FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION NO. 333-107900,
333-107900-01 AND 333-107900-02
GEORGIA-PACIFIC CORPORATION
OFFERS TO EXCHANGE
7 3/8% SENIOR NOTES DUE 2008
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
ALL OUTSTANDING UNREGISTERED
7 3/8% SENIOR NOTES DUE 2008
AND
8% SENIOR NOTES DUE 2014
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
ALL OUTSTANDING UNREGISTERED
8% SENIOR NOTES DUE 2014
----------------------
THE REGISTERED NOTES
- The new notes are being offered to satisfy certain of our obligations
under the Exchange and Registration Rights Agreement entered into in
connection with the private placement of the old notes.
- The terms of each series of the new notes are substantially identical
to the old notes, except that the new notes will be freely tradable.
- There is no existing public market for the old notes or the new notes.
We do not intend to list the new notes on any securities exchange or
seek approval for quotation through any automated trading system.
THE EXCHANGE OFFERS
- The exchange offers will expire at 5:00 p.m. New York City time, on
September 30, 2003, unless extended. We do not currently intend to
extend the expiration date.
- The exchange offers are not subject to any conditions other than that
the exchange offers not violate applicable law or any applicable
interpretation of the Staff of the Securities and Exchange Commission
and that there be no change in our business or financial affairs that,
in our reasonable judgment, might materially impair our ability to
proceed with, or the contemplated benefits of, the exchange offers.
- All old notes that are validly tendered and not validly withdrawn will
be exchanged for an equal principal amount of new notes.
- Tenders of old notes may be withdrawn at any time before the
expiration of the exchange offers.
- We will not receive any proceeds from the exchange offers.
----------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF THE FACTORS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFERS AND AN EXCHANGE
OF OLD NOTES FOR NEW NOTES.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION 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 August 29, 2003.
TABLE OF CONTENTS
Prospectus Summary.......................................... 1
Risk Factors................................................ 11
Forward-Looking Statements.................................. 21
Use of Proceeds............................................. 22
Capitalization.............................................. 23
The Exchange Offers......................................... 24
Business.................................................... 34
Management.................................................. 52
Description of Other Indebtedness........................... 54
Description of the New Notes................................ 58
Certain United States Federal Income Tax Consequences....... 108
Plan of Distribution........................................ 113
Legal Matters............................................... 113
Experts..................................................... 113
Where You Can Find More Information......................... 114
EACH BROKER-DEALER THAT RECEIVES NEW NOTES FOR ITS OWN ACCOUNT PURSUANT TO
THE EXCHANGE OFFERS 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. 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 MARKET-MAKING ACTIVITIES OR
OTHER TRADING ACTIVITIES. SEE "PLAN OF DISTRIBUTION."
i
PROSPECTUS SUMMARY
This summary contains basic information about us and the exchange offers.
Because it is a summary, it does not contain all of the information that you
should consider in connection with the exchange offers. You should read this
entire prospectus carefully, including the section entitled "Risk Factors" and
our financial statements and the notes thereto, which are incorporated into this
prospectus by reference. In this prospectus, unless the context requires
otherwise, references to (1) "GP," "the Company," "we," "us" and "our" refer to
Georgia-Pacific Corporation and its subsidiaries and (2) any "fiscal" year of
our company refers to our fiscal year ended or ending on the Saturday closest to
December 31 of such year. Whenever we refer to EBITDA in this prospectus, we
have calculated it as described below under "-- Summary Financial Data."
GEORGIA-PACIFIC CORPORATION
We are one of the largest forest products companies in North America. We
are organized into four principal businesses, tissue and disposable tabletop
products, packaging, bleached pulp and paper and building products. Our tissue
products, packaging, and bleached pulp and paper businesses, which we refer to
in this prospectus as our consumer products and packaging business, include what
we believe to be some of the best-known brands in the world. Our building
products business is comprised of our building products manufacturing and
building products distribution business. Nearly all of our building products are
sold under the Georgia-Pacific brand name, which we believe is the most
widely-recognized name in building products in North America. Our building
products distribution business is the leading supplier of building products in
the United States.
For fiscal 2002, we reported approximately $23 billion of net sales, $1.4
billion of EBITDA, $1.0 billion of cash provided by operations, $333 million in
total operating profits and $735 million in net losses. For the second fiscal
quarter of 2003, we reported approximately $5 billion of net sales, $557 million
of EBITDA, $296 million in total operating profits and $62 million in net
income. For the first six months of 2003, we reported approximately $9.6 billion
of net sales, $912 million of EBITDA, $668 million of cash provided by
operations, $390 million in total operating profits and $34 million in net
income. See page 10 of this prospectus for a discussion of EBITDA and a
reconciliation of cash provided by operations to EBITDA.
We were organized in Georgia in 1927. Our principal executive offices are
located at 133 Peachtree Street, N.E., Atlanta, Georgia 30303, and our telephone
number is (404) 652-4000. Our website is located at www.gp.com. Information
contained on our website is not incorporated by reference into this prospectus
and is not part of this prospectus.
Quilted Northern(R), Brawny(R), Mardi Gras(R), Angel Soft(R), Soft 'n
Gentle(R), Sparkle(R), Vanity Fair(R), MD(R), So-Dri(R), Zee(R), Dixie(R),
Cormatic(R), Ultimatic(R), Envision(R), Preference(R), Spectrum(R), Geocycle(R),
Eclipse(R), Eureka(R), Lotus(R), Colhogar(R), KittenSoft(R), Embo(R),
Tenderly(R), Delica(R), Selpak(R) , Demak'up(R), Wood I Beam(TM), G-P LAM(R),
ToughRock(TM), DensGuard(TM), DensArmor(TM), Duramine(TM), Dens-Shield(R),
Dens-Glass Gold(R), Dens-Deck(R) and Dens-Glass(R) Ultra Shaftliner(TM) are
trademarks of our company. We also have a number of other registered marks,
trade names and pending trademark applications related to our brands' products
and concepts. All other registered trademarks and trade names referred to in
this prospectus are the property of unaffiliated third parties.
