by a decline in cotton cellulose sales prices in fiscal 2003 from unusually high levels in fiscal 2002. Net sales of $635.2 million in fiscal 2002 decreased $96.3 million, or 13.2%, from fiscal year 2001 sales of $731.5 million. This was primarily due to lower sales prices on fluff pulp and airlaid nonwovens and lower shipment volumes of cotton cellulose. These decreases were partially offset by higher sales prices of cotton cellulose. Operating income Our operating income for fiscal 2003 was $6.8 million, a decrease of $21.8 million compared to fiscal 2002. This decrease was primarily due to higher restructuring and impairment costs recorded in fiscal 2003. We explain these costs in detail later in this discussion. 23 In fiscal 2002, our operating income was $28.6 million, or 4.5% of net sales, as compared to $111.1 million, or 15.2% of net sales, in fiscal 2001. This decrease was mainly due to the sales issues previously noted, increased costs of cotton raw materials and the restructuring and impairment costs discussed below. This decrease was partially offset through reductions in our sales, research and administrative expenses by $9.2 million, or 19.9%, as compared to the prior year. The reduction in our research expenses in fiscal 2002 resulted primarily from a renewed focus on key projects. Our results in both fiscal 2003 and 2002 were adversely affected by the weak global economy. Segment results Specialty fibers We had external net sales of specialty fibers in fiscal 2003 of $445.2 million as compared to $451.1 million in fiscal 2002, a decrease of $5.9 million or 1.3%. This decrease in net sales in fiscal 2003 resulted from lower selling prices on cotton based products, partially offset by slightly higher unit volumes and the restart of operations at our Americana facility. This facility manufactures chemical cellulose and distributes it to a single customer. The Americana facility had been idled previously due to the high cost of cotton linters. In fiscal 2003, we agreed with our customer to extend the initial volume agreement. We anticipate that this extension agreement will provide sufficient volume to enable the plant to continue to operate at full capacity through calendar year 2004. In fiscal 2002, our specialty fiber external net sales decreased by $76.1 million from $527.2 million in fiscal 2001. This 14.4% reduction was the result of a 28.3% reduction in the selling price of fluff pulp, partially offset by higher average prices on cotton based products. Changes in sales prices for our cotton based products are influenced by the variability in the cost and supply of cotton fibers. As our costs of cotton fibers fell in fiscal 2003, we reduced our sales prices by approximately 13%. As the cost of cotton fibers increased in 2002, we increased our sales prices of cotton based products by approximately 10%. Fluff pulp prices vary with market conditions and fell dramatically during fiscal 2002. In fiscal 2003, our average fluff pulp price increased by 3.7% versus fiscal 2002. Market supply constraints, coupled with a weakening U.S. dollar and higher energy costs, provided the basis for us to increase our list price of fluff pulp by $40 per metric ton effective April 1, 2003. We partially implemented this price increase in the fiscal fourth quarter of 2003, and this was the major factor contributing to an increase in our average fluff pulp price of 3.7% in fiscal 2003 as compared to fiscal 2002. In July 2003, one of our competitors closed one of the world's largest dissolving wood cellulose mills. We understand that prior to closure, this mill had produced a six-month supply of dissolving wood cellulose for a key customer, so we do not expect to see the full benefit of this closure until calendar year 2004. However, we believe this development has significantly tightened the supply of high-purity dissolving wood pulps in the market. Selling prices for this product improved meaningfully in the fiscal fourth quarter as compared to the fiscal third quarter of 2003. We intend to capitalize on the opportunity provided by this reduction in the supply of dissolving wood pulps to reduce significantly our shipments of fluff pulp and to increase shipments of dissolving chemical pulps, particularly chemical pulps for use in acetate applications. In the fourth quarter of fiscal 2003, we increased shipments of chemical pulp and customized fiber by approximately 6,000 metric tons and reduced shipments of fluff pulp by a corresponding amount, as compared to the third quarter of fiscal 2003. We also announced a $50 per metric ton price increase for our wood based products effective April 1, 2003. As many of our customer supply contracts are based on a calendar year, we do not expect to realize the full impact of this price increase until the beginning of calendar year 2004. Operating income for fiscal 2003 was $41.9 million (9.0% of net sales) compared to $39.5 million (8.4% of net sales) for fiscal 2002, an improvement of $2.4 million. This improvement in operating income reflected modestly higher fluff pulp pricing, a more favorable dissolving wood pulp sales mix, renewed operations at our Americana facility for most of the year and operating expense reductions. These improvements were partially offset by lower margins for cotton based products, increased energy and chemicals costs, a write-down in the value of cotton raw material and the impact of a strengthening Euro on the operating costs of our facility in Glueckstadt, 24 Germany. The cost items noted above had a greater impact on the second half of fiscal 2003 than in the first half of that year, and many of these items are one-time or relatively short-term in nature. The decrease in operating income in fiscal 2002 as compared to fiscal 2001 was due mainly to the sales issues previously noted and the increased cost of cotton fibers in fiscal 2002. These factors were partially offset by cost reductions resulting from reduced employment and lower sales, research and administrative expenses. Nonwoven materials Net sales of nonwoven materials in fiscal 2003 were $195.9 million as compared to $184.1 million in fiscal 2002, an increase of $11.8 million, or 6.4%. The increase in net sales in fiscal 2003 was primarily due to an increase in shipments and the strengthening of the euro during the fiscal 2003 period. Net sales in fiscal 2002 were $20.2 million, or 9.9%, less than fiscal 2001 primarily due to lower shipment volume, reduced sales prices and changes in product mix. Expansion in industry production capacity in calendar 2001 resulted in excess capacity and very competitive pricing in North America. Since that time, the weak global economy has slowed demand growth for airlaid nonwovens, thereby slowing the absorption of available production capacity. Nonwoven materials operating income in fiscal 2003 was $4.0 million compared to an operating loss of $2.1 million in fiscal 2002, an improvement of $6.1 million. Our improvement in operating income in fiscal 2003 reflected significant reductions in waste and cost reductions. These operational improvements were partially offset by the impact of a strengthening Canadian dollar on the operating costs of our Canadian facility. Our fiscal 2002 operating loss of $2.1 million was $6.8 million lower than our operating income of $4.7 million in fiscal 2001. Operating results in fiscal 2002 decreased mainly due to the reduced sales prices previously noted. In fiscal 2002, we started up a new airlaid nonwovens machine in North Carolina and installed and started up Stac-PacTM folding machines at all of our locations. These start-ups caused us to incur higher-than-normal waste levels and manufacturing costs at the affected facilities. These negative factors were partially offset by a decrease in sales, research and administrative expenses in fiscal 2002. Restructuring costs In early April 2003, we announced our decision to discontinue production of cotton linter pulp at our Lumberton, North Carolina facility. This decision reflected a steady decline in demand in the cotton fiber paper industry, which has contracted by about one-third since the late 1990's. We continue to produce cosmetic cotton products at this location. We completed this partial closure in August 2003. While the production of cotton linter pulp is one of our core businesses, we believe that current demand does not economically justify operating a facility that can only produce products for paper applications. To improve our ability to meet our customers' needs, we are consolidating our U.S. cotton linter pulp production at our Memphis, Tennessee facility. This facility can produce products for both chemical and paper applications. This consolidation, and the resulting increase in facility utilization, should enable us to improve our operating results by over $6 million annually and to reduce our working capital needs by approximately $10 million. We expect this more efficient operating configuration to reduce our cost of goods sold beginning in January 2004. As a result of this restructuring, we have eliminated approximately 100 positions. We paid involuntary termination benefits and miscellaneous costs of $0.1 million as of June 30, 2003 and accrued an additional $1.5 million of such expenses as of that date. We expect payments related to the 2003 restructuring program to continue through the second and third quarters of fiscal 2004. All costs of this program are reported in our statement of operations as restructuring costs. We are continuing to pursue cost reduction initiatives company wide. In fiscal 2002, we initiated a restructuring program designed to reduce costs by reducing overhead expenses. All costs of this program are reported in our statements of operations as restructuring costs. In connection with this program, we paid involuntary termination benefits of $1.0 million in fiscal 2002 and accrued 25 $0.6 million as of June 30, 2002. During fiscal 2003, the major portion of the $0.6 million accrual was paid. As a result of this restructuring, we eliminated approximately 200 positions, which reduced our costs by over $10.0 million annually. Our nonwovens and specialty fibers businesses in North America and Europe were impacted by this cost reduction program. As a part of this restructuring, we closed our engineering offices located in Finland. Impairment of long-lived assets We have evaluated the ongoing value of the property, plant and equipment associated with the Lumberton facility. Using the guidance issued under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we determined that long-lived assets associated with the Lumberton facility, having a carrying amount of $36.5 million, were no longer recoverable and were, in fact, impaired. We wrote these assets down to their estimated fair value of $7.9 million in fiscal 2003. This impairment resulted in a $28.6 million non-cash charge against our operations and an $18.6 million after-tax increase in our net loss in fiscal 2003. We include additional information in Note 4, Impairment and Restructuring Costs, to our consolidated financial statements. In fiscal 2003 we abandoned certain airlaid nonwovens equipment, which had a carrying value of $7.6 million. We evaluated the ongoing value of these assets, which principally included an uninstalled airlaid machine acquired with the purchase of Walkisoft in 1999 and also included some equipment that did not operate as intended, and wrote them down to their estimated fair value of $0.1 million. We also abandoned certain engineering drawings and fully impaired their carrying value of $0.4 million. These impairments contributed to a $7.9 million decrease in our operating income, and a $5.0 million after-tax increase in our net loss, in fiscal 2003. In the fourth quarter of fiscal 2002, we recorded impairment costs of $10.0 million. The impairment costs related primarily to obsolete airlaid nonwovens packaging equipment that we replaced with more efficient Stac-PacTM packaging lines. Net interest expense and amortization of debt costs We incurred net interest expense and amortization of debt costs of $46.5 million in fiscal 2003 compared to $48.1 million for the prior fiscal year. This decrease was primarily due to lower interest rates in fiscal 2003, which were partially offset by $1.8 million of interest capitalization in fiscal 2002. Net interest and amortization of debt costs were $3.3 million higher in fiscal 2002 compared to $44.8 million incurred in fiscal 2001. The increase was primarily due to higher levels of debt. The increase was partially offset by the favorable effect of an interest rate swap agreement which we entered into in May 2001. This interest rate swap agreement exchanged fixed rate interest payments for floating rate interest payments on $100 million of our $150 million aggregate principal amount senior subordinated notes due 2010. Foreign exchange, amortization of intangibles and other Foreign exchange, amortization of intangibles and other expense in fiscal 2003, 2002 and 2001 were $2.4 million, $3.4 million and $2.1 million, respectively. The $1.0 million favorable variance in fiscal 2003 from 2002 was due primarily to an increase of $3.1 million in foreign currency gains, partially offset by the settlement of a contract dispute and other miscellaneous items. The higher costs in fiscal 2002 versus fiscal 2001 were due primarily to lower foreign currency gains in fiscal 2002. Income taxes Our effective tax rate for fiscal 2003 was 40.8% versus 36.7% in fiscal 2002, which was primarily attributable to the utilization in 2003 of a foreign net operating loss carry forward that had previously been fully reserved. Our effective tax rate for fiscal 2002 was 36.7% versus 32.7% in fiscal 2001, due to the recognition of higher research and development tax credits in fiscal 2002. 26 Financial condition Our financial condition improved during the current fiscal year. We are committed to reducing our debt, strengthening our operations and continuing to improve our profitability and cash flow. Cash flow Net cash provided by operating activities For the years ended June 30, 2003, 2002 and 2001, we generated cash from operating activities of $55.2 million, $27.9 million and $68.6 million, respectively. The $27.3 million improvement in fiscal 2003 cash flow was due to a $16.1 million increase in operating results before the effect of certain non-cash charges (a change in accounting and impairment of long-lived assets). Additionally, reductions in inventories and the receipt of an $18.3 million federal tax refund that reduced prepaid expenses contributed to the improved cash flows from operations in fiscal 2003. These improvements were partially offset by an increase in accounts receivable due to a change in the terms of a supply contract with a significant customer. The decrease in cash provided by operating activities of $40.7 million for fiscal 2002 was due primarily to lower earnings, lower current liabilities and an increase in prepaid expenses as a result of the federal tax refund not yet received. Net cash used in investing activities In fiscal 2003, we used $20.4 million cash in investing activities, as compared to $46.1 million in fiscal 2002. Of this reduction, $17.7 million was due to the redemption of short-term investments in fiscal 2003 that we purchased in fiscal 2002. The remaining decrease in fiscal 2003 was due to continued efforts to reduce capital expenditures and the lack of any major construction or projects during the year. The decrease in cash used in investing activities during fiscal 2002 was due primarily to the completion of an airlaid nonwovens machine at the Gaston Plant. Additionally, we used $36.6 million in cash in fiscal 2001 to acquire the Americana facility. Overall, we used cash to make capital expenditures for property, plant and equipment of $28.4 million in fiscal 2003, $36.0 million in fiscal 2002 and $153.0 million in fiscal 2001. In fiscal 2001 and fiscal 2002, we made these expenditures primarily to construct, purchase, modernize and upgrade our production equipment and facilities. A majority of our capital expenditures in fiscal 2001 related to the construction of the large airlaid nonwovens machine at the Gaston Plant. We expect to make capital expenditures (including environmental expenditures and capital costs associated with the scheduled extended maintenance shutdown at our Foley Plant) in fiscal 2004 of not more than $40.0 million. Net cash provided by (used in) financing activities In fiscal 2003, we used cash to repay $42.5 million in debt, including a $22.0 million note payment to UPM-Kymmene in connection with the purchase of Walkisoft. In May 2002, we sold 2,150,000 shares of common stock at a price of $10.00 per share. The net proceeds of the offering were $21.4 million. We also used additional borrowings under our bank credit facilities along with the cash provided by operating activities to make our 2002 and 2001 $22.0 million note payments to UPM-Kymmene. Our board of directors has authorized the repurchase of up to 6.0 million shares of our common stock. Under this authorization, we will hold the repurchased shares as treasury stock and such shares will be available for general corporate purposes, including the funding of employee benefit and stock-related plans. Through June 30, 2003, we had repurchased a total of 5,009,300 shares under the current board authority, although we repurchased no shares of our common stock in fiscal 2003. At June 30, 2003, we were prohibited from repurchasing our common stock under the terms of our revolving credit facility. 27 Contractual obligations The following table summarizes our significant contractual cash obligations as of June 30, 2003. Certain of these contractual obligations are reflected in our balance sheet, while others are disclosed as future obligations under GAAP.
Greater Less than than Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years - ----------------------- -------- --------- ---------- ---------- ---------- (In thousands) Long-term obligations (1)............... $661,192 $41,718 $362,316 $ 99,688 $157,470 Capital lease obligations (2)........... 4,036 834 1,668 1,166 368 Operating leases (2).................... 2,471 1,058 861 506 46 Timber commitments (3).................. 99,000 13,000 39,000 26,000 21,000 Lint commitments........................ 15,634 15,634 - - - -------- ------- -------- -------- -------- Total contractual cash obligations...... $782,333 $72,244 $403,845 $127,360 $178,884 ======== ======= ======== ======== ========
- ---------- (1) See note 8 to our consolidated financial statements. (2) See note 9 to our consolidated financial statements. (3) See note 17 to our consolidated financial statements. Leverage/Capitalization Our total debt decreased to $664.5 million at June 30, 2003 from $701.2 million at June 30, 2002, a decrease of $36.7 million. From June 30, 2001 to June 30, 2002, total debt increased by $42.7 million. Our total debt as a percentage of our total capitalization was 71.7% at June 30, 2003 as compared to 73.4% at June 30, 2002 and 74.0% at June 30, 2001. We present net debt as an additional means by which investors can evaluate our financial condition, liquidity and ability to satisfy rating agency and creditor requirements. We calculate net debt as debt and capital lease obligations less interest rate swap non-cash fair value adjustment to debt, cash, cash equivalents, restricted cash and short-term investments. Our net debt was $605.0 million at June 30, 2003. In the table below, we reconcile net debt to long-term debt and capital lease obligations, the most directly comparable GAAP measures.
June 30, June 30, 2002 2003 ------ ------ (in millions) Debt and capital lease obligations on balance sheet ............................... $701.2 $664.5 Less: interest rate swap non-cash fair value adjustment to debt ................... (2.6) (6.1) Less: cash, cash equivalents, restricted cash and short-term investments .......... (68.2) (53.4) ------ ------ Net debt .......................................................................... $630.4 $605.0 ====== ======
Liquidity We have the following major sources of financing: revolving credit facility, receivables-based credit facility, the notes and senior subordinated notes. Our revolving credit facility, the notes and our senior subordinated notes contain various restrictive covenants. Based on our recent results of operations and the amendment to our revolving credit facility in July 2003, which was effective as of June 30, 2003, we were in compliance with these covenants as of June 30, 2003 and believe we will remain in compliance through the maturity of the revolving credit facility on March 31, 2005. 28 Revolving credit facility. We amended our revolving credit facility on July 28, 2003 to modify the financial covenants applicable for the period from June 2003 through March 31, 2005. In addition, the lenders under this facility consented to our issuance of the notes so long as we used at least $40 million of the proceeds therefrom to permanently reduce amounts outstanding under the revolving credit facility. These lenders also consented to the prepayment of the $22.0 million note due October 1, 2003 to UPM-Kymmene. In September 2003, we paid these amounts using the proceeds from the sale of the old notes. The interest rate applicable to borrowings under our revolving credit facility is the agent's prime rate plus 1.75% to 2.25% or, alternatively, a LIBOR-based rate ranging from LIBOR plus 2.75% to LIBOR plus 3.75%. This facility is secured by substantially all of our assets located in the United States. As of June 30, 2003, we had outstanding borrowings under this facility of $207.5 million and letters of credit issued under this facility with a principal amount of $2.1 million outstanding. Also as of that date, we had $5.4 million available for additional borrowings under this revolving credit facility. Receivables-based credit facility. On September 3, 2002, we amended our $30 million receivables-based credit facility. This amendment extended the maturity of the facility from December 4, 2002 to December 4, 2003. The interest rate applicable to borrowings under this facility is one week LIBOR plus 0.75%, and the facility is secured by certain insured receivables. As of June 30, 2003, we had outstanding borrowings under this facility of $5.0 million and unused borrowing availability of $24.5 million. As of that date, we held restricted cash of $3.5 million as required by the terms of such facility. Senior subordinated notes. Under the indentures governing our senior subordinated notes, as well as the indenture that governs the notes, our ability to incur additional debt is limited. Under these indentures, additional debt must be incurred as so-called "ratio" debt or, alternatively, must be permitted in form and amount as "Permitted Indebtedness." In order to incur ratio debt, a specified consolidated fixed charge coverage ratio (as defined in the subordinated note indentures) must equal or exceed 2:1 (measured on a rolling four-quarter basis). At March 31, 2002, our fixed charge coverage ratio fell below 2:1. This development did not breach any covenant or constitute an event of default under any of our debt agreements. However, until such time as the ratio again equals or exceeds 2:1, we can only incur debt that is Permitted Indebtedness. We incurred a portion of our revolving credit facility as Permitted Indebtedness and a portion as ratio debt. On October 6, 2003, we successfully completed a solicitation of consents from holders of our notes due in 2008 (2008 notes) to amend this indenture to conform certain provisions of the 2008 notes to the provisions in our notes due in 2010 and to current market practice. This amendment allows us to refinance our revolving credit facility, while we are still limited to Permitted Indebtedness as defined in the indentures. While we can offer no assurance in this regard, we believe that our operating results will improve over the next several fiscal quarters and that such improved operating results together with recent reductions in our outstanding debt, will enable us to exceed the required 2:1 ratio necessary to incur ratio debt under the senior subordinated note indentures and the indenture governing the notes. Interest rate swap. In May 2001, we entered into an interest rate swap agreement in respect of $100 million of our 8% fixed rate senior subordinated notes maturing in October 2010. The swap agreement converts interest payments from a fixed rate to a floating rate equal to LIBOR plus 1.97%. The terms of the swap agreement are consistent with the terms of our October 2010 notes; thus, this arrangement qualifies as a fair value hedge under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. As such, we record the net effect from the swap agreement as part of our interest expense. During fiscal years 2003, 2002 and 2001, the swap agreement reduced our net interest expense by $4.5 million, $3.4 million and $0.3 million, respectively. Based upon interest rates then applicable with respect to similar transactions, we recorded the fair value of the swap agreement as an asset and recorded a corresponding increase in debt of $6.1 million as of June 30, 2003 and $2.6 million at June 30, 2002. On October 15, 2003, the swap counter party exercised its right to change the termination date of the swap from October 15, 2010 to October 15, 2003. By exercising this right, the swap counter party paid us $4.0 million as an early termination fee. Current portion of long-term debt. In fiscal 2003, we reclassified our Canadian loan (maturing on September 30, 2003), our final payment to UPM-Kymmene (due October l, 2003) and our receivables-based credit facility (maturing December 4, 2003) from long-term debt to current liabilities. We made the final payment to UPM-Kymmene with proceeds from the sale of the old notes. We refinanced our Canadian $20 million loan on 29 September 30, 2003, at which time we extended its maturity to November 30, 2004 and reduced the principal to Canadian $16 million ($11.9 million U.S. at September 30, 2003). We reduced the outstanding principal amount of the Canadian loan with cash from operations. Shelf registration. On March 15, 2002, we filed a Form S-3 shelf registration statement. By its terms, the shelf registration statement allows us to issue from time to time various types of securities, including common stock, preferred stock and debt securities up to an aggregate amount of $300 million. We filed the registration statement to gain additional flexibility in accessing capital markets for general corporate purposes. This S-3 registration statement became effective on April 18, 2002. On May 16, 2002, we sold 2,150,000 shares of common stock under a universal shelf registration at a price of $10.00 per share. The net proceeds of the offering were $21.4 million. We used these proceeds for general corporate purposes. We are considering entering into a new revolving credit facility in order to refinance our existing revolving credit facility. We have received commitments from three lending institutions, including affiliates of the initial purchasers, to participate in a new credit facility, subject to customary closing conditions. While we can offer no assurances, we believe that our cash flow from operations, together with current cash and cash equivalents, will be sufficient to fund necessary capital expenditures (expected not to exceed $40 million in fiscal 2004), meet operating expenses and service our debt obligations for the foreseeable future. Recent accounting pronouncements In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the variable interest entity. The primary beneficiary is defined as the party which, as a result of holding its variable interest, absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. The provisions of FIN 46 must be applied to all other variable interest entities for the first interim or annual period beginning after December 15, 2003. We do not expect the adoption of FIN 46 to have a significant impact on our Consolidated Financial Statements. Cumulative effect of change in accounting Effective July 1, 2001, we adopted SFAS No. 142, which established new accounting and reporting requirements for goodwill and other intangible assets as described in our critical accounting policies. Based on our assessment, effective July 1, 2001 we reduced our goodwill by $11.5 million in the converting business, which we had purchased in the Merfin acquisition in 1997. We recorded no tax benefit as a result of the reduction in the carrying value of goodwill. Qualitative and quantitative disclosure about market risk We are exposed to market risk from changes in foreign exchange, interest rates, raw material costs and the price of certain commodities used in our production processes. To reduce such risks, we selectively use financial instruments. All hedging transactions are authorized and executed pursuant to our policies and procedures. Further, we do not enter into financial instruments for trading purposes. The following risk management discussion and the estimated amounts generated from the sensitivity analyses are forward-looking statements of market risk, assuming that certain adverse market conditions occur. Actual results in the future may differ materially from those projected results due to actual developments in the global financial markets. The analysis methods used to assess and mitigate risks discussed below should not be considered projections of future events or losses. 30 A discussion of our accounting policies for risk management is included in note 1, Accounting Policies, to our consolidated financial statements. Interest rates. The fair value of our long-term public debt is based on an average of the bid and offer prices at year-end. The fair value of the credit facility approximates its carrying value due to its variable interest rate. The carrying value of other long-term debt approximates fair value based on our current incremental borrowing rates for similar types of borrowing instruments. The carrying value and fair value of long-term debt at June 30, 2003 were $661.2 million and $653.3 million, respectively, and at June 30, 2002 were $697.4 million and $656.9 million, respectively. We estimate market risk as the potential change in fair value that would have resulted from a hypothetical 10% decrease in interest rates and amounts to be $0.9 million at June 30, 2003 and $2.2 million at June 30, 2002. We had $228.3 million of variable rate long-term debt outstanding at June 30, 2003. At this level of indebtedness, a hypothetical 10% increase in interest rates would have had a $1.1 million unfavorable impact on our pretax earnings and cash flows. At June 30, 2003, our primary interest rate exposures on floating rate debt related to U.S. prime rates and European interbank rates. At June 30, 2003, we had one interest rate swap agreement with a total notional value of $100.0 million. We entered into the interest rate swap agreement on May 7, 2001 and it was terminated on October 15, 2003. We recognized the net amounts paid or received under this interest rate swap agreement as an adjustment to interest expense. Foreign currency exchange rates. Foreign currency exposures arising from transactions include firm commitments and anticipated transactions denominated in a currency other than an entity's functional currency. Buckeye and our subsidiaries generally enter into transactions denominated in their respective functional currencies. Our primary foreign currency exposure arises from foreign-denominated revenues and costs and their translation into U.S. dollars. The primary currencies to which we are exposed include the European euro, Canadian dollar and the Brazilian real. We generally view as long-term our investments in foreign subsidiaries with a functional currency other than the U.S. dollar. As a result, we do not generally hedge these net investments. However, we use capital structuring techniques to manage our net investment in foreign currencies as we deem necessary. Our net investment in foreign subsidiaries translated into dollars using the year-end exchange rates was $180.4 million and $158.1 million at June 30, 2003 and 2002, respectively. We estimate that the potential loss in value of our net investment in foreign subsidiaries that would have resulted from a hypothetical 10% adverse change in quoted foreign currency exchange rates to have been $16.4 million at June 30, 2003 and $14.4 million at June 30, 2002. If it occurred, this change would be reflected in the equity section of our consolidated balance sheet. Cost of raw materials. Amounts paid by us for wood, cotton fiber and fluff pulp represent the largest component of our variable costs of production. The availability and cost of these materials are subject to market fluctuations caused by factors beyond our control, including weather conditions. Significant decreases in availability or increases in the cost of wood or cotton fiber, to the extent not reflected in prices for our products, could materially and adversely affect our business, results of operations and financial condition. Commodities. In order to minimize our exposure to fluctuations in commodity prices, we use forward contracts to reduce price fluctuations with respect to a desired percentage of forecasted purchases of natural gas over a period of generally less than one year. There were no natural gas contracts outstanding at June 30, 2003 requiring fair value treatment. At June 30, 2002, we had natural gas contracts outstanding and included in other assets with a fair value of $0.4 million. We based this assessment of fair value upon exchange-quoted market prices of comparable instruments. While the contract outstanding as of June 30, 2002 did not qualify for hedge accounting, neither its effect on the results of operations nor the year-end position was material to our overall results. Exposure to commodity products also creates volatility in pricing. If our research and development efforts do not result in the commercialization of new, proprietary products, we will continue to have significant exposure to fluff pulp and other commodity products, which could result in volatility in our sales prices and profits. 31 Industry cyclicality. The demand and pricing of our products, particularly fluff pulp, are influenced by the much larger market for papermaking pulps, which is highly cyclical. The markets for most cellulose and absorbent products are sensitive to both changes in general global economic conditions and to changes in industry capacity. Both of these factors are beyond our control. The price of these products can fluctuate significantly when supply and demand become imbalanced for any reason. Our financial performance can be heavily influenced by product price fluctuations and the general cyclicality of the industries in which we compete. It is not certain that current prices will be maintained, that we will achieve any price increases or that overall industry capacity utilization will reach favorable levels. The demand, cost and prices for our products may thus fluctuate substantially in the future, and downturns in market conditions could have a material adverse effect on our business, results of operations and financial condition. Contingencies. Our operations are subject to extensive general and industry-specific federal, state, local and foreign environmental laws and regulations. We devote significant resources to maintaining compliance with such requirements. We expect that, due to the nature of our operations, we will be subject to increasingly stringent environmental requirements (including standards applicable to wastewater discharges and air emissions) and will continue to incur substantial costs to comply with such requirements. Given the uncertainties associated with predicting the scope of future requirements, we can offer no assurance that we will not in the future incur material environmental compliance costs or liabilities. 32 BUSINESS Our Business Buckeye is a leading producer of value-added cellulose-based specialty products. We believe that we have leading positions in many of the high-end niche markets in which we compete. We utilize our expertise in polymer chemistry, leading research and development and advanced manufacturing facilities to develop and produce innovative and proprietary products for our customers. We sell our products to a wide array of technically demanding niche markets in which we believe our proprietary products, manufacturing processes and commitment to customer technical service give us a competitive advantage. We believe we are the only manufacturer in the world offering cellulose-based specialty products made from both wood and cotton and utilizing wetlaid and airlaid technologies. As a result, we believe we produce and market a broader range of cellulose-based specialty products than any of our competitors. We produce specifically tailored products designed to meet individual customer requirements. Our focus on specialty niches allows us to establish long-term supply positions with key customers. We operate manufacturing facilities in the United States, Canada, Germany, Ireland and Brazil. Cellulose is a natural fiber derived from trees and other plants that is used in the manufacture of a wide array of products. The total cellulose market generally can be divided into two categories: commodity and specialty. Manufacturers use commodity cellulose to produce bulk paper and packaging materials, the markets for which are very large but highly cyclical. Specialty cellulose is used to impart unique chemical or physical characteristics to a diverse range of highly engineered products. Specialty cellulose generally commands higher prices, and demand for specialty cellulose is less cyclical than commodity cellulose. We believe the more demanding performance requirements for products requiring specialty cellulose limit the number of participants in our niche markets. Our focus on niche specialty cellulose markets has enabled us to maintain positive cash flows even during cyclical downturns in the commodity cellulose markets. Buckeye, which has manufactured cellulose-based specialty products for over 75 years, participates in the specialty cellulose market. This market has estimated annual sales of $7 billion and accounts for an estimated 3% of the total cellulose market. There are currently only a small number of producers that can meet the technical demands of the specialty cellulose market. In fact, we believe that world-wide production capacity for high-purity wood cellulose recently decreased significantly due to the closure of a competitor's facility and, as a result, the fundamentals of the high-purity cellulose industry should improve. Buckeye's cellulose-based specialty products can be broadly grouped into four categories: o chemical cellulose, which comprised 30% of our net sales in fiscal 2003, is used to impart purity, strength and viscosity in the manufacture of diverse products, such as food casings, rayon industrial cord, acetate fibers and plastics, as well as thickeners for personal care products, food and pharmaceuticals; o customized fibers, which comprised 17% of our net sales in fiscal 2003, are used to provide porosity, color permanence and tear resistance in automotive, laboratory and industrial filters, premium letterhead, currency paper and personal stationery products and are used in the manufacture of cosmetic cotton products such as cotton balls and cotton swabs; o fluff pulp, which comprised 22% of our net sales in fiscal 2003, is used to increase absorbency and fluid transport in products such as disposable diapers, feminine hygiene products and incontinence products; and o nonwoven materials, which comprised 31% of our net sales in fiscal 2003, are used to enhance absorbency, fluid management and strength in feminine hygiene products, wipes, table top items, food pads, incontinence and household cleaning products. 33
Competitive Strengths Market for End Use Application Buckeye Value-Added Attributes ------------------------------ ------------------------------ Chemical Cellulose o High purity cotton ethers o Personal care products o High viscosity (Thickeners)............... o Low-fat dairy products o Purity o Pharmaceuticals o Safety o Construction materials o Food casings............... o Hot dogs o Purity o Sausages o Strength o Other meats o Rayon industrial cord...... o High performance tires o Strength o Hose reinforcements o Heat stability o Film for LCDs.............. o Laptop computer screens o Transparency/clarity o Desktop computer screens o Strength o Television screens o Purity Customized Fibers o Filters.................... o Automotive o High porosity o Laboratory o Product life o Industrial o Specialty cotton papers.... o Personal stationery o Color permanence o Premium letterhead o Tear resistance o Currency Nonwoven Materials o Airlaid nonwovens.......... o Feminine hygiene o Absorbency o Specialty wipes and mops o Fluid management o Tablecloths, napkins and o Wet strength placemats o Incontinence o Food pads
Our presence and leading market position in our core markets provide us with significant advantages in achieving favorable production economics, developing leading production technology and maintaining visibility among leading consumers of cellulose-based specialty products. o Diversified Portfolio of Products, Markets and Geographic Locations. We have a broad, diversified product base. We are the only manufacturer in the world offering cellulose-based specialty products made from both wood and cotton and utilizing wetlaid and technologies. We also combine our expertise in specialty cellulose fibers with advanced nonwoven technology to produce absorbent composite structures for companies that market consumer hygienic products globally. As a result, we can offer a very wide range of cellulose-based specialty products to our markets. In fact, we believe that our range of cellulose-based specialty product offerings is the broadest in the industry. Our customer base is similarly diversified both geographically and by end-use markets. In fiscal 2003, our net sales reflected this geographic diversity, with 38% of sales made in Europe, 36% in North America, 13% in Asia, 6% in South America and 7% in other regions. 34 o Advanced Manufacturing Facilities. We operate ten manufacturing facilities globally in the United States, Germany, Canada, Ireland and Brazil and employ approximately 1,800 people. At June 30, 2003, our total manufacturing capacity was approximately 780,000 metric tons annually, including 465,000 metric tons of wood-based cellulose, 180,000 metric tons of cotton-based cellulose and 135,000 metric tons of airlaid nonwovens. Our facilities have been continuously modernized and, we believe, use the latest available technology. Our airlaid nonwoven facilities produce folded cellulose-based products utilizing our patented Stac-PacTM technology. This technology improves efficiencies at our customers' plants and facilitates the shipping and handling of our products. Our production facilities have been nationally recognized for their reliability and technical excellence, including having received the North American Maintenance Excellence Award for world-class reliability systems in 1994. o Experienced Management Team. The members of our senior management team, led by our Chairman and Chief Executive Officer David B. Ferraro, have an average of 20 years of experience in the cellulose-based specialty products industry. In addition, many of these executives have spent a significant portion of their careers with Buckeye and its predecessor, providing us with outstanding management continuity and a solid base of institutional knowledge. Our management is experienced in steering the company through all phases of the business cycle and has expertise in delivering reliable, efficient operations. For example, at the Foley Plant, our largest plant, we have increased productivity, measured in tons per employee, by 34% since Buckeye was formed in 1993. Our management has used the recent cyclical downturn in our industry as an opportunity to consolidate operations, increase productivity through selective investments and reduce operating costs. o Well-Positioned for Industry Turn-Around. The cellulose-based specialty product market is sensitive to economic fluctuations and has experienced limited growth in demand in the previous three years. During the past two years, we have reduced our operating costs, consolidated our manufacturing facilities and cut our management overhead. Restructuring and efficiency initiatives have enabled us to decrease our employment by 320 positions, or 15%, to a current level of approximately 1,830 employees as of September 1, 2003. Moreover, we have reduced our sales, research and administrative expenses by approximately 31% over the last three years. As well, we believe the recent closure of one of the industry's largest kraft mills producing high-purity wood cellulose products by a competitor has lowered estimated industry production capacity by approximately 18%. Taken together, we believe these reductions have improved our ability to operate profitably in a low-demand environment and positioned us well to take advantage of any increase in demand that might result from an improving economy. Business Strategy Our strategy is to continue to strengthen our position as a leading supplier of cellulose-based specialty products. We believe that we can continue to expand market share, increase profitability and decrease our exposure to cyclical downturns by pursuing the following strategic objectives: o Focus on Technically Demanding Niche Markets. Buckeye concentrates on high-end, technically demanding and less cyclical niche markets for specialty cellulose-based products, in which a limited number of cellulose producers have the ability to compete effectively. We have found that competition in these niche markets is primarily based upon product performance, customer technical service and, to a lesser extent, price. We upgrade our products on a continuous basis to enable our customers to develop more technically demanding end-use applications and more efficient production methods. We believe that this focused, customer-oriented approach to penetrating the high-end specialty cellulose-based products market will enable us to achieve high margins and significant growth. If we are successful in expanding our market share in these technology-driven high-end niche markets, we will be able to shift our product mix more toward those products. We expect that the recent closure of a major competitor's specialty high-end cellulose production facility will enable us to improve our product mix by reducing our fluff production, increasing our specialty goods production, including acetate products, and reducing our participation in lower margin markets. 35 o Develop Innovative Proprietary Products. We have focused our research efforts on developing innovative proprietary products tailored to the chemical and physical properties specified by our customers. Our research activities concentrate, in particular, on developing new cellulose-based specialty products, enhancing existing products and creating new applications for our products. In the past, we developed one of the earliest commercial processes to purify cotton linters for conversion into cellulose acetate used in making photographic film and were also among the first companies to employ cold caustic extraction technology to produce high-purity wood cellulose for use in rayon tire cord and food casings. We also were the first company to commercialize mercerized southern softwood cellulose as the porosity-building fiber in automotive air and oil filter applications and to apply fluff pulp for use in the absorbent core of disposable diapers. Our scientists are now working on the next generation of cellulose-based specialty products for both new and current applications in such diverse areas as feminine hygiene products, diapers, high-performance automotive filters, building materials and cellulose ethers. We recently developed an improved, high-purity cotton cellulose grade to meet the needs of film producers serving the fast-growing LCD component market. We also recently introduced a line of specialty cotton fiber grades for use in make-up pads and personal care products. For our absorbent markets, we developed our proprietary Caressa(TM) family of coated fibers for use in absorbent products, which should provide us with a platform to enter other new markets. Finally, we have developed a proprietary, multifunctional airlaid structure that provides superior acquisition and containment for feminine hygiene applications. o Strengthen Long-Term Alliances with Customers. We seek to build long-term alliances with our customers, who are, in many cases, market leaders in their respective industries and in the geographic markets they serve. We work closely with these customers through all stages of product development and manufacture in order to tailor products to meet their specific requirements. Our commitment to product quality, dedication to customer technical service and flexible response to changing customer needs have enabled us to develop and strengthen long-term alliances with our customers. o Provide Our Products at an Attractive Value. We have taken, and continue to take, actions to reduce the cost of our products in order to enhance customer value. These programs, together with the selective consolidation of our production facilities, have increased productivity and enabled us to provide value to our customers while maintaining positive cash flows, even during the current cyclical downturn in our industry. o Significantly Reduce Debt. We intend to use our free cash flow to reduce our overall indebtedness. During the current cyclical downturn in our industry, we managed to reduce our indebtedness by $36.7 million, from $701.2 million as of June 30, 2002 to $664.5 million as of June 30, 2003. We believe that this focus on debt reduction will increase our flexibility in the face of periodic cyclical downturns. Company History We and our predecessors have participated in the specialty cellulose market for over 75 years and have developed new uses for many cellulose-based products. We began operations as an independent company on March 16, 1993, when we acquired the cellulose manufacturing operations of Procter & Gamble located in Memphis, Tennessee and Perry, Florida (the Foley Plant), with Procter & Gamble retaining a 50% limited partnership interest in the Foley Plant. We became a public company in November of 1995 and simultaneously acquired/redeemed Procter & Gamble's remaining interest in the Foley Plant. In May 1996, we acquired the specialty cellulose business of Peter Temming AG located in Glueckstadt, Germany. In September 1996, we acquired Alpha Cellulose Holdings, Inc., a specialty cellulose producing facility located in Lumberton, North Carolina. In May 1997, we acquired Merfin International Inc., a leading manufacturer of airlaid nonwovens with facilities located in Ireland, Canada and the United States. In October 1999, we acquired essentially all of the assets of Walkisoft, UPMKymmene's nonwovens business. The acquisition of Walkisoft added manufacturing facilities in Steinfurt, Germany and Gaston County, North Carolina. In March 2000, we acquired the intellectual property rights to the Stac-PacTM folding technology. In August 2000, we acquired the cotton cellulose business of Fibra, S.A. located in Americana, Brazil. Further information on the acquisition of Americana is included in note 3, Business Combinations, to our consolidated financial statements. In calendar 2001, we began production on the world's 36 largest airlaid nonwovens machine at our Gaston, North Carolina facility and a cosmetic cotton fiber line at our Lumberton, North Carolina facility. Our Products Our product lines can be broadly grouped into four categories: chemical cellulose, customized fibers, fluff pulp and nonwoven materials. The chemical cellulose and customized fibers are derived from wood and cotton cellulose materials using wetlaid technologies. Fluff pulps are derived from wood using wetlaid technology. Wetlaid technologies encompass cellulose manufacturing processes in which fibers are deposited using water. Airlaid nonwovens materials are derived from wood pulps, synthetic fibers and other materials using airlaid technology. Airlaid technology utilizes air as a depositing medium for fibers, one benefit of which is an increased ability over wetlaid processes to mix additional feature-enhancing substances into the material being produced. Raw Materials Slash pine timber, cotton fiber and fluff pulp are the principal raw materials used in the manufacture of our products. These materials represent the largest components of our variable costs of production. The region surrounding the Foley Plant has a high concentration of slash pine timber, which enables us to purchase adequate supplies of a species of timber well-suited to our products at an attractive cost. In order to secure a source of wood at reasonable prices, we have entered into timber purchase agreements which allow us to purchase wood at current market or fixed prices as stated in the agreements. We purchase cotton fiber either directly from cottonseed oil mills or indirectly through agents or brokers. We purchase the majority of our requirements of cotton fiber for the Memphis and Lumberton Plants domestically. The Glueckstadt Plant purchases cotton fiber principally from suppliers in Central Asia and the Middle East. The majority of the cotton fiber processed in the Americana plant comes from within Brazil. The cost of slash pine timber and cotton fiber fluctuates due to supply and demand factors beyond our control. Sales and Customers Our products are marketed and sold through a highly trained and technically skilled in-house sales force. We maintain sales offices in the United States, Europe, Asia and South America. Our worldwide sales are diversified by geographic region as well as end-product application. Our sales are distributed to customers in approximately 60 countries around the world. Our fiscal 2003 sales reflect this geographic diversity, with 38% of sales in Europe, 36% of sales in North America, 13% of sales in Asia, 6% of sales in South America and 7% of sales in other regions. Over 85% of our worldwide sales for the year ended June 30, 2003 were denominated in U.S. dollars. Our products are shipped by rail, truck and ocean carrier. The high-end, technically demanding specialty niches that we serve require a higher level of sales and technical service support than do commodity cellulose sales. Our sales professionals work with customers in their plants to design products tailored precisely to their product needs and manufacturing processes. Procter & Gamble, our largest customer, accounted for 20% of our fiscal 2003 net sales. No other customer accounted for greater than 5% of our fiscal 2003 net sales. Research and Development Our research and development activities focus on developing new products, improving existing products and enhancing process technologies to further reduce costs and respond to environmental needs. We have research and development pilot plant facilities in Memphis, and we employ scientists and technicians who are focused on advanced products and new applications to drive future growth. The pilot plant facilities allow us to produce and test new products without interrupting the normal production cycles of our operating plants, a process that ensures rapid delivery of any breakthrough products to the market place on a more cost-effective basis. 37 Research and development costs of $9.3 million, $9.0 million and $13.0 million were charged to expense as incurred for the years ended June 30, 2003, 2002 and 2001, respectively. Competition There are relatively few specialty fiber producers when compared with the much larger commodity paper pulp markets. The technical demands and requirements of the high-purity chemical cellulose or customized fiber pulp user tend to differentiate suppliers on the basis of their ability to meet the customer's particular needs, rather than focusing only on pricing. The high-purity chemical cellulose and customized fiber markets are less subject to price variations than commodity paper pulp markets. Our major competitors include Rayonier, Archer-Daniels-Midland, Weyerhaeuser, Borregaard and Tembec. International Paper closed its Natchez, Mississippi high-purity wood pulp mill in July 2003. The closure of this plant provides us with an opportunity to increase our volume in the high purity wood cellulose market. Although demand for fluff pulp is generally stable, fluff pulp prices tend to vary together with commodity paper pulp prices because fluff pulp is often produced in mills that also produce commodity paper pulp. Our strategy is to reduce our exposure to fluff pulp by increasing our sales of more specialized wood cellulose in new and existing markets. We also use about 40,000 metric tons of fluff pulp from our Foley Plant annually as a key raw material in our airlaid nonwoven operations. We currently produce about 10% of the world's supply of fluff pulp. Our major competitors include Weyerhaeuser, Georgia-Pacific, Rayonier, Bowater and International Paper. We believe that the number of producers is unlikely to grow significantly given the substantial investment necessary to enter the mature specialty fibers market and sufficient existing capacity. Demand for airlaid nonwovens grew significantly in the 1990's. Significant capacity expansion in 2001, primarily in North America, has resulted in the market being oversupplied. Major airlaid nonwovens competitors include BBA Nonwovens, Concert Industries, Duni and Georgia-Pacific. In August 2003, Concert Industries filed for protection under Canada's Companies' Creditors Arrangement Act. We are unable to predict the impact of this bankruptcy filing on our markets. Intellectual Property At June 30, 2003 and 2002, we had recorded intellectual property assets totaling $30.7 million and $31.9 million, respectively. These amounts include patents (including application and defense costs), licenses, trademarks and tradenames the majority of which were obtained in the acquisition of airlaid businesses. We intend to protect our patents and to apply for additional patents to cover any future inventions that we deem important to our business operations. The "Stac-Pac"(TM) packaging technology, a proprietary system for packaging low-density nonwoven materials in compressed cube-shaped bales, is an example of a technology that we acquired to differentiate us from our airlaid nonwovens competitors. "Stac-Pac"(TM) bales facilitate our customers' high-speed production lines by permitting a continuous flow of material. "Stac-Pac"(TM) units also reduce freight costs by compressing more material in a bale than can be shipped in a traditional roll form, which enables us to ship bales in trucks and containers more effectively. Additional information is included in Note 1, Accounting Policies, to our consolidated financial statements. Inflation We believe that inflation has not had a material effect on our results of operations nor on our financial condition during recent periods. Seasonality Our business has generally not been seasonal, but in most years we ship somewhat lower volume in the July - September quarter. 38 Employees As of September 1, 2003, we employed approximately 1,830 employees, approximately 1,180 of whom are employed at our facilities in the United States. Approximately 60% of our U.S. employees are represented by unions at three plants in Foley, Florida, Lumberton, North Carolina and Memphis, Tennessee. The labor agreement at the Foley Plant was renegotiated in 2003, and the new agreement expires on March 31, 2008. The agreement for the Memphis Plant was negotiated during fiscal 2003 and expires in fiscal 2006. During fiscal 2003, the Lumberton hourly employees elected to be represented by a union, and a labor agreement is currently being negotiated. In Canada, the Delta Plant labor agreement expired on June 30, 2003, and a new agreement is currently being negotiated. Works councils provide employee representation for non-management workers at our cotton cellulose plants in Glueckstadt, Germany and Americana, Brazil and our airlaid plant in Steinfurt, Germany. Our plants in Gaston, and King, North Carolina and Cork, Ireland are not unionized. None of our facilities has had labor disputes or work stoppages in recent history. The Foley and Memphis Plants have not experienced any work stoppages due to labor disputes in over 30 years and 50 years, respectively. We consider our relationships with our employees and their representative organizations to be good. An extended interruption of operations at any of our facilities could have a material adverse effect on our business. Environmental Regulations and Liabilities Our operations are subject to extensive general and industry-specific federal, state, local and foreign environmental laws and regulations. We devote significant resources to maintaining compliance with these laws and regulations. We expect that, due to the nature of our operations, we will be subject to increasingly stringent environmental requirements (including standards applicable to wastewater discharges and air emissions) and will continue to incur substantial costs to comply with such requirements. Because it is difficult to predict the scope of future requirements, we can offer no assurance that we will not incur material environmental compliance costs or liabilities in the future. Our failure to comply with environmental laws or regulations could subject us to penalties or other sanctions which could materially affect our business, results of operations or financial condition. The Foley Plant near Perry, Florida discharges treated wastewater into the Fenholloway River. Under the terms of a 1995 agreement with the Florida Department of Environmental Protection, approved by the EPA, we agreed to a comprehensive plan to attain Class III ("fishable/swimmable") status for the Fenholloway River under applicable Florida law and regulations. Under the Fenholloway Agreement we must among other things: o make process changes within the Foley Plant to reduce the coloration of its wastewater discharge, o restore certain wetlands areas, o relocate the wastewater discharge point into the Fenholloway River to a point closer to the mouth of the river and o provide oxygen enrichment to treated wastewater prior to discharge at the new location. We have already made significant expenditures and completed the in-plant process changes required by the Fenholloway Agreement. We estimate, based on 1997 projections, that we may incur additional capital expenditures of approximately $40 million over the next several years to comply with our remaining obligations under the Fenholloway Agreement. The EPA has requested additional environmental studies to identify possible alternatives to the relocation of the wastewater discharge point to determine if more cost-effective technologies are available to address both Class III water quality standards for the Fenholloway River and anticipated EPA "cluster rules" applicable to wastewater discharges from dissolving kraft pulp mills, like the Foley Plant. We have deferred complying with the other requirements of the Fenholloway Agreement until EPA objections to the renewal permit are satisfactorily resolved. Consequently, the capital expenditures required to complete any remaining 39 modifications may be delayed, and our total capital expenditures may increase if costs increase or if we are required by the "cluster rules" or other regulations to implement other technologies. While the EPA has not yet finalized the wastewater standards under the "cluster rules" applicable to dissolving kraft pulp mills like the Foley Plant, the EPA has issued air emission standards applicable to the Foley Plant. In addition, the EPA has proposed boiler air emission standards that could apply to the Foley Plant. We cannot yet estimate accurately the cost of future compliance, but substantial capital expenditures could be required in fiscal year 2005 and thereafter. Properties Corporate Headquarters and Sales Offices. Our corporate headquarters, research and development laboratories and pilot plants are located in Memphis, Tennessee. We own the corporate headquarters, the Memphis Plant, the Foley Plant, the Cork, Ireland Plant, the Lumberton Plant, the Gaston Plant, the Delta, Canada Plant, the Glueckstadt, Germany Plant, the Steinfurt, Germany Plant and the Americana, Brazil Plant. We lease buildings that house the King, North Carolina Plant, our sales offices in Europe and Asia and distribution facilities in Savannah, Georgia. Specialty Fibers Plants Memphis Plant. The Memphis Plant is located on approximately 75 acres adjacent to the headquarters complex and has a capacity of approximately 100,000 annual metric tons of cotton cellulose. Foley Plant. The Foley Plant is located near Perry, Florida on a 2,900 acre site and has a capacity of approximately 465,000 annual metric tons of wood cellulose. In connection with the acquisition of the Foley Plant, we also own 13,000 acres of real property near the plant site. Glueckstadt Plant. The Glueckstadt Plant is located in Glueckstadt, Germany near the Elbe River north of Hamburg, Germany. The site is adjacent to the paper plant of Steinbeis Temming Papier GmbH. Some utilities, including steam, power, water and waste treatment, are shared between the plants pursuant to various utility agreements. The Glueckstadt Plant has a capacity of approximately 50,000 annual metric tons and is the largest cotton cellulose plant in Europe. Lumberton Plant. The Lumberton Plant is located in Lumberton, North Carolina on a 65-acre site and has a capacity of approximately 8,000 annual metric tons of cosmetic cotton fiber. In 2003, we partially closed the Lumberton Plant, which resulted in the termination of approximately 100 employees, and we will incur cash costs of approximately $2 million in connection with discontinuing production of cotton linter pulp at Lumberton. Americana Plant. The Americana Plant is located in the city of Americana in the state of Sao Paulo, Brazil on 27 acres and is part of a multi-business industrial site. This facility has a capacity of approximately 30,000 annual metric tons of cotton cellulose. Nonwovens Plants Delta Plant. The Delta Plant is located near Vancouver, Canada in Delta, British Columbia on a 12-acre industrial park site and has a total capacity of approximately 30,000 annual metric tons of airlaid nonwovens from two production lines. Cork Plant. The Cork Plant is located near Cork, Ireland on a 16-acre site and has a total capacity of approximately 15,000 annual metric tons of airlaid nonwovens from its single production line. The land is leased on a 99-year fair market value basis and comes due in 2096. Steinfurt Plant. The Steinfurt Plant is located in Steinfurt, Germany on an 18-acre site and has a total annual capacity of approximately 30,000 metric tons of airlaid nonwovens from two production lines. 40 Gaston Plant. The Gaston Plant is located in Gaston County near Mt. Holly, North Carolina on an 80-acre site and has a total capacity of approximately 60,000 annual metric tons of airlaid nonwovens from two production lines. King Plant. The King Plant is located in King, North Carolina and converts airlaid materials and wetlaid papers into wipes, towels and tissues for industrial and commercial uses. The stated capacity of airlaid nonwoven machines is based upon an assumed mix of products. The flexible nature of the airlaid technology allows for a wide range of materials to be produced. Machine production capability has typically been lower than stated capacity, often by factors of 10-20%, when adjusted to reflect the actual product mix. All of our airlaid nonwovens sites have proprietary Stac-Pac(TM) folding technology operational, which allows us to efficiently produce compressed bales that facilitate customers' high-speed production lines by permitting a continuous flow of materials and more efficient shipping. Legal Proceedings We are involved in certain legal actions and claims arising in the ordinary course of business. We believe that such litigation and claims individually and in this aggregate will be resolved without material adverse effect on our financial position or results of operation. 41 MANAGEMENT Directors and Executive Officers The names, ages and positions held by the executive officers and directors of the Company on October 20, 2003 are:
Name Age Position ---- --- -------- David B. Ferraro................. 65 Chairman of the Board, Chief Executive Officer and Director John B. Crowe.................... 56 President and Chief Operating Officer Kristopher J. Matula............. 41 Executive Vice President and Chief Financial Officer Charles S. Aiken................. 53 Sr. Vice President, Manufacturing R. Howard Cannon................. 41 Sr. Vice President, Wood Cellulose and Director Sheila Jordan Cunningham......... 51 Sr. Vice President, General Counsel and Secretary George B. Ellis.................. 63 Sr. Vice President, Cotton Cellulose William M. Handel................ 57 Sr. Vice President, Human Resources Paul N. Horne.................... 48 Sr. Vice President, Cotton Cellulose George W. Bryan.................. 59 Director Robert E. Cannon................. 73 Presiding Director Red Cavaney...................... 60 Director Henry F. Frigon.................. 68 Director Samuel M. Mencoff................ 47 Director
David B. Ferraro Chairman of the Board, Chief Executive Officer and Director Mr. Ferraro has served as Chairman of the Board and Chief Executive Officer since April 1, 2003. From March 1993 until he was named Chairman and CEO, Mr. Ferraro served as President and Chief Operating Officer. He has been a director of Buckeye since March 1993. He was Manager of Strategic Planning of Procter & Gamble from 1991 through 1992. He served as President of our predecessor, Buckeye Cellulose Corporation, then a subsidiary of Procter & Gamble, from 1989 through 1991, as its Executive Vice President and Manager of Commercial Operations from 1987 through 1989, and as its Comptroller from 1973 through 1986. John B. Crowe President and Chief Operating Officer Mr. Crowe has served as President and Chief Operating Officer since April 1, 2003. He served as Senior Vice President, Wood Cellulose from January 2001 to April 2003. He served as Vice President, Wood Cellulose Manufacturing from December 1997 to January 2001. Prior to joining Buckeye, he was Executive Vice President/ General Manager of Alabama River Pulp and Alabama Pine Pulp Operations, a division of Parsons and Whittemore, Inc., and was Vice President and Site Manager of Flint River Operations, a subsidiary of Weyerhaeuser Company. From 1979 to 1992, he was an employee of Procter & Gamble. Kristopher J. Matula Executive Vice President and Chief Financial Officer Mr. Matula was named Executive Vice President and Chief Financial Officer in October 2003. He served as Senior Vice President, Nonwovens and Corporate Strategy from April 2003 to October 2003. He served as Senior Vice President, Nonwovens from January 2001 to April 2003. He served as Senior Vice President, Commercial-Absorbent Products from July 1997 to January 2001 and as Vice President, Corporate Strategy from 42 April 1996 to July 1997. Prior to joining Buckeye in 1994, he held various positions with Procter & Gamble and General Electric. Charles S. Aiken Senior Vice President, Manufacturing Mr. Aiken has served as Senior Vice President, Manufacturing since October 2003. He served as Senior Vice President, Nonwovens Manufacturing from April 2000 to October 2003. He served as Vice President, Business Systems from April 1998 to April 2000, and as Vice President, Foley Plant from June 1995 to April 1998. He was an employee of Procter & Gamble from 1977 to March 1993. R. Howard Cannon Senior Vice President, Wood Cellulose and Director Mr. Cannon has served as Senior Vice President, Wood Cellulose since April 1, 2003. Previously he was Vice President, Nonwovens Sales from August 2000 to April 2003 and was Manager, Corporate Strategy from November 1999 to August 2000. He has served as a director of Buckeye since 1996. Before assuming a position with Buckeye, he was President of Dryve, Inc., a company consisting of 33 dry cleaning operations, a position he had held since 1987. He is co-trustee of the Cannon Family Trust. R. Howard Cannon is the son of Robert E. Cannon. Sheila Jordan Cunningham Senior Vice President, General Counsel and Secretary Ms. Cunningham has served as Senior Vice President, General Counsel and Secretary since April 2000. She served as Vice President, General Counsel and Secretary from April 1998 to April 2000. She served as Assistant General Counsel from March 1997 and as Secretary from July 1997 to April 1998. Prior to joining Buckeye, she was a partner in the law firm of Baker, Donelson, Bearman & Caldwell from 1988 to March 1997. George B. Ellis Senior Vice President, Cotton Cellulose Mr. Ellis has served as Senior Vice President, Cotton Cellulose since January 2001. Mr. Ellis served as Senior Vice President, Manufacturing-Specialty Cellulose from July 1997 to January 2001 and as Vice President, Manufacturing from March 1993 to July 1997. He was an employee of Procter & Gamble from 1960 to March 1993. Mr. Ellis recently announced his retirement effective as of December 31, 2003. William M. Handel Senior Vice President, Human Resources Mr. Handel has served as Senior Vice President, Human Resources since April 2000. He served as Vice President, Human Resources from November 1995 to April 2000 and as Human Resources Manager from March 1993 to November 1995. He was an employee of Procter & Gamble from 1974 to March 1993. Paul N. Horne Senior Vice President, Cotton Cellulose Mr. Horne has served as Senior Vice President, Cotton Cellulose since January 2001. He served as Senior Vice President, Commercial-Specialty Cellulose from July 1997 to January 2001 and as Vice President, North and South American Sales from October 1995 to July 1997. He was an employee of Procter & Gamble from 1982 to March 1993. 43 George W. Bryan Director Mr. Bryan has served as a director of Buckeye since April 2001. Mr. Bryan served as Chief Executive Officer of Sara Lee Foods from 1998 until his retirement in 2000 and as a Senior Vice President of the Sara Lee Corporation between 1983 and 1998. Mr. Bryan presently serves on the Board of Directors of TBC Corporation and Union Planters Corporation. Robert E. Cannon Presiding Director Mr. Cannon has served as a director of Buckeye since March 1993. He served as Buckeye's Chairman and Chief Executive Officer from March 1993 until April 1, 2003, and retired from Buckeye June 30, 2003. Before joining Buckeye, he served as Dean of the College of Management, Policy and International Affairs at the Georgia Institute of Technology from 1991 through 1992, and Senior Vice President of Procter & Gamble from 1989 to 1991. He was Group Vice President-Industrial Products of Procter & Gamble, which included the operations of Buckeye Cellulose Corporation, then a subsidiary of Procter & Gamble, from 1981 to 1989. He was President of the subsidiary from 1971 through 1981. Robert E. Cannon is the father of R. Howard Cannon. Red Cavaney Director Mr. Cavaney has served as a director of Buckeye since 1996 and as President, Chief Executive Officer and Director of the American Petroleum Institute since October 1997. He was President, Chief Executive Officer and a director of the American Plastics Council from 1994 to 1997 immediately following service as President of the American Forest & Paper Association and President of its predecessor, the American Paper Institute. He is immediate past chairman of the American Society of Association Executives. Henry F. Frigon Director Mr. Frigon has been a director of Buckeye since 1996. He has been a private investor and consultant since 1995. He previously served as Executive Vice President - Corporate Development and Strategy and Chief Financial Officer of Hallmark Cards, Inc. from 1991 to 1995 and as President and Chief Executive Officer of BATUS Inc. from 1983 to 1991. Mr. Frigon is a director of H&R Block Inc., Dimon International Inc., Sypris Solutions Inc., Tuesday Morning Corporation and Packaging Corporation of America. Samuel M. Mencoff Director Mr. Mencoff was elected a director in 1993. He is currently a Managing Director of Madison Dearborn Partners, LLC, a private equity investment firm, which he co-founded in January 1993. He previously served as Vice President of First Chicago Venture Capital from 1987 to 1993. Mr. Mencoff is a director of Packaging Corporation of America, Bay State Paper Holding Company and Jefferson Smurfit Group Limited. 44 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows the number of shares of our common stock that were beneficially owned by (1) each person known to own more than 5% of Buckeye's shares; (2) each director of Buckeye and each of the five most highly compensated executive officers; and (3) all directors and executive officers of Buckeye as a group as of September 2, 2003.
Amount and Nature of Percent Beneficial Ownership of Class Name (1) (1) ------- -------------------- -------- (1) Cannon Family Trust, R. Howard Cannon, Co-Trustee (2)....................................... 2,714,410 7.3% 432 East Racquet Club Place Memphis, Tennessee 38117 NewSouth Capital Management, Inc. (3)................ 4,990,214 13.5% 1000 Ridgeway Loop Road, Suite 233 Memphis, Tennessee 38120-4023 T. Rowe Price Associates, Inc. (4)................... 3,178,800 8.6% 100 E. Pratt Street Baltimore, Maryland 21202 (2) George W. Bryan (5).................................. 30,000 * Robert E. Cannon (6)................................. 1,707,986 4.5% R. Howard Cannon (2) (7)............................. 2,780,586 7.5% Red Cavaney (8)...................................... 80,000 * David B. Ferraro (9)................................. 1,547,249 4.1% Henry F. Frigon (8).................................. 74,000 * Samuel M. Mencoff (8) (10)........................... 502,801 1.4% George B. Ellis (11)................................. 745,048 2.0% John B. Crowe (12)................................... 120,404 * Paul N. Horne (13)................................... 324,442 * Kristopher J. Matula (14)............................ 463,163 1.2% (3) All Directors and Executive Officers as a group (15 persons) (15) ................................... 8,375,679 21.0%
- ---------- * Less than 1% of the issued and outstanding shares of common stock of Buckeye. (1) Unless otherwise indicated, beneficial ownership consists of sole voting and investing power based on 36,974,915 shares issued and outstanding as of September 2, 2003. Options to purchase an aggregate of 2,415,000 shares are exercisable or become exercisable within 60 days of September 2, 2003. Such shares are deemed to be outstanding for the purpose of computing the percentage of outstanding shares owned by each person to whom a portion of such options relate but are not deemed to be outstanding for the purpose of computing the percentage owned by any other person. (2) As of September 2, 2003, includes 2,714,410 shares held by the Cannon Family Trust, R. Howard Cannon and Richard Prosser Guenther, Co-Trustees. (3) NewSouth Capital Management, Inc. filed a Form 13F with the Securities and Exchange Commission on June 30, 2003 stating that as an investment advisor it had sole dispositive power of the share set forth in this table, which constitutes more than 5% of Buckeye's common stock. (4) T. Rowe Price Associates, Inc. filed a Form 13F with the Securities and Exchange Commission on June 30, 2003 stating that as an investment advisor it had sole dispositive power of the share set forth in this table, which constitutes more than 5% of Buckeye's common stock. (5) Includes 20,000 shares issuable upon the exercise of options. (6) Includes 181,176 shares held by Kathryn Gracey Cannon, wife of Robert E. Cannon, as to which Mr. Cannon disclaims beneficial ownership; 17,384 shares held in Buckeye's 401(k) and retirement plans; 45 30,075 shares of restricted stock issued pursuant to Buckeye's Restricted Stock Plan; and 600,000 shares issuable upon the exercise of options. (7) Includes 65,000 shares issuable upon the exercise of options. (8) Includes 70,000 shares issuable upon the exercise of options granted under Buckeye's stock option plan for non-employee directors. (9) Includes 18,528 shares held in Buckeye's 401(k) and retirement plans; 21,378 shares of restricted stock issued pursuant to Buckeye's Restricted Stock Plan; and 375,000 shares issuable upon the exercise of options. (10) Mr. Mencoff has contractually agreed to assign to Madison Dearborn Partners, L.P., an entity for which his employer serves as a general partner, all rights to options to which Mr. Mencoff may be entitled as a director of Buckeye and all rights to 1,437 shares received as compensation for his services as a director of Buckeye. (11) Includes 20 shares held by Julie Ellis, wife of George B. Ellis, as custodian for a minor child, as to which Mr. Ellis disclaims beneficial ownership; 5,556 shares held in Buckeye's 401(k) and retirement plans; 8,729 shares of restricted stock issued pursuant to Buckeye's Restricted Stock Plan; and 155,000 shares issuable upon the exercise of options. (12) Includes 264 shares held by a managed account; 2,227 shares held in Buckeye's 401(k) and retirement plans; 1,913 shares of restricted stock issued pursuant to Buckeye's Restricted Stock Plan; and 114,000 shares issuable upon the exercise of options. (13) Includes 1,787 shares held in Buckeye's 401(k) and retirement plans; 3,783 shares of restricted stock issued pursuant to Buckeye's Restricted Stock Plan; and 114,000 shares issuable upon the exercise of options. (14) Includes 8,645 shares held in Buckeye's 401(k) and retirement plans; 2,852 shares of restricted stock issued pursuant to Buckeye's Restricted Stock Plan; and 414,000 shares issuable upon the exercise of options. (15) Includes an aggregate of 2,415,000 shares issuable upon exercise of options granted under the stock option plan for non-employee directors and Buckeye's other stock option plans. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS R. Howard Cannon, a son of Presiding Director Robert E. Cannon, served as our Vice President, Nonwovens Sales from August 2000 through April 2003, was named our Senior Vice President, Wood Cellulose effective April 1, 2003 with an annual base salary of $230,000 and has served as a director since 1996. During fiscal year 2003, he received total compensation of $173,750. 46 THE EXCHANGE OFFER Purpose and Effect of the Exchange Offer We sold the old notes on September 22, 2003 pursuant to a purchase agreement dated as of September 15, 2003, among us, the Guarantors and Citigroup Global Markets Inc., UBS Securities LLC and Fleet Securities, Inc., whom we refer to in this prospectus as the initial purchasers. The initial purchasers subsequently sold the old notes to "qualified institutional buyers," as defined in Rule 144A under the Securities Act, in reliance on Rule 144A. As a condition to the initial sale of the old notes, we and the initial purchasers entered into a registration rights agreement dated as of September 22, 2003. Under the registration rights agreement, we agreed to: o file with the SEC a registration statement under the Securities Act with respect to the new notes by December 22, 2003; o cause the registration statement to become effective under the Securities Act not later than March 22, 2004; and o keep the exchange offer open for not less than 20 business days after the date notice of the registered exchange offer is mailed to holders of the old notes (or longer if required by applicable law) and to consummate the exchange offer on or before May 3, 2004. We agreed to issue and exchange the new notes for all old notes validly tendered and not validly withdrawn before the expiration of the exchange offer. We are sending this prospectus, together with the letter of transmittal, to all of the beneficial holders known to us. For each old note validly tendered to us pursuant to the exchange offer and not validly withdrawn, the holder will receive a new note having a principal amount equal to that of its tendered old note. We have filed a copy of the registration rights agreement as an exhibit to the registration statement which includes this prospectus. The registration statement is intended to satisfy some of our obligations under the registration rights agreement. The term "holder" with respect to the exchange offer means any person in whose name old notes are registered on the trustee's books, any other person who has obtained a properly completed bond power from the registered holder or any person whose old notes are held of record by The Depository Trust Company, which we refer to as the Depositary or DTC, who desires to deliver the old note by book-entry transfer at DTC. Resale of the New Notes We believe that you will be allowed to resell the new notes to the public without registration under the Securities Act, and without delivering a prospectus that satisfies the requirements of Section 10 of the Securities Act, if you can make the representations set forth below under "-- Procedures for Tendering Old Notes." However, if you (1) intend to participate in a distribution of the new notes, (2) are a broker-dealer that acquired the old notes from us in the initial offering with an intent to distribute those notes and not as a result of market-making activities or (3) are an "affiliate" of Buckeye as that term is defined in Rule 405 of the Securities Act, you will not be eligible to participate in the exchange offer and you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of your notes. We base our view on interpretations by the staff of the SEC in no-action letters issued to other issuers in exchange offers similar to ours. However, we have not asked the SEC to consider this particular exchange offer in the context of a no-action letter. Therefore, you cannot be sure that the SEC will treat it in the same way it has treated other exchange offers in the past. A broker-dealer that has acquired old notes as a result of market-making or other trading activities has to deliver a prospectus in order to resell any new notes it receives for its own account in the exchange offer. This prospectus may be used by such broker-dealer to resell any of its new notes. We have agreed in the registration rights agreement to send this prospectus to any broker-dealer that requests copies for a period of up to 180 days after 47 the consummation of the exchange offer, or for such longer period as provided by the registration rights agreement. See "Plan of Distribution" for more information regarding broker-dealers. The exchange offer is not being made to, nor will we accept tenders for exchange from, holders of old notes in any jurisdiction in which this exchange offer or the acceptance of the exchange offer would not comply with the securities or blue sky laws. The exchange offer is not subject to any federal or state regulatory requirements other than securities laws. Terms of the Exchange Offer General. Based on the terms and conditions set forth in this prospectus and in the letter of transmittal, we will accept any and all old notes validly tendered and not validly withdrawn on or before the expiration date. Subject to the minimum denomination requirements of the new notes, we will issue $1,000 principal amount of new notes in exchange for each $1,000 principal amount of outstanding old notes validly tendered pursuant to the exchange offer and not validly withdrawn on or before the expiration date. Holders may tender some or all of their old notes pursuant to the exchange offer. However, old notes may be tendered only in amounts that are integral multiples of $1,000 principal amount. The form and terms of the new notes are the same as the form and terms of the old notes except that: o the new notes will be registered under the Securities Act and, therefore, will not bear legends restricting the transfer of the new notes; and o holders of the new notes will not be entitled to any of the exchange offer provisions under the registration rights agreement, which rights will terminate upon the consummation of the exchange offer, or to the additional interest provisions of the registration rights agreement. The new notes of a particular series will evidence the same indebtedness as the old notes, and will be issued under, and be entitled to the benefits of, the same indenture that governs the old notes. As a result, both the new notes and the old notes will be treated as a single series of debt securities under the indenture. The exchange offer does not depend on any minimum aggregate principal amount of old notes being tendered for exchange. As of the date of this prospectus, $200.0 million aggregate principal amount of the old notes are outstanding, all of which are registered in the name of Cede & Co., as nominee for DTC. Solely for reasons of administration, we have fixed the close of business on , 2003 as the record date for the exchange offer for purposes of determining the persons to whom we will initially mail this prospectus and the letter of transmittal. There will be no fixed record date for determining holders of the old notes entitled to participate in this exchange offer, and all holders of old notes may tender their old notes. We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreement and the applicable requirements of the Securities Exchange Act of 1934, which we refer to as the Exchange Act, and the related rules and regulations of the SEC. Old notes that are not tendered for exchange in the exchange offer will remain outstanding and interest on these notes will continue to accrue at a rate equal to 8 1/2% per year. We will be deemed to have accepted validly tendered old notes if and when we give oral or written notice of our acceptance to The Bank of New York, which is acting as the exchange agent. The exchange agent will act as agent for the tendering holders of old notes for the purpose of receiving the new notes from us. If you validly tender old notes in the exchange offer, you will not be required to pay brokerage commissions or fees. In addition, subject to the instructions in the letter of transmittal, you will not have to pay transfer taxes for the exchange of old notes. We will pay all charges and expenses in connection with the exchange offer, other than certain applicable taxes described under "-- Fees and Expenses." 48 Expiration Date; Extensions; Amendments The "expiration date" means 5:00 p.m., New York City time, on , 2003, unless we extend the exchange offer, in which case the expiration date is the latest date and time to which we extend the exchange offer. We do not currently intend to extend the exchange offer. However, if we elect to extend the exchange offer on one or more occasions, we will not extend the exchange offer for more than an aggregate of 30 days. In order to extend the exchange offer, we will: o notify the exchange agent of any extension by oral or written communication; and o issue a press release or other public announcement, which will report the approximate number of old notes tendered, before 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date; During any extension of the exchange offer, all old notes previously validly tendered and not validly withdrawn will remain subject to the exchange offer. We reserve the right: o to delay accepting any old notes; o to amend the terms of the exchange offer in compliance with the provisions of the Exchange Act; o to extend the exchange offer; or o if, in the opinion of our counsel, the consummation of the exchange would violate any law or interpretation of the staff of the SEC, to terminate or amend the exchange offer by giving oral or written notice to the exchange agent. Any delay in acceptance, extension, termination, or amendment will be followed as soon as practicable by a press release or other public announcement. If we amend the exchange offer in a manner that we determine constitutes a material change, we will promptly disclose that amendment by means of a prospectus supplement that will be distributed to the registered holders of the old notes, and we will extend the exchange offer for a period of time that we will determine to comply with the Exchange Act, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the exchange offer would have otherwise expired. In all cases, issuance of the new notes for old notes that are accepted for exchange will be made only after timely receipt by the exchange agent of a properly completed and duly executed letter of transmittal or a book-entry confirmation with an agent's message, in each case with all other required documents. However, we reserve the right to waive any conditions of the exchange offer which we, in our reasonable discretion, determine are not satisfied or any defects or irregularities in the tender of old notes. If we do not accept any tendered old notes for any reason set forth in the terms and conditions of the exchange offer or if you submit old notes for a greater principal amount than you want to exchange, we will return the unaccepted or non-exchanged old notes to you, or substitute old notes evidencing the unaccepted or non-exchanged portion, as appropriate. See "-- Return of Old Notes." We will deliver new notes issued in exchange for old notes validly tendered and accepted for exchange, and we will promptly return any old notes not accepted for exchange for any reason, to the applicable tendering holder. Procedures for Tendering Old Notes If you wish to tender old notes you must: o complete and sign the letter of transmittal or send a timely confirmation of a book-entry transfer of old notes to the exchange agent; o have the signatures on the letter of transmittal guaranteed if required by the letter of transmittal; and 49 o mail or deliver the required documents to the exchange agent at its address set forth in the letter of transmittal for receipt on or before the expiration date. In addition, either: o certificates for old notes must be received by the exchange agent along with the letter of transmittal; o a timely confirmation of a book-entry transfer of old notes into the exchange agent's account at DTC, pursuant to the procedure for book-entry transfer described below, must be received by the exchange agent on or before the expiration date; or o you must comply with the procedures described below under "-- Guaranteed Delivery Procedures." If you do not validly withdraw your tender of old notes on or before the expiration date, it will indicate an agreement between you and our company that you have agreed to tender the old notes, in accordance with the terms and conditions in the letter of transmittal. The method of delivery of old notes, the letter of transmittal and all other required documents to the exchange agent is at your election and risk. Instead of delivery by mail, we recommend that you use an overnight or hand delivery service, properly insured, with return receipt requested. In all cases, you should allow sufficient time to assure delivery to the exchange agent on or before the expiration date. Do not send any letter of transmittal or old notes to us. You may request that your broker, dealer, commercial bank, trust company, or other nominee effect delivery of your old notes for you. If you beneficially own the old notes and you hold those old notes through a broker, dealer, commercial bank, trust company, or other nominee and you want to tender your old notes, you should contact that nominee promptly and instruct it to tender your old notes on your behalf. Generally, an eligible institution must guarantee signatures on a letter of transmittal unless: o you tender your old notes as the registered holder (a registered holder means any participant in DTC whose name appears on a security listing as the owner of old notes) and the new notes issued in exchange for your old notes are to be issued in your name and delivered to you at your registered address appearing on the security register for the old notes; or o you tender your old notes for the account of an eligible institution. An "eligible institution" means: o a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc.; o a commercial bank or trust company having an office or correspondent in the United States; or o an "eligible guarantor institution" as defined by Rule 17Ad-15 under the Exchange Act. In each instance, the eligible institution must be a member of one of the signature guarantee programs identified in the letter of transmittal in order to guarantee signatures on a letter of transmittal. If the new notes or unexchanged old notes are to be delivered to an address other than that of the registered holder appearing on the security register for the old notes, an eligible institution must guarantee the signature on the letter of transmittal. Tendered old notes will be deemed to have been received as of the date when: 50 o the exchange agent receives a properly completed and signed letter of transmittal accompanied by the tendered old notes or a confirmation of book-entry transfer of such old notes into the exchange agent's account at DTC with an agent's message; or o the exchange agent receives a notice of guaranteed delivery from an eligible institution. Issuances of new notes in exchange for old notes tendered pursuant to a notice of guaranteed delivery or letter to similar effect by an eligible institution will be made only against submission of a duly signed letter of transmittal and any other required documents, and deposit of the tendered old notes, or confirmation of a book-entry transfer of such old notes into the exchange agent's account at DTC pursuant to the book-entry procedures described below. We will make the final determination regarding all questions relating to the validity, form, eligibility, including time of receipt of tenders and withdrawals of tendered old notes, and our determination will be final and binding on all parties. We reserve the absolute right to reject any and all old notes improperly tendered. We will not accept any old notes if our acceptance of them would, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any defects, irregularities, or conditions of tender as to any particular old note. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, you must cure any defects or irregularities in connection with tenders of old notes on or before the expiration date. Although we intend to notify holders of defects or irregularities in connection with tenders of old notes, neither we, the exchange agent, nor anyone else will incur any liability for failure to give that notice. Tenders of old notes will be deemed to have been made until any defects or irregularities have been cured or waived. All conditions of the exchange offer will be satisfied or waived prior to the expiration of the exchange offer. We will not waive any condition of the exchange offer with respect to any noteholder unless we waive such condition for all noteholders. We have no current plan to acquire, or to file a registration statement to permit resales of any old notes that are not validly tendered pursuant to the exchange offer. However, we reserve the right in our sole discretion to purchase or make offers for any old notes that remain outstanding after the expiration date. To the extent permitted by law, we also reserve the right to purchase old notes in the open market, in privately negotiated transactions, or otherwise. The terms of any future purchases or offers could differ from the terms of the exchange offer. Pursuant to the letter of transmittal, if you elect to tender old notes in exchange for new notes, you must exchange, assign, and transfer the old notes to us and irrevocably constitute and appoint the exchange agent as your true and lawful agent and attorney-in-fact with respect to the tendered old notes, and full power of substitution, among other things, to cause the old notes to be assigned, transferred, and exchanged. By executing the letter of transmittal, you make the representations and warranties set forth below to us. By executing the letter of transmittal you also promise, on our request, to execute and deliver any additional documents that we consider necessary to complete the exchange of old notes for new notes as described in the letter of transmittal. Under existing interpretations of the SEC contained in several no-action letters to third parties, we believe that the new notes will be freely transferable by the holders after the exchange offer without further registration under the Securities Act. However, each holder who wishes to exchange its old notes for new notes will be required to represent: o that the holder has full power and authority to tender, exchange, assign and transfer the old notes tendered; o that we will acquire good title to the old notes being tendered, free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sale agreements or other obligations relating to their sale or transfer, and not subject to any adverse claim when we accept the old notes; o that the holder is acquiring the new notes in the ordinary course of your business; 51 o that the holder is not participating in and does not intend to participate in a distribution of the new notes; o that the holder has no arrangement or understanding with any person to participate in the distribution of the new notes; o that the holder is not an "affiliate," as defined in Rule 405 under the Securities Act, of us; and o that if the holder is a broker-dealer and it will receive new notes for its own account in exchange for old notes that it acquired as a result of market-making activities or other trading activities, it will deliver a prospectus in connection with any resale of the new notes. If you cannot make any of these representations, you will not be eligible to participate in the exchange offer, you should not rely on the interpretations of the staff of the SEC in connection with the exchange offer and you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of your notes. Participation in the exchange offer is voluntary. You are urged to consult your financial and tax advisors in deciding whether to participate in the exchange offer. Return of Old Notes If any old notes are not accepted for any reason described in this prospectus, or if old notes are validly withdrawn or are submitted for a greater principal amount than you want to exchange, the exchange agent will return the unaccepted, withdrawn, or non-exchanged old notes to you or, in the case of old notes tendered by book-entry transfer, into an account for your benefit at DTC, unless otherwise provided in the letter of transmittal. The old notes will be credited promptly to an account maintained with DTC. Book-Entry Transfer The exchange agent will make a request to establish an account with respect to the old notes at DTC for purposes of the exchange offer within two business days after the date of this prospectus. Any financial institution that is a participant in DTC's system may make book-entry delivery of old notes by causing DTC to transfer the old notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. To validly tender notes through DTC, the financial institution that is a participant in DTC will electronically transmit its acceptance through the Automatic Transfer Offer Program. DTC will then edit and verify the acceptance and send an agent's message to the exchange agent for its acceptance. An agent's message is a message transmitted by DTC to the exchange agent stating that (1) DTC has received an express acknowledgment from the participant in DTC tendering the old notes that the participant has received the letter of transmittal, (2) the participant agrees to be bound by the terms of the letter of transmittal and (3) we may enforce this agreement against the participant. A tender of old notes through a book-entry transfer into the exchange agent's account at DTC will only be effective if an agent's message or the letter of transmittal with any required signature guarantees and any other required documents are transmitted to and received by the exchange agent at its address set forth in the letter of transmittal for receipt on or before the expiration date unless the guaranteed delivery procedures described below are complied with. Delivery of documents to DTC does not constitute delivery to the exchange agent. Guaranteed Delivery Procedures If you wish to tender your old notes and (1) your old notes are not immediately available so that you can meet the expiration date deadline, (2) you cannot deliver your old notes or other required documents to the exchange agent on or before the expiration date or (3) the procedures for book-entry transfer cannot be completed on or before the expiration date, you may nonetheless participate in the exchange offer if: o you tender your notes through an eligible institution; 52 o on or before the expiration date, the exchange agent receives from the eligible institution a properly completed and duly executed notice of guaranteed delivery substantially in the form provided by us, by mail or hand delivery, showing the name and address of the holder, the name(s) in which the old notes are registered, the certificate number(s) of the old notes, if applicable, and the principal amount of old notes tendered; the notice of guaranteed delivery must state that the tender is being made by the notice of guaranteed delivery and guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal, together with the certificate(s) representing the old notes, in proper form for transfer, or a book-entry confirmation with an agent's message, as the case may be, and any other required documents, will be delivered by the eligible institution to the exchange agent; and o the properly executed letter of transmittal, as well as the certificate(s) representing all tendered old notes, in proper form for transfer, or a book-entry confirmation with an agent's message, as the case may be, and all other documents required by the letter of transmittal are received by the exchange agent within three New York Stock Exchange trading days after the expiration date. Unless old notes are tendered by the above-described method and deposited with the exchange agent within the time period set forth above, we may, at our option, reject the tender. The exchange agent will send you a notice of guaranteed delivery upon your request if you want to tender your old notes according to the guaranteed delivery procedures described above. Withdrawal of Tenders of Old Notes You may withdraw your tender of old notes at any time on or before the expiration date. To withdraw old notes tendered in the exchange offer, the exchange agent must receive a written notice of withdrawal at its address set forth below on or before the expiration date. Any notice of withdrawal must: o specify the name of the person having deposited the old notes to be withdrawn; o identify the old notes to be withdrawn, including the certificate number or numbers, if applicable, and principal amount of the old notes; o contain a statement that the holder is withdrawing the election to have the old notes exchanged; o be signed by the holder in the same manner as the original signature on the letter of transmittal used to tender the old notes; and o specify the name in which any old notes are to be registered, if different from that of the registered holder of the old notes and, unless the old notes were tendered for the account of an eligible institution, the signatures on the notice of withdrawal must be guaranteed by an eligible institution. If old notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at DTC. We will make the final determination on all questions regarding the validity, form, eligibility, including time of receipt of notices of withdrawal, and our determination will be final and binding on all parties. Any old notes validly withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no new notes will be issued in exchange unless the old notes so withdrawn are validly tendered again. Properly withdrawn old notes may be tendered again by following one of the procedures described above under "-- Procedures for Tendering Old Notes" at any time on or before the expiration date. Any old notes that are not accepted for exchange will be returned at no cost to the holder or, in the case of old notes tendered by book-entry transfer, into an account for your benefit at DTC pursuant to the book-entry transfer procedures described above, as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. 53 Additional Obligations We may be required, under certain circumstances, to file a shelf registration statement. See "Registration Rights." In any event, we are under a continuing obligation, for a period of up to 180 days after the consummation of the exchange offer, or such longer period as provided by the registration rights agreement, to keep the registration statement of which this prospectus is a part effective and to provide copies of the latest version of this prospectus to any broker-dealer that requests copies for use in a resale, subject to our ability to suspend the use of such prospectus under certain conditions as described in the registration rights agreement and as described below under "Registration Rights." Conditions of the Exchange Offer Notwithstanding any other term of the exchange offer, or any extension of the exchange offer, we may terminate the exchange offer before acceptance of the old notes of in our reasonable judgment: o the exchange offer would violate applicable law or any applicable interpretation of the staff of the SEC; or o any action or proceeding has been instituted or threatened in any court of ny any governmental agency that might materially impair our ability to proceed with or complete the exchange offer or any material adverse development has occurred with respect to us; or o we have not obtained any governmental approval which we deem necessary for the consummation of the exchange offer. If we, in our reasonable discretion, determine that any of the above conditions is not satisfied, we may: o refuse to accept any old notes and return all tendered old notes to the tendering holders; o extend the exchange offer and retain all old notes tendered on or before the expiration date, subject to the holders' right to withdraw the tender of the old notes; or o waive any unsatisfied conditions regarding the exchange offer and accept all properly tendered old notes that have not been withdrawn. If this waiver constitutes a material change to the exchange offer, we will promptly disclose the waiver by means of a prospectus supplement that will be distributed to the registered holders of the old notes, and we will extend the exchange offer for a period of time that we determine to be appropriate, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the exchange offer would have otherwise expired. All conditions to the exchange offer will be satisfied or waived prior to the expiration of the exchange offer. We will not waive any conditions of the exchange offer with respect to any noteholder unless we waive such condition for all noteholders. If we fail to consummate the exchange offer or file, have declared effective or keep effective a shelf registration statement within time periods specified by the registration rights agreement, we may be required to pay additional interest in respect of the old notes. See "Registration Rights." Exchange Agent We have appointed The Bank of New York to act as exchange agent for the exchange offer. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent at the following addresses: 54
By Overnight Courier: By Regular Mail or Hand: By Facsimile: The Bank of New York The Bank of New York Corporate Trust Operations Corporate Trust Operations To Confirm by Telephone: Reorganization Unit Reorganization Unit 101 Barclay Street, 7 East 101 Barclay Street, 7 East New York, NY 10286 New York, NY 10286 Attn.: __________ Attn.: __________
Fees and Expenses We will pay all expenses incurred in connection with the performance of our obligations in the exchange offer, including registration fees, fees and expenses of the exchange agent, the transfer agent and registrar, and printing costs. We will also bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, additional solicitations may be made by facsimile, telephone, in person by our officers and regular employees or by officers and employees of our affiliates. We will pay no additional compensation to any officers and employees who solicit tenders. We have not retained any dealer-manager or other soliciting agent for the exchange offer and will not make any payments to broker, dealers, or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse it for related, reasonable out-of-pocket expenses. We may also reimburse brokerage houses and other custodians, nominees and fiduciaries for reasonable out-of-pocket expenses they incur in forwarding copies of this prospectus, the letter of transmittal and related documents. We will pay all transfer taxes, if any, applicable to the exchange of the old notes. If, however, new notes, or old notes for principal amounts not tendered or accepted for exchange, are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the old notes tendered, or if a transfer tax is imposed for any reason other than the exchange, then the amount of any transfer taxes will be payable by the person tendering the notes. If you do not submit satisfactory evidence of payment of those taxes or exemption from payment of those taxes with the letter of transmittal, we will bill the amount of those transfer taxes directly to you. Consequences of Failure to Exchange Old notes that are not exchanged will remain "restricted securities" within the meaning of Rule 144(a)(3) of the Securities Act. Accordingly, old notes may not be offered, sold, pledged or otherwise transferred except: o to us or to any of our subsidiaries; o inside the United States to a qualified institutional buyer in compliance with Rule 144A under the Securities Act; o inside the United States to an institutional accredited investor who, before the transfer, furnishes to the trustee a signed letter containing certain representations and agreements relating to the restrictions on transfer of the old notes, the form of which you can obtain from the trustee and an opinion of counsel acceptable to us and the trustee that the transfer complies with the Securities Act; o outside the United States in compliance with Rule 904 under the Securities Act; o pursuant to the exemption from registration provided by Rule 144 under the Securities Act, if available; o in accordance with another exemption from the registration requirements of the Securities Act and based upon an opinion of counsel, if we so request; or 55 o pursuant to an effective registration statement under the Securities Act. The liquidity of the old notes could be adversely affected by the exchange offer. See "Risk Factors--An active trading market for the notes may not develop, which could make it difficult to resell your notes at their fair market value or at all." Following consummation of the exchange offer, we will not be required to register under the Securities Act any old notes that remain outstanding except in the limited circumstances in which we are obligated to file a shelf registration statement for certain holders of old notes not eligible to participate in the exchange offer pursuant to the registration rights agreement. Interest on any old notes not tendered or otherwise accepted for exchange in the exchange offer will continue to accrue at a rate equal to 8 1/2% per year. Accounting Treatment For accounting purposes, we will recognize no gain or loss as a result of the exchange offer. We will amortize the expenses of the exchange offer and the unamortized expenses related to the issuance of the old notes over the remaining term of the notes. 56 DESCRIPTION OF CERTAIN INDEBTEDNESS Revolving Credit Facility General. We have a secured revolving credit facility that provides for borrowings of up to $175 million. Under this facility, up to $50.0 million is available for the issuance of letters of credit on our behalf and up to $15.0 million is available for swingline loans. The amount available to us under the revolving credit facility will be reduced, and any outstanding loans will be required to be prepaid, to the extent that we receive net asset sale proceeds in excess of both $5.0 million in any year and $25.0 million in the aggregate, unless we use any such net asset sale proceeds to acquire other assets within 270 days after the date of the transaction giving rise to such net asset sale proceeds (after certain adjustments). The revolving credit facility may be repaid, in whole or in part, at any time without premium or penalty except for specified make-whole payments on money market loans and LIBOR-based loans. Security. The revolving credit facility is secured by substantially all of our assets located in the United States. It is guaranteed by each of our domestic subsidiaries (other than Buckeye Receivables Inc., described below), and we have pledged up to 66% of the stock of our significant foreign subsidiaries under this facility. Maturity. The revolving credit facility will mature on March 31, 2005. At September 30, 2003, after the permanent reduction in the revolving credit facility of $40 million and the application of additional net proceeds from the old notes to repay amounts outstanding under the revolving credit facility, we had $42.5 million available under the revolving credit facility. Interest. The interest rate applicable to borrowings (other than swingline or money market rate loans) under the revolving credit facility is the greater of (1) the agent's prime rate plus 1.75% to 2.25% or (2) a LIBOR-based rate ranging from LIBOR plus 2.75% to LIBOR plus 3.75%. The interest rate applicable to swingline loans ranges from a specified base rate to the base rate minus 0.5%, upon our request the lenders may extend to us money market rate loans in their sole discretion at rates determined at the time of the request. During the continuance of an event of default, the applicable interest rate would be 2.0% above the interest rate otherwise in effect. Interest is computed based on actual days elapsed in a 360-day year, payable (1) quarterly in arrears in the case of prime rate loans; (2) on the last day of each interest period in the case of LIBOR loans or at the end of three months if the LIBOR loan maturity exceeds 90 days; or (3) on the stated interest payment date for money market loans. Borrowings under the revolving credit facility at September 30, 2003 bore interest at a weighted average interest rate of 4.95%. Covenants. The revolving credit facility contains covenants customary for financings of this type. We amended the covenants on July 28, 2003 to modify the financial covenants from June 30, 2003 through March 31, 2005. The covenants include: minimum consolidated net worth, maximum ratio of consolidated total net debt to consolidated Adjusted EBITDA, minimum ratio of consolidated Adjusted EBITDA to consolidated interest expense, minimum ratio of consolidated Adjusted EBITDA minus capital expenditures to consolidated interest expense, and maximum ratio of consolidated total net senior debt to consolidated Adjusted EBITDA; as well as limitations on capital expenditures, incurrence of indebtedness, liens, contingent obligations, assets sales, dividends and distributions to our stockholders, payments to affiliates, issuance of stock and distributions by subsidiaries, investments, guarantees, voluntary prepayment of other indebtedness, loans, and advances, leases, acquisitions, mergers and consolidations. Events of Default. The revolving credit facility contains events of default customary for financings of this type, including failure to pay principal or interest, materially false representations or warranties, failure to observe covenants and other terms of the revolving credit facility, cross-defaults to other indebtedness, bankruptcy, insolvency, ERISA violation, the incurrence of material judgments, change in control and environmental issues. We are considering entering into a new revolving credit facility in order to refinance our existing revolving credit facility. We have received commitments from three lending institutions, including affiliates of the initial purchasers, to participate in a new credit facility, subject to customary closing conditions. On October 6, 2003, we obtained the consent of holders of the requisite principal amount of our senior subordinated notes due 2008 to enter to a new credit facility. 57 Receivables-Based Credit Facility We have a receivables-based credit facility with a commercial bank providing for borrowings of up to $30 million. This facility matures on December 4, 2003 and is secured by certain insured receivables. The interest rate applicable to borrowings under this facility is one-week LIBOR plus 0.75%. At September 30, 2003, we had outstanding borrowings under this facility of $24.8 million and unused borrowing availability of $5.2 million. Buckeye Receivables Inc., which we refer to as Receivables, is a separate legal entity whose sole business is the acquisition and financing of trade receivables. Receivables has its own creditors who, in the event of its liquidation, would be entitled to a claim on Receivables' assets prior to any distribution to us. Under the receivables-based credit facility, we and two of our subsidiaries sell trade receivables at a discount and without recourse to Receivables. Receivables then pledges these acquired trade receivables to the commercial bank as security for a loan to provide the funds needed by Receivables to purchase such trade receivables. Receivables uses the proceeds from the collection of the acquired trade receivables to purchase additional trade receivables from us and two of our subsidiaries and to pay related fees and expenses. Receivables purchases trade receivables at a discount based on their fair market value. The receivables-based credit facility contains customary covenants, including requirements to maintain certain financial ratios and cross-default provisions relating to our other debt obligations. Senior Notes In September 2003, the Company placed privately $200.0 million principal amount of 8.5% senior notes due on October 1, 2013, which are called the "old notes" in this prospectus. The old notes are unsecured obligations and are senior to any of the Company's subordinated debt. The old notes are guaranteed by Buckeye's direct and indirect domestic subsidiaries that are also guarantors on our senior secured indebtedness. The old notes indenture contains a number of covenants restricting Buckeye's operations and those of the Company's subsidiaries. The old notes indenture also provides for a change of control put, the optional redemption of the old notes by the Company at any time on or after October 1, 2008 and customary events of default provisions. Senior Subordinated Notes In July 1996, we publicly issued $100.0 million principal amount of 9.25% senior subordinated notes due on September 15, 2008. In June 1998, we placed privately $150.0 million principal amount of 8% senior subordinated notes due on October 15, 2010. In fiscal year 1999, we exchanged these notes for public notes with the same terms. The senior subordinated notes are unsecured obligations and are subordinated in right of payment to the prior payment in full of all of our senior indebtedness, including the indebtedness under the revolving credit facility and the notes offered hereby. On October 6, 2003, we successfully completed a solicitation of consents from holders of our notes due in 2008 (2008 notes) to amend this indenture to conform certain provisions of the 2008 notes to the provisions in our notes due in 2010 and to current market practice. This amendment allows us to refinance our revolving credit facility, while we are still limited to Permitted Indebtedness as defined in the indentures. The senior subordinated notes due 2008 rank equally with the senior subordinated notes due 2010, and both series of senior subordinated notes rank equally with all of our other existing and future senior subordinated indebtedness of ours and senior to all of our existing and future indebtedness that is expressly subordinated to such senior subordinated notes. Our senior subordinated notes are also effectively subordinated to all indebtedness of our subsidiaries. The indentures with respect to those notes contain a number of covenants restricting our operations and those of our subsidiaries. The senior subordinated notes indentures also provide for a change of control put, the optional redemption of the senior subordinated notes by us and customary events of default provisions. Buckeye Canada Indebtedness We have a secured credit facility in Canada providing for borrowings of Canadian $16 million (approximately $11.9 million as of September 30, 2003). This facility matures on November 30, 2004 and is secured by substantially all of our assets in Canada. The interest rate applicable to borrowings under this facility is a 58 Bankers Acceptance based rate ranging from BA plus 2.25% to BA plus 3.25%. At September 30, 2003, we had no availability for additional borrowings under this facility. Buckeye Germany Indebtedness We have a credit facility in Germany providing for borrowings of EUR 7.2 million (approximately $8.4 million as of September 30, 2003). On September 30, 2003, we had letters of credit issued under this facility of $1.4 million, leaving $7.0 million available for borrowing. Stac-PacTM Note On March 1, 2000, we purchased certain technology from Stac-Pac Technologies Inc. In connection with this purchase, we entered into two separate promissory notes with the seller for $5 million each. These notes bear interest at an annual rate of 7%. We have already paid the principal amount of the first note together with accrued interest. In accordance with the terms of the purchase agreement, we are withholding the final installment of the purchase price until a pending patent opposition proceeding has been resolved. 59 DESCRIPTION OF THE NEW NOTES The form and terms of the new notes and the old notes are substantially identical, except that the transfer restrictions, interest rate increase provisions and exchange offer provisions applicable to the old notes do not apply to the new notes. References in this section to the "notes" include both the old notes and the new notes. The old notes were and the new notes will be issued under an indenture dated as of September 22, 2003 (the "Indenture"), among Buckeye Technologies Inc., the Guarantors and The Bank of New York, as trustee (the "Trustee"). The terms of the notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). Upon the issuance of the new notes, the indenture will be subject to and governed by the Trust Indenture Act of 1939, as amended, or the Trust Indenture Act. The following summaries of the material provisions of the Indenture are not complete, and where they refer to particular provisions of the Indenture, such provisions, including defined terms, are qualified in their entirety by reference to all of the provisions of the Indenture and those terms made a part of the Indenture by the Trust Indenture Act. For purposes of this section, references to the "Company" include only Buckeye Technologies Inc. and not its Subsidiaries. You can find the definitions of certain capitalized terms used in the following summary under "-- Certain Definitions." General Principal of, premium, if any, and interest on the notes will be payable, and the notes will be exchangeable and transferable, at the office or agency of the Company in The City of New York maintained for such purposes (which initially will be the corporate trust office of the Trustee). However, the payment of interest may be made at the option of the Company by check mailed to the Person entitled to such payment as shown on the security register. The notes will be issued only in fully registered form without coupons, in denominations of $1,000 and any integral multiple thereof. No service charge will be made for any registration of transfer, exchange or redemption of notes, except in certain circumstances for any tax or other governmental charge that may be imposed in connection with such transaction. The notes will initially be limited to $200 million in aggregate principal amount and will mature on October 1, 2013. The Company may issue additional notes from time to time (the "Additional Notes") subject to the limitations set forth under "-- Certain Covenants -- Limitation on Indebtedness." Any Additional Notes subsequently issued under the Indenture will be treated as a single class with the notes for all purposes under the Indenture, including waivers, amendments, redemptions and offers to purchase. Each Note will bear interest at the rate set forth on the cover page of this prospectus, payable semiannually on April 1 and October 1 in each year, commencing April 1, 2004, to the Person in whose name the Note (or any predecessor Note) is registered at the close of business on the March 15 or September 15 next preceding such interest payment date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest on overdue principal and, to the extent permitted by law, on overdue installments of interest, will accrue at the rate of interest borne by the notes. Ranking The notes will be unsecured obligations of the Company, ranking senior in right of payment to all future obligations of the Company that are, by their terms, expressly subordinated in right of payment to the notes and pari passu in right of payment with all existing and future unsecured obligations of the Company that are not so subordinated. The notes constitute "Designated Senior Indebtedness" for purposes of the Existing Notes Indentures governing the Company's Existing Notes. As of June 30, 2003, pro forma for the offering of the old notes and the application of the proceeds therefrom, the Company would have $631.1 million of Indebtedness, of which $165.5 million would have been secured Indebtedness and $260.2 million would have been subordinated to the Indebtedness evidenced by the notes. 60 Guarantees The new notes will be jointly and severally Guaranteed by each of the Company's Domestic Subsidiaries that guarantees the Company's obligations under its Existing Bank Credit Facility. Subsidiaries of the Company are required to Guarantee the notes as provided under "-- Certain Covenants -- Limitation on Issuances of Subsidiary Guarantees." The Guarantee of each Guarantor will be a general unsecured obligation of such Guarantor and will rank senior in right of payment to all future obligations of such Guarantor that are, by their terms, expressly subordinated in right of payment to such Guarantee and pari passu in right of payment with all existing and future unsecured obligations of such Guarantor that are not so subordinated. The notes will be effectively subordinated to the obligations of each of the Company's Subsidiaries that is not a Guarantor of the notes. As of June 30, 2003, pro forma for the notes and the application of the proceeds therefrom, the Guarantors would have $17.8 million of Indebtedness, of which $5.3 million would have been secured Indebtedness and none of which would have been subordinated to the Indebtedness evidenced by their Guarantees. As of June 30, 2003, the Non-Guarantor Subsidiaries would have had $63.2 million of Indebtedness (including other obligations and trade payables) outstanding. The Guarantee of a Guarantor will be released: (1) in connection with any sale or other disposition of all of the Capital Stock of such Guarantor to a Person other than the Company or any Subsidiary of the Company, if the sale complies with the provisions set forth under "-- Certain Covenants -- Limitation on Sale of Assets"; (2) in connection with the sale or other disposition of all or substantially all of the assets of such Guarantor, including by way of merger, consolidation or otherwise, to a Person other than the Company or any Subsidiary of the Company, if the sale or disposition complies with the provisions set forth under "-- Certain Covenants -- Limitation on Sale of Assets"; (3) if the Company designates such Guarantor to be an Unrestricted Subsidiary in accordance with the provisions set forth under "-- Certain Covenants -- Limitation on Unrestricted Subsidiaries"; (4) upon the release or discharge of the guarantee of such Subsidiary of Indebtedness of the Company and each Guarantor which resulted in the obligation to Guarantee the notes pursuant to the covenant described under "-- Certain Covenants -- Limitation on Issuance of Subsidiary Guarantees"; or (5) in connection with the liquidation, dissolution or winding-up of a Guarantor, if such liquidation, dissolution or winding-up complies with the provisions of the Indenture. The amount of each Guarantee will be limited to the extent required under applicable fraudulent conveyance laws to cause such Guarantee to be enforceable. Optional Redemption The notes will be subject to redemption at any time on or after October 1, 2008, at the option of the Company, in whole or in part, on not less than 30 nor more than 60 days' prior notice, in amounts of $1,000 or an integral multiple thereof at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning October 1 of the years indicated below: Year Redemption Price ---- ---------------- 2008..................................................... 104.250% 2009..................................................... 102.833% 2010..................................................... 101.417% 2011 and thereafter...................................... 100.000% 61 in each case, together with accrued and unpaid interest, if any, to the redemption date. This redemption right is subject to the rights of holders of record on relevant record dates to receive interest due on an interest payment date. In addition, up to 35% of the aggregate principal amount of the notes will be redeemable at any time prior to October 1, 2006 at the option of the Company within 60 days after the consummation of one or more Equity Offerings by the Company from the net cash proceeds to the Company of such Equity Offerings, upon not less than 20 nor more than 60 days' prior notice, in amounts of $1,000 or an integral multiple thereof, at a redemption price equal to 108.50% of the principal amount, together with accrued and unpaid interest, if any, to the redemption date. This redemption right is subject to the rights of holders of record on applicable record dates to receive interest due on an interest payment date. However, after giving effect to any such redemption, at least 65% of the aggregate principal amount of the notes originally issued must remain outstanding, and such redemption must occur within 60 days following the closing of each such Equity Offering. If less than all of the notes are to be redeemed, the Trustee shall select the notes or portions thereof to be redeemed pro rata, by lot or by any other method the Trustee deems fair and reasonable; provided that: o no notes of a principal amount of $1,000 or less will be redeemed in part; and o if a partial redemption is made with the proceeds of a Equity Offering, selection of the notes or portions thereof for redemption will be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Sinking Fund The notes will not be entitled to the benefit of any sinking fund. Certain Covenants The Indenture contains the following covenants: Limitation on Indebtedness. The Company will not, and will not permit any of its Subsidiaries to, create, issue, incur, assume, guarantee or otherwise in any manner become directly or indirectly liable for the payment of or otherwise incur (collectively, "incur"), any Indebtedness (including any Acquired Indebtedness); provided, however, that the Company and any Guarantor may incur Indebtedness (including, without limitation, Acquired Indebtedness) if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence, the Company's Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters for which financial results are available immediately preceding the incurrence of such Indebtedness taken as one period would be at least equal to or greater than 2.0 to 1.0. In determining the Company's Consolidated Fixed Charge Coverage Ratio for purposes of this covenant, the Company's calculations will give pro forma effect to (i) the incurrence of such Indebtedness and (if applicable) the application of the net proceeds therefrom, including to refinance other Indebtedness, as if such Indebtedness was incurred, and the application of such proceeds occurred, on the first day of such applicable period; (ii) the incurrence, repayment or retirement of any other Indebtedness by the Company and its Subsidiaries since the first day of such applicable period as if such Indebtedness was incurred, repaid or retired at the beginning of such applicable period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility will be computed based upon the average daily balance of such Indebtedness during such applicable period); 62 (iii) in the case of Acquired Indebtedness or any acquisition occurring at the time of the incurrence of such Indebtedness, the related acquisition, assuming such acquisition had been consummated on the first day of such applicable period; and (iv) any acquisition or disposition by the Company and its Subsidiaries of any company or any business or any assets out of the ordinary course of business, whether by merger, stock purchase or sale or asset purchase or sale, or any related repayment of Indebtedness, in each case since the first day of such applicable period, assuming such acquisition or disposition had been consummated on the first day of such applicable period. The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Indebtedness"): (i) Indebtedness of the Company and its Subsidiaries under the Bank Credit Facility in an aggregate principal amount at any one time outstanding not to exceed the greater of (a) $250 million, less the amount of any such Indebtedness permanently retired with the Net Cash Proceeds from any Asset Sale applied from and after the date of the Indenture to reduce the outstanding amounts pursuant to the covenant described under "-- Limitation on Sale of Assets," and (b) the sum of 85% of accounts receivable and 50% of inventory of the Company and its Subsidiaries under a borrowing-based facility based on accounts receivable and inventory (each as determined in accordance with GAAP)); provided that the aggregate amount of Indebtedness of Non-Guarantor Subsidiaries outstanding under this clause (i) will not at any one time exceed $75 million; (ii) Indebtedness of the Company pursuant to the notes issued in this Offering; (iii) guarantees of any of the Company's Subsidiaries of Indebtedness of the Company; provided such Indebtedness and guarantees are incurred in accordance with the terms of the Indenture; (iv) Indebtedness of the Company or any of its Subsidiaries outstanding on the date of the Indenture (other than Indebtedness under clauses (i) and (ii) above); (v) Indebtedness of the Company owing to any of its Subsidiaries; provided that any Indebtedness of the Company owing to a Subsidiary of the Company is made pursuant to an intercompany note and is subordinated in right of payment from and after such time as the notes shall become due and payable (whether at Stated Maturity, acceleration or otherwise) to the payment and performance of the Company's obligations under the notes; provided, further, that any disposition, pledge or transfer of any such Indebtedness to a Person (other than a disposition, pledge or transfer to a Subsidiary of the Company) will be deemed to be an incurrence of such Indebtedness by the Company not permitted by this clause (v); (vi) Indebtedness of a Wholly Owned Subsidiary owing to the Company or another Wholly Owned Subsidiary; provided that any such Indebtedness is made pursuant to an intercompany note; and provided, further, that (a) any disposition, pledge or transfer of any such Indebtedness to a Person (other than the Company or a Wholly Owned Subsidiary) will be deemed to be an incurrence of such Indebtedness by the obligor not permitted by this clause (vi), and (b) any transaction pursuant to which any Wholly Owned Subsidiary, which has Indebtedness owing to the Company or any other Wholly Owned Subsidiary, ceases to be a Wholly Owned Subsidiary will be deemed to be the incurrence of Indebtedness by such Wholly Owned Subsidiary that is not permitted by this clause (vi); (vii) obligations of the Company entered into in the ordinary course of business (a) pursuant to Interest Rate Agreements designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates in respect of Indebtedness of the Company or any of its Subsidiaries, as long as such obligations do not exceed the aggregate principal amount of such Indebtedness then outstanding, (b) under any Currency Hedging Arrangements, which if related to Indebtedness, do not increase the amount of such Indebtedness other than as a result of 63 foreign exchange fluctuations, or (c) under any Commodity Price Protection Agreements, which if related to Indebtedness, do not increase the amount of such Indebtedness other than as a result of fluctuations in the relevant commodity prices or by reason of fees, indemnities and compensation thereunder; (viii) Indebtedness of the Company or any of its Subsidiaries incurred to finance environmental expenditures related to the Fenholloway River, not to exceed $40 million outstanding at any one time in the aggregate; (ix) Indebtedness of the Company or any of its Subsidiaries evidenced by Purchase Money Obligations and Capital Lease Obligations not to exceed $20 million outstanding at any one time in the aggregate; (x) Indebtedness of the Company or any of its Subsidiaries incurred in the ordinary course of business after the date of the Indenture relating to (A) workers' compensation claims, (B) payment obligations in connection with self-insurance or similar obligations, (C) bankers' acceptances, performance, surety, judgment, appeal and similar bonds, instruments or obligations, (D) bank overdrafts (and letters of credit in respect thereof), provided that such Indebtedness is extinguished within five Business Days of incurrence, and (E) completion guarantees (and letters of credit issued with respect thereto); (xi) Indebtedness arising from agreements of the Company or a Subsidiary providing for indemnification, adjustment of purchase price or other similar obligations, in each case, incurred or assumed in connection with the purchase price or disposition of any business, assets or Capital Stock of a Subsidiary other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Capital Stock for the purpose of financing such acquisition; provided that the maximum aggregate liability in respect of all such Indebtedness will at no time exceed the gross proceeds actually received, or paid, as the case may be, by the Company and its Subsidiaries in connection with such purchase or disposition; (xii) any renewals, extensions, substitutions, refundings, refinancings or replacements (collectively, a "refinancing") of any Indebtedness incurred pursuant to the first paragraph of this covenant or described in clauses (ii) and (iv) of this definition of "Permitted Indebtedness," including any successive refinancings, so long as the aggregate principal amount of Indebtedness represented thereby is not increased by such refinancing plus the lesser of (I) the stated amount of any premium or other payment required to be paid in connection with such a refinancing pursuant to the terms of the Indebtedness being refinanced or (II) the amount of premium or other payment actually paid at such time to refinance the Indebtedness, plus, in either case, the amount of expenses of the Company incurred in connection with such refinancing and (A) in the case of any refinancing of Indebtedness that is Subordinated Indebtedness, such new Indebtedness is made subordinated to the notes at least to the same extent as the Indebtedness being refinanced and (B) such refinancing does not reduce the Average Life to Stated Maturity or the Stated Maturity of such Indebtedness; and (xiii) Indebtedness of the Company and its Subsidiaries in addition to that described in clauses (i) through (xii) above, and any renewals, extensions, substitutions, refinancings or replacements of such Indebtedness, so long as the aggregate principal amount of all such Indebtedness shall not exceed $50 million outstanding at any one time in the aggregate; provided that the aggregate amount of Indebtedness of Non-Guarantor Subsidiaries outstanding under this clause (xiii) will not at any one time exceed $25 million. For purposes of determining compliance with this "Limitation on Indebtedness" covenant: (1) in the event that an item of Indebtedness meets the criteria of more than one of the categories of Indebtedness described in clauses (i) through (xiii) of the second paragraph of this covenant, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company may, in its sole discretion, classify such item of Indebtedness on the date of its incurrence or, subject to clause 64 (2) below, later reclassify all or a portion of such item of Indebtedness in any manner that complies with this covenant; (2) Indebtedness under the Existing Bank Credit Facility outstanding on the date of the Indenture will be deemed to have been incurred pursuant to clause (i) of the second paragraph of this covenant and the Company will not be permitted to reclassify any portion of such Indebtedness thereafter; (3) accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms and the payment of dividends on Redeemable Capital Stock in the form of additional shares of the same class of Redeemable Capital Stock will not be deemed to be an incurrence of Indebtedness for purposes of this covenant; (4) the maximum amount of Indebtedness that the Company or any Subsidiary may incur pursuant to this covenant will not be deemed to be exceeded, with respect to any outstanding Indebtedness, due solely to the result of fluctuations in the exchange rates of currencies; and (5) for purpose of determining any particular amount of Indebtedness under this "Limitation on Indebtedness" covenant, guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of a particular amount of Indebtedness will not be included. Limitation on Restricted Payments. (a) The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend on, or make any distribution to holders of, any shares of the Company's Capital Stock (other than dividends or distributions payable solely in its shares of Qualified Capital Stock or in options, warrants or other rights to acquire shares of such Qualified Capital Stock); (ii) purchase, redeem or otherwise acquire or retire for value, directly or indirectly, the Company's Capital Stock or any Capital Stock of any Affiliate of the Company (other than Capital Stock of any Wholly Owned Subsidiary) or options, warrants or other rights to acquire such Capital Stock; (iii) make any principal payment on, or repurchase, redeem, defease, retire or otherwise acquire for value, prior to any scheduled principal payment, sinking fund payment or maturity, any Subordinated Indebtedness (other than a payment, repurchase, redemption, defeasance, retirement or other acquisition for value in anticipation of satisfying a scheduled final maturity, scheduled repayment or scheduled sinking fund payment, in each case, due within one year of the date of such payment, repurchase, redemption, defeasance, retirement or acquisition); (iv) declare or pay any dividend or distribution on any Capital Stock of any Subsidiary of the Company to any Person (other than (a) to the Company or any Wholly Owned Subsidiary or (b) to all holders of Capital Stock of such Subsidiary on a pro rata basis); (v) incur, create or assume any guarantee of Indebtedness of any Affiliate of the Company (other than (a) guarantees of Indebtedness of a Wholly Owned Subsidiary given by the Company or (b) guarantees of Indebtedness of the Company given by any Subsidiary of the Company, in each case in accordance with the terms of the Indenture); or (vi) make any Investment in any Person (other than any Permitted Investments) (any of the foregoing actions described in clauses (i) through (vi), other than any such action that is a Permitted Payment (as defined below), collectively, "Restricted Payments") (the amount of any such Restricted Payment, if other than cash, as determined by the board of directors of the Company, whose determination will be conclusive and evidenced by a board resolution), unless (1) immediately before and immediately after giving effect to such 65 Restricted Payment on a pro forma basis, no Default or Event of Default has occurred and is continuing and such Restricted Payment is not an event which is, or after notice or lapse of time or both, would be, an "event of default" under the terms of any Indebtedness of the Company or its Subsidiaries; (2) immediately before and immediately after giving effect to such Restricted Payment on a pro forma basis, the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the provisions described under "-- Limitation on Indebtedness"; and (3) after giving effect to the proposed Restricted Payment, the aggregate amount of all such Restricted Payments declared or made after the date of the Indenture, does not exceed the sum of: (A) $25 million; (B) 50% of the aggregate cumulative Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on October 1, 2003 and ending on the last day of the Company's last fiscal quarter ending prior to the date of the Restricted Payment (or, if such aggregate cumulative Consolidated Net Income is a loss, minus 100% of such loss); (C) the aggregate Net Cash Proceeds received after the date of the Indenture by the Company from the issuance or sale (other than to any of its Subsidiaries) of Qualified Capital Stock of the Company or any options, warrants or rights to purchase such Qualified Capital Stock of the Company (except, in each case, to the extent such proceeds are used to purchase, redeem or otherwise retire Capital Stock or Subordinated Indebtedness as set forth below in clause (ii) or (iii) of paragraph (b) below); (D) the aggregate Net Cash Proceeds received after the date of the Indenture by the Company (other than from any of its Subsidiaries) upon the exercise of any options, warrants or rights to purchase Qualified Capital Stock of the Company; (E) the aggregate Net Cash Proceeds received after the date of the Indenture by the Company from the conversion or exchange, if any, of debt securities or Redeemable Capital Stock of the Company or its Subsidiaries into or for Qualified Capital Stock of the Company plus, to the extent such converted debt securities or Redeemable Capital Stock were issued after the date of the Indenture, the aggregate Net Cash Proceeds from their original issuance; and (F) to the extent not otherwise included in the Company's Consolidated Net Income, the aggregate payments in cash of interest on Indebtedness or dividends or other distributions received by the Company or any of its Subsidiaries after the date of the Indenture from any Unrestricted Subsidiary (or from redesignation of an Unrestricted Subsidiary as a Subsidiary of the Company), except to the extent any such payments are in respect of taxes to be paid by the Company with respect to the operations of such Unrestricted Subsidiary. (b) Notwithstanding the foregoing, and in the case of clauses (ii) through (ix) below, so long as there is no Default or Event of Default continuing, the foregoing provisions will not prohibit the following actions (each of clauses (i) through (ix) being referred to as a "Permitted Payment"): (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration such payment was permitted by the provisions of paragraph (a) of this covenant; (ii) the repurchase, redemption, or other acquisition or retirement of any shares of any class of Capital Stock of the Company in exchange for (including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares or scrip), or out of the Net Cash Proceeds of a substantially concurrent issue and sale for cash (other than to a Subsidiary of the Company) of, other shares of Qualified Capital Stock of the Company; provided that the Net Cash Proceeds from the issuance of such shares of Qualified Capital Stock are, to the extent so used, excluded from clause (3) (C) of paragraph (a) of this covenant; (iii) the repurchase, redemption, defeasance, retirement or acquisition for value or payment of principal of any Subordinated Indebtedness in exchange for, or in an amount not in excess of the net proceeds of, a substantially concurrent issuance and sale for cash (other than to any Subsidiary of the Company) of any Qualified Capital Stock of the Company; provided that the Net Cash Proceeds from 66 the issuance of such shares of Qualified Capital Stock are, to the extent so used, excluded from clause (3) (C) of paragraph (a) of this covenant; (iv) the repurchase, redemption, defeasance, retirement, refinancing, acquisition for value or payment of principal of any Subordinated Indebtedness (other than Redeemable Capital Stock) through the substantially concurrent issuance of new Subordinated Indebtedness of the Company; provided that any such new Subordinated Indebtedness (1) is in a principal amount that does not exceed the principal amount so refinanced (or, if such Subordinated Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, then such lesser amount as of the date of determination), plus the lesser of (I) the stated amount of any premium or other payment required to be paid in connection with such a refinancing pursuant to the terms of the Subordinated Indebtedness being refinanced or (II) the amount of premium or other payment actually paid at such time to refinance the Subordinated Indebtedness, plus, in either case, the amount of expenses of the Company incurred in connection with such refinancing; (2) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the notes; (3) has a Stated Maturity for its final scheduled principal payment later than the Stated Maturity for the final scheduled principal payment of the notes; and (4) is expressly subordinated in right of payment to the notes at least to the same extent as the Subordinated Indebtedness to be refinanced; (v) the repurchase of any Subordinated Indebtedness of the Company at a purchase price not greater than 101% of the principal amount of such Subordinated Indebtedness in the event of a Change in Control (as defined below) pursuant to a provision similar to "-- Purchase of Notes Upon Change in Control"; provided that prior to or simultaneously with such repurchase, the Company has made the Change in Control Offer as provided in such covenant and all notes validly tendered for payment in connection with such Change in Control Offer will have been repurchased; (vi) the repurchase of any Subordinated Indebtedness of the Company, at a purchase price not greater than 100% of the principal amount of such Indebtedness in the event of an Asset Sale pursuant to a provision similar to "-- Limitation on Sale of Assets"; provided that (A) prior to such repurchase the Company has made an Offer to purchase the notes as provided in such covenant and all notes validly tendered for payment in connection with such Offer shall have been repurchased and (B) the aggregate amount of all such repurchases of Subordinated Indebtedness may not exceed the amount of Net Cash Proceeds remaining after the Company has complied with the terms of paragraph (c) of "-- Limitation on Sale of Assets" below; (vii) the repurchase of shares of Capital Stock of the Company from employees of the Company upon termination of employment, death or retirement pursuant to the terms of an employee benefit plan or employment agreement; provided that the aggregate amount of all such repurchases in any calendar year may not exceed $2 million plus the aggregate amount by which repurchases in prior calendar years was less than $2 million; (viii) repurchases of Capital Stock of the Company deemed to occur upon the exercise of stock options granted to employees of the Company if such Capital Stock represents a portion of the exercise price thereof; provided that no cash payment in respect of such repurchase will be made by the Company or any Subsidiary; and (ix) cash payments in lieu of fractional shares pursuant to the exercise or conversion of any exercisable convertible securities; provided that such payment will not be for the purpose of evading the limitations of this covenant (as determined in good faith by the board of directors of the Company). The amount of all Restricted Payments (if other than cash) will be the Fair Market Value on the date of the Restricted Payment of the assets or securities proposed to be transferred or issued by the Company or its Subsidiaries, as the case may be, in connection with the Restricted Payment. The Fair Market Value of any non-cash Restricted Payment will be determined in good faith by the board of directors of the Company. In making the computations required by this covenant, the Company will be permitted to rely in good faith on its financial statements and other financial data derived from its books and records and the books and records of 67 its Subsidiaries that are available on the date of determination. If the Company or any Subsidiary makes a Restricted Payment which, at the time of the making thereof, the board of directors of the Company determined in good faith was permitted under this covenant, such Restricted Payment will not be deemed to have been made in violation of this covenant because a subsequent adjustment is made to the Company's or any Subsidiary's financial statements affecting Consolidated Net Income for any period relevant in determining whether such Restricted Payment was permitted. Limitation on Transactions with Affiliates. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into any transaction or series of related transactions (including, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate of the Company (other than the Company or a Wholly Owned Subsidiary) unless (a) such transaction or series of related transactions is in writing and on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than those that would be available in a comparable transaction in arm's-length dealings with an unrelated third party, (b) with respect to any transaction or series of related transactions involving an aggregate value in excess of $2.5 million, such transaction or series of related transactions has been approved by a majority of the Disinterested Directors of the Company, or in the event there is only one Disinterested Director, by such Disinterested Director and (c) with respect to any transaction or series of related transactions involving an aggregate value in excess of $10 million or with respect to which there are no Disinterested Directors, the Company delivers to the Trustee a written opinion of an investment banking firm of national standing or other recognized independent expert with experience appraising the terms and conditions of the type of transaction or series of related transactions for which an opinion is required stating that the transaction or series of related transactions is fair to the Company or such Subsidiary from a financial point of view; provided, however, that this provision will not apply to: (1) any transaction with an officer or director of the Company or any of its Subsidiaries entered into in the ordinary course of business (including compensation and employee benefit arrangements with any officer or director of the Company or any of its Subsidiaries, including under any stock option or stock incentive plans); and (2) transactions pursuant to agreements in effect on the date of the Indenture or pursuant to amendments, extensions or renewals of such agreements; provided that any such amendment, extension or renewal, taken as a whole, is no less favorable in any material respect to the holders of notes than the terms of such existing agreements. Limitation on Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur or affirm any Lien of any kind (other than Permitted Liens) upon any property or assets (including any intercompany notes) of the Company or any of its Subsidiaries owned on the date of the Indenture or acquired after the date of the Indenture, or any income or profits therefrom, unless the notes are directly secured equally and ratably with (or, in the case of Subordinated Indebtedness, prior or senior thereto, with the same relative priority as the notes shall have with respect to such Subordinated Indebtedness) the obligation or liability secured by such Lien. Limitation on Sale of Assets. (a) The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, consummate an Asset Sale unless (i) at least 75% of the consideration from such Asset Sale is received in any combination of cash and/or Cash Equivalents and (ii) the Company or such Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets subject to such Asset Sale (as determined by the board of directors of the Company and evidenced in a board resolution); provided that the amount of: (A) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet) of the Company or any of its Subsidiaries (including any Subsidiary that ceases to be a Subsidiary as a result of such Asset Sale), other than contingent liabilities and liabilities that are by their terms subordinated to the notes, that are assumed by the transferee of any such assets will be deemed to be cash for purposes of this clause (ii); and (B) any securities, notes or other obligations received by the Company or any such Subsidiary from such transferee that are converted by the Company or such Subsidiary into cash (to the extent of the 68 cash received) within 180 days following the closing of such Asset Sale will be deemed to be cash for purposes of this clause (ii). (b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not required to be applied to repay permanently any Pari Passu Indebtedness under the Bank Credit Facility then outstanding as required by the terms thereof, or the Company determines not to apply such Net Cash Proceeds to the permanent prepayment of such Pari Passu Indebtedness under the Bank Credit Facility, or if no such Pari Passu Indebtedness under the Bank Credit Facility is then outstanding, then the Company or any of its Subsidiaries may, within 12 months of the Asset Sale, invest (or enter into a legally binding commitment to invest, provided that the investment to which such commitment relates is consummated within 12 months of the date that such commitment is entered into) the Net Cash Proceeds in properties and other assets that (as determined by the board of directors of the Company) replace the properties and assets that were the subject of the Asset Sale or in properties and other assets that will be used in the businesses of the Company or its Subsidiaries existing on the date of the Indenture or in businesses reasonably related thereto. If any such legally binding commitment to invest such Net Cash Proceeds is terminated, then the Company may, within 90 days of such termination or within 12 months of such Asset Sale, whichever is later, invest such Net Cash Proceeds as provided above. The amount of such Net Cash Proceeds not used or invested as set forth in this paragraph constitutes "Excess Proceeds." (c) The Indenture will provide that, when the aggregate amount of Excess Proceeds exceeds $15 million, the Company will apply the Excess Proceeds to the repayment of the notes and any other Pari Passu Indebtedness outstanding with similar provisions requiring the Company to make an offer to purchase such Indebtedness with the proceeds from any Asset Sale as follows: (A) the Company will make an offer to purchase (an "Offer") from all holders of the notes in accordance with the procedures set forth in the Indenture in the maximum principal amount (expressed as a multiple of $1,000) of notes that may be purchased out of an amount (the "Note Amount") equal to the product of such Excess Proceeds multiplied by a fraction, the numerator of which is the outstanding principal amount of the notes, and the denominator of which is the sum of the outstanding principal amount of the notes and such Pari Passu Indebtedness (subject to proration in the event such amount is less than the aggregate Offered Price (as defined herein) of all notes tendered) and (B) to the extent required by such Pari Passu Indebtedness to reduce permanently the principal amount of such Pari Passu Indebtedness, the Company will make an offer to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds over the Note Amount; provided that in no event will the Company be required to make a Pari Passu Offer in a Pari Passu Debt Amount exceeding the principal amount of such Pari Passu Indebtedness. The offer price for the notes will be payable in cash in an amount equal to 100% of the principal amount of the notes plus accrued and unpaid interest, if any, to the date (the "Offer Date") such Offer is consummated (the "Offered Price"), in accordance with the procedures set forth in the Indenture. To the extent that the aggregate Offered Price of the notes tendered pursuant to the Offer is less than the Note Amount relating thereto or the aggregate amount of Pari Passu Indebtedness that is purchased in a Pari Passu Offer is less than the Pari Passu Debt Amount, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of notes and Pari Passu Indebtedness surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee will select the notes to be purchased on a pro rata basis. Upon the completion of the purchase of all the notes tendered pursuant to an Offer and the completion of a Pari Passu Offer, the amount of Excess Proceeds, if any, will be reset at zero. (d) The Indenture will provide that, when the aggregate amount of Excess Proceeds exceeds $15 million, such Excess Proceeds will, prior to any purchase of notes described in paragraph (c) above, be set aside by the Company in a separate account pending (i) deposit with the depository or a paying agent of the amount required to purchase the notes tendered in an Offer or Pari Passu Indebtedness tendered in a Pari Passu Offer, (ii) delivery by the Company of the Offered Price to the holders of the notes tendered in an Offer or Pari Passu Indebtedness tendered in a Pari Passu Offer and (iii) application, as set forth above, of Excess Proceeds in the business of the Company and its Subsidiaries for general corporate purposes. Such Excess Proceeds may be invested in Cash Equivalents; provided that the maturity date of any such investment made after the amount of Excess Proceeds exceeds $15 million shall not be later than the Offer Date. The Company will be entitled to any interest or dividends accrued, earned or paid on such Cash Equivalents; provided that the Company will not withdraw such interest from the separate account if an Event of Default has occurred and is continuing. (e) The Indenture will provide that, if the Company becomes obligated to make an Offer pursuant to paragraph (c) above, the notes and the Pari Passu Indebtedness will be purchased by the Company, at the option of 69 the holders thereof, in whole or in part in integral multiples of $1,000, on a date that is not earlier than 45 days and not later than 60 days from the date the notice of the Offer is given to holders, or such later date as may be necessary for the Company to comply with the requirements under the Exchange Act. (f) The Indenture will provide that the Company will comply with the applicable tender offer rules, including Rule 14e-1 under the Exchange Act, and any other applicable securities laws or regulations in connection with an Offer. (g) The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, create or permit to exist or become effective any restriction (other than restrictions existing under (1) Indebtedness as in effect on the date of the Indenture, as such Indebtedness may be refinanced from time to time or (2) Indebtedness incurred after the date of the Indeture under clause (i) of the second paragraph under "Limitation on Indebtedness" above; provided that such restrictions may be no less favorable to the holders of the notes than those existing on the date of the Indenture) that would materially impair the ability of the Company to make an Offer to purchase the notes or, if such Offer is made, to pay for the notes tendered for purchase. Limitation on Issuances of Subsidiary Guarantees. The Company will not cause or permit any of its Subsidiaries to directly or indirectly, assume, guarantee or in any other manner become liable with respect to any Indebtedness of the Company or any Subsidiary (other than the guarantee by any Foreign Subsidiary of Indebtedness that is exclusively Indebtedness of one or more other Foreign Subsidiaries) unless, in each case, such Subsidiary: (l) executes and delivers to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Subsidiary unconditionally guarantees (each, a "Guarantee") all of the Company's obligations under the notes and the Indenture on the terms set forth in the Indenture; and (2) delivers to the Trustee an opinion of counsel (which may contain customary exceptions) that such supplemental indenture has been duly authorized, executed and delivered by such Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Subsidiary. Thereafter, such Subsidiary will be a Guarantor for all purposes of the Indenture until such Guarantee is released in accordance with the provisions of "Guarantees" above. The Company may cause any other Subsidiary of the Company to issue a Guarantee and become a Guarantor. Restriction on Transfer of Assets. The Company will not sell, convey, transfer or otherwise dispose of its assets or property to any Subsidiary of the Company that is not a Guarantor, except for sales, conveyances, transfers or other dispositions (a) made in the ordinary course of business or (b) to any Subsidiary of the Company if such Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for a Guarantee by such Subsidiary of the notes. Purchase of Notes Upon a Change in Control. If a Change in Control will occur at any time (unless all of the notes have been called for redemption pursuant to the provisions described under "Optional Redemption"), then each holder of notes will have the right to require that the Company purchase such holder's notes in whole or in part in integral multiples of $1,000, at a purchase price (the "Change in Control Purchase Price") in cash in an amount equal to 101% of the principal amount of such notes, plus accrued and unpaid interest, if any, to the date of purchase (the "Change in Control Purchase Date"), pursuant to the offer described below (the "Change in Control Offer") and in accordance with the other procedures set forth in the Indenture. Within 30 days following any Change in Control (unless all of the notes have been called for redemption pursuant to the provisions described under "Optional Redemption"), the Company will notify the Trustee thereof and give written notice of such Change in Control to each holder of notes, by first-class mail, postage prepaid, at his address appearing in the security register, stating: the Change in Control Purchase Price and the Change in Control Purchase Date which will be fixed by the Company and shall be a business day no earlier than 30 days nor later than 60 days from the date such notice is mailed, or such later date as is necessary to comply with requirements under the Exchange Act; that any Note not tendered will continue to accrue interest; that, unless the Company defaults in the payment of the purchase price, any notes accepted for payment pursuant to the Change in Control Offer will cease to 70 accrue interest after the Change in Control Purchase Date; and other specified procedures that a holder of notes must follow to accept a Change in Control Offer or to withdraw such acceptance. If a Change in Control Offer is made, there can be no assurance that the Company will have available funds sufficient to pay the Change in Control Purchase Price for all of the notes that might be delivered by holders of the notes seeking to accept the Change in Control Offer. The failure of the Company to make or consummate the Change in Control Offer or pay the Change in Control Purchase Price when due will give the Trustee and the holders of the notes the rights described under "Events of Default." The term "all or substantially all" as used in the definition of "Change in Control" has not been interpreted under New York law (which is the governing law of the Indenture) to represent a specific quantitative test. As a consequence, in the event the holders of the notes elected to exercise their rights under the Indenture and the Company elected to contest such election, there could be no assurance as to how a court interpreting New York law would interpret the phrase. The existence of a holder's right to require the Company to repurchase such holder's notes upon a Change in Control may deter a third party from acquiring the Company in a transaction which constitutes a Change in Control. In addition to the obligations of the Company under the Indenture with respect to the notes in the event of a "Change in Control," the Company will be obligated under the Existing Notes Indentures to purchase the Existing Notes upon a "Change in Control" as defined in such indentures. In addition, the Bank Credit Facility contains an event of default upon a "Change in Control" as defined therein which obligates the Company to repay amounts outstanding under the Bank Credit Facility upon an acceleration of the indebtedness issued thereunder. Under the Bank Credit Facility, the Company may be restricted from repurchasing the notes or the Existing Notes upon a Change in Control. See "Description of Certain Indebtedness." The provisions of the Indenture will not afford holders of notes the right to require the Company to repurchase the notes in the event of a highly leveraged transaction or certain transactions with the Company's management or its Affiliates, including a reorganization, restructuring, merger or similar transaction (including, in certain circumstances, an acquisition of the Company by management or its Affiliates) involving the Company that may adversely affect holders of the notes, if such transaction is not a transaction defined as a Change in Control. A transaction involving the Company's management, or a transaction involving a recapitalization of the Company, will result in a Change in Control if it is the type of transaction specified by such definition. The Company will comply with the applicable tender offer rules, including Rule l4e-1 under the Exchange Act, and any other applicable securities laws or regulations in connection with a Change in Control Offer. The Company will not be required to make a Change in Control Offer upon a Change in Control if a third party makes the Change in Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change in Control Offer made by the Company and purchases all notes validly tendered and not withdrawn under such Change in Control Offer. The Company will not, and will not permit any of its Subsidiaries to, create or permit to exist or become effective any restriction (other than restrictions existing under the Bank Credit Facility (or any guarantee thereof) or under Indebtedness as in effect on the date of the Indenture) and any extensions, refinancings, renewals or replacements of any of the foregoing that would materially impair the ability of the Company to make a Change in Control Offer to purchase the notes or, if such Change in Control Offer is made, to pay for the notes tendered for purchase; provided that the restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the holders of the notes than those under the Indebtedness being extended, refinanced, renewed or replaced. Limitation on Subsidiary Capital Stock. The Company will not permit (a) any Subsidiary of the Company to issue, sell or transfer any Capital Stock, except for (i) Capital Stock issued or sold to, held by or transferred to the Company or a Wholly Owned Subsidiary, (ii) the ownership by directors of directors' qualifying 71 shares or the ownership by foreign nationals of Capital Stock of any Subsidiary of the Company, to the extent required by applicable law and (iii) Capital Stock issued by a Person prior to the time (A) such Person becomes a Subsidiary of the Company, (B) such Person merges with or into a Subsidiary of the Company or (C) a Subsidiary of the Company merges with or into such Person; provided that such Capital Stock was not issued or incurred by such Person in anticipation of the type of transaction contemplated by subclause (A), (B) or (C) or (b) any Person (other than the Company or a Wholly Owned Subsidiary) to acquire Capital Stock of any Subsidiary of the Company from the Company or any Wholly Owned Subsidiary except, in the case of clause (a) or (b), upon the acquisition of all the outstanding Capital Stock of such Subsidiary which is not in violation with any other terms of the Indenture. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any of its Subsidiaries to (i) pay dividends or make any other distribution on its Capital Stock, (ii) pay any Indebtedness owed to the Company or any other of its Subsidiaries, (iii) make any Investment in the Company or any other Subsidiary or (iv) transfer any of its properties or assets to the Company or any other of its Subsidiaries, except for: (a) any agreement in effect on the date of the Indenture; (b) any encumbrance or restriction, with respect to a Subsidiary of the Company that is not a Subsidiary of the Company on the date of the Indenture, in existence at the time such Person becomes a Subsidiary of the Company and not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company; (c) any encumbrance or restriction existing by reason of applicable law; (d) any encumbrance or restriction existing under any customary non-assignment provisions of any lease governing a leasehold interest of the Company or any Subsidiary of the Company; (e) any encumbrance or restriction contained in any working capital facility of a Foreign Subsidiary of the Company; and (f) any encumbrance or restriction existing under any agreement that extends, renews, refinances or replaces the agreements containing the encumbrances or restrictions in the foregoing clauses (a) and (b), or in this clause (f); provided that the terms and conditions of any such encumbrances or restrictions are no more restrictive in any material respect than those under or pursuant to the agreement evidencing the Indebtedness so extended, renewed, refinanced or replaced. Limitation on Unrestricted Subsidiaries. The Company will not make, and will not permit its Subsidiaries to make, any Investment in an Unrestricted Subsidiary if, at the time thereof, the amount of such Investment would exceed the amount of Restricted Payments then permitted to be made pursuant to the "-- Limitation on Restricted Payments" covenant plus the amount of Permitted Investments described in clause (xiv) of the definition thereof then permitted to be made. Any Investment in an Unrestricted Subsidiary permitted to be made pursuant to this covenant (i) will be treated as a Restricted Payment (unless such Investment was a Permitted Investment) in calculating the amount of Restricted Payments made by the Company and (ii) may be made in cash or property. Provision of Financial Statements. The Indenture provides that, whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent permitted under the Exchange Act, file with the SEC the annual reports, quarterly reports and other documents which the Company would have been required to file with the SEC pursuant to such Section 13(a) or 15(d) if the Company were so subject, such documents to be filed with the SEC on or prior to the date (the "Required Filing Date") by which the Company would have been required so to file such documents if the Company were so subject. The Company will also, in any event, (x) within 15 days of each Required Filing Date (i) transmit by mail to all holders, as their names and addresses appear in the security register, without cost to such holders and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents which the Company would have been required to file with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were subject to either of such Sections 72 and (y) if filing such documents by the Company with the SEC is not permitted under the Exchange Act, promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective holder at the Company's cost. Additional Covenants. The Indenture also contains covenants with respect to the following matters: (i) payment of principal, premium and interest; (ii) maintenance of an office or agency in The City of New York; (iii) arrangements regarding the handling of money held in trust; (iv) maintenance of corporate existence; (v) payment of taxes and other claims; (vi) maintenance of properties; and (vii) maintenance of insurance. Consolidation, Merger, Sale of Assets The Company will not, in a single transaction or through a series of related transactions, consolidate with or merge with or into any other Person or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any Person or group of affiliated Persons, or permit any of its Subsidiaries to enter into any such transaction or series of related transactions if such transaction or series of related transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Company and its Subsidiaries on a Consolidated basis to any other Person or group of affiliated Persons, unless at the time and after giving effect thereto: (i) either (a) the Company will be the continuing corporation or (b) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Company and its Subsidiaries on a Consolidated basis (the "Surviving Entity") will be a corporation duly organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and such Person expressly assumes, by a supplemental indenture, in a form satisfactory to the Trustee, all the obligations of the Company under the notes and the Indenture, as the case may be, and the notes and the Indenture will remain in full force and effect as so supplemented; (ii) immediately before and immediately after giving effect to such transaction on a pro forma basis (and treating any Indebtedness not previously an obligation of the Company or any of its Subsidiaries which becomes the obligation of the Company or any of its Subsidiaries as a result of such transaction as having been incurred at the time of such transaction), no Default or Event of Default will have occurred and be continuing; (iii) immediately before and immediately after giving effect to such transaction on a pro forma basis (on the assumption that the transaction occurred on the first day of the four-quarter period immediately prior to the consummation of such transaction with the appropriate adjustments with respect to the transaction being included in such pro forma calculation), the Company (or the Surviving Entity if the Company is not the continuing obligor under the Indenture) could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the provisions of "-- Certain Covenants -- Limitation on Indebtedness"; and (iv) at the time of the transaction the Company or the Surviving Entity will have delivered, or caused to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an officers' certificate and an opinion of counsel, each to the effect that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other transaction and the supplemental indenture in respect thereof comply with the Indenture and that all conditions precedent therein provided for relating to such transaction have been complied with. In the event of any transaction described in and complying with the conditions listed in the two immediately preceding paragraphs in which the Company is not the continuing corporation, the successor Person formed or remaining will succeed to, and be substituted for, and may exercise every right and power of, the Company, and the Company (except in the case of a lease) would be discharged from all obligations and covenants under the Indenture and the notes. 