1
THE EXCHANGE OFFERS
On June 3, 2003, we completed an offering of $350,000,000 aggregate
principal amount of our 7 3/8% senior notes due 2008 and $150,000,000 aggregate
principal amount of our 8% senior notes due 2014 in a transaction exempt from
registration under the Securities Act. Unless otherwise specified or unless the
context requires otherwise, in this prospectus, we refer to the 2008 notes and
the 2014 notes sold to the initial purchasers as the old notes and we refer to
the offer and sale of the old notes as the offering. We used the net proceeds
from the offering to repay a portion of amounts outstanding under our revolving
credit facility. In connection with the offering, we, Fort James Corporation,
our wholly owned subsidiary, and Fort James Operating Company, a wholly owned
subsidiary of Fort James Corporation, entered into a registration rights
agreement with the initial purchasers of the old notes in which we agreed to
commence these exchange offers. Accordingly, you may exchange your old notes for
new notes that have been registered under the Securities Act and have
substantially the same terms. Unless otherwise specified or unless the context
requires otherwise, in this prospectus, we refer to the old notes and the new
notes together as the notes. The following summary of the exchange offers is not
complete. For a more complete description of the terms of the exchange offers,
see "The Exchange Offers" in this prospectus.
Securities Offered................................... - $350,000,000 aggregate principal amount of
our 7 3/8% senior notes due 2008,
registered under the Securities Act; and
- $150,000,000 aggregate principal amount of
our 8% senior notes due 2014, registered
under the Securities Act.
The terms of each series of new notes offered
in the exchange offers are substantially
identical to those of the old notes, except
that the transfer restrictions, registration
rights and penalty interest provisions
relating to the old notes do not apply to the
new notes.
The Exchange Offers.................................. We are offering new notes in exchange for a
like principal amount of each series 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 old notes for
exchange by following the procedures described
under the heading "The Exchange Offers."
Expiration Date; Tenders; Withdrawal................. The exchange offers will expire at 5:00 p.m.,
New York City time, on September 30, 2003,
unless we extend it. You may withdraw any old
notes that you tender for exchange at any time
prior to the expiration date of these exchange
offers. We will accept any and all old notes
validly tendered and not validly withdrawn
before the expiration date. See "The Exchange
Offers -- Procedures for Tendering Old Notes"
and "-- Withdrawals of Tenders of Old Notes"
for a more complete description of the tender
and withdrawal period.
2
Certain United States Federal Income Tax
Consequences....................................... Your exchange of old notes for new notes to be
issued in the exchange offers will not result
in any gain or loss to you for United States
federal income tax purposes. See "Certain
United States Federal Income Tax Consequences"
for a summary of United States 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 offers.
Exchange Agent....................................... The Bank of New York.
Shelf Registration................................... If applicable interpretations of the staff of
the SEC do not permit us to effect the
exchange offers, or upon the request of any
holder of old notes under certain
circumstances, we will be required to file,
and use our reasonable best efforts to cause
to become effective, a shelf registration
statement under the Securities Act which would
cover resales of old notes. See "Description
of the New Notes -- Registration Rights;
Special Interest."
Consequences of Your Failure to Exchange Your Old
Notes.............................................. Old notes that are not exchanged in the
exchange offers 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 from, the
Securities Act and applicable state securities
laws. We do not currently intend to register
the old notes under the Securities Act. If
your old notes are not tendered and accepted
in the exchange offers, it may become more
difficult for you to sell or transfer your old
notes. See "Risk Factors -- Risks Related to
Our Indebtedness and the New Notes -- An
active trading market for the notes may not
develop, which could reduce their value."
3
Consequences of Exchanging Your Old Notes............ Based on interpretations of the staff of the
SEC, we believe that you will be allowed to
resell the new notes that we issue in the
exchange offers without complying with the
registration and prospectus delivery
requirements of the Securities Act if:
- you are acquiring the new notes in the
ordinary course of your business,
- you are not engaging in and do not intend
to engage in a distribution of the new
notes,
- you have no arrangement or understanding
with any person to participate in the
distribution of the new notes, and
- you are not an "affiliate," as defined in
Rule 405 under the Securities Act, of us
or Fort James.
If any of these conditions are not satisfied
and you transfer any new notes issued to you
in the exchange offers without delivering a
proper prospectus or without qualifying for a
registration exemption, you may incur
liability under the Securities Act. We will
not be responsible for, or indemnify you
against, any liability you incur.
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
offers.
4
THE NEW NOTES
The following summary of the terms of the new notes is not complete. For a
more detailed description of the new notes, see "Description of the New Notes."
We define capitalized terms used in this summary in the "Description of the New
Notes -- Certain Definitions" section of this prospectus. In this prospectus,
references to the "Fort James Companies" refer only to Fort James Corporation
and Fort James Operating Company, collectively, and not to any of their
respective subsidiaries.
Issuer............................................... Georgia-Pacific Corporation.
Notes Offered........................................ $350,000,000 principal amount of 7 3/8% Senior
Notes due 2008, and $150,000,000 principal
amount of 8% Senior Notes due 2014.
Maturity Dates....................................... The 2008 notes