73 Events of Default An Event of Default will occur under the Indenture if: (i) there is a default in the payment of any interest on any Note when it becomes due and payable, and such default continues for a period of 30 days; (ii) there is a default in the payment of the principal of (or premium, if any, on) any Note at its Maturity (upon acceleration, optional or mandatory redemption, if any, required repurchase or otherwise); (iii) (a) there is a default in the performance, or breach, of any covenant or agreement of the Company under the Indenture (other than a default in the performance, or breach, of a covenant or agreement which is specifically dealt with in clause (i) or (ii) or in clause (b), (c) or (d) of this clause (iii)) and such default or breach continues for a period of 30 days after written notice has been given, by certified mail, (x) to the Company by the Trustee or (y) to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the outstanding notes; (b) there is a default in the performance or breach of the provisions described in "-- Consolidation, Merger, Sale of Assets"; (c) the Company has failed to make or consummate an Offer in accordance with the provisions of "-- Certain Covenants -- Limitation on Sale of Assets"; or (d) the Company has failed to make or consummate a Change in Control Offer in accordance with the provisions of "-- Certain Covenants -- Purchase of Notes Upon a Change in Control"; (iv) one or more defaults under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or of any Subsidiary (or the payment of which is guaranteed by the Company or any Subsidiary), whether such Indebtedness now exists or is created after the date of the Indenture, which default (A) is caused by a failure to pay principal of such Indebtedness after any applicable grace period provided in such Indebtedness on the date of such default (a "payment default") or (B) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $10 million or more; (v) one or more judgments, orders or decrees for the payment of money in excess of $10 million, either individually or in the aggregate, is rendered against the Company or any of its Subsidiaries or any of their respective properties and is not discharged and either (a) any creditor has commenced an enforcement proceeding upon such judgment, order or decree or (b) there has been a period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of an appeal or otherwise, is not in effect; (vi) any Guarantee of a Subsidiary of the Company ceases to be in full force and effect or any Guarantee of such a Subsidiary is declared to be null and void and unenforceable or any Guarantee of such a Subsidiary is found to be invalid or any Guarantor denies its liability under its Guarantee (other than by reason of release of such Guarantor in accordance with the terms of the Indenture); (vii) there has been entered by a court of competent jurisdiction (a) a decree or order for relief in respect of the Company or any of its Subsidiaries in an involuntary case or proceeding under any applicable Bankruptcy Law or (b) a decree or order adjudging the Company or any of its Subsidiaries bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any of its Subsidiaries under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any of its Subsidiaries or of any substantial part of their respective properties, or ordering the winding-up or liquidation of their respective affairs, and any such decree or order for relief continues to be in effect, or any such other decree or order remains unstayed and in effect, for a period of 60 consecutive days; or (viii) (a) the Company or any of its Subsidiaries commences a voluntary case or proceeding under any applicable Bankruptcy Law or any other case or proceeding to be adjudicated bankrupt or insolvent, (b) the Company or any of its Subsidiaries consents to the entry of a decree or order for relief in respect of the 74 Company or any such Subsidiary in an involuntary case or proceeding under any applicable Bankruptcy Law or to the commencement of any bankruptcy or insolvency case or proceeding against it, (c) the Company or any of its Subsidiaries files a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, (d) the Company or any of its Subsidiaries (I) consents to the filing of such petition or the appointment of, or taking possession by, a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or any such Subsidiary or of any substantial part of their respective properties, (II) makes an assignment for the benefit of creditors or (III) admits in writing its inability to pay its debts generally as they become due or (e) the Company or any of its Subsidiaries takes any corporate action in furtherance of any such actions in this clause (viii). If an Event of Default (other than as specified in clauses (vii) and (viii) of the prior paragraph) occurs and is continuing with respect to the Indenture, the Trustee or the holders of not less than 25% in aggregate principal amount of the notes then outstanding may, and the Trustee at the request of such holders will, declare all unpaid principal of, premium, if any, and accrued interest on all notes to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the holders of the notes), and upon any such declaration, such principal, premium, if any, and interest will become due and payable immediately. If an Event of Default specified in clause (vii) or (viii) of the prior paragraph occurs and is continuing, then all the notes shall ipso facto become and be due and payable immediately in an amount equal to the principal amount of the notes, together with premium, if any, and accrued and unpaid interest, if any, to the date the notes become due and payable, without any declaration or other act on the part of the Trustee or any holder. Thereupon, the Trustee may, at its discretion, proceed to protect and enforce the rights of the holders of notes by appropriate judicial proceedings. After a declaration of acceleration but before a judgment or decree for payment of the money due has been obtained by the Trustee, the holders of a majority in aggregate principal amount of notes outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all notes then outstanding, (iii) the principal of and premium, if any, on any notes then outstanding which have become due otherwise than by such declaration of acceleration and interest thereon at a rate borne by the notes and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the notes; and (b) all Events of Default, other than the non-payment of principal of the notes which have become due solely by such declaration of acceleration, have been cured or waived as provided in the Indenture. The holders of not less than a majority in aggregate principal amount of the notes outstanding may on behalf of the holders of all outstanding notes waive any past default under the Indenture and its consequences, except a default in the payment of the principal of, premium, if any, or interest on any note or in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each note affected by such modification or amendment. The Company is also required to notify the Trustee within 10 business days of the occurrence of any Default. The Company is required to deliver to the Trustee, not more than 120 days after the end of each fiscal year, a written statement as to compliance with the Indenture, including whether or not any Default has occurred. The Trustee is under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of any of the holders of the notes unless such holders offer to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred thereby. The Trust Indenture Act contains limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided that if it acquires any conflicting interest it must eliminate such conflict upon the occurrence of an Event of Default or else resign. 75 Defeasance or Covenant Defeasance of Indenture The Company may, at its option and at any time, elect to have the obligations of the Company and any other obligor upon the notes discharged with respect to the outstanding notes ("defeasance"). Such defeasance means that the Company and any other obligor under the Indenture will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding notes, except for (i) the rights of holders of such outstanding notes to receive, solely from the defeasance trust fund, payments in respect of the principal of, premium, if any, and interest on such notes when such payments are due, (ii) the Company's obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes, and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties, indemnities and immunities of the Trustee and (iv) the defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("covenant defeasance") and thereafter any omission to comply with such obligations will not constitute a Default or an Event of Default with respect to the notes. In the event covenant defeasance occurs, certain events (not including non-payment, bankruptcy and insolvency events) described under "Events of Default" will no longer constitute a Default or an Event of Default with respect to the notes. In order to exercise either defeasance or covenant defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the notes cash in United States dollars, U.S. Government Obligations (as defined in the Indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants or a nationally recognized investment banking firm, to pay and discharge the principal of, premium, if any, and interest on the outstanding notes on the Stated Maturity (or on any date after October 1, 2008 (such date being referred to as the "Defeasance Redemption Date"), if at or prior to electing either defeasance or covenant defeasance, the Company has delivered to the Trustee an irrevocable notice to redeem all of the outstanding notes on the Defeasance Redemption Date); (ii) in the case of defeasance, the Company will have delivered to the Trustee an opinion of independent counsel in the United States stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of independent counsel in the United States will confirm that, the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (iii) in the case of covenant defeasance, the Company will have delivered to the Trustee an opinion of independent counsel in the United States to the effect that the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (iv) no Default or Event of Default will have occurred and be continuing on the date of such deposit or insofar as clauses (vii) or (viii) under the first paragraph under "-- Events of Default" are concerned, at any time during the period ending on the 91st day after the date of deposit; (v) such defeasance or covenant defeasance will not cause the Trustee to have a conflicting interest as defined in the Indenture and for purposes of the Trust Indenture Act with respect to any securities of the Company; (vi) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default under, the Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it is bound; (vii) such defeasance or covenant defeasance will not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act of 1940, as amended, unless such trust is registered under such Act or exempt from registration thereunder; (viii) the Company will have delivered to the Trustee an opinion of independent counsel in the United States to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (ix) the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the holders of the notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; (x) no event or condition will exist that would prevent the Company from making payments of the principal of, premium, if any, and interest on the notes on the date of such deposit or at any time ending on the 91st day after the date of such deposit; and (xi) the Company will have delivered to the Trustee 76 an officers' certificate and an opinion of independent counsel, each stating that all conditions precedent provided for relating to either the defeasance or the covenant defeasance, as the case may be, have been complied with. Satisfaction and Discharge The Indenture will be discharged and will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the notes as expressly provided for in the Indenture) as to all outstanding notes under the Indenture when (a) either (i) all such notes theretofore authenticated and delivered (except lost, stolen or destroyed notes which have been replaced or paid or notes whose payment has been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust as provided for in the Indenture) have been delivered to the Trustee for cancellation or (ii) all notes not theretofore delivered to the Trustee for cancellation (x) have become due and payable, (y) will become due and payable at their Stated Maturity within one year, or (z) are to be called for redemption within one year under arrangements satisfactory to the applicable Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company; and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust an amount in United States dollars sufficient to pay and discharge the entire indebtedness on the notes not theretofore delivered to the Trustee for cancellation, including principal of, premium, if any, and accrued interest at such Maturity, Stated Maturity or redemption date; (b) the Company has paid or caused to be paid all other sums payable under the Indenture by the Company; and (c) the Company has delivered to the Trustee an officers' certificate and an opinion of independent counsel each stating that (i) all conditions precedent under the Indenture relating to the satisfaction and discharge of such Indenture have been complied with and (ii) such satisfaction and discharge will not result in a breach or violation of, or constitute a default under, the Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound. Modifications and Amendments Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the holders of at least a majority of aggregate principal amount of the notes then outstanding; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding Note affected thereby: (i) change the Stated Maturity of the principal of, or any installment of interest on, or waive a default in the payment of the principal or interest on any such note or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change the coin or currency in which the principal of any such note or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the redemption date); (ii) amend, change or modify the obligation of the Company to make and consummate an Offer with respect to any Asset Sale or Asset Sales in accordance with "-- Certain Covenants -- Limitation on Sale of Assets" or the obligation of the Company to make and consummate a Change in Control Offer in the event of a Change in Control in accordance with "-- Certain Covenants -- Purchase of Notes Upon a Change in Control," including, in each case, amending, changing or modifying any definitions relating thereto; (iii) reduce the percentage in principal amount of such outstanding notes, the consent of whose holders is required for any such supplemental indenture, or the consent of whose holders is required for any waiver or compliance with certain provisions of the Indenture; (iv) modify any of the provisions relating to supplemental indentures requiring the consent of holders or relating to the waiver of past defaults or relating to the waiver of certain covenants, except to increase the percentage of such outstanding notes required for such actions or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the holder of each such note affected thereby; (v) except as otherwise permitted under "-- Consolidation, Merger, Sale of Assets," consent to the assignment or transfer by the Company of any of its rights and obligations under the Indenture; 77 (vi) amend or modify any of the provisions of the Indenture relating to the ranking of the notes or the Guarantees in any manner adverse to the holders of the notes; or (vii) release any Guarantor from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with the terms of the Indenture. Notwithstanding the foregoing, without the consent of any holders of the notes, the Company and the Trustee may modify or amend the Indenture: (a) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company in the Indenture and in the notes in accordance with "--Consolidation, Merger, Sale of Assets"; (b) to add to the covenants of the Company or any other obligor upon the notes for the benefit of the holders of the notes or to surrender any right or power conferred upon the Company or any other obligor upon the notes, as applicable, in the Indenture or in the notes; (c) to cure any ambiguity, or to correct or supplement any provision in the Indenture or the notes which may be defective or inconsistent with any other provision in the Indenture or the notes or make any other provisions with respect to matters or questions arising under the Indenture or the notes; provided that, in each case, such provisions will not adversely affect the interest of the holders of the notes; (d) to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act; (e) to add a Guarantor under the Indenture; (f) to evidence and provide the acceptance of the appointment of a successor Trustee under the Indenture; or (g) to mortgage, pledge, hypothecate or grant a security interest in favor of the Trustee for the benefit of the holders of the notes as additional security for the payment and performance of the Company's obligations under the Indenture, in any property, or assets, including any which are required to be mortgaged, pledged or hypothecated, or in which a security interest is required to be granted to the Trustee pursuant to the Indenture or otherwise. The holders of a majority in aggregate principal amount of the notes outstanding may waive compliance with certain restrictive covenants and provisions of the Indenture. Governing Law The Indenture and the notes will be governed by, and construed in accordance with, the laws of the State of New York. Certain Definitions "Acquired Indebtedness" means Indebtedness of a Person (i) existing at the time such Person becomes a Subsidiary of the Company or (ii) assumed in connection with the acquisition of assets from such Person, in each case, other than Indebtedness incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company or such acquisition, as the case may be. Acquired Indebtedness will be deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Subsidiary of the Company, as the case may be. "Affiliate" means, with respect to any specified Person: (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; (ii) any other Person that owns, directly or indirectly, 5% or more of such specified Person's Capital Stock or any offer or director of any such specified Person or other Person or, with respect to any natural Person, any person having a relationship with such Person by blood, marriage or adoption not more remote than first cousin; or (iii) any other Person 5% or 78 more of the Voting Stock of which is beneficially owned or held directly or indirectly by such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" will have meanings correlative to the foregoing. "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition (including by way of merger, consolidation or sale and leaseback transaction) (collectively, a "transfer"), directly or indirectly, in one or a series of related transactions, of: (i) any Capital Stock of any Subsidiary of the Company; (ii) all or substantially all of the properties and assets of any division or line of business of the Company or any of its Subsidiaries; or (iii) any other properties or assets of the Company or any Subsidiary of the Company other than in the ordinary course of business. For the purposes of this definition, the term "Asset Sale" will not include any transfer of properties and assets: (A) that is governed by the provisions described under "-- Consolidation, Merger, Sale of Assets," (B) that is by any Subsidiary of the Company to the Company or any Wholly Owned Subsidiary in accordance with the terms of the Indenture, (C) that is of inventory in the ordinary course of business, (D) leases or subleases, in the ordinary course of business, to third parties of real property owned in fee or leased by the Company or its Subsidiaries, (E) the sale of Cash Equivalents and other marketable securities or any disposition of cash, (F) the sale or factoring of receivables on customary market terms; provided that the Company or the applicable Subsidiary receives consideration in an amount at least equal to the Fair Market Value of the receivables so sold or factored and at least 75% of such consideration is in the form of any combination of cash and/or Cash Equivalents, (G) that is of obsolete equipment in the ordinary course of business or (H) the Fair Market Value of which in the aggregate during any 12-month period, for all such transfers, does not exceed $10 million. "Average Life to Stated Maturity" means, as of the date of determination with respect to any Indebtedness, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from the date of determination to the date or dates of each successive scheduled principal payment of such Indebtedness multiplied by (b) the amount of each such principal payment by (ii) the sum of all such principal payments. "Bank Credit Facility" means the Credit Agreement dated as of April 16, 2001, among the Company, the Banks, and Fleet National Bank (the "Existing Bank Credit Facility"), as such agreement, in whole or in part, may be amended, renewed, extended, substituted, refinanced, restructured, replaced, supplemented or otherwise modified from time to time (including, without limitation, any successive renewals, extensions, substitutions, refinancings, restructurings, replacements, supplementations or other modifications of the foregoing regardless of the amount of borrowings permitted thereunder, which borrowings were incurred in accordance with the Indenture) including through one or more debt facilities or other financing arrangements (including commercial paper facilities, revolving credit loans, term loans, receivables financings, letters of credit and any debt securities or other form of debt, convertible debt or exchangeable debt financing), in each case, whether by the same or any other lender or group of lenders or creditor or group of creditors. "Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as amended, or any similar United States federal or state law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "Banks" means the lenders under the Bank Credit Facility. 79 "Capital Lease Obligation" of any Person means any obligation of such Person and its Subsidiaries on a Consolidated basis under any capital lease of real or personal property which, in accordance with GAAP, has been recorded as a capitalized lease obligation. "Capital Stock" of any Person means any and all shares, interests, participations or other equivalents (however designated) of such Person's capital stock or other equity interests, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock, whether now outstanding or issued after the date of the Indenture. "Cash Equivalents" means (i) any evidence of Indebtedness, maturing not more than one year after the date of acquisition, issued by the United States of America, or an instrumentality or agency thereof, and guaranteed fully as to principal, premium, if any, and interest by the United States of America; (ii) any money market deposit account, demand deposit account, time deposit or certificate of deposit, maturing not more than one year after the date of acquisition, of a commercial banking institution organized under the laws of the United States of America, any State thereof, the District of Columbia, or any foreign country recognized by the United States of America and which institution has combined capital and surplus and undivided profits of not less than $200 million; (iii) any time deposit or certificate of deposit, maturing more than one year after the date of acquisition, of a commercial banking institution organized under the laws of the United States of America, any State thereof, the District of Columbia, or any foreign country recognized by the United States of America and which institution has combined capital and surplus and undivided profits of not less than $200 million and whose debt has a rating, at the time as of which any investment therein is made, of "P-1" (or higher) according to Moody's Investors Service, Inc. ("Moody's") or any successor rating agency or "A-1" (or higher) according to Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), or any successor rating agency; and (iv) commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate or Subsidiary of the Company) organized and existing under the laws of the United States of America with a rating, at the time as of which any investment therein is made, of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P. "Change in Control" means the occurrence of any of the following events: (i) any "person" or "group" (as such terms are used in Sections 13 (d) and 14 (d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have beneficial ownership of all shares that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of all outstanding Voting Stock of the Company; (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of the Company (together with any new directors whose election to such board or whose nomination for election by the stockholders of the Company was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of such board of directors then in office; (iii) the Company consolidates with or merges with or into any Person or conveys, transfers or leases all or substantially all of its assets to any Person, or any corporation consolidates with or merges into or with the Company in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where the outstanding Voting Stock of the Company is not affected or is not changed or exchanged at all (except to the extent necessary to reflect a change in the jurisdiction of incorporation of the Company or where (A) the outstanding Voting Stock of the Company is changed into or exchanged for (x) Voting Stock 80 of the surviving corporation which is not Redeemable Capital Stock or (y) cash, securities and other property (other than Capital Stock of the surviving corporation) in an amount which could be paid by the Company as a Restricted Payment as described under "-- Certain Covenants -- Limitation on Restricted Payments" (and such amount shall be treated as a Restricted Payment subject to the provisions in the Indenture described under "-- Certain Covenants -- Limitation on Restricted Payments"), and (B) no "person" or "group" "beneficially owns" immediately after such transaction, directly or indirectly more than 50% of the total voting power of all outstanding Voting Stock of the surviving corporation); or (iv) the Company is liquidated or dissolved or adopts a plan of liquidation or dissolution other than in a transaction which complies with the provisions described under "-- Consolidation, Merger, Sale of Assets." "Commodity Price Protection Agreement" means any forward contract, commodity swap, commodity option or other similar financial agreement or arrangement relating to, or the value of which is dependent upon, fluctuations in commodity prices. "Common Stock" means the common stock, par value $0.01 per share, of the Company. "Company" means Buckeye Technologies Inc., a corporation incorporated under the laws of Delaware, until a successor Person has become such pursuant to the applicable provisions of the Indenture, and thereafter "Company" will mean such successor Person. "Consolidated Fixed Charge Coverage Ratio" of any Person means, for any period, the ratio of (a) the sum of (i) Consolidated Net Income (Loss), plus (ii) Consolidated Interest Expense, plus (iii) Consolidated Income Tax Expense, plus (iv) Consolidated Non-cash Charges deducted in computing Consolidated Net Income (Loss), plus (v) expenses incurred during such period in connection with the early extinguishment of Indebtedness, and less (vi) non-cash items increasing Consolidated Net Income (Loss), in each case for such period, of such Person and its Subsidiaries on a Consolidated basis, all determined in accordance with GAAP to (b) the Consolidated Interest Expense for such period; provided that (i) in making such computation, the Consolidated Interest Expense attributable to interest on any Indebtedness computed on a pro forma basis and (A) bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period and (B) which was not outstanding during the period for which the computation is being made but which bears, at the option of such Person, a fixed or floating rate of interest, shall be computed by applying at the option of such Person either the fixed or floating rate and (ii) in making such computation, the Consolidated Interest Expense of such Person attributable to interest on any Indebtedness under a revolving credit facility computed on a pro forma basis will be computed based upon the average daily balance of such Indebtedness during the applicable period. "Consolidated Income Tax Expense" of any Person means, for any period, the provision for federal, state, local and foreign income taxes of such Person and its Consolidated Subsidiaries for such period as determined in accordance with GAAP. "Consolidated Interest Expense" of any Person means, without duplication, for any period, the sum of (a) the interest expense of such Person and its Subsidiaries for such period, on a Consolidated basis, including (i) amortization of debt discount, (ii) the net costs associated with Interest Rate Agreements, Currency Hedging Agreements and Commodity Price Protection Agreements (including amortization of discounts), 81 (iii) the interest portion of any deferred payment obligation and (iv) accrued interest, plus (b) (i) the interest component of the Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Subsidiaries during such period and (ii) all capitalized interest of such Person and its Subsidiaries plus (c) the interest expense under any Guaranteed Debt of such Person and its Subsidiaries to the extent not included under clause (a) (iv) above, plus (d) the aggregate amount during such period of cash or non-cash dividends paid on any Redeemable Capital Stock or Preferred Stock of the Company and its Subsidiaries, in each case as determined on a Consolidated basis in accordance with GAAP. "Consolidated Net Income (Loss)" of the Company means, for any period, the Consolidated net income (or loss) of the Company and its Subsidiaries for such period on a Consolidated basis as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income (or loss), by excluding, without duplication, (i) all extraordinary gains or losses (less all fees and expenses relating thereto), (ii) the portion of net income (or loss) of the Company and its Subsidiaries on a Consolidated basis allocable to a Person other than a Subsidiary to the extent that cash dividends or distributions have not actually been received by the Company or one of its Consolidated Subsidiaries, (iii) net income (or loss) of any Person combined with the Company or any of its Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (iv) any gain or loss, net of taxes, realized upon the termination of any employee pension benefit plan, (v) net gains (or losses) (less all fees and expenses relating thereto) in respect of dispositions of assets other than in the ordinary course of business, (vi) the net income of any Subsidiary of the Company to the extent that the declaration of dividends or similar distributions by that Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (vii) any restoration to income of any contingency reserve, except to the extent provision for such reserve was made out of income accrued at any time following the date of the Indenture, or (viii) any gain arising from the acquisition of any securities, or the extinguishment, under GAAP, of any Indebtedness of such Person. "Consolidated Non-cash Charges" of any Person means, for any period, the aggregate depreciation, amortization and other non-cash charges of such Person and its Subsidiaries on a Consolidated basis for such period, as determined in accordance with GAAP (excluding any non-cash charge which requires an accrual or reserve for cash charges for any future period). "Consolidated Tangible Assets" of any Person means, the aggregate amount of assets after deducting therefrom all goodwill, trade names, trademarks, patents, unamortized debt discount and expense (to the extent included in said aggregate amount of assets) and other like intangibles, as shown on the balance sheet of such Person for the most recently ended fiscal quarter for which financial statements are available, determined on a Consolidated basis in accordance with GAAP. Consolidated Tangible Assets will be determined as of the time of the occurrence of the event (s) giving rise to the requirement to determine Consolidated Tangible Assets and after giving effect to such event(s). "Consolidation" means, with respect to any Person, the consolidation of the accounts of such Person and each of its Subsidiaries (other than Unrestricted Subsidiaries) if and to the extent the accounts of such Person and 82 each of its Subsidiaries (other than Unrestricted Subsidiaries) would normally be consolidated with those of such Person, all in accordance with GAAP. The term "Consolidated" will have a similar meaning. "Currency Hedging Arrangements" means one or more of the following agreements which will be entered into by one or more financial institutions: foreign exchange contracts, currency swap agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency values. "Default," means any event which is, or after notice or passage of any time or both would be, an Event of Default. "Disinterested Director" means, with respect to any transaction or series of related transactions, a member of the board of directors of the Company who does not have any material direct or indirect financial interest (other than solely as a result of equity ownership in the Company) in or with respect to such transaction or series of related transactions. "Domestic Subsidiary" means a Subsidiary other than a Foreign Subsidiary. "Equity Offering" means a public or private offer and sale of Capital Stock of the Company (other than Redeemable Capital Stock and other than an offer and sale of Capital Stock on Form S-8 or any successor form or forms or a registration statement relating to securities issuable by or in connection with any benefit plan of such Person). "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute. "Existing Notes Indentures" means the Indentures related to the Existing Notes. "Existing Notes" means the 9 1/4% Senior Subordinated Notes due 2008 and the 8% Senior Subordinated Notes due 2010 of the Company. "Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. "Fenholloway River" means the river in Florida into which the Company's Foley Plant discharges treated waste water. "Foreign Subsidiary" means a Subsidiary that is formed or otherwise incorporated in a jurisdiction other than the United States or a state thereof or the District of Columbia. "Generally Accepted Accounting Principles" or "GAAP" means generally accepted accounting principles in the United States, consistently applied, which are in effect on the date of the Indenture. "Guaranteed Debt" of any Person means, without duplication, all Indebtedness of any other Person referred to in the definition of Indebtedness below guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to, or in any other manner invest in, the debtor (including any agreement to pay for property or services without requiring that such property be received or such services be rendered), (iv) to maintain working capital or equity capital of the debtor, or otherwise to maintain the net worth, solvency or other financial condition of the debtor or (v) otherwise to assure a creditor against loss; provided that the term "guarantee" will not include endorsements for collection or deposit, in either case, in the ordinary course of business. 83 "Guarantor" means a Subsidiary of the Company that executes a Guarantee pursuant to the covenant described under "-- Certain Covenants -- Limitation on Issuances of Subsidiary Guarantees"; provided that any Person constituting a Guarantor as described above will cease to constitute a Guarantor when its Guarantee is released in accordance with the terms of the Indenture. "Indebtedness" means, with respect to any Person, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities arising in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit issued under letter of credit facilities, acceptance facilities or other similar facilities and in connection with any agreement to purchase, redeem, exchange, convert or otherwise acquire for value any Capital Stock of such Person, or any warrants, rights or options to acquire such Capital Stock, now or hereafter outstanding, (ii) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade payables arising in the ordinary course of business, (iv) all obligations under Interest Rate Agreements, Currency Hedging Agreements or Commodity Price Protection Agreements of such Person, (v) all Capital Lease Obligations of such Person, (vi) all Indebtedness referred to in clauses (i) through (v) above of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien, upon or with respect to property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, (vii) all Guaranteed Debt of such Person, (viii) all Redeemable Capital Stock issued by such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends, and (ix) any amendment, supplement, modification, deferral, renewal, extension, refunding or refinancing of any liability of the types referred to in clauses (i) through (viii) above. For purposes of this definition, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price will be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness is required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair Market Value to be determined in good faith by the board of directors of the issuer of such Redeemable Capital Stock. "Interest Rate Agreements" means one or more of the following agreements which is entered into by one or more financial institutions: interest rate protection agreements (including, without limitation, interest rate swaps, caps, floors, collars and similar agreements) and/or other types of interest rate hedging agreements from time to time. "Investment" means, with respect to any Person, directly or indirectly, any advance, loan (including guarantees), or other extension of credit or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase, acquisition or ownership by such Person of any Capital Stock, bonds, notes, debentures or other securities issued or owned by any 84 other Person and all other items that would be classified as investments on a balance sheet prepared in accordance with GAAP. "Lien" means any mortgage or deed of trust, charge, pledge, lien (statutory or otherwise), security interest, assignment, deposit, arrangement, easement, hypothecation, claim, preference, priority or other encumbrance upon or with respect to any property of any kind (including any conditional sale, capital lease or other title retention agreement, any leases in the nature thereof, and any agreement to give any security interest), real or personal, movable or immovable, now owned or hereafter acquired. "Maturity" means, when used with respect to the notes, the date on which the principal of the notes becomes due and payable as therein provided or as provided in the Indenture, whether at Stated Maturity, the Offer Date or the redemption date and whether by declaration of acceleration, Offer in respect of Excess Proceeds, Change in Control Offer in respect of a Change in Control, call for redemption or otherwise. "Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person, the proceeds thereof (without duplication in respect of all Asset Sales) in the form of cash including payments in respect of deferred payment obligations when received in the form of, or stock or other assets when disposed of for, cash (except to the extent that such obligations are financed or sold with recourse to the Company or any of its Subsidiaries) net of (i) brokerage commissions and other reasonable fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) payments made to retire Indebtedness where payment of such Indebtedness is secured by the assets or properties the subject of such Asset Sale, (iv) amounts required to be paid to any Person (other than the Company or any Subsidiary of the Company) owning a beneficial interest in the assets subject to the Asset Sale, (v) appropriate amounts to be provided by the Company or any Subsidiary of the Company, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Subsidiary of the Company, as the case may be, after such Asset Sale, including pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an offers' certificate delivered to the Trustee and (vi) any amounts required to be placed by the Company or any Subsidiary of the Company in a restricted escrow or reserve account by the terms of the agreements pursuant to which the Asset Sale is made; provided that any such amounts will be deemed to be Net Cash Proceeds of an Asset Sale upon the release of such amounts to the Company or any Subsidiary and (b) with respect to any issuance or sale of Capital Stock or options, warrants or rights to purchase Capital Stock, or debt securities or Capital Stock that have been converted into or exchanged for Capital Stock as referred to under "-- Certain Covenants -- Limitation on Restricted Payments," the proceeds of such issuance or sale in the form of cash including payments in respect of deferred payment obligations when received in the form of, or stock or other assets when disposed of for, cash (except to the extent that such obligations are financed or sold with recourse to the Company or any of its Subsidiaries), net of attorney's fees, accountant's fees and brokerage, consultation, underwriting and other fees and expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Non-Guarantor Subsidiary" means any Subsidiary of the Company that is not a Guarantor. "Pari Passu Indebtedness" means any Indebtedness of the Company that is pari passu in right of payment to the notes. 85 "Permitted Investment" means (i) Investments in any Wholly Owned Subsidiary or any Person which, as a result of such Investment (whether in one transaction or a series of substantially concurrent related transactions), (a) becomes a Wholly Owned Subsidiary or (b) is merged or consolidated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or any Wholly Owned Subsidiary; (ii) Indebtedness of the Company or a Subsidiary of the Company described under clauses (v), (vi) and (vii) of the definition of "Permitted Indebtedness"; (iii) Cash Equivalents; (iv) Investments acquired by the Company or any Subsidiary of the Company in connection with an Asset Sale permitted under "-- Certain Covenants -- Limitation on Sale of Assets" to the extent such Investments are non-cash proceeds as permitted under such covenant; (v) any acquisition of assets solely in exchange for the issuance of Qualified Capital Stock of the Company; (vi) Investments deemed to have been made as a result of the acquisition of a Person that, at the time of such acquisition, held Investments that were not acquired in contemplation of, or in connection with, the acquisition of such Person; (vii) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (viii) Investments in existence on the date of the Indenture; (ix) Investments in the notes; (x) Guarantees of Indebtedness of the Company or any Subsidiary issued in accordance with the "-- Certain Covenants -- Limitation on Indebtedness" covenant; (xi) loans or advances to employees made in the ordinary course of business and consistent with past practices of the Company and its Subsidiaries not to exceed $5 million outstanding at any one time in the aggregate; (xii) loans made to employees (including guarantees of loans by third parties to employees) from time to time in an aggregate principal amount at any one time outstanding not to exceed $1 million, the proceeds of which are used to purchase Capital Stock of the Company; (xiii) sales of goods on trade credit terms, consistent with the past practices of the Company or any Subsidiary of the Company or as otherwise consistent with trade credit terms in common use in the industry; (xiv) Investments in joint ventures or similar entities having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (xiv) then outstanding, not to exceed 5% of the Consolidated Tangible Assets of the Company and its Subsidiaries at the time of such Investment (with the Fair Market Value being measured at the time made and without giving effect to subsequent changes in value); and (xv) in addition to Investments described in clauses (i) through (xiv) of this definition of "Permitted Investments," Investments valued at Fair Market Value at the time made not to exceed $25 million outstanding at any one time in the aggregate. "Permitted Liens" means the following types of Liens: (i) Liens existing as of the date of the Indenture to the extent and in the manner such Liens are in effect on the date of the Indenture; 86 (ii) Liens securing Pari Passu Indebtedness under the Bank Credit Facility incurred pursuant to clause (i) of the second paragraph of the covenant described under "-- Certain Covenants -- Limitation on Indebtedness"; (iii) Liens securing the notes and the Guarantees (and concurrent Liens securing to the same extent any Additional Notes, if any); (iv) Liens in favor of the Company or a Guarantor; (v) Liens for taxes, assessments or governmental charges or claims either (A) not delinquent or (B) contested in good faith by appropriate proceedings and, in each case, as to which the Company or any Subsidiary has set aside on its books such reserves as may be required pursuant to GAAP; (vi) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or that are bonded or that are being contested in good faith if an adequate reserve or other appropriate provision, if any, as are required by GAAP have been made in respect thereof, (vii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (viii) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated have not expired; (ix) easements, rights-of-way, building, zoning restrictions and other similar charges or encumbrances in respect of real property, or leases or subleases granted to others, in any case not impairing in any material respect the ordinary conduct of the business of the Company or any of its Subsidiaries; (x) (a) mortgages, liens, security interests, restrictions, encumbrances or any other matters of record that have been placed by any developer, landlord or other third party on property over which the Company or any Subsidiary has easement rights or on any real property leased by the Company or any Subsidiary and subordination or similar agreements relating thereto, and (b) any condemnation or eminent domain proceedings or compulsory purchase order affecting any real property; (xi) any interest or title of a lessor under any Capital Lease Obligation; provided that such Liens do not extend to any property or asset which is not leased property subject to such Capital Lease Obligation; (xii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (xiii) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (xiv) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Subsidiaries, including rights of offset and set-off; (xv) Liens securing obligations under Interest Rate Agreements which Interest Rate Agreements relate to Indebtedness that is otherwise permitted under the Indenture; (xvi) Liens securing Purchase Money Obligations permitted pursuant to clause (ix) of the definition of Permitted Indebtedness; 87 (xvii) Liens securing Indebtedness under Currency Hedging Agreements and Commodity Price Protection Agreements; (xviii) Liens securing Acquired Indebtedness (and any Indebtedness which refinances such Acquired Indebtedness) incurred in accordance with the covenant described under "-- Certain Covenants -- Limitation on Indebtedness"; provided that (A) such Liens secured the Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Subsidiary and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Subsidiary; and (B) such Liens do not extend to or cover any property or assets of the Company or of any of its Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Subsidiary; (xix) Liens securing Indebtedness which is incurred to refinance any Indebtedness secured by a Lien permitted under the Indenture; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any of the Subsidiaries not securing the Indebtedness so refinanced; (xx) Liens on any Capital Stock of an Unrestricted Subsidiary solely to secure Indebtedness of such Unrestricted Subsidiary; and (xxi) additional Liens not to exceed 5% of the Consolidated Tangible Assets of the Company and its Subsidiaries at any one time outstanding. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" means, with respect to any Person, any Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over the Capital Stock of any other class in such Person. "Purchase Money Obligation" means any Indebtedness secured by a Lien on assets related to the business of the Company or any of its Subsidiaries and any additions and accessions thereto, which are purchased by the Company or any of its Subsidiaries at any time after the notes are issued; provided that (i) the security agreement or conditional sales or other title retention contract pursuant to which the Lien on such assets is created (collectively, a "Purchase Money Security Agreement") is entered into within 90 days after the purchase, acquisition or substantial completion of the construction of such assets and is at all times confined solely to the assets so purchased, acquired or constructed, any additions and accessions thereto and any proceeds therefrom, (ii) at no time shall the aggregate principal amount of the outstanding Indebtedness secured thereby be increased, except in connection with the purchase of additions and accessions thereto and except in respect of fees and other obligations in respect of such Indebtedness, and (iii) (A) the aggregate outstanding principal amount of Indebtedness secured thereby (determined on a per asset basis in the case of any additions and accessions) may not at the time such Purchase Money Security Agreement is entered into exceed 100% of the purchase price to the Company or its Subsidiaries of the assets subject thereto and (B) the Indebtedness secured thereby will be with recourse solely to the assets so purchased or acquired, any additions and accessions thereto and any proceeds therefrom. "Qualified Capital Stock" of any Person means any and all Capital Stock of such Person other than Redeemable Capital Stock. 88 "Redeemable Capital Stock" means any Capital Stock that, either by its terms or by the terms of any security into which it is convertible or exchangeable or otherwise, is or upon the happening of an event or passage of time would be, required to be redeemed prior to any Stated Maturity of the principal of the notes or is redeemable at the option of the holder thereof at any time prior to any such Stated Maturity, or is convertible into or exchangeable for debt securities at any time prior to any such Stated Maturity at the option of the holder thereof. "SEC" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of the Indenture the SEC is not existing and performing the duties now assigned to it under the Trust Indenture Act then the body performing such duties at such time. "Securities Act" means the Securities Act of 1933, as amended, or any successor statute. "Stated Maturity" means, when used with respect to any Indebtedness or any installment of interest thereon, the dates specified in such Indebtedness as the fixed date on which the principal of such Indebtedness or such installment of interest, as the case may be, is due and payable. "Subordinated Indebtedness" means Indebtedness of the Company subordinated in right of payment to the notes. "Subsidiary" means any Person, a majority of the equity ownership or the Voting Stock of which is at the time owned, directly or indirectly, by another Person or by one or more of such other Person's other Subsidiaries, or by such other Person and one or more of such other Person's other Subsidiaries; provided that each Unrestricted Subsidiary shall be deemed to not be a Subsidiary of the Company under the Indenture and the notes. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or any successor statute. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination is an Unrestricted Subsidiary (as designated by the board of directors of the Company, as provided below) and (ii) any Subsidiary of an Unrestricted Subsidiary. The board of directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary if all of the following conditions apply: (A) neither the Company nor any of its Subsidiaries provides credit support for Indebtedness of such Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness), (B) such Unrestricted Subsidiary is not liable, directly or indirectly, with respect to any Indebtedness other than Unrestricted Subsidiary Indebtedness, (C) any Investment in such Unrestricted Subsidiary made as a result of designating such Subsidiary an Unrestricted Subsidiary shall not violate the provisions of "-- Certain Covenants -- Limitation on Unrestricted Subsidiaries" and such Unrestricted Subsidiary is not party to any agreement, contract, arrangement or understanding at such time with the Company or any other Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such other Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company or, in the event such condition is not satisfied, the value of such agreement, contract, arrangement or understanding to such Unrestricted Subsidiary will be deemed a Restricted Payment; and (D) such Unrestricted Subsidiary does not own any Capital Stock in any Subsidiary of the Company which is not simultaneously being designated an Unrestricted Subsidiary. Any such designation by the board of directors of the Company will be evidenced to the Trustee by filing with the Trustee a board resolution giving effect to such designation and an officers' certificate certifying that such designation complies with 89 the foregoing conditions and will be deemed a Restricted Payment on the date of designation in an amount equal to the greater of (1) the net book value of such Investment or (2) the Fair Market Value of such Investment as determined in good faith by the Company's Board of Directors. The board of directors of the Company may designate any Unrestricted Subsidiary as a Subsidiary of the Company; provided that either (x) the Unrestricted Subsidiary to be designated a Subsidiary of the Company has total assets of $1,000 or less at the time of its designation or (y) (i) immediately after giving effect to such designation, the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the restrictions under "-- Certain Covenants -- Limitation on Indebtedness" and (ii) all Indebtedness of such Unrestricted Subsidiary will be deemed to be incurred on the date such Unrestricted Subsidiary is designated a Subsidiary of the Company. "Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means Indebtedness of such Unrestricted Subsidiary (i) as to which neither the Company nor any of its Subsidiaries is directly or indirectly liable (by virtue of the Company or any such Subsidiary being the primary obligor on, guarantor of, or otherwise liable in any respect to, such Indebtedness), except Guaranteed Debt of the Company or any of its Subsidiaries to any Affiliate, in which case (unless the incurrence of such Guaranteed Debt resulted in a Restricted Payment at the time of incurrence) the Company will be deemed to have made a Restricted Payment equal to the principal amount of any such Indebtedness to the extent guaranteed at the time such Affiliate is designated an Unrestricted Subsidiary and (ii) which, upon the occurrence of a default with respect thereto, does not result in, or permit any holder of any Indebtedness of the Company or any of its Subsidiaries to declare, a default on such Indebtedness of the Company or any of its Subsidiaries or cause the payment thereof to be accelerated or payable prior to its Stated Maturity. "Voting Stock" means Capital Stock of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of a corporation (irrespective of whether or not at the time Capital Stock of any other class or classes have or might have voting power by reason of the happening of any contingency). "Wholly Owned Subsidiary" means a Subsidiary of the Company all the Capital Stock of which is owned by the Company or another Wholly Owned Subsidiary. For purposes of this definition any directors' qualifying shares or investments by foreign nationals mandated by applicable law will be disregarded in determining the ownership of a Subsidiary of the Company. 90 REGISTRATION RIGHTS As part of the sale of the old notes to the initial purchasers, we and the initial purchasers entered into a registration rights agreement dated September 22, 2003. Under the registration rights agreement, we agreed, at our cost, for the benefit of the holders of the notes, to: o not later than 90 days after the date of original issuance of the notes, file a registration statement with the SEC with respect to a registered offer to exchange the old notes for new notes of Buckeye Technologies Inc. evidencing the same continuing indebtedness under, and having terms substantially identical in all material respects to, the old notes (except that the new notes will not contain terms with respect to transfer restrictions), and o cause the exchange offer registration statement to be declared effective under the Securities Act not later than 180 days after the date of original issuance of the old notes. Upon the effectiveness of the exchange offer registration statement, we agreed to offer the new notes in exchange for surrender of the old notes. We also agreed to keep the registered exchange offer open for not less than 20 business days (or longer if required by applicable law) and not more than 30 business days after the date notice of the registered exchange offer is mailed to the holders of the old notes. For each old note surrendered to us pursuant to the registered exchange offer, the holder of such old note will receive a new note having a principal amount equal to that of the surrendered old note. Interest on each new note will accrue from the last interest payment date on which interest was paid on the old note surrendered in exchange thereof or, if no interest has been paid on such note, from the date of its original issue on September 22, 2003. In the event that: (1) applicable interpretations of the staff of the SEC do not permit us to effect such a registered exchange offer, (2) for any other reason the exchange offer registration statement is not declared effective within 180 days after the date of the original issuance of the old notes or the registered exchange offer is not consummated within 30 business days after the exchange offer registration statement is declared effective, (3) the initial purchasers so request with respect to old notes not eligible to be exchanged for new notes in the registered exchange offer, or (4) any holder of old notes (other than the initial purchasers) is not eligible to participate in the registered exchange offer or does not receive freely tradeable exchange notes in the registered exchange offer other than by reason of such holder being an affiliate of us (it being understood that the requirement that a participating broker-dealer deliver the prospectus contained in the exchange offer registration statement in connection with sales of exchange notes will not result in such exchange notes being not "freely tradeable"), we will, at our cost, (a) as promptly as practicable, file a registration statement (the "shelf registration statement") covering resales of the old notes or the new notes, as the case may be, (b) cause the shelf registration statement to be declared effective under the Securities Act, and (c) use our best efforts to keep the shelf registration statement effective until two years after its effective date. We will, in the event a shelf registration statement is filed, provide to each holder for whom such shelf registration statement was filed copies of the prospectus which is a part of the shelf registration statement, notify each such holder when the shelf registration statement has become effective and take certain other actions that are required to permit unrestricted resales of the old notes or the new notes, as the case may be. A holder selling such notes pursuant to the shelf registration statement generally (1) would be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, (2) will be subject to certain of the civil 91 liability provisions under the Securities Act in connection with such sales and (3) will be bound by the provisions of the registration rights agreement that are applicable to such holder (including certain indemnification obligations). If: (a) on or prior to the 90th day following the date of original issuance of the old notes, neither the exchange offer registration statement nor the shelf registration statement has been filed with the SEC, (b) on or prior to the 180th day following the date of original issuance of the old notes, neither the exchange offer registration statement nor the shelf registration statement has been declared effective, (c) on or prior to the 30th business day after the exchange offer registration statement is declared effective, the registered exchange offer has not been consummated, (d) notwithstanding that we have consummated the exchange offer, if we are required to file a shelf registration statement, the shelf registration statement is not filed or has not been declared effective within the time period provided for in the registration rights agreement, or (e) after either the exchange offer registration statement or the shelf registration statement has been declared effective, such registration statement thereafter ceases to be effective or usable (subject to certain exceptions) in connection with resales of notes in accordance with and during the periods specified in the registration rights agreement (each such event referred to in clauses (a) through (e) being a "registration default"), interest ("additional interest") will accrue on the principal amount of the notes (in addition to the stated interest on the notes) from and including the date on which any such registration default occurs to but excluding the date on which all registration defaults have been cured. Additional interest will accrue at a rate of 0.25% on an unmodified basis during the 90-day period immediately following the occurrence of such registration default and will increase by 0.25% on an unmodified basis at the end of each subsequent 90-day period, but in no event will such rate exceed 0.75% on an unmodified basis. This summary of certain provisions of the registration rights agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the registration rights agreement, a copy of which is available upon request to us. 92 BOOK-ENTRY; DELIVERY AND FORM The Global Notes The new notes will initially be represented by permanent global notes in fully registered form, without interest coupons, which we refer to as global notes, and will be deposited with the trustee as a custodian for The Depositary Trust Company, or DTC, and registered in the name of a nominee of such depositary. We expect that pursuant to procedures established by DTC (1) upon the issuance of the global notes, DTC or its custodian will credit, on its internal system, the principal amount at maturity of the individual beneficial interests represented by such global notes to the respective accounts of persons who have accounts with such depositary and (2) ownership of beneficial interests in the global notes will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records participants (with respect to interests of persons other than participants). Ownership of beneficial interests in the global notes will be limited to persons who have accounts with DTC, who we refer to as participants, or persons who hold interests through participants. Holders may hold their interests in the global notes directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system. Certain Book-Entry Procedures for the Global Notes The descriptions of the operations and procedures of DTC, the Euroclear System ("Euroclear") and Clearstream Banking, S.A. of Luxembourg ("Clearstream, Luxembourg") set forth below are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to change by them from time to time. Neither we nor the initial purchasers takes any responsibility for these operations or procedures, and investors are urged to contact the relevant system or its participants directly to discuss these matters. DTC has advised us that it is: o a limited purpose trust company organized under the laws of the State of New York; o a "banking organization" within the meaning of the New York Banking Law; o a member of the Federal Reserve System; o a "clearing corporation" within the meaning of the Uniform Commercial Code, as amended; and o a "clearing agency" registered pursuant to Section 17A of the Exchange Act of 1934 (the "Exchange Act"). DTC was created to hold securities for its participants (collectively, the "Participants") and facilitates the clearance and settlement of securities transactions between Participants through electronic book-entry changes to the accounts of its Participants, thereby eliminating the need for physical transfer and delivery of certificates. DTC's Participants include securities brokers and dealers (including the initial purchasers), banks and trust companies, clearing corporations and certain other organizations. Indirect access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Investors who are not Participants may beneficially own securities held by or on behalf of DTC only through Participants or Indirect Participants. We expect that pursuant to procedures established by DTC (1) upon deposit of each Global Note, DTC will credit the accounts of applicable Participants with an interest in the Global Note and (2) ownership of the notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the interests of Participants) and the records of Participants and the Indirect Participants (with respect to the interests of persons other than Participants). 93 The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Accordingly, the ability to transfer interests in the notes represented by a Global Note to such persons may be limited. In addition, because DTC can act only on behalf of its Participants, who in turn act on behalf of persons who hold interests through Participants, the ability of a person having an interest in notes represented by a Global Note to pledge or transfer such interest to persons or entities that do not participate in DTC's system, or to otherwise take actions in respect of such interest, may be affected by the lack of a physical definitive security in respect of such interest. So long as DTC or its nominee is the registered owner of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the notes represented by the Global Note for all purposes under the indenture. Except as provided below, owners of beneficial interests in a Global Note will not be entitled to have notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of Certificated Notes and will not be considered the owners or holders thereof under the indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the trustee thereunder. Accordingly, each holder owning a beneficial interest in a Global Note must rely on the procedures of DTC and, if such holder is not a Participant or an Indirect Participant, on the procedures of the Participant through which such holder owns its interest, to exercise any rights of a holder of notes under the indenture or such Global Note. We understand that under existing industry practice, in the event that we request any action of holders of notes, or a holder that is an owner of a beneficial interest in a Global Note desires to take any action that DTC, as the holder of such Global Note, is entitled to take, DTC would authorize the Participants to take such action and the Participants would authorize holders owning through such Participants to take such action or would otherwise act upon the instruction of such holders. Neither we nor the trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of notes by DTC, or for maintaining, supervising or reviewing any records of DTC relating to such notes. Payments with respect to the principal of, and premium, if any, and interest on (including additional interest, if any), any notes represented by a Global Note registered in the name of DTC or its nominee on the applicable record date will be payable by the trustee to or at the direction of DTC or its nominee in its capacity as the registered holder of the Global Note representing such notes under the indenture. Under the terms of the indenture, we and the trustee may treat the persons in whose names the notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving payment thereon and for any and all other purposes whatsoever. Accordingly, neither we nor the trustee has or will have any responsibility or liability for the payment of such amounts to owners of beneficial interests in a Global Note (including principal, premium, if any, and interest, including additional interest, if any). Payments by the Participants and the Indirect Participants to the owners of beneficial interests in a Global Note will be governed by standing instructions and customary industry practice and will be the responsibility of the Participants or the Indirect Participants and DTC. Transfers between Participants in DTC will be effected in accordance with DTC's procedures and will be settled in same-day funds. Transfers between participants in Euroclear or Clearstream, Luxembourg will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the notes, cross-market transfers between the Participants in DTC, on the one hand, and Euroclear or Clearstream, Luxembourg participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, Luxembourg, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, Luxembourg, as the case may be, by the counterparts in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, Luxembourg, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Notes in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream, Luxembourg participants may not deliver instructions directly to the depositories for Euroclear or Clearstream, Luxembourg. Because of time zone differences, the securities account of a Euroclear or Clearstream, Luxembourg participant purchasing an interest in a Global Note from a Participant in DTC will be credited, and any such 94 crediting will be reported to the relevant Euroclear or Clearstream, Luxembourg participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream, Luxembourg) immediately following the settlement date of DTC. Cash received in Euroclear or Clearstream, Luxembourg as a result of sales of interests in the Global Notes by or through a Euroclear or Clearstream, Luxembourg participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream, Luxembourg cash account only as of the business day for Euroclear or Clearstream, Luxembourg following DTC's settlement date. Although DTC, Euroclear and Clearstream, Luxembourg have agreed to the foregoing procedures to facilitate transfers of interests in the Global Notes among participants in DTC, Euroclear and Clearstream, Luxembourg, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither we nor the trustee will have any responsibility for the performance by DTC, Euroclear or Clearstream, Luxembourg or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Notes If: o we notify the trustee in writing that DTC is no longer willing or able to act as a depositary or DTC ceases to be registered as a clearing agency under the Exchange Act and a successor depositary is not appointed within 90 days of such notice or cessation; or o an event of default has occurred and is continuing and the registrar has received a request from DTC to issue Certificated Notes, then, upon surrender by DTC of the Global Notes, Certificated Notes will be issued to each person that DTC identifies as the beneficial owner of the notes represented by the Global Notes. Upon any such issuance, the trustee is required to register such Certificated Notes in the name of such person or persons (or the nominee of any thereof) and cause the same to be delivered thereto. Neither we nor the trustee will be liable for any delay by DTC or any participant or indirect participant in identifying the beneficial owners of the related notes, and each such person may conclusively rely on, and will be protected in relying on, instructions from DTC for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the notes to be issued). 95 U.S. FEDERAL INCOME TAX CONSIDERATIONS Exchange Notes The exchange of old notes for new notes in the exchange offer will not constitute a taxable event to holders. Consequently, o no gain or loss will be recognized by a holder upon receipt of a new note. o the holding period of the new note will include the holding period of the old note, and o the adjusted tax basis of the new note will be the same as the adjusted tax basis of the old note immediately before the exchange. In any event, persons considering an exchange of the old notes for new notes should consult their own tax advisors concerning the U.S. federal income tax consequences in light of their particular situations, as well as any consequences arising under the laws of any other taxing jurisdiction. PLAN OF DISTRIBUTION We are not using any underwriters for this exchange offer. Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of any new notes received in exchange for old notes acquired by such broker-dealer as a result of market-making or other trading activities. We have agreed that, for a period of up to 180 days after the consummation of the exchange offer, or for such longer period as provided by the registration rights agreement, we will make this prospectus, as it may be amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, during this 180-day or such longer period, all dealers effecting transactions in the new notes may be required to deliver a prospectus. We will not receive any proceeds from any sale of new notes by broker-dealers or any other persons. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of these methods of resale, at market prices prevailing at the time of such resale, at prices related to prevailing market prices or at negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any broker-dealer and/or the purchasers of any new notes. Any broker-dealer that resells new notes that were received by it or for its own account pursuant to the exchange offer and any broker-dealer that participates in a distribution of new notes may be deemed to be an "underwriter" within the meaning of the Securities Act. In that event, any profit resulting from these resales of new notes and any commissions or concessions received by any of these persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of up to 180 days after the consummation of the exchange offer, or such longer period as provided by the registration rights agreement, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests these documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer other than commissions or concessions of any brokers or dealers, and we will indemnify the holders of the old notes and the new notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 96 LEGAL MATTERS The validity of the notes and certain other matters will be passed upon for us by Shearman & Sterling LLP, New York, New York, and Baker, Donelson, Bearman, Caldwell & Berkowitz PC, Memphis, Tennessee. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements and schedule as of June 30, 2003 and 2002, and for each of the three years in the period ended June 30, 2003, as set forth in their reports. We have included our consolidated financial statements and schedule in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's reports, given on their authority as experts in accounting and auditing. 97 BUCKEYE TECHNOLOGIES INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors............................................................................. F-2 Financial Statements as of June 30, 2003, June 30, 2002 and for the three years ended June 30, 2003: Consolidated Statements of Operations ..................................................................... F-3 Consolidated Balance Sheets ............................................................................... F-4 Consolidated Statements of Stockholders' Equity ........................................................... F-5 Consolidated Statements of Cash Flows ..................................................................... F-6 Notes to Consolidated Financial Statements ................................................................ F-7
F-1 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Buckeye Technologies Inc. We have audited the accompanying consolidated balance sheets of Buckeye Technologies Inc. as of June 30, 2003 and 2002 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Buckeye Technologies Inc. at June 30, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2003 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 2 to the consolidated financial statements, in 2001, the Company changed its method of depreciation for certain equipment, and in 2002, the Company adopted Statement of Financial Accounting Standards No. 142. /s/ ERNST & YOUNG LLP Memphis, Tennessee July 30, 2003 except for Note 21, as to which the date is September 22, 2003 F-2
CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended June 30, -------------------------------------- 2003 2002 2001 -------- -------- -------- (In thousands, except per share data) Net sales........................................................................ $641,082 $635,218 $731,528 Cost of goods sold............................................................... 558,221 557,963 574,055 -------- -------- -------- Gross margin..................................................................... 82,861 77,255 157,473 Selling, research and administrative expenses.................................... 37,896 37,101 46,326 Impairment of long-lived assets.................................................. 36,503 9,984 -- Restructuring costs.............................................................. 1,636 1,605 -- -------- -------- -------- Operating income................................................................. 6,826 28,565 111,147 Other income (expense): Interest income............................................................. 1,062 535 1,097 Interest expense and amortization of debt costs............................. (47,526) (48,586) (45,853) Foreign exchange, amortization of intangibles and other..................... (2,378) (3,438) (2,062) -------- -------- -------- Income (loss) before income taxes and cumulative effect of change in accounting.. (42,016) (22,924) 64,329 Income tax expense (benefit)..................................................... (17,122) (8,420) 21,055 -------- -------- -------- Income (loss) before cumulative effect of change in accounting................... (24,894) (14,504) 43,274 Cumulative effect of change in accounting (net of tax of $0 and $1,286, respectively)............................................................... -- (11,500) 3,249 -------- -------- -------- Net income (loss)................................................................ $(24,894) $(26,004) $ 46,523 ======== ======== ======== Earnings (loss) per share before cumulative effect of change in accounting Basic earnings (loss) per share............................................. $ (0.67) $ (0.42) $ 1.25 Diluted earnings (loss) per share........................................... $ (0.67) $ (0.42) $ 1.23 Cumulative effect of change in accounting Basic earnings (loss) per share............................................. $ -- $ (0.33) $ 0.09 Diluted earnings (loss) per share........................................... $ -- $ (0.33) $ 0.09 Earnings (loss) per share Basic earnings (loss) per share............................................. $ (0.67) $ (0.74) $ 1.35 Diluted earnings (loss) per share........................................... $ (0.67) $ (0.74) $ 1.32 Weighted average shares for basic earnings per share............................. 36,965 34,906 34,534 Effect of dilutive stock options................................................. -- -- 786 -------- -------- -------- Adjusted weighted average shares for diluted earnings per share.................. 36,965 34,906 35,320 ======== ======== ========
See accompanying notes. F-3
CONSOLIDATED BALANCE SHEETS June 30 ---------------------------- 2003 2002 ----------- ----------- (In thousands, except share data) ASSETS Current assets: Cash and cash equivalents......................................................... $ 49,977 $ 56,006 Cash, restricted.................................................................. 3,375 3,375 Short-term investments............................................................ -- 8,863 Accounts receivable--trade, net of allowance for doubtful accounts of $721 in 2003 and $1,947 in 2002.................................................... 123,303 93,898 Accounts receivable--other........................................................ 2,980 3,618 Inventories....................................................................... 136,705 145,103 Deferred income taxes............................................................. 18,613 7,421 Prepaid expenses and other........................................................ 7,694 22,232 ----------- ----------- Total current assets.......................................................... 342,647 340,516 Property, plant and equipment, net..................................................... 594,138 627,752 Goodwill, net.......................................................................... 129,631 120,399 Intellectual property and other, net................................................... 44,239 46,070 ----------- ----------- Total assets.................................................................. $ 1,110,655 $ 1,134,737 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable............................................................ $ 37,007 $ 33,789 Accrued expenses.................................................................. 48,360 47,196 Current portion of capital lease obligation....................................... 583 793 Current portion of long-term debt................................................. 41,718 22,000 ----------- ----------- Total current liabilities..................................................... 127,668 103,778 Long-term debt......................................................................... 619,474 675,396 Accrued postretirement benefits........................................................ 18,882 19,163 Deferred income taxes.................................................................. 79,498 79,295 Capital lease obligation............................................................... 2,700 3,029 Other liabilities...................................................................... 549 416 Commitments and contingencies (Notes 8, 9, 12, 17, and 18) Stockholders' equity: Preferred stock, $.01 par value; 10,000,000 shares authorized; none issued or outstanding....................................................................... -- -- Common stock, $.01 par value; 100,000,000 shares authorized; 43,142,770 shares issued and 36,973,478 and 36,948,900 shares outstanding at June 30, 2003 and 2002, respectively........................ 431 431 Additional paid-in capital............................................................. 55,517 55,517 Deferred stock compensation............................................................ (282) (282) Accumulated other comprehensive loss................................................... (3,410) (36,381) Retained earnings...................................................................... 293,739 318,633 Treasury shares, 6,169,292 and 6,193,870 shares at June 30, 2003 and 2002, respectively...................................................................... (84,111) (84,258) ----------- ----------- Total stockholders' equity.................................................... 261,884 253,660 ----------- ----------- Total liabilities and stockholders' equity.................................... $ 1,110,655 $ 1,134,737 =========== ===========
See accompanying notes. F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Accumulated Additional Deferred other Common Paid-in Stock Comprehensive Retained Treasury Stock Capital Compensation Loss Earnings Shares Total ------- ---------- ------------- --------------- -------- --------- --------- (In thousands, except share data) Balance at June 30, 2000......... $431 $ 65,306 $(626) $(34,376) $298,114 $(114,870) $213,979 Comprehensive income: Net income................... -- -- -- -- 46,523 -- 46,523 Other comprehensive income: Foreign currency translation adjustment... -- -- -- (23,913) -- -- (23,913) Comprehensive income............. 22,610 Purchase of 769,300 shares....... -- -- -- -- -- (9,827) (9,827) Issuance of 214,126 shares of common stock................ -- (199) -- -- -- 3,017 2,818 Termination of stock options..... -- 18 (18) -- -- -- -- Amortization of deferred stock compensation................ -- -- 442 -- -- -- 442 ---- --------- ----- -------- -------- --------- -------- Balance at June 30, 2001......... 431 65,125 (202) (58,289) 344,637 (121,680) 230,022 Comprehensive income (loss): Net loss.................... -- -- -- -- (26,004) -- (26,004) Other comprehensive income: Foreign currency translation adjustment... -- -- -- 21,908 -- -- 21,908 Comprehensive loss............... (4,096) Issuance of 2,756,859 shares of common stock................. -- (11,054) -- -- -- 37,482 26,428 Tax benefit on option exercise... -- 1,356 -- -- -- -- 1,356 Termination of restricted stock.. -- -- -- -- -- (60) (60) Deferred stock compensation...... -- 90 (90) -- -- -- -- Amortization of deferred stock compensation................. -- 10 -- -- -- l0 ---- --------- ----- -------- -------- --------- -------- Balance at June 30, 2002......... 431 55,517 (282) (36,381) 318,633 (84,258) 253,660 Comprehensive income: Net loss.................... -- -- -- -- (24,894) -- (24,894) Other comprehensive income: Foreign currency translation adjustment... -- -- -- 32,971 -- -- 32,971 Comprehensive income............. 8,077 Issuance of 24,578 shares of common stock................. -- -- -- -- -- 147 147 ---- --------- ----- -------- -------- --------- -------- Balance at June 30, 2003......... $431 $ 55,517 $(282) $ (3,410) $293,739 $ (84,111) $261,884 ==== ========= ===== ======== ======== ========= ========
See accompanying notes. F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended June 30 -------------------------------------- 2003 2002 2001 -------- -------- -------- (In thousands) Operating activities Net income (loss)............................................. $(24,894) $(26,004) $ 46,523 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of change in accounting.................. -- 11,500 (3,249) Impairment charge on idle equipment........................ 36,503 9,984 -- Depreciation and depletion................................. 46,500 45,096 43,798 Amortization............................................... 5,588 5,525 9,028 Deferred income taxes...................................... (13,489) 9,142 9,575 Other...................................................... 585 1,701 4,371 Changes in operating assets and liabilities: Accounts receivable..................................... (25,267) 10,688 2,921 Inventories............................................. 14,284 (3,411) (32,692) Prepaid expenses and other assets....................... 13,827 (10,807) (8,358) Accounts payable and other current liabilities.......... 1,569 (25,489) (3,333) -------- -------- -------- Net cash provided by operating activities..................... 55,206 27,925 68,584 Investing activities Acquisitions of businesses.................................... -- -- (36,588) Purchases of property, plant and equipment.................... (28,424) (35,972) (153,033) Redemptions (purchases) of short term investments............. 8,863 (8,863) -- Other......................................................... (872) (1,292) (1,637) -------- -------- -------- Net cash used in investing activities......................... (20,433) (46,127) (191,258) Financing activities Net proceeds from sale of equity interests.................... -- 26,233 2,604 Purchase of treasury shares................................... -- -- (9,827) Net borrowings (payments) under revolving line of credit...... (19,923) 54,040 160,819 Payments for debt issuance costs.............................. (671) (2,157) (1,354) Principal payments on long-term debt and other................ (22,539) (18,459) (35,521) -------- -------- -------- Net cash provided by (used in) financing activities........... (43,133) 59,657 116,721 Effect of foreign currency rate fluctuations.................. 2,331 1,619 (2,060) -------- -------- -------- Increase (decrease) in cash and cash equivalents.............. (6,029) 43,074 (8,013) Cash and cash equivalents at beginning of year................ 56,006 12,932 20,945 -------- -------- -------- Cash and cash equivalents at end of year...................... $ 49,977 $ 56,006 $ 12,932 ======== ======== ========
See accompanying notes. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share data) 1. Accounting Policies Business Description and Basis of Presentation The financial statements are consolidated financial statements of Buckeye Technologies Inc. and its subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. The Company manufactures and distributes value-added cellulose-based specialty products used in numerous applications including disposable diapers, personal hygiene products, engine air and oil filters, food casings, rayon filament, acetate plastics, thickeners, and papers. Cash and Cash Equivalents The Company considers cash equivalents to be temporary cash investments with maturity of three months or less when purchased. Short-term Investments The Company's short-term investments, consisting primarily of high-grade debt securities, are recorded at fair value and are classified as available-for-sale. Maturities of these investments are one year or less. Inventories Inventories are stated at the lower of cost (determined on average cost or first-in, first-out methods) or market. Allowance for Doubtful Accounts The Company provides an allowance for receivables it believes it may not collect in full. It evaluates the collectibility of its accounts based on a combination of factors. In circumstances where it is aware of a specific customer's inability to meet its financial obligations (i.e., bankruptcy filings or substantial downgrading of credit ratings), it records a specific reserve. For all other customers, the Company recognizes reserves for bad debts based on its historical collection experience. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer's ability to meet its financial obligations), the Company's estimates of the recoverability of amounts due could be reduced by a material amount. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Cost includes the interest cost associated with significant capital additions. Interest capitalized for the years ended June 30, 2003, 2002, and 2001 was $70, $1,772 and $4,824, respectively. Depreciation on production machinery and equipment at the cotton cellulose and airlaid nonwovens plants is determined by the units-of-production method which is based on the expected productive hours of the assets, subject to a minimum level of depreciation. Other capital assets use the straight-line method for determining depreciation. Depreciation under the straight-line method is computed over the following estimated useful lives: buildings -- 30 to 40 years; machinery and equipment -- 3 to 16 years. Depreciation and amortization expense includes the amortization of assets under capital lease. The Company accrues the cost of periodic planned maintenance shutdowns, based on its best estimate of incremental spending and the fixed overhead cost, over the period between shutdowns. F-7 Long-Lived Assets Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. See Note 4 for information concerning impairment charges. Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. Prior to the adoption of Statement of Financial Accounting Standards No. (SFAS) 142, Goodwill and Other Intangible Assets, goodwill was amortized over the estimated period of benefit on a straight-line basis over periods ranging from 30 to 40 years, and was reviewed for impairment under the policy for other long-lived assets. Since adoption of SFAS 142 in July 2001, amortization of goodwill was discontinued and goodwill is reviewed at least annually for impairment. Unless circumstances otherwise dictate, the Company performs its annual impairment testing in the fourth quarter. Accumulated amortization was $19,108 and $17,950 at June 30, 2003 and 2002, respectively. No impairment was recorded during the year ending June 30, 2003. The change in accumulated amortization resulted from changes in foreign currency exchange rates during the period. A corresponding amount is recorded as a translation adjustment in stockholders' equity. Intellectual Property and Other At June 30, 2003 and 2002, the Company had intellectual property totaling $30,690 and $31,903, respectively, which includes patents (including application and defense costs), licenses, trademarks, and tradenames the majority of which were obtained in the acquisition of airlaid businesses. Intellectual property is amortized by the straight-line method over 5 to 20 years and is net of accumulated amortization of $7,852 and $5,562 at June 30, 2003 and 2002, respectively. Intellectual property amortization expense of $2,329, $2,136 and $2,073 was recorded during the years June 30, 2003, 2002 and 2001, respectively. Estimated amortization expense for the five succeeding fiscal years follows: $2,220 in 2004, $2,227 in 2005, $2,188 in 2006, $2,086 in 2007 and $2,053 in 2008. Deferred debt costs of $6,399 and $8,225 at June 30, 2003 and 2002, respectively are amortized by the interest method over the life of the related debt and are net of accumulated amortization of $9,601 and $7,088 at June 30, 2003 and 2002, respectively. Income Taxes The Company has provided for income taxes under the liability method. Accordingly, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. No provision is made for U.S. income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. Risk Management Effective at the beginning of fiscal 2001, the Company adopted SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as amended by SFAS 137 and 138. These statements require that every derivative instrument be recorded in the balance sheet as either an asset or liability measured by its fair value. These statements also establish new accounting rules for hedge transactions, which depend on the nature and effectiveness of the hedge relationship. The Company periodically uses derivatives and other financial instruments to hedge exposures to natural gas, interest rates and currency risks. For hedges which meet the SFAS 133 criteria, the Company formally designates and documents the instrument as a hedge of a specific underlying exposure, as well as the risk F-8 management objective and strategy for undertaking each hedge transaction. Because of the high degree of effectiveness between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the value or cash flows of the underlying exposures being hedged. Derivatives are recorded in the consolidated balance sheet at fair value. Credit Risk The Company has established credit limits for each customer. The Company generally requires the customer to provide a letter of credit for export sales in high-risk countries. Credit limits are monitored routinely. Environmental Costs Liabilities are recorded when environmental assessments are probable and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company's commitment to a plan of action based on the then known facts. Revenue Recognition Revenues are recognized when title to the goods passes to the customer. Net sales are composed of sales reduced by sales allowances. Shipping and Handling Costs Amounts related to shipping and handling and billed to a customer in a sale transaction have been classified as revenue. Costs incurred for shipping and handling have been classified as costs of goods sold. Foreign Currency Translation Company management has determined that the local currency of its German, Irish, Canadian, and Brazilian subsidiaries is the functional currency, and accordingly European euro, Canadian dollar, and Brazilian real denominated balance sheet accounts are translated into United States dollars at the rate of exchange in effect at fiscal year end. Income and expense activity for the period is translated at the weighted average exchange rate during the period. Translation adjustments are included as a separate component of stockholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in "Other income (expense)" in the results of operations. Transaction gains and (losses) of $1,095, $(1,974) and $2,133 were recorded during the years ended June 30, 2003, 2002 and 2001, respectively. Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from the estimates and assumptions used. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include: impairment assessments on long-lived assets (including goodwill), allowance for doubtful accounts, inventory reserves, income tax liabilities, accruals for planned maintenance shutdowns, and contingent liabilities. During 2002 and 2001, the Company changed its estimate of its accrual for planned maintenance shutdowns based on a change in the estimated timing of the shutdown. The effect of the change was to decrease cost of goods sold $1,181 and $2,207 for the years ended June 30, 2002 and 2001, respectively. F-9 Earnings Per Share Basic earnings per share has been computed based on the average number of common shares outstanding. Diluted earnings per share reflects the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options calculated using the treasury stock method. Diluted loss per share amounts for 2003 and 2002 have been calculated using the same denominator as used in the basic loss per share calculation as the inclusion of dilutive securities in the denominator would have been an anti-dilutive effect. Stock-Based Compensation The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations as permitted by SFAS 123, Accounting for Stock-Based Compensation (SFAS 123). No employee compensation cost is reflected in income for stock option grants, as all options granted under the plans have an exercise price equal to the fair market value of the underlying common stock on the date of grant. See Note 10 for a description of the plans and our disclosure of the assumptions underlying the pro forma calculations below. The following pro forma information has been prepared as if the Company had accounted for its employee stock options using the fair value based method of accounting established by SFAS 123:
Year Ended June 30 ---------------------------------------- 2003 2002 2001 -------- -------- ------- Net income (loss): As reported.................................................... $(24,894) $(26,004) $46,523 Pro forma...................................................... (27,983) (28,792) 42,792 Basic earnings (loss) per share: As reported.................................................... $ (0.67) $ (0.74) $ 1.35 Pro forma...................................................... (0.76) (0.82) 1.24 Diluted earnings (loss) per share: As reported.................................................... $ (0.67) $ (0.74) $ 1.32 Pro forma...................................................... (0.76) (0.82) 1.21
Recently Issued Accounting Standards In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 nullifies Emerging Issues Task Force Issues No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) and requires that a liability for the costs associated with an exit or disposal activity be recognized when the liability is incurred, as opposed to the date of an entity's commitment to an exit plan. During the year ending June 30, 2003, the Company entered into a restructuring program and accounted for it under SFAS 146. This program is discussed further in Note 4, Impairment and Restructuring Costs, of these Consolidated Financial Statements. On December 31, 2002, the FASB issued SFAS 148, Accounting for Stock-Based Compensation -- Transition and Disclosure (SFAS 148). SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition to SFAS 123's fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. The adoption of SFAS l48 disclosure requirements did not have an effect on the Company's Consolidated Financial Statements. As permitted, the Company does not intend to adopt the fair value method of accounting for stock-based employee compensation. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). It significantly F-10 changes practice in the accounting for, and disclosure of, guarantees. It requires certain guarantees to be recorded at fair value as those terms are defined in SFAS 5, Accounting for Contingencies. The adoption of FIN 45 did not have a significant financial impact on the Consolidated Financial Statements. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the variable interest entity. The primary beneficiary is defined as the party which, as a result of holding its variable interest, absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. The provisions of FIN 46 must be applied to all other variable interest entities for the first interim or annual period beginning after June 15, 2003. The Company does not expect the adoption of FIN 46 to have a significant impact on its Consolidated Financial Statements. Reclassifications Certain prior year amounts have been reclassified to conform to current year classifications. In 2003, the Company began classifying sales claims and allowances as allowance for doubtful accounts. Previously these balances were reported in accrued expenses. Total sales claims and allowances at June 30, 2003 and 2002 were $164 and $636, respectively. 2. Changes in Accounting Depreciation Through June 30, 2000, property, plant and equipment had been depreciated on the straight-line method over the estimated useful lives of the assets, which range from 5 to 40 years. Effective July l, 2000, depreciation on the Company's production machinery and equipment at cotton cellulose and airlaid nonwovens plants was computed using the units-of-production method, which is based upon the expected productive hours of the assets, subject to a minimum level of depreciation. The Company believes the units-of-production method is preferable to the method previously used because the new method recognizes that depreciation of this machinery and equipment is related substantially to physical wear due to usage rather than the passage of time. This method, therefore, more appropriately matches production costs over the lives of the production machinery and equipment of the cotton cellulose and airlaid nonwovens plants with the revenues of those plants and results in a more accurate allocation of the cost of the physical assets to the periods over their useful lives. The cumulative effect of applying the new method for years prior to 2001 is an increase to income of $3,249 net-of-tax ($4,535 pretax) reported as a cumulative effect of accounting change in the consolidated statement of operations for the year ended June 30, 2001. In addition, the net income of the Company, excluding the cumulative effect of accounting change, for the year ended June 30, 2001 is $440 or $.01 per share more than it would have been if the Company had continued to follow the straight-line method of depreciation of the production machinery and equipment of the cotton cellulose and airlaid nonwovens plants. Goodwill In June 2001, the FASB issued SFAS 141, Business Combinations (SFAS 141) and No. 142, Goodwill and Other Intangible Assets (SFAS 142). The Company adopted SFAS 142 on July l, 2001 and discontinued the amortization of goodwill. The following schedule adjusts reported net income (loss) and related earnings (loss) per share to exclude amortization expense related to goodwill, including any related tax effects, for all periods presented:
Year Ended June 30 ---------------------------------------- 2003 2002 2001 -------- --------- ------- Adjusted income (loss) before cumulative effect of change in accounting for goodwill......................................................... $(24,894) $ (14,504) $46,523 Net income (loss): Originally reported net income (loss)................................ (24,894) (26,004) 46,523
F-11
Add back: Goodwill Amortization (net of taxes)....................... -- -- 3,881 -------- --------- ------- Adjusted net income (loss)........................................... $(24,894) $ (26,004) $50,404 ======== ========= ======= Adjusted earnings (loss) per share: Basic................................................................ $ (0.67) $ (0.74) $ 1.46 Diluted.............................................................. $ (0.67) $ (0.74) $ 1.43
Under the guidelines of SFAS 142, the Company has completed its impairment assessments of the carrying value of goodwill. In the assessment of the carrying value of goodwill, the Company developed its best estimate of operating cash flows over the period approximating the remaining life of the business' long-lived assets. Based on this assessment, effective July 1, 2001, the Company reduced its goodwill by $11,500 in its converting business, which was purchased as part of the Merfin acquisition in 1997. There was no tax benefit recorded as a result of the reduction in the carrying value of the goodwill. The low growth rate in the converting business did not support its previous carrying value of goodwill on a discounted basis. Under SFAS 142, the impairment adjustment recognized at adoption of the new rules was reflected as a cumulative effect of accounting change in the 2002 consolidated statement of operations. Impairment adjustments recognized after adoption, if any, are required to be recognized as operating expenses. 3. Business Combinations On August 1, 2000, the Company acquired the cotton cellulose business of Fibra, S.A. (Americana), located in Americana, Brazil for $36,588, including acquisition costs. The Americana acquisition was funded using borrowings from the Company's bank credit facility. This acquisition was accounted for using the purchase method of accounting. The allocation of the purchase price is based on the respective fair value of assets and liabilities at the date of acquisition. Purchase Price Allocation Working capital, net of cash...............................$ 67 Property, plant and equipment.............................. 9,332 Intangible assets.......................................... 21,500 Other assets............................................... 5,689 -------- $36,588 ======== The consolidated operating results of Americana have been included in the consolidated statement of operations from the date of acquisition. The following pro forma results of operations assume that the acquisition occurred at the beginning of the year of acquisition. The information for the year ended June 30, 2001 is after the cumulative effect of the change in accounting. Pro Forma Results of Operations Year Ended ------------- June 30, 2001 Net sales.................................................. $732,158 Net income................................................. 46,481 Basic earnings per share................................... 1.35 Diluted earnings per share................................. 1.32 The pro forma financial information is presented for infor purposes only and is not necessarily indicative of the operating results that would have occurred had the business combination been consummated as of the above date, nor is it necessarily indicative of future operating results. F-12 4. Impairment and Restructuring Costs Impairment of Long-lived Assets In April 2003, the Company announced the discontinuation of production of cotton linter pulp at its specialty fibers Lumberton, North Carolina facility due to the decline in demand for cotton content paper over the last five years. The Company will continue to produce cosmetic cotton products at the Lumberton site. Accordingly, the Company evaluated the ongoing value of the property, plant and equipment associated with the Lumberton facility. Using the guidance issued under SFAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), the Company determined that long-lived assets (property, plant and equipment) with a carrying amount of $36,462 were impaired and wrote them down to their estimated fair value of $7,866. The resulting impairment charge of $28,596 is reflected in the statement of operations during 2003. Fair value was based on the present value method of estimating future cash flows and incorporated assumptions that marketplace participants would likely use in estimating fair value for the Lumberton facility, using a discount rate incorporating time value of money, expectations about timing and amount of future cash flows, and an appropriate risk premium. Additionally, the Company impaired certain engineering drawings prepared for use at the Florida specialty fibers plant during the fourth quarter of the year ending June 30, 2003. The carrying value of these drawings was $385. Since the Company abandoned the portion of a project that relied on these drawings, the asset had no remaining value and was fully impaired. During the third and fourth quarter of the year ending June 30, 2003, the Company decided to abandon certain waste removal equipment at airlaid nonwovens facilities, which had a carrying value of $2,859. The Company has determined that the estimated fair value of the abandoned equipment, which did not operate as intended, was $104. The resulting impairment charge of $2,755 is reflected in the statement of operations during 2003. The Company decided to impair an idled airlaid nonwovens machine after determining the additional capacity will not be needed in the foreseeable future. Therefore, the Company fully impaired the asset with a carrying value of $4,767. During the year ended June 30, 2002, the Company recorded impairment costs of $9,984. These impairments are primarily related to obsolete airlaid nonwovens packaging equipment that was replaced with more efficient StacPac(TM) packaging lines. Restructuring Costs During the fourth quarter of the year ended June 30, 2003, the Company entered into a restructuring program designed to deliver cost reductions through reduced overhead expenses. The cost recorded during the fourth quarter was $1,636 for severance and employee benefit costs. Involuntary termination benefits of $24 were paid and $1,524 were accrued as of June 30, 2003. Additionally, $5 was paid and $83 was accrued for miscellaneous costs. Payments related to the 2003 restructuring program are expected to continue throughout fiscal year 2004. As part of the restructuring, approximately 100 positions will be eliminated. All costs of the program are reported in the statements of operations under restructuring costs. The specialty fibers segment recorded costs of $1,466 of which $29 has been paid and $1,437 has been accrued as of June 30, 2003. The nonwoven materials segment recorded costs of $170 of which $0 has been paid and $170 accrued as of June 30, 2003. During the year ended June 30, 2002, the Company entered into a restructuring program designed to deliver cost reductions through reduced overhead expenses. The cost recorded during the year ended June 30, 2002, comprised mainly of severance and employee benefit costs, was $1,605. Involuntary termination benefits of $1,588 have been paid leaving an accrual of $17 as of June 30, 2003 related to this 2002 program. Payments related to the 2002 restructuring program are expected to continue into fiscal year 2004. As a result of the restructuring, approximately 200 positions were eliminated. As part of this restructuring, the Company closed engineering offices located in Finland. The specialty fibers segment recorded costs of $608 and paid $232 during the year ended June 30, 2002. The remaining accrued amount of $376 was paid during the year ended June 30, 2003. The nonwoven materials segment recorded costs of $997 of which $208 and $772 had been paid as of June 30, 2003 and 2002, respectively. F-13 5. Inventories Components of Inventories June 30 ----------------------- 2003 2002 -------- ---------- Raw materials....................................$ 36,827 $ 36,902 Finished goods................................... 75,394 84,906 Storeroom and other supplies..................... 24,484 23,295 -------- ---------- $136,705 $145,103 ======== ========== 6. Property, Plant and Equipment Components of Property, Plant and Equipment June 30 ----------------------- 2003 2002 -------- ---------- Land and land improvements...............................$ 17,025 $ 15,618 Buildings................................................ 144,444 140,476 Machinery and equipment.................................. 727,620 718,356 Construction in progress................................. 20,644 31,095 -------- ---------- 909,733 905,545 Accumulated depreciation.................................(315,595) (277,793) -------- ---------- $594,138 $ 627,752 ======== ========== 7. Accrued Expenses Components of Accrued Expenses June 30 ----------------------- 2003 2002 -------- ---------- Retirement plans.........................................$ 6,848 $ 5,899 Vacation pay............................................. 4,757 4,392 Maintenance shutdown..................................... 9,881 7,699 Customer incentive program............................... 5,194 3,184 Interest................................................. 7,416 8,324 Property taxes........................................... 3,060 3,259 Salaries................................................. 2,575 1,766 Other.................................................... 8,629 12,673 -------- ---------- $48,360 $47,196 ======== ========== 8. Debt Components of Long-Term Debt June 30 ----------------------- 2003 2002 -------- ---------- Senior Subordinated Notes due: 2005................................................$149,816 $149,751 2008................................................ 99,688 99,644 2010................................................ 155,470 151,900 F-14 Credit Facilities........................................ 227,315 245,698 Notes payable............................................ 21,903 43,403 Other.................................................... 7,000 7,000 -------- ---------- 661,192 697,396 Less current portion..................................... 41,718 22,000 -------- ---------- $619,474 $675,396 ======== ========== The Company completed a public offering of $150,000 principal amount of 8.5% unsecured Senior Subordinated Notes due December 15, 2005 (the 2005 Notes) during November 1995. The 2005 Notes are redeemable at the option of the Company, in whole or in part, at any time at a redemption price of 101.41% of principal amount, decreasing to 100% of principal amount on or after December 15, 2003, together with accrued and unpaid interest to the date of redemption. The Company completed a public offering of $100,000 principal amount of 9.25% unsecured Senior Subordinated Notes due September 15, 2008 (the 2008 Notes) during July 1996. The 2008 Notes are redeemable at the option of the Company, in whole or in part, at any time after September 15, 2002, at redemption prices varying from 103.08% of principal amount to 100% of principal amount on or after September 15, 2004, together with accrued and unpaid interest to the date of redemption. The Company completed a private placement of $150,000 principal amount of 8% unsecured Senior Subordinated Notes due October 15, 2010 during June 1998. In fiscal 1999, the Company exchanged these outstanding notes for public notes (the 2010 Notes) with the same terms. The 2010 Notes are redeemable at the option of the Company, in whole or in part, at any time on or after October 15, 2003, at redemption prices varying from 104.00% of principal amount to 100% of principal amount on or after October 15, 2006, together with accrued and unpaid interest to the date of redemption. These notes have been hedged by an interest rate swap (see Note 12). The Company has a secured credit facility (the Credit Facility) providing for borrowings up to $215,000 of which $207,500 is outstanding at June 30, 2003. The Credit Facility matures on March 31, 2005. The Company amended its Credit Facility on July 28, 2003 to modify the financial covenants from June 30, 2003 through March 31, 2005. The interest rate applicable to borrowings under the Credit Facility is the agent's prime rate plus 1.75% to 2.25% or a LIBOR based rate ranging from LIBOR plus 2.75% to LIBOR plus 3.75%. The Credit Facility is secured by substantially all of the Company's assets located in the United States. The Senior Subordinated Notes are subordinate to the Credit Facility. Borrowings under the Credit Facility at June 30, 2003 were at a weighted average rate of 4.98%. Letters of credit issued through the Credit Facility of $2,124 are outstanding at June 30, 2003. The amount available for borrowing under the Credit Facility is $5,376 at June 30, 2003. The Company has a secured credit facility in Canada providing for borrowings of approximately $14,815. This facility matures on September 30, 2003 and is secured by substantially all of the Company's assets in Canada. The interest rate applicable to borrowings under the facility is a Bankers Acceptance (BA) based rate ranging from BA plus 0.75% to BA plus 1.75%. At June 30, 2003, there was no available borrowing under this facility. In addition, the Company has a credit facility in Germany providing for borrowings of $7,008. Letters of credit issued through this credit facility of $2,116 are outstanding at June 30, 2003. The amount available for borrowing under the German credit facility is $4,892 at June 30, 2003. In connection with the purchase of the nonwovens assets of UPM-Kymmene (Walkisoft) as of October 1, 1999, the Company entered into four promissory notes with the seller. The principal amount of each note is $22,000 and bears interest at a rate of 5%. The total principal amount outstanding at June 30, 2003 is $22,000 less the unamortized discount of $97 which is based on an imputed interest rate of 7.1%. The final note in the principal amount of $22,000 plus accrued interest is due on October 1, 2003. The note is secured by the stock of the German subsidiary formed to operate the Walkisoft nonwovens business. On March 1, 2000, the Company purchased certain technology from Stac-Pac Technologies Inc. In connection with the purchase, the Company entered into two unsecured promissory notes with Stac-Pac Technologies Inc. The principal amount of each note is $5,000 and bears interest at a rate of 7%. The principal F-15 amount of the first note plus accrued interest has been paid. In accordance with the purchase agreement, the Company is entitled to withhold the final installment of the purchase price until final resolution of a patent opposition legal proceeding. Therefore, the principal amount of the second note has been classified as long-term debt. On December 5, 2001, the Company entered into a receivables based credit facility with a commercial bank providing for borrowings up to $30,000, of which $5,000 was outstanding at June 30, 2003. In accordance with the terms of the agreement, $3,375 of the loan proceeds are held as restricted cash. The credit facility was amended on September 3, 2002. It matures on December 4, 2003 and the interest rate applicable to borrowings under the credit facility is one-week LIBOR plus 0.75%. The credit facility is secured by certain insured receivables of the Company. At June 30, 2003, the Company had unused borrowing availability of approximately $24,500 on its receivables based credit facility. At March 31, 2002, the Company's fixed charge coverage ratio (as defined in the senior subordinated notes) fell below 2:1. Falling below the 2:1 ratio does not breach any covenant and is not an event of default under any of the Company's debt agreements. However, as specified in those indentures, until such time as this ratio again equals or exceeds 2:1, the Company can only incur debt that falls within the definition of "Permitted Indebtedness" in the indentures. The Company incurred a portion of the Credit Facility using indebtedness permitted to be incurred under this "ratio debt" provision. As a result, if the Company elects to refinance any of the bank credit facilities, unless the Company can then satisfy the 2:1 fixed charge coverage ratio, it will be unable to refinance that portion of the credit facilities that exceed $160,000. Under each such indentures, the ratio test is measured on a rolling four-quarter basis. While the Company can offer no assurance in this regard, it believes that the Company's operating results will improve over the next several fiscal quarters and that such improved results together with recent reductions in its outstanding debt, will enable it to exceed the required 2:1 ratio necessary to incur ratio debt under the senior subordinated indentures. Aggregate maturities of long-term debt are as follows: 2004 -- $41,718, 2005 -- $207,500, 2006 -- $154,816, 2007 -- $0, 2008 -- $99,688 and thereafter $157,470. Terms of long-term debt agreements require compliance with certain covenants including minimum net worth, interest coverage ratios, and limitations on restricted payments and levels of indebtedness. At June 30, 2003, the amount available for the payment of dividends and/or the acquisition of treasury stock was zero under the most restrictive of these agreements. Total interest paid by the Company for the years ended June 30, 2003, 2002, and 2001 was $49,225, $49,046, and $48,859, respectively. The Company has no off-balance sheet financing except for operating leases as disclosed in Note 9. 9. Leases In October 2001, the Company entered into capital lease agreements for certain airlaid nonwovens plant equipment. The total cost of the assets covered by these agreements was $4,284. At June 30, 2003, the Company's future minimum lease payments for these assets were as follows: 2004 -- $834; 2005 -- $834; 2006 -- $834; 2007 -- $717; 2008 -- $449 and thereafter -- $368. The Company leases office and warehouse facilities and equipment under various operating leases. Operating lease expense was $4,463, $4,554 and $3,676 during the years ended June 30, 2003, 2002 and 2001, respectively. The following shows the Company's commitments under its operating leases at June 30, 2003: 2004 -- $1,058; 2005 -- $531; 2006 - $330; 2007 -- $260; 2008 -- $246 and thereafter -- $46. 10. Stockholders' Equity During the quarter ended June 30, 2002, the Company sold 2,150,000 shares of its common stock, held as treasury shares, from its universal shelf registration initially filed with the Securities and Exchange Commission F-16 (SEC) on March 15, 2002 and declared effective by the SEC on April 18, 2002. These direct sales were at a price of $10.00 per share and the net proceeds were approximately $21,364. The Company's stock option plans provide for the granting of either incentive or nonqualified stock options to employees and nonemployee directors. Options are subject to terms and conditions determined by the Compensation Committee of the Board of Directors, and generally are exercisable in increments of 20% per year beginning one year from date of grant and expire ten years from date of grant. Option Plan Activity
Average Exercise Average Options Price Fair Value ---------- --------- ---------- Outstanding at June 30, 2000........................................... 4,509,950 $13.61 Granted at market ..................................................... 150,000 19.02 $9.90 Exercised.............................................................. (205,000) 12.70 Terminated............................................................. (40,000) 16.46 ---------- --------- ---------- Outstanding at June 30, 2001........................................... 4,414,950 13.81 ---------- --------- ---------- Granted at market...................................................... 1,152,000 11.17 6.28 Granted below market................................................... 80,000 7.60 7.46 Exercised.............................................................. (591,000) 8.24 Terminated............................................................. (213,000) 16.32 ---------- --------- ---------- Outstanding at June 30, 2002........................................... 4,842,950 13.65 ---------- --------- ---------- Granted at market...................................................... 40,000 6.64 3.13 Terminated............................................................. (49,000) 12.53 ---------- --------- ---------- Outstanding at June 30, 2003........................................... 4,833,950 13.60 ---------- --------- ---------- Options Exercisable at June 30: 2001.............................................................. 3,095,450 $12.60 2002.............................................................. 2,916,950 $14.03 2003.............................................................. 3,744,617 $13.91
There were 839,400, 830,400 and 1,849,400 shares reserved for grants of options at June 30, 2003, 2002 and 2001, respectively. The following summary provides information about stock options outstanding and exercisable at June 30, 2003:
Outstanding Exercisable -------------------------------------------- --------------------- Average Average Exercise Average Remaining Exercise Exercise Price Options Price Life (Years) Options Price --------- ----------- ----------------- -------- -------- $6.50 - $12.00.............................. 2,263,950 $ 9.75 6.0 1,508,617 $ 9.28 $12.50 - $18.00............................. 2,332,792 16.48 5.0 2,054,792 16.60 $18.50 - $24.00............................. 237,208 22.00 5.7 181,208 21.89 --------- ----------- ----------------- -------- -------- Total....................................... 4,833,950 $13.60 5.5 3,744,617 $13.91 --------- ----------- ----------------- -------- --------
The Company has estimated the fair value of each option grant using the Black-Scholes option pricing model. The fair value was estimated with the following weighted average assumptions: expected life of the stock options granted in 2003 of five years, in 2002 and 2001 of eight years; volatility of the expected market price of common stock of .49 for 2003, .43 for 2002 and .41 for 2001; a risk free interest rate range of 3.9% for 2003, 4.5% to 5.1% for 2002 and 5.1% to 5.9% for 2001 and no dividends. Option pricing models, such as the Black-Scholes model, require the input of highly subjective assumptions, including the expected stock price volatility that are subject to change from time to time. Pro forma amounts reflect total compensation expense from the awards made in 1996 through 2003. Since compensation expense from stock options is recognized over the future years' vesting F-17 period, and additional awards generally are made every one to two years, pro forma amounts may not be representative of future years' amounts. In August 1997, the Board of Directors authorized a restricted stock plan and set aside 800,000 of the Company's treasury shares to fund this plan. At June 30, 2003, 82,333 restricted shares had been awarded. Stock options that could potentially dilute basic earnings per share in the future, which were not included in the fully diluted computation because they would have been antidilutive, were 4,833,950, 4,842,950 and 1,522,000 for the years ended June 30, 2003, 2002 and 2001, respectively. The Board of Directors has authorized the repurchase of 6,000,000 shares of common stock. Repurchased shares will be held as treasury stock and will be available for general corporate purposes, including the funding of employee benefit and stock-related plans. During the year ended June 30, 2003, no shares were repurchased. A total of 5,009,300 shares have been repurchased through June 30, 2003. 11. Income Taxes Provision (Benefit) for Income Taxes Year Ended June 30 --------------------------------------- 2003 2002 2001 ---------- --------------- ---------- Current: Federal.....................$ (6,630) $ (16,564) $ 5,664 Foreign..................... 2,958 470 6,005 State and other............. 39 (1,468) (189) ---------- --------------- ---------- (3,633) (17,562) 11,480 Deferred: Federal..................... (14,592) 6,281 9,312 Foreign..................... 1,972 2,649 (100) State and other............. (869) 212 363 ---------- --------------- ---------- (13,489) 9,142 9,575 ---------- --------------- ---------- $(17,122) $ (8,420) $21,055 ========== =============== ========== The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal income tax rate of 35% to income (loss) before income taxes and the cumulative effect of the change in accounting, due to the following: Rate Analysis Year Ended June 30 --------------------------------------- 2003 2002 2001 ---------- --------------- ---------- Expected tax expense (benefit)....$(14,706) $(8,026) $22,515 State taxes....................... (4) (816) 111 Foreign sales corporation/ (1,171) (685) (2,986) extraterritorial income.......... Effect of foreign operations...... (1,046) 2,517 1,280 Effect of rate change in Germany.. -- -- (450) Effect of rate change in Canada... -- (585) -- Nondeductible items............... 54 90 638 Other............................. (249) (915) (53) ---------- --------------- ---------- $(17,122) $(8,420) $21,055 ========== =============== ========== F-18 Significant components of the Company's deferred tax assets (liabilities) are as follows: June 30 -------------------------- 2003 2002 ---------- ------------ Deferred tax liabilities: Depreciation.............................$(87,075) $(87,159) Inventory................................ (1,863) (690) Other.................................... (9,389) (2,576) ---------- ------------ (98,327) (90,425) Deferred tax assets: Postretirement benefits.................. 7,164 7,505 Inventory costs.......................... 1,617 128 Net operating losses..................... 14,997 8,764 Nondeductible reserves................... 5,704 4,291 Credit carryforwards..................... 8,783 -- Other.................................... 7,126 4,145 ---------- ------------ 45,391 24,833 Valuation allowances.......................... (7,949) (6,282) ---------- ------------ 37,442 18,551 ---------- ------------ $(60,885) $(71,874) ========== ============ The valuation allowances at June 30, 2003 and 2002 relate specifically to net operating losses in certain foreign and state operations of the Company. Based on the future reversal of deferred tax liabilities and the actions the Company has taken and will continue to take to improve financial performance, management believes it is more likely than not that the net deferred tax assets recorded at June 30, 2003 will be fully utilized after consideration of the valuation allowance recorded. During fiscal year 2003, the Company was able to utilize the valuation allowance of $1,098 through the profitable operation of its Brazilian subsidiary. The Company had a net refund of income taxes of $18,872 during the year ended June 30, 2003, and paid income taxes of $3,520 and $10,640 during 2002 and 2001, respectively. For the year ended June 30, 2003, loss before income taxes consisted of $54,343 of domestic loss and $12,327 of foreign income. For the year ended June 30, 2002, loss before income taxes and the cumulative effect of change in accounting consisted of $20,692 of domestic loss and $2,232 of foreign loss. For the year ended June 30, 2001, income before income taxes and the cumulative effect of change in accounting consisted of $49,193 of domestic income and $15,136 of foreign income. At June 30, 2003, the Company has foreign net operating loss carryforwards of approximately $48,724, which have no expiration date and federal and state net operating loss carryforwards of approximately $37,258 and $42,575, respectively, which expire between 2017 and 2023. Additionally, the Company has a minimum tax carryforward of $6,351 at June 30, 2003 which has an indefinite life. 12. Derivatives The Company is exposed to certain market risks as a part of its ongoing business operations and uses derivative financial instruments, where appropriate, to manage these risks. Derivatives are financial instruments whose value is derived from one or more underlying financial instruments. Examples of underlying instruments are currencies, commodities and interest rates. With the adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," in 2001, the Company records the fair value of all outstanding derivatives in other assets or other liabilities. Gains and losses related to non-designated instruments or the ineffective portion of any hedge are recorded in various costs and expenses, depending on the nature of the derivative. F-19 The Company does not utilize derivatives for speculative purposes. Derivatives are transaction specific so that a specific debt instrument, contract or invoice determines the amount, maturity and other specifics of the hedge. The Company formally documents all relations between hedging instruments and the hedged items, as well as its risk-management objectives and strategy for undertaking various hedge transactions. The Company formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the hedged items. The Company periodically uses derivative instruments to reduce financial risk in three areas: interest rates, foreign currency and commodities. The notional amounts of derivatives do not represent actual amounts exchanged by the parties and, thus, are not a measure of the Company's exposure through its use of derivatives. At June 30, 2003, the Company has one interest rate swap agreement outstanding that effectively converts $100,000 of a fixed rate obligation with an interest rate of 8% to a floating rate obligation with a rate of LIBOR plus 1.97%. The arrangement is considered a hedge of a specific borrowing, and differences paid and received under the arrangement are recognized as adjustments to interest expense. This agreement, which is accounted for as a fair value hedge, decreased interest expense by $4,462 and $3,451 for the years ended June 30, 2003 and 2002, respectively. The agreement terminates on October 15, 2010. The fair market value of this agreement at June 30, 2003 and 2002 was $6,067 and $2,555, respectively, and is included in other assets and long-term debt. The fair value is based upon the estimated cost to terminate the agreement, taking into account current interest rates and creditworthiness of counterparties. In order to minimize market exposure, the Company uses forward contracts to reduce price fluctuations in a desired percentage of forecasted purchases of natural gas over a period of generally less than one year. There were no natural gas contracts outstanding at June 30, 2003 requiring fair value treatment. At June 30, 2002, the Company had natural gas contracts outstanding and included in other assets with a fair value of $424. The fair value is based upon exchange quoted market prices of comparable instruments. While the contract outstanding as of June 30, 2002 did not qualify for hedge accounting, neither its effect on the results of operations nor the year-end position was material to the Company's overall results. The Company may be exposed to losses in the event of nonperformance of counterparties but does not anticipate such nonperformance. 13. Employee Benefit Plans The Company has defined contribution retirement plans covering U.S. employees. The Company contributes 1% of the employee's gross compensation plus 1/2% for each year of service up to a maximum of 11% of the employee's gross compensation. The plan also provides for additional contributions by the Company contingent upon the Company's results of operations. Contribution expense for the retirement plans for the years ended June 30, 2003, 2002 and 2001 was $5,824, $5,656 and $6,204, respectively. The Company also provides medical, dental, and life insurance postretirement plans covering certain U.S. employees who meet specified age and service requirements. Certain employees who met specified age and service requirements on March 15, 1993 are covered by their previous employer and are not covered by these plans. The Company's current policy is to fund the cost of these benefits as payments to participants are required. The Company has established cost maximums to more effectively control future medical costs. Effective July 1, 2002 the Company amended its postretirement medical plan to among other things reduce the level of cost maximums per eligible employee. F-20 The components of net periodic benefit costs are as follows: Effect on Operations
Year Ended June 30 ------------------------------------- 2003 2002 2001 ---------- ------------- ---------- Service cost for benefits earned...................................$ 660 $ 725 $ 805 Interest cost on benefit obligation................................ 1,132 1,250 1,169 Amortization of unrecognized prior service cost.................... (1,125) (600) (600) (Gain)/loss........................................................ 96 -- -- ---------- ------------- ---------- Total cost.........................................................$ 763 $1,375 $1,374 ========== ============= ==========
The following table provides a reconciliation of the changes in the plans' benefit obligations over the two-year period ending June 30, 2003, and a statement of the plans' funded status as of June 30, 2003 and 2002:
June 30 --------------------------- 2003 2002 ----------- ------------ Change in benefit obligation: Obligation at beginning of year.................................... $15,845 $15,585 Service cost....................................................... 660 725 Interest cost...................................................... 1,132 1,250 Participant contributions.......................................... 179 113 Actuarial loss..................................................... 3,736 3,280 Benefits paid...................................................... (1,191) (973) Amendments......................................................... - (4,135) ----------- ------------ Underfunded status at end of year.................................. 20,361 15,845 Unrecognized prior service cost.................................... 4,766 5,891 Unrecognized loss.................................................. (6,510) (2,870) Other.............................................................. 911 755 ----------- ------------ Net amount recognized in the consolidated balance sheet $19,528 $19,621 =========== ============
The amount recognized in the consolidated balance sheets as of June 30, 2003 and 2002 includes $646 and $458, respectively, which is classified in accrued expenses as the amount of benefits expected to be paid in fiscal year 2004 and 2003, respectively. The weighted average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) for the medical plans is 12.0% for 2004 and is assumed to decrease gradually to 5.0% in 2011 and remain level thereafter. Due to the benefit cost limitations in the plan, the health care cost trend rate assumption does not have a significant effect on the amounts reported. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 6.25% at June 30, 2003 and 7.25% at June 30, 2002. 14. Significant Customer Net sales to The Procter & Gamble Company and its affiliates for the years ended June 30, 2003, 2002 and 2001 were 20%, 20% and 26%, respectively, of total net sales. 15. Segment Information Historically, the Company has reported results in one segment. Although nonwoven materials, processes, customers, distribution methods and regulatory environment are very similar to specialty fibers, management believes it is now appropriate for nonwoven materials to be disclosed as a separate reporting segment from specialty fibers. The specialty fiber segment is an aggregation of cellulosic fibers based on both wood and cotton. The F-21 Company's management makes financial decisions and allocates resources based on the sales and operating income of each segment. The Company allocates selling, research, and administration expenses to each segment and management uses the resulting operating income to measure the performance of the segments. The financial information attributed to these segments is included in the following table:
Specialty Nonwoven Fibers Materials Corporate Total ---------- --------- --------- ----- Net sales....................... 2003 $466,524 $195,860 $(21,302) $ 641,082 2002 471,057 184,134 (19,973) 635,218 2001 551,456 204,328 (24,256) 731,528 Operating income (loss)......... 2003 41,935 3,978 (39,087) 6,826 2002 39,518 (2,130) (8,823) 28,565 2001 107,462 4,711 (1,026) 111,147 Depreciation and amortization of intangibles................ 2003 29,344 16,096 3,589 49,029 2002 29,462 14,735 3,212 47,409 2001 29,339 13,163 7,661 50,163 Total assets.................... 2003 516,118 360,574 233,963 1,110,655 2002 515,041 354,645 265,051 1,134,737 2001 524,704 338,902 211,944 1,075,550 Capital expenditures............ 2003 24,670 3,194 560 28,424 2002 19,677 14,986 1,309 35,972 2001 43,364 107,271 2,398 153,033
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The corporate segment includes operating elements such as segment eliminations and charges related to restructuring and asset impairment. Corporate net sales represents the elimination of intersegment sales included in the specialty fibers reporting segment. The Company accounts for intersegment sales as if the sales were to third parties, that is, at current market prices. Certain partially impaired assets are included in the total assets for the reporting segments, but the associated asset impairment charges are included in the corporate category. These asset impairment charges and the segments they relate to are discussed further in Note 4, Restructuring and Impairment Costs, to these Consolidated Financial Statements. Corporate assets primarily include cash, goodwill and intellectual property. The Company's identifiable product lines are chemical cellulose, customized fibers, fluff pulp and nonwoven materials. Chemical cellulose is used to impart purity, strength and viscosity in the manufacture of diverse products such as food casings, rayon filament, acetate fibers, thickeners for consumer products, cosmetics and pharmaceuticals. Customized fibers are used to provide porosity, color permanence, strength and tear resistance in filters, premium letterhead, currency paper and personal stationery as well as absorbency and softness in cotton balls and cotton swabs. Fluff pulp and nonwoven materials are used to increase absorbency and fluid transport in products such as disposable diapers, feminine hygiene products and adult incontinence products. Additionally, nonwoven materials are used to enhance fluid management and strength in wipes, tabletop items, food pads, household wipes and mops. F-22 The following provides relative net sales to unaffiliated customers by product line: Year Ended June 30 -------------------------- 2003 2002 2001 ------ ------- ------ Chemical cellulose...................... 30% 32% 30% Customized fibers....................... 17% 18% 17% Fluff pulp.............................. 22% 21% 25% Nonwoven materials...................... 31% 29% 28% ------ ------- ------ 100% 100% 100% ====== ======= ====== The Company has manufacturing operations in the United States, Canada, Germany, Ireland and Brazil. The following provides a summary of net sales to unaffiliated customers, based on point of origin, and long-lived assets by geographic areas: Year Ended June 30 ------------------------------ 2003 2002 2001 -------- -------- -------- Net sales: United States.................. $442,643 $452,521 $510,557 Germany........................ 116,828 108,454 119,193 Other.......................... 81,611 74,243 101,778 -------- -------- -------- Total net sales $641,082 $635,218 $731,528 Long-lived assets: United States.................. $465,967 $505,814 $525,850 Canada......................... 123,349 114,885 118,837 Germany........................ 76,754 76,606 68,787 Other.......................... 87,645 82,316 80,508 -------- -------- -------- Total long-lived assets............. $753,715 $779,621 $793,982 ======== ======== ======== For the year ended June 30, 2003, the Company's net sales by destination were concentrated in the following geographic markets: North America - -- 36%, Europe -- 38%, Asia -- 13%, South America -- 6% and Other -- 7%. 16. Research and Development Expenses Research and development costs of $9,291, $9,041 and $12,958 were charged to expense as incurred for the years ended June 30, 2003, 2002 and 2001, respectively. 17. Commitments Under two separate agreements expiring at various dates through December 31, 2010, the Company is required to purchase certain timber from specified tracts of land that is available for harvest. The contract price under the terms of these agreements is either at the then current market price or at fixed prices as stated in the contract. At June 30, 2003, estimated annual purchase obligations were as follows: 2004 -- $13,000; 2005 -- $13,000; 2006 -- $13,000; 2007 -- $13,000; 2008 -- $13,000; and thereafter -- $34,000. Purchases under these agreements for the years ended June 30, 2003, 2002 and 2001 were $15,839, $22,365 and $21,962, respectively. 18. Contingencies The Company's operations are subject to extensive general and industry-specific federal, state, local and foreign environmental laws and regulations. The Company devotes significant resources to maintaining compliance with these laws and regulations. The Company expects that, due to the nature of its operations, it will be subject to F-23 increasingly stringent environmental requirements (including standards applicable to wastewater discharges and air emissions) and will continue to incur substantial costs to comply with these requirements. Because it is difficult to predict the scope of future requirements, there can be no assurance that the Company will not incur material environmental compliance costs or liabilities in the future. The Foley Plant discharges treated wastewater into the Fenholloway River. Under the terms of an agreement with the Florida Department of Environmental Protection ("FDEP"), approved by the U. S. Environmental Protection Agency ("EPA") in 1995, the Company agreed to a comprehensive plan to attain Class III ("fishable/swimmable") status for the Fenholloway River under applicable Florida law (the "Fenholloway Agreement"). The Fenholloway Agreement requires the Company, among other things, to (i) make process changes within the Foley Plant to reduce the coloration of its wastewater discharge, (ii) restore certain wetlands areas, (iii) relocate the wastewater discharge point into the Fenholloway River to a point closer to the mouth of the river, and (iv) provide oxygen enrichment to the treated wastewater prior to discharge at the new location. The Company has already made significant expenditures to make the in-plant process changes required by the Fenholloway Agreement, and the Company estimates, based on 1997 projections, it may incur additional capital expenditures of approximately $40 million over several years to comply with the remaining obligations under the Fenholloway Agreement. The EPA requested additional environmental studies to identify possible alternatives to the relocation of the discharge point to determine if more cost effective technologies are available to address both Class III water quality standards for the Fenholloway River and anticipated EPA "cluster rules" applicable to wastewater discharges from dissolving kraft pulp mills, like the Foley Plant. The Company completed the process changes within the Foley Plant as required by the Fenholloway Agreement. The other requirements of the Fenholloway Agreement have been deferred until the EPA objections to the renewal permit are satisfactorily resolved. Consequently, the capital expenditures may be delayed, and the total capital expenditures for the Foley Plant may increase if costs increase or the Company is required by the "cluster rules" or other regulations to implement other technologies. While the EPA has not yet finalized the wastewater standards under the "cluster rules" applicable to dissolving kraft pulp mills like the Foley Plant, the EPA has issued air emission standards applicable to the Foley Plant. In addition, the EPA has proposed boiler air emission standards that could be applicable to the Foley Plant. It is not possible to accurately estimate the cost of future compliance, but substantial capital expenditures could be required in fiscal year 2005 and thereafter. These possible expenditures could have a material adverse effect on the Company's business, results of operations or financial condition. The Company is involved in certain legal actions and claims arising in the ordinary course of business. It is the opinion of management that such litigation and claims will be resolved without a materially adverse effect on the Company's financial position or results of operations. 19. Fair Values of Financial Instruments For certain of the Company's financial instruments, including cash and cash equivalents, short-term investments, accounts receivable and accounts payable, the carrying amounts approximate fair value due to their short maturities. The fair value of the Company's long-term public debt is based on an average of the bid and offer prices at short maturities. The fair value of the credit facilities approximates its carrying value due to its variable interest rate. The carrying value of other long-term debt approximates fair value based on the Company's current incremental borrowing rates for similar types of borrowing instruments. The carrying value and fair value of long-term debt at June 30, 2003 were $661,192 and $653,285, respectively, and at June 30, 2002 were $697,396 and $656,948, respectively. F-24 20. Quarterly Results of Operations (Unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- --------- --------- Year ended June 30, 2003 Net sales................................................ $156,425 $153,146 $163,497 $168,014 Gross margin............................................. 20,381 21,795 20,273 20,412 Operating income (loss).................................. 11,438 12,958 (19,046) 1,476 Income (loss)............................................ (778) 347 (31,642) (9,943) Net income (loss) (1).................................... (519) 540 (19,754) (5,161) Earnings (loss) per share................................ Basic................................................. (0.01) 0.01 (0.53) (0.14) Diluted............................................... (0.01) 0.01 (0.53) (0.14) Year ended June 30, 2002................................. Net sales................................................ $155,157 $155,708 $164,225 $160,128 Gross margin............................................. 20,045 18,936 17,946 20,328 Operating income (loss).................................. 11,424 10,456 7,430 (745) Income (loss) before cumulative effect of 12 (848) (4,169) (9,499) change in accounting Net (loss)(2)............................................ (11,488) (848) (4,169) (9,499) Earnings (loss) per share before cumulative effect of change in accounting: Basic (3)............................................. 0.00 (0.02) (0.12) (0.27) Diluted (3)........................................... 0.00 (0.02) (0.12) (0.27) Earnings (loss) per share Basic................................................. (0.33) (0.02) (0.12) (0.27) Diluted............................................... (0.33) (0.02) (0.12) (0.27)
- ------- (1) Third quarter of 2003 includes a pretax $29,746 charge ($19,327 after tax) for impairment costs and fourth quarter of 2003 includes a pretax $8,393 charge ($5,351 after tax) for restructuring and impairment costs which are further described in Note 4. (2) Fourth quarter of 2002 includes a pretax $11,589 charge ($7,596 after tax) for restructuring and impairment costs which is further described in Note 4. (3) The sums of the quarterly earnings per share do not equal annual amounts due to differences in the weighted-average number of shares outstanding during the respective periods. 21. Subsequent Event The Company closed its private placement of $200 million in aggregate principal amount of senior notes due 2013 on September 22, 2003. The notes are guaranteed by certain of the Company's subsidiaries. The Company anticipates using a portion of the net proceeds from the private placement to redeem its 8.5% senior subordinated notes due 2005, pay the related redemption premium and repay a portion of its existing bank debt. Condensed Consolidating Financial Statements The guarantor subsidiaries presented below represent the Company's subsidiaries that will be subject to the terms and conditions outlined in the indenture governing the senior notes and will guarantee the notes, jointly and severally, on a senior unsecured basis. The non-guarantor subsidiaries presented below represent the foreign subsidiaries and the receivables subsidiary which will not guarantee the senior notes. Each subsidiary guarantor is 100% owned by Buckeye Technologies Inc. and all guarantees are full and unconditional. F-25 Supplemental financial information for the Company and its guarantor subsidiaries and non-guarantor subsidiaries for the senior notes is presented below. Statements of Operations For the year ended June 30, 2003
Guarantors ----------------------------- Buckeye Technologies US Non-Guarantor Consolidating Buckeye Inc. Subsidiaries Subsidiaries Adjustments Consolidated ------------ ------------ ------------- ------------- ------------ Net sales........................... $ 81,433 $382,630 $202,046 $(25,027) $641,082 Cost of goods sold.................. 62,923 340,278 179,079 (24,059) 558,221 ------------ ------------ ------------- ------------- ------------ Gross margin........................ 18,510 42,352 22,967 (968) 82,861 Selling, research and administrative expenses.......... 9,420 20,773 7,703 -- 37,896 Restructuring and impairment costs............................ 5,189 31,889 1,061 -- 38,139 ------------ ------------ ------------- ------------- ------------ Operating income.................... 3,901 (10,310) 14,203 (968) 6,826 Other income (expense): Interest income (expense), and amortization of debt costs.......................... (43,165) (337) (2,962) -- (46,464) Other income/ (expense), including equity income in affiliates (34,782) (2,209) 979 33,634 (2,378) Intercompany interest income/ (expense).............. 28,621 (19,810) (8,811) -- -- Intercompany miscellaneous income/ (expense).............. (1,430) (3,531) 4,961 -- -- ------------ ------------ ------------- ------------- ------------ Income/ (loss) before income taxes................... (46,855) (36,197) 8,370 32,666 (42,016) ------------ ------------ ------------- ------------- ------------ Income tax expense/ (benefit)....... (21,961) (21) 4,860 -- (17,122) ------------ ------------ ------------- ------------- ------------ Net income (loss)................... $(24,894) $(36,176) $ 3,510 $ 32,666 $(24,894) ============ ============ ============= ============= ============
F-26 Statements of Operations For the year ended June 30, 2002
Guarantors ----------------------------- Buckeye Technologies US Non-Guarantor Consolidating Buckeye Inc. Subsidiaries Subsidiaries Adjustments Consolidated ------------ ------------ ------------- ------------- ------------ Net sales............................... $ 91,296 $382,663 $184,007 $(22,748) $635,218 Cost of goods sold...................... 71,887 351,260 160,350 (25,534) 557,963 ------------ ------------ ------------- ------------- ------------ Gross margin............................ 19,409 31,403 23,657 2,786 77,255 Selling research and administrative expenses.............................. 3,306 25,967 7,828 -- 37,101 Restructuring and impairment costs 3,713 3,644 4,232 -- 11,589 ------------ ------------ ------------- ------------- ------------ Operating income........................ 12,390 1,792 11,597 2,786 28,565 Other income (expense): Interest income (expense), and amortization of debt costs......... (43,747) 1,122 (5,426) -- (48,051) Other income (expense), including equity income in affiliates......................... (37,571) (2,631) 1,189 35,575 (3,438) Intercompany interest income/ (expense).......................... 32,558 (25,288) (7,270) -- -- Intercompany miscellaneous income/ (expense).................. (954) (2,654) 3,608 -- -- ------------ ------------ ------------- ------------- ------------ Income/ (loss) before income taxes and cumulative effect of change in accounting........................ (37,324) (27,659) 3,698 38,361 (22,924) ------------ ------------ ------------- ------------- ------------ Income tax expense/ (benefit)........... (11,320) (412) 3,312 -- (8,420) ------------ ------------ ------------- ------------- ------------ Income/ (loss) before cumulative effect of change in accounting....... (26,004) (27,247) 386 38,361 (14,504) Cumulative effect of change in accounting........................... -- ( 11,500) -- -- (11,500) ------------ ------------ ------------- ------------- ------------ Net income (loss)....................... $(26,004) $(38,747) $ 386 $ 38,361 $(26,004) ============ ============ ============= ============= ============
F-27 Statements of Operations For the year ended June 30, 2001
Guarantors ----------------------------- Buckeye Technologies US Non-Guarantor Consolidating Buckeye Inc. Subsidiaries Subsidiaries Adjustments Consolidated ------------ ------------ ------------- ------------- ------------ Net sales................................ $110,450 $425,311 $224,624 $(28,857) $731,528 Cost of goods sold....................... 90,886 319,440 191,507 (27,778) 574,055 ------------ ------------ ------------- ------------- ------------ Gross margin............................. 19,564 105,871 33,117 (1,079) 157,473 Selling, research and administrative expenses.............................. 1,194 39,241 5,891 -- 46,326 ------------ ------------ ------------- ------------- ------------ Operating income......................... 18,370 66,630 27,226 (1,079) 111,147 Other income (expense): Interest income (expense), and amortization of debt costs.......... (44,855) 4,701 (4,602) -- (44,756) Other income/(expense), including equity income in affiliates.......................... 48,300 (13,296) 12,264 (49,330) (2,062) Intercompany interest income/ (expense)................... 30,489 (23,844) (6,645) -- -- Intercompany miscellaneous income/ (expense)................... -- -- -- --- -- ------------ ------------ ------------- ------------- ------------ Income/ (loss) before income taxes and cumulative effect of change in accounting......................... 52,304 34,191 28,243 (50,409) 64,329 ------------ ------------ ------------- ------------- ------------ Income tax expense/ (benefit)............ 6,619 6,202 8,234 -- 21,055 ------------ ------------ ------------- ------------- ------------ Income/ (loss) before cumulative effect of change in accounting........ 45,685 27,989 20,009 (50,409) 43,274 Cumulative effect of change in accounting............................ 838 791 1,620 -- 3,249 ------------ ------------ ------------- ------------- ------------ Net income (loss)........................ $ 46,523 $ 28,780 $ 21,629 $(50,409) $ 46,523 ============ ============ ============= ============= ============
F-28 Balance Sheets As of June 30, 2003
Guarantors ----------------------------- Buckeye Technologies US Non-Guarantor Consolidating Buckeye Inc. Subsidiaries Subsidiaries Adjustments Consolidated ------------ ------------ ------------- ------------- ------------ Assets Current Assets Cash and cash equivalents.............. $ 26,075 $ 4,349 $ 19,553 $ -- $ 49,977 Restricted cash and short-term investments.......................... -- -- 3,375 -- 3,375 Accounts receivable net of allowance .......................... 6,672 42,657 76,954 -- 126,283 Inventories .......................... 28,711 61,532 46,291 171 136,705 Other current assets ................. 9,573 18,913 (2,179) -- 26,307 Intercompany accounts receivable ...... 9,553 -- -- (9,553) -- ------------ ------------ ------------- ------------- ------------ Total current assets 80,584 127,451 143,994 (9,382) 342,647 Property, plant and equipment, net ....... 51,753 354,057 188,328 -- 594,138 Goodwill and intangibles ................ 3,698 56,575 100,036 -- 160,309 Intercompany notes receivable ........... 379,941 -- -- (379,941) -- Other assets, including investments in subsidiaries .......................... 337,654 279,717 107,625 (711,435) 13,561 ------------ ------------ ------------- ------------- ------------ Total assets.............................. $853,630 $817,800 $539,983 $(1,100,758) $ 1,110,655 ============ ============ ============= ============= ============ Liabilities and stockholders' equity Current liabilities Trade accounts payable................. $ 6,153 $ 20,659 $ 10,195 $ -- $ 37,007 Other current liabilities.............. 12,553 25,978 52,129 1 90,661 Intercompany accounts payable.......... -- 1,710 7,843 (9,553) -- ------------ ------------ ------------- ------------- ------------ Total current liabilities................. 18,706 48,347 70,167 (9,552) 127,668 Long-term debt............................ 617,474 2,000 -- -- 619,474 Deferred income taxes..................... (6,320) 67,671 18,147 -- 79,498 Other liabilities......................... 5,543 15,387 1,201 -- 22,131 Intercompany notes payable................ -- 211,392 168,549 (379,941) -- Stockholders'/ invested equity............ 218,227 473,003 281,919 (711,265) 261,884 ------------ ------------ ------------- ------------- ------------ Total liabilities and stockholders' equity.................................. $853,630 $817,800 $539,983 $(1,100,758) $ 1,110,655 ============ ============ ============= ============= ============
F-29 Balance Sheets As of June 30, 2002
Guarantors ----------------------------- Buckeye Technologies US Non-Guarantor Consolidating Buckeye Inc. Subsidiaries Subsidiaries Adjustments Consolidated ------------ ------------ ------------- ------------- ------------ Assets Current Assets Cash and cash equivalents............ $ 36,443 $ 1,358 $ 18,205 $ -- $ 56,006 Restricted cash and short-term investments........................ 8,863 -- 3,375 -- 12,238 Accounts receivable net of allowance.......................... 6,405 21,494 69,617 -- 97,516 Inventories.......................... 30,490 73,169 40,305 1,139 145,103 Other current assets................. 20,245 9,143 265 -- 29,653 Intercompany accounts receivable......................... - 40,464 1,641 (42,105) -- ------------ ------------ ------------- ------------- ------------ Total current assets.................... 102,446 145,628 133,408 (40,966) 340,516 Property, plant and equipment, net...... 57,351 386,775 183,626 -- 627,752 Goodwill and intangibles................ 3,754 57,688 90,838 -- 152,280 Intercompany notes receivable........... 371,685 -- -- (371,685) -- Other assets, including investments in subsidiaries...................... 457,378 194,937 94,824 (732,950) 14,189 ------------ ------------ ------------- ------------- ------------ Total assets............................ $992,614 $785,028 $502,696 $(1,145,601) $1,134,737 ============ ============ ============= ============= ============ Liabilities and stockholders' equity Current liabilities Trade accounts payable............... $ 5,341 $20,302 $ 8,146 $ -- $ 33,789 Other current liabilities............ 14,112 22,041 33,836 -- 69,989 Intercompany accounts payable........ 37,426 -- 4,679 (42,105) -- ------------ ------------ ------------- ------------- ------------ Total current liabilities............... 56,879 42,343 46,661 (42,105) 103,778 Long-term debt ......................... 619,795 2,000 53,601 -- 675,396 Deferred income taxes................... 6,316 58,367 14,612 -- 79,295 Other liabilities....................... 5,766 15,857 985 -- 22,608 Intercompany notes payable.............. -- 229,274 142,411 (371,685) -- Stockholders'/invested equity........... 303,858 437,187 244,426 (731,811) 253,660 ------------ ------------ ------------- ------------- ------------ Total liabilities and stockholders' equity ................................. $992,614 $785,028 $502,696 $(1,145,601) $1,134,737 ============ ============ ============= ============= ============
F-30 Statements of Cash Flows For the year ended June 30, 2003
Guarantors ----------------------------- Buckeye Technologies US Non-Guarantor Buckeye Inc. Subsidiaries Subsidiaries Consolidated ------------ ------------ ------------- ------------ Net cash provided by (used in) operating activities $ (1,681) $ 37,614 $ 19,273 $ 55,206 Investing activities: Purchases of property, plant and equipment............... (3,037) (21,840) (3,547) (28,424) Purchases of short term investments...................... 8,863 -- -- 8,863 Other.................................................... -- (926) 54 (872) ------------ ------------ ------------- ------------ Net cash provided by (used in) investing activities 5,826 (22,766) (3,493) (20,433) Financing activities: Net payments under revolving line of credit.............. (6,000) -- (13,923) (19,923) Payments for debt issuance costs......................... (256) -- (415) (671) Principal payments on long-term debt and other........... (8,257) (11,857) (2,425) (22,539) ------------ ------------ ------------- ------------ Net cash used in financing activities.................... (14,513) (11,857) (16,763) (43,133) Effect of foreign currency rate fluctuations............. -- -- 2,331 2,331 ------------ ------------ ------------- ------------ Increase (decrease) in cash and cash equivalents......... (10,368) 2,991 1,348 (6,029) Cash and cash equivalents at beginning of year........... 36,443 1,358 18,205 56,006 ------------ ------------ ------------- ------------ Cash and cash equivalents at end of year................. $ 26,075 $ 4,349 $ 19,553 $ 49,977 ============ ============ ============= =============
F-31 Statements of Cash Flows For the year ended June 30, 2002
Guarantors ----------------------------- Buckeye Technologies US Non-Guarantor Buckeye Inc. Subsidiaries Subsidiaries Consolidated ------------ ------------ ------------- ------------ Net cash provided by (used in) operating activities $ 19,141 $ 41,463 $(32,679) $ 27,925 Investing activities: Purchase of property, plant and equipment................ (4,410) (28,370) (3,192) (35,972) Purchases of short term investments...................... (8,863) -- -- (8,863) Other.................................................... -- (1,292) -- (1,292) ------------ ------------ ------------- ------------ Net cash used in investing activities.................... (13,273) (29,662) (3,192) (46,127) Financing activities: Net proceeds from sale of equity interests............... 23,203 -- 3,030 26,233 Net borrowings under revolving line of credit............ 31,301 -- 22,739 54,040 Payments for debt issuance costs......................... (1,443) -- (714) (2,157) Principal payments on long-term debt and other........... (23,025) (10,631) 15,197 (18,459) ------------ ------------ ------------- ------------ Net cash provided by (used in) financing activities...... 30,036 (10,631) 40,252 59,657 Effect of foreign currency rate fluctuations............. -- -- 1,619 1,619 ------------ ------------ ------------- ------------ Increase in cash and cash equivalents.................... 35,904 1,170 6,000 43,074 Cash and cash equivalents at beginning of year........... 539 188 12,205 12,932 ------------ ------------ ------------- ------------ Cash and cash equivalents at end of year................. $ 36,443 $ 1,358 $18,205 $ 56,006 ============ ============ ============= =============
F-32 Statements of Cash Flows For year ending June 30, 2001
Guarantors ----------------------------- Buckeye Technologies US Non-Guarantor Buckeye Inc. Subsidiaries Subsidiaries Consolidated ------------ ------------ ------------- ------------ Net cash provided by (used in) operating activities...... $(40,510) $ 73,800 $ 35,294 $ 68,584 Investing activities: Acquisitions of businesses............................... (36,454) -- (134) (36,588) Purchases of property, plant and equipment............... (8,928) (116,650) (27,455) (153,033) Other.................................................... -- (1,637) -- (1,637) ------------ ------------ ------------- ------------ Net cash used in investing activities.................... (45,382) (118,287) (27,589) (191,258) Financing activities: Net proceeds from sale of equity interests............... 2,604 -- -- 2,604 Purchase of treasury shares.............................. (9,827) -- -- (9,827) Net borrowings (payments) under revolving line of credit................................................. 161,630 2,000 (2,811) 160,819 Payments for debt issuance costs......................... (1,354) -- -- (1,354) Principal payments on long-term debt and other........... (70,553) 42,667 (7,635) (35,521) ------------ ------------ ------------- ------------ Net cash provided by (used in) financing activities............................................. 82,500 44,667 (10,446) 116,721 Effect of foreign currency rate fluctuations............. -- -- (2,060) (2,060) ------------ ------------ ------------- ------------ Increase (decrease) in cash and cash equivalents......... (3,392) 180 (4,801) (8,013) Cash and cash equivalents at beginning of year........... 3,931 8 17,006 20,945 ------------ ------------ ------------- ------------ Cash and cash equivalents at end of year................. $ 539 $ 188 $ 12,205 $ 12,932 ============ ============ ============= =============
F-33 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS Item 20. Indemnification of Directors and Officers Buckeye Technologies Inc.'s rights and obligations with respect to indemnification of its controlling persons, directors and officers are governed by the following provisions from its bylaws and applicable state law: Buckeye Technologies Inc. is incorporated under the laws of the State of Delaware. Section 145 of the General Corporation Law of the State of Delaware ("Section 145") provides that a Delaware corporation may indemnify any person who is, or is threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amount paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was illegal. A Delaware corporation may indemnify any person who is, or is threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director has actually and reasonably incurred. Our Amended and Restated Certificate of Incorporation provides for the indemnification of our directors and officers to the fullest extent permitted by Section 145. In that regard, the Amended and Restated Certificate of Incorporation provides that we shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director or officer of such corporation, or is or was serving at the request of such corporation as a director, officer or member of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of such corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Indemnification in connection with an action or suit by or in the right of such corporation to procure a judgment in its favor is limited to payment of settlement of such an action or suit except that no such indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the indemnifying corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine that, despite the adjudication of liability but in consideration of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. II-1 Item 21. Exhibits and Financial Statement Schedules (a) Exhibits
Exhibit Number Description of Exhibit 3.1 -- Second Amended and Restated Certificate of Incorporation.(5) 3.1(a) -- Articles of Amendment to the Second Amended and Restated Certificate of Incorporation of Registrant. (6) 3.2 -- Amended and Restated Bylaws of the Company. (10) 3.3** -- Certificate of Incorporation of Buckeye Florida Corporation 3.4** -- Amended and Restated Bylaws of Buckeye Florida Corporation 3.5** -- Articles of Incorporation of BFOL 2 Inc. 3.6** -- Bylaws of BFOL 2 Inc. 3.7** -- Articles of Incorporation of BFC 2 Inc. 3.8** -- Bylaws of BFC 2 Inc. 3.9** -- Certificate of Formation of BFOL 3 LLC 3.10** -- Limited Liability Company Agreement of BFOL 3 LLC 3.11** -- Certificate of Formation of BFC 3 LLC 3.12** -- Limited Liability Company Agreement of BFC 3 LLC 3.13** -- Certificate of Limited Partnership of Buckeye Florida, Limited Partnership 3.14** -- Amended and Restated Agreement of Limited Partnership of Buckeye Florida, Limited Partnership 3.15** -- Articles of Incorporation of Buckeye Lumberton Inc. 3.16** -- Bylaws of Buckeye Lumberton Inc. 3.17** -- Certificate of Formation of Buckeye Mt. Holly LLC 3.18** -- Limited Liability Company Agreement of Buckeye Mt. Holly LLC 3.19** -- Certificate of Incorporation of BKI Lending Inc. 3.20** -- Bylaws of BKI Lending Inc. 3.21** -- Certificate of Incorporation of BKI Holding Corporation 3.22** -- Bylaws of BKI Holding Corporation 3.23** -- Certificate of Incorporation of BKI Asset Management Corporation 3.24** -- Bylaws of BKI Asset Management Corporation 3.25** -- Charter of Incorporation of BKI Finance Corporation 3.26** -- Bylaws of BKI Finance Corporation 3.27** -- Certificate of Incorporation of BKI International Inc. 3.28** -- Bylaws of BKI International Inc. 3.29** -- Certificate of Incorporation of Buckeye Technologies Canada Inc. 3.30** -- Bylaws of Buckeye Technologies Canada Inc. 3.31** -- Certificate of Incorporation of Merfin Systems Inc. 3.32** -- Bylaws of Merfin Systems Inc. 4.1 -- First Amendment to the Rights Agreement (The Rights Agreement was filed on Form 8-A, November 20, 1995) (2) 4.2 -- Indenture for 9 1/4% Senior Subordinated Notes due 2008 dated as of July 2, 1996 (1) 4.3 -- Indenture for 8% Senior Subordinated Notes due 2010 dated as of June 11, 1998 (6) 4.4* -- Indenture for the 8 1/2% Senior Notes due 2013 dated as of September 22, 2003, among the Company, certain guarantors and The Bank of New York, as Trustee. 4.5* -- Form of 8 1/2% Senior Notes due 2013 (included in Exhibit 4.4) 4.6* -- Registration Rights Agreement, dated as of September 22, 2003, among Buckeye Technologies Inc., Citigroup Global Markets Inc., UBS Securities LLC and Fleet Securities, Inc. 5.1** -- Opinion of Shearman & Sterling LLP 10.1 -- Amended and Restated 1995 Management Stock Option Plan of the Company (7) 10.2 -- Second Amended and Restated 1995 Incentive and Nonqualified Stock Option Plan for Management Employees of the Company (11) 10.3 -- Form of Management Stock Option Subscription Agreement (7) 10.4 -- Form of Stock Option Subscription Agreement (7) 10.5 -- Amended and Restated Formula Plan for Non-Employee Directors (3) II-2 10.6 -- Amendment No. 1 to Timberlands Agreement dated January 1, 1999, by and between Buckeye Florida, Limited Partnership and Foley Timber and Land Company. Certain portions of the Agreement have been omitted pursuant to an Application for Confidential Treatment dated October 30, 1995 (8) 10.7 -- Asset Purchase Agreement dated October 1, 1999, between Buckeye Technologies Inc., BKI Holdings Corporation, Buckeye Mt. Holly LLC, Buckeye Finland Oy, BKI International Inc. and UPM-Kymmene Corporation, Walkisoft Finland Oy, Walkisoft USA, Inc., Walkisoft Denmark A/S (9) 10.8 -- German Purchase Agreement between Buckeye Technologies Inc., Buckeye Steinfurt GmbH, Buckeye Holdings GmbH, Walkisoft GmbH and UPM-Kymmene Ojy. (9) 10.9 -- Credit Agreement dated April 16, 2001, among the Company, Fleet National Bank; Toronto Dominion (Texas), Inc.; Bank of America, N. A.; First Union National Bank; and the other lenders party thereto (Credit Agreement). (4) 10.10 -- Amendment No. 1 dated September 7, 2001 to the Credit Agreement (11) 10.11 -- Amendment of German Purchase Agreement September 20, 2001 between Buckeye Technologies Inc., Buckeye Steinfurt GmbH, Buckeye Holdings GmbH AND Walkisoft GmbH, UPM-Kymmene Ojy September 20, 2001 dated (11) 10.12 -- Amendment No. 2 dated October 16, 2001 to the Credit Agreement (12) 10.13 -- Credit and Security Agreement dated December 5, 2001, by and among Wachovia Bank, N.A. and Buckeye Receivables (Credit and Security Agreement) (13) 10.14 -- Amendment No. 3 dated March 18, 2002 to the Credit Agreement (14) 10.15 -- Consent dated August 20, 2002 under Credit Agreement (15) 10.16 -- Amendment dated September 3, 2002 to the Credit and Security Agreement (15) 10.17 -- Amendment No. 4 dated July 28, 2003 to the Credit Agreement 12.1* -- Computation of Ratio of Earnings to Fixed Charges 21.1* -- Subsidiaries of the Company 23.1** -- Consent of Shearman & Sterling LLP (included as part of Exhibit 5.1) 23.2* -- Consent of Ernst & Young LLP 24.1* -- Power of Attorney (included in signature pages) 25.1* -- Statement of Eligibility of Trustee on Form T-1 99.1* -- Form of Letter of Transmittal with respect to outstanding 8 1/2% Senior Notes due 2013 99.2* -- Form of Notice of Guaranteed Delivery with respect to outstanding 8 1/2% Senior Notes due 2013 99.3* -- Form of Instructions to Registered Holders and/or DTC Participant from Beneficial Owner 99.4* -- Form of Letter to Registered Holders
- ---------------------- * Filed herewith. ** To be filed by amendment. (1) Incorporated by reference to the Company's Registration Statement on Form S-3 File No. 33-05139, as filed with the Securities and Exchange Commission on June 4, 1996 and as amended on June 11, 1996 and June 27, 1996. (2) Incorporated by reference to the Company's Annual Report on Form 10-K dated June 30, 1997 (3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarterly period ended December 31, 2000. (4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarterly period ended March 31, 2001. (5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarterly period ended December 31, 1997. (6) Incorporated by reference to the Company's Registration Statement on Form S-4, file No. 333-59267, as filed with the Securities and Exchange Commission on July 16, 1998. (7) Incorporated by reference to the Company's Annual Report on Form 10-K dated June 30, 1998. (8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q/A for quarterly period ended March 31, 1999. (9) Incorporated by reference to the Company's Current Report on Form 8-K dated October 13, 1999. (10) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 2000. (11) Incorporated by reference to the Company's Annual Report on Form 10-K dated June 30, 2001. (12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarterly period ended September 30, 2001. II-3 (13) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarterly period ended December 31, 2001. (14) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002. (15) Incorporated by reference to the Company's Annual Report on Form 10-K dated June 30, 2002. (b) Financial Statement Schedules. The following financial statement schedule is filed as part of this Registration Statement Report of Independent Auditors on Consolidated Financial Statement Schedule........................................................S-1 Schedule II--Consolidated Valuation and Qualifying Accounts...............S-2 All other schedules are omitted, because the required information is inapplicable, or the information is presented in the Financial Statements or related notes. Item 22. Undertakings The undersigned co-registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the co-registrants pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned co-registrants hereby undertake that, for purposes of determining any liability under the Securities Act of 1933, each filing of any of the co-registrant's annual reports pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that are incorporated by reference in II-4 the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the co-registrants pursuant to the foregoing provisions, or otherwise, the co-registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the co-registrants of expenses incurred or paid by a director, officer or controlling person of any of the co-registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the co-registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned co-registrants hereby undertake to respond to requests for information that are incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned co-registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Buckeye Technologies Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BUCKEYE TECHNOLOGIES INC. By: /s/ David B. Ferraro ------------------------------------------- David B. Ferraro, Director, Chairman of the Board and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ David B. Ferraro Director, Chairman of the Board and - ------------------------------------ Chief Executive Officer David B. Ferraro (Principal Executive Officer) /s/Kristopher J. Matula - ------------------------------------ Executive Vice President and Kristopher J. Matula Chief Financial Officer (Principal Financial Officer) /s/ Robert E. Cannon - ------------------------------------ Director Robert E. Cannon /s/ George W. Bryan - ------------------------------------ Director George W. Bryan /s/ R. Howard Cannon - ------------------------------------ Director R. Howard Cannon /s/ Red Cavaney - ------------------------------------ Director Red Cavaney /s/ Henry Frigon - ------------------------------------ Director Henry Frigon II-6 Signature Title --------- ----- /s/ Samuel M. Mencoff - ------------------------------------ Director Samuel M. Mencoff II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Buckeye Florida Corporation has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BUCKEYE FLORIDA CORPORATION By: /s/ David B. Ferraro ------------------------------------------- David B. Ferraro, Director and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ David B. Ferraro Director and Chief Executive Officer - ------------------------------------ (Principal Executive Officer) David B. Ferraro /s/ Kristopher J. Matula - ------------------------------------ Vice President and Director Kristopher J. Matula (Principal Financial Officer) /s/ John B. Crowe - ------------------------------------ President and Director John B. Crowe /s/ R. Howard Cannon - ------------------------------------ Vice President and Director R. Howard Cannon II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, BFOL 2 Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BFOL 2 INC. By: /s/ David B. Ferraro ------------------------------------------- David B. Ferraro, Director and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ David B. Ferraro Director and Chief Executive Officer - ------------------------------------ (Principal Executive Officer) David B. Ferraro /s/ Kristopher J. Matula - ------------------------------------ Vice President and Director Kristopher J. Matula (Principal Financial Officer) /s/ John B. Crowe - ------------------------------------ President and Director John B. Crowe II-9 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, BFC 2 Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BFC 2 INC. By: /s David B. Ferraro ------------------------------------------- David B. Ferraro, Director and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ David B. Ferraro Director and Chief Executive Officer - ------------------------------------ (Principal Executive Officer) David B. Ferraro /s/ Kristopher J. Matula - ------------------------------------ Vice President and Director Kristopher J. Matula (Principal Financial Officer) /s/ John B. Crowe - ------------------------------------ President and Director John B. Crowe /s/ R. Howard Cannon - ------------------------------------ Vice President and Director R. Howard Cannon II-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, BFOL 3 LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BFOL 3 LLC By: BFC 2 Inc., its Managing Member By: /s/ David B. Ferraro ------------------------------------------- David B. Ferraro, Director and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ David B. Ferraro Director and Chief Executive Officer - ------------------------------------ (Principal Executive Officer) David B. Ferraro /s/ Kristopher J. Matula - ------------------------------------ Vice President and Director Kristopher J. Matula (Principal Financial Officer) /s/ John B. Crowe - ------------------------------------ President and Director John B. Crowe /s/ R. Howard Cannon - ------------------------------------ Vice President and Director R. Howard Cannon II-11 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, BFC 3 LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BFC 3 LLC By: BFOL 2 Inc., its Managing Member By: /s/ David B. Ferraro ------------------------------------------- David B. Ferraro, Director and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ David B. Ferraro Director and Chief Executive Officer - ------------------------------------ (Principal Executive Officer) David B. Ferraro /s/ Kristopher J. Matula - ------------------------------------ Vice President and Director Kristopher J. Matula (Principal Financial Officer) /s/ John B. Crowe - ------------------------------------ President and Director John B. Crowe II-12 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Buckeye Florida, Limited Partnership has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BUCKEYE FLORIDA, LIMITED PARTNERSHIP By: Buckeye Florida Corporation By: /s/ David B. Ferraro ------------------------------------------- David B. Ferraro, Director and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ David B. Ferraro Director and Chief Executive Officer - ------------------------------------ (Principal Executive Officer) David B. Ferraro /s/ Kristopher J. Matula - ------------------------------------ Vice President and Director Kristopher J. Matula (Principal Financial Officer) /s/ John B. Crowe - ------------------------------------ President and Director John B. Crowe /s/ R. Howard Cannon - ------------------------------------ Vice President and Director R. Howard Cannon II-13 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Buckeye Lumberton Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BUCKEYE LUMBERTON INC. By: /s/ David B. Ferraro ------------------------------------------- David B. Ferraro, Director and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ David B. Ferraro Director and Chief Executive Officer - ------------------------------------ (Principal Executive Officer) David B. Ferraro /s/ Kristopher J. Matula - ------------------------------------ Vice President and Director Kristopher J. Matula (Principal Financial Officer) /s/ John B. Crowe - ------------------------------------ President and Director John B. Crowe /s/ George B. Ellis - ------------------------------------ Vice President and Director George B. Ellis II-14 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Buckeye Mt. Holly LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BUCKEYE MT. HOLLY LLC By: Buckeye Lumberton, Inc., its sole member By: /s/ David B. Ferraro ------------------------------------------- David B. Ferraro, Director and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ David B. Ferraro Director and Chief Executive Officer - ------------------------------------ (Principal Executive Officer) David B. Ferraro /s/ Kristopher J. Matula - ------------------------------------ Vice President and Director Kristopher J. Matula (Principal Financial Officer) /s/ John B. Crowe - ------------------------------------ President and Director John B. Crowe /s/ George B. Ellis - ------------------------------------ Vice President and Director George B. Ellis II-15 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, BKI Lending Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BKI LENDING INC. By: /s/ Doris J. Krick ------------------------------------------- Doris J. Krick, Director, Treasurer and President KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ Doris J. Krick Director, Treasurer and President - ------------------------------------ (Principal Executive Officer and Doris J. Krick Principal Financial Officer) /s/ Sheila Jordan Cunningham - ------------------------------------ Director Sheila Jordan Cunningham /s/ Kristopher J. Matula - ------------------------------------ Director Kristopher J. Matula II-16 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, BKI Holding Corporation has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BKI HOLDING CORPORATION By: /s/ Francis B. Jacobs, II --------------------------------------------- Francis B. Jacobs, II, Director and President KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ Francis B. Jacobs, II - ------------------------------------ Director and President Francis B. Jacobs, II (Principal Executive Officer) /s/ Lisa M. Oakes - ------------------------------------ Director and Treasurer Lisa M. Oakes (Principal Financial Officer) /s/ Mildred F. Smith - ------------------------------------ Secretary and Director Mildred F. Smith II-17 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, BKI Asset Management Corporation has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BKI ASSET MANAGEMENT CORPORATION By: /s/ Francis B. Jacobs, II --------------------------------------------- Francis B. Jacobs, II, Director and President KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ Francis B. Jacobs, II - ------------------------------------ Director and President Francis B. Jacobs, II (Principal Executive Officer) /s/ Lisa M. Oakes - ------------------------------------ Director and Treasurer Lisa M. Oakes (Principal Financial Officer) /s/ Mildred F. Smith - ------------------------------------ Secretary and Director Mildred F. Smith II-18 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, BKI Finance Corporation has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BKI FINANCE CORPORATION By: /s/ David B. Ferraro ------------------------------------------- David B. Ferraro, Director and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ David B. Ferraro Director and Chief Executive Officer - ------------------------------------ (Principal Executive Officer) David B. Ferraro /s/ Kristopher J. Matula - ------------------------------------ Vice President and Director Kristopher J. Matula (Principal Financial Officer) /s/ John B. Crowe - ------------------------------------ President and Director John B. Crowe II-19 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, BKI International Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BKI INTERNATIONAL INC. By: /s/ David B. Ferraro ------------------------------------------- David B. Ferraro, Director and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ David B. Ferraro Director and Chief Executive Officer - ------------------------------------ (Principal Executive Officer) David B. Ferraro /s/ Kristopher J. Matula - ------------------------------------ Vice President and Director Kristopher J. Matula (Principal Financial Officer) /s/ John B. Crowe - ------------------------------------ President and Director John B. Crowe II-20 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Buckeye Technologies Canada Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. BUCKEYE TECHNOLOGIES CANADA INC. By: /s/ Janice C. George ------------------------------------------- Janice C. George, Director, Treasurer, and President KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ Janice C. George - ------------------------------------ Director, President and Treasurer Janice C. George (Principal Executive Officer and Principal Financial Officer) /s/ Kristopher J. Matula - ------------------------------------ Director Kristopher J. Matula /s/ Sheila Jordan Cunningham - ------------------------------------ Director Sheila Jordan Cunningham II-21 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Merfin Systems Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 30th day of October, 2003. MERFIN SYSTEMS INC. By: /s/ David B. Ferraro ------------------------------------------- David B. Ferraro, Director and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Ferraro and Kristopher J. Matula and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for such person and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 30th day of October, 2003. Signature Title --------- ----- /s/ David B. Ferraro Director and Chief Executive Officer - ------------------------------------ (Principal Executive Officer) David B. Ferraro /s/ Kristopher J. Matula - ------------------------------------ Vice President and Director Kristopher J. Matula (Principal Financial Officer) /s/ John B. Crowe - ------------------------------------ President and Director John B. Crowe /s/ Douglas L. Dowdell - ------------------------------------ Director Douglas L. Dowdell II-22 EXHIBIT INDEX
Exhibit Number Description of Exhibit 3.1 -- Second Amended and Restated Certificate of Incorporation.(5) 3.1(a) -- Articles of Amendment to the Second Amended and Restated Certificate of Incorporation of Registrant. (6) 3.2 -- Amended and Restated Bylaws of the Company. (10) 3.3** -- Certificate of Incorporation of Buckeye Florida Corporation 3.4** -- Amended and Restated Bylaws of Buckeye Florida Corporation 3.5** -- Articles of Incorporation of BFOL 2 Inc. 3.6** -- Bylaws of BFOL 2 Inc. 3.7** -- Articles of Incorporation of BFC 2 Inc. 3.8** -- Bylaws of BFC 2 Inc. 3.9** -- Certificate of Formation of BFOL 3 LLC 3.10** -- Limited Liability Company Agreement of BFOL 3 LLC 3.11** -- Certificate of Formation of BFC 3 LLC 3.12** -- Limited Liability Company Agreement of BFC 3 LLC 3.13** -- Certificate of Limited Partnership of Buckeye Florida, Limited Partnership 3.14** -- Amended and Restated Agreement of Limited Partnership of Buckeye Florida, Limited Partnership 3.15** -- Articles of Incorporation of Buckeye Lumberton Inc. 3.16** -- Bylaws of Buckeye Lumberton Inc. 3.17** -- Certificate of Formation of Buckeye Mt. Holly LLC 3.18** -- Limited Liability Company Agreement of Buckeye Mt. Holly LLC 3.19** -- Certificate of Incorporation of BKI Lending Inc. 3.20** -- Bylaws of BKI Lending Inc. 3.21** -- Certificate of Incorporation of BKI Holding Corporation 3.22** -- Bylaws of BKI Holding Corporation 3.23** -- Certificate of Incorporation of BKI Asset Management Corporation 3.24** -- Bylaws of BKI Asset Management Corporation 3.25** -- Charter of Incorporation of BKI Finance Corporation 3.26** -- Bylaws of BKI Finance Corporation 3.27** -- Certificate of Incorporation of BKI International Inc. 3.28** -- Bylaws of BKI International Inc. 3.29** -- Certificate of Incorporation of Buckeye Technologies Canada Inc. 3.30** -- Bylaws of Buckeye Technologies Canada Inc. 3.31** -- Certificate of Incorporation of Merfin Systems Inc. 3.32** -- Bylaws of Merfin Systems Inc. 4.1 -- First Amendment to the Rights Agreement (The Rights Agreement was filed on Form 8-A, November 20, 1995) (2) 4.2 -- Indenture for 9 1/4% Senior Subordinated Notes due 2008 dated as of July 2, 1996 (1) 4.3 -- Indenture for 8% Senior Subordinated Notes due 2010 dated as of June 11, 1998 (6) 4.4* -- Indenture for the 8 1/2% Senior Notes due 2013 dated as of September 22, 2003, among the Company, certain guarantors and The Bank of New York, as Trustee. 4.5* -- Form of 8 1/2% Senior Notes due 2013 (included in Exhibit 4.4) 4.6* -- Registration Rights Agreement, dated as of September 22, 2003, among Buckeye Technologies Inc., Citigroup Global Markets Inc., UBS Securities LLC and Fleet Securities, Inc. 5.1** -- Opinion of Shearman & Sterling LLP 10.1 -- Amended and Restated 1995 Management Stock Option Plan of the Company (7) 10.2 -- Second Amended and Restated 1995 Incentive and Nonqualified Stock Option Plan for Management Employees of the Company (11) 10.3 -- Form of Management Stock Option Subscription Agreement (7) 10.4 -- Form of Stock Option Subscription Agreement (7) 10.5 -- Amended and Restated Formula Plan for Non-Employee Directors (3) II-23 10.6 -- Amendment No. 1 to Timberlands Agreement dated January 1, 1999, by and between Buckeye Florida, Limited Partnership and Foley Timber and Land Company. Certain portions of the Agreement have been omitted pursuant to an Application for Confidential Treatment dated October 30, 1995 (8) 10.7 -- Asset Purchase Agreement dated October 1, 1999, between Buckeye Technologies Inc., BKI Holdings Corporation, Buckeye Mt. Holly LLC, Buckeye Finland Oy, BKI International Inc. and UPM-Kymmene Corporation, Walkisoft Finland Oy, Walkisoft USA, Inc., Walkisoft Denmark A/S (9) 10.8 -- German Purchase Agreement between Buckeye Technologies Inc., Buckeye Steinfurt GmbH, Buckeye Holdings GmbH, Walkisoft GmbH and UPM-Kymmene Ojy. (9) 10.9 -- Credit Agreement dated April 16, 2001, among the Company, Fleet National Bank; Toronto Dominion (Texas), Inc.; Bank of America, N. A.; First Union National Bank; and the other lenders party thereto (Credit Agreement). (4) 10.10 -- Amendment No. 1 dated September 7, 2001 to the Credit Agreement (11) 10.11 -- Amendment of German Purchase Agreement September 20, 2001 between Buckeye Technologies Inc., Buckeye Steinfurt GmbH, Buckeye Holdings GmbH AND Walkisoft GmbH, UPM-Kymmene Ojy September 20, 2001 dated (11) 10.12 -- Amendment No. 2 dated October 16, 2001 to the Credit Agreement (12) 10.13 -- Credit and Security Agreement dated December 5, 2001, by and among Wachovia Bank, N.A. and Buckeye Receivables (Credit and Security Agreement) (13) 10.14 -- Amendment No. 3 dated March 18, 2002 to the Credit Agreement (14) 10.15 -- Consent dated August 20, 2002 under Credit Agreement (15) 10.16 -- Amendment dated September 3, 2002 to the Credit and Security Agreement (15) 10.17 -- Amendment No. 4 dated July 28, 2003 to the Credit Agreement 12.1* -- Computation of Ratio of Earnings to Fixed Charges 21.1* -- Subsidiaries of the Company 23.1** -- Consent of Shearman & Sterling LLP (included as part of Exhibit 5.1) 23.2* -- Consent of Ernst & Young LLP 24.1* -- Power of Attorney (included in signature pages) 25.1* -- Statement of Eligibility of Trustee on Form T-1 99.1* -- Form of Letter of Transmittal with respect to outstanding 8 1/2% Senior Notes due 2013 99.2* -- Form of Notice of Guaranteed Delivery with respect to outstanding 8 1/2% Senior Notes due 2013 99.3* -- Form of Instructions to Registered Holders and/or DTC Participant from Beneficial Owner 99.4* -- Form of Letter to Registered Holders
- ---------------------- * Filed herewith. ** To be filed by amendment. (1) Incorporated by reference to the Company's Registration Statement on Form S-3 File No. 33-05139, as filed with the Securities and Exchange Commission on June 4, 1996 and as amended on June 11, 1996 and June 27, 1996. (2) Incorporated by reference to the Company's Annual Report on Form 10-K dated June 30, 1997. (3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarterly period ended December 31, 2000. (4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarterly period ended March 31, 2001. (5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarterly period ended December 31, 1997. (6) Incorporated by reference to the Company's Registration Statement on Form S-4, file No. 333-59267, as filed with the Securities and Exchange Commission on July 16, 1998. (7) Incorporated by reference to the Company's Annual Report on Form 10-K dated June 30, 1998. (8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q/A for quarterly period ended March 31, 1999. (9) Incorporated by reference to the Company's Current Report on Form 8-K dated October 13, 1999. (10) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 2000. (11) Incorporated by reference to the Company's Annual Report on Form 10-K dated June 30, 2001. II-24 (12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarterly period ended September 30, 2001. (13) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarterly period ended December 31, 2001. (14) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002. (15) Incorporated by reference to the Company's Annual Report on Form 10-K dated June 30, 2002. (b) Financial Statement Schedules. The following financial statement schedule is filed as part of this Registration Statement Report of Independent Auditors on Consolidated Financial Statement Schedule........................................................S-1 Schedule II--Consolidated Valuation and Qualifying Accounts...............S-2 All other schedules are omitted, because the required information is inapplicable, or the information is presented in the Financial Statements or related notes. II-25 Report of Independent Auditors on Consolidated Financial Statement Schedule We have audited the consolidated financial statements of Buckeye Technologies Inc. (the "Company") as of June 30, 2003 and 2002, and for each of the three years in the period ended June 30, 2003, and have issued our report thereon dated July 30, 2003, except for Note 21, as to which the date is September 22, 2003, included elsewhere in this Registration Statement. Our audits also included the Valuation and Qualifying Accounts consolidated financial statement schedule for these related periods. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the consolidated financial statement schedule referred to above, 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. /s/ Ernst & Young LLP Memphis, Tennessee July 30, 2003, except for Note 21 as to which the date is September 22, 2003 S-1 SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Column B Column C Column D Column E Balance Balance at Additions at Beginning Charged End of to of Description Period Expenses Deductions Period Allowance for doubtful accounts ------------------------------- Year ended June 30, 2003 $ 1,947 $ 296 $ (1,522) (a) $ 721 Year ended June 30, 2002 $ 984 $ 1,355 $ (392) (a) $ 1,947 Year ended June 30, 2001 $ 1,219 $ 1,032 $ (1,297) (a) $ 984 Reserve for maintenance shutdowns - --------------------------------- Year ended June 30, 2003 $ 7,699 $ 4,234 $ (2,052) (b) $ 9,881 Year ended June 30, 2002 $ 8,008 $ 2,782 $ (3,091) (b) $ 7,699 Year ended June 30, 2001 $ 8,624 $ 4,847 $ (5,490) (b) $ 8,008 Provision for Restructuring - --------------------------------- Year ended June 30, 2003 $ 601 $ 1,636 $ (696) (c) $ 1,541 Year ended June 30, 2002 $ 0 $ 1,605 $ (1,004) (c) $ 601
(a) Uncollectible accounts written off, net of recoveries. (b) Payments made during plant shutdowns was $732 in 2003, $1,910 in 2002 and $3,283 in 2001. During 2002 and 2001 the estimate was changed based on a change in the estimated timing of shutdown. Adjustments of $53, $1,981 and $2,207 were made in 2003, 2002 and 2001, respectively. (c) Severance payments, lease cancellations, relocation expenses, and miscellaneous other expenses. S-2 EX-4.4 3 ex4-4_102903.txt EXHIBIT 4.4 TO S-4 BUCKEYE TECHNOLOGIES INC., as Issuer each of the Guarantors from time to time party hereto, as Guarantors and THE BANK OF NEW YORK, as Trustee ______________________________________________________ INDENTURE Dated as of September 22, 2003 ______________________________________________________ 8 1/2% Senior Notes due 2013 Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of September 22, 2003 Trust Indenture Indenture Act Section Section Section 310 (a)(1)...........................................................6.9 (a)(2)...........................................................6.9 (b)........................................................6.8, 6.10 Section 311 (a).............................................................6.13 Section 312 (a)...... .......................................................7.1 (c)..............................................................7.2 Section 313 (a)..............................................................7.3 (c)..............................................................7.3 Section 314 (a)............................................................10.20 (a)(4).........................................................10.20 (c)(1)...........................................................1.3 (c)(2)...........................................................1.3 (e)..............................................................1.3 Section 315 (a)...........................................................6.1(b) (b)..............................................................6.2 (c)...........................................................6.1(a) (d)......................................................6.1(c), 6.3 (e).............................................................5.14 Section 316 (a) (last sentence)..............................1.1 ("Outstanding") (a)(1)(A)..................................................5.2, 5.12 (a)(1)(B).......................................................5.13 (b)..............................................................5.8 (c)..............................................................1.5 Section 317 (a)(1)...........................................................5.3 (a)(2)...........................................................5.4 (b).............................................................10.3 Section 318 (a)..............................................................1.8 Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture. TABLE OF CONTENTS Page ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1. Definitions......................................................1 SECTION 1.2. Other Definitions...............................................17 SECTION 1.3. Compliance Certificates and Opinions............................18 SECTION 1.4. Form of Documents Delivered to Trustee..........................18 SECTION 1.5. Acts of Holders.................................................19 SECTION 1.6. Notices, etc., to the Trustee, the Company and the Guarantors...20 SECTION 1.7. Notice to Holders; Waiver.......................................20 SECTION 1.8. Conflict with Trust Indenture Act...............................21 SECTION 1.9. Effect of Headings and Table of Contents........................21 SECTION 1.10. Successors and Assigns..........................................21 SECTION 1.11. Separability Clause.............................................21 SECTION 1.12. Benefits of Indenture...........................................21 SECTION 1.13. Governing Law...................................................21 SECTION 1.14. Legal Holidays..................................................21 SECTION 1.15. Independence of Covenants.......................................22 SECTION 1.16. Exhibits........................................................22 SECTION 1.17. Counterparts....................................................22 ARTICLE TWO SECURITY FORMS SECTION 2.1. Forms Generally.................................................22 SECTION 2.2. Form of Face of Securities......................................25 SECTION 2.3. Form of Reverse of Securities...................................25 SECTION 2.4. Form of Guarantee...............................................25 ARTICLE THREE THE SECURITIES SECTION 3.1. Title and Terms.................................................25 SECTION 3.2. Denominations...................................................26 SECTION 3.3. Execution, Authentication, Delivery and Dating..................26 SECTION 3.4. Temporary Securities............................................27 SECTION 3.5. Registration, Registration of Transfer and Exchange.............28 SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities................31 SECTION 3.7. Payment of Interest; Interest Rights Preserved..................32 SECTION 3.8. Persons Deemed Owners...........................................33 SECTION 3.9. Cancellation....................................................33 SECTION 3.10. Computation of Interest.........................................33 SECTION 3.11. CUSIP Numbers...................................................33 SECTION 3.12. Issuance of Additional Securities...............................33 -i- ARTICLE FOUR DEFEASANCE AND COVENANT DEFEASANCE SECTION 4.1. Company's Option to Effect Defeasance or Covenant Defeasance....34 SECTION 4.2. Defeasance and Discharge........................................34 SECTION 4.3. Covenant Defeasance.............................................35 SECTION 4.4. Conditions to Defeasance or Covenant Defeasance.................35 SECTION 4.5. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions.........................37 SECTION 4.6. Reinstatement...................................................37 ARTICLE FIVE REMEDIES SECTION 5.1. Events of Default...............................................38 SECTION 5.2. Acceleration of Maturity; Rescission and Annulment..............39 SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee.40 SECTION 5.4. Trustee May File Proofs of Claim................................41 SECTION 5.5. Trustee May Enforce Claims without Possession of Securities.....42 SECTION 5.6. Application of Money Collected..................................42 SECTION 5.7. Limitation on Suits.............................................42 SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest..................................................43 SECTION 5.9. Restoration of Rights and Remedies..............................43 SECTION 5.10. Rights and Remedies Cumulative..................................43 SECTION 5.11. Delay or Omission Not Waiver....................................43 SECTION 5.12. Control by Holders..............................................44 SECTION 5.13. Waiver of Past Defaults.........................................44 SECTION 5.14. Undertaking for Costs...........................................44 SECTION 5.15. Waiver of Stay, Extension or Usury Laws.........................44 SECTION 5.16. Remedies Subject to Applicable Law..............................45 ARTICLE SIX THE TRUSTEE SECTION 6.1. Duties of Trustee...............................................45 SECTION 6.2. Notice of Defaults..............................................46 SECTION 6.3. Certain Rights of Trustee.......................................46 SECTION 6.4. Trustee Not Responsible for Recitals, Dispositions of Securities or Application of Proceeds Thereof.................48 SECTION 6.5. Trustee and Agents May Hold Securities; Collections; etc........48 SECTION 6.6. Money Held in Trust.............................................48 SECTION 6.7. Compensation and Indemnification of Trustee and Its Prior Claim...................................................49 SECTION 6.8. Conflicting Interests...........................................49 SECTION 6.9. Corporate Trustee Required; Eligibility.........................49 SECTION 6.10. Resignation and Removal; Appointment of Successor Trustee.......50 SECTION 6.11. Acceptance of Appointment by Successor..........................51 -ii- SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business.....52 SECTION 6.13. Preferential Collection of Claims Against Company...............52 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders.......52 SECTION 7.2. Disclosure of Names and Addresses of Holders....................53 SECTION 7.3. Reports by Trustee..............................................53 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.1. Company May Consolidate, etc., Only on Certain Terms............53 SECTION 8.2. Successor Substituted...........................................54 ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 9.1. Supplemental Indentures and Agreements without Consent of Holders............................................55 SECTION 9.2. Supplemental Indentures and Agreements with Consent of Holders............................................55 SECTION 9.3. Execution of Supplemental Indentures............................57 SECTION 9.4. Effect of Supplemental Indentures...............................57 SECTION 9.5. Conformity with Trust Indenture Act.............................57 SECTION 9.6. Reference in Securities to Supplemental Indentures..............57 SECTION 9.7. Notice of Supplemental Indentures...............................57 SECTION 9.8. Revocation and Effect of Consents...............................57 ARTICLE TEN COVENANTS SECTION 10.1. Payment of Principal, Premium, Interest and Additional Interest...........................................58 SECTION 10.2. Maintenance of Office or Agency.................................58 SECTION 10.3. Money for Security Payments to Be Held in Trust.................58 SECTION 10.4. Corporate Existence.............................................59 SECTION 10.5. Payment of Taxes and Other Claims...............................60 SECTION 10.6. Maintenance of Properties.......................................60 SECTION 10.7. Insurance.......................................................60 SECTION 10.8. Limitation on Indebtedness......................................60 SECTION 10.9. Limitation on Restricted Payments...............................64 SECTION 10.10.Limitation on Transactions with Affiliates......................67 SECTION 10.11.Limitation on Liens.............................................68 SECTION 10.12.Limitation on Sale of Assets....................................68 SECTION 10.13.Limitation on Issuances of Subsidiary Guarantees................72 SECTION 10.14.[Reserved.].....................................................72 SECTION 10.15.Restriction on Transfer of Assets...............................72 -iii- SECTION 10.16.Purchase of Securities upon a Change in Control.................72 SECTION 10.17.Limitation on Subsidiary Capital Stock..........................75 SECTION 10.18.Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries..................................................76 SECTION 10.19.Limitation on Unrestricted Subsidiaries.........................76 SECTION 10.20.Provision of Financial Statements...............................76 SECTION 10.21.Statement by Officers as to Default.............................77 SECTION 10.22.Waiver of Certain Covenants.....................................77 ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 11.1. Rights of Redemption............................................78 SECTION 11.2. Applicability of Article........................................78 SECTION 11.3. Election to Redeem; Notice to Trustee...........................78 SECTION 11.4. Selection by Trustee of Securities to Be Redeemed...............78 SECTION 11.5. Notice of Redemption............................................79 SECTION 11.6. Deposit of Redemption Price.....................................80 SECTION 11.7. Securities Payable on Redemption Date...........................80 SECTION 11.8. Securities Redeemed or Purchased in Part........................80 ARTICLE TWELVE GUARANTEES SECTION 12.1. Guarantee.......................................................81 SECTION 12.2. Execution and Delivery of Guarantee.............................82 SECTION 12.3. Limitation of Guarantee.........................................82 SECTION 12.4. Waiver of Subrogation...........................................82 SECTION 12.5. Release of Guarantee............................................83 SECTION 12.6. Contribution from Other Guarantors..............................83 ARTICLE THIRTEEN SATISFACTION AND DISCHARGE SECTION 13.1. Satisfaction and Discharge of Indenture.........................84 SECTION 13.2. Application of Trust Money......................................85 EXHIBIT A Form of Initial Global Security EXHIBIT B Form of Initial Certificated Security EXHIBIT C Form of Exchange Global Security EXHIBIT D Form of Exchange Certificated Security EXHIBIT E Form of Guarantee EXHIBIT F Form of Certificate to be Delivered upon Exchange or Registration of Transfer of Notes EXHIBIT G Form of Transferee Letter of Representation EXHIBIT H Form of Certificate to be Delivered in Connection with Regulation S Transfers -iv- INDENTURE, dated as of September 22, 2003, by and among Buckeye Technologies Inc., a Delaware corporation (the "Company"), the Guarantors and The Bank of New York, a New York banking corporation, as trustee (the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of 8 1/2% Senior Notes due 2013 (the "Initial Securities"), of substantially the tenor and amount hereinafter set forth, and to provide therefor and for, if and when issued in exchange for the Initial Securities pursuant to this Indenture and the Registration Rights Agreement, the Company's 8 1/2% Senior Notes due 2013 (the "Exchange Securities") this Company has duly authorized the execution and delivery of this Indenture and the Securities (as defined herein); All acts and things necessary have been done to make the Securities, when duly issued and executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company and this Indenture a valid agreement of the Company in accordance with the terms of this Indenture; NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Initial Securities by the Holders (as defined therein) thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (e) all references to $, US$, dollars or United States dollars shall refer to the lawful currency of the United States of America; (f) whenever in this Indenture there is mentioned, in any context, principal, interest or any other amount payable under or with respect to any Security, such mention shall be deemed -2- to include mention of the payment of Additional Interest to the extent that, in such context, Additional Interest is, was or would be payable in respect thereof; and (g) all references herein to particular Sections or Articles refer to this Indenture unless otherwise so indicated. Certain terms used principally in Article Four are defined in Article Four. The following terms shall have the following meanings: "Acquired Indebtedness" means Indebtedness of a Person (i) existing at the time such Person becomes a Subsidiary of the Company or (ii) assumed in connection with the acquisition of assets from such Person, in each case, other than Indebtedness incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company or such acquisition, as the case may be. Acquired Indebtedness shall be deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Subsidiary of the Company, as the case may be. "Additional Interest" has the meaning set forth in Exhibit A. "Additional Securities" means 8 1/2% Senior Notes due 2013 issued from time to time after the Issue Date under the terms of this Indenture and subject to the limitations of and the Company's compliance with Section 10.8 (other than issuances pursuant to Section 3.4, 3.6, 10.12, 10.16 or 11.8 of this Indenture and other than Exchange Securities issued pursuant to an exchange offer for other Securities outstanding under this Indenture). "Affiliate" means, with respect to any specified Person: (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; (ii) any other Person that owns, directly or indirectly, 5% or more of such specified Person's Capital Stock or any officer or director of any such specified Person or other Person or, with respect to any natural Person, any person having a relationship with such Person by blood, marriage or adoption not more remote than first cousin; or (iii) any other Person 5% or more of the Voting Stock of which is beneficially owned or held directly or indirectly by such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition (including, without limitation, by way of merger, consolidation or sale and leaseback transaction) (collectively, a "transfer"), directly or indirectly, in one or a series of related transactions, of: (i) any Capital Stock of any Subsidiary of the Company; (ii) all or substantially all of the properties and assets of any division or line of business of the Company or any of its Subsidiaries; or (iii) any other properties or assets of the Company or any Subsidiary of the Company other than in the ordinary course of business. For the purposes of this definition, the term "Asset Sale" shall not include any transfer of properties and assets (A) that is governed by Article Eight, (B) that is by any Subsidiary of the Company to the Company or any Wholly Owned Subsidiary in accordance with the terms of this Indenture, (C) that is of inventory in the ordinary course of business, (D) leases or subleases, in the ordinary course of business, to third parties of real property owned in fee or leased by the Company or its Subsidiaries, (E) the sale of Cash Equivalents and other marketable securities or any disposition of cash, (F) the sale or factoring of receivables on customary market terms; provided that the Company or the applicable Subsidiary receives consideration in an -3- amount at least equal to the Fair Market Value of the receivables so sold or factored and at least 75% of such consideration is in the form of any combination of cash and/or Cash Equivalents, (G) that is of obsolete equipment in the ordinary course of business or (H) the Fair Market Value of which in the aggregate during any 12-month period, for all such transfers, does not exceed $10 million. "Average Life to Stated Maturity" means, as of the date of determination with respect to any Indebtedness, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from the date of determination to the date or dates of each successive scheduled principal payment of such Indebtedness multiplied by (b) the amount of each such principal payment by (ii) the sum of all such principal payments. "Bank Credit Facility" means the Credit Agreement, dated as of April 16, 2001, among the Company, the Banks, and Fleet National Bank (the "Existing Bank Credit Facility"), as such agreement, in whole or in part, may be amended, renewed, extended, substituted, refinanced, restructured, replaced, supplemented or otherwise modified from time to time (including, without limitation, any successive renewals, extensions, substitutions, refinancings, restructurings, replacements, supplementations or other modifications of the foregoing regardless of the amount of borrowings permitted thereunder, which borrowings were incurred in accordance with this Indenture) including, without limitation, through one or more debt facilities or other financing arrangements (including commercial paper facilities, revolving credit loans, term loans, receivables financings, letters of credit and any debt securities or other form of debt, convertible debt or exchangeable debt financing), in each case, whether by the same or any other lender or group of lenders or creditor or group of creditors. "Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as amended, or any similar United States federal or state law relating to bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "Banks" means the lenders under the Bank Credit Facility. "Board of Directors" means the board of directors of the Company or any duly authorized committee of such board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions or trust companies in The City of New York, Memphis, Tennessee or the city in which the Corporate Trust Office of the Trustee is located are authorized or obligated by law, regulation or executive order to close. "Capital Lease Obligation" of any Person means any obligation of such Person and its Subsidiaries on a Consolidated basis under any capital lease of real or personal property which, in accordance with GAAP, has been recorded as a capitalized lease obligation. "Capital Stock" of any Person means any and all shares, interests, participations or other equivalents (however designated) of such Person's capital stock or other equity interests, and any rights (other -4- than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock, whether now outstanding or issued after the date of this Indenture. "Cash Equivalents" means (i) any evidence of Indebtedness, maturing not more than one year after the date of acquisition, issued by the United States of America, or an instrumentality or agency thereof, and guaranteed fully as to principal, premium, if any, and interest by the United States of America, (ii) any money market deposit account, demand deposit account, time deposit or certificate of deposit, maturing not more than one year after the date of acquisition, of a commercial banking institution organized under the laws of the United States of America, any State thereof, the District of Columbia, or any foreign country recognized by the United States of America and which institution has combined capital and surplus and undivided profits of not less than $200 million, (iii) any time deposit or certificate of deposit, maturing more than one year after the date of acquisition, of a commercial banking institution organized under the laws of the United States of America, any State thereof, the District of Columbia, or any foreign country recognized by the United States of America and which institution has combined capital and surplus and undivided profits of not less than $200 million and whose debt has a rating, at the time as of which any investment therein is made, of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P, or any successor rating agency, and (iv) commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate or Subsidiary of the Company) organized and existing under the laws of the United States of America with a rating, at the time as of which any investment therein is made, of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P. "Certificated Securities" means the Securities issued in definitive, fully registered and certificated form. "Change in Control" means the occurrence of any of the following events: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have beneficial ownership of all shares that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of all outstanding Voting Stock of the Company; (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election to such board or whose nomination for election by the stockholders of the Company was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of such Board of Directors then in office; (iii) the Company consolidates with or merges with or into any Person or conveys, transfers or leases all or substantially all of its assets to any Person, or any corporation consolidates with or merges into or with the Company in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where the outstanding Voting Stock of the Company is not affected or is not changed or exchanged at all (except to the extent necessary to reflect a change in the jurisdiction of incorporation of the Company or where (A) the outstanding Voting Stock of the Company is changed into or exchanged for (x) Voting Stock of the surviving corporation which is not Redeemable Capital Stock or (y) cash, securities and other property (other than Capital Stock of the surviving corporation) in an amount which could be paid by the Company as a Restricted Payment in accordance with Section 10.9 (and such amount shall be treated as a Restricted Payment subject to the provisions described under Section 10.9), and (B) no "person" or "group" "beneficially owns" immediately after such transaction, directly or indirectly more than 50% of the total voting power of all outstanding Voting Stock of the -5- surviving corporation); or (iv) the Company is liquidated or dissolved or adopts a plan of liquidation or dissolution other than in a transaction which complies with the provisions described under Article Eight. "Commodity Price Protection Agreement" means any forward contract, commodity swap, commodity option or other similar financial agreement or arrangement relating to, or the value of which is dependent upon, fluctuations in commodity prices. "Common Stock" means the common stock, par value $0.01 per share, of the Company. "Company" means Buckeye Technologies Inc., a corporation incorporated under the laws of Delaware, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by any one of its Chairman of the Board, its Vice-Chairman, its President, its Chief Executive Officer, its Chief Operating Officer or a Senior Vice President (regardless of Senior Vice Presidential designation), and by any one of its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Consolidated Fixed Charge Coverage Ratio" of any Person means, for any period, the ratio of (a) the sum of (i) Consolidated Net Income (Loss), plus (ii) Consolidated Interest Expense, plus (iii) Consolidated Income Tax Expense, plus (iv) Consolidated Non-cash Charges deducted in computing Consolidated Net Income (Loss), plus (v) expenses incurred during such period in connection with the early extinguishment of Indebtedness, and less (vi) non-cash items increasing Consolidated Net Income (Loss), in each case, for such period, of such Person and its Subsidiaries on a Consolidated basis, all determined in accordance with GAAP to (b) the Consolidated Interest Expense for such period; provided that (i) in making such computation, the Consolidated Interest Expense attributable to interest on any Indebtedness computed on a pro forma basis and (A) bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period and (B) which was not outstanding during the period for which the computation is being made but which bears, at the option of such Person, a fixed or floating rate of interest, shall be computed by applying at the option of such Person either the fixed or floating rate and (ii) in making such computation, the Consolidated Interest Expense of such Person attributable to interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period. "Consolidated Income Tax Expense" of any Person means, for any period, the provision for federal, state, local and foreign income taxes of such Person and its Consolidated Subsidiaries for such period as determined in accordance with GAAP. "Consolidated Interest Expense" of any Person means, without duplication, for any period, the sum of (a) the interest expense of such Person and its Subsidiaries for such period, on a Consolidated basis, including, without limitation, (i) amortization of debt discount, (ii) the net costs associated with Interest Rate Agreements, Currency Hedging Agreements and Commodity Price Protection Agreements (including amortization of discounts), (iii) the interest portion of any deferred payment obligation and (iv) accrued interest, plus (b) (i) the interest component of the Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Subsidiaries during such period and (ii) all capitalized interest of such Person and its Subsidiaries plus (c) the interest expense under any Guaranteed Debt of such Person and its Subsidiaries to the extent not included under clause (a)(iv) above, plus (d) the ag- -6- gregate amount during such period of cash or non-cash dividends paid on any Redeemable Capital Stock or Preferred Stock of the Company and its Subsidiaries, in each case as determined on a Consolidated basis in accordance with GAAP. "Consolidated Net Income (Loss)" of the Company means, for any period, the Consolidated net income (or loss) of the Company and its Subsidiaries for such period on a Consolidated basis as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income (or loss), by excluding, without duplication, (i) all extraordinary gains or losses (less all fees and expenses relating thereto), (ii) the portion of net income (or loss) of the Company and its Subsidiaries on a Consolidated basis allocable to a Person other than a Subsidiary to the extent that cash dividends or distributions have not actually been received by the Company or one of its Consolidated Subsidiaries, (iii) net income (or loss) of any Person combined with the Company or any of its Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (iv) any gain or loss, net of taxes, realized upon the termination of any employee pension benefit plan, (v) net gains (or losses) (less all fees and expenses relating thereto) in respect of dispositions of assets other than in the ordinary course of business, (vi) the net income of any Subsidiary of the Company to the extent that the declaration of dividends or similar distributions by that Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (vii) any restoration to income of any contingency reserve, except to the extent provision for such reserve was made out of income accrued at any time following the date of this Indenture, or (viii) any gain arising from the acquisition of any securities, or the extinguishment, under GAAP, of any Indebtedness of such Person. "Consolidated Non-cash Charges" of any Person means, for any period, the aggregate depreciation, amortization and other non-cash charges of such Person and its Subsidiaries on a Consolidated basis for such period, as determined in accordance with GAAP (excluding any non-cash charge which requires an accrual or reserve for cash charges for any future period). "Consolidated Tangible Assets" of any Person means, the aggregate amount of assets after deducting therefrom all goodwill, trade names, trademarks, patents, unamortized debt discount and expense (to the extent included in said aggregate amount of assets) and other like intangibles, as shown on the balance sheet of such Person for the most recently ended fiscal quarter for which financial statements are available, determined on a Consolidated basis in accordance with GAAP. Consolidated Tangible Assets will be determined as of the time of the occurrence of the event(s) giving rise to the requirement to determine Consolidated Tangible Assets and after giving effect to such event(s). "Consolidation" means, with respect to any Person, the consolidation of the accounts of such Person and each of its Subsidiaries (other than Unrestricted Subsidiaries) if and to the extent the accounts of such Person and each of its Subsidiaries (other than Unrestricted Subsidiaries) would normally be consolidated with those of such Person, all in accordance with GAAP. The term "Consolidated" shall have a similar meaning. "Corporate Trust Office" means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof is located at 101 Barclay Street, Floor 8 West, New York, New York 10286, Attention: Corporate Trust Administration, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the Holders and the Company). -7- "Currency Hedging Arrangements" means one or more of the following agreements which shall be entered into by one or more financial institutions: foreign exchange contracts, currency swap agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency values. "Default" means any event which is, or after notice or passage of any time or both would be, an Event of Default. "Depositary" or "DTC" means The Depository Trust Company, its nominees and their respective successors. "Disinterested Director" means, with respect to any transaction or series of related transactions, a member of the Board of Directors of the Company who does not have any material direct or indirect financial interest (other than solely as a result of equity ownership in the Company) in or with respect to such transaction or series of related transactions. "Domestic Subsidiary" means a Subsidiary other than a Foreign Subsidiary. "Equity Offering" means a public or private offer and sale of Capital Stock of the Company (other than Redeemable Capital Stock and other than an offer and sale of Capital Stock on Form S-8 or any successor form or forms or a registration statement relating to securities issuable by or in connection with any benefit plan of such Person). "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute. "Exchange Certificated Securities" means Securities issued in definitive, fully registered form to beneficial owners of interests in the Exchange Global Securities pursuant to Section 3.5 hereof. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Exchange Securities" has the meaning set forth in the Recitals of the Company and more particularly means any of the Securities authenticated and delivered under this Indenture pursuant to the Registered Exchange Offer. "Existing Bank Credit Facility" has the meaning set forth in the definition of Bank Credit Facility. "Existing Notes Indentures" means the Indentures related to the Existing Notes. "Existing Notes" means the 9 1/4% Senior Subordinated Notes due 2008 and the 8% Senior Subordinated Notes due 2010 of the Company. "Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. -8- "Fenholloway River" means the river in Florida into which the Company's Foley Plant discharges treated waste water. "Final Memorandum" means the final Offering Memorandum, dated September 15, 2003, used in connection with the Initial Placement. "Foreign Subsidiary" means a Subsidiary that is formed or otherwise incorporated in a jurisdiction other than the United States or a State thereof or the District of Columbia. "Generally Accepted Accounting Principles" or "GAAP" means generally accepted accounting principles in the United States, consistently applied, which are in effect on the date of this Indenture. "Global Securities" means the Initial Global Securities and the Exchange Global Security. "Guaranteed Debt" of any Person means, without duplication, all Indebtedness of any other Person referred to in the definition of Indebtedness below guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to, or in any other manner invest in, the debtor (including any agreement to pay for property or services without requiring that such property be received or such services be rendered), (iv) to maintain working capital or equity capital of the debtor, or otherwise to maintain the net worth, solvency or other financial condition of the debtor or (v) otherwise to assure a creditor against loss; provided that the term "guarantee" shall not include endorsements for collection or deposit in either case, in the ordinary course of business. "Guarantor" means a Subsidiary of the Company that executes a Guarantee pursuant to Section 10.13 hereof; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its Guarantee is released in accordance with the terms of this Indenture. "Holder" means (i) in the case of any Certificated Security, the Person in whose name such Certificated Security is registered in the Security Register, and (ii) in the case of any Global Security, the Depositary. "Indebtedness" means, with respect to any Person, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities arising in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit issued under letter of credit facilities, acceptance facilities or other similar facilities and in connection with any agreement to purchase, redeem, exchange, convert or otherwise acquire for value any Capital Stock of such Person, or any warrants, rights or options to acquire such Capital Stock, now or hereafter outstanding, (ii) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade payables arising in the ordinary course of business, (iv) all obligations under Interest Rate Agreements, Currency Hedging Agreements or Commodity Price Protection Agreements of such Person, (v) all Capital Lease Obligations of such Person, (vi) all Indebtedness referred to in -9- clauses (i) through (v) above of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien, upon or with respect to property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, (vii) all Guaranteed Debt of such Person, (viii) all Redeemable Capital Stock issued by such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends, and (ix) any amendment, supplement, modification, deferral, renewal, extension, refunding or refinancing of any liability of the types referred to in clauses (i) through (viii) above. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair Market Value to be determined in good faith by the Board of Directors of the issuer of such Redeemable Capital Stock. "Indenture" means this instrument as originally executed (including all exhibits and schedules hereto) and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Indenture Obligations" means the obligations of the Company, any Guarantor and any other obligor under this Indenture or under the Securities to pay principal of, premium, if any, and interest when due and payable, and all other amounts due or to become due under or in connection with this Indenture, the Securities and the performance of all other obligations to the Trustee and the holders under this Indenture and the Securities, according to the respective terms thereof. "Initial Certificated Securities" means Securities issued in definitive, fully registered form to beneficial owners of interest in the Initial Global Security pursuant to Section 3.5 hereof. "Initial Placement" means the initial sales of the Securities by the Initial Purchasers. "Initial Purchasers" means Citigroup Global Markets Inc., UBS Securities LLC and Fleet Securities, Inc. "Initial Securities" has the meaning set forth in the Recitals of the Company and, more particularly, means any of the Securities (including any Additional Securities) authenticated and delivered under this Indenture other than pursuant to the Registered Exchange Offer. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Interest Rate Agreements" means one or more of the following agreements which shall be entered into by one or more financial institutions: interest rate protection agreements (including, without limitation, interest rate swaps, caps, floors, collars and similar agreements) and/or other types of interest rate hedging agreements from time to time. "Investment" means, with respect to any Person, directly or indirectly, any advance, loan (including guarantees), or other extension of credit or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase, acquisition or ownership by such Person of any Capital Stock, bonds, notes, debentures or other -10- securities issued or owned by any other Person and all other items that would be classified as investments on a balance sheet prepared in accordance with GAAP. "Issue Date" means September 22, 2003, the date on which the Securities are originally issued. "Lien" means any mortgage or deed of trust, charge, pledge, lien (statutory or otherwise), security interest, assignment, deposit, arrangement, easement, hypothecation, claim, preference, priority or other encumbrance upon or with respect to any property of any kind (including any conditional sale, capital lease or other title retention agreement, any leases in the nature thereof, and any agreement to give any security interest), real or personal, movable or immovable, now owned or hereafter acquired. "Maturity" means, when used with respect to the Securities, the date on which the principal of the Securities becomes due and payable as therein provided or as provided in this Indenture, whether at Stated Maturity, the Offer Date or the redemption date and whether by declaration of acceleration, Offer in respect of Excess Proceeds, Change in Control Offer in respect of a Change in Control, call for redemption or otherwise. "Moody's" means Moody's Investors Service, Inc. or any successor rating agency. "Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person, the proceeds thereof (without duplication in respect of all Asset Sales) in the form of cash including payments in respect of deferred payment obligations when received in the form of, or stock or other assets when disposed of for, cash (except to the extent that such obligations are financed or sold with recourse to the Company or any of its Subsidiaries) net of (i) brokerage commissions and other reasonable fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) payments made to retire Indebtedness where payment of such Indebtedness is secured by the assets or properties the subject of such Asset Sale, (iv) amounts required to be paid to any Person (other than the Company or any Subsidiary of the Company) owning a beneficial interest in the assets subject to the Asset Sale, (v) appropriate amounts to be provided by the Company or any Subsidiary of the Company, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Subsidiary of the Company, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an Officers' Certificate delivered to the Trustee and (vi) any amounts required to be placed by the Company or any Subsidiary of the Company in a restricted escrow or reserve account by the terms of the agreements pursuant to which the Asset Sale is made; provided that any such amounts shall be deemed to be Net Cash Proceeds of an Asset Sale upon the release of such amounts to the Company or any of its Subsidiaries and (b) with respect to any issuance or sale of Capital Stock or options, warrants or rights to purchase Capital Stock, or debt securities or Capital Stock that have been converted into or exchanged for Capital Stock as referred to in Section 10.9, the proceeds of such issuance or sale in the form of cash including payments in respect of deferred payment obligations when received in the form of, or stock or other assets when disposed of for, cash (except to the extent that such obligations are financed or sold with recourse to the Company or any of its Subsidiaries), net of attorney's fees, accountant's fees and brokerage, consultation, underwriting and other fees and expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Non-Guarantor Subsidiary" means any Subsidiary of the Company that is not a Guarantor. -11- "Officers' Certificate" means a certificate signed by the Chairman of the Board, Vice Chairman, the President, the Chief Executive Officer, the Chief Operating Officer or a Senior Vice President (regardless of Senior Vice Presidential designation), and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, unless an Opinion of Independent Counsel is required pursuant to the terms of this Indenture, and who shall be reasonably acceptable to the Trustee. "Opinion of Independent Counsel" means a written opinion of counsel issued by someone who is not an employee or consultant (other than non-employee legal counsel) of the Company but who may be regular outside counsel to the Company and who shall be reasonably acceptable to the Trustee. "Outstanding" when used with respect to Securities means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (a) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Securities, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor reasonably satisfactory to the Trustee has been made; (c) Securities, except to the extent provided in Sections 4.2 and 4.3, with respect to which the Company has effected defeasance or covenant defeasance as provided in Article Four; and (d) Securities paid in lieu of replacement pursuant to Section 3.6 and Securities in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee and the Company proof reasonably satisfactory to each of them that such Securities are held by a bona fide purchaser in whose hands the Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company, any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the reasonable satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. -12- "Pari Passu Indebtedness" means any Indebtedness of the Company that is pari passu in right of payment to the Securities. "Paying Agent" means any Person (including the Company) authorized by the Company to pay the principal of, premium, if any, or interest on any Securities on behalf of the Company. "Permitted Investment" means (i) Investments in any Wholly Owned Subsidiary or any Person which, as a result of such Investment (whether in one transaction or a series of substantially concurrent related transactions), (a) becomes a Wholly Owned Subsidiary or (b) is merged or consolidated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or any Wholly Owned Subsidiary; (ii) Indebtedness of the Company or a Subsidiary of the Company described under clauses (v), (vi) and (vii) of the definition of "Permitted Indebtedness"; (iii) Cash Equivalents; (iv) Investments acquired by the Company or any Subsidiary of the Company in connection with an Asset Sale permitted under Section 10.12 to the extent such Investments are non-cash proceeds as permitted under such Section; (v) any acquisition of assets solely in exchange for the issuance of Qualified Capital Stock of the Company; (vi) Investments deemed to have been made as a result of the acquisition of a Person that, at the time of such acquisition, held Investments that were not acquired in contemplation of, or in connection with, the acquisition of such Person; (vii) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (viii) Investments in existence on the date of this Indenture; (ix) Investments in the Securities; (x) Guarantees of Indebtedness of the Company or any Subsidiary issued in accordance with Section 10.8; (xi) loans or advances to employees made in the ordinary course of business and consistent with past practices of the Company and its Subsidiaries not to exceed $5 million outstanding at any one time in the aggregate; (xii) loans made to employees (including guarantees of loans by third parties to employees) from time to time in an aggregate principal amount at any one time outstanding not to exceed $1 million, the proceeds of which are used to purchase Capital Stock of the Company; (xiii) sales of goods on trade credit terms, consistent with the past practices of the Company or any Subsidiary of the Company or as otherwise consistent with trade credit terms in common use in the industry; (xiv) Investments in joint ventures or similar entities having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (xiv) then outstanding, not to exceed 5% of the Consolidated Tangible Assets of the Company and its Subsidiaries at the time of such Investment (with the Fair Market Value being measured at the time made and without giving effect to subsequent changes in value); and (xv) in addition to Investments described in clauses (i) through (xiv) of this definition of "Permitted Investments," Investments valued at Fair Market Value at the time made not to exceed $25 million outstanding at any one time in the aggregate. "Permitted Liens" means the following types of Liens: (i) Liens existing as of the date of this Indenture to the extent and in the manner such Liens are in effect on the date of this Indenture; (ii) Liens securing Pari Passu Indebtedness under the Bank Credit Facility incurred pursuant to clause (i) of the second paragraph of Section 10.8; (iii) Liens securing the Securities and the Guarantees (and concurrent Liens securing to the same extent any Additional Securities, if any); (iv) Liens in favor of the Company or a Guarantor; (v) Liens for taxes, assessments or governmental charges or claims either (A) not delinquent or (B) contested in good faith by appropriate proceedings and, in each case, as to which the Company or any Subsidiary shall have set aside on its books such reserves as may be required pursuant to GAAP; (vi) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or that are bonded or that are being contested in good faith if an adequate reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (vii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, -13- unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (viii) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (ix) easements, rights-of-way, building, zoning restrictions and other similar charges or encumbrances in respect of real property, or leases or subleases granted to others, in any case not impairing in any material respect the ordinary conduct of the business of the Company or any of its Subsidiaries; (x) (a) mortgages, liens, security interests, restrictions, encumbrances or any other matters of record that have been placed by any developer, landlord or other third party on property over which the Company or any Subsidiary has easement rights or on any real property leased by the Company or any Subsidiary and subordination or similar agreements relating thereto, and (b) any condemnation or eminent domain proceedings or compulsory purchase order affecting any real property; (xi) any interest or title of a lessor under any Capital Lease Obligation; provided that such Liens do not extend to any property or asset which is not leased property subject to such Capital Lease Obligation; (xii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (xiii) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (xiv) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Subsidiaries, including rights of offset and set-off; (xv) Liens securing obligations under Interest Rate Agreements which Interest Rate Agreements relate to Indebtedness that is otherwise permitted under this Indenture; (xvi) Liens securing Purchase Money Obligations permitted pursuant to clause (ix) of the definition of Permitted Indebtedness; (xvii) Liens securing Indebtedness under Currency Hedging Agreements and Commodity Price Protection Agreements; (xviii) Liens securing Acquired Indebtedness (and any Indebtedness which refinances such Acquired Indebtedness) incurred in accordance with Section 10.8; provided that (A) such Liens secured the Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Subsidiary and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Subsidiary; and (B) such Liens do not extend to or cover any property or assets of the Company or of any of its Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Subsidiary; (xix) Liens securing Indebtedness which is incurred to refinance any Indebtedness secured by a Lien permitted under this Indenture; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any of the Subsidiaries not securing the Indebtedness so refinanced; (xx) Liens on any Capital Stock of an Unrestricted Subsidiary solely to secure Indebtedness of such Unrestricted Subsidiary; and (xxi) additional Liens not to exceed 5% of the Consolidated Tangible Assets of the Company and its Subsidiaries at any one time outstanding. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" means, with respect to any Person, any Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the dis- -14- tribution of assets tribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over the Capital Stock of any other class in such Person. "Private Placement Legends" means the legends in the form set forth in Article Two hereof. "Purchase Money Obligation" means any Indebtedness secured by a Lien on assets related to the business of the Company or any of its Subsidiaries and any additions and accessions thereto, which are purchased by the Company or any of its Subsidiaries at any time after the Securities are issued; provided that (i) the security agreement or conditional sales or other title retention contract pursuant to which the Lien on such assets is created (collectively, a "Purchase Money Security Agreement") shall be entered into within 90 days after the purchase, acquisition or substantial completion of the construction of such assets and shall at all times be confined solely to the assets so purchased, acquired or constructed, any additions and accessions thereto and any proceeds therefrom, (ii) at no time shall the aggregate principal amount of the outstanding Indebtedness secured thereby be increased, except in connection with the purchase of additions and accessions thereto and except in respect of fees and other obligations in respect of such Indebtedness and (iii) (A) the aggregate outstanding principal amount of Indebtedness secured thereby (determined on a per asset basis in the case of any additions and accessions) shall not at the time such Purchase Money Security Agreement is entered into exceed 100% of the purchase price to the Company or its Subsidiaries of the assets subject thereto and (B) the Indebtedness secured thereby shall be with recourse solely to the assets so purchased or acquired, any additions and accessions thereto and any proceeds therefrom. "Qualified Capital Stock" of any Person means any and all Capital Stock of such Person other than Redeemable Capital Stock. "Redeemable Capital Stock" means any Capital Stock that, either by its terms or by the terms of any security into which it is convertible or exchangeable or otherwise, is or upon the happening of an event or passage of time would be, required to be redeemed prior to any Stated Maturity of the principal of the Securities or is redeemable at the option of the holder thereof at any time prior to any such Stated Maturity, or is convertible into or exchangeable for debt securities at any time prior to any such Stated Maturity at the option of the holder thereof. "Redemption Date" when used with respect to any Security to be redeemed pursuant to any provision in this Indenture means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price" when used with respect to any Security to be redeemed pursuant to any provision in this Indenture means the price at which it is to be redeemed pursuant to this Indenture. "Registered Exchange Offer" has the meaning given to such term in the Registration Rights Agreement. "Registrar" means any Person (including the Company) authorized by the Company to maintain the Security Register. "Registration Rights Agreement" means (i) in the case of the Initial Securities the Registration Rights Agreement relating to the Securities, dated September 22, 2003 among the Company, the Guarantors and the Initial Purchasers and (ii) in the case of any Additional Securities, any future registration rights agreement entered into in connection with the issuance of such Additional Securities providing for, inter alia, the exchange of Exchange Securities for such Additional Securities. -15- "Regular Record Date" for the interest payable on any Interest Payment Date means the March 15 or September 15 (whether or not a Business Day) next preceding such Interest Payment Date. "Responsible Officer" means, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. "Rule 144" means Rule 144 under the Securities Act (including any successor regulation thereto), as it may be amended from time to time. "Rule 144A" means Rule 144A under the Securities Act (including any successor regulation thereto), as it may be amended from time to time. "S&P" means Standard & Poor's, a division of The McGraw-Hill Companies, Inc. or any successor rating agency. "SEC" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this Indenture the SEC is not existing and performing the duties now assigned to it under the Trust Indenture Act then the body performing such duties at such time. "Securities" means the Initial Securities, any Additional Securities and the Exchange Securities treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended, or any successor statute. "Shelf Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7. "Stated Maturity" means, when used with respect to any Indebtedness or any installment of interest thereon, the dates specified in such Indebtedness as the fixed date on which the principal of such Indebtedness or such installment of interest, as the case may be, is due and payable. "Subordinated Indebtedness" means Indebtedness of the Company subordinated in right of payment to the Securities. "Subsidiary" means any Person, a majority of the equity ownership or the Voting Stock of which is at the time owned, directly or indirectly, by another Person or by one or more of such other Person's other Subsidiaries, or by such other Person and one or more of such other Person's other Subsidiaries; provided that each Unrestricted Subsidiary of the Company shall be deemed to not be a Subsidiary of the Company under this Indenture and the Securities. -16- "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or any successor statute. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture, until a successor trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor trustee. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors of the Company, as provided below) and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary if all of the following conditions apply: (A) neither the Company nor any of its Subsidiaries provides credit support for Indebtedness of such Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness), (B) such Unrestricted Subsidiary is not liable, directly or indirectly, with respect to any Indebtedness other than Unrestricted Subsidiary Indebtedness, (C) any Investment in such Unrestricted Subsidiary made as a result of designating such Subsidiary an Unrestricted Subsidiary shall not violate the provisions of Section 10.19 and such Unrestricted Subsidiary is not party to any agreement, contract, arrangement or understanding at such time with the Company or any other Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such other Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company or, in the event such condition is not satisfied, the value of such agreement, contract, arrangement or understanding to such Unrestricted Subsidiary shall be deemed a Restricted Payment; and (D) such Unrestricted Subsidiary does not own any Capital Stock in any Subsidiary of the Company which is not simultaneously being designated an Unrestricted Subsidiary. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complies with the foregoing conditions and shall be deemed a Restricted Payment on the date of designation in an amount equal to the greater of (1) the net book value of such Investment or (2) the Fair Market Value of such Investment as determined in good faith by the Board of Directors. The Board of Directors may designate any Unrestricted Subsidiary as a Subsidiary of the Company; provided that either (x) the Unrestricted Subsidiary to be designated a Subsidiary of the Company has total assets of $1,000 or less at the time of its designation or (y) (i) immediately after giving effect to such designation, the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the restrictions under Section 10.8 and (ii) all Indebtedness of such Unrestricted Subsidiary shall be deemed to be incurred on the date such Unrestricted Subsidiary is designated a Subsidiary of the Company. "Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means Indebtedness of such Unrestricted Subsidiary (i) as to which neither the Company nor any of its Subsidiaries is directly or indirectly liable (by virtue of the Company or any such Subsidiary being the primary obligor on, guarantor of, or otherwise liable in any respect to, such Indebtedness), except Guaranteed Debt of the Company or any of its Subsidiaries to any Affiliate, in which case (unless the incurrence of such Guaranteed Debt resulted in a Restricted Payment at the time of incurrence) the Company shall be deemed to have made a Restricted Payment equal to the principal amount of any such Indebtedness to the extent guaranteed at the time such Affiliate is designated an Unrestricted Subsidiary and (ii) which, upon the occurrence of a default with respect thereto, does not result in, or permit any holder of any Indebtedness of the Company or any of its Subsidiaries to declare, a default on such Indebtedness of the Company or any of its Subsidiaries or cause the payment thereof to be accelerated or payable prior to its Stated Maturity. -17- "Voting Stock" means Capital Stock of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of a corporation (irrespective of whether or not at the time Capital Stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "Wholly Owned Subsidiary" means a Subsidiary of the Company all the Capital Stock of which is owned by the Company or another Wholly Owned Subsidiary. For purposes of this definition any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary of the Company. SECTION 1.2. Other Definitions. Term Defined in Section "Act" 1.5 "Change in Control Offer" 10.16 "Change in Control Purchase Date" 10.16 "Change in Control Purchase Notice" 10.16 "Change in Control Purchase Price" 10.16 "covenant defeasance" 4.3 "Defaulted Interest" 3.7 "defeasance" 4.2 "Defeasance Redemption Date" 4.4 "Defeased Securities" 4.1 "Event of Default 5.1 "Excess Proceeds" 10.12 "Exchange Global Security 2.1 "Guarantee" 10.13 "incur" 10.8 "Initial Global Security" 2.1 "Offer" 10.12 "Offer Date" 10.12 "Offered Price" 10.12 "Pari Passu Debt Amount" 10.12 "Pari Passu Offer" 10.12 "payment default" 5.1 "Permitted Indebtedness" 10.8 "refinancing" 10.8 "Required Filing Date" 10.20 "Restricted Payments" 10.9 "Security Amount" 10.12 "Security Register" 3.5 "Security Registrar" 3.5 "Special Payment Date" 3.7 "Surviving Entity" 8.1 "U.S. Government Obligations" 4.4 -18- SECTION 1.3. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Trustee shall be entitled to receive and conclusively rely upon an Officers' Certificate in a form and substance reasonably acceptable to the Trustee stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance with which constitutes a condition precedent) relating to the proposed action have been complied with, and an Opinion of Counsel in a form and substance reasonably acceptable to the Trustee stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, each from the Company and any other obligor on the Securities. Every certificate or Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or individual or firm signing such opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual or such firm, he or it has made such examination or investigation as is necessary to enable him or it to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual or such firm, such condition or covenant has been complied with. SECTION 1.4. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company or other obligor on the Securities may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or other obligor on the Securities stating that the information with respect to such factual matters is in the possession of the Company or other obligor on the Securities, unless such officer or counsel knows, or in the exercise of reasonable care should know that the certificate or opinion or representations with respect to such matters are erroneous. Opinions of Counsel required to be delivered to the Trustee may have qualifications customary for opinions of the type required and counsel delivering such Opinions of Counsel may rely on certificates of the -19 Company or government or other officials customary for opinions of the type required, which certificates shall be limited to matters of fact, including that various financial covenants have been complied with. Any certificate or opinion of an officer of the Company or other obligor on the Securities may be based, insofar as it relates to accounting matters, upon a certificate or opinion of or representations by an accountant or firm of accountants in the employ of the Company, unless such officer knows or in the exercise of reasonable care should know that the certificate or opinion or representations with respect to the accounting matters upon which his certificate or opinion may be based are erroneous. Any certificate or opinion of any independent firm of public accountants filed with the Trustee shall contain a statement that such firm is independent with respect to the Company. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.5. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section 1.5. (b) The ownership of Securities shall be proved by the Security Register. (c) Any request, demand, authorization, direction, notice, consent, waiver or other Act by the Holder of any Security shall bind every future Holder of the same Security or the Holder of every Security issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done, suffered or omitted to be done by the Trustee, any Paying Agent or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (d) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate of affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (e) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of such Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have -20- no obligation to do so. Notwithstanding Trust Indenture Act Section 316(c), any such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not more than 30 days prior to the first solicitation of Holders generally in connection therewith and no later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for purposes of determining whether Holders of the requisite proportion of Securities then Outstanding have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for this purpose the Securities then Outstanding shall be computed as of such record date; provided that no such request, demand, authorization, direction, notice, consent, waiver or other Act by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. SECTION 1.6. Notices, etc., to the Trustee, the Company and the Guarantors. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (a) the Trustee by any Holder or by the Company or any other obligor on the Securities shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid to the Company addressed to it at P.O. Box 80407, Memphis, Tennessee, 38108-0407, or delivered by recognized overnight courier, to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, or at any other address previously furnished in writing to the Holders, the Company or any other obligor on the Securities by the Trustee, and shall be deemed effective upon receipt; or (b) the Company or any Guarantor by the Trustee or any Holder shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid, or delivered by recognized overnight courier, to the Company addressed to it at 1001 Tillman Street, Memphis, Tennessee 38112, Attention: Sheila Jordan Cunningham, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.7. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, or delivered by recognized overnight courier, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice when mailed to a Holder in the aforesaid manner shall be conclusively deemed to have been received by such Holder whether or not actually received by such Holder. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. -21- In case by reason of the suspension of regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event as required by any provision of this Indenture, then any method of giving such notice as shall be reasonably satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. SECTION 1.8. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with any provision of the Trust Indenture Act or another provision which is required or deemed to be included in this Indenture by any of the provisions of the Trust Indenture Act, the provision or requirement of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 1.9. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.10. Successors and Assigns. All covenants and agreements in this Indenture by the Company and any Guarantor shall bind successors and assigns, whether so expressed or not. SECTION 1.11. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.12. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person (other than the parties hereto and their successors hereunder, any Paying Agent, the Holders and the holders of Senior Indebtedness) any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.13. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. (WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF). SECTION 1.14. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Maturity or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal or premium, if any, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Maturity or Stated Maturity and no interest shall accrue -22- with respect to such payment for the period from and after such Interest Payment Date, Redemption Date, Maturity or Stated Maturity, as the case may be, to the next succeeding Business Day. SECTION 1.15. Independence of Covenants. All covenants and agreements in this Indenture shall be given independent effect so that if a particular action or condition is not permitted by any such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. SECTION 1.16. Exhibits. All exhibits attached hereto are by this reference made a part hereof with the same effect as if herein set forth in full. SECTION 1.17. Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. ARTICLE TWO SECURITY FORMS SECTION 2.1. Forms Generally. (a) The Initial Securities and any Additional Securities and the Trustee's certificate of authentication thereon shall be in substantially the forms set forth in Exhibit A or Exhibit B hereto, as applicable, which are hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities and the certificate of authentication of the Trustee thereon shall be substantially in the form of Exhibit C or Exhibit D hereto, as applicable, which are hereby incorporated in and expressly made a part of this Indenture. The Securities may have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends, notations, or endorsements placed thereon as may be required to comply with the rules of any securities exchange, any organizational document or governing instrument or applicable law or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security. The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Security conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Initial Securities and any Additional Securities shall be issued initially in the form of a permanent, global note in definitive, fully registered form, without coupons, substantially in the form of Exhibit A hereto (the "Initial Global Security"). Upon issuance, such Initial Global Security shall be duly -23- executed by the Company and authenticated by the Trustee as hereinafter provided and deposited with the Trustee as custodian for the Depositary. Any Initial Certificated Security that may be issued pursuant to Section 3.5 hereof, shall be issued in the form of a note in definitive, fully registered form, without coupons, substantially in the form set forth in Exhibit B hereto. Upon issuance, any such Initial Certificated Security shall be duly executed by the Company and authenticated by the Trustee as hereinafter provided. (c) In the event Exchange Securities are issued pursuant to a Registered Exchange Offer in exchange for Initial Securities held in the form of the Initial Global Security, such Exchange Securities shall be issued initially in the form of a permanent global note in definitive, fully registered form, without coupons, substantially in the form set forth in Exhibit C hereto (the "Exchange Global Security"). Upon issuance, such Exchange Global Security shall be duly executed by the Company and authenticated by the Trustee as hereinafter provided and deposited with the Trustee as custodian for the Depositary. Any Exchange Certificated Security that may be issued pursuant to Section 3.5 hereof or in exchange for Initial Certificated Securities pursuant to a Registered Exchange Offer, shall be issued in the form of a note in definitive, fully registered form, without coupons, substantially in the form set forth in Exhibit D hereto. Upon issuance, any such Exchange Certificate Securities shall be duly executed by the Company and authenticated by the Trustee as hereinafter provided. (d) The following legends shall appear on each Global Security and each Certificated Security as indicated below: (i) Except as provided in Section 3.5 hereof, each Initial Global Security and Initial Certificated Security shall bear the following legend on the face thereof: THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"); (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH -24- RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER OR THE TRUSTEE, IF THE ISSUER OR THE TRUSTEE SO REQUESTS, THAT SUCH TRANSFER COMPLIES WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE GOVERNING THIS SECURITY CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING. (ii) Each Global Security shall bear the following legend on the face thereof: UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO BUCKEYE TECHNOLOGIES, INC. OR THE REGISTRAR FOR REGISTRATION OF TRANSFER OR EXCHANGE AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. -25- TRANSFER OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, AND NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF INTERESTS IN THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 305 OF THE INDENTURE, DATED AS OF SEPTEMBER 22, 2003 BY AND AMONG BUCKEYE TECHNOLOGIES, INC., THE GUARANTORS NAMED THEREIN AND THE TRUSTEE NAMED THEREIN, PURSUANT TO WHICH THIS NOTE WAS ISSUED. (e) The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the ruok les of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. SECTION 2.2. Form of Face of Securities. See Exhibits A, B,C and D. SECTION 2.3. Form of Reverse of Securities. See Exhibits A, B, C and D. SECTION 2.4. Form of Guarantee. See Exhibit E. ARTICLE THREE THE SECURITIES SECTION 3.1. Title and Terms. The Securities may be issued in two or more series, a series of Initial Securities, a series of Exchange Securities and one or more series of Additional Securities. The Securities shall be known and designated as the "8 1/2% Senior Notes due 2013" of the Company. The Stated Maturity of the Securities shall be October 1, 2013, and the Securities shall each bear interest at the rate of 8 1/2% from September 22, 2003, or from the most recent Interest Payment Date to which interest has been paid, as the case may be, payable semiannually on April 1 and October 1, in each year, commencing April 1, 2004, until the principal thereof is paid or duly provided for. Interest on any overdue principal, interest (to the extent lawful) or premium, if any, shall be payable on demand. The principal of, premium, if any, and interest on the Securities shall be payable at the office or agency of the Company maintained for such purpose in The City of New York, and at such other office or agency of the Company as may be maintained for such purpose; provided, however, that interest may be -26- paid at the option of the Company by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Security Register. The Securities shall be subject to repurchase by the Company pursuant to an Offer as provided in Section 10.12. Holders shall have the right to require the Company to purchase their Securities, in whole or in part, in the event of a Change in Control pursuant to Section 10.16. The Securities shall be redeemable as provided in Article Eleven and in the Securities. At the election of the Company, the entire Indebtedness on the Securities or certain of the Company's obligations and covenants and certain Events of Default thereunder may be defeased as provided in Article Four. SECTION 3.2. Denominations. The Securities shall be issuable only in fully registered form without coupons, in denominations of $1,000 and any integral multiple thereof. SECTION 3.3. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by one of its Chairman of the Board, its President, its Chief Executive Officer, its Chief Operating Officer or one of its Senior Vice Presidents attested by its Secretary or one of its Assistant Secretaries. The signatures of any of these officers on the Securities may be manual or facsimile. Upon compliance by the Company with the provisions of the previous paragraph, the Trustee shall, upon receipt of a Company Order requesting such action, authenticate (a) (i) Initial Securities for original issuance in an aggregate principal amount not to exceed $200,000,000 in the form of the Initial Global Security and (ii) to the extent permitted by Section 3.12, Additional Securities for original issuance in an unlimited aggregate principal amount or (b) Exchange Securities for issuance pursuant to a Registered Exchange Offer for Initial Securities or Additional Securities in a principal amount equal to the principal amount of Initial Securities or Additional Securities exchanged in such Registered Exchange Offer. Any Company Order or Company Orders shall specify the amount of Securities to be authenticated and the date on which, in the case of clause (a) above, the Initial Securities or Additional Securities or, in the case of clause (b) above, the Exchange Securities are to be authenticated and shall further provide instructions concerning registration, amounts for each Holder and delivery. Any Company Order, in the case of an issuance of Additional Securities pursuant to Section 3.12 after the Issue Date, shall certify that such issuance will not be prohibited by Section 10.8. Upon the occurrence of any event specified in Section 3.5(c) hereof and compliance by the Company with the provisions of the first paragraph of this Section 3.3, the Company shall execute and the Trustee shall authenticate and deliver to each beneficial owner identified by the Depositary, in exchange for such beneficial owner's interest in the Initial Global Security or Exchange Global Security, as the case may be, Initial Certificated Securities or Exchange Certificated Securities, as the case may be, representing Securities theretofore represented by the Initial Global Security or Exchange Global Security, as the case may be. -27- At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as provided in this Indenture and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. In case the Company, pursuant to Article Eight, shall be consolidated or merged with or into any other Person or shall sell, assign, convey, transfer, lease or otherwise dispose of substantially all of its properties and assets to any Person, and the successor Person resulting from such consolidation or surviving such merger, or into which the Company shall have been consolidated or merged, or the successor Person which shall have participated in the sale, assignment, conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Securities authenticated or delivered prior to such consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Securities as specified in such request for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section 3.3 in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time Outstanding for Securities authenticated and delivered in such new name. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities on behalf of the Trustee. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Security Registrar or Paying Agent to deal with the Company and its Affiliates. SECTION 3.4. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company shall cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall -28- be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 10.2 (or in accordance with Section 3.3, in the case of Initial Securities), without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor alike principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 3.5. Registration, Registration of Transfer and Exchange. (a) The following provisions of this paragraph (a) are applicable only to Initial Securities: (i) By its acceptance of any Initial Security represented by a certificate bearing the Private Placement Legend, each Holder of, and beneficial owner of an interest in, such Initial Security acknowledges the restrictions on transfer of such Initial Security set forth in the Private Placement Legend and under the heading "Notice to Investors" in the Final Memorandum and agrees that it will transfer such Initial Security only in accordance with the Private Placement Legend and the restrictions set forth under the heading "Notice to Investors" in the Final Memorandum. (ii) In connection with any transfer of an Initial Security bearing the Private Placement Legend other than to a Person whom the Holder reasonably believes to be a "qualified institutional buyer" under the Securities Act, such Holder shall deliver or caused to be delivered to the Company such satisfactory evidence (including, without limitation, the certificates set forth in Exhibits F, G and H to the extent applicable) which may include to the extent provided in the Private Placement Legend, an Opinion of Independent Counsel licensed to practice law in the State of New York, as reasonably may be requested by the Company to confirm that such transfer is being made in accordance with the limitations set forth in the Private Placement Legend. In the event the Company reasonably determines that any such transfer is not in accordance with the Private Placement Legend, the Company shall so inform the Registrar who shall not register such transfer; provided that the Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such evidence. (iii) Upon the registration of transfer, exchange or replacement of an Initial Security not bearing the Private Placement Legend, the Trustee shall deliver an Initial Security or Initial Securities that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of an Initial Security bearing the Private Placement Legend, the Trustee shall deliver an Initial Security or Initial Securities bearing the Private Placement Legend, unless such legend may be removed from such Security as provided in the next sentence. The Private Placement Legend may be removed from an Initial Security if there is delivered to the Company such satisfactory evidence, which may include an Opinion of Independent Counsel licensed to practice law in the State of New York, as reasonably may be requested by the Company to confirm that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such Initial Security will not violate the registration and prospect us delivery requirements of the Securities Act; provided that the Trustee shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such evidence. Upon provision of such evidence, the Trustee shall authenticate and deliver in exchange for such Initial Security an Initial Security or Initial Securities (representing the same aggregate principal amount of the Initial Security being exchanged) without such legend. If the Private Placement Legend has -29- been removed from an Initial Security, as provided above, no other Initial Security issued in exchange for all or any part of such Initial Security shall bear such legend, unless the Company has reasonable cause to believe that such other Initial Security represents a "restricted security" within the meaning of Rule 144 and instructs the Trustee in writing to cause a legend to appear thereon. (iv) The Company shall deliver to the Trustee, and the Trustee shall retain for two years, copies of all documents received pursuant to this Section 3.5. The Company shall have the right to inspect and make copies of all such documents at any reasonable time upon the giving of reasonable written notice to the Trustee. (b) Any Initial Securities which are presented to the Registrar for exchange pursuant to a Registered Exchange Offer shall be exchanged for Exchange Securities or equal principal amount upon surrender to the Registrar of the Initial Securities to be exchanged in accordance with the terms of the Registered Exchange Offer; provided that the Initial Securities so surrendered for exchange are duly endorsed and accompanied by a letter of transmittal or written instrument of transfer in form satisfactory to the Company, the Trustee and the Registrar and duly executed by the Holder thereof or such Holder's attorney who shall be duly authorized in writing to execute such document on behalf of such Holder. Whenever any Initial Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver to the surrendering Holder thereof Exchange Securities in the same aggregate principal amount as the Initial Securities so surrendered. (c) The Initial Global Security or Exchange Global Security, as the case may be, shall be exchanged by the Company for one or more Initial Certificated Securities or Exchange Certificated Securities, as the case may be, if the Depositary (i) has notified the Company that it is no longer willing or able to act as a depositary, or ceases to be, a registered as a clearing agency registered under the Exchange Act and (ii) a successor depositary registered as a clearing agency under the Exchange Act is not appointed by the Company within 90 calendar days of such notice or cessation. If an Event of Default occurs and is continuing and the Registrar has received a request from the Depositary to issue Certificated Securities, the Company shall, upon surrender by the Depositary of the Global Securities and at the request of the Holder thereof, exchange all or part of the Initial Global Security or Exchange Global Security, as the case may be, for one or more Initial Certificated Securities or Exchange Certificated Securities, as the case may be; provided that the principal amount of each of such Initial Certificated Securities or Exchange Certificated Securities, as the case may be, and such Global Security, after such exchange, shall be $1,000 or an integral multiple thereof. Whenever a Global Security is exchanged as a whole for one or more Initial Certificated Securities or Exchange Certificated Securities, as the case may be, it shall be surrendered by the Holder thereof to the Trustee for cancellation. Whenever a Global Security is exchanged in part for one or more Initial Certificated Securities or Exchange Certificated Securities, as the case may be, it shall be surrendered by the Holder thereof to the Trustee and the Trustee shall make the appropriate notations thereon. All Initial Certificated Securities or Exchange Certificated Securities, as the case may be, issued in exchange for a Global Security or any portion thereof shall be registered in such names, and delivered, as the Depositary shall instruct the Trustee. Any Initial Certificated Securities issued pursuant to this Section 3.5 shall include the Private Placement Legend, except as set forth in this Section 3.5 hereof. Interests in a Global Security may not be exchanged for Certificated Securities other than as provided in this Section 3.5. (d) No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge -30- that may be imposed in connection with any registration of transfer of Securities (other than in respect of a Registered Exchange Offer, except as provided in the Registration Rights Agreement). (e) All Securities issued upon any registration of transfer or exchange pursuant to the terms of this Indenture will evidence the same debt and will be entitled to the same benefits under this Indenture as the Securities surrendered for such registration of transfer or exchange. (f) Prior to the effectiveness under the Securities Act of a Shelf Registration Statement, or at any time during the suspension or following the termination thereof, Holders of Initial Securities (or holders of interests therein) and prospective purchasers designated by such Holders of Initial Securities (or such holders of interests therein) shall have the right to obtain from the Company upon request by such Holders (or such holders of interests) or prospective purchasers, during any period in which the Company is not subject to Section 13 or Section 15(d) of the Exchange Act, or is exempt from reporting pursuant to 12g3- 2(b) under the Exchange Act, the information required by paragraph (d)(4)(i) of Rule 144A in connection with any transfer or proposed transfer of such Securities or interests. (g) Any Holder of a Global Security shall, by acceptance of such Global Security, agree that transfers of beneficial interests in such Global Security may be effected only through a book entry system maintained by the Holder of such Global Security (or its agent), and that ownership of a beneficial interest in the Security represented thereby shall be required to be reflected in book entry form. Transfers of a Global Security shall be limited to transfers in whole and not in part, to the Depositary, its successors, and their respective nominees. Interests of beneficial owners in a Global Security may be transferred in accordance with the rules and procedures of the Depositary (or its successors). (h) The Bank of New York shall initially be the "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. The Company shall cause the Registrar to keep, so long as it is the Security Registrar, at its Corporate Trust Office, or such other office as the Registrar may designate, a register (the register maintained in such office or in any other office or agency designated pursuant to Section 10.2 being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as the Registrar may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Company may appoint one or more co-registrars. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated pursuant to Section 10.2, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series of any authorized denomination or denominations, of a like aggregate principal amount. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination or denominations, of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities of the same series which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same Indebtedness, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. -31- Every Security presented or surrendered for registration of transfer, or for exchange or redemption shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to a Holder for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to pay all documentary, stamp or similar issue or transfer taxes or other governmental charges that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.3, 3.4, 3.5, 3.6, 9.6, 10.12, 10.16 or 11.8 not involving any transfer. The Company shall not be required (a) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of the Securities selected for redemption under Section 11.4 and ending at the close of business on the day of such mailing or (b) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of Securities being redeemed in part. The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depositary participants or beneficial owners of interests in any Global Security), other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities. If (a) any mutilated Security is surrendered to the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee, such security or indemnity, in each case, as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon a Company Request the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a replacement Security of like tenor and principal amount, bearing a number not contemporaneously Outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a replacement Security, pay such Security. Upon the issuance of any replacement Securities under this Section, the Company may require the payment of a sum sufficient to pay all documentary, stamp or similar issue or transfer taxes or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every replacement Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company and any other obligor upon the Securities, whether or not the destroyed, lost or stolen Security shall be at any time enforce- -32- able by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.7. Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security is registered at the close of business on the Regular Record Date for such interest payment. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on the Stated Maturity of such and interest on such defaulted interest at the then applicable interest rate borne by the Securities, to the extent lawful (such defaulted interest and interest thereon herein collectively called "Defaulted Interest"), shall forthwith cease to be payable to the Holder on the Regular Record Date; and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in subsection (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date (not less than 30 days after such notice) of the proposed payment (the "Special Payment Date"), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the Special Payment Date, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this subsection provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the Special Payment Date and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company in writing of such Special Record Date. In the name and at the expense of the Company, the Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date and Special Payment Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered on such Special Record Date and shall no longer be payable pursuant to the following subsection (b). (b) The Company may make payment to the Persons in whose name the Securities are registered at the close of business on the Special Record Date of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this subsection, such payment shall be deemed practicable by the Trustee. Subject to the foregoing pro- -33- visions of this Section 3.7, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.8. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 3.7) interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.9. Cancellation. All Securities surrendered for payment, purchase, redemption, registration of transfer or exchange shall be delivered to the Trustee and, if not already cancelled, shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section 3.9, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be returned to the Company. The Trustee shall provide the Company a list of all Securities that have been cancelled from time to time as requested in writing by the Company. SECTION 3.10. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 3.11. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. SECTION 3.12. Issuance of Additional Securities. The Company shall be entitled to issue Additional Securities under this Indenture which shall have identical terms as and be considered the same as the Initial Securities issued on the Issue Date, other than with respect to the date of issuance; provided that the incurrence of Indebtedness represented by such Additional Securities is at such time permitted by Section 10.8. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities issued in exchange therefor shall be treated as a single class for all purposes under this Indenture. -34- With respect to any Additional Securities, the Company shall set forth in a Board Resolution and in an Officers' Certificate, a copy of each of which shall be delivered to the Trustee, the following information: (a) the aggregate principal amount of such Additional Securities to be authenticated and delivered pursuant to this Indenture; and (b) the issue price, the issue date and the CUSIP number of such Additional Securities and the amount of interest payable on the first payment date applicable thereto. The Company shall also deliver to the Trustee customary opinions for such issuance. ARTICLE FOUR DEFEASANCE AND COVENANT DEFEASANCE SECTION 4.1. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may, at its option by Board Resolution, at any time, with respect to the Securities, elect to have either Section 4.2 or Section 4.3 be applied to all of the Outstanding Securities (the "Defeased Securities"), upon compliance with the conditions set forth below in this Article Four. SECTION 4.2. Defeasance and Discharge. Upon the Company's exercise under Section 4.1 of the option applicable to this Section 4.2, the Company and any other obligor upon the Securities, if any, shall be deemed to have been discharged from its obligations with respect to the Defeased Securities on the date the conditions set forth in Section 4.4 below are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that each of the Company and any other obligor upon the Securities shall be deemed to have paid and discharged the entire Indebtedness represented by the Defeased Securities, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 4.5 and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, and, upon Company Request, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of Defeased Securities to receive, solely from the defeasance trust fund described in Section 4.4 and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (b) the Company's obligations with respect to such Defeased Securities under Sections 3.4, 3.5, 3.6, 10.2 and 10.3, (c) the rights, powers, trusts, duties, indemnities and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 6.6, and (d) this Article Four. Subject to compliance with this Article Four, the Company may exercise its option under this Section 4.2 notwithstanding the prior exercise of its option under Section 4.3 with respect to the Securities. -35- SECTION 4.3. Covenant Defeasance. Upon the Company's exercise under Section 4.1 of the option applicable to this Section 4.3, the Company and any other obligor upon the Securities shall be released from its obligations under any covenant or provision contained or referred to in Sections 10.5 through 10.20, inclusive, and the provisions of clauses (iii) and (iv) of Section 8.1(a) shall not apply, with respect to the Defeased Securities on and after the date the conditions set forth in Section 4.4 below are satisfied (hereinafter, "covenant defeasance"), and the Defeased Securities shall thereafter be deemed to be not "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the Defeased Securities, the Company and any such obligor may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or Article, whether directly or indirectly, by reason of any reference elsewhere herein or in such Defeased Securities or other documents to any such Section or Article or by reason of any reference in any such Section or Article to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 5.1(c) but, except as specified above, the remainder of this Indenture and such Defeased Securities shall be unaffected thereby. SECTION 4.4. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 4.2 or Section 4.3 to the Defeased Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.9 who shall agree to comply with the provisions of this Article Four applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (a) United States dollars in an amount, (b) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms and with no further reinvestment will provide, not later than one day before the due date of any payment, money in an amount, or (c) a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants or a nationally recognized investment banking firm expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge the principal of, premium, if any, and interest on the Defeased Securities on the Stated Maturity of such principal or installment of principal or interest (or on any date after October 1, 2008 (such date being referred to as the "Defeasance Redemption Date")), if at or prior to exercising under Section 4.1 either its option applicable to Section 4.2 or its option applicable to Section 4.3, the Company shall have delivered to the Trustee an irrevocable notice to redeem all of the Outstanding Securities on the Defeasance Redemption Date); provided that the Trustee shall have been irrevocably instructed to apply such United States dollars or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities. For this purpose, "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, -36- and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. (2) In the case of an election under Section 4.2, the Company shall have delivered to the Trustee an Opinion of Independent Counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Independent Counsel shall confirm that, the Holders of the Outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (3) In the case of an election under Section 4.3, the Company shall have delivered to the Trustee an Opinion of Independent Counsel to the effect that the Holders of the Outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (4) No Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as subsections 5.1(g) and (h) are concerned, at any time during the period ending on the 91st day after the date of deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (5) Such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest as defined in this Indenture and for purposes of the Trust Indenture Act with respect to any securities of the Company or any other obligor upon the Securities (assuming the Securities are in default within the meaning of said Act). (6) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it is bound. (7) Such defeasance or covenant defeasance shall not result in the trust arising from such deposit constituting an investment company as defined in the Investment Company Act of 1940, as amended, unless such trust shall be qualified under such Act or exempt from regulation thereunder. (8) The Company shall have delivered to the Trustee an Opinion of Independent Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. -37- (9) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of the Securities over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others. (10) No event or condition shall exist that would prevent the Company from making payments of the principal of, premium, if any, and interest on the Securities on the date of such deposit or at any time ending on the 91st day after the date of such deposit. (11) The Company will have delivered to the Trustee an Officers' Certificate and an Opinion of Independent Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 4.2 or the covenant defeasance under Section 4.3 (as the case may be) have been complied with as contemplated by this Section 4.4. Opinions of Counsel or Opinions of Independent Counsel required to be delivered under this Section may have qualifications customary for opinions of the type required and counsel delivering such opinions may rely on certificates of the Company or government or other officials customary for opinions of the type required, which certificates shall be limited as to matters of fact, including that various financial covenants have been complied with. SECTION 4.5. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 10.3, all United States dollars and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 4.4 in respect of the Defeased Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (excluding the Company or any of its Affiliates acting as Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 4.4 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Defeased Securities. Anything in this Article Four to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any United States dollars or U.S. Government Obligations held by it as provided in Section 4.4 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect defeasance or covenant defeasance. SECTION 4.6. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Obligations in accordance with Section 4.2 or 4.3, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, -38- then the Company's obligations under this Indenture and the Securities, and the provisions of Article Twelve hereof, shall be revived and reinstated as though no deposit had occurred pursuant to Section 4.2 or 4.3, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such United States dollars or U.S. Government Obligations in accordance with Section 4.2 or 4.3, as the case may be; provided, however, that if the Company makes any payment to the Trustee or Paying Agent of principal, premium, if any, or interest on any Security following the reinstatement of its obligations, the Trustee or Paying Agent shall promptly pay any such amount to the Holders of the Securities and the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the United States dollars and U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE FIVE REMEDIES SECTION 5.1. Events of Default. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) there shall be a default in the payment of any interest on any Security when it becomes due and payable, and such default shall continue for a period of 30 days; (b) there shall be a default in the payment of the principal of (or premium, if any, on) any Security at its Maturity (upon acceleration, optional or mandatory redemption, if any, required repurchase or otherwise); (c) (i) there shall be a default in the performance, or breach, of any covenant or agreement of the Company under this Indenture (other than a default in the performance, or breach, of a covenant or agreement which is specifically dealt with in subsection (a) or (b) of this Section 5.1 or in clauses (ii), (iii) and (iv) of this subsection (c) of this Section 5.1) and such default or breach shall continue for a period of 30 days after written notice has been given, (x) to the Company by the Trustee or (y) to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Securities, specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; (ii) there shall be a default in the performance or breach of the provisions of Article Eight; (iii) the Company shall have failed to make or consummate an Offer in accordance with the provisions of Section 10.12; or (iv) the Company shall have failed to make or consummate a Change in Control Offer in accordance with the provisions of Section 10.16; (d) one or more defaults under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or of any Subsidiary (or the payment of which is guaranteed by the Company or any Subsidiary), whether such Indebtedness now exists or is created after the date of this Indenture, which default (A) is caused by a failure to pay principal of such Indebtedness after any applicable grace period provided in such Indebtedness on the date of such default (a "payment default") or -39- (B) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $10 million or more; (e) one or more judgments, orders or decrees for the payment of money in excess of $10 million, either individually or in the aggregate, shall be rendered against the Company or any of its Subsidiaries or any of their respective properties and shall not be discharged and either (i) any creditor shall have commenced an enforcement proceeding upon such judgment, order or decree or (ii) there shall have been a period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of an appeal or otherwise, shall not be in effect; (f) any Guarantee of a Subsidiary of the Company ceases to be in full force and effect or any Guarantee of such a Subsidiary is declared to be null and void and unenforceable or any Guarantee of such a Subsidiary is found to be invalid or any Guarantor denies its liability under its Guarantee (other than by reason of release of such Guarantor in accordance with the terms of this Indenture); (g) there shall have been the entry by a court of competent jurisdiction of (i) a decree or order for relief in respect of the Company or any of its Subsidiaries in an involuntary case or proceeding under any applicable Bankruptcy Law or (ii) a decree or order adjudging the Company or any of its Subsidiaries bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any of its Subsidiaries under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any of its Subsidiaries or of any substantial part of their respective properties, or ordering the winding up or liquidation of their respective affairs, and any such decree or order for relief shall continue to be in effect, or any such other decree or order shall be unstayed and in effect, for a period of 60 consecutive days; or (h) (i) the Company or any of its Subsidiaries commences a voluntary case or proceeding under any applicable Bankruptcy Law or any other case or proceeding to be adjudicated bankrupt or insolvent, (ii) the Company or any of its Subsidiaries consents to the entry of a decree or order for relief in respect of the Company or any such Subsidiary in an involuntary case or proceeding under any applicable Bankruptcy Law or to the commencement of any bankruptcy or insolvency case or proceeding against it, (iii) the Company or any of its Subsidiaries files a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, (iv) the Company or any of its Subsidiaries (1) consents to the filing of such petition or the appointment of, or taking possession by, a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or any such Subsidiary or of any substantial part of their respective properties, (2) makes an assignment for the benefit of creditors or (3) admits in writing its inability to pay its debts generally as they become due, or (v) the Company or any of its Subsidiaries takes any corporate action in furtherance of any such actions in this paragraph (h). SECTION 5.2. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Sections 5.1(g) and (h)) shall occur and be continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities Outstanding may, and the Trustee at the request of the Holders of not less than 25% in aggregate principal amount of the Securities Outstanding shall, declare all unpaid principal of, premium, if any, and accrued interest on all the Securities to be due and payable immediately, by a notice in writing -40- to the Company (and to the Trustee if given by the Holders of the Securities) and upon any such declaration, such principal, premium, if any, and interest shall become due and payable immediately. If an Event of Default specified in clause (g) or (h) of Section 5.1 occurs and is continuing, then all the Securities shall ipso facto become and be due and payable immediately in an amount equal to the principal amount of the Securities, together with premium, if any, and accrued and unpaid interest, if any, to the date the Securities become due and payable, without any declaration or other act on the part of the Trustee or any Holder. Thereupon, the Trustee may, at its discretion, proceed to protect and enforce the rights of the Holders of Securities by appropriate judicial proceedings. After such declaration of acceleration but before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in aggregate principal amount of the Securities Outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under Section 6.7 and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Outstanding Securities, (iii) the principal of and premium, if any, on any Outstanding Securities which have become due otherwise than by such declaration of acceleration and interest thereon at a rate borne by the Securities, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Securities; and (b) all Events of Default, other than the non-payment of principal of the Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. No such rescission shall affect any subsequent Default or impair any right consequent thereon. SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (a) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of or premium, if any, on any Security at the Stated Maturity thereof, the Company shall, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and premium, if any, and interest, with interest upon the overdue principal and premium, if any, and, to the extent that payment of such interest shall be legally enforceable, upon overdue installments of interest, at the rate borne by the -41- Securities; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders under this Indenture by such appropriate private or judicial proceedings as the Trustee shall deem most effectual to protect and enforce such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy, subject however to Section 5.12. No recovery of any such judgment upon any property of the Company shall affect or impair any rights, powers or remedies of the Trustee or the Holders. SECTION 5.4. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of principal, and premium, if any, and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. -42- SECTION 5.5. Trustee May Enforce Claims without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.6. Application of Money Collected. Any money collected by the Trustee pursuant to this Article or otherwise on behalf of the Holders or the Trustee pursuant to this Article or through any proceeding or any arrangement or restructuring in anticipation or in lieu of any proceeding contemplated by this Article shall be applied, subject to applicable law, in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, premium, if any, or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.7; SECOND: To the payment of the amounts then due and unpaid upon the Securities for principal, premium, if any, and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal, premium, if any, and interest; and THIRD: The balance, if any, to the Person or Persons entitled thereto, including the Company, provided that all sums due and owing to the Holders and the Trustee have been paid in full as required by this Indenture. SECTION 5.7. Limitation on Suits. No Holder of any Securities shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture or the Securities, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as trustee hereunder; (c) such Holder or Holders have offered to the Trustee an indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 15 days after its receipt of such notice, request and offer (and if requested, provision) of indemnity has failed to institute any such proceeding; and -43- (e) no direction inconsistent with such written request has been given to the Trustee during such 15-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture or any Security to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture or any Security, except in the manner provided in this Indenture and for the equal and ratable benefit of all the Holders. SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right based on the terms stated herein, which is absolute and unconditional, to receive payment of the principal of, premium, if any, and (subject to Section 3.7) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repurchase, on the Redemption Date or the repurchase date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 5.9. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, any other obligor on the Securities, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative. Except as provided in Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. -44- SECTION 5.12. Control by Holders. The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that (a) such direction shall not be in conflict with any rule of law or with this Indenture (including, without limitation, Section 5.7), expose the Trustee to personal liability, or be unduly prejudicial to Holders not joining therein; and (b) subject to the provisions of Section 315 of the Trust Indenture Act, the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.13. Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past Default hereunder and its consequences, except a Default: (a) in the payment of the principal of, premium, if any, or interest on any Security; or (b) in respect of a covenant or a provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Security Outstanding affected by such modification or amendment. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 5.14. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of, premium, if any, or interest on any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date). SECTION 5.15. Waiver of Stay, Extension or Usury Laws. Each of the Company and any other obligor upon the Securities covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim -45- or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive the Company or any such obligor from paying all or any portion of the principal of, premium, if any, or interest on the Securities contemplated herein or in the Securities or which may affect the covenants or the performance of this Indenture; and each of the Company and any such obligor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 5.16. Remedies Subject to Applicable Law. All rights, remedies and powers provided by this Article Five may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law in the premises, and all the provisions of this Indenture are intended to be subject to all applicable mandatory provisions of law which may be controlling in the premises and to be limited to the extent necessary so that they will not render this Indenture invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. ARTICLE SIX THE TRUSTEE SECTION 6.1. Duties of Trustee. Subject to the provisions of Trust Indenture Act Section 315(a) through 315(d): (a) if a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) except during the continuance of a Default or an Event of Default: (1) the Trustee need perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture that are adverse to the Trustee; and (2) in the absence of bad faith or willful misconduct on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture, but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein. -46- (c) the Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) this subsection (c) does not limit the effect of subsection (b) of this Section 6.1; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith, in accordance with a direction of the Holders of a majority in principal amount of Outstanding Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power confirmed upon the Trustee under this Indenture. (d) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to subsections (a), (b), (c) and (d) of this Section 6.1. (f) the Trustee shall not be liable for interest on any money or assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. SECTION 6.2. Notice of Defaults. Within 90 days after the occurrence of any Default, the Trustee shall transmit by mail to all Holders and any other persons entitled to receive reports pursuant to Section 313(c) of the Trust Indenture Act, as their names and addresses appear in the Security Register, notice of such Default hereunder known to the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of, premium, if any, or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as a trust committee of Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders. SECTION 6.3. Certain Rights of Trustee. Subject to the provisions of Section 6.1 hereof and Trust Indenture Act Sections 315(a) through 315(d): (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of Indebtedness or other -47- paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) the Trustee may consult with counsel of its selection and any advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred therein or thereby in compliance with such request or direction; (e) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Indenture other than any liabilities arising out of the negligence, bad faith or willful misconduct of the Trustee; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval, appraisal, bond, debenture, note, coupon, security or other paper or document, but the Trustee in its discretion may make such further inquiry or investigation into such facts or matters as it may deem fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (h) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (i) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers; (j) in no event shall the Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action; -48- (k) the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture; (l) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder; and (m) the Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. SECTION 6.4. Trustee Not Responsible for Recitals, Dispositions of Securities or Application of Proceeds Thereof. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility on Form T-1 supplied to the Company are true and accurate subject to the qualifications set forth therein. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.5. Trustee and Agents May Hold Securities; Collections; etc. The Trustee, any Paying Agent, Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities, with the same rights it would have if it were not the Trustee, Paying Agent, Security Registrar or such other agent and, subject to Sections 6.8 and 6.13 hereof and Trust Indenture Act Sections 310 and 311, may otherwise deal with the Company and receive, collect, hold and retain collections from the Company with the same rights it would have if it were not the Trustee, Paying Agent, Security Registrar or such other agent. SECTION 6.6. Money Held in Trust. All moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by mandatory provisions of law. Except for funds or securities deposited with the Trustee pursuant to Article Four, the Trustee shall be required to invest all moneys received by the Trustee, until used or applied as herein provided, in Cash Equivalents in accordance with the specific written directions of the Company. In the absence of written instructions, moneys received shall remain uninvested. -49- SECTION 6.7. Compensation and Indemnification of Trustee and Its Prior Claim. The Company and the Guarantors, jointly and severally, covenant and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) and the Company and the Guarantors, jointly and severally, covenant and agrees to pay or reimburse the Trustee and each predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence, bad faith or willful misconduct. The Company and the Guarantors, jointly and severally, also covenant and agree to indemnify the Trustee and each predecessor Trustee for, and to hold it harmless against, any and all claim, loss, damage, liability, tax, assessment or other governmental charge (other than taxes applicable to the Trustee's compensation hereunder) or expense incurred without negligence, bad faith or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder and its duties hereunder, including enforcement of this Section 6.7 and also including any liability which the Trustee may incur as a result of failure to withhold, pay or report any tax, assessment or other governmental charge, and the costs and expenses of defending itself against or investigating any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligations of the Company under this Section 6.7 to compensate, reimburse and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for expenses, disbursements and advances shall constitute an additional obligation hereunder and shall survive the satisfaction and discharge of this Indenture and the resignation or removal of the Trustee and each predecessor Trustee. The Trustee shall have a lien prior to the Securities as to all property and funds held by it hereunder for any amount owing it or any predecessor Trustee pursuant to this Section 6.7, except with respect to funds held in trust for the benefit of the Holders of particular Securities. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(g) or Section 5.1(h), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. SECTION 6.8. Conflicting Interests. The Trustee shall comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 6.9. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be eligible to act as trustee under Trust Indenture Act Section 310(a)(5) and which shall have an office in The City of New York, a combined capital and surplus of at least $50,000,000, to the extent there is an institution eligible and willing to serve. If the Trustee does not have an office in The City of New York, the Trustee may appoint an agent in The City of New York reasonably acceptable to the Company to conduct any activities which the Trustee may be required under this Indenture to conduct in The City of New York. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section -50- 6.9, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.9, the Trustee shall resign promptly in the manner and with the effect hereinafter specified in this Article. SECTION 6.10. Resignation and Removal; Appointment of Successor Trustee. (a) No resignation or removal of the Trustee and no appointment of a successor trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor trustee under Section 6.11. (b) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign by giving written notice thereof to the Company. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument executed by authority of the Board of Directors, a copy of which shall be delivered to the resigning Trustee and a copy to the successor trustee. (1) The Trustee may be removed at any time by an Act of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (c) If at any time: (1) the Trustee shall fail to comply with the provisions of Trust Indenture Act Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, (2) the Trustee shall cease to be eligible under Section 6.9 and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 5.14, the Holder of any Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (d) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor trustee and shall comply with the applicable requirements of Section 6.11. If an instrument of acceptance by a successor trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, or after such removal or incapacity, the resigning Trustee may, at the expense of the Company, or any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of compe- -51- tent jurisdiction for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper, appoint a successor trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, the Company has not appointed a successor Trustee, a successor trustee shall be appointed by the Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee. Such successor trustee so appointed shall forthwith upon its acceptance of such appointment become the successor trustee and supersede the successor trustee appointed by the Company. If no successor trustee shall have been so appointed by the Company or the Holders of the Securities and accepted appointment in the manner hereinafter provided, the Holder of any Security who has been a bona fide Holder for at least six months may, subject to Section 5.14, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor trustee. (e) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities as their names and addresses appear in the Security Register. Each notice shall include the name of the successor trustee and the address of its Corporate Trust Office or agent hereunder. SECTION 6.11. Acceptance of Appointment by Successor. Every successor trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee as if originally named as Trustee hereunder; but, nevertheless, on the written request of the Company or the successor trustee, upon payment of its charges pursuant to Section 6.7 then unpaid, such retiring Trustee shall pay over to the successor trustee all moneys at the time held by it hereunder and shall execute and deliver an instrument transferring to such successor trustee all such rights, powers, duties and obligations. Upon request of any such successor trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a prior lien upon all property or funds held or collected by such Trustee or such successor trustee to secure any amounts then due such Trustee pursuant to the provisions of Section 6.7. No successor trustee with respect to the Securities shall accept appointment as provided in this Section 6.11 unless at the time of such acceptance such successor trustee shall be eligible to act as trustee under the provisions of Trust Indenture Act Section 310(a) and this Article Six and shall have a combined capital and surplus of at least $50,000,000 and have a Corporate Trust Office or an agent selected in accordance with Section 6.9. Upon acceptance of appointment by any successor trustee as provided in this Section 6.11, the Company shall give notice thereof to the Holders of the Securities, by mailing such notice to such Holders at their addresses as they shall appear on the Security Register. If the acceptance of appointment is substantially contemporaneous with the resignation, then the notice called for by the preceding sentence may be combined with the notice called for by Section 6.10. If the Company fails to give such notice within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be given at the expense of the Company. -52- SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under Trust Indenture Act Section 310(a) and this Article Six and shall have a combined capital and surplus of at least $50,000,000 and have a Corporate Trust Office or an agent selected in accordance with Section 6.9 without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee and deliver such Securities so authenticated; and, in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor trustee; and in all such cases such certificate shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have; provided that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, amalgamation, conversion or consolidation. SECTION 6.13. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or other obligor under the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). A Trustee who has resigned or been removed shall be subject to the Trust Indenture Act Section 311 (a) to the extent indicated therein. ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (a) semiannually, not more than 10 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date; and (b) at such other times as the Trustee may reasonably request in writing, within 30 days after receipt by the Company of any such request, a list of similar form and content to that in subsection (a) hereof as of a date not more than 15 days prior to the time such list is furnished; provided, however, that if and so long as the Trustee shall be the Security Registrar, no such list need be furnished. -53- SECTION 7.2. Disclosure of Names and Addresses of Holders. Holders may communicate pursuant to Trust Indenture Act Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities, and the Trustee shall comply with Trust Indenture Act Section 312(b). The Company, the Trustee, the Registrar and any other Person shall have the protection of Trust Indenture Act Section 312(c). Further, every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee or any agent of either of them shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Holders in accordance with Trust Indenture Act Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Trust Indenture Act Section 312. SECTION 7.3. Reports by Trustee. (a) Within 60 days after May 15 of each year commencing with the first May 15 after the issuance of Securities, the Trustee, if so required under the Trust Indenture Act, shall transmit by mail to all Holders, in the manner and to the extent provided in Trust Indenture Act Section 313(c), a brief report dated as of such May 15 in accordance with and with respect to the matters required by Trust Indenture Act Section 313(a). The Trustee shall also transmit by mail to all Holders, in the manner and to the extent provided in Trust Indenture Act Section 313(c), a brief report in accordance with and with respect to the matters required by Trust Indenture Act Section 313(b)(2). (b) A copy of each report transmitted to Holders pursuant to this Section 7.3 shall, at the time of such transmission, be mailed to the Company and filed with each stock exchange, if any, upon which the securities are listed and also with the SEC. The Company will promptly notify the Trustee when the Securities are listed on any stock exchange. ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.1. Company May Consolidate, etc., Only on Certain Terms. The Company shall not, in a single transaction or through a series of related transactions, consolidate with or merge with or into any other Person or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any Person or group of affiliated Persons, or permit any of its Subsidiaries to enter into any such transaction or series of related transactions if such transaction or series of related transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Company and its Subsidiaries on a Consolidated basis to any other Person or group of affiliated Persons, unless at the time and after giving effect thereto: (i) either (1) the Company shall be the continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Company and its Subsidiaries on a Consolidated basis (the "Surviving Entity") shall be a corporation duly organized and validly existing -54- under the laws of the United States of America, any state thereof or the District of Columbia and such Person expressly assumes, by a supplemental indenture, executed and delivered to the Trustee, in a form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture, as the case may be, and the Securities and this Indenture shall remain in full force and effect as so supplemented; (ii) immediately before and immediately after giving effect to such transaction on a pro forma basis (and treating any Indebtedness not previously an obligation of the Company or any of its Subsidiaries which becomes an obligation of the Company or any of its Subsidiaries in connection with or as a result of such transaction as having been incurred at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; (iii) immediately before and immediately after giving effect to such transaction on a pro forma basis (on the assumption that the transaction occurred on the first day of the four-quarter period immediately prior to the consummation of such transaction with the appropriate adjustments with respect to the transaction being included in such pro forma calculation), the Company (or the Surviving Entity if the Company is not the continuing obligor under this Indenture) could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 10.8; and (iv) at the time of the transaction the Company or the Surviving Entity shall have delivered, or caused to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each to the effect that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other transaction and the supplemental indenture in respect thereof comply with this Indenture and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 8.2. Successor Substituted. Upon any consolidation or merger, or any sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Company in accordance with Section 8.1, the successor Person formed by such consolidation or into which the Company is merged or the successor Person to which such sale, assignment, conveyance, transfer, lease or disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Securities with the same effect as if such successor had been named as the Company herein and in the Securities. When a successor (other than a successor that is an Affiliate of the Company) assumes all the obligations of its predecessor under this Indenture or the Securities, the predecessor shall be released from those obligations; provided that in the case of a transfer by lease, the predecessor shall not be released from the payment of principal and interest on the Securities. -55- ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 9.1. Supplemental Indentures and Agreements without Consent of Holders. Without the consent of any Holders, the Company and any other obligor upon the Securities, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form and substance satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another Person to the Company or any other obligor upon the Securities, and the assumption by any such successor of the covenants of the Company or such obligor herein and in the Securities in accordance with Article Eight; (b) to add to the covenants of the Company or any other obligor upon the Securities for the benefit of the Holders or to surrender any right or power herein conferred upon the Company or any other obligor upon the Securities, as applicable, herein or in the Securities; (c) to cure any ambiguity or to correct or supplement any provision herein or in the Securities which may be defective or inconsistent with any other provision herein or in the Securities or to make any other provisions with respect to matters or questions arising under this Indenture or the Securities; provided that, in each case, such provisions shall not adversely affect the interests of the Holders; (d) to comply with the requirements of the SEC in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act, as contemplated by Section 9.5 or otherwise; (e) to add a Guarantor pursuant to the requirements of Section 10.13 or 10.15; (f) to evidence and provide the acceptance of the appointment of a successor trustee hereunder; or (g) to mortgage, pledge, hypothecate or grant a security interest in favor of the Trustee for the benefit of the Holders as additional security for the payment and performance of the Indenture Obligations, in any property or assets, including any which are required to be mortgaged, pledged or hypothecated, or in which a security interest is required to be granted to the Trustee pursuant to this Indenture or otherwise. SECTION 9.2. Supplemental Indentures and Agreements with Consent of Holders. With the consent of the Holders of at least a majority in aggregate principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by Board Resolutions, and the Trustee may (i) enter into an indenture or indentures supplemental hereto in form and substance satisfactory to the Trustee, for the purpose of adding any provisions to or amending, modifying or changing in any manner or eliminating any of the provisions of this -56- Indenture or the Securities (including but not limited to, for the purpose of modifying in any manner the rights of the Holders under this Indenture or the Securities) or (ii) waive compliance with any provision in this Indenture or the Securities (other than waivers of past Defaults covered by Section 5.13 and waivers of covenants which are covered by Section 10.22); provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby: (a) change the Stated Maturity of the principal of, or any installment of interest on, any Security or waive a default in the payment of the principal or interest on any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change the coin or currency in which the principal of any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); (b) amend, change or modify the obligation of the Company to make and consummate an Offer with respect to any Asset Sale or Asset Sales in accordance with Section 10.12 or the obligation of the Company to make and consummate a Change in Control Offer in the event of a Change in Control in accordance with Section 10.16, including amending, changing or modifying any definitions with respect thereto; (c) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with one or more of the provisions of this Indenture or one or more of the defaults hereunder and their consequences provided for in this Indenture; (d) modify any of the provisions of this Section 9.2 or Section 5.13 or 10.22, except to increase the percentage in principal amount of the Outstanding Securities the consent of whose Holders is required for any such actions or to provide that one or more other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Security affected thereby; (e) except as otherwise permitted under Article Eight, consent to the assignment or transfer by the Company of any of its rights and obligations under this Indenture; (f) amend or modify any of the provisions of this Indenture relating to the ranking of the Securities or the Guarantees in any manner adverse to the Holders; or (g) release any Guarantor from any of its obligations under its Guarantee or this Indenture otherwise than in accordance with the terms of this Indenture. Upon the written request of the Company accompanied by a copy of Board Resolutions authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Holders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture. It shall not be necessary for any Act of Holders under this Section 9.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. -57- SECTION 9.3. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture or waiver permitted by this Article Nine or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Trust Indenture Act Section 315(a) through 315(d) and Section 6.2 hereof) shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate stating that the execution of such supplemental indenture (a) is authorized or permitted by this Indenture and (b) does not violate the provisions of any agreement or instrument evidencing any other Indebtedness of the Company or any of its Subsidiaries. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.4. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture and the Securities shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.5. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article Nine shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 9.6. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article Nine may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 9.7. Notice of Supplemental Indentures. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 9.2, the Company shall give notice thereof to the Holders of each Outstanding Security affected, in the manner provided for in Section 1.6, setting forth in general terms the substance of such supplemental indenture. SECTION 9.8. Revocation and Effect of Consents. Until an amendment or waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same Indebtedness as the consenting Holder's Security, even if a notation of the consent is not made on any Security. However, any such Holder, or subsequent Holder, may revoke the consent as to his Security or portion of a Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. An amendment or waiver shall become effective in accordance with its terms and thereafter bind every Holder. -58- ARTICLE TEN COVENANTS SECTION 10.1. Payment of Principal, Premium, Interest and Additional Interest. The Company shall duly and punctually pay the principal of, premium, if any, and interest on the Securities in accordance with the terms of the Securities and this Indenture. The Company shall also pay such amounts of Additional Interest as specified in the applicable form of Security. SECTION 10.2. Maintenance of Office or Agency. The Company shall maintain in The City of New York an office or agency where Securities may be presented or surrendered for payment, and where Securities may be surrendered for registration of transfer, redemption or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location and any change in the location of any such offices or agencies. If at any time the Company shall fail to maintain any such required offices or agencies or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the office of the agent of the Trustee described above and the Company hereby appoints such agent as its agent to receive all such presentations, surrenders, notices and demands. The Company may from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Securities may be presented or surrendered for any or all such purposes, and may from time to time rescind such designation. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such office or agency. SECTION 10.3. Money for Security Payments to Be Held in Trust. If the Company or any of its Affiliates shall at any time act as Paying Agent, it will, on or before each due date of the principal of, premium, if any, or interest on any of the Securities, segregate and hold in trust for the benefit of the Holders entitled thereto a sum sufficient to pay the principal, premium, if any, or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. If the Company or any of its Affiliates is not acting as Paying Agent, the Company shall, on or before each due date of the principal of, premium, if any, or interest on, any Securities, deposit with a Paying Agent a sum in same day funds sufficient to pay the principal, premium, if any, or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of such action or any failure so to act. If the Company is not acting as Paying Agent, the Company shall cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: -59- (a) hold all sums held by it for the payment of the principal of, premium, if any, or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any Default by the Company (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, or interest; (c) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (d) acknowledge, accept and agree to comply in all aspects with the provisions of this Indenture relating to the duties, rights and disabilities of such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal and premium, if any, or interest has become due and payable shall promptly be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), and mail to each such Holder, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification, publication and mailing, any unclaimed balance of such money then remaining will promptly be repaid to the Company. SECTION 10.4. Corporate Existence. Subject to Article Eight, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence and related rights and franchises (charter and statutory) of the Company and each of its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right or franchise or the corporate existence of any such Subsidiary if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries as a whole and that the loss thereof would not reasonably be expected to have a material adverse effect on the ability of the Company to perform its obligations hereunder; and provided, further, however, that the foregoing shall not prohibit a sale, transfer or conveyance of a Subsidiary of the Company or any of its assets in compliance with the terms of this Indenture. -60- SECTION 10.5. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, on or before the date the same shall become due and payable, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries shown to be due on any return of the Company or any of its Subsidiaries or otherwise assessed or upon the income, profits or property of the Company or any of its Subsidiaries if failure to pay or discharge the same could reasonably be expected to have a material adverse effect on the ability of the Company to perform its obligations hereunder and (b) all lawful claims for labor, materials and supplies, which, if unpaid, would by law become a Lien upon the property of the Company or any of its Subsidiaries, except for any Lien permitted to be incurred under Section 10.11, if failure to pay or discharge the same could reasonably be expected to have a material adverse effect on the ability of the Company to perform its obligations hereunder; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings properly instituted and diligently conducted and in respect of which appropriate reserves (in the good faith judgment of management of the Company) are being maintained in accordance with GAAP. SECTION 10.6. Maintenance of Properties. The Company shall cause all material properties owned by the Company or any of its Subsidiaries or used or held for use in the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order (ordinary wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the reasonable judgment of the Company may be consistent with sound business practice and necessary so that the business carried on in connection therewith may be properly conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the reasonable judgment of the Company, desirable in the conduct of its business or the business of any of its Subsidiaries and not reasonably expected to have a material adverse effect on the ability of the Company to perform its obligations hereunder. SECTION 10.7. Insurance. The Company shall at all times keep all of its and its Subsidiaries' properties which are of an insurable nature insured with insurers, believed by the Company in good faith to be financially sound and responsible, against loss or damage to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties in the same general geographic areas in which the Company and its Subsidiaries operate, except where the failure to do so could not reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings, business affairs or prospects of the Company and its Subsidiaries, taken as a whole. SECTION 10.8. Limitation on Indebtedness. The Company shall not, and shall not permit any of its Subsidiaries to, create, issue, incur, assume, guarantee or otherwise in any manner become directly or indirectly liable for the payment of or otherwise incur (collectively, "incur"), any Indebtedness (including any Acquired Indebtedness); provided, however, that the Company and any Guarantor may incur Indebtedness (including, without limitation, Acquired Indebtedness) if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence, the Company's Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters -61- for which financial results are available immediately preceding the incurrence of such Indebtedness taken as one period would be at least equal to or greater than 2.0 to 1.0. In determining the Company's Consolidated Fixed Charge Coverage Ratio for purposes of this Section 10.8, the Company's calculations shall give pro forma effect to (i) the incurrence of such Indebtedness and (if applicable) the application of the net proceeds therefrom, including to refinance other Indebtedness, as if such Indebtedness was incurred, and the application of such proceeds occurred, on the first day of such applicable period; (ii) the incurrence, repayment or retirement of any other Indebtedness by the Company and its Subsidiaries since the first day of such applicable period as if such Indebtedness was incurred, repaid or retired at the beginning of such applicable period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility shall be computed based upon the average daily balance of such Indebtedness during such applicable period); (iii) in the case of Acquired Indebtedness or any acquisition occurring at the time of the incurrence of such Indebtedness, the related acquisition, assuming such acquisition had been consummated on the first day of such applicable period; and (iv) any acquisition or disposition by the Company and its Subsidiaries of any company or any business or any assets out of the ordinary course of business, whether by merger, stock purchase or sale or asset purchase or sale, or any related repayment of Indebtedness, in each case since the first day of such applicable period, assuming such acquisition or disposition had been consummated on the first day of such applicable period. The first paragraph of this Section 10.8 will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Indebtedness"): (i) Indebtedness of the Company and its Subsidiaries under the Bank Credit Facility in an aggregate principal amount at any one time outstanding not to exceed the greater of (a) $250 million, less the amount of any such Indebtedness permanently retired with the Net Cash Proceeds from any Asset Sale applied from and after the date of this Indenture to reduce the outstanding amounts pursuant to Section 10.12 and (b) the sum of 85% of accounts receivable and 50% of inventory of the Company and its Subsidiaries under a borrowing-based facility based on accounts receivable and inventory (each as determined in accordance with GAAP)); provided that the aggregate amount of Indebtedness of Non-Guarantor Subsidiaries outstanding under this clause (i) shall not at any one time exceed $75 million; (ii) Indebtedness of the Company pursuant to the Securities issued in the offering described in the Final Memorandum; (iii) guarantees of any of the Company's Subsidiaries of Indebtedness of the Company; provided such Indebtedness and guarantees are incurred in accordance with the terms of this Indenture; (iv) Indebtedness of the Company or any of its Subsidiaries outstanding on the date of this Indenture (other than Indebtedness under clauses (i) and (ii) above); (v) Indebtedness of the Company owing to any of its Subsidiaries; provided that any Indebtedness of the Company owing to a Subsidiary of the Company is made pursuant to an intercompany note and is subordinated in right of payment from and after such time as the Securities shall become due and payable (whether at Stated Maturity, acceleration or otherwise) to the payment and performance of the Company's obligations under the Securities; provided, further, that any disposition, pledge or transfer of any such Indebtedness to a Person (other than a disposition, pledge or transfer to a Subsidiary of the Company) shall be deemed to be an incurrence of such Indebtedness by the Company not permitted by this clause (v); -62- (vi) Indebtedness of a Wholly Owned Subsidiary owing to the Company or another Wholly Owned Subsidiary; provided that any such Indebtedness is made pursuant to an intercompany note; and provided, further, that (a) any disposition, pledge or transfer of any such Indebtedness to a Person (other than the Company or a Wholly Owned Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the obligor not permitted by this clause (vi), and (b) any transaction pursuant to which any Wholly Owned Subsidiary, which has Indebtedness owing to the Company or any other Wholly Owned Subsidiary, ceases to be a Wholly Owned Subsidiary shall be deemed to be the incurrence of Indebtedness by such Wholly Owned Subsidiary that is not permitted by this clause (vi); (vii) obligations of the Company entered into in the ordinary course of business (a) pursuant to Interest Rate Agreements designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates in respect of Indebtedness of the Company or any of its Subsidiaries, as long as such obligations do not exceed the aggregate principal amount of such Indebtedness then outstanding, (b) under any Currency Hedging Arrangements, which if related to Indebtedness, do not increase the amount of such Indebtedness other than as a result of foreign exchange fluctuations, or (c) under any Commodity Price Protection Agreements, which if related to Indebtedness, do not increase the amount of such Indebtedness other than as a result of fluctuations in the relevant commodity prices or by reason of fees, indemnities and compensation thereunder; (viii) Indebtedness of the Company or any of its Subsidiaries incurred to finance environmental expenditures related to the Fenholloway River, not to exceed $40 million outstanding at any one time in the aggregate; (ix) Indebtedness of the Company or any of its Subsidiaries evidenced by Purchase Money Obligations and Capital Lease Obligations not to exceed $20 million outstanding at any one time in the aggregate; (x) Indebtedness of the Company or any of its Subsidiaries incurred in the ordinary course of business after the date of this Indenture relating to (A) workers' compensation claims, (B) payment obligations in connection with self-insurance or similar obligations, (C) bankers' acceptances, performance, surety, judgment, appeal and similar bonds, instruments or obligations, (D) bank overdrafts (and letters of credit in respect thereof), provided that such Indebtedness is extinguished within five Business Days of incurrence, and (E) completion guarantees (and letters of credit issued with respect thereto); (xi) Indebtedness arising from agreements of the Company or a Subsidiary providing for indemnification, adjustment of purchase price or other similar obligations, in each case, incurred or assumed in connection with the purchase price or disposition of any business, assets or Capital Stock of a Subsidiary other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Capital Stock for the purpose of financing such acquisition; provided that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received, or paid, as the case may be, by the Company and its Subsidiaries in connection with such purchase or disposition; (xii) any renewals, extensions, substitutions, refundings, refinancings or replacements (collectively, a "refinancing") of any Indebtedness incurred pursuant to the first paragraph of this Section 10.8 or described in clauses (ii) and (iv) of this definition of "Permitted Indebtedness," -63- including any successive refinancings, so long as the aggregate principal amount of Indebtedness represented thereby is not increased by such refinancing plus the lesser of (I) the stated amount of any premium or other payment required to be paid in connection with such a refinancing pursuant to the terms of the Indebtedness being refinanced or (II) the amount of premium or other payment actually paid at such time to refinance the Indebtedness, plus, in either case, the amount of expenses of the Company incurred in connection with such refinancing and (A) in the case of any refinancing of Indebtedness that is Subordinated Indebtedness, such new Indebtedness is made subordinated to the Securities at least to the same extent as the Indebtedness being refinanced and (B) such refinancing does not reduce the Average Life to Stated Maturity or the Stated Maturity of such Indebtedness; and (xiii) Indebtedness of the Company and its Subsidiaries in addition to that described in clauses (i) through (xii) above, and any renewals, extensions, substitutions, refinancings or replacements of such Indebtedness, so long as the aggregate principal amount of all such Indebtedness shall not exceed $50 million outstanding at any one time in the aggregate; provided that the aggregate amount of Indebtedness of Non-Guarantor Subsidiaries outstanding under this clause (xiii) shall not at any one time exceed $25 million. For purposes of determining compliance with this Section 10.8: (1) in the event that an item of Indebtedness meets the criteria of more than one of the categories of Indebtedness described in clauses (i) through (xiii) of the second paragraph of this Section 10.8, or is entitled to be incurred pursuant to the first paragraph of this Section 10.8, the Company may, in its sole discretion, classify such item of Indebtedness on the date of its incurrence or, subject to clause (2) below, later reclassify all or a portion of such item of Indebtedness in any manner that complies with this Section 10.8; (2) Indebtedness under the Existing Bank Credit Facility outstanding on the date of this Indenture will be deemed to have been incurred pursuant to clause (i) of the second paragraph of this Section 10.8 and the Company shall not be permitted to reclassify any portion of such Indebtedness thereafter; (3) accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms and the payment of dividends on Redeemable Capital Stock in the form of additional shares of the same class of Redeemable Capital Stock shall not be deemed to be an incurrence of Indebtedness for purposes of this Section 10.8; (4) the maximum amount of Indebtedness that the Company or any Subsidiary may incur pursuant to this Section 10.8 shall not be deemed to be exceeded, with respect to any outstanding Indebtedness, due solely to the result of fluctuations in the exchange rates of currencies; and (5) for purpose of determining any particular amount of Indebtedness under this Section 10.8, guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of a particular amount of Indebtedness will not be included. -64- SECTION 10.9. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend on, or make any distribution to holders of, any shares of the Company's Capital Stock (other than dividends or distributions payable solely in its shares of Qualified Capital Stock or in options, warrants or other rights to acquire shares of such Qualified Capital Stock); (ii) purchase, redeem or otherwise acquire or retire for value, directly or indirectly, the Company's Capital Stock or any Capital Stock of any Affiliate of the Company (other than Capital Stock of any Wholly Owned Subsidiary) or options, warrants or other rights to acquire such Capital Stock; (iii) make any principal payment on, or repurchase, redeem, defease, retire or otherwise acquire for value, prior to any scheduled principal payment, sinking fund payment or maturity, any Subordinated Indebtedness (other than a payment, repurchase, redemption, defeasance, retirement or other acquisition for value in anticipation of satisfying a scheduled final maturity, scheduled repayment or scheduled sinking fund payment, in each case, due within one year of the date of such payment, repurchase, redemption, defeasance, retirement or acquisition); (iv) declare or pay any dividend or distribution on any Capital Stock of any Subsidiary of the Company to any Person (other than (a) to the Company or any Wholly Owned Subsidiary or (b) to all holders of Capital Stock of such Subsidiary on a pro rata basis); (v) incur, create or assume any guarantee of Indebtedness of any Affiliate of the Company (other than (a) guarantees of Indebtedness of a Wholly Owned Subsidiary given by the Company or (b) guarantees of Indebtedness of the Company given by any Subsidiary of the Company, in each case, in accordance with the terms of this Indenture); or (vi) make any Investment in any Person (other than any Permitted Investments) (any of the foregoing actions described in clauses (i) through (vi), other than any such action that is a Permitted Payment (as defined below), collectively, "Restricted Payments") (the amount of any such Restricted Payment, if other than cash, as determined by the Board of Directors of the Company, whose determination shall be conclusive and evidenced by a Board Resolution), unless (1) immediately before and immediately after giving effect to such Restricted Payment on a pro forma basis, no Default or Event of Default shall have occurred and be continuing and such Restricted Payment shall not be an event which is, or after notice or lapse of time or both, would be, an "event of default" under the terms of any Indebtedness of the Company or its Subsidiaries; (2) immediately before and immediately after giving effect to such Restricted Payment on a pro forma basis, the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the provisions contained in Section 10.8; and (3) after giving effect to the proposed Restricted Payment, the aggregate amount of all such Restricted Payments declared or made after the date of this Indenture, does not exceed the sum of: (A) $25 million; -65- (B) 50% of the aggregate cumulative Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on October 1, 2003 and ending on the last day of the Company's last fiscal quarter ending prior to the date of the Restricted Payment (or, if such aggregate cumulative Consolidated Net Income shall be a loss, minus 100% of such loss); (C) the aggregate Net Cash Proceeds received after the date of this Indenture by the Company from the issuance or sale (other than to any of its Subsidiaries) of Qualified Capital Stock of the Company or any options, warrants or rights to purchase such Qualified Capital Stock of the Company (except, in each case, to the extent such proceeds are used to purchase, redeem or otherwise retire Capital Stock or Subordinated Indebtedness as set forth in clause (ii) or (iii) of paragraph (b) of this Section 10.9); (D) the aggregate Net Cash Proceeds received after the date of this Indenture by the Company (other than from any of its Subsidiaries) upon the exercise of any options, warrants or rights to purchase Qualified Capital Stock of the Company; (E) the aggregate Net Cash Proceeds received after the date of this Indenture by the Company from the conversion or exchange, if any, of debt securities or Redeemable Capital Stock of the Company or its Subsidiaries into or for Qualified Capital Stock of the Company plus, to the extent such converted debt securities or Redeemable Capital Stock were issued after the date of this Indenture, the aggregate Net Cash Proceeds from their original issuance; and (F) to the extent not otherwise included in the Company's Consolidated Net Income, the aggregate payments in cash of interest on Indebtedness or dividends or other distributions received by the Company or any of its Subsidiaries after the date of this Indenture from any Unrestricted Subsidiary (or from redesignation of an Unrestricted Subsidiary as a Subsidiary of the Company), except to the extent any such payments are in respect of taxes to be paid by the Company with respect to the operations of such Unrestricted Subsidiary. (b) Notwithstanding the foregoing, and in the case of clauses (ii) through (ix) below, so long as there is no Default or Event of Default continuing, the foregoing provisions shall not prohibit the following actions (each of clauses (i) through (ix) being referred to as a "Permitted Payment"): (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration such payment was permitted by the provisions of paragraph (a) of this Section 10.9; (ii) the repurchase, redemption, or other acquisition or retirement of any shares of any class of Capital Stock of the Company in exchange for (including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares or scrip), or out of the Net Cash Proceeds of a substantially concurrent issue and sale for cash (other than to a Subsidiary of the Company) of, other shares of Qualified Capital Stock of the Company; provided that the Net Cash Proceeds from the issuance of such shares of Qualified Capital Stock are, to the extent so used, excluded from clause (3)(C) of paragraph (a) of this Section 10.9; -66- (iii) the repurchase, redemption, defeasance, retirement or acquisition for value or payment of principal of any Subordinated Indebtedness in exchange for, or in an amount not in excess of the net proceeds of, a substantially concurrent issuance and sale for cash (other than to any Subsidiary of the Company) of any Qualified Capital Stock of the Company, provided that the Net Cash Proceeds from the issuance of such shares of Qualified Capital Stock are, to the extent so used, excluded from clause (3)(C) of paragraph (a) of this Section 10.9; (iv) the repurchase, redemption, defeasance, retirement, refinancing, acquisition for value or payment of principal of any Subordinated Indebtedness (other than Redeemable Capital Stock) through the substantially concurrent issuance of new Subordinated Indebtedness of the Company; provided that any such new Subordinated Indebtedness (1) shall be in a principal amount that does not exceed the principal amount so refinanced (or, if such Subordinated Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, then such lesser amount as of the date of determination), plus the lesser of (I) the stated amount of any premium or other payment required to be paid in connection with such a refinancing pursuant to the terms of the Subordinated Indebtedness being refinanced or (II) the amount of premium or other payment actually paid at such time to refinance the Subordinated Indebtedness, plus, in either case, the amount of expenses of the Company incurred in connection with such refinancing; (2) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Securities; (3) has a Stated Maturity for its final scheduled principal payment later than the Stated Maturity for the final scheduled principal payment of the Securities; and (4) is expressly subordinated in right of payment to the Securities at least to the same extent as the Subordinated Indebtedness to be refinanced; (v) the repurchase of any Subordinated Indebtedness of the Company at a purchase price not greater than 101% of the principal amount of such Subordinated Indebtedness in the event of a Change in Control pursuant to a provision similar to Section 10.16; provided that prior to or simultaneously with such repurchase, the Company has made the Change in Control Offer as provided in Section 10.16 and all Securities validly tendered for payment in connection with such Change in Control Offer shall have been repurchased; (vi) the repurchase of any Subordinated Indebtedness of the Company, at a purchase price not greater than 100% of the principal amount of such Indebtedness in the event of an Asset Sale pursuant to a provision similar to Section 10.12; provided that (A) prior to such repurchase the Company has made an Offer to purchase the Securities as provided in Section 10.12 and all Securities validly tendered for payment in connection with such Offer shall have been repurchased and (B) the aggregate amount of all such repurchases of Subordinated Indebtedness may not exceed the amount of Net Cash Proceeds remaining after the Company has complied with the terms of Section 10.12(c); (vii) the repurchase of shares of Capital Stock of the Company from employees of the Company upon termination of employment, death or retirement pursuant to the terms of an employee benefit plan or employment agreement; provided that the aggregate amount of all such repurchases in any calendar year may not exceed $2 million plus the aggregate amount by which repurchases in prior calendar years was less than $2 million; (viii) repurchases of Capital Stock of the Company deemed to occur upon the exercise of stock options granted to employees of the Company if such Capital Stock represents a portion -67- of the exercise price thereof; provided that no cash payment in respect of such repurchase shall be made by the Company or any Subsidiary; and (ix) cash payments in lieu of fractional shares pursuant to the exercise or conversion of any exercisable convertible securities; provided that such payment will not be for the purpose of evading the limitations of this Section 10.9 (as determined in good faith by the Board of Directors). The amount of all Restricted Payments (if other than cash) will be the Fair Market Value on the date of the Restricted Payment of the assets or securities proposed to be transferred or issued by the Company or its Subsidiaries, as the case may be, in connection with the Restricted Payment. The Fair Market Value of any non-cash Restricted Payment shall be determined in good faith by the Board of Directors. In making the computations required by this Section 10.9, the Company shall be permitted to rely in good faith on its financial statements and other financial data derived from its books and records and the books and records of its Subsidiaries that are available on the date of determination. If the Company or any Subsidiary makes a Restricted Payment which, at the time of the making thereof, the Board of Directors determined in good faith was permitted under this Section 10.9, such Restricted Payment shall not be deemed to have been made in violation of this Section 10.9 because a subsequent adjustment is made to the Company's or any Subsidiary's financial statements affecting Consolidated Net Income for any period relevant in determining whether such Restricted Payment was permitted. SECTION 10.10. Limitation on Transactions with Affiliates. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate of the Company (other than the Company or a Wholly Owned Subsidiary) unless (a) such transaction or series of related transactions is in writing and on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than those that would be available in a comparable transaction in arm's-length dealings with an unrelated third party, (b) with respect to any transaction or series of related transactions involving an aggregate value in excess of $2.5 million, such transaction or series of related transactions has been approved by a majority of the Disinterested Directors of the Company, or in the event there is only one Disinterested Director, by such Disinterested Director, and (c) with respect to any transaction or series of related transactions involving an aggregate value in excess of $10 million or with respect to which there are no Disinterested Directors, the Company delivers to the Trustee a written opinion of an investment banking firm of national standing or other recognized independent expert with experience appraising the terms and conditions of the type of transaction or series of related transactions for which an opinion is required stating that the transaction or series of related transactions is fair to the Company or such Subsidiary from a financial point of view; provided, however, that this provision shall not apply to: (1) any transaction with an officer or director of the Company or any of its Subsidiaries entered into in the ordinary course of business (including compensation or employee benefit arrangements with any officer or director of the Company or any of its Subsidiaries, including under any stock option or stock incentive plans); and (2) transactions pursuant to agreements in effect on the date of this Indenture or pursuant to amendments, extensions or renewals of such agreements; provided that any such amendment, extension or renewal, taken as a whole, is no less favorable in any material respect to the Holders of Securities than the terms of such existing agreements. -68- SECTION 10.11. Limitation on Liens. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur or affirm any Lien of any kind (other than Permitted Liens) upon any property or assets (including any intercompany notes) of the Company or any of its Subsidiaries owned on the date of this Indenture or acquired after the date of this Indenture, or any income or profits therefrom, unless the Securities are directly secured equally and ratably with (or, in the case of Subordinated Indebtedness, prior or senior thereto, with the same relative priority as the Securities shall have with respect to such Subordinated Indebtedness) the obligation or liability secured by such Lien. SECTION 10.12. Limitation on Sale of Assets. (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, consummate an Asset Sale unless (i) at least 75% of the consideration from such Asset Sale are received in any combination of cash and/or Cash Equivalents and (ii) the Company or such Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets subject to such Asset Sale (as determined by the Board of Directors and evidenced in a Board Resolution); provided that the amount of (A) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet), of the Company or any of its Subsidiaries (including any Subsidiary that ceases to be a Subsidiary as a result of such Asset Sale), other than contingent liabilities and liabilities that are by their terms subordinated to the Securities, that are assumed by the transferee of any such assets shall be deemed to be cash for purposes of this clause (ii); and (B) any securities, notes or other obligations received by the Company or any such Subsidiary from such transferee that are converted by the Company or such Subsidiary into cash (to the extent of the cash received) within 180 days following the closing of such Asset Sale shall be deemed to be cash for purposes of this clause (ii). (b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not required to be applied to repay permanently any Pari Passu Indebtedness under the Bank Credit Facility then outstanding as required by the terms thereof, or the Company determines not to apply such Net Cash Proceeds to the permanent prepayment of such Pari Passu Indebtedness under the Bank Credit Facility, or if no such Pari Passu Indebtedness under the Bank Credit Facility is then outstanding, then the Company or any of its Subsidiaries may, within 12 months of the Asset Sale, invest (or enter into a legally binding commitment to invest, provided that the investment to which such commitment relates is consummated within 12 months of the date that such commitment is entered into) the Net Cash Proceeds in properties and other assets that (as determined by the Board of Directors) replace the properties and assets that were the subject of the Asset Sale or in properties and assets that will be used in the businesses of the Company or its Subsidiaries existing on the date of this Indenture or in businesses reasonably related thereto. If any such legally binding commitment to invest such Net Cash Proceeds is terminated, then the Company may, within 90 days of such termination or within 12 months of such Asset Sale, whichever is later, invest such Net Cash Proceeds as provided above. The amount of such Net Cash Proceeds not used or invested as set forth in this subsection (b) of this Section 10.12 constitutes "Excess Proceeds." (c) When the aggregate amount of Excess Proceeds exceeds $15 million, the Company shall apply the Excess Proceeds to the repayment of the Securities and any other Pari Passu Indebtedness outstanding with similar provisions requiring the Company to make an offer to purchase such Indebtedness with the proceeds from any Asset Sale as follows: (A) the Company shall make an offer to purchase (an "Offer") from all Holders of the Securities in accordance with the procedures set forth in this Indenture in the maximum principal amount (expressed as a multiple of $1,000) of Securities that may be purchased out of an amount (the "Security Amount") equal to the product of such Excess Proceeds multiplied by a -69- fraction, the numerator of which is the outstanding principal amount of the Securities, and the denominator of which is the sum of the outstanding principal amount of the Securities and such Pari Passu Indebtedness (subject to proration in the event such amount is less than the aggregate Offered Price (as defined herein) of all Securities tendered) and (B) to the extent required by such Pari Passu Indebtedness to reduce permanently the principal amount of such Pari Passu Indebtedness, the Company shall make an offer to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds over the Security Amount; provided that in no event shall the Company be required to make a Pari Passu Offer in a Pari Passu Debt Amount exceeding the principal amount of such Pari Passu Indebtedness. The offer price for the Securities will be payable in cash in an amount equal to 100% of the principal amount of the Securities plus accrued and unpaid interest, if any, to the date (the "Offer Date") such Offer is consummated (the "Offered Price"), in accordance with the procedures set forth in this Indenture. To the extent that the aggregate Offered Price of the Securities tendered pursuant to the Offer is less than the Security Amount relating thereto or the aggregate amount of Pari Passu Indebtedness that is purchased in a Pari Passu Offer is less than the Pari Passu Debt Amount, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Securities and Pari Passu Indebtedness surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Securities to be purchased on a pro rata basis. Upon the completion of the purchase of all the Securities tendered pursuant to an Offer and the completion of a Pari Passu Offer, the amount of Excess Proceeds, if any, shall be reset at zero. (d) When the aggregate amount of Excess Proceeds exceeds $15 million, such Excess Proceeds shall, prior to any purchase of Securities described in subsection (c) of this Section 10.12, be set aside by the Company in a separate account pending (i) deposit with the depository or a paying agent of the amount required to purchase the Securities tendered in an Offer or Pari Passu Indebtedness tendered in a Pari Passu Offer, (ii) delivery by the Company of the Offered Price to the holders of the Securities tendered in an Offer or Pari Passu Indebtedness tendered in a Pari Passu Offer and (iii) application, as set forth above, of Excess Proceeds in the business of the Company and its Subsidiaries for general corporate purposes. Such Excess Proceeds may be invested in Cash Equivalents; provided that the maturity date of any such investment made after the amount of Excess Proceeds exceeds $15 million shall not be later than the Offer Date. The Company shall be entitled to any interest or dividends accrued, earned or paid on such Cash Equivalents; provided that the Company shall not withdraw such interest from the separate account if an Event of Default has occurred and is continuing. (e) If the Company becomes obligated to make an Offer pursuant to subsection (c) of this Section 10.12, the Securities and the Pari Passu Indebtedness shall be purchased by the Company, at the option of the holders thereof, in whole or in part in integral multiples of $1,000, on a date that is not earlier than 45 days and not later than 60 days from the date the notice of the Offer is given to holders, or such later date as may be necessary for the Company to comply with the requirements under the Exchange Act. (f) The Company shall comply with the applicable tender offer rules, including Rule 14e-1 under the Exchange Act, and any other applicable securities laws or regulations in connection with an Offer. (g) The Company shall not, and shall not permit any of its Subsidiaries to, create or permit to exist or become effective any restriction (other than restrictions existing under (1) Indebtedness as in effect on the date of this Indenture, as such Indebtedness may be refinanced from time to time or (2) Indebtedness incurred thereafter under clause (i) of the second paragraph under Section 10.8; provided -70- that such restrictions are no less favorable to the Holders of Securities than those existing on the date of this Indenture) that would materially impair the ability of the Company to make an Offer to purchase the Securities or, if such Offer is made, to pay for the Securities tendered for purchase. (h) Subject to paragraph (f) above, within 30 days after the date on which the amount of Excess Proceeds equals or exceeds $15 million, the Company shall send or cause to be sent by first-class mail, postage prepaid, to the Trustee and to each Holder, at his address appearing in the Security Register, a notice stating or including: (1) that the Holder has the right to require the Company to repurchase, subject to proration, such Holder's Securities at the Offered Price; (2) the Offer Date; (3) the instructions a Holder must follow in order to have his Securities purchased in accordance with subsection (c) of this Section 10.12; (4) (i) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of the Company, the most recent subsequently filed Quarterly Report on Form 10-Q, as applicable, and any Current Report on Form 8-K of the Company filed subsequent to such Quarterly Report, other than Current Reports describing Asset Sales otherwise described in the offering materials (or corresponding successor reports) (or in the event the Company is not required to prepare any of the foregoing Forms, the comparable information required pursuant to Section 10.20), (ii) a description of material developments in the Company's business subsequent to the date of the latest of such Reports, (iii) if material, appropriate pro forma financial information, and (iv) such other information, if any, concerning the business of the Company which the Company in good faith believes will enable such Holders to make an informed investment decision regarding the Offer; (5) the Offered Price; (6) the names and addresses of the Paying Agent and the offices or agencies referred to in Section 10.2; (7) that Securities must be surrendered at least one Business Day prior to the Offer Date to the Paying Agent to an office or agency referred to in Section 10.2 to collect payment; (8) that any Securities not tendered will continue to accrue interest and that unless the Company defaults in the payment of the purchase price, any Security accepted for payment pursuant to the Offer shall cease to accrue interest on and after the Offer Date; and (9) the procedures for withdrawing a tender. (i) Holders electing to have Securities purchased hereunder will be required to surrender such Securities at the address specified in the notice at least three Business Days prior to the Offer Date. Holders will be entitled to withdraw their election to have their Securities purchased pursuant to this Section 10.12 if the Company receives, not later than the Offer Date, a facsimile transmission or letter setting forth (1) the name of the Holder, (2) the certificate number of the Security in respect of which such notice of withdrawal is being submitted, (3) the principal amount of the Security (which shall be $1,000 or an -71- integral multiple thereof) delivered for purchase by the Holder as to which his election is to be withdrawn, (4) a statement that such Holder is withdrawing his election to have such principal amount of such Security purchased, and (5) the principal amount, if any, of such Security (which shall be $1,000 or an integral multiple thereof) that remains subject to the original notice of the Offer and that has been or will be delivered for purchase by the Company. (j) The Company shall (i) not later than the Offer Date, accept for payment Securities or portions thereof tendered pursuant to the Offer, (ii) not later than 10:00 a.m. (New York time) on the Offer Date, deposit with the Trustee or with a Paying Agent (or, if the Company or any of its Affiliates is acting as Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money in same day funds (or New York Clearing House funds if such deposit is made prior to the Offer Date) sufficient to pay the aggregate Offered Price of all the Securities or portions thereof which are to be purchased on that date and (iii) not later than 10:00 a.m. (New York time) on the Offer Date, deliver to the Paying Agent (if other than the Company) an Officers' Certificate stating the Securities or portions thereof accepted for payment by the Company. Subject to applicable escheat laws, as provided in the Securities, the Trustee and the Paying Agent shall return to the Company any cash that remains unclaimed, together with interest, if any, thereon, held by them for the payment of the Offered Price; provided, however, that (x) to the extent that the aggregate amount of cash deposited by the Company with the Trustee in respect of an Offer exceeds the aggregate Offered Price of the Securities or portions thereof to be purchased, then the Trustee shall hold such excess for the Company and (y) unless otherwise directed by the Company in writing, promptly after the Business Day following the Offer Date the Trustee shall return any such excess to the Company together with interest or dividends, if any, thereon. (k) Securities to be purchased shall, on the Offer Date, become due and payable at the Offered Price and from and after such date (unless the Company shall default in the payment of the Offered Price) such Securities shall cease to bear interest. Such Offered Price shall be paid to such Holder promptly following the later of the Offer Date and the time of delivery of such Security to the relevant Paying Agent at the office of such Paying Agent by the Holder thereof in the manner required. Upon surrender of any such Security for purchase in accordance with the foregoing provisions, such Security shall be paid by the Company at the Offered Price; provided, however, that installments of interest whose Stated Maturity is on or prior to the Offer Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Dates according to the terms and the provisions of Section 3.7; provided, further, that Securities to be purchased are subject to proration in the event the Security Amount is less than the aggregate Offered Price of all Securities tendered for purchase, with such adjustments as may be appropriate by the Trustee so that only Securities in denominations of $1,000 or integral multiples thereof, shall be purchased. If any Security tendered for purchase shall not be so paid upon surrender thereof by deposit of funds with the Trustee or a Paying Agent in accordance with subsection (j) of this Section 10.12, the principal thereof (and premium, if any, thereon) shall, until paid, bear interest from the Offer Date at the rate borne by such Security. Any Security that is to be purchased only in part shall be surrendered to a Paying Agent at the office of such Paying Agent (with, if the Company, the Security Registrar or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Security Registrar or the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, one or more new Securities of any authorized denomination as requested by such Holder in an aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered that is not purchased. The Company shall publicly announce the results of the Offer on or as soon as practicable after the Offer Date. -72- SECTION 10.13. Limitation on Issuances of Subsidiary Guarantees. The Company shall not cause or permit any of its Subsidiaries to directly or indirectly, assume, guarantee or in any other manner become liable with respect to any Indebtedness of the Company or any Subsidiary (other than the guarantee by any Foreign Subsidiary or Indebtedness that is exclusively Indebtedness of one or more other Foreign Subsidiaries) unless, in each case, such Subsidiary: (1) executes and delivers to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Subsidiary shall unconditionally guarantee (each, a "Guarantee") all of the Company's obligations under the Securities and this Indenture on the terms set forth in this Indenture; and (2) delivers to the Trustee an Opinion of Counsel (which may contain customary exceptions) that such supplemental indenture has been duly authorized, executed and delivered by such Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Subsidiary. Thereafter, such Subsidiary will be a Guarantor for all purposes of this Indenture until such Guarantee is released in accordance with Section 12.5. The Company may cause any other Subsidiary of the Company to issue a Guarantee and become a Guarantor. SECTION 10.14. [Reserved.] SECTION 10.15. Restriction on Transfer of Assets. The Company shall not sell, convey, transfer or otherwise dispose of its assets or property to any Subsidiary of the Company that is not a Guarantor, except for sales, conveyances, transfers or other dispositions (a) made in the ordinary course of business or (b) to any Subsidiary of the Company if such Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture providing for a Guarantee by such Subsidiary of the Securities. SECTION 10.16. Purchase of Securities upon a Change in Control. (a) If a Change in Control shall occur at any time (unless all of the Securities have been called for redemption pursuant to Section 11.1(a)), then each Holder shall have the right to require that the Company purchase such Holder's Securities in whole or in part in integral multiples of $1,000, at a purchase price (the "Change in Control Purchase Price") in cash in an amount equal to 101% of the principal amount of such Securities, plus accrued and unpaid interest, if any, to the date of purchase (the "Change in Control Purchase Date"), pursuant to the offer described below in this Section 10.16 (the "Change in Control Offer") and in accordance with the procedures set forth in this Section 10.16. (b) Within 30 days following any Change in Control (unless all of the Securities have been called for redemption pursuant to Section 11.1(a)), the Company shall notify the Trustee thereof and give written notice (a "Change in Control Purchase Notice") of such Change in Control to each Holder by first-class mail, postage prepaid, at his address appearing in the Security Register stating or including: (1) that a Change in Control has occurred, the date of such event, and that such Holder has the right to require the Company to repurchase such Holder's Securities at the Change in Control Purchase Price; -73- (2) the circumstances and relevant facts regarding such Change in Control (including but not limited to information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change in Control); (3) (i) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of the Company, the most recent subsequently filed Quarterly Report on Form 10-Q, as applicable, and any Current Report on Form 8-K of the Company filed subsequent to such Quarterly Report (or in the event the Company is not required to prepare any of the foregoing Forms, the comparable information required to be prepared by the Company pursuant to Section 10.20), (ii) a description of material developments in the Company's business subsequent to the date of the latest of such reports and (iii) such other information, if any, concerning the business of the Company which the Company in good faith believes will enable such Holders to make an informed investment decision regarding the Change in Control Offer; (4) that the Change in Control Offer is being made pursuant to this Section 10.16 and that all Securities properly tendered pursuant to the Change in Control Offer will be accepted for payment at the Change in Control Purchase Price; (5) the Change in Control Purchase Date which shall be fixed by the Company and shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed, or such later date as is necessary to comply with requirements under the Exchange Act; (6) the Change in Control Purchase Price; (7) the names and addresses of the Paying Agent and the offices or agencies referred to in Section 10.2; (8) that Securities must be surrendered at least one Business Day prior to the Change in Control Purchase Date to the Paying Agent at the office of the Paying Agent or to an office or agency referred to in Section 10.2 to collect payment; (9) that the Change in Control Purchase Price for any Security which has been properly tendered and not properly withdrawn will be paid promptly following the Change in Control Offer Purchase Date; (10) the procedures for withdrawing a tender of Securities and Change in Control Purchase Notice; (11) that any Security not tendered will continue to accrue interest; and (12) that, unless the Company defaults in the payment of the Change in Control Purchase Price, any Securities accepted for payment pursuant to the Change in Control Offer shall cease to accrue interest after the Change in Control Purchase Date. (c) Upon receipt by the Company of the proper tender of Securities, the Holder of the Security in respect of which such proper tender was made shall (unless the tender of such Security is properly withdrawn) thereafter be entitled to receive solely the Change in Control Purchase Price with respect to such Security. Upon surrender of any such Security for purchase in accordance with the foregoing provisions, such Security shall be paid by the Company at the Change in Control Purchase Price; provided, -74- however, that installments of interest whose Stated Maturity is on or prior to the Change in Control Purchase Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Dates according to the terms and the provisions of Section 3.7. If any Security tendered for purchase in accordance with the provisions of this Section 10.16 shall not be so paid upon surrender thereof, the principal thereof (and premium, if any, thereon) shall, until paid, bear interest from the Change in Control Purchase Date at the rate borne by such Security. Any Security that is to be purchased only in part shall be surrendered to a Paying Agent at the office of such Paying Agent (with, if the Company, the Security Registrar or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Security Registrar or the Trustee, as the case may be, duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, one or more new Securities of any authorized denomination as requested by such Holder in an aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered that is not purchased. (d) The Company shall (i) not later than the Change in Control Purchase Date, accept for payment Securities or portions thereof tendered pursuant to the Change in Control Offer, (ii) not later than 10:00 a.m. (New York time) on the Change in Control Purchase Date, deposit with the Paying Agent an amount of cash sufficient to pay the aggregate Change in Control Purchase Price of all the Securities or portions thereof which are to be purchased as of the Change in Control Purchase Date and (iii) not later than 10:00 a.m. (New York time) on the Change in Control Purchase Date, deliver to the Paying Agent an Officers' Certificate stating the Securities or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to Holders of Securities so accepted payment in an amount equal to the Change in Control Purchase Price of the Securities purchased from each such Holder, and the Company shall execute and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Security equal in principal amount to any unpurchased portion of the Security surrendered. Any Securities not so accepted shall be promptly mailed or delivered by the Paying Agent at the Company's expense to the Holder thereof. The Company shall publicly announce the results of the Change in Control Offer on the Change in Control Purchase Date. For purposes of this Section 10.16, the Company shall choose a Paying Agent which shall not be the Company. (e) A tender made in response to a Change in Control Purchase Notice may be withdrawn before or after delivery by the Holder to the Paying Agent at the office of the Paying Agent of the Security to which such tender relates, by means of a written notice of withdrawal delivered by the Holder to the Paying Agent at the office of the Paying Agent or to the office or agency referred to in Section 10.2 to which the related tender was delivered prior to the Change in Control Purchase Date specifying, as applicable: (1) the name of the Holder; (2) the certificate number of the Security in respect of which such notice of withdrawal is being submitted; (3) the principal amount of the Security (which shall be $1,000 or an integral multiple thereof) delivered for purchase by the Holder as to which such notice of withdrawal is being submitted; and -75- (4) the principal amount, if any, of such Security (which shall be $1,000 or an integral multiple thereof) that remains subject to the original Change in Control Purchase Notice and that has been or will be delivered for purchase by the Company. (f) Subject to applicable escheat laws, as provided in the Securities, the Trustee and the Paying Agent shall return to the Company any cash that remains unclaimed, together with interest or dividends, if any, thereon, held by them for the payment of the Change in Control Purchase Price; provided, however, that, (x) to the extent that the aggregate amount of cash deposited by the Company pursuant to clause (ii) of subsection (e) of this Section 10.16 exceeds the aggregate Change in Control Purchase Price of the Securities or portions thereof to be purchased, then the Trustee shall hold such excess for the Company and (y) unless otherwise directed by the Company in writing, promptly after the Business Day following the Change in Control Purchase Date the Trustee shall return any such excess to the Company together with interest, if any, thereon. The Company shall not be required to make a Change in Control Offer upon a Change in Control if a third party makes the Change in Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change in Control Offer made by the Company and purchases all Securities validly tendered and not withdrawn under such Change in Control Offer. (g) The Company shall comply with the applicable tender offer rules, including Rule 14e-1 under the Exchange Act, and any other applicable securities laws or regulations in connection with a Change in Control Offer. (h) The Company shall not, and shall not permit any of its Subsidiaries to, create or permit to exist or become effective any restriction (other than restrictions existing under the Bank Credit Facility (or any guarantee thereof) or under Indebtedness as in effect on the date of this Indenture) and any extensions, refinancings, renewals or replacements of any of the foregoing that would materially impair the ability of the Company to make a Change in Control Offer to purchase the Securities or, if such Change in Control Offer is made, to pay for the Securities tendered for purchase; provided that the restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the holders of the Securities than those under the Indebtedness being extended, refinanced, renewed or replaced. SECTION 10.17. Limitation on Subsidiary Capital Stock. The Company shall not permit (a) any Subsidiary of the Company to issue, sell or transfer any Capital Stock, except for (i) Capital Stock issued or sold to, held by or transferred to the Company or a Wholly Owned Subsidiary, (ii) the ownership by directors of directors' qualifying shares or the ownership by foreign nationals of Capital Stock of any Subsidiary of the Company, to the extent required by applicable law, and (iii) Capital Stock issued by a Person prior to the time (A) such Person becomes a Subsidiary of the Company, (B) such Person merges with or into a Subsidiary of the Company or (C) a Subsidiary of the Company merges with or into such Person; provided that such Capital Stock was not issued or incurred by such Person in anticipation of the type of transaction contemplated by subclause (A), (B) or (C) or (b) any Person (other than the Company or a Wholly Owned Subsidiary) to acquire Capital Stock of any Subsidiary of the Company from the Company or any Wholly Owned Subsidiary except, in the case of clause (a) or (b), upon the acquisition of all the outstanding Capital Stock of such Subsidiary which is not in violation with any other terms of this Indenture. -76- SECTION 10.18. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any of its Subsidiaries to (i) pay dividends or make any other distribution on its Capital Stock, (ii) pay any Indebtedness owed to the Company or any other of its Subsidiaries, (iii) make any Investment in the Company or any other Subsidiary of the Company or (iv) transfer any of its properties or assets to the Company or any other of its Subsidiaries, except for: (a) any agreement in effect on the date of this Indenture; (b) any encumbrance or restriction, with respect to a Subsidiary of the Company that is not a Subsidiary of the Company on the date of this Indenture, in existence at the time such Person becomes a Subsidiary of the Company and not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company; (c) any encumbrance or restriction existing by reason of applicable law; (d) any encumbrance or restriction existing under any customary non-assignment provisions of any lease governing a leasehold interest of the Company or any Subsidiary of the Company; (e) any encumbrance or restriction contained in any working capital facility of a Foreign Subsidiary of the Company; and (f) any encumbrance or restriction existing under any agreement that extends, renews, refinances or replaces the agreements containing the encumbrances or restrictions in the foregoing clauses (a) and (b), or in this clause (f); provided that the terms and conditions of any such encumbrances or restrictions are no more restrictive in any material respect than those under or pursuant to the agreement evidencing the Indebtedness so extended, renewed, refinanced or replaced. SECTION 10.19. Limitation on Unrestricted Subsidiaries. The Company shall not make, and shall not permit its Subsidiaries to make, any Investment in an Unrestricted Subsidiary if, at the time thereof, the amount of such Investment would exceed the amount of Restricted Payments then permitted to be made pursuant to Section 10.9 plus the amount of Permitted Investments described in clause (xiv) of the definition thereof then permitted to be made. Any Investment in an Unrestricted Subsidiary permitted to be made pursuant to this Section 10.19 (i) will be treated as a Restricted Payment (unless such Investment was a Permitted Investment) in calculating the amount of Restricted Payments made by the Company and (ii) may be made in cash or property. SECTION 10.20. Provision of Financial Statements. Whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, the Company shall, to the extent permitted under the Exchange Act, file with the SEC the annual reports, quarterly reports and other documents which the Company would have been required to file with the SEC pursuant to such Section 13(a) or 15(d) if the Company were so subject, such documents to be filed with the SEC on or prior to the date (the "Required Filing Date") by which the Company would have been required so to file such documents if the Company were so subject. The Company will also in any event (x) within 15 days of each Required Filing Date (i) transmit by mail to all Holders, as their names and addresses appear in the Security Register, without cost to such Holders and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents which the Company would have been required to file with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were subject to either of such Sections and (y) if filing such documents by the Company with the SEC is not permitted under the Exchange Act, promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective holder at the Company's cost. -77- In addition, for so long as any Securities remain outstanding, the Company shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. The Company shall also comply with the provisions of TIA Section 314(a). Should the Company deliver to the Trustee any such information, reports or certificates or any annual reports, information, documents and other reports pursuant to Section 314(a) of the Trust Indenture Act, delivery of such information, reports or certificates or any annual reports, information, documents and other reports to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 10.21. Statement by Officers as to Default. (a) The Company shall deliver to the Trustee, not more than 120 days after the end of each fiscal year of the Company ending after the date hereof, a written statement signed by two executive officers of the Company, one of whom shall be the principal executive officer, principal financial officer or principal accounting officer of the Company, stating whether or not, after a review of the activities of the Company during such year and of the Company's performance under this Indenture, to the best knowledge, based on such review, of the signers thereof, the Company has fulfilled all of its obligations and is in compliance with all conditions and covenants under this Indenture throughout such year and, if there has been a Default specifying each Default and the nature and status thereof and any actions being taken by the Company with respect thereto. (b) When any Default or Event of Default has occurred and is continuing, or if the Trustee or any Holder or the trustee for or the holder of any other evidence of Indebtedness of the Company or any of its Subsidiaries gives any notice or takes any other action with respect to a claimed default the Company shall deliver to the Trustee by registered or certified mail or facsimile transmission followed by hard copy an Officers' Certificate specifying such Default, Event of Default, notice or other action, the status thereof and what actions the Company is taking or proposes to take with respect thereto, within 10 Business Days of its occurrence. SECTION 10.22. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition set forth in Sections 10.6 through 10.11, 10.13, 10.15 and 10.17 through 10.20, if, before or after the time for such compliance, the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding shall, by Act of such Holders, waive such compliance in such instance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect. -78- ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 11.1. Rights of Redemption. (a) The Securities are subject to redemption, at any time on or after October 1, 2008, at the option of the Company, in whole or in part, subject to the conditions, and at the Redemption Prices, specified in the form of Security, together with accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on relevant Regular Record Dates and Special Record Dates to receive interest due on applicable Interest Payment Dates and Special Payment Dates). (b) Up to 35% of the aggregate principal amount of the Securities may be redeemed at any time prior to October 1, 2006, at the option of the Company within 60 days after the consummation of one or more Equity Offerings by the Company from the net cash proceeds to the Company of such Equity Offerings, upon not less than 20 nor more than 60 days' prior notice to the Holders, in amounts of $1,000 or integral multiples of $1,000, at a redemption price equal to 108.5% of the principal amount, together, in each case, with accrued and unpaid interest if any, to the Redemption Date (subject to the right of Holders of record on applicable Record Dates or Special Record Dates to receive interest due on applicable Interest Payment Dates or Special Payment Dates). However, after giving effect to any such redemption, at least 65% aggregate principal amount of the Securities originally issued must remain outstanding, and such redemption must occur within 60 days following the closing of each such Equity Offering. SECTION 11.2. Applicability of Article. Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article Eleven. SECTION 11.3. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities pursuant to Section 11.1 shall be evidenced by a Company Order and an Officers' Certificate. In case of any redemption at the election of the Company, the Company shall, not less than 30 nor more than 60 days prior to the Redemption Date fixed by the Company, notify the Trustee in writing of such Redemption Date and of the principal amount of Securities to be redeemed. SECTION 11.4. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities or portions thereof to be redeemed shall be selected not more than 30 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption in compliance with the requirements of the principal national securities exchange, if any, on which the Securities being redeemed are listed, or if the Securities are not listed on a national securities exchange, pro rata, by lot or such other method as the Trustee deems fair and reasonable; provided that: (x) no Securities of a principal amount of $1,000 or less will be redeemed in part; and (y) if a partial redemption is made with the proceeds of a Equity Offering, selection of the Securities or portions thereof for redemption will be made by the Trustee only on a pro rata basis. Notwithstanding the foregoing, all selections by the Trustee of Securities to be redeemed shall be made in accordance with DTC procedures, unless such method is otherwise prohibited. -79- The Trustee shall promptly notify the Company and the Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. SECTION 11.5. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed to each Holder of Securities to be redeemed, at his address appearing in the Security Register as follows: (i) if the Company is redeeming the Securities pursuant to Section 11.1(a), not less than 30 nor more than 60 days prior to the Redemption Date; or (ii) if the Company is redeeming the Securities pursuant to Section 11.1(b), not less than 20 nor more than 60 days prior to the Redemption Date. All notices of redemption shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Securities are to be redeemed, the identification of the particular Securities to be redeemed; (d) in the case of a Security to be redeemed in part, the principal amount of such Security to be redeemed and that after the Redemption Date upon surrender of such Security, new Security or Securities in the aggregate principal amount equal to the unredeemed portion thereof will be issued; (e) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (f) that on the Redemption Date the Redemption Price will become due and payable upon each such Security or portion thereof to be redeemed, and that (unless the Company shall default in payment of the Redemption Price) interest thereon shall cease to accrue on and after said date; (g) the place or places where such Securities are to be surrendered for payment of the Redemption Price; and (h) the CUSIP number, if any, relating to such Securities. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name and at the expense of -80- the Company. If the Company elects to give notice of redemption, it shall provide the Trustee with a certificate stating that such notice has been given in compliance with the requirements of this Section 11.5. The notice if mailed in the manner herein provided shall be conclusively presumed to have been given, whether or not the Holder receives such notice and shall be deemed to have been given on the date of the mailing of such notice. In any case, failure to give such notice by mail or any defect in the notice to the Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security. SECTION 11.6. Deposit of Redemption Price. On or prior to 10:00 a.m. (New York time) on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company or any of its Affiliates is acting as Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money in same day funds sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date or Special Payment Date) accrued interest on, all the Securities or portions thereof which are to be redeemed on that date. All money earned on funds held in trust by the Trustee or any Paying Agent shall be remitted to the Company. SECTION 11.7. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Dates and Special Record Dates according to the terms and the provisions of Section 3.7. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid, bear interest from the Redemption Date at the rate borne by such Security. SECTION 11.8. Securities Redeemed or Purchased in Part. Any Security which is to be redeemed or purchased only in part shall be surrendered to the Paying Agent at the office or agency maintained for such purpose pursuant to Section 10.2 (with, if the Company, the Security Registrar or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company, the Security Registrar or the Trustee, as the case may be, duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the unredeemed portion of the principal of the Security so surrendered that is not redeemed or purchased. -81- ARTICLE TWELVE GUARANTEES SECTION 12.1. Guarantee. Subject to the provisions of this Article Twelve and Section 10.13, each Guarantor in respect of the Securities hereby jointly and severally unconditionally guarantees, on a senior unsecured basis, to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors, irrespective of (i) the validity and enforceability of this Indenture, the Securities or the obligations of the Company or any other Guarantors to the Holders of the Securities or the Trustee hereunder or thereunder or (ii) the absence of any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or default of a Guarantor, that: (a) the principal of, premium, if any, interest, if any, with respect to the Securities shall be duly and punctually paid in full when due, whether at maturity, by acceleration or otherwise, and interest on the overdue principal and (to the extent permitted by law) interest, if any, with respect to the Securities and all other obligations of the Company or any Guarantor to the Holders of the Securities or the Trustee hereunder or thereunder and all other obligations under this Indenture with respect to the Securities or the Securities shall be promptly paid in full or performed, all in accordance with the terms of this Indenture and thereof and (b) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, the same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so Guaranteed, or failing performance of any other obligation of the Company to the Holders of the Securities, for whatever reason, each Guarantor shall be obligated to pay, or to perform or cause the performance of, the same immediately. An Event of Default under this Indenture or the Securities shall constitute an event of default under the Guarantee, and shall entitle the Holders of Securities or the Trustee to accelerate the obligations of the Guarantors of such Securities hereunder in the same manner and to the same extent as the obligations of the Company. Each Guarantor, by execution of the Guarantee, waives the benefit of diligence, presentment, demand for payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that such Guarantee shall not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and such Guarantee. The Guarantee is a guarantee of payment and not of collection. If any Holder or the Trustee is required by any court or otherwise to return to the Company or to any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or such Guarantor, any amount paid by the Company or such Guarantor to the Trustee or such Holder of the Securities, the Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor further agrees that, as between it, on the one hand, and the Holders of the Securities and the Trustee, on the other hand, (a) subject to this Article Twelve, the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Five of this Indenture for the purposes of the Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby and (b) in the event of any acceleration of such obligations as provided in Article Five of this Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of such Guarantee. The Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become -82- insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Company's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Securities are pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Securities, whether as a "voidable preference," "fraudulent transfer" or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Securities shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. No shareholder, officer, director, employee or incorporator, past, present or future, or any Guarantor, as such, shall have any personal liability under this Guarantee by reason of his, her or its status as such shareholder, officer, director, employee or incorporator. SECTION 12.2. Execution and Delivery of Guarantee. To further evidence the Guarantee set forth in Section 12.1 of this Indenture, each Guarantor hereby agrees that a notation of such Guarantee, substantially in the form included in Exhibit E to this Indenture, shall be endorsed on each Security authenticated and delivered by the Trustee after this Article Twelve with respect to such Guarantor becomes effective in accordance with Section 12.1 of this Indenture and such Guarantee shall be executed by either manual or facsimile signature of an officer of each Guarantor. The validity and enforceability of any Guarantee shall not be affected by the fact that it is not affixed to any particular Security. Each of the Guarantors hereby agrees that its Guarantee set forth in Section 12.1 of this Indenture shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guarantee. If an officer of a Guarantor whose signature is on this Indenture or a Guarantee no longer holds that office at the time the Trustee authenticates the Security on which such Guarantee is endorsed or at any time thereafter, such Guarantor's Guarantee of such Security shall be valid nevertheless. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Guarantee set forth in this Indenture on behalf of the Guarantor. SECTION 12.3. Limitation of Guarantee. The obligations of each Guarantor are limited to the maximum amount as shall, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under this Indenture, result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. SECTION 12.4. Waiver of Subrogation. Each Guarantor, by execution of its Guarantee, waives to the extent permitted by law any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under such Guarantee and this In- -83- denture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of the Securities against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Securities shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Securities, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Securities, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor, by execution of its Guarantee, shall acknowledge that it shall receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 12.4 is knowingly made in contemplation of such benefits. SECTION 12.5. Release of Guarantee. The Guarantee of a Guarantor will be released: (a) in connection with any sale or other disposition of all of the Capital Stock of such Guarantor to a Person other than the Company or any Subsidiary of the Company, if the sale complies with Section 10.12; (b) in connection with the sale or other disposition of all or substantially all of the assets of such Guarantor, including by way of merger, consolidation or otherwise, to a Person other than the Company or any Subsidiary of the Company, if the sale or disposition complies with Section 10.12; (c) if the Company designates such Guarantor to be an Unrestricted Subsidiary in accordance with Section 10.19; (d) upon the release or discharge of the guarantee of such Subsidiary of Indebtedness of the Company and each Guarantor which resulted in the obligation to Guarantee the Securities pursuant to Section 10.13; or (e) in connection with the liquidation, dissolution or winding-up of a Guarantor, if such liquidation, dissolution or winding-up complies with the provisions of this Indenture. SECTION 12.6. Contribution from Other Guarantors. Each Guarantor that makes a payment or distribution under its Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the net assets of each Guarantor, determined in accordance with GAAP, so long as the exercise of such right does not impair the rights of Holders of Securities under any Guarantee. -84- ARTICLE Thirteen SATISFACTION AND DISCHARGE SECTION 13.1. Satisfaction and Discharge of Indenture. This Indenture will be discharged and will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Securities expressly provided for herein) and the Trustee, upon Company Request and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (a) either (1) all the Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 or (ii) all Securities for whose payment United States dollars have theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (2) all such Securities not theretofore delivered to the Trustee cancelled or for cancellation (x) have become due and payable, (y) will become due and payable at their Stated Maturity within one year or (z) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company; and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount in United States dollars sufficient to pay and discharge the entire Indebtedness on the Securities not theretofore delivered to the Trustee for cancellation, including the principal of, premium, if any, and accrued interest on such Securities at such Maturity, Stated Maturity or Redemption Date; (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Independent Counsel stating that (i) all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with and (ii) such satisfaction and discharge will not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7 and, if United States dollars shall have been deposited with the Trustee pursuant to subclause (2) of subsection (a) of this Section 13.1, the obligations of the Trustee under Section 13.2 and the last paragraph of Section 10.3 shall survive. -85- SECTION 13.2. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all United States dollars deposited with the Trustee pursuant to Section 13.1 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal of, premium, if any, and interest on the Securities for whose payment such United States dollars have been deposited with the Trustee. * * * -86- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the day and year first above written. BUCKEYE TECHNOLOGIES INC. By: /s/ David B. Ferraro -------------------- Name: David B. Ferraro Title: Chairman & Chief Executive Officer BUCKEYE FLORIDA CORPORATION By: /s/ David B. Ferraro -------------------- Name: David B. Ferraro Title: Chief Executive Officer BFOL 2 INC. By: /s/ David B. Ferraro -------------------- Name: David B. Ferraro Title: Chief Executive Officer BFC 2 INC. By: /s/ David B. Ferraro -------------------- Name: David B. Ferraro Title: Chief Executive Officer BFOL 3 LLC By: BFC 2 Inc., its Managing Member By: /s/ David B. Ferraro -------------------- Name: David B. Ferraro Title: Chief Executive Officer -87- BFC 3 LLC By: BFOL 2 Inc., its Managing Member By: /s/ David B. Ferraro -------------------- Name: David B. Ferraro Title: Chief Executive Officer BUCKEYE FLORIDA, LIMITED PARTNERSHIP By: Buckeye Florida Corporation, its General Partner By: /s/ David B. Ferraro -------------------- Name: David B. Ferraro Title: Chief Executive Officer BUCKEYE LUMBERTON INC. By: /s/ David B. Ferraro -------------------- Name: David B. Ferraro Title: Chief Executive Officer BUCKEYE MT. HOLLY LLC By: Buckeye Lumberton Inc., its sole member By: /s/ David B. Ferraro -------------------- Name: David B. Ferraro Title: Chief Executive Officer BKI LENDING INC. By: /s/ Doris J. Krick -------------------- Name: Doris J. Krick Title: President -88- BKI HOLDING CORPORATION By: /s/ Francis B. Jacobs, II ------------------------- Name: Francis B. Jacobs, II Title: President BKI ASSET MANAGEMENT CORPORATION By: /s/ Francis B. Jacobs, II ------------------------- Name: Francis B. Jacobs, II Title: President BKI FINANCE CORPORATION By: /s/ David B. Ferraro -------------------- Name: David B. Ferraro Title: Chief Executive Officer BKI INTERNATIONAL INC. By: /s/ David B. Ferraro -------------------- Name: David B. Ferraro Title: Chief Executive Officer BUCKEYE TECHNOLOGIES CANADA INC. By: /s/ Janice C. George -------------------- Name: Janice C. George Title: Secretary MERFIN SYSTEMS INC. By: /s/ David B. Ferraro -------------------- Name: David B. Ferraro Title: Cheif Executive Officer -89- Attest: /s/ Sheila Jordan Cunningham -------------------------------- Name: Sheila Jordan Cunningham Title: Senior Vice President, General Counsel and Secretary of Buckeye Technologies, Inc. -90- THE BANK OF NEW YORK, as Trustee By: /s/ Robert A. Massimillo --------------------------- Name: Robert A. Massimillo Title: Vice President EXHIBIT A FORM OF INITIAL GLOBAL SECURITY BUCKEYE TECHNOLOGIES INC. No. [ ] CUSIP No. [ ] THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO. THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"); (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER, IF THE ISSUER SO REQUESTS, THAT SUCH TRANSFER COMPLIES WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. A-1 AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE GOVERNING THIS SECURITY CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO BUCKEYE TECHNOLOGIES INC. OR THE REGISTRAR FOR REGISTRATION OF TRANSFER OR EXCHANGE AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFER OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, AND NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF INTERESTS IN THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 3.5 OF THE INDENTURE, DATED AS OF SEPTEMBER 22, 2003 BY AND AMONG BUCKEYE TECHNOLOGIES INC., THE GUARANTORS NAMED THEREIN AND THE TRUSTEE NAMED THEREIN, PURSUANT TO WHICH THIS SECURITY WAS ISSUED. A-2 GLOBAL SECURITY REPRESENTING 8 1/2% SENIOR NOTES DUE 2013 Buckeye Technologies Inc., a Delaware corporation, for value received, hereby promises to pay to CEDE & CO., or its registered assigns, the principal sum indicated on Schedule A hereof, on October 1, 2013. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purposes. IN WITNESS WHEREOF, the Company has caused this Security to be fully executed. Dated: BUCKEYE TECHNOLOGIES INC. By: ___________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION _________________________________________ The Bank of New York, as Trustee, certifies that this is one of the Securities referred to in the Indenture. By: ___________________________________ Authorized Signatory A-3 REVERSE SIDE OF FORM OF INITIAL GLOBAL SECURITY BUCKEYE TECHNOLOGIES INC. GLOBAL SECURITY REPRESENTING 8 1/2% SENIOR NOTES DUE 2013 1. Indenture. This Security is one of a duly authorized issue of debt securities of the Company (as defined below) designated as its "8 1/2% Senior Notes due 2013" (herein called the "Securities"), issued under an indenture dated as of September 22, 2003 (as amended or supplemented from time to time, the "Indenture") between the Company and The Bank of New York, as trustee (the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and each Holder of Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The summary of the terms of this Security contained herein does not purport to be complete and is qualified by reference to the Indenture. All terms used in this Security which are not defined herein shall have the same meanings assigned to them in the Indenture. The Indenture imposes certain limitations on the ability of the Company to, among other things, make certain Investments and Restricted Payments, pay dividends and other distributions, incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by its Subsidiaries, enter into or permit certain transactions with Affiliates, create or incur Liens, and make Asset Sales. The Indenture also imposes limitations on the ability of the Company to consolidate or merge with or into any other Person or permit any other Person to merge with or into the Company, or sell, convey, assign, transfer, lease or otherwise dispose of all or substantially all of the Property of the Company to any other Person and on the ability of the Company's Subsidiaries to issue Capital Stock. 2. Principal and Interest. Buckeye Technologies Inc., a Delaware corporation (such corporation, and its successors and assigns under the Indenture, being herein called the "Company"), promises to pay the principal amount set forth on Schedule A of this Security to the Holder hereof on October 1, 2013. The Company shall pay interest at a rate of 8 1/2%, per annum, from September 22, 2003 or from the most recent Interest Payment Date thereafter to which interest has been paid or duly provided for, semiannually on April 1 and October 1 of each year, commencing on April 1, 2004, in cash, to the Holder hereof until the principal amount hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions provided in the Indenture, be paid to the Person in whose name this Security (or the Security in exchange or substitution for which this Security was issued) is registered at the close of business on the Regular Record Date for interest payable on such Interest Payment Date. The Regular Record Date for any interest payment is the close of business on March 15 or September 15, as the case may be, whether or not a Business Day, immediately preceding the Interest Payment Date on which such interest is payable. Any such interest not so punctually paid or duly provided for ("Defaulted Interest") shall forthwith cease to be payable to the Holder on such Regular Record Date and shall be paid as provided in Section 3.7 of the Indenture. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Each payment of interest in respect of an Interest Payment Date will include interest accrued through the day before such Interest Payment Date. If an Interest Payment Date falls on a day that is not a Business Day, the interest payment to be made on such Interest Payment Date will be made on the next A-4 succeeding Business Day with the same force and effect as if made on such Interest Payment Date, and no additional interest will accrue as a result of such delayed payment. If this Security is exchanged in an Exchange Offer (as such term is defined in the Registration Rights Agreement) prior to the Regular Record Date for the first Interest Payment Date following such exchange, accrued and unpaid interest, if any, on this Security, up to but not including the date of issuance of the Exchange Security or Exchange Securities issued in exchange for this Security, shall be paid on the first Interest Payment Date for such Exchange Security or Exchange Securities to the Holder or Holders of such Exchange Security or Exchange Securities on the first Regular Record Date with respect to such Exchange Security or Exchange Securities. If this Security is exchanged in an Exchange Offer subsequent to the Regular Record Date for the first Interest Payment Date following such exchange but on or prior to such Interest Payment Date, then any such accrued and unpaid interest with respect to this Security and any accrued and unpaid interest on the Exchange Security or Exchange Securities issued in exchange for this Security, through the day before such Interest Payment Date, shall be paid on such Interest Payment Date to the Holder of this Security on such Regular Record Date. 3. Additional Interest. The Holder of this Security is entitled to the benefits of the Registration Rights Agreement. Subject to compliance by the Holder with Sections 2(e) and 3(b)(iv) of the Registration Rights Agreement, if (i) on or prior to the 90th day following the Issue Date (or, if such 90th day is not a Business Day, the next succeeding Business Day), neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been filed with the SEC, (ii) on or prior to the 180th day following the Issue Date (or, if such 180th day is not a Business Day, the next succeeding Business Day), neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been declared effective, (iii) on or prior to the 30th Business Day after the Exchange Offer Registration Statement is declared effective, the Registered Exchange Offer has not been consummated, (iv) the Company is otherwise required to file a Shelf Registration Statement and the Shelf Registration Statement is not filed within 90 days after the date on which a request has been made or the Company is otherwise required to so file the Shelf Registration Statement in accordance with the terms of the Registration Rights Agreement or such Shelf Registration Statement has not been declared effective within 180 days after the date on which such a request has been made or the Company is otherwise required to so file the Shelf Registration Statement in accordance with the terms of the Registration Rights Agreement the time period provided for in the Registration Rights Agreement, or (v) after either the Exchange Offer Registration Statement or the Shelf Registration Statement has been declared effective, such registration statement ceases to be effective or usable (subject to exceptions set forth in the Registration Rights Agreement) in connection with resales of Securities or Exchange Securities in connection with and during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (i) through (v) a "Registration Default"), then, as liquidated damages, additional interest (the "Additional Interest") will accrue on the Securities and the Exchange Securities (in addition to the stated interest on the Securities and the Exchange Securities) from and including the date on which any such Registration Default shall occur but excluding the date on which all Registration Defaults have been cured. Additional Interest will accrue at an initial rate of 0.25% per annum during the 90-day period immediately following the occurrence of such registration default and will increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event will such rate exceed 0.75% per annum. Except as expressly provided in this paragraph 3, Additional Interest shall be treated as interest and any date on which Additional Interest is due and payable shall be treated as an Interest Payment Date, for all purposes under this Security and the Indenture. A-5 4. Method of Payment. The Company, through the Paying Agent, shall pay interest on this Security to the registered Holder of this Security, as provided above. The Holder must surrender this Security to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of all debts public and private. Principal and interest will be payable at the office of the Paying Agent but, at the option of the Company, interest may be paid by check mailed to the registered Holders at their registered addresses. 5. Paying Agent and Registrar. Initially, The Bank of New York will act as the Transfer Agent, Paying Agent and Registrar under the Indenture. The Company may, upon written notice to the Paying Agent and Trustee, appoint and change any Transfer Agent, Paying Agent or Registrar. The Company or any of its subsidiaries may act as Transfer Agent, Paying Agent or Registrar. 6. Optional Redemption. On or after October 1, 2008, the Securities will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 calendar days, nor more than 60 calendar days' notice, at the prices (expressed as percentages of principal amounts) set forth below, plus accrued and unpaid interest thereon (if any) at the applicable Redemption Date, if redeemed during the twelve-month period beginning October 1 of the years indicated below: Year Percentage 2008 104.250% 2009 102.833% 2010 101.417% 2011 and thereafter 100.000% Notwithstanding the foregoing, at any time prior to October 1, 2006, the Company may redeem up to 35% of the aggregate principal amounts of Securities with the net proceeds of one or more Equity Offerings of the Company at a redemption price equal to 108.50% of the aggregate principal amount thereof, on the date of redemption. However, after giving effect to any such redemption, at least 65% of the aggregate principal amount of the Securities originally issued must remain outstanding and such redemption must occur within 60 days following the closing of each such Equity Offering. 7. Notice of Redemption. At least 30 calendar days but not more than 60 calendar days before a Redemption Date, the Company shall send a notice of redemption, first-class mail, postage prepaid, to Holders of Securities to be redeemed at the addresses of such Holders as they appear in the Security Register. If less than all of the Securities are to be redeemed at any time, the Securities to be redeemed will be chosen by the Trustee in accordance with the Indenture. If any Security is redeemed subsequent to a Regular Record Date with respect to any Interest Payment Date specified above and on or prior to such Interest Payment Date, then any accrued interest will be paid on such Interest Payment Date to the Holder of the Security on such Regular Record Date. If money in an amount sufficient to pay the Redemption Price of all Securities (or portions thereof) to be redeemed on the Redemption Date is deposited with the A-6 Paying Agent on or before the applicable Redemption Date and certain other conditions are satisfied, interest on the Securities to be redeemed on the applicable Redemption Date will cease to accrue. The Securities are not subject to any sinking fund. 8. Repurchase at the Option of Holders upon Change of Control. Upon the occurrence of a Change of Control, each Holder of Securities shall have the right to require the Company to purchase such Holder's Securities, in whole, or in part in a principal amount that is an integral multiple of $1,000, pursuant to a Change of Control Offer, at a purchase price in cash equal to 101% of the aggregate principal amount thereof on any Change of Control Purchase Date, plus accrued and unpaid interest, if any, to the Change of Control Purchase Date. Within 30 calendar days following any Change of Control, the Company shall send, or cause to be sent, by first-class mail, postage prepaid, a notice regarding the Change of Control Offer to each Holder of Securities. The Holder of this Security may elect to have this Security or a portion hereof in an authorized denomination purchased by completing the form entitled "Option of Holder to Require Purchase" appearing below and tendering this Security pursuant to the Change of Control Offer. Unless the Company defaults in the payment of the Change of Control Purchase Price with respect thereto, all Securities or portions thereof accepted for payment pursuant to the Change of Control Offer will cease to accrue interest from and after the Change of Control Purchase Date. 9. Repurchase at the Option of Holders upon Asset Sale. If at any time the aggregate amount of Excess Proceeds calculated as of such date exceeds $15 million, the Company shall, within 30 days of the date the amount of Excess Proceeds exceeds $15 million, use such Excess Proceeds to make an offer to purchase (an "Asset Sale Offer") on a pro rata basis, from all holders, outstanding Securities, at a purchase price (the "Offered Price") in cash equal to 100% of the principal amount thereof, plus, in each case, accrued and unpaid interest, if any, to the purchase date, in accordance with the procedures set forth in the relevant indenture. Upon completion of an Asset Sale Offer (including payment of the Offered Price), any surplus Excess Proceeds that were the subject of such offer shall cease to be Excess Proceeds, and the Company may then use such amounts for general corporate purposes. Within 30 calendar days of the date the amount of Excess Proceeds equals or exceeds $15 million, the Company shall send, or cause to be sent, by first-class mail, postage prepaid, a notice regarding the Asset Sale Offer to each Holder of Securities. The Holder of this Security may elect to have this Security or a portion hereof in an authorized denomination purchased by completing the form entitled "Option of Holder to Require Purchase" appearing below and tendering this Security pursuant to the Asset Sale Offer. Unless the Company defaults in the payment of the Offered Price with respect thereto, all Securities or portions thereof selected for payment pursuant to the Asset Sale Offer will cease to accrue interest from and after the Offer Date. 10. The Global Security. So long as this Global Security is registered in the name of the Depositary or its nominee, members of, or participants in, the Depositary ("Agent Members") shall have no rights under the Indenture with respect to this Global Security held on their behalf by the Depositary or the Trustee as its custodian, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of this Global Security for all purposes. Notwithstanding the foregoing, nothing herein shall (i) prevent the Company, the Trustee or any agent of the Company or the Trustee, A-7 from giving effect to any written certification, proxy or other authorization furnished by the Depositary or (ii) impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of Securities. The Holder of this Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests in this Global Security through Agent Members, to take any action which a Holder of Securities is entitled to take under the Indenture or the Securities. Whenever, as a result of optional redemption by the Company, a Change of Control Offer, an Asset Sale Offer, a Registered Exchange Offer or an exchange for Certificated Securities, this Global Security is redeemed, repurchased or exchanged in part, this Global Security shall be surrendered by the Holder thereof to the Trustee who shall cause an adjustment to be made to Schedule A hereof so that the principal amount of this Global Security will be equal to the portion not redeemed, repurchased or exchanged and shall thereafter return this Global Security to such holder; provided that this Global Security shall be in a principal amount of $1,000 or an integral multiple of $1,000. 11. The Registered Exchange Offer. Any Initial Securities represented by this Global Security which are presented to the Registrar for exchange pursuant to the Registered Exchange Offer shall be exchanged for a Global Security representing Exchange Securities of equal principal amount upon surrender of this Global Security to the Registrar in accordance with the terms of the Registered Exchange Offer and the Indenture. 12. Transfer and Exchange. By its acceptance of any Security represented by a certificate bearing the Private Placement Legend, each Holder of, and beneficial owner of an interest in, such a Security acknowledges the restrictions on transfer of such a Security set forth in the Private Placement Legend and under the heading "Notice to Investors" in the Final Memorandum, and agrees that it will transfer such a Security only in accordance with the Private Placement Legend and that it will transfer such a Security only in accordance under the heading "Notice to Investors" in the Final Memorandum. In connection with any registration of transfer of a Security bearing the Private Placement Legend other than to a Person whom the Holder reasonably believes to be a "qualified institutional buyer" under the Securities Act, such Holder shall deliver to the Company such satisfactory evidence, which may include, to the extent provided in the Private Placement Legend, an Opinion of Independent Counsel licensed to practice law in the State of New York, as reasonably may be requested by the Company to confirm that such transfer is being made in accordance with the limitations set forth in the Private Placement Legend. In the event the Company reasonably determines that any such transfer is not in accordance with the Private Placement Legend, the Company shall so inform the Registrar who shall not register such transfer; provided that the Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such evidence. Upon the registration of transfer, exchange or replacement of a Security not bearing the Private Placement Legend, the Trustee shall deliver a Security that does not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of a Security bearing the Private Placement Legend, the Trustee shall deliver a Security bearing the Private Placement Legend, unless such legend may be removed from such Security as provided in the next sentence. The Private Placement Legend may be removed from a Security if there is delivered to the Company such satisfactory evidence, which may include an Opinion of Independent Counsel licensed to practice law in the State of New York, as reasonably may be requested by the Company to confirm that neither such legend nor the restrictions on transfer A-8 set forth therein are required to ensure that transfers of such Security will not violate the registration and prospectus delivery requirements of the Securities Act; provided that the Trustee shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such evidence. Upon provision of such evidence, the Trustee shall authenticate and deliver in exchange for such Security, a Security or Securities (representing the same aggregate principal amount of the Security being exchanged) without such legend. If the Private Placement Legend has been removed from a Security, as provided above, no other Security issued in exchange for all or any part of such Security shall bear such legend, unless the Company has reasonable cause to believe that such other Security represents a "restricted security" within the meaning of Rule 144 and instructs the Trustee to cause a legend to appear thereon. The Holder of this Global Security shall, by acceptance of this Global Security, agree that transfers of beneficial interests in this Global Security may be effected only through a book entry system maintained by such Holder (or its agent), and that ownership of a beneficial interest in the Securities represented thereby shall be required to be reflected in book entry form. Transfers of this Global Security shall be limited to transfers in whole, and not in part, to the Depositary, its successors and their respective nominees. Interests of beneficial owners in this Global Security may be transferred in accordance with the rules and procedures of the Depositary (or its successors). This Global Security will be exchanged by the Company for one or more Certificated Securities if (a) the Depositary (i) has notified the Company that it is unwilling to or unable to continue as, or ceases to be, a clearing agency registered under Section 17A of the Exchange Act and (ii) a successor to the Depositary registered as a clearing agency under Section 17 A of the Exchange Act is not able to be appointed by the Company within 90 calendar days or (b) the Depositary is at any time unwilling to or unable to continue as Depositary and a successor to the Depositary is not able to be appointed by the Company within 90 calendar days. If an Event of Default occurs and is continuing, the Company shall, at the request of the Holder hereof, exchange all or part of this Global Security for one or more Certificated Securities; provided that the principal amount of each of such Certificated Securities and this Global Security, after such exchange, shall be $1,000 or an integral multiple thereof. Whenever this Global Security is exchanged as a whole for one or more Certificated Securities, it shall be surrendered by the Holder to the Trustee for cancellation. Whenever this Global Security is exchanged in part for one or more Certificated Securities, it shall be surrendered by the Holder to the Trustee and the Trustee shall make the appropriate notations thereon pursuant to Section 3.5 of the Indenture. All Certificated Securities issued in exchange for this Global Security or any portion hereof shall be registered in such names as the Depositary shall instruct the Trustee. Any Certificated Securities issued in exchange for this Global Security shall include the Private Placement Legend except as set forth in Section 3.5 of the Indenture. Interests in this Global Security may not be exchanged for Certificated Securities other than as provided in this paragraph. Prior to the effectiveness of a Shelf Registration Statement or following the suspension or termination thereof, the Holder of this Security (or holders of interests therein) and prospective purchasers designated by such Holder (or such holders of interests therein) shall have the right to obtain from the Company upon request by such Holder (or such holders of interests) or prospective purchasers, during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, or exempt from reporting pursuant to 12g3-2(b) under the Exchange Act, the information required by paragraph (d)(4)(i) of Rule 144A in connection with any transfer or proposed transfer of such Security or interest. 13. Denominations. The Securities are issuable only in registered form without coupons in denominations of $1,000 and integral multiples thereof of principal amount. A-9 14. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment unless such abandoned property law designates another Person. 15. Discharge and Defeasance. Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company irrevocably deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 16. Amendment, Waiver. Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the Outstanding Securities and (ii) any past Default and its consequences may be waived with the written consent of the Holders of at least a majority in principal amount of the Outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of Securities, the Company and the Trustee may amend Indenture or the Securities (i) to evidence the succession of another Person to the Company and the assumption by such successor of the covenants of the company under the Indenture and contained in the Securities; (ii) to add additional covenants or to surrender rights and powers conferred on the Company; (iii) to add any additional Events of Default; (iv) to provide for uncertificated Securities in addition to or in place of Certificated Securities; (v) to evidence and provide for the acceptance of appointment under the Indenture of a successor Trustee; (vi) to secure the Securities; (vii) to cure any ambiguity in the Indenture, to correct or supplement any provision in the Indenture which may be inconsistent with any other provision therein or to add any other provisions with respect to matters or questions arising under the Indenture, provided that such actions shall not adversely affect the interests of the Holders in any material respect; or (viii) to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities, subject to certain limitations, may declare all the Securities to be immediately due and payable. Certain events of bankruptcy or insolvency are Events of Default and shall result in the Securities being immediately due and payable upon the occurrence of such Events of Default without any further act of the Trustee or any Holder. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power under the Indenture. The Holders of a majority in principal amount of the outstanding Securities, by written notice to the Company and the Trustee, may rescind any declaration of acceleration and its consequences if the rescission would not conflict with any judgment or decree, and if all Events of Default have been cured or waived except nonpayment of principal and interest that has become due solely because of the acceleration. A-10 18. Individual Rights of Trustee. Subject to certain limitations imposed by the Trust Indenture Act, the Trustee or any Paying Agent or Registrar, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee, Paying Agent or Registrar, as the case may be, under the Indenture. 19. No Recourse Against Certain Others. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation, solely by reason of its status as a director, officer, employee, incorporator or stockholder of the Company. By accepting a Security, each Holder waives and releases all such liability (but only such liability) as part of the consideration for issuance of such Security to such Holder. 20. Governing Law. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. The Company will furnish to any Holder of Securities upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Security. Requests may be made to: Buckeye Technologies Inc. 1001 Tillman Street Memphis, Tennessee 38112 Attention: Sheila Jordan Cunningham A-11 SCHEDULE A SCHEDULE OF PRINCIPAL AMOUNT The initial principal amount of this Security shall be $200,000,000. The following decreases/increases in the principal amount of this Security have been made: Total Principal Date of Decrease in Increase in Amount Decrease/ Principal Principal Following Such Notation Made by or Increase Amount Amount Decrease/Increase on Behalf of Trustee A-12 ASSIGNMENT (To be executed by the registered Holder if such Holder desires to transfer this Security) FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER OF TRANSFEREE _____________________________________________ _____________________________________________ _____________________________________________ (Please print name and address of transferee) _____________________________________________ this Security, together with all right, title and interest herein, and does hereby irrevocably constitute and appoint ______________________ Attorney to transfer this Security on the Security Register, with full power of substitution. _____________________________________________ Dated: _______________________ _____________________________________ ________________________________ Signature of Holder Signature Guaranteed: Commercial Bank or Trust Company Or Member Firm of the New York Stock Exchange, Inc. NOTICE: The signature to the foregoing Assignment must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-13 OPTION OF HOLDER TO ELECT PURCHASE (Check as appropriate) [ ] In connection with the Change of Control Offer made pursuant to Section 10.16 of the Indenture, the undersigned hereby elects to have [ ] $__________ ($1,000 in principal amount or an integral multiple thereof) of this Security repurchased by the Company. The undersigned hereby directs the Trustee or Paying Agent to pay it or ___________ an amount in cash equal to 101% with respect to the principal amount indicated in the preceding sentence or the principal amount indicated in the preceding sentences, as the case may be, plus accrued and unpaid interest thereon, if any, to the Change of Control Payment Date. [ ] In connection with the Asset Sale Offer made pursuant to Section 10.15 of the Indenture, the undersigned hereby elects to have [ ] $_________ ($1,000 in principal amount or an integral multiple thereof) of this Security repurchased by the Company. The undersigned hereby directs the Trustee or Paying Agent to pay it or _____________ an amount in cash equal to 100% with respect to the principal amount indicated in the preceding sentence, plus accrued and unpaid interest thereon, if any, to the Asset Sale Payment Date. Dated: __________________ _____________________________________ ________________________________ Signature of Holder Signature Guaranteed: Commercial Bank or Trust Company Or Member Firm of the New York Stock Exchange, Inc. NOTICE: The signature to the foregoing Assignment must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-14 EXHIBIT B Form of Face of Initial Securities and Additional Securities Form of Reverse of Initial Securities and Additional Securities B-1 EXHIBIT B FORM OF INITIAL CERTIFICATED SECURITY BUCKEYE TECHNOLOGIES INC. No. [ ] CUSIP No. [ ] THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"); (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER, IF THE ISSUER SO REQUESTS, THAT SUCH TRANSFER COMPLIES WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SE- B-2 CURITIES ACT. THE INDENTURE GOVERNING THIS SECURITY CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING. B-3 8 1/2% SENIOR NOTES DUE 2013 Buckeye Technologies Inc., a Delaware corporation, for value received, hereby promises to pay to CEDE & CO., or its registered assigns, $[ ], on October 1, 2013. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purposes. IN WITNESS WHEREOF, the Company has caused this Security to be fully executed. Dated: BUCKEYE TECHNOLOGIES INC. By: ___________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION ___________________________________________ The Bank of New York, as Trustee, certifies that this is one of the Securities referred to in the Indenture. By: _______________________________________ Authorized Signatory B-4 REVERSE SIDE OF FORM OF INITIAL CERTIFICATED SECURITY BUCKEYE TECHNOLOGIES INC. CERTIFICATED SECURITY 8 1/2% SENIOR NOTES DUE 2013 1. Indenture. This Security is one of a duly authorized issue of debt securities of the Company (as defined below) designated as its "8 1/2% Senior Notes due 2013" (herein called the "Securities"), issued under an indenture dated as of September 22, 2003 (as amended or supplemented from time to time, the "Indenture") between the Company and The Bank of New York, as trustee (the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and each Holder of Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The summary of the terms of this Security contained herein does not purport to be complete and is qualified by reference to the Indenture. All terms used in this Security which are not defined herein shall have the same meanings assigned to them in the Indenture. The Indenture imposes certain limitations on the ability of the Company to, among other things, make certain Investments and other Restricted Payments, pay dividends and other distributions, incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by its Subsidiaries, enter into or permit certain transactions with Affiliates, create or incur Liens, and make Asset Sales. The Indenture also imposes limitations on the ability of the Company to consolidate or merge with or into any other Person or permit any other Person to merge with or into the Company, or sell, convey, assign, transfer, lease or otherwise dispose of all or substantially all of the Property of the Company to any other Person and on the ability of the Company's Subsidiaries to issue Capital Stock. 2. Principal and Interest. Buckeye Technologies Inc., a Delaware corporation (such corporation, and its successors and assigns under the Indenture, being herein called the "Company"), promises to pay $[ ] to the Holder hereof on October 1, 2013. The Company shall pay interest at a rate of 8 1/2%, per annum, from September 22, 2003 or from the most recent Interest Payment Date thereafter to which interest has been paid or duly provided for, semiannually on April 1 and October 1 of each year, commencing on April 1, 2004, in cash, to the Holder hereof until the principal amount hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions provided in the Indenture, be paid to the Person in whose name this Security (or the Security in exchange or substitution for which this Security was issued) is registered at the close of business on the Regular Record Date for interest payable on such Interest Payment Date. The Regular Record Date for any interest payment is the close of business on March 15 or September 15, as the case may be, whether or not a Business Day, immediately preceding the Interest Payment Date on which such interest is payable. Any such interest not so punctually paid or duly provided for ("Defaulted Interest") shall forthwith cease to be payable to the Holder on such Regular Record Date and shall be paid as provided in Section 3.7 of the Indenture. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Each payment of interest in respect of an Interest Payment Date will include interest accrued through the day before such Interest Payment Date. If an Interest Payment Date falls on a day that is not a Business Day, the interest payment to be made on such Interest Payment Date will be made on the next B-5 succeeding Business Day with the same force and effect as if made on such Interest Payment Date, and no additional interest will accrue as a result of such delayed payment. If this Security is exchanged in an Exchange Offer (as such term is defined in the Registration Rights Agreement) prior to the Regular Record Date for the first Interest Payment Date following such exchange, accrued and unpaid interest, if any, on this Security, up to but not including the date of issuance of the Exchange Security or Exchange Securities issued in exchange for this Security, shall be paid on the first Interest Payment Date for such Exchange Security or Exchange Securities to the Holder or Holders of such Exchange Security or Exchange Securities on the first Regular Record Date with respect to such Exchange Security or Exchange Securities. If this Security is exchanged in an Exchange Offer subsequent to the Regular Record Date for the first Interest Payment Date following such exchange but on or prior to such Interest Payment Date, then any such accrued and unpaid interest with respect to this Security and any accrued and unpaid interest on the Exchange Security or Exchange Securities issued in exchange for this Security, through the day before such Interest Payment Date, shall be paid on such Interest Payment Date to the Holder of this Security on such Regular Record Date. 3. Additional Interest. The Holder of this Security is entitled to the benefits of the Registration Rights Agreement. Subject to compliance by the Holder with Sections 2(e) and 3(b)(iv) of the Registration Rights Agreement, if (i) on or prior to the 90th day following the Issue Date (or, if such 90th day is not a Business Day, the next succeeding Business Day), neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been filed with the SEC, (ii) on or prior to the 180th day following the Issue Date (or, if such 180th day is not a Business Day, the next succeeding Business Day), neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been declared effective, (iii) on or prior to the 30th Business Day after the Exchange Offer Registration Statement is declared effective, the Registered Exchange Offer has not been consummated, (iv) the Company is otherwise required to file a Shelf Registration Statement and the Shelf Registration Statement is not filed within 90 days after the date on which a request has been made or the Company is otherwise required to so file the Shelf Registration Statement in accordance with the terms of the Registration Rights Agreement or such Shelf Registration Statement has not been declared effective within 180 days after the date on which such a request has been made or the Company is otherwise required to so file the Shelf Registration Statement in accordance with the terms of the Registration Rights Agreement the time period provided for in the Registration Rights Agreement, or (v) after either the Exchange Offer Registration Statement or the Shelf Registration Statement has been declared effective, such registration statement ceases to be effective or usable (subject to exceptions set forth in the Registration Rights Agreement) in connection with resales of Securities or Exchange Securities in connection with and during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (i) through (v) a "Registration Default"), then, as liquidated damages, additional interest (the "Additional Interest") will accrue on the Securities and the Exchange Securities (in addition to the stated interest on the Securities and the Exchange Securities) from and including the date on which any such Registration Default shall occur but excluding the date on which all Registration Defaults have been cured. Additional Interest will accrue at an initial rate of 0.25% per annum during the 90-day period immediately following the occurrence of such registration default and will increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event will such rate exceed 0.75% per annum. Except as expressly provided in this paragraph 3, Additional Interest shall be treated as interest and any date on which Additional Interest is due and payable shall be treated as an Interest Payment Date, for all purposes under this Security and the Indenture. B-6 4. Method of Payment. The Company, through the Paying Agent, shall pay interest on this Security to the registered Holder of this Security, as provided above. The Holder must surrender this Security to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of all debts public and private. Principal and interest will be payable at the office of the Paying Agent but, at the option of the Company, interest may be paid by check mailed to the registered Holders at their registered addresses. 5. Transfer Agent, Paying Agent and Registrar. Initially, The Bank of New York will act as Transfer Agent, Paying Agent and Registrar ("Paying Agent") under the Indenture. The Company may, upon written notice to the Paying Agent and Trustee, appoint and change any Transfer Agent, Paying Agent or Registrar. The Company or any of its subsidiaries may act as Transfer Agent, Paying Agent or Registrar. 6. Optional Redemption. On or after October 1, 2008, the Securities will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 calendar days, nor more than 60 calendar days' notice, at the prices (expressed as percentages of principal amounts) set forth below, plus accrued and unpaid interest thereon (if any) at the applicable Redemption Date, if redeemed during the twelve-month period beginning October 1 of the years indicated below: Year Percentage 2008.............................. 104.250% 2009.............................. 102.833% 2010.............................. 101.417% 2011 and thereafter............... 100.000% Notwithstanding the foregoing, at any time prior to October 1, 2006, the Company may redeem up to 35% of the aggregate principal amounts of Securities with the net proceeds of one or more Equity Offerings of the Company at a redemption price equal to 108.50% of the aggregate principal amount thereof, on the date of redemption. However, after giving effect to any such redemption, at least 65% of the aggregate principal amount of the Securities originally issued remain outstanding and such redemption must occur within 60 days following the closing of each such Equity Offering. 7. Notice of Redemption. At least 30 calendar days but not more than 60 calendar days before a Redemption Date, the Company shall send a notice of redemption, first-class mail, postage prepaid, to Holders of Securities to be redeemed at the addresses of such Holders as they appear in the Security Register. If less than all of the Securities are to be redeemed at any time, the Securities to be redeemed will be chosen by the Trustee in accordance with the Indenture. If any Note is redeemed subsequent to a Regular Record Date with respect to any Interest Payment Date specified above and on or prior to such Interest Payment Date, then any accrued interest will be paid on such Interest Payment Date to the Holder of the Security on such Regular Record Date. If money in an amount sufficient to pay the Redemption Price of all Securities (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying B-7 Agent on or before the applicable Redemption Date and certain other conditions are satisfied, interest on the Securities to be redeemed on the applicable Redemption Date will cease to accrue. The Securities are not subject to any sinking fund. 8. Repurchase at the Option of Holders upon Change of Control. Upon the occurrence of a Change of Control, each Holder of Securities shall have the right to require the Company to purchase such Holder's Securities, in whole, or in part in a principal amount that is an integral multiple of $1,000, pursuant to a Change of Control Offer, at a purchase price in cash equal to 101% of the aggregate principal amount thereof on any Change of Control Purchase Date, plus accrued and unpaid interest, if any, to the Change of Control Purchase Date. Within 30 calendar days following any Change of Control, the Company shall send, or cause to be sent, by first-class mail, postage prepaid, a notice regarding the Change of Control Offer to each Holder of Securities. The Holder of this Security may elect to have this Security or a portion hereof in an authorized denomination purchased by completing the form entitled "Option of Holder to Require Purchase" appearing below and tendering this Security pursuant to the Change of Control Offer. Unless the Company defaults in the payment of the Change of Control Purchase Price with respect thereto, all Securities or portions thereof accepted for payment pursuant to the Change of Control Offer will cease to accrue interest from and after the Change of Control Purchase Date. 9. Repurchase at the Option of Holders upon Asset Sale. If at any time the aggregate amount of Excess Proceeds calculated as of such date exceeds $15 million, the Company shall, within 30 days of the date the amount of Excess Proceeds exceeds $15 million, use such Excess Proceeds to make an offer to purchase (an "Asset Sale Offer") on a pro rata basis, from all holders, outstanding Securities, at a purchase price (the "Offered Purchase Price") in cash equal to 100% of the principal amount thereof, plus, in each case, accrued and unpaid interest, if any, to the purchase date, in accordance with the procedures set forth in the relevant indenture. Upon completion of an Asset Sale Offer (including payment of the Offered Price), any surplus Excess Proceeds that were the subject of such offer shall cease to be Excess Proceeds, and the Company may then use such amounts for general corporate purposes. Within 30 calendar days of the date the amount of Excess Proceeds exceeds $15 million the Company shall send, or cause to be sent, by first-class mail, postage prepaid, a notice regarding the Asset Sale Offer to each Holder of Securities. The Holder of this Security may elect to have this Security or a portion hereof in an authorized denomination purchased by completing the form entitled "Option of Holder to Require Purchase" appearing below and tendering this Security pursuant to the Asset Sale Offer. Unless the Company defaults in the payment of the Offered Price with respect thereto, all Securities or portions thereof selected for payment pursuant to the Asset Sale Offer will cease to accrue interest from and after the Offer Date. 10. The Registered Exchange Offer. Any Initial Securities represented by this Certificated Security which are presented to the Registrar for exchange pursuant to the Registered Exchange Offer shall be exchanged for a Certificated Security representing Exchange Securities of equal principal amount upon surrender of this Certificated Security to the Registrar in accordance with the terms of the Registered Exchange Offer and the Indenture. B-8 11. Transfer and Exchange. By its acceptance of any Security represented by a certificate bearing the Private Placement Legend, each Holder of, and beneficial owner of an interest in, such a Security acknowledges the restrictions on transfer of such a Security set forth in the Private Placement Legend and under the heading "Notice to Investors" in the Final Memorandum, and agrees that it will transfer such a Security only in accordance with the Private Placement Legend and that it will transfer such a Security only in accordance under the heading "Notice to Investors" in the Final Memorandum. In connection with any registration of transfer of a Security bearing the Private Placement Legend other than to a Person whom the Holder reasonably believes to be a "qualified institutional buyer" under the Securities Act, such Holder shall deliver to the Company such satisfactory evidence, which may include, to the extent provided in the Private Placement Legend, an Opinion of Independent Counsel licensed to practice law in the State of New York, as reasonably may be requested by the Company to confirm that such transfer is being made in accordance with the limitations set forth in the Private Placement Legend. In the event the Company reasonably determines that any such transfer is not in accordance with the Private Placement Legend, the Company shall so inform the Registrar who shall not register such transfer; provided that the Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such evidence. Upon the registration of transfer, exchange or replacement of a Security not bearing the Private Placement Legend, the Trustee shall deliver a Security that does not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of a Security bearing the Private Placement Legend, the Trustee shall deliver a Security bearing the Private Placement Legend, unless such legend may be removed from such Security as provided in the next sentence. The Private Placement Legend may be removed from a Security if there is delivered to the Company such satisfactory evidence, which may include an Opinion of Independent Counsel licensed to practice law in the State of New York, as reasonably may be requested by the Company to confirm that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such Security will not violate the registration and prospectus delivery requirements of the Securities Act; provided that the Trustee shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such evidence. Upon provision of such evidence, the Trustee shall authenticate and deliver in exchange for such Security, a Security or Securities (representing the same aggregate principal amount of the Security being exchanged) without such legend. If the Private Placement Legend has been removed from a Security, as provided above, no other Security issued in exchange for all or any part of such Security shall bear such legend, unless the Company has reasonable cause to believe that such other Security represents a "restricted security" within the meaning of Rule 144 and instructs the Trustee to cause a legend to appear thereon. Prior to the effectiveness of a Shelf Registration Statement or following the suspension or termination thereof, the Holder of this Security (or holders of interests therein) and prospective purchasers designated by such Holder (or such holders of interests therein) shall have the right to obtain from the Company upon request by such Holder (or such holders of interests) or prospective purchasers, during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, or exempt from reporting pursuant to 12g3-2(b) under the Exchange Act, the information required by paragraph (d)(4)(i) of Rule 144A in connection with any transfer or proposed transfer of such Security or interest. B-9 12. Denominations. The Securities are issuable only in registered form without coupons in denominations of $1,000 and integral multiples thereof of principal amount. 13. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment unless such abandoned property law designates another Person. 14. Discharge and Defeasance. Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company irrevocably deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 15. Amendment, Waiver. Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the Outstanding Securities and (ii) any past Default and its consequences may be waived with the written consent of the Holders of at least a majority in principal amount of the Outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of Securities, the Company and the Trustee may amend Indenture or the Securities (i) to evidence the succession of another Person to the Company and the assumption by such successor of the covenants of the company under the Indenture and contained in the Securities; (ii) to add additional covenants or to surrender rights and powers conferred on the Company; (iii) to add any additional Events of Default; (iv) to provide for uncertificated Securities in addition to or in place of Certificated Securities; (v) to evidence and provide for the acceptance of appointment under the Indenture of a successor Trustee; (vi) to secure the Securities; (vii) to cure any ambiguity in the Indenture, to correct or supplement any provision in the Indenture which may be inconsistent with any other provision therein or to add any other provisions with respect to matters or questions arising under the Indenture, provided that such actions shall not adversely affect the interests of the Holders in any material respect; or (viii) to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities, subject to certain limitations, may declare all the Securities to be immediately due and payable. Certain events of bankruptcy or insolvency are Events of Default and shall result in the Securities being immediately due and payable upon the occurrence of such Events of Default without any further act of the Trustee or any Holder. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power under the Indenture. The Holders of a B-10 majority in principal amount of the outstanding Securities, by written notice to the Company and the Trustee, may rescind any declaration of acceleration and its consequences if the rescission would not conflict with any judgment or decree, and if all Events of Default have been cured or waived except nonpayment of principal and interest that has become due solely because of the acceleration. 17. Individual Rights of Trustee. Subject to certain limitations imposed by the Trust Indenture Act, the Trustee or any Paying Agent or Registrar, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee, Paying Agent or Registrar, as the case may be, under the Indenture. 18. No Recourse Against Certain Others. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation, solely by reason of its status as a director, officer, employee, incorporator or stockholder of the Company. By accepting a Security, each Holder waives and releases all such liability (but only such liability) as part of the consideration for issuance of such Security to such Holder. 19. Governing Law. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. The Company will furnish to any Holder of Securities upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Security. Requests may be made to: Buckeye Technologies Inc. 1001 Tillman Street Memphis, Tennessee 38112 Attention: Sheila Jordan Cunningham B-11 ASSIGNMENT (To be executed by the registered Holder if such Holder desires to transfer this Security) FOR VALUE RECEIVED _____________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER OF TRANSFEREE ______________________________ ________________________________________________________________________________ (Please print name and address of transferee) ________________________________________________________________________________ this Security, together with all right, title and interest herein, and does hereby irrevocably constitute and appoint ______________________ Attorney to transfer this Security on the Security Register, with full power of substitution. ________________________________________________________________________________ Dated: _______________ _________________________________________ ______________________________ Signature of Holder Signature Guaranteed: Commercial Bank or Trust Company Or Member Firm of the New York Stock Exchange, Inc. NOTICE: The signature to the foregoing Assignment must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. B-12 OPTION OF HOLDER TO ELECT PURCHASE (Check as appropriate) [ ] In connection with the Change of Control Offer made pursuant to Section 10.16 of the Indenture, the undersigned hereby elects to have [ ] $__________ ($1,000 in principal amount or an integral multiple thereof) of this Security repurchased by the Company. The undersigned hereby directs the Trustee or Paying Agent to pay it or ___________ an amount in cash equal to 101% with respect to the principal amount indicated in the preceding sentence or the principal amount indicated in the preceding sentences, as the case may be, plus accrued and unpaid interest thereon, if any, to the Change of Control Payment Date. [ ] In connection with the Asset Sale Offer made pursuant to Section 10.17 of the Indenture, the undersigned hereby elects to have [ ] $_________ ($1,000 in principal amount or an integral multiple thereof) of this Security repurchased by the Company. The undersigned hereby directs the Trustee or Paying Agent to pay it or ______________ an amount in cash equal to 100% with respect to the principal amount indicated in the preceding sentence, plus accrued and unpaid interest thereon, if any, to the Asset Sale Payment Date. Dated: __________________ ______________________________________ _____________________________ Signature of Holder Signature Guaranteed: Commercial Bank or Trust Company Or Member Firm of New York Stock Exchange, Inc. NOTICE: The signature to the foregoing Assignment must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. B-13 C-1 EXHIBIT C Form of Face of Exchange Securities Form of Reverse of Exchange Securities C-1 EXHIBIT C FORM OF EXCHANGE GLOBAL SECURITY BUCKEYE TECHNOLOGIES INC. No. __ CUSIP No. _____ THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO BUCKEYE TECHNOLOGIES INC. OR THE REGISTRAR FOR REGISTRATION OF TRANSFER OR EXCHANGE AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFER OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, AND NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF INTERESTS IN THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 3.5 OF THE INDENTURE, DATED AS OF SEPTEMBER 22, 2003, BY AND AMONG BUCKEYE TECHNOLOGIES INC., THE GUARANTORS NAMED THEREIN AND THE TRUSTEE NAMED THEREIN, PURSUANT TO WHICH THIS SECURITY WAS ISSUED. C-2 GLOBAL SECURITY REPRESENTING 8 1/2% SENIOR NOTES DUE 2013 Buckeye Technologies Inc., a Delaware corporation, for value received, hereby promises to pay to CEDE & CO., or its registered assigns, the principal sum indicated on Schedule A hereof, on October 1, 2013. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purposes. C-3 IN WITNESS WHEREOF, the Company has caused this Security to be fully executed. Dated: BUCKEYE TECHNOLOGIES INC. By: ________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION _______________________________________________, The Bank of New York , as Trustee, certifies that this is one of the Securities referred to in the Indenture. By: ____________________________________________ Authorized Signatory C-4 REVERSE SIDE OF FORM OF EXCHANGE GLOBAL SECURITY BUCKEYE TECHNOLOGIES INC. GLOBAL SECURITY REPRESENTING 8 1/2% SENIOR NOTES DUE 2013 1. Indenture. This Security is one of a duly authorized issue of debt securities of the Company (as defined below) designated as its "8 1/2% Senior Notes due 2013" (herein called the "Securities"), issued under an indenture dated as of September 22, 2003 (as amended or supplemented from time to time, the "Indenture") between the Company and The Bank of New York, as trustee (the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and each Holder of Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The summary of the terms of this Security contained herein does not purport to be complete and is qualified by reference to the Indenture. All terms used in this Security which are not defined herein shall have the same meanings assigned to them in the Indenture. The Indenture imposes certain limitations on the ability of the Company to, among other things, make certain Investments and Restricted Payments, pay dividends and other distributions, incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by its Subsidiaries, enter into or permit certain transactions with Affiliates, create or incur Liens, and make Asset Sales. The Indenture also imposes limitations on the ability of the Company to consolidate or merge with or into any other Person or permit any other Person to merge with or into the Company, or sell, convey, assign, transfer, lease or otherwise dispose of all or substantially all of the Property of the Company to any other Person and on the ability of the Company's Subsidiaries to issue Capital Stock. 2. Principal and Interest. Buckeye Technologies Inc., a Delaware corporation (such corporation, and its successors and assigns under the Indenture, being herein called the "Company"), promises to pay the principal amount set forth on Schedule A of this Security to the Holder hereof on October 1, 2013. The Company shall pay interest at a rate of 8 1/2%, per annum, from September 22, 2003 or from the most recent Interest Payment Date thereafter to which interest has been paid or duly provided for, semiannually on April 1 and October 1 of each year, commencing on April 1, 2004, in cash, to the Holder hereof until the principal amount hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions provided in the Indenture, be paid to the Person in whose name this Security (or the Security in exchange or substitution for which this Security was issued) is registered at the close of business on the Regular Record Date for interest payable on such Interest Payment Date. The Regular Record Date for any interest payment is the close of business on March 15 or September 15, as the case may be, whether or not a Business Day, immediately preceding the Interest Payment Date on which such interest is payable. Any such interest not so punctually paid or duly provided for ("Defaulted Interest") shall forthwith cease to be payable to the Holder on such Record Date and shall be paid as provided in Section 3.7 of the Indenture. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Each payment of interest in respect of an Interest Payment Date will include interest accrued through the day before such Interest Payment Date. If an Interest Payment Date falls on a day that is not a Business Day, the interest payment to be made on such Interest Payment Date will be made on the next C-5 succeeding Business Day with the same force and effect as if made on such Interest Payment Date, and no additional interest will accrue as a result of such delayed payment. 3. Additional Interest. The Holder of this Security is entitled to the benefits of the Registration Rights Agreement. Subject to compliance by the Holder with Sections 2(e) and 3(b)(iv) of the Registration Rights Agreement, if (i) on or prior to the 90th day following the Issue Date (or, if such 90th day is not a Business Day, the next succeeding Business Day), neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been filed with the SEC, (ii) on or prior to the 180th day following the Issue Date (or, if such 180th day is not a Business Day, the next succeeding Business Day), neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been declared effective, (iii) on or prior to the 30th Business Day after the Exchange Offer Registration Statement is declared effective, the Registered Exchange Offer has not been consummated, (iv) the Company is otherwise required to file a Shelf Registration Statement and the Shelf Registration Statement is not filed within 90 days after the date on which a request has been made or the Company is otherwise required to so file the Shelf Registration Statement in accordance with the terms of the Registration Rights Agreement or such Shelf Registration Statement has not been declared effective within 180 days after the date on which such a request has been made or the Company is otherwise required to so file the Shelf Registration Statement in accordance with the terms of the Registration Rights Agreement the time period provided for in the Registration Rights Agreement, or (v) after either the Exchange Offer Registration Statement or the Shelf Registration Statement has been declared effective, such registration statement ceases to be effective or usable (subject to exceptions set forth in the Registration Rights Agreement) in connection with resales of Securities or Exchange Securities in connection with and during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (i) through (v) a "Registration Default"), then, as liquidated damages, additional interest (the "Additional Interest") will accrue on the Securities and the Exchange Securities (in addition to the stated interest on the Securities and the Exchange Securities) from and including the date on which any such Registration Default shall occur but excluding the date on which all Registration Defaults have been cured. Additional Interest will accrue at an initial rate of 0.25% per annum during the 90-day period immediately following the occurrence of such registration default and will increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event will such rate exceed 0.75% per annum. Except as expressly provided in this paragraph 3, Additional Interest shall be treated as interest and any date on which Additional Interest is due and payable shall be treated as an Interest Payment Date, for all purposes under this Security and the Indenture. 4. Method of Payment. The Company, through the Paying Agent, shall pay interest on this Security to the registered Holder of this Security, as provided above. The Holder must surrender this Security to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of all debts public and private. Principal and interest will be payable at the office of the Paying Agent but, at the option of the Company, interest may be paid by check mailed to the registered Holders at their registered addresses. 5. Paying Agent and Registrar. Initially, The Bank of New York will act as Transfer Agent, Paying Agent and Registrar under the Indenture. The Company may, upon written notice to the Paying Agent and Trustee, appoint and C-6 change any Transfer Agent, Paying Agent or Registrar. The Company or any of its subsidiaries may act as Transfer Agent, Paying Agent or Registrar. 6. Optional Redemption. On or after October 1, 2008, the Securities will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 calendar days, nor more than 60 calendar days' notice, at the prices (expressed as percentages of principal amounts) set forth below, plus accrued and unpaid interest thereon (if any) at the applicable Redemption Date, if redeemed during the twelve-month period beginning October 1 of the years indicated below: Year Percentage ---- ---------- 2008............................ 104.250% 2009............................ 102.833% 2010............................ 101.417% 2011 and thereafter 100.000% Notwithstanding the foregoing, at any time prior to October 1, 2006, the Company may redeem up to 35% of the aggregate principal amounts of Securities with the net proceeds of one or more Equity Offerings of the Company at a redemption price equal to 108.50% of the aggregate principal amount thereof, on the date of redemption. However, after giving effect to any such redemption, at least 65% aggregate principal amount of the Securities originally issued must remain outstanding and such redemption must occur within 60 days following the closing of each such Equity Offering. 7. Notice of Redemption. At least 30 calendar days but not more than 60 calendar days before a Redemption Date, the Company shall send a notice of redemption, first-class mail, postage prepaid, to Holders of Securities to be redeemed at the addresses of such Holders as they appear in the Security Register. If less than all of the Securities are to be redeemed at any time, the Securities to be redeemed will be chosen by the Trustee in accordance with the Indenture. If any Security is redeemed subsequent to a Record Date with respect to any Interest Payment Date specified above and on or prior to such Interest Payment Date, then any accrued interest will be paid on such Interest Payment Date to the Holder of the Security on such Record Date. If money in an amount sufficient to pay the Redemption Price of all Securities (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent on or before the applicable Redemption Date and certain other conditions are satisfied, interest on the Securities to be redeemed on the applicable Redemption Date will cease to accrue. The Securities are not subject to any sinking fund. 8. Repurchase at the Option of Holders upon Change of Control. Upon the occurrence of a Change of Control, each Holder of Securities shall have the right to require the Company to purchase such Holder's Securities, in whole, or in part in a principal amount that is an integral multiple of $1,000, pursuant to a Change of Control Offer, at a purchase price in cash equal to 101% of the aggregate principal amount thereof on any Change of Control Purchase Date, plus accrued and unpaid interest, if any, to the Change of Control Purchase Date. C-7 Within 30 calendar days following any Change of Control, the Company shall send, or cause to be sent, by first-class mail, postage prepaid, a notice regarding the Change of Control Offer to each Holder of Securities. The Holder of this Security may elect to have this Security or a portion hereof in an authorized denomination purchased by completing the form entitled "Option of Holder to Require Purchase" appearing below and tendering this Security pursuant to the Change of Control Offer. Unless the Company defaults in the payment of the Change of Control Purchase Price with respect thereto, all Securities or portions thereof accepted for payment pursuant to the Change of Control Offer will cease to accrue interest from and after the Change of Control Purchase Date. 9. Repurchase at the Option of Holders upon Asset Sale. If at any time the aggregate amount of Excess Proceeds calculated as of such date exceeds $15 million, the Company shall, within 30 days of the date the amount of Excess Proceeds exceeds $15 million, use such Excess Proceeds to make an offer to purchase (an "Asset Sale Offer") on a pro rata basis, from all holders, outstanding Securities, at a purchase price (the "Offered Purchase Price") in cash equal to 100% of the principal amount thereof, plus, in each case, accrued and unpaid interest, if any, to the purchase date, in accordance with the procedures set forth in the relevant indenture. Upon completion of an Asset Sale Offer (including payment of the Offered Purchase Price), any surplus Excess Proceeds that were the subject of such offer shall cease to be Excess Proceeds, and the Company may then use such amounts for general corporate purposes. Within 30 calendar days of the date the amount of Excess Proceeds equals or exceeds $15 million, the Company shall send, or cause to be sent, by first-class mail, postage prepaid, a notice regarding the Asset Sale Offer to each Holder of Securities. The Holder of this Security may elect to have this Security or a portion hereof in an authorized denomination purchased by completing the form entitled "Option of Holder to Require Purchase" appearing below and tendering this Security pursuant to the Asset Sale Offer. Unless the Company defaults in the payment of the Offered Purchase Price with respect thereto, all Securities or portions thereof selected for payment pursuant to the Asset Sale Offer will cease to accrue interest from and after the Offer Date. 10. The Global Security. So long as this Global Security is registered in the name of the Depositary or its nominee, members of, or participants in, the Depositary ("Agent Members") shall have no rights under the Indenture with respect to this Global Security held on their behalf by the Depositary or the Trustee as its custodian, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of this Global Security for all purposes. Notwithstanding the foregoing, nothing herein shall (i) prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or (ii) impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of Securities. The Holder of this Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests in this Global Security through Agent Members, to take any action which a Holder of Securities is entitled to take under the Indenture or the Securities. Whenever, as a result of optional redemption by the Company, a Change of Control Offer, an Asset Sale Offer, a Registered Exchange Offer or an exchange for Certificated Securities, this Global Security is redeemed, repurchased or exchanged in part, this Global Security shall be surrendered by the Holder thereof to the Trustee who shall cause an adjustment to be made to Schedule A hereof so that the principal amount of this Global Security will be equal to the portion not redeemed, repurchased or ex- C-8 changed and shall thereafter return this Global Security to such holder; provided that this Global Security shall be in a principal amount of $1,000 or an integral multiple of $1,000. 11. Transfer and Exchange. The Holder of this Global Security shall, by acceptance of this Global Security, agree that transfers of beneficial interests in this Global Security may be effected only through a book entry system maintained by such Holder (or its agent), and that ownership of a beneficial interest in the Securities represented thereby shall be required to be reflected in book entry form. Transfers of this Global Security shall be limited to transfers in whole, and not in part, to the Depositary, its successors and their respective nominees. Interests of beneficial owners in this Global Security may be transferred in accordance with the rules and procedures of the Depositary (or its successors). This Global Security will be exchanged by the Company for one or more Certificated Securities if (a) the Depositary (i) has notified the Company that it is unwilling to or unable to continue as, or ceases to be, a clearing agency registered under Section 17A of the Exchange Act and (ii) a successor to the Depositary registered as a clearing agency under Section 17 A of the Exchange Act is not able to be appointed by the Company within 90 calendar days or (b) the Depositary is at any time unwilling to or unable to continue as Depositary and a successor to the Depositary is not able to be appointed by the Company within 90 calendar days. If an Event of Default occurs and is continuing, the Company shall, at the request of the Holder hereof, exchange all or part of this Global Security for one or more Certificated Securities; provided that the principal amount of each of such Certificated Securities and this Global Security, after such exchange, shall be $1,000 or an integral multiple thereof. Whenever this Global Security is exchanged as a whole for one or more Certificated Securities, it shall be surrendered by the Holder to the Trustee for cancellation. Whenever this Global Security is exchanged in part for one or more Certificated Securities, it shall be surrendered by the Holder to the Trustee and the Trustee shall make the appropriate notations thereon pursuant to Section 3.5 of the Indenture. All Certificated Securities issued in exchange for this Global Security or any portion hereof shall be registered in such names as the Depositary shall instruct the Trustee. Interests in this Global Security may not be exchanged for Certificated Securities other than as provided in this paragraph. 12. Denominations. The Securities are issuable only in registered form without coupons in denominations of $1,000 and integral multiples thereof of principal amount. 13. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment unless such abandoned property law designates another Person. 14. Discharge and Defeasance. Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company irrevocably deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. C-9 15. Amendment, Waiver. Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the Outstanding Securities and (ii) any past Default and its consequences may be waived with the written consent of the Holders of at least a majority in principal amount of the Outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of Securities, the Company and the Trustee may amend Indenture or the Securities (i) to evidence the succession of another Person to the Company and the assumption by such successor of the covenants of the company under the Indenture and contained in the Securities; (ii) to add additional covenants or to surrender rights and powers conferred on the Company; (iii) to add any additional Events of Default; (iv) to provide for uncertificated Securities in addition to or in place of Certificated Securities; (v) to evidence and provide for the acceptance of appointment under the Indenture of a successor Trustee; (vi) to secure the Securities; (vii) to cure any ambiguity in the Indenture, to correct or supplement any provision in the Indenture which may be inconsistent with any other provision therein or to add any other provisions with respect to matters or questions arising under the Indenture, provided that such actions shall not adversely affect the interests of the Holders in any material respect; or (viii) to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities, subject to certain limitations, may declare all the Securities to be immediately due and payable. Certain events of bankruptcy or insolvency are Events of Default and shall result in the Securities being immediately due and payable upon the occurrence of such Events of Default without any further act of the Trustee or any Holder. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power under the Indenture. The Holders of a majority in principal amount of the outstanding Securities, by written notice to the Company and the Trustee, may rescind any declaration of acceleration and its consequences if the rescission would not conflict with any judgment or decree, and if all Events of Default have been cured or waived except nonpayment of principal and interest that has become due solely because of the acceleration. 17. Individual Rights of Trustee. Subject to certain limitations imposed by the Trust Indenture Act, the Trustee or any Paying Agent or Registrar, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee, Paying Agent or Registrar, as the case may be, under the Indenture. 18. No Recourse Against Certain Others. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation, solely by reason of its status as a director, officer, employee, incorporator or stockholder of the Company. By accepting a Security, each Holder waives and releases all such liability (but only such liability) as part of the consideration for issuance of such Security to such Holder. C-10 19. Governing Law. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. The Company will furnish to any Holder of Securities upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Security. Requests may be made to: Buckeye Technologies Inc. 1001 Tillman Street Memphis, Tennessee 38112 Attention: Sheila Jordan Cunningham C-11 SCHEDULE A SCHEDULE OF PRINCIPAL AMOUNT The initial principal amount of this Security shall be $200,000,000. The following decreases/ increases in the principal amount of this Security have been made: Total Principal Amount Date of Decrease in Increase in Following Such Decrease/ Principal Principal Decrease/ Notation Made by or Increase Amount Amount Increase on Behalf of Trustee C-12 ASSIGNMENT (To be executed by the registered Holder if such Holder desires to transfer this Security) FOR VALUE RECEIVED _____________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER OF TRANSFEREE _____________________________ ________________________________________________________________________________ (Please print name and address of transferee) ________________________________________________________________________________ this Security, together with all right, title and interest herein, and does hereby irrevocably constitute and appoint ______________________ Attorney to transfer this Security on the Security Register, with full power of substitution. ________________________________________________________________________________ Dated: _______________ _____________________________________ ________________________________ Signature of Holder Signature Guaranteed: Commercial Bank or Trust Company Or Member Firm of the New York Stock Exchange, Inc. NOTICE: The signature to the foregoing Assignment must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. C-13 OPTION OF HOLDER TO ELECT PURCHASE (Check as appropriate) [ ] In connection with the Change of Control Offer made pursuant to Section 10.16 of the Indenture, the undersigned hereby elects to have [ ] $__________ ($1,000 in principal amount or an integral multiple thereof) of this Security repurchased by the Company. The undersigned hereby directs the Trustee or Paying Agent to pay it or ___________ an amount in cash equal to 101% with respect to the principal amount indicated in the preceding sentence or the principal amount indicated in the preceding sentences, as the case may be, plus accrued and unpaid interest thereon, if any, to the Change of Control Payment Date. [ ] In connection with the Asset Sale Offer made pursuant to Section 10.15 of the Indenture, the undersigned hereby elects to have [ ] $_________ ($1,000 in principal amount or an integral multiple thereof) of this Security repurchased by the Company. The undersigned hereby directs the Trustee or Paying Agent to pay it or ______________ an amount in cash equal to 100% with respect to the principal amount indicated in the preceding sentence, plus accrued and unpaid interest thereon, if any, to the Asset Sale Payment Date. Dated: ____________________ ________________________________________ ________________________________ Signature of Holder Signature Guaranteed: Commercial Bank or Trust Company Or Member Firm of the New York Stock Exchange, Inc. NOTICE: The signature to the foregoing Assignment must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. C-14 EXHIBIT D Form of Face of Exchange Securities Form of Reverse of Exchange Securities E-1 EXHIBIT D FORM OF EXCHANGE CERTIFICATED SECURITY BUCKEYE TECHNOLOGIES INC. No. __ CUSIP No. ____ 8 1/2% SENIOR NOTES DUE 2013 Buckeye Technologies Inc., a Delaware corporation, for value received, hereby promises to pay to CEDE & CO., or its registered assigns, $[ ], on October 1, 2013. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purposes. IN WITNESS WHEREOF, the Company has caused this Security to be fully executed. Dated: BUCKEYE TECHNOLOGIES INC. By: _________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION ___________________________________________ The Bank of New York, as Trustee, certifies that this is one of the Securities referred to in the Indenture. By: __________________________________________ Authorized Signatory D-2 REVERSE SIDE OF FORM OF EXCHANGE CERTIFICATED SECURITY BUCKEYE TECHNOLOGIES INC. CERTIFICATED SECURITY REPRESENTING 8 1/2% SENIOR NOTES DUE 2013 1. Indenture. This Security is one of a duly authorized issue of debt securities of the Company (as defined below) designated as its "8 1/2% Senior Notes due 2013" (herein called the "Securities"), issued under an indenture dated as of September 22, 2003 (as amended or supplemented from time to time, the "Indenture") between the Company and The Bank of New York, as trustee (the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and each Holder of Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The summary of the terms of this Security contained herein does not purport to be complete and is qualified by reference to the Indenture. All terms used in this Security which are not defined herein shall have the same meanings assigned to them in the Indenture. The Indenture imposes certain limitations on the ability of the Company to, among other things, make certain Investments and Restricted Payments, pay dividends and other distributions, incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by its Subsidiaries, enter into or permit certain transactions with Affiliates, create or incur Liens, and make Asset Sales. The Indenture also imposes limitations on the ability of the Company to consolidate or merge with or into any other Person or permit any other Person to merge with or into the Company, or sell, convey, assign, transfer, lease or otherwise dispose of all or substantially all of the Property of the Company to any other Person and on the ability of the Company's Subsidiaries to issue Capital Stock. 2. Principal and Interest. Buckeye Technologies Inc., a Delaware corporation (such corporation, and its successors and assigns under the Indenture, being herein called the "Company"), promises to pay $[ ] to the Holder hereof on October 1, 2013. The Company shall pay interest at a rate of 8 1/2%, per annum, from September 22, 2003 or from the most recent Interest Payment Date thereafter to which interest has been paid or duly provided for, semiannually on April 1 and October 1 of each year, commencing on April 1, 2004, in cash, to the Holder hereof until the principal amount hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions provided in the Indenture, be paid to the Person in whose name this Security (or the Security in exchange or substitution for which this Security was issued) is registered at the close of business on the Regular Record Date for interest payable on such Interest Payment Date. The Regular Record Date for any interest payment is the close of business on March 15 or September 15, as the case may be, whether or not a Business Day, immediately preceding the Interest Payment Date on which such interest is payable. Any such interest not so punctually paid or duly provided for ("Defaulted Interest") shall forthwith cease to be payable to the Holder on such Regular Record Date and shall be paid as provided in Section 3.7 of the Indenture. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Each payment of interest in respect of an Interest Payment Date will include interest accrued through the day before such Interest Payment Date. If an Interest Payment Date falls on a day that is not a Business Day, the interest payment to be made on such Interest Payment Date will be made on the next D-3 succeeding Business Day with the same force and effect as if made on such Interest Payment Date, and no additional interest will accrue as a result of such delayed payment. 3. Additional Interest. The Holder of this Security is entitled to the benefits of the Registration Rights Agreement. Subject to compliance by the Holder with Sections 2(e) and 3(b)(iv) of the Registration Rights Agreement, if (i) on or prior to the 90th day following the Issue Date (or, if such 90th day is not a Business Day, the next succeeding Business Day), neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been filed with the SEC, (ii) on or prior to the 180th day following the Issue Date (or, if such 180th day is not a Business Day, the next succeeding Business Day), neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been declared effective, (iii) on or prior to the 30th Business Day after the Exchange Offer Registration Statement is declared effective, the Registered Exchange Offer has not been consummated, (iv) the Company is otherwise required to file a Shelf Registration Statement and the Shelf Registration Statement is not filed within 90 days after the date on which a request has been made or the Company is otherwise required to so file the Shelf Registration Statement in accordance with the terms of the Registration Rights Agreement or such Shelf Registration Statement has not been declared effective within 180 days after the date on which such a request has been made or the Company is otherwise required to so file the Shelf Registration Statement in accordance with the terms of the Registration Rights Agreement the time period provided for in the Registration Rights Agreement, or (v) after either the Exchange Offer Registration Statement or the Shelf Registration Statement has been declared effective, such registration statement ceases to be effective or usable (subject to exceptions set forth in the Registration Rights Agreement) in connection with resales of Securities or Exchange Securities in connection with and during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (i) through (v) a "Registration Default"), then, as liquidated damages, additional interest (the "Additional Interest") will accrue on the Securities and the Exchange Securities (in addition to the stated interest on the Securities and the Exchange Securities) from and including the date on which any such Registration Default shall occur but excluding the date on which all Registration Defaults have been cured. Additional Interest will accrue at an initial rate of 0.25% per annum during the 90-day period immediately following the occurrence of such registration default and will increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event will such rate exceed 0.75% per annum. Except as expressly provided in this paragraph 3, Additional Interest shall be treated as interest and any date on which Additional Interest is due and payable shall be treated as an Interest Payment Date, for all purposes under this Security and the Indenture. 4. Method of Payment. The Company, through the Paying Agent, shall pay interest on this Security to the registered Holder of this Security, as provided above. The Holder must surrender this Security to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of all debts public and private. Principal and interest will be payable at the office of the Paying Agent but, at the option of the Company, interest may be paid by check mailed to the registered Holders at their registered addresses. 5. Transfer Agent, Paying Agent and Registrar. Initially, The Bank of New York will act as Transfer Agent, Paying Agent and Registrar under the Indenture. The Company may, upon written notice to the Paying Agent and Trustee, appoint and D-4 change any Transfer Agent, Paying Agent or Registrar. The Company or any of its subsidiaries may act as Transfer Agent, Paying Agent or Registrar. 6. Optional Redemption. On or after October 1, 2008, the Securities will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 calendar days, nor more than 60 calendar days' notice, at the prices (expressed as percentages of principal amounts) set forth below, plus accrued and unpaid interest thereon (if any) at the applicable Redemption Date, if redeemed during the twelve-month period beginning October 1 of the years indicated below: Year Percentage 2008.............................. 104.250% 2009.............................. 102.833% 2010.............................. 101.417% 2011 and thereafter............... 100.000% Notwithstanding the foregoing, at any time prior to October 1, 2006, the Company may redeem up to 35% of the aggregate principal amounts of Securities with the net proceeds of one or more Equity Offerings of the Company at a redemption price equal to 108.50% of the aggregate principal amount thereof, on the date of redemption. However, after giving effect to any such redemption, at least 65% of the aggregate principal amount of the Securities originally issued must remain outstanding and such redemption must occur within 60 days following the closing of each such Equity Offering. 7. Notice of Redemption. At least 30 calendar days but not more than 60 calendar days before a Redemption Date, the Company shall send a notice of redemption, first-class mail, postage prepaid, to Holders of Securities to be redeemed at the addresses of such Holders as they appear in the Security Register. If less than all of the Securities are to be redeemed at any time, the Securities to be redeemed will be chosen by the Trustee in accordance with the Indenture. If any Security is redeemed subsequent to a Record Date with respect to any Interest Payment Date specified above and on or prior to such Interest Payment Date, then any accrued interest will be paid on such Interest Payment Date to the Holder of the Security on such Record Date. If money in an amount sufficient to pay the Redemption Price of all Securities (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent on or before the applicable Redemption Date and certain other conditions are satisfied, interest on the Securities to be redeemed on the applicable Redemption Date will cease to accrue. The Securities are not subject to any sinking fund. 8. Repurchase at the Option of Holders upon Change of Control. Upon the occurrence of a Change of Control, each Holder of Securities shall have the right to require the Company to purchase such Holder's Securities, in whole, or in part in a principal amount that is an integral multiple of $1,000, pursuant to a Change of Control Offer, at a purchase price in cash equal to 101% of the aggregate principal amount thereof on any Change of Control Purchase Date, plus accrued and unpaid interest, if any, to the Change of Control Purchase Date. D-5 Within 30 calendar days following any Change of Control, the Company shall send, or cause to be sent, by first-class mail, postage prepaid, a notice regarding the Change of Control Offer to each Holder of Securities. The Holder of this Security may elect to have this Security or a portion hereof in an authorized denomination purchased by completing the form entitled "Option of Holder to Require Purchase" appearing below and tendering this Security pursuant to the Change of Control Offer. Unless the Company defaults in the payment of the Change of Control Purchase Price with respect thereto, all Securities or portions thereof accepted for payment pursuant to the Change of Control Offer will cease to accrue interest from and after the Change of Control Purchase Date. 9. Repurchase at the Option of Holders upon Asset Sale. If at any time the aggregate amount of Excess Proceeds calculated as of such date exceeds $15 million, the Company shall, within 30 days of the date the amount of Excess Proceeds exceeds $15 million, use such Excess Proceeds to make an offer to purchase (an "Asset Sale Offer") on a pro rata basis, from all holders, outstanding Securities, at a purchase price (the "Offered Purchase Price") in cash equal to 100% of the principal amount thereof, plus, in each case, accrued and unpaid interest, if any, to the purchase date, in accordance with the procedures set forth in the relevant indenture. Upon completion of an Asset Sale Offer (including payment of the Offered Purchase Price), any surplus Excess Proceeds that were the subject of such offer shall cease to be Excess Proceeds, and the Company may then use such amounts for general corporate purposes. Within 30 calendar days of the date the amount of Excess Proceeds equals or exceeds $15 million, the Company shall send, or cause to be sent, by first-class mail, postage prepaid, a notice regarding the Asset Sale Offer to each Holder of Securities. The Holder of this Security may elect to have this Security or a portion hereof in an authorized denomination purchased by completing the form entitled "Option of Holder to Require Purchase" appearing below and tendering this Security pursuant to the Asset Sale Offer. Unless the Company defaults in the payment of the Offer Purchase Price with respect thereto, all Securities or portions thereof selected for payment pursuant to the Asset Sale Offer will cease accrue interest from and after the Offer Date. 10. Transfer and Exchange. A Holder may transfer a Security upon the surrender of such Security for registration of transfer. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of this transfer in the Security Register by the Registrar. When Securities are presented to the Registrar with a request to register the transfer of, or to exchange, such Securities, the Registrar shall register the transfer or make such exchange as requested if its requirements for such transactions and any applicable requirements hereunder are satisfied. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer of Securities. 11. Denominations. The Securities are issuable only in registered form without coupons in denominations of $1,000 and integral multiples thereof of principal amount. D-6 12. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment unless such abandoned property law designates another Person. 13. Discharge and Defeasance. Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company irrevocably deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 14. Amendment, Waiver. Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the Outstanding Securities and (ii) any past Default and its consequences may be waived with the written consent of the Holders of at least a majority in principal amount of the Outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of Securities, the Company and the Trustee may amend Indenture or the Securities (i) to evidence the succession of another Person to the Company and the assumption by such successor of the covenants of the company under the Indenture and contained in the Securities; (ii) to add additional covenants or to surrender rights and powers conferred on the Company; (iii) to add any additional Events of Default; (iv) to provide for uncertificated Securities in addition to or in place of Certificated Securities; (v) to evidence and provide for the acceptance of appointment under the Indenture of a successor Trustee; (vi) to secure the Securities; (vii) to cure any ambiguity in the Indenture, to correct or supplement any provision in the Indenture which may be inconsistent with any other provision therein or to add any other provisions with respect to matters or questions arising under the Indenture, provided that such actions shall not adversely affect the interests of the Holders in any material respect; or (viii) to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 15. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities, subject to certain limitations, may declare all the Securities to be immediately due and payable. Certain events of bankruptcy or insolvency are Events of Default and shall result in the Securities being immediately due and payable upon the occurrence of such Events of Default without any further act of the Trustee or any Holder. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power under the Indenture. The Holders of a majority in principal amount of the outstanding Securities, by written notice to the Company and the Trustee, may rescind any declaration of acceleration and its consequences if the rescission would not conflict with any judgment or decree, and if all Events of Default have been cured or waived except nonpayment of principal and interest that has become due solely because of the acceleration. D-7 16. Individual Rights of Trustee. Subject to certain limitations imposed by the Trust Indenture Act, the Trustee or any Paying Agent or Registrar, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee, Paying Agent or Registrar, as the case may be, under the Indenture. 17. No Recourse Against Certain Others. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation, solely by reason of its status as a director, officer, employee, incorporator or stockholder of the Company. By accepting a Security, each Holder waives and releases all such liability (but only such liability) as part of the consideration for issuance of such Security to such Holder. 18. Governing Law. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. The Company will furnish to any Holder of Securities upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Security. Requests may be made to: Buckeye Technologies Inc. 1001 Tillman Street Memphis, Tennessee 38112 Attention: Sheila Jordan Cunningham D-8 ASSIGNMENT (To be executed by the registered Holder if such Holder desires to transfer this Security) FOR VALUE RECEIVED _____________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER OF TRANSFEREE ______________________________ ________________________________________________________________________________ (Please print name and address of transferee) ________________________________________________________________________________ this Security, together with all right, title and interest herein, and does hereby irrevocably constitute and appoint ______________________ Attorney to transfer this Security on the Security Register, with full power of substitution. ________________________________________________________________________________ Dated: ________________ _________________________________________ ________________________________ Signature of Holder Signature Guaranteed: Commercial Bank or Trust Company Or Member Firm of the New York Stock Exchange, Inc. NOTICE: The signature to the foregoing Assignment must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. D-9 OPTION OF HOLDER TO ELECT PURCHASE (Check as appropriate) [ ] In connection with the Change of Control Offer made pursuant to Section 10.16 of the Indenture, the undersigned hereby elects to have [ ] $__________ ($1,000 in principal amount or an integral multiple thereof) of this Security repurchased by the Company. The undersigned hereby directs the Trustee or Paying Agent to pay it or ___________ an amount in cash equal to 101% with respect to the principal amount indicated in the preceding sentence or the principal amount indicated in the preceding sentences, as the case may be, plus accrued and unpaid interest thereon, if any, to the Change of Control Payment Date. [ ] In connection with the Asset Sale Offer made pursuant to Section 10.15 of the Indenture, the undersigned hereby elects to have [ ] $_________ ($1,000 in principal amount or an integral multiple thereof) of this Security repurchased by the Company. The undersigned hereby directs the Trustee or Paying Agent to pay it or ______________ an amount in cash equal to 100% with respect to the principal amount indicated in the preceding sentence, plus accrued and unpaid interest thereon, if any, to the Asset Sale Payment Date. Dated: _______________ ______________________________________ ________________________________ Signature of Holder Signature Guaranteed: Commercial Bank or Trust Company Or Member Firm of the New York Stock Exchange, Inc. NOTICE: The signature to the foregoing Assignment must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. D-10 EXHIBIT E FORM OF GUARANTEE Each of the undersigned (the "Guarantors") hereby jointly and severally unconditionally guarantees, to the extent set forth in the Indenture dated as of September 22, 2003, by and between Buckeye Technologies Inc., as issuer, the Guarantors and The Bank of New York, as Trustee, (the "Indenture"), and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of, and premium, if any, and interest on the of Securities, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, and premium and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders of the of Securities or the Trustee, all in accordance with the terms set forth in Article Twelve of the Indenture and (b) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of the Securities of and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article Twelve of the Indenture and reference is hereby made to the Indenture for the precise terms and limitations of this Guarantee. The validity and enforceability of any Guarantee shall not be affected by the fact that it is not affixed to any particular Security. This Guarantee has been executed and issued pursuant to the requirements of the Indenture. [Signatures on Following Pages] E-1 IN WITNESS WHEREOF, each of the Guarantors has caused this Guarantee to be signed by a duly authorized officer. The Guarantors: Buckeye Florida Corporation By: ___________________________ Name: Title: BFOL 2 Inc. By: ____________________________ Name: Title: BFC 2 Inc. By: ____________________________ Name: Title: BFOL 3 LLC By: BFC 2 Inc., its Managing Member By: ____________________________ Name: Title: BFC 3 LLC By: BFOL 2 Inc., its Managing Member By: ____________________________ Name: Title: E-2 Buckeye Florida, Limited Partnership By: Buckeye Florida Corporation, its General Partner By: _______________________________ Name: Title: Buckeye Lumberton Inc. By: _______________________________ Name: Title: Buckeye Mt. Holly LLC By: Buckeye Lumberton Inc., its sole member By: ________________________________ Name: Title: BKI Lending Inc. By: _______________________________ Name: Title: BKI Holding Corporation By: _______________________________ Name: Title: BKI Asset Management Corporation By: _______________________________ Name: Title: E-3 BKI Finance Corporation By: _______________________________ Name: Title: BKI International Inc. By: _______________________________ Name: Title: Buckeye Technologies Canada Inc. By: _______________________________ Name: Title: Merfin Systems, Inc. By: _______________________________ Name: Title: E-4 EXHIBIT F [FORM OF] CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF SECURITIES Re: Buckeye Technologies Inc. (the "Company") 8 1/2% Senior Notes due 2013 (the "Securities") This Certificate relates to $_______ principal amount of Securities held in the form of* ___ a beneficial interest in a Global Security or* _______ Certificated Securities by ______ (the "Transferor"). The Transferor: |_| has requested by written order that the Registrar deliver in exchange for its beneficial interest in the Global Security held by the Depository a Certificated Security or Certificated Securities in definitive, registered form of authorized denominations and an aggregate number equal to its beneficial interest in such Global Security (or the portion thereof indicated above); or |_| has requested by written order that the Registrar exchange or register the transfer of a Certificated Security or Certificated Securities. In connection with such request and in respect of each such Security, the Transferor does hereby certify that the Transferor is familiar with the Indenture relating to the above captioned Securities and the restrictions on transfers thereof as provided in Section 3.5 of such Indenture, and that the transfer of the Notes does not require registration under the Securities Act of 1933, as amended (the "Securities Act"), because*: |_| Such Security is being acquired for the Transferor's own account, without transfer (in satisfaction of Section 3.5 of the Indenture). |_| Such Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), in reliance on Rule 144A. |_| Such Security is being transferred to an institutional "accredited investor" (within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act) which delivers a certificate to the Trustee in the form of Exhibit G to the Indenture. [If a transfer of less than $250,000 aggregate principal amount of Securities, an Opinion of Counsel to the effect that such transfer complies with the Securities Act accompanies this certification, if requested by the Issuers.] |_| Such Security is being transferred in reliance on Regulation S under the Securities Act and a transfer certificate for Regulation S transfers in the form of Exhibit H to the Indenture accompanies this certification. |_| Such Security is being transferred in reliance on Rule 144 under the Securities Act. |_| Such Security is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144A or Rule 144 under the Securities Act to a person other than an institutional "accredited investor." [An Opinion of Counsel, satisfactory to the Issuers, to the effect that such transfer does not require registration under the Securities Act accompanies this certification.] F-1 [INSERT NAME OF TRANSFEROR] By: _______________________ [Authorized Signatory] Date: ____________________ *Check applicable box. F-2 EXHIBIT G Form of Transferee Letter of Representation The Bank of New York 101 Barclay Street Floor 8 West New York, New York 10286 Attention: Corporate Trust Administration Ladies and Gentlemen: This certificate is delivered to request a transfer of $________ principal amount of the 8 1/2% Senior Notes due 2013 of Buckeye Technologies Inc. (the "Company") and any guarantee thereof (the "Securities"). Upon transfer, the Securities would be registered in the name of the new beneficial owner as follows: Name: _____________________________________________ Address: __________________________________________ Taxpayer ID Number: _______________________________ The undersigned represents and warrants to you that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the "Securities Act")) purchasing Securities for our own account or for the account of such an institutional "accredited investor" and we are acquiring the Securities not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of our investment in the Securities and we invest in or purchase securities similar to the Securities in the normal course of our business. We and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 2. We acknowledge that we have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary. 3. We understand that the Securities have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Securities that we will not prior to the date (the "Resale Restriction Termination Date") that is two years after the later of the original issuance of the Securities and the last date on which the Company or any affiliate of the Company was the owner of such Securities (or any predecessor thereto) offer, sell or otherwise transfer such Securities except (a) to The Company or any subsidiary of The Company, (b) inside the United States to a "qualified institutional buyer" in compliance with Rule 144A under the Securities Act (c) inside the United States to an "institutional accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the Trustee a signed letter substantially in the form of this letter (d) outside the United States in an offshore transaction in compliance with Rule 904 under the Securities Act (e) pursuant to any other available exemption G-1 from the registration requirements of the Securities Act or (f) pursuant to an effective registration statement under the Securities Act. We acknowledge that the Company and the Trustee reserve the right prior to any offer, sale or other transfer prior to the Resale Restriction Termination Date of the applicable Securities pursuant to clause (c) or (e) above to require the delivery of an opinion of counsel, certification and/or other information satisfactory to the Company and the Trustee. We understand that the Trustee will not be required to accept for registration of transfer any Securities acquired by us, except upon presentation of evidence satisfactory to the Company and the Trustee that the foregoing restrictions on transfer have been complied with. We further understand that any Securities purchased by us will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of paragraph 3 of this letter. We further agree to provide to any person acquiring any of the Securities from us a notice advising such person that transfers of such Securities are restricted as stated herein and that certificates representing such Securities will bear a legend to that effect. We represent that the Company and the Trustee and others are entitled to rely upon the truth and accuracy of our acknowledgments, representations and agreements set forth herein, and we agree to notify you promptly in writing if any of our acknowledgments, representations or agreements herein cease to be accurate and complete. You are also irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. We represent to you that we have full power to make the foregoing acknowledgments, representations and agreements on our own behalf and on behalf of any investor account for which we are acting as fiduciary agent. As used herein, the terms "offshore transaction," "United States" and "U.S. person" have the respective meanings given to them in Regulation S under the Securities Act. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Dated: __________ TRANSFEREE: By: ______________________________ G-2 EXHIBIT H Form of Certificate To Be Delivered in Connection with Regulation S Transfers _______________, ____ The Bank of New York 101 Barclay Street Floor 8 West New York, New York 10286 Attention: Corporate Trust Administration Re: Buckeye Technologies Inc. 8 1/2% Senior Notes due 2013 (the "Securities") Ladies and Gentlemen: In connection with our proposed sale of $__________ aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Securities was not made to a person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been prearranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(a) or Rule 904(a) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (5) we have advised the transferee of the transfer restrictions applicable to the Securities. H-1 You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Defined terms used herein without definition have the respective meanings provided in Regulation S. Very truly yours, [Name of Transferor] By: _____________________________ H-2 EX-4.6 4 ex4-6_102903.txt EXHIBIT 4.6 TO S-4 BUCKEYE TECHNOLOGIES INC. 8 1/2% Senior Notes due 2013 REGISTRATION RIGHTS AGREEMENT New York, New York September 22, 2003 Citigroup Global Markets Inc. UBS Securities LLC Fleet Securities, Inc. As Representatives of the Initial Purchasers c/o Citigroup Global Markets Inc. 388 Greenwich Street New York, New York 10013 Dear Sirs: Buckeye Technologies, Inc., a corporation organized under the laws of Delaware (the "Company"), proposes to issue and sell to certain purchasers (the "Initial Purchasers"), upon the terms set forth in a purchase agreement of even date herewith (the "Purchase Agreement"), its 8 1/2% Senior Notes due 2013 (the "Notes") relating to the initial placement of the Securities (the "Initial Placement"). The Company's obligations under the Notes will be guaranteed (the "Guarantees") by certain of the Company's direct and indirect subsidiaries, named in Schedule II to the Purchase Agreement (collectively, the "Guarantors"). References herein to the "Issuers" refer to the Company and the Guarantors. References herein to the "Securities" refer to the Notes and the Guarantees. To induce the Initial Purchasers to enter into the Purchase Agreement and to satisfy a condition of your obligations thereunder, the Issuers agree with you for your benefit and the benefit of the holders from time to time of the Securities (including the Initial Purchasers) (each a "Holder" and, together, the "Holders"), as follows: 1. Definitions. Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. -2- "Additional Interest" shall have the meaning set forth in the Indenture. "Affiliate" of any specified Person shall mean any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such specified Person. For purposes of this definition, control of a Person shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise; and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing. "Broker-Dealer" shall mean any broker or dealer registered as such under the Exchange Act. "Business Day" shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City. "Commission" shall mean the Securities and Exchange Commission. "Company" shall have the meaning set forth in the preamble hereto. "Conduct Rules" shall have the meaning set forth in Section 4(u) hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Exchange Offer Registration Period" shall mean the 180-day period following the consummation of the Registered Exchange Offer, exclusive of any period during which any stop order shall be in effect suspending the effectiveness of the Exchange Offer Registration Statement or during which the Company has suspended the use of the Prospectus contained therein pursuant to Section 2(g); [provided, however, that in the event that all resales of New Securities (including, subject to the time periods set forth herein, any resales by Exchanging Dealers) covered by such Exchange Offer Registration Statement have been made, the Exchange Offer Registration Statement need not thereafter remain continuously effective for such period]. "Exchange Offer Registration Statement" shall mean a registration statement of the Issuers on an appropriate form under the Act with respect to the Registered Exchange Offer, all amendments and supplements to such registration statement, including post-effective amendments thereto, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. -3- "Exchanging Dealer" shall mean any Holder (which may include any Initial Purchaser) that is a Broker-Dealer and elects to exchange for New Securities any Securities that it acquired for its own account as a result of market-making activities or other trading activities (but not directly from any Issuer or any Affiliate of any Issuer) for New Securities. "Final Memorandum" shall have the meaning set forth in the Purchase Agreement. "Guarantee" shall have the meaning set forth in the preamble hereto. "Guarantors" shall have the meaning set forth in the preamble hereto. "Holder" shall have the meaning set forth in the preamble hereto. "Indenture" shall mean the Indenture relating to the Securities, dated as of September 22, 2003, among the Issuers and The Bank of New York, as trustee, as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with the terms thereof. "Initial Placement" shall have the meaning set forth in the preamble hereto. "Initial Purchasers" shall have the meaning set forth in the preamble hereto. "Losses" shall have the meaning set forth in Section 6(d) hereof. "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of Securities and New Securities registered under a Registration Statement. "Managing Underwriters" shall mean the investment banker or investment bankers and manager or managers that shall administer an underwritten offering. "New Securities" shall mean debt securities of the Issuers identical in all material respects to the Securities (except that the cash interest and interest rate step-up provisions and the transfer restrictions shall be modified or eliminated, as appropriate) and to be issued under the Indenture or the New Securities Indenture. "New Securities Indenture" shall mean an indenture among the Issuers and the New Securities Trustee, identical in all material respects to the Indenture (except that the cash interest and interest rate step-up provisions will be modified or eliminated, as appropriate). "New Securities Trustee" shall mean a bank or trust company reasonably satisfactory to the Initial Purchasers, as trustee with respect to the New Securities under the New Securities Indenture. -4- "Person" shall mean an individual, trustee, corporation, partnership, limited liability company, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. "Prospectus" shall mean the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Securities or the New Securities covered by such Registration Statement, and all amendments and supplements thereto and all material incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble hereto. "Registered Exchange Offer" shall mean the proposed offer of the Issuers to issue and deliver to the Holders of the Securities that are not prohibited by any law or policy of the Commission from participating in such offer, in exchange for the Securities, a like aggregate principal amount of the New Securities. "Registration Statement" shall mean any Exchange Offer Registration Statement or Shelf Registration Statement that covers any of the Securities or the New Securities pursuant to the provisions of this Agreement, any amendments and supplements to such registration statement, including post-effective amendments (in each case including the Prospectus contained therein), all exhibits thereto and all material incorporated by reference therein. "Securities" shall have the meaning set forth in the preamble hereto. "Shelf Registration" shall mean a registration effected pursuant to Section 3 hereof. "Shelf Registration Period" has the meaning set forth in Section 3(b)(ii) hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Issuers pursuant to the provisions of Section 3 hereof which covers some or all of the Securities or New Securities, as applicable, on an appropriate form under Rule 415 under the Act, or any similar rule that may be adopted by the Commission, all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Trustee" shall mean the trustee with respect to the Securities under the Indenture. -5- "underwriter" shall mean any underwriter of Securities in connection with an offering thereof under a Shelf Registration Statement. 2. Registered Exchange Offer. (a) The Issuers shall prepare and, not later than 90 days following the date of the original issuance of the Securities (or if such 90th day is not a Business Day, the next succeeding Business Day), shall file with the Commission the Exchange Offer Registration Statement with respect to the Registered Exchange Offer. The Issuers shall cause the Exchange Offer Registration Statement to become effective under the Act within 180 days of the date of the original issuance of the Securities (or if such 180th day is not a Business Day, the next succeeding Business Day). (b) Upon the effectiveness of the Exchange Offer Registration Statement, the Issuers shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Securities for New Securities (assuming that such Holder is not an Affiliate of any of the Issuers, acquires the New Securities in the ordinary course of such Holder's business, has no arrangements with any Person to participate in the distribution of the New Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such New Securities from and after their receipt without any limitations or restrictions under the Act and without material restrictions under the securities laws of a substantial proportion of the several states of the United States. (c) In connection with the Registered Exchange Offer, the Issuers shall: (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) keep the Registered Exchange Offer open for not less than 20 Business Days and not more than 30 Business Days after the date notice thereof is mailed to the Holders (or, in each case, longer if required by applicable law); (iii) use their best efforts to keep the Exchange Offer Registration Statement continuously effective under the Act, supplemented and amended as required, under the Act to ensure that it is available for sales of New Securities by Exchanging Dealers during the Exchange Offer Registration Period; (iv) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan in New York city, which may be the Trustee, the New Securities Trustee or an Affiliate of either of them; -6- (v) permit Holders to withdraw tendered Securities at any time prior to 5:00 p.m., New York time, on the last Business Day on which the Registered Exchange Offer is open; (vi) prior to effectiveness of the Exchange Offer Registration Statement, provide a supplemental letter to the Commission (A) stating that the Issuers are conducting the Registered Exchange Offer in reliance on the position of the Commission in Exxon Capital Holdings Corporation (pub. avail. May 13, 1988), Morgan Stanley and Co., Inc. (pub. avail. June 5, 1991); and (B) including a representation that the Issuers have not entered into any arrangement or understanding with any Person to distribute the New Securities to be received in the Registered Exchange Offer and that, to the best of the Issuers' information and belief, each Holder participating in the Registered Exchange Offer is acquiring the New Securities in the ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the New Securities; and (vii) comply in all respects with all applicable laws. (d) As soon as practicable after the close of the Registered Exchange Offer, the Issuers shall: (i) accept for exchange all Securities tendered and not validly withdrawn pursuant to the Registered Exchange Offer; (ii) deliver to the Trustee for cancellation in accordance with Section 4(s) all Securities so accepted for exchange; and (iii) cause the New Securities Trustee promptly to authenticate and deliver to each Holder of Securities a principal amount of New Securities equal to the principal amount of the Securities of such Holder so accepted for exchange. (e) Each Holder hereby acknowledges and agrees that any Broker-Dealer and any such Holder using the Registered Exchange Offer to participate in a distribution of the New Securities (x) could not under Commission policy as in effect on the date of this Agreement rely on the position of the Commission in Morgan Stanley and Co., Inc. (pub. avail. June 5, 1991) and Exxon Capital Holdings Corporation (pub. avail. May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993 and similar no-action letters; and (y) must comply with the registration and prospectus delivery requirements of the Act in connection with any secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as ap- -7- plicable, of Regulation S-K under the Act if the resales are of New Securities obtained by such Holder in exchange for Securities acquired by such Holder directly from any Issuer or an Affiliate of an Issuer. Accordingly, each Holder participating in the Registered Exchange Offer shall be required to represent to the Issuers that, at the time of the consummation of the Registered Exchange Offer: (i) any New Securities received by such Holder will be acquired in the ordinary course of business; (ii) such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Securities or the New Securities within the meaning of the Act; and (iii) such Holder is not an Affiliate of any Issuer. (f) If any Initial Purchaser determines that it is not eligible to participate in the Registered Exchange Offer with respect to the exchange of Securities constituting any portion of an unsold allotment, at the request of such Initial Purchaser, the Issuers shall issue and deliver to such Initial Purchaser or the Person purchasing New Securities registered under a Shelf Registration Statement as contemplated by Section 3 hereof from such Initial Purchaser, in exchange for such Securities, a like principal amount of New Securities. The Issuers shall use their reasonable best efforts to cause the CUSIP Service Bureau to issue the same CUSIP number for such New Securities as for New Securities issued pursuant to the Registered Exchange Offer. (g) The Issuers may suspend the use of the Prospectus forming part of the Exchange Offer Registration Statement provided that such action is taken in good faith and for valid business reasons (not including avoidance of their obligations hereunder), including the acquisition or divestiture of assets, mergers and combinations and similar events, so long as the Issuers promptly thereafter comply with the requirements of Section 4(k) hereof, if applicable. 3. Shelf Registration. (a) If (i) due to any change in law or applicable interpretations thereof by the Commission's staff, the Issuers determine upon advice of their outside counsel that they are not permitted to effect the Registered Exchange Offer as contemplated by Section 2 hereof; or (ii) for any other reason the Exchange Offer Registration Statement has not become effective under the Act within 180 days of the date of the original issuance of the Securities or the Registered Ex- -8- change Offer is not consummated within 30 Business Days after the Exchange Offer Registration Statement becomes effective; (iii) any Initial Purchaser so requests with respect to Securities that are not eligible to be exchanged for New Securities in the Registered Exchange Offer and that are held by it following consummation of the Registered Exchange Offer; (iv) any Holder (other than an Initial Purchaser) is not eligible to participate in the Registered Exchange Offer; or (v) in the case of any Initial Purchaser that participates in the Registered Exchange Offer or acquires New Securities pursuant to Section 2(f) hereof, such Initial Purchaser does not receive freely tradeable New Securities in exchange for Securities constituting any portion of an unsold allotment (it being understood that (x) the requirement that an Initial Purchaser deliver a Prospectus containing the information required by Item 507 or 508 of Regulation S-K under the Act in connection with sales of New Securities acquired in exchange for such Securities shall result in such New Securities being not "freely tradeable"; and (y) the requirement that an Exchanging Dealer deliver a Prospectus in connection with sales of New Securities acquired in the Registered Exchange Offer in exchange for Securities acquired as a result of market-making activities or other trading activities shall not result in such New Securities being not "freely tradeable"), the Issuers shall effect a Shelf Registration Statement in accordance with subsection (b) below. (b)(i) The Issuers shall as promptly as practicable, file with the Commission and thereafter shall use their best efforts to cause to be declared effective under the Act a Shelf Registration Statement relating to the offer and sale of the Securities or the New Securities, as applicable, by the Holders thereof from time to time in accordance with the methods of distribution elected by such Holders and set forth in such Shelf Registration Statement; provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all of the provisions of this Agreement applicable to such Holder; and provided further, that with respect to New Securities received by an Initial Purchaser in exchange for Securities constituting any portion of an unsold allotment, the Issuers may, if permitted by current interpretations by the Commission's staff, file a post-effective amendment to the Exchange Offer Registration Statement containing the information required by Item 507 or 508 of Regulation S-K, as applicable, in satisfaction of its obligations under this subsection with respect thereto, and any such Exchange Offer Registration Statement, as so amended, shall be referred to herein as, and governed by the provisions herein applicable to, a Shelf Registration Statement. (ii) The Issuers shall use their best efforts to keep the Shelf Registration Statement continuously effective, supplemented and amended as required by the Act, in order to permit the Prospectus forming part thereof to be usable by Holders for a period of two years from the date the Shelf Registration Statement is declared ef- -9- fective by the Commission or such shorter period that will terminate when all the Securities or New Securities, as applicable, covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement (in any such case, such period being called the "Shelf Registration Period"). The Issuers shall be deemed not to have used their best efforts to keep the Shelf Registration Statement effective during the requisite period if they voluntarily take any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless (A) such action is required by applicable law; or (B) such action is taken by the Issuers in good faith and for valid business reasons (not including avoidance of the Issuers' obligations hereunder), including the acquisition or divestiture of assets, mergers and combinations and similar events, so long as the Issuers promptly thereafter comply with the requirements of Section 4(k) hereof, if applicable. (iii) The Issuers shall cause the Shelf Registration Statement and the related Prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement or such amendment or supplement, (A) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission; and (B) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iv) No Holder of Securities may include any of its Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Issuers in writing, within 15 days after receipt of a request therefor, such information as the Issuers may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Securities shall be entitled to Additional Interest pursuant to the terms of the Indenture unless and until such Holder shall have used its reasonable best efforts to provide all such reasonably requested information. Each Holder of Securities as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such Holder not misleading. 4. Additional Registration Procedures. In connection with any Shelf Registration Statement and, to the extent applicable, any Exchange Offer Registration Statement, -10- the following provisions shall apply. (a) The Issuers shall: (i) furnish to you, not less than five Business Days prior to the filing thereof with the Commission, a copy of any Exchange Offer Registration Statement and any Shelf Registration Statement, and each amendment thereof and each amendment or supplement, if any, to the Prospectus included therein (including all documents incorporated by reference therein after the initial filing) and shall use their best efforts to reflect in each such document, when so filed with the Commission, such comments as you reasonably propose; (ii) include the information set forth in Annex A hereto on the facing page of the Exchange Offer Registration Statement, in Annex B hereto in the forepart of the Exchange Offer Registration Statement in a section setting forth details of the Exchange Offer, in Annex C hereto in the underwriting or plan of distribution section of the Prospectus contained in the Exchange Offer Registration Statement, and in Annex D hereto in the letter of transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Item 507 or 508 of Regulation S-K, as applicable, in the Prospectus contained in the Exchange Offer Registration Statement; and (iv) in the case of a Shelf Registration Statement, include the names of the Holders that propose to sell Securities pursuant to the Shelf Registration Statement as selling security holders. (b) The Issuers shall ensure that: -11- (i) any Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto complies in all material respects with the Act and the rules and regulations thereunder; and (ii) any Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) The Issuers shall advise you, the Holders of Securities covered by any Shelf Registration Statement and any Exchanging Dealer under any Exchange Offer Registration Statement that has provided in writing to the Issuers a telephone or facsimile number and address for notices, and, if requested by you or any such Holder or Exchanging Dealer, shall confirm such advice in writing (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the Prospectus until the Issuers shall have remedied the basis for such suspension): (i) when a Registration Statement and any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for any amendment or supplement to the Registration Statement or the Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by any Issuer of any notification with respect to the suspension of the qualification of the securities included therein for sale in any jurisdiction or the initiation of any proceeding for such purpose; and -12- risdiction or the initiation of any proceeding for such purpose; and (v) of the happening of any event that requires any change in the Registration Statement or the Prospectus so that, as of such date, the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in the light of the circumstances under which they were made) not misleading. (d) The Issuers shall use their reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of any Registration Statement or the qualification of the securities therein for sale in any jurisdiction at the earliest possible time. (e) The Issuers shall furnish to each Holder of Securities covered by any Shelf Registration Statement, without charge, at least one copy of such Shelf Registration Statement and any post-effective amendment thereto, including all material incorporated therein by reference, and, if the Holder so requests in writing, all exhibits thereto (including exhibits incorporated by reference therein). (f) The Issuers shall, during the Shelf Registration Period, deliver to each Holder of Securities covered by any Shelf Registration Statement, without charge, as many copies of the Prospectus (including each preliminary Prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request. The Issuers consents to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of securities in connection with the offering and sale of the securities covered by the Prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (g) The Issuers shall furnish to each Exchanging Dealer which so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including all material incorporated by -13- reference therein, and, if the Exchanging Dealer so requests in writing, all exhibits thereto (including exhibits incorporated by reference therein). (h) The Issuers shall promptly deliver to each Initial Purchaser, each Exchanging Dealer and each other Person required to deliver a Prospectus during the Exchange Offer Registration Period, without charge, as many copies of the Prospectus included in such Exchange Offer Registration Statement and any amendment or supplement thereto as any such Person may reasonably request. The Issuers consent to the use of the Prospectus or any amendment or supplement thereto by any Initial Purchaser, any Exchanging Dealer and any such other Person that may be required to deliver a Prospectus following the Registered Exchange Offer in connection with the offering and sale of the New Securities covered by the Prospectus, or any amendment or supplement thereto, included in the Exchange Offer Registration Statement. (i) Prior to the Registered Exchange Offer or any other offering of Securities pursuant to any Registration Statement, the Issuers shall use reasonable best efforts to arrange, if necessary, for the qualification of the Securities or the New Securities for sale under the laws of such jurisdictions as any Holder shall reasonably request in writing and will maintain such qualification in effect so long as required; provided that in no event shall any Issuer be obligated to qualify to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to service of process in suits, other than those arising out of the Initial Placement, the Registered Exchange Offer or any offering pursuant to a Shelf Registration Statement, or to taxation in any such jurisdiction where it is not then so subject. (j) The Issuers shall cooperate with the Holders of Securities to facilitate the timely preparation and delivery of certificates representing New Securities or Securities to be issued or sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as Holders may request. (k) Upon the occurrence of any event contemplated by Section 2(g) or subsections (c) (ii) through (v) above, the Issuers shall promptly prepare a post-effective amendment to the applicable Registration Statement or an amendment or -14- supplement to the related Prospectus or file any other required document so that, as thereafter delivered to Initial Purchasers of the securities included therein, the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. In such circumstances, the period of effectiveness of the Exchange Offer Registration Statement provided for in Section 2 and the Shelf Registration Statement provided for in Section 3(b) shall each be extended by the number of days from and including the date of the giving of a notice of suspension pursuant to Section 4(c) to and including the date when the Initial Purchasers, the Holders of the Securities and any known Exchanging Dealer shall have received such amended or supplemented Prospectus pursuant to this Section. (l) Not later than the effective date of any Registration Statement, the Issuers shall provide a CUSIP number for the Securities or the New Securities, as the case may be, registered under such Registration Statement and provide the Trustee with printed certificates for such Securities or New Securities, in a form eligible for deposit with The Depository Trust Company. (m) The Issuers shall use reasonable best efforts to comply with all applicable rules and regulations of the Commission and shall make generally available to its security holders as soon as practicable after the effective date of the applicable Registration Statement an earnings statement satisfying the provisions of Section 11(a) of the Act and Rule 158 promulgated thereunder. (n) The Issuers shall cause the Indenture or the New Securities Indenture, as the case may be, to be qualified under the Trust Indenture Act in a timely manner. (o) The Issuers may require each Holder of securities to be sold pursuant to any Shelf Registration Statement to furnish to the Issuers such information regarding the Holder and the distribution of such securities as the Issuers may from time to time reasonably require for inclusion in such Registration Statement. The Issuers may exclude from such Shelf Registration Statement the Securities of any Holder that fails to furnish such information within a reasonable time after receiving such re- -15- quest. (p) In the case of any Shelf Registration Statement, the Issuers shall enter into such and take all other appropriate actions (including if requested an underwriting agreement in customary form) in order to expedite or facilitate the registration or the disposition of the Securities, and in connection therewith, if an underwriting agreement is entered into, cause the same to contain indemnification provisions and procedures no less favorable than those set forth in Section 6 (or such other provisions and procedures acceptable to the Majority Holders and the Managing Underwriters, if any), with respect to all parties to be indemnified pursuant to Section 6. (q) In the case of any Shelf Registration Statement, the Issuers shall: (i) make reasonably available for inspection by the Holders of Securities to be registered thereunder, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by the Holders or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Issuers and their subsidiaries; (ii) cause the officers, directors and employees of each Issuer to supply all relevant information reasonably requested by the Holders or any such underwriter, attorney, accountant or agent in connection with any such Registration Statement as is customary for similar due diligence examinations; provided, however, that any information that is designated in writing by any Issuer, in good faith, as confidential at the time of delivery of such information shall be kept confidential by the Holders or any such underwriter, attorney, accountant or agent, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; -16- (iii) make such representations and warranties to the Holders of Securities registered thereunder and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings and covering matters including, but not limited to, those set forth in the Purchase Agreement; (iv) obtain opinions of counsel to the Issuers and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Managing Underwriters, if any) addressed to each selling Holder and the underwriters, if any, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (v) obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each selling Holder of Securities registered thereunder (provided such Holder provides such accountants with the representations as such accountants customarily require in similar situations) and the underwriters, if any, in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings; and (vi) deliver such documents and certificates as may be reasonably requested by the Majority Holders and the Managing Underwriters, if any, including those to evidence compliance with Section 4(k) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Issuers. The actions set forth in clauses (iii), (iv), (v) and (vi) of this Section shall be performed at (A) the effectiveness of such Registration Statement and each post-effective amendment thereto; and (B) each closing under any underwriting or similar agreement as and to the extent required thereunder. -17- (r) In the case of any Exchange Offer Registration Statement, the Issuers shall: (i) make reasonably available for inspection by such Initial Purchaser, and any attorney, accountant or other agent retained by such Initial Purchaser, all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries; (ii) cause the officers, directors and employees of each Issuer to supply all relevant information reasonably requested by such Initial Purchaser or any such attorney, accountant or agent in connection with any such Registration Statement as is customary for similar due diligence examinations; provided, however, that any information that is designated in writing by any Issuer, in good faith, as confidential at the time of delivery of such information shall be kept confidential by such Initial Purchaser or any such attorney, accountant or agent, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; (iii) make such representations and warranties to such Initial Purchaser, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings and covering matters including, but not limited to, those set forth in the Purchase Agreement; (iv) obtain opinions of counsel to the Issuers and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to such Initial Purchaser and its counsel, addressed to such Initial Purchaser, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Initial Purchaser or its counsel; -18- (v) obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to such Initial Purchaser (provided such Initial Purchaser provides such accountants with the representations as such accountants customarily require in similar situations), in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings, or if requested by such Initial Purchaser or its counsel in lieu of a "cold comfort" letter, an agreed-upon procedures letter under Statement on Auditing Standards No. 35, covering matters requested by such Initial Purchaser or its counsel; and (vi) deliver such documents and certificates as may be reasonably requested by such Initial Purchaser or its counsel, including those to evidence compliance with Section 4(k) and with conditions customarily contained in underwriting agreements. The foregoing actions set forth in clauses (iii), (iv), (v), and (vi) of this Section shall be performed at the close of the Registered Exchange Offer and the effective date of any post-effective amendment to the Exchange Offer Registration Statement. (s) If a Registered Exchange Offer is to be consummated, upon delivery of the Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the New Securities, the Company shall mark, or caused to be marked, on the Securities so exchanged that such Securities are being canceled in exchange for the New Securities. In no event shall the Securities be marked as paid or otherwise satisfied. (t) The Issuers will use their reasonable best efforts (i) if the Securities have been rated prior to the initial sale of such Securities, to confirm such ratings will apply to the Securities or the New Securities, as the case may be, covered by a Registration Statement; or (ii) if the Securities were not previously rated, to cause the Securities covered by a Registration Statement to be rated with at least one nationally recognized statistical rating agency, if so requested by Majority Holders with respect to the related Registration Statement or by any Managing Underwriters. -19- (u) In the event that any Broker-Dealer shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules of the National Association of Securities Dealers, Inc.) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such Broker-Dealer in complying with the requirements of such Conduct Rules, including, without limitation, by: (i) if such Conduct Rules shall so require, engaging a "qualified independent underwriter" (as defined in such Conduct Rules) to participate in the preparation of the Registration Statement, to exercise usual standards of due diligence with respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities; (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 6 hereof; (iii) providing such information to such Broker-Dealer as may be required in order for such Broker-Dealer to comply with the requirements of such Conduct Rules; and (iv) the Issuers shall use their reasonable best efforts to take all other steps necessary to effect the registration of the Securities or the New Securities, as the case may be, covered by a Registration Statement. 5. Registration Expenses. The Issuers shall bear all reasonable expenses incurred in connection with the performance of their obligations under Sections 2, 3 and 4 hereof (other than brokers', dealers' and underwriters' discounts and commissions and, except as expressly provided below, brokers', dealers' and underwriters' counsel fees) and, in the event of any Shelf Registration Statement, will reimburse the Holders for the reasonable fees and disbursements of one firm or counsel designated by the Majority Holders to act as counsel -20- for the Holders in connection therewith, and, in the case of any Exchange Offer Registration Statement, will reimburse the Initial Purchasers for the reasonable fees and disbursements of counsel acting in connection therewith. 6. Indemnification and Contribution. (a) The Issuers, jointly and severally, agree to indemnify and hold harmless each Holder of Securities or New Securities, as the case may be, covered by any Registration Statement (including each Initial Purchaser and each Affiliate thereof and, with respect to any Prospectus delivery as contemplated in Section 4(h) hereof, each Exchanging Dealer), the directors, officers, employees and agents of each such Holder and each Person who controls any such Holder within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement as originally filed or in any amendment thereof, or in any preliminary Prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agree to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Issuers will not be liable in any case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Issuers by or on behalf of any such Holder specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Issuers may otherwise have. The Issuers also jointly and severally agree to indemnify or contribute as provided in Section 6(d) to Losses of each any underwriter of Securities or New Securities, as the case may be, registered under a Shelf Registration Statement, their directors, officers, employees or agents and each Person who controls such underwriter on substantially the same basis as that of the indemnification of the Initial Purchasers and the selling Holders provided in this Section 6(a) and shall, if requested by any Holder, enter into an underwriting agreement reflecting such agreement, as provided in Section 4(p) hereof. (b) Each Holder of securities covered by a Registration Statement (including each Initial Purchaser and, with respect to any Prospectus delivery as con- -21- templated in Section 4(h) hereof, each Exchanging Dealer) severally agrees to indemnify and hold harmless the Issuers and each of their respective directors, each of their respective officers who signs such Registration Statement and each Person who controls any Issuer within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Issuers to each such Holder, but only with reference to written information relating to such Holder furnished to the Issuers by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any such Holder may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 6 or notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses; and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided however, that such counsel shall be satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest; (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party; (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action; or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will -22- not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section is unavailable to or insufficient to hold harmless an indemnified party for any reason, then each applicable indemnifying party shall have a joint and several obligation to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which such indemnified party may be subject in such proportion as is appropriate to reflect the relative benefits received by such indemnifying party, on the one hand, and such indemnified party, on the other hand, from the Initial Placement and the Registration Statement which resulted in such Losses; provided, however, that in no case shall any Initial Purchaser or any subsequent Holder of any Security or New Security be responsible, in the aggregate, for any amount in excess of the purchase discount or commission applicable to such Security, or in the case of a New Security, applicable to the Security that was exchangeable into such New Security, as set forth on the cover page of the Final Memorandum, nor shall any underwriter be responsible for any amount in excess of the underwriting discount or commission applicable to the securities purchased by such underwriter under the Registration Statement which resulted in such Losses. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the indemnifying party and the indemnified party shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of such indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Issuers shall be deemed to be equal to the sum of (x) the total net proceeds from the Initial Placement (before deducting expenses) as set forth on the cover page of the Final Memorandum and (y) the total amount of additional interest which the Issuers were not required to pay as a result of registering the securities covered by the Registration Statement which resulted in such Losses. Benefits received by the Initial Purchasers shall be deemed to be equal to the total purchase discounts and commissions as set forth on the cover page of the Final Memorandum, and benefits received by any other Holders shall be deemed to be equal to the value of receiving Securities or New Securities, as applicable, registered -23- under the Act. Benefits received by any underwriter shall be deemed to be equal to the total underwriting discounts and commissions, as set forth on the cover page of the Prospectus forming a part of the Registration Statement which resulted in such Losses. Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission relates to information provided by the indemnifying party, on the one hand, or by the indemnified party, on the other hand, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties agree that it would not be just and equitable if contribution were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each Person who controls a Holder within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of such Holder shall have the same rights to contribution as such Holder, and each Person who controls any Issuer within the meaning of either the Act or the Exchange Act, each officer of any Issuer who shall have signed the Registration Statement and each director of any Issuer shall have the same rights to contribution as the Issuers, subject in each case to the applicable terms and conditions of this paragraph (d). (e) The provisions of this Section will remain in full force and effect, regardless of any investigation made by or on behalf of any Holder or the Issuers or any of the officers, directors or controlling Persons referred to in this Section hereof, and will survive the sale by a Holder of securities covered by a Registration Statement. 7. Underwritten Registrations. (a) If any of the Securities or New Securities, as the case may be, covered by any Shelf Registration Statement are to be sold in an underwritten offering, the Managing Underwriters shall be selected by the Majority Holders. (b) No Person may participate in any underwritten offering pursuant to any Shelf Registration Statement, unless such Person (i) agrees to sell such Person's Securities or New Securities, as the case may be, on the basis reasonably provided in any underwriting arrangements approved by the Persons entitled hereunder to approve -24- such arrangements; and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 8. No Inconsistent Agreements. No Issuer has, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. 9. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, qualified, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Issuers have obtained the written consent of the Majority Holders (or, after the consummation of any Registered Exchange Offer in accordance with Section 2 hereof, of New Securities); provided that, with respect to any matter that directly or indirectly affects the rights of any Initial Purchaser hereunder, the Issuers shall obtain the written consent of each such Initial Purchaser against which such amendment, qualification, supplement, waiver or consent is to be effective. Notwithstanding the foregoing (except the foregoing proviso), a waiver or consent to departure from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Securities or New Securities, as the case may be, are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by the Majority Holders, determined on the basis of Securities or New Securities, as the case may be, being sold rather than registered under such Registration Statement. 10. Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telex, telecopier or air courier guaranteeing overnight delivery: (a) if to a Holder, at the most current address given by such Holder to the Issuers in accordance with the provisions of this Section, which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture, with a copy in like manner to Citigroup Global Markets Inc; -25- (b) if to you, initially at the respective addresses set forth in the Purchase Agreement; and (c) if to any Issuer, initially at its address set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given when received if delivered by hand or air courier, and when sent, if sent by first class mail or telecopier. The Initial Purchasers or the Issuers by notice to the other parties may designate additional or different addresses for subsequent notices or communications. 11. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without the need for an express assignment or any consent by the Issuers thereto, subsequent Holders of Securities and the New Securities. The Issuers hereby agree to extend the benefits of this Agreement to any Holder of Securities and the New Securities, and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto. 12. Counterparts. This agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which shall an original and all of which together shall constitute one and the same agreement. 13. Headings. The headings used herein are for convenience only and shall not affect the construction hereof. 14. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. 15. Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. -26- 16. Securities Held by any Issuer, etc. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities or New Securities is required hereunder, Securities or New Securities, as applicable, held by any issuer or their Affiliates (other than subsequent Holders of Securities or New Securities if such subsequent Holders are deemed to be Affiliates solely by reason of their holdings of such Securities or New Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. -27- If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Issuers and the several Initial Purchasers. Very truly yours, Buckeye Technologies Inc. By:/s/ David B. Ferarro ------------------------ Name: David B. Ferraro Title: Chairman & Chief Executive Officer Buckeye Florida Corporation By:/s/ David B. Ferarro ------------------------ Name: David B. Ferraro Title: Chief Executive Officer BFOL 2 Inc. By:/s/ David B. Ferarro ------------------------ Name: David B. Ferraro Title: Chief Executive Officer BFC 2 Inc. By:/s/ David B. Ferarro ------------------------ Name: David B. Ferraro Title: Chief Executive Officer BFOL 3 LLC By: BFC 2 Inc., its Managing Member By:/s/ David B. Ferarro ----------------------- Name: David B. Ferraro Title: Chief Executive Officer -28- BFC 3 LLC By: BFOL 2 Inc., its Managing Member By:/s/ David B. Ferarro ----------------------- Name: David B. Ferraro Title: Chief Executive Officer Buckeye Florida Limited Partnership By: Buckeye Florida Corporation, its General Partner By:/s/ David B. Ferarro ----------------------- Name: David B. Ferraro Title: Chief Executive Officer Buckeye Lumberton Inc. By:/s/ David B. Ferarro ------------------------ Name: David B. Ferraro Title: Chief Executive Officer Buckeye Mt. Holly LLC By: Buckeye Lumberton Inc., its sole member By:/s/ David B. Ferarro ----------------------- Name: David B. Ferraro Title: Chief Executive Officer BKI Lending Inc. By:/s/ Doris J. Krick --------------------- Name: Doris J. Krick Title: President -29- BKI Holding Corporation By:/s/ Francis B. Jacobs, II ---------------------------- Name: Francis B. Jacobs, II Title: President BKI Asset Management Corporation By:/s/ Francis B. Jacobs, II ---------------------------- Name: Francis B. Jacobs, II Title: President BKI Finance Corporation By:/s/ David B. Ferarro ------------------------ Name: David B. Ferraro Title: Chief Executive Officer BKI International Inc. By:/s/ David B. Ferarro ------------------------ Name: David B. Ferraro Title: Chief Executive Officer Buckeye Technologies Canada Inc. By:/s/ Janice C. George ----------------------- Name: Janice C. George Title: Secretary -30- Merfin Systems Inc. By:/s/ David B. Ferarro ------------------------ Name: David B. Ferraro Title: Chief Executive Officer The foregoing Agreement is hereby confirmed and accepted as of the date first above written. CITIGROUP GLOBAL MARKETS INC. UBS SECURITIES LLC FLEET SECURITIES, INC. By: Citigroup Global Markets Inc. By: /s/ Stephen Woo --------------------- Name: Stephen Woo Title: Vice President ANNEX A Each Broker-Dealer that receives New Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Broker-Dealer in connection with resales of New Securities received in exchange for Securities where such Securities were acquired by such Broker-Dealer as a result of market-making activities or other trading activities. The Issuers have agreed that, starting on the Expiration Date (as defined herein) and ending on the close of business one year after the Expiration Date, they will make this Prospectus available to any Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." ANNEX B Each Broker-Dealer that receives New Securities for its own account in exchange for Securities, where such Securities were acquired by such Broker- Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Securities. See "Plan of Distribution." ANNEX C PLAN OF DISTRIBUTION Each Broker-Dealer that receives New Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Broker-Dealer in connection with resales of New Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Issuers have agreed that, during the Exchange Offer Registration Period, they will make this Prospectus, as amended or supplemented, available to any Broker-Dealer for use in connection with any such resale. In addition, until __________, 20[ ] all dealers effecting transactions in the New Securities may be required to deliver a prospectus. The Issuers will not receive any proceeds from any sale of New Securities by brokers-dealers. New Securities received by Broker-Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Broker-Dealer and/or the purchasers of any such New Securities. Any Broker-Dealer that resales New Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit of any such resale of New Securities and any commissions or concessions received by any such Persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. During the Exchange Offer Registration Period, the Issuers will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any Broker-Dealer that requests such documents in the Letter of Transmittal. The Issuers have agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the holder of the Securities) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the Securities (including any Broker-Dealers) against certain liabilities, including liabilities under the Securities Act. ANNEX D Rider A CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ___________________________ Address: ___________________________ ___________________________ Rider B If the undersigned is not a Broker-Dealer, the undersigned represents that it acquired the New Securities in the ordinary course of its business, it is not engaged in, and does not intend to engage in, a distribution of New Securities and it has not arrangements or understandings with any Person to participate in a distribution of the New Securities. If the undersigned is a Broker-Dealer that will receive New Securities for its own account in exchange for Securities, it represents that the Securities to be exchange for New Securities were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus in connection with any resale of such New Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-12.1 5 ex12-1_102903.txt EXHIBIT 12.1 TO S-4 EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (AMOUNTS IN THOUSANDS) (unaudited)
Year Ended June 30, ------------------- 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- Fixed Charges: Interest expense on indebtedness $ 38,018 $ 42,179 $ 44,292 $ 46,553 $ 45,026 Amortization of debt insurance costs 1,245 1,306 1,561 2,033 2,500 Capitalized interest 637 447 4,824 1,772 11 Interest expense on portion of rent expense representative of interest 1,449 1,270 1,450 1,795 1,759 --------------- -------------- --------------- ------------- -------------- Total fixed charges $ 41,349 $ 45,202 $ 52,127 $ 52,153 $ 49,296 =============== ============== =============== ============= ============== Earnings: Net income (loss) before provision for income taxes $ 70,330 $ 89,117 $ 64,329 $ (22,924) $ (42,016) Fixed charges per above less capitalized interest 40,712 44,755 47,303 50,381 49,285 Amortization of capitalized interest 140 182 208 529 647 --------------- -------------- --------------- ------------- -------------- Total earnings $ 111,182 $ 134,054 $ 111,840 $ 27,986 $ 7,916 =============== ============== =============== ============= ============== Ratio of Earnings to Fixed Charges 2.7x 3.0x 2.2x 0.5x 0.2x =============== ============== =============== ============= ==============
EX-21.1 6 ex21-1_102903.txt EXHIBIT 21.1 TO S-4 Exhibit 21.1 BUCKEYE TECHNOLOGIES INC. Subsidiaries of the Registrant Buckeye Technologies Inc. (Registrant) Domestic Subsidiaries State of Incorporation or Organization - ------------------------------------------------- ----------------------------- BFC 2 Inc. Florida BFC 3 LLC Delaware BFOL 2 Inc. Florida BFOL 3 LLC Delaware BKI Asset Management Corporation Delaware BKI Finance Corporation Tennessee BKI Holding Corporation Delaware BKI International Inc. Delaware BKI Lending Inc. Delaware BKI South America LLC Delaware Buckeye Florida Corporation Delaware Buckeye Florida, Limited Partnership Delaware Buckeye Lumberton Inc. North Carolina Buckeye Mt. Holly LLC Delaware Buckeye Receivables Inc. Delaware Buckeye Technologies Canada Inc. Delaware Merfin Systems Inc. Delaware Foreign Subsidiaries Jurisdiction - ------------------------------------------------- ----------------------------- Buckeye Americana Ltda. Brazil Buckeye (Barbados) Ltd. Barbados Buckeye Canada Co. Nova Scotia Buckeye Canada British Columbia Buckeye Finland OY Finland Buckeye France SARL France Buckeye Holdings GmbH Germany Buckeye Iberica S.A. Spain Buckeye Italia S.r.l. Italy Buckeye Nova Scotia Co. Nova Scotia Buckeye S.A. Switzerland Buckeye Steinfurt GmbH Germany Buckeye Technologies GmbH Germany Buckeye Technologies Ireland Ltd. Ireland Buckeye (U.K.) Limited England Merfin Europe A.S. Czech Republic EX-23.2 7 ex23-2_102903.txt EXHIBIT 23.2 TO S-4 EXHIBIT 23.2 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated July 30, 2003 (except for Note 21, as to which the date is September 22, 2003), with respect to the consolidated financial statements and schedule of Buckeye Technologies Inc., included in the Registration Statement on Form S-4 and the related Prospectus of Buckeye Technologies Inc. for the registration of $200,000,000 of 8.50% Senior Notes. /s/ Ernst & Young LLP Memphis, Tennessee October 29, 2003 EX-25.1 8 ex25-1_102903.txt EXHIBIT 25.1 TO S-4 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| ___________________________ THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ___________________________ Buckeye Technologies Inc. (Exact name of obligor as specified in its charter) Delaware 62-1518973 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 1001 Tillman Street Memphis, Tennessee 38112 (Address of principal executive offices) (Zip code) Buckeye Florida Corporation (Exact name of obligor as specified in its charter) Delaware 59-3200093 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) One Buckeye Drive Perry, Florida 32348 (Address of principal executive offices) (Zip code) BFOL 2 Inc. (Exact name of obligor as specified in its charter) Florida 52-2283145 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) One Buckeye Drive Perry, Florida 32348 (Address of principal executive offices) (Zip code) BFC 2 Inc. (Exact name of obligor as specified in its charter) Florida 52-2283147 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) One Buckeye Drive Perry, Florida 32348 (Address of principal executive offices) (Zip code) BFOL 3 LLC (Exact name of obligor as specified in its charter) Delaware 88-0485758 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) One Buckeye Drive Perry, Florida 32348 (Address of principal executive offices) (Zip code) - 2 - BFC 3 LLC (Exact name of obligor as specified in its charter) Delaware 88-0485756 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) One Buckeye Drive Perry, Florida 32348 (Address of principal executive offices) (Zip code) Buckeye Florida, Limited Partnership (Exact name of obligor as specified in its charter) Delaware 59-3161530 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) One Buckeye Drive Perry, Florida 32348 (Address of principal executive offices) (Zip code) Buckeye Lumberton Inc. (Exact name of obligor as specified in its charter) North Carolina 56-1882960 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 1000 E. Noir Street Lumberton, North Carolina 28359 (Address of principal executive offices) (Zip code) Buckeye Mt. Holly LLC (Exact name of obligor as specified in its charter) Delaware 56-2158501 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 100 Buckeye Drive Mt. Holly, North Carolina 28120 (Address of principal executive offices) (Zip code) - 3 - BKI Lending Inc. (Exact name of obligor as specified in its charter) Delaware 88-0499992 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 639 Isbell Road, Suite 390 Reno, Nevada 89509 (Address of principal executive offices) (Zip code) BKI Holding Corporation (Exact name of obligor as specified in its charter) Delaware 51-0374083 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 300 Delaware Avenue, 9th Floor Wilmington, Delaware 19801 (Address of principal executive offices) (Zip code) BKI Asset Management Corporation (Exact name of obligor as specified in its charter) Delaware 51-0374084 (State or other jurisdiction of I.R.S. employer incorporation or organization) identification no.) 300 Delaware Avenue, 9th Floor Wilmington, Delaware 9801 (Address of principal executive offices) Zip code) BKI Finance Corporation (Exact name of obligor as specified in its charter) Tennessee 62-1638540 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 639 Isbell Road, Suite 390 Reno, Nevada 89509 (Address of principal executive offices) (Zip code) - 4 - BKI International Inc. (Exact name of obligor as specified in its charter) Delaware 62-1798468 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 1001 Tillman Street Memphis, Tennessee 38112 (Address of principal executive offices) (Zip code) Buckeye Technologies Canada Inc. (Exact name of obligor as specified in its charter) Delaware 62-1849288 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 639 Isbell Road, Suite 390 Reno, Nevada 89509 (Address of principal executive offices) (Zip code) Merfin Systems Inc. (Exact name of obligor as specified in its charter) Delaware 52-2086169 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 105 Industrial Drive King, North Carolina 27021 (Address of principal executive offices) (Zip code) ___________________________ 8 1/2% Senior Notes due 2013 (Title of the indenture securities) ================================================================================ - 5 - 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - -------------------------------------------- ------------------------------- Name Address - -------------------------------------------- ------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, N.Y. New York 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) - 6 - 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. - 7 - SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 20th day of October, 2003. THE BANK OF NEW YORK By: /S/ STACEY POINDEXTER -------------------------- Name: STACEY POINDEXTER Title: ASSISTANT TREASURER - 8 - EXHIBIT 7 ________________________________________________________________________________ Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business June 30, 2003, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. Dollar Amounts ASSETS In Thousands Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin.. $4,257,371 Interest-bearing balances........................... 6,048,782 Securities: Held-to-maturity securities......................... 373,479 Available-for-sale securities....................... 18,918,169 Federal funds sold in domestic offices................. 6,689,000 Securities purchased under agreements to resell.............................................. 5,293,789 Loans and lease financing receivables: Loans and leases held for sale...................... 616,186 Loans and leases, net of unearned income............................................ 38,342,282 LESS: Allowance for loan and lease losses...................................... 819,982 Loans and leases, net of unearned income and allowance.............................. 37,522,300 Trading Assets......................................... 5,741,193 Premises and fixed assets (including capitalized leases)............................................. 958,273 Other real estate owned................................ 441 Investments in unconsolidated subsidiaries and associated companies................................ 257,626 Customers' liability to this bank on acceptances outstanding......................................... 159,995 Intangible assets...................................... Goodwill............................................ 2,554,921 Other intangible assets............................. 805,938 Other assets........................................... 6,285,971 ----------- Total assets........................................... $96,483,434 =========== LIABILITIES Deposits: In domestic offices................................. $37,264,787 Noninterest-bearing................................. 15,357,289 Interest-bearing.................................... 21,907,498 In foreign offices, Edge and Agreement subsidiaries, and IBFs............................ 28,018,241 Noninterest-bearing................................. 1,026,601 Interest-bearing.................................... 26,991,640 Federal funds purchased in domestic offices.............................................. 739,736 Securities sold under agreements to repurchase......... 465,594 Trading liabilities.................................... 2,456,565 Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases)........................... 8,994,708 Bank's liability on acceptances executed and outstanding......................................... 163,277 Subordinated notes and debentures...................... 2,400,000 Other liabilities...................................... 7,446,726 ----------- Total liabilities...................................... $87,949,634 =========== Minority interest in consolidated subsidiaries........................................ 519,472 EQUITY CAPITAL Perpetual preferred stock and related surplus............................................. 0 Common stock........................................... 1,135,284 Surplus................................................ 2,056,273 Retained earnings...................................... 4,694,161 Accumulated other comprehensive income................. 128,610 Other equity capital components........................ 0 ____________________________________________________________________________ Total equity capital................................... 8,014,328 ----------- Total liabilities minority interest and equity capital. $96,483,434 =========== I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition is true and correct to the best of my knowledge and belief. Thomas J. Mastro, Senior Vice President and Comptroller We, the undersigned directors, attest to the correctness of this statement of resources and liabilities. We declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions and is true and correct. _ Thomas A. Renyi | Gerald L. Hassell | Directors Alan R. Griffith _| ________________________________________________________________________________ EX-99.1 9 ex99-1_102903.txt EXHIBIT 99.1 TO S-4 LETTER OF TRANSMITTAL To Tender For Exchange any and all 8 1/2% Senior Notes due 2013 that have not been registered under the Securities Act of 1933 for 8 1/2% Senior Notes due 2013 that have been registered under the Securities Act of 1933 of BUCKEYE TECHNOLOGIES INC. - -------------------------------------------------------------------------------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ________ , 2003 UNLESS EXTENDED (THE "EXPIRATION DATE "). - -------------------------------------------------------------------------------- PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS THE EXCHANGE AGENT (THE "EXCHANGE AGENT ") FOR THE OFFER IS: [ ] By Overnight Courier: By Regular Mail or Hand: By Facsimile: To Confirm by Telephone: (if by mail, registered or certified recommended) Delivery of this letter of transmittal to an address other than as set forth above will not constitute a valid delivery unless an agent's message is delivered in accordance with instruction 1 to this letter of transmittal. For any questions regarding this letter of transmittal or for any additional information, you may contact the exchange agent by telephone at [ ]. The undersigned hereby acknowledges receipt of the prospectus dated __________, 2003 (the "Prospectus") of Buckeye Technologies Inc., a Delaware corporation (the "Company"), and this letter of transmittal (the "Letter of Transmittal"). Together the Prospectus and the Letter of Transmittal constitute Buckeye's offer (the "Exchange Offer") to exchange its 8 1/2% Senior Notes due 2013 (the "New Notes") that have been registered under the Securities Act of 1933 (the "Securities Act") for any and all of its outstanding 8 1/2% Senior Notes due 2013 (the "Old Notes") that have not been registered under the Securities Act. Those are currently an aggregate principal amount of $200,000,000 of Old Notes outstanding. Capitalized terms used but not defined in this Letter of Transmittal have the meanings given to them in the Prospectus. 1 For each Old Note accepted for exchange, the Holder of that Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. Old Notes accepted for exchange will not receive accrued interest at the time of exchange. However, each New Note will bear interest if no interest has been paid on the Old Note, from the date on which interest on the Old Notes has been most recently paid or, if no interest has yet been paid, from September 22, 2003. Holders of Old Notes should complete this Letter of Transmittal if either (1) certificates are to be forwarded with the letter or (2) a tender of certificates for Old Notes, if available, is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company ("DTC") pursuant to the procedures set forth in "The Exchange Offer--Book Entry Transfer" section of the Prospectus. Holders of Old Notes whose certificates are not immediately available, or who are unable to deliver their certificates or confirmation of the book-entry tender of their Old Notes into the Exchange Agent's account at DTC (a "Book-Entry Confirmation") and all other documents required by this Letter of Transmittal to the Exchange Agent on or before the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1. Holders are hereby advised that Delivery of documents to DTC does not constitute delivery to the exchange agent. The undersigned hereby tenders the Old Notes described in Box 1 below pursuant to the terms and conditions described in the Prospectus and this Letter of Transmittal. The undersigned is the registered owner of all the tendered Old Notes and further represents that it has received from each beneficial owner of the tendered Old Notes (collectively, the "Beneficial Owners") a duly completed and executed form of "Instructions to Registered Holder and/or DTC Participant from Beneficial Owner" accompanying this Letter of Transmittal, instructing the undersigned to take the action described in this Letter of Transmittal. Subject to, and effective upon, the acceptance for exchange of the tendered Old Notes, the undersigned hereby exchanges, assigns and transfers to, or upon the order of, Buckeye, all right, title, and interest in, to, and under the Old Notes. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the true and lawful agent and attorney-in-fact of the undersigned with respect to the tendered Old Notes, with full power of substitution (this power of attorney being deemed to be an irrevocable power coupled with an interest), to: (1) deliver the tendered Old Notes to Buckeye or cause ownership of the tendered Old Notes to be transferred to, or upon the order of, Buckeye on the books of the registrar for the Old Notes and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, Buckeye upon receipt by the Exchange Agent, as the undersigned's agent, of the New Notes to which the undersigned is entitled upon acceptance by Buckeye of the tendered Old Notes pursuant to the Exchange Offer, and (2) receive all benefits and otherwise exercise all rights of beneficial ownership of the tendered Old Notes, all in accordance with the terms of the Exchange Offer. Unless otherwise indicated under "Special Issuance Instructions" below (Box 2), please issue the New Notes exchanged for tendered Old Notes in the name(s) of the undersigned. Similarly, unless otherwise indicated under "Special Delivery Instructions" below (Box 3), please send or cause to be sent the certificates for the New Notes (and accompanying documents, as appropriate) to the undersigned at the address shown below in Box 1. The undersigned understands that tenders of Old Notes pursuant to the procedures described under the caption "The Exchange Offer" in the Prospectus and in the instructions to this Letter of Transmittal will constitute a binding agreement between the undersigned and Buckeye upon the terms and subject to the conditions of the Exchange Offer. Such tenders will be subject only to withdrawal of tenders on the terms set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders of Old Notes." All authority that the undersigned confers or agreed to confer in this Letter of Transmittal will survive the death, bankruptcy or incapacity of the undersigned and any Beneficial Owner(s), and every obligation of the undersigned or any Beneficial Owners under this Letter of Transmittal will be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned and such Beneficial Owner(s). The undersigned hereby represents and warrants that (1) the undersigned has full power and authority to tender, exchange, assign and transfer the Old Notes being tendered, and (2), when the Old Notes are accepted for 2 exchange as contemplated in this Letter of Transmittal, Buckeye will acquire good and unencumbered title to such Old Notes, free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sale agreements, other obligations relating to their sale or transfer and adverse claims. The undersigned and each Beneficial Owner will, upon request, execute and deliver any additional documents reasonably requested by Buckeye or the Exchange Agent as necessary or desirable to complete and give effect to the transactions contemplated hereby. By accepting the Exchange Offer, the undersigned hereby represents and warrants that: (i) the New Notes being acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the undersigned or of any other person receiving New Notes pursuant to the Exchange Offer through the undersigned, whether or not that person is the holder of Old Notes; (ii) neither the undersigned nor any other person acquiring the New Notes pursuant to the Exchange Offer through the undersigned, whether or not that person is the holder of Old Notes, is participating in, or has an intent to participate in, a distribution of the New Notes; (iii) neither the undersigned nor any other person acquiring the New Notes pursuant to the Exchange Offer through the undersigned, whether or not that person is the holder of Old Notes, has an arrangement or understanding with any other person to participate in a distribution of the New Notes; and (iv) neither the undersigned nor any other person acquiring the New Notes pursuant to the Exchange Offer through the undersigned, whether or not that person is the holder of Old Notes, is an "affiliate," as that term is defined in Rule 405 under the Securities Act, of Buckeye. If any of these representations and warranties are not true, then the undersigned is not eligible to participate in the Exchange Offer, cannot rely on the interpretations of the staff of the Securities and Exchange Commission in connection with the Exchange Offer and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the New Notes. If any of the undersigned or any other person acquiring the New Notes pursuant to the Exchange Offer through the undersigned, whether or not that person is the holder of Old Notes, is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, such person hereby represents and warrants that it will deliver a prospectus in connection with any resale of New Notes. By acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. |_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED WITH THIS LETTER OF TRANSMITTAL. |_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE BOX 4 BELOW. |_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE BOX 5 BELOW. |_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS TO THE PROSPECTUS. Name:_________________________________________________________________ Address:______________________________________________________________ 3 PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE BOXES Box 1
- ---------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF OLD NOTES TENDERED (ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY) - ---------------------------------------------------------------------------------------------------------------------- Name(s) and Address(es) of Registered Holder(s), Certificate Aggregate Principal Aggregate Principal exactly as name(s) appear(s) on Note Certificate(s) Number(s) of Old Amount Represented Amount Tendered** (Please fill in, if blank) Notes* by Certificates(s) - ---------------------------------------------------------------------------------------------------------------------- ------------------- --------------------- ---------------------- ------------------- --------------------- ---------------------- ------------------- --------------------- ---------------------- ------------------- --------------------- ---------------------- ------------------- --------------------- ---------------------- ------------------- --------------------- ---------------------- ------------------- --------------------- ---------------------- ------------------- --------------------- ---------------------- ------------------- --------------------- ---------------------- Total - ---------------------------------------------------------------------------------------------------------------------- * Need not be completed if Old Notes are being tendered by book-entry transfer. ** The minimum permitted tender is $1,000 in principal amount of Old Notes. All other tenders must be in integral multiples of $1,000 of principal amount. Unless otherwise indicated in this column, the aggregate principal amount of the Old Notes represented by the certificates identified in this Box 1 or delivered to the Exchange Agent with this letter will be deemed tendered. See Instruction 3. - ----------------------------------------------------------------------------------------------------------------------
4
Box 2 Box 3 - --------------------------------------------------- ------------------------------------------------- SPECIAL ISSUANCE INSTRUCTIONS SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 4, 5 AND 6) (SEE INSTRUCTIONS 4, 5 AND 6) To be completed ONLY if certificates for To be completed ONLY if certificates Old Notes not exchanged and/or New Notes are to for Old Notes not exchanged and/or New Notes be issued in the name of and sent to someone are to be sent to someone other than the other than the undersigned or if Old Notes undersigned, or to the undersigned at an delivered by book-entry transfer which are not address other than that shown in Box 1. accepted for exchange are to be returned by credit to an account maintained at DTC other than Mail New Note(s) and any untendered Old Notes the account set forth in Box 5. to: Issue New Note(s) and/or Old Notes to: Name(s):_______________________________________ (Please Type or Print Name(s):_______________________________________ (Please Type or Print) Address:_______________________________________ Address:_______________________________________ _______________________________________________ _______________________________________________ _______________________________________________ (Include Zip Code) (Include Zip Code) _______________________________________________ (Tax Identification or Social Security Number) |_| Credit unexchanged Old Notes delivered by book-entry transfer to the DTC account set forth below: _______________________________________________ (DTC Account Number) - --------------------------------------------------- -------------------------------------------------
5
Box 4 Box 5 - --------------------------------------------------- ------------------------------------------------- USE OF GUARANTEED DELIVERY USE OF BOOK-ENTRY TRANSFER (SEE INSTRUCTION 1) (SEE INSTRUCTION 1) To be completed ONLY if Old Notes are To be completed ONLY if delivery of being tendered by means of a notice of guaranteed Old Notes is to be made by book-entry transfer. delivery. Name of Tendering Institution:_________________ Issue New Note(s) and/or Old Notes to: _______________________________________________ Name(s) of Registered Holder(s):__________________ Address Number:________________________________ __________________________________________________ _______________________________________________ Date of Execution of Notice of Guaranteed Delivery:_________________________________________ Transaction Code Number________________________ __________________________________________________ _______________________________________________ Name of Institution which Guaranteed Delivery:_________________________________________ __________________________________________________ - --------------------------------------------------- -------------------------------------------------
6 Box 6 - -------------------------------------------------------------------------------- TENDERING HOLDER SIGNATURE (SEE INSTRUCTIONS 1 AND 4) X_______________________________________________________________________________ X_______________________________________________________________________________ (Signature of Registered Holder(s) or Authorized Signatory) Note: The above lines must be signed by the registered holder(s) of Old Notes as their name(s) appear(s) on the Old Notes or by person(s) authorized to become registered holder(s) (evidence of which authorization must be transmitted with this Letter of Transmittal). If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, that person must set forth his or her full title below. See Instruction 4. Name(s):________________________________________________________________________ Capacity:_______________________________________________________________________ Street Address:_________________________________________________________________ ________________________________________________________________________________ (Include Zip Code) ________________________________________________________________________________ (Area Code and Telephone Number) ________________________________________________________________________________ (Tax Identification or Social Security Number) Signature Guarantee:____________________________________________________________ (If Required by Instruction 4) Authorized Signature:___________________________________________________________ Name:___________________________________________________________________________ (Please Type or Print) Title:__________________________________________________________________________ Name of Firm:___________________________________________________________________ (Must be an Eligible Institution as defined in Instruction 1) Address:________________________________________________________________________ ________________________________________________________________________________ (Include Zip Code) Area Code and Telephone Number:_________________________________________________ Dated:__________________________________________________________________________ - -------------------------------------------------------------------------------- 7 INSTRUCTIONS TO LETTER OF TRANSMITTAL FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. Delivery of this Letter of Transmittal and Certificates; Guaranteed Delivery Procedures. This Letter of Transmittal is to be used if (a) certificates for Old Notes are to be physically delivered to the Exchange Agent herewith, (b) tenders are to be made according to the guaranteed delivery procedures or (c) tenders are to be made pursuant to the procedures for delivery by book-entry transfer, all as set forth in the Prospectus. For holders whose Old Notes are being delivered by book-entry transfer, delivery of an agent's message by DTC will satisfy the terms of the exchange offer in lieu of execution and delivery of a letter of transmittal by the participant(s) identified in the agent's message. To tender Old Notes validly pursuant to the Exchange Offer, either (a) the Exchange Agent must receive a properly completed and duly executed copy of this Letter of Transmittal with any required signature guarantees, together with either a properly completed and duly executed Notice of Guaranteed Delivery or certificates for the Old Notes, or an Agent's Message, as the case may be, and any other documents required by this Letter of Transmittal or (b) a holder of Old Notes must comply with the guaranteed delivery procedures set forth below. Holders of Old Notes who desire to tender them pursuant to the Exchange Offer and whose certificates representing the Old Notes are not lost but are not immediately available, or time will not permit all required documents to reach the Exchange Agent before 5:00 p.m., New York City time, on the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis, may tender their Old Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures." Pursuant to those procedures, (a) tender must be made by a firm that is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" as defined by Rule 17Ad-15 under the Securities Exchange Act of 1934 (each, an "Eligible Institution") and, in each instance, that is a recognized participant in the Securities Transfer Agent Medallion Program ("STAMP") or a recognized participant in the Securities Exchange Agents Medallion Program or the Stock Exchange Medallion Program (a "Medallion Signature Guarantor"), (b) the Exchange Agent must have received from the Eligible Institution before 5:00 p.m., New York City time, on the Expiration Date, a properly completed and duly executed Notice of Guaranteed Delivery (by mail, hand delivery, or overnight carrier), and (c) the certificates for all physically delivered Old Notes in proper form for transfer together with a properly completed and duly executed Letter of Transmittal or Agent's Message, as the case may be, and all other documents required by this Letter of Transmittal or the Prospectus, must be received by the Exchange Agent within three trading days (on the New York Stock Exchange after the Expiration Date, all as provided in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." The method of delivery of this letter of transmittal, the certificates for Old Notes and other required documents will be at the election and risk of the tendering holder. Except as otherwise provided in this letter of Transmittal and in the Prospectus, delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, we recommend that the holder use properly insured, registered mail with return receipt requested. We further recommend the mailing be made sufficiently in advance of the Expiration Date to permit delivery to the Exchange Agent before 5:00 p.m., New York City time, on the Expiration Date. 2. Beneficial Owner Instructions to Registered Holders. Only a holder in whose name tendered Old Notes are registered on the books of the registrar (or the legal representative or attorney-in-fact of that registered holder) may execute and deliver this Letter of Transmittal. Any Beneficial Owner of tendered Old Notes who is not the registered holder must arrange promptly with the registered holder to execute and deliver this Letter of Transmittal, or an Agent's Message by DTC, on his or her behalf through the execution and delivery to the registered holder of the Instructions to Registered Holder and/or DTC Participant from Beneficial Owner form accompanying this Letter of Transmittal. 3. Partial Tenders. Tenders of Old Notes will be accepted only in integral multiples of $1,000 in principal amount. If less than the entire principal amount of Old Notes held by the holder is tendered, the tendering holder 8 should fill in the principal amount tendered in the column labeled "Aggregate Principal Amount Tendered" of Box 1 above. The entire principal amount of Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Old Notes held by the holder is not tendered, then Old Notes evidencing the principal amount of Old Notes not tendered and New Notes issued in exchange for any Old Notes tendered and accepted will be sent to the holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal, as soon as practicable following the Expiration Date. 4. Signatures on the Letter of Transmittal; Bond Powers and Endorsements; Guarantee of Signatures. If this Letter of Transmittal is signed by the registered holder(s) of the tendered Old Notes, the signature must correspond with the name(s) as written on the face of the tendered Old Notes without alteration, enlargement or any change whatsoever. If this Letter of Transmittal is signed by a participant in DTC whose name is shown on a security position listing as the owner of the Old Notes tendered hereby, the signature must correspond with the name shown on the security position listing as the owner of the Old Notes. If any of the tendered Old Notes are registered in the name of two or more holders, all holders must sign this Letter of Transmittal. If any Old Notes tendered hereby are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of the Letter of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any Old Note or instrument of transfer is signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and submit proper evidence satisfactory to Buckeye of such person's authority to so act. When this Letter of Transmittal is signed by the registered holders of the Old Notes tendered hereby, no endorsements of the Old Notes or separate instruments of transfer are required unless New Notes, or Old Notes not tendered or exchanged, are to be issued to a person other than the registered holders, in which case signatures on the Old Notes or instruments of transfer must be guaranteed by a Medallion Signature Guarantor, unless the signature is that of an Eligible Institution. If this Letter of Transmittal is signed other than by the registered holders of the Old Notes tendered hereby, those Old Notes must be endorsed or accompanied by appropriate instruments of transfer and a duly completed proxy entitling the signer of this Letter of Transmittal to consent with respect to those Old Notes, on behalf of the registered holders, in any case signed exactly as the name or names of the registered holders appear on the Old Notes, and signatures on those Old Notes or instruments of transfer and proxy must be guaranteed by a Medallion Signature Guarantor, unless the signature is that of an Eligible Institution. Signatures on this Letter of Transmittal must be guaranteed by a Medallion Signature Guarantor, unless (a) the Old Notes tendered hereby are tendered by a registered holder (or by a participant in DTC whose name appears on a security position listing as the owner of the Old Notes) that has not completed Box 2 entitled "Special Issuance Instructions" or Box 3 entitled "Special Delivery Instructions" in this Letter of Transmittal, or (b) the Old Notes are tendered for the account of an Eligible Institution. If the Old Notes are registered in the name of a person other than the signer of this Letter of Transmittal, if Old Notes not accepted for exchange or not tendered are to be registered in the name of or returned to a person other than the registered holder, or if New Notes are to be issued to someone or delivered to someone other than the registered holder of the Old Notes, then the signatures on this Letter of Transmittal accompanying the tendered Old Notes must be guaranteed by a Medallion Signature Guarantor as described above. Is Letter of Transmittal and Old Notes should be sent only to the Exchange Agent, and not to Buckeye or DTC. 5. Special Issuance and Delivery Instructions. Tendering holders should indicate, in the appropriate box (Box 2 or 3), the name and address to which the New Notes and/or substitute certificates evidencing Old Notes for principal amounts not tendered or not accepted for exchange are to be sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification 9 or social security number of the person named must also be indicated. Holders of Old Notes tendering Old Notes by book-entry transfer may request that Old Notes not exchanged be credited to such account maintained at DTC as the Holder may designate on this Letter of Transmittal. If no instructions are given, the Old Notes not exchanged will be returned to the name or address of the person signing this Letter of Transmittal. 6. Transfer Taxes. Buckeye will pay all transfer taxes, if any, applicable to the exchange of tendered Old Notes pursuant to the Exchange Offer. If, however, New Notes and/or substitute Old Notes not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Notes tendered hereby, or if Old Notes tendered hereby are registered in the name of any person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the transfer and exchange of tendered Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other person) will be payable by the tendering holder. If satisfactory evidence of payment of those taxes or exemption from those taxes is not submitted with this Letter of Transmittal, the amount of those transfer taxes will be billed directly to the tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the tendered Old Notes listed in this Letter of Transmittal. 7. Validity of Tenders. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Old Notes will be determined by Buckeye. This determination will be final and binding. Buckeye reserves the absolute right to reject any and all tenders of Old Notes not in proper form or the acceptance of which for exchange may, in the opinion of Buckeye's counsel, be unlawful. Buckeye also reserves the absolute right to waive any conditions of the Exchange Offer or any defect or irregularity in the tender of Old Notes. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by Buckeye will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as Buckeye determines. Neither Buckeye, the Exchange Agent nor any other person will be under any duty to give notification of defects or irregularities to holders of Old Notes or incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until the defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived, or if Old Notes are submitted in principal amount greater than the principal amount of Old Notes being tendered, the unaccepted or non-exchanged Old Notes or substitute Old Notes evidencing the unaccepted or non-exchanged portion of the Old Notes, as appropriate, will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 8. Waiver Of Conditions. Buckeye reserves the absolute right to waive any of the conditions of the Exchange Offer in the case of any tendered Old Notes. 9. No Conditional Tenders. No alternative, conditional, irregular or contingent tender of Old Notes or transmittal of this Letter of Transmittal will be accepted. 10. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder whose Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated in this Letter of Transmittal for further instructions. 11. Requests For Assistance or Additional Copies. Questions and requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address and telephone number indicated in this Letter of Transmittal. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. 12. Acceptance of Tendered Old Notes and Issuance Of New Notes; Return of Old Notes. Subject to the terms and conditions of the Exchange Offer, Buckeye will accept for exchange all validly tendered Old Notes as soon as practicable after the Expiration Date and will issue New Notes for the Old Notes as soon as practicable thereafter. For purposes of the Exchange Offer, Buckeye will be deemed to have accepted tendered Old Notes when, as and if Buckeye has given written or oral notice (immediately followed in writing) of acceptance to the Exchange 10 Agent. If any tendered Old Notes are not exchanged pursuant to the Exchange Offer for any reason, those unexchanged Old Notes will be returned, without expense, to the tendering holder at the address shown in Box 1 or at such other address as the tendering holder may be indicate in this Letter of Transmittal under "Special Delivery Instructions." (Box 3) 13. Withdrawal. Tenders may be withdrawn only pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders of Old Notes." 11 EX-99.2 10 ex99-2_102903.txt EXHIBIT 99.2 TO S-4 NOTICE OF GUARANTEED DELIVERY for 8 1/2% Senior Notes due 2013 of Buckeye Technologies Inc. Pursuant to the Prospectus dated ________, 2003 This form must be used by a holder of 8 1/2% Senior Notes due 2013 (the "Old Notes") of Buckeye Technologies Inc., a Delaware corporation ("Buckeye"), who wishes to tender Old Notes to the Exchange Agent pursuant to the guaranteed delivery procedures described in "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus dated _______, 2003 (the "Prospectus") and in Instruction 1 to the related Letter of Transmittal. Any holder who wishes to tender Old Notes pursuant to those guaranteed delivery procedures must ensure that the Exchange Agent receives this Notice of Guaranteed Delivery before the Expiration Date of the Exchange Offer. Capitalized terms used but not defined in this notice have the meanings ascribed to them in the Prospectus or the Letter of Transmittal. - -------------------------------------------------------------------------------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ________ , 2003 UNLESS EXTENDED (THE "EXPIRATION DATE"). - -------------------------------------------------------------------------------- The Exchange Agent for the Exchange Offer is: [ ] By Overnight Courier: By Regular Mail or Hand: By Facsimile: To Confirm by Telephone: (if by mail, registered or certified recommended) Delivery of this instrument to an address other than as set forth above will not constitute a valid delivery. This notice of guaranteed delivery is not to be used to guarantee signatures. If a signature on a letter of transmittal is required to be guaranteed by an "eligible institution" under the instructions thereto, the signature guarantee must appear in the applicable space provided in the signature box on the letter of transmittal. 1 Ladies and Gentlemen: Upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, the undersigned hereby tenders to Buckeye the principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus and in Instruction 1 of the Letter of Transmittal. The undersigned hereby tenders the Old Notes listed below: - -------------------------------------------------------------------------------- Certificate Number(s) Aggregate Principal Aggregate Principal (if known) of Old Amount Represented Amount Tendered Notes or Account by Old Notes Number at DTC Certificate(s) - ---------------------- ------------------------ ------------------------------ - ---------------------- ------------------------ ------------------------------ - ---------------------- ------------------------ ------------------------------ - ---------------------- ------------------------ ------------------------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PLEASE SIGN AND COMPLETE Signatures of Registered Holder(s) or Authorized Signatory:_____________________ ________________________________________________________________________________ Name(s) of Registered Holder(s):________________________________________________ ________________________________________________________________________________ Date:__________________________________, 2003 Address:_______________________________________ _______________________________________________ Area Code and Telephone No.____________________ The Notice of Guaranteed Delivery must be signed by the holder(s) exactly as their name(s) appear(s) on certificates for Old Notes or on a security position listing as the owner of Old Notes, or by person(s) authorized to become registered holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, that person must provide the following information. Please print name(s) and address(es) Name(s):________________________________________________________________________ Capacity:_______________________________________________________________________ ________________________________________________________________________________ Address(es):____________________________________________________________________ ________________________________________________________________________________ - -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- GUARANTEE (Not to be used for signature guarantee) The undersigned, a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or is a commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities and Exchange Act of 1934 guarantees deposit with the Exchange Agent of the Letter of Transmittal, together with the Old Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of those Old Notes into the Exchange Agent's account at DTC described in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures" and in the Letter of Transmittal) and any other required documents, all by 5:00 p.m., New York City time, on the third New York Stock Exchange trading day following the Expiration Date. Name of firm:___________________________________________________________________ Address:________________________________________________________________________ ________________________________________________________________________________ (Include Zip Code) Area Code and Tel. No.__________________________________________________________ Authorized Signature:___________________________________________________________ Name:___________________________________________________________________________ (Please Print) Title:__________________________________________________________________________ Dated:___________________________, 2003 DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF CERTIFICATES FOR OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL. - -------------------------------------------------------------------------------- 3 INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1. Delivery of this Notice of Guaranteed Delivery. A properly completed and duly executed copy of this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth in this Notice of Guaranteed Delivery before the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and sole risk of the holder of Old Notes, and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, we recommend registered mail with return receipt requested, properly insured. As an alternative to delivery by mail the holders may wish to use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedures, see the Prospectus and Instruction 1 of the Letter of Transmittal. 2. Signatures on this Notice of Guaranteed Delivery. If this Notice of Guaranteed Delivery is signed by the registered holder(s) of the Old Notes referred to in this Notice of Guaranteed Delivery, the signatures must correspond with the name(s) written on the face of the Old Notes without alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of DTC whose name appears on a security position listing as the owner of the Old Notes, the signature must correspond with the name shown on the security position listing as the owner of the Old Notes. If this Notice of Guaranteed Delivery is signed by a person other than the registered holder(s) of any Old Notes listed or a participant of DTC whose name appears on a security position listing as the owner of the Old Notes, this Notice of Guaranteed Delivery must be accompanied by appropriate bond powers, signed as the name(s) of the registered holder(s) appear(s) on the Old Notes or signed as the name of the participant is shown on DTC's security position listing. If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, that person should so indicate when signing and submit with the Notice of Guaranteed Delivery evidence satisfactory to Buckeye of the person's authority to so act. 3. Requests for Assistance or Additional Copies. Questions and requests for assistance and requests for additional copies of the Prospectus, the Letter of Transmittal or this Notice of Guaranteed Delivery may be directed to the Exchange Agent at the address specified in this Notice of Guaranteed Delivery and in the Prospectus. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. 4 EX-99.3 11 ex99-3_102903.txt EXHIBIT 99.3 TO S-4 INSTRUCTIONS TO REGISTERED HOLDER AND/OR DTC PARTICIPANT FROM BENEFICIAL OWNER OF 8 1/2% Senior Notes due 2013 of Buckeye Technologies Inc. To Registered Holder and/or DTC Participant: The undersigned hereby acknowledges receipt of the Prospectus dated _____________, 2003 (the "Prospectus") of Buckeye Technologies Inc., a Delaware corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal") together constitute Buckeye's offer (the "Exchange Offer") to exchange 8 1/2% Senior Notes due 2013 (the "New Notes") that have been registered under the Securities Act of 1933 (the "Securities Act") for any and all of its outstanding 8 1/2% Senior Notes due 2013 (the "Old Notes") that have not been registered under the Securities Act. Capitalized terms used but not defined in these instructions have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder and/or DTC participant, as to action to be taken by you relating to the Exchange Offer with respect to the Old Notes held by you for the account of the undersigned. The aggregate face amount of the Old Notes held by you for the account of the undersigned is (fill in amount): $_________________ of the 8 1/2% Senior Notes due 2013. With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): |_| TO TENDER the following aggregate principal amount of Old Notes held by you for the account of the undersigned (insert principal amount of old notes to be tendered, if any): $_____________ of the 8 1/2% Senior Notes due 2013; |_| NOT TO TENDER any Old Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Old Notes held by you for the account of the undersigned, it is understood that you are authorized: (a) to make on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations that: (i) the undersigned's principal residence is in the state of (fill in state) _______________, (ii) the undersigned has full power and authority to tender, exchange, assign and transfer the Old Notes tendered, and Buckeye will acquire good and unencumbered title to the Old Notes being tendered, free and clear of all security interests, liens,restrictions, charges, encumbrances, conditional sale arrangements or other obligations relating to their sale or transfer, and not subject to any adverse claim when the Old Notes are accepted by Buckeye, 1 (iii) the New Notes being acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the undersigned or of any other person receiving New Notes pursuant to the Exchange Offer through the undersigned, whether or not that person is the holder of Old Notes; (iv) neither the undersigned nor any other person acquiring the New Notes pursuant to the Exchange Offer through the undersigned, whether or not that person is the holder of Old Notes, is participating in or has an intent to participate in a distribution of the New Notes; (v) neither the undersigned nor any other person acquiring the New Notes pursuant to the Exchange Offer through the undersigned, whether or not that person is the holder of Old Notes, has an arrangement or understanding with any other person to participate in a distribution of the New Notes; and (vi) neither the undersigned nor any other person acquiring the New Notes pursuant to the Exchange Offer through the undersigned, whether or not that person is the holder of Old Notes, is an "affiliate," as that term is defined in Rule 405 under the Securities Act, of Buckeye. If any of the foregoing representations and warranties are not true, then the undersigned is not eligible to participate in the Exchange Offer, cannot rely on the interpretations of the staff of the Securities and Exchange Commission in connection with the Exchange Offer and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the New Notes. If the undersigned instructs you to tender the Old Notes held by you for the account of the undersigned, it is understood that you are authorized to make on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representation and warranty that if any of the undersigned or any other person acquiring the New Notes pursuant to the Exchange Offer through the undersigned, whether or not that person is the holder of Old Notes, is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it will deliver a prospectus in connection with any resale of New Notes. By acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take any other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of the Old Notes. 2 - -------------------------------------------------------------------------------- SIGN HERE Name of beneficial owner(s):____________________________________________________ Signature(s):___________________________________________________________________ Name (please print):____________________________________________________________ Address:________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Telephone number:_______________________________________________________________ Taxpayer Identification or Social Security Number:______________________________ Date:___________________________________________________________________________ ________________________________________________________________________________ - -------------------------------------------------------------------------------- 3 EX-99.4 12 ex99-4_102903.txt EXHIBIT 99.4 TO S-4 Tender for any and all Outstanding 8 1/2% Senior Notes due 2013 that have not been registered under the Securities Act Of 1933 in Exchange for 8 1/2% Senior Notes due 2013 that have been registered under the Securities Act of 1933 of BUCKEYE TECHNOLOGIES INC. To Registered Holders: We are enclosing with this letter the material listed below relating to the offer (the "Exchange Offer") by Buckeye Technologies Inc., a Delaware corporation (the "Company"), to exchange its 8 1/2% Senior Notes due 2013 (the "New Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of Buckeye's issued and outstanding 8 1/2% Senior Notes due 2013 (the "Old Notes") that have not been registered under the Securities Act, upon the terms and subject to the conditions set forth in the Prospectus dated _________, 2003, and the related Letter of Transmittal. Enclosed herewith are copies of the following documents: 1. Prospectus dated _________, 2003; 2. Letter of Transmittal; 3. Notice of Guaranteed Delivery; and 4. Instructions to Registered Holder and/or DTC Participant from Beneficial Owner. We urge you to contact your clients promptly. Please note that the Exchange Offer will expire at 5:00 p.m., New York City time, on __________, 2003, unless extended. The Exchange Offer is not conditioned upon any minimum number of Old Notes being tendered. Pursuant to the Letter of Transmittal, each holder of Old Notes will represent to Buckeye that: (i) the holder has full power and authority to tender, exchange, assign and transfer the Old Notes tendered, and Buckeye will acquire good and unencumbered title to the Old Notes being tendered, free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sale arrangements or other obligations relating to their sale or transfer, and not subject to any adverse claim when the Old Notes are accepted by Buckeye, (ii) the New Notes being acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving the New Notes, whether or not that person is the holder of Old Notes; (iii) neither the holder of the Old Notes nor any other person acquiring the New Notes pursuant to the Exchange Offer through such holder, whether or not that person is the holder of Old Notes, is participating in or has an intent to participate in a distribution of the New Notes; 1 (iv) neither the holder of the Old Notes nor any other person acquiring the New Notes pursuant to the Exchange Offer through such holder, whether or not that person is the holder of Old Notes, has an arrangement or understanding with any other person to participate in a distribution of the New Notes; and (v) neither the holder of the Old Notes nor any other person acquiring the New Notes pursuant to the Exchange Offer through such holder, whether or not that person is the holder of Old Notes, is an "affiliate," as that term is defined in Rule 405 under the Securities Act, of Buckeye. If any of the foregoing representations and warranties are not true, then such holder of Old Notes is not eligible to participate in the Exchange Offer, cannot rely on the interpretations of the staff of the Securities and Exchange Commission in connection with the Exchange Offer and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the New Notes. If the holder of Old Notes or any other person acquiring the New Notes pursuant to the Exchange Offer through such holder, whether or not that person is the holder of Old Notes, is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it will represent and warrant to Buckeye pursuant to the Letter of Transmittal that it will deliver a prospectus in connection with any resale of New Notes. By acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The enclosed Instructions to Registered Holder and/or DTC Participant from Beneficial Owner contains an authorization by the beneficial owners of the Old Notes for you to make the foregoing representations. Buckeye will not pay any fee or commission to any broker or dealer or to any other persons (other than the exchange agent for the Exchange Offer) in connection with the solicitation of tenders of Old Notes pursuant to the Exchange Offer. Buckeye will pay or cause to be paid any transfer taxes payable on the transfer of Old Notes to it, except as otherwise provided in Instruction 6 of the enclosed Letter of Transmittal. Additional copies of the enclosed material may be obtained from the undersigned. Very truly yours, [Exchange Agent's name] NOTHING CONTAINED IN THIS LETTER OR IN THE ENCLOSED DOCUMENTS WILL CONSTITUTE YOU THE AGENT OF BUCKEYE OR THE EXCHANGE AGENT OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED IN THOSE DOCUMENTS. 2 -----END PRIVACY-ENHANCED MESSAGE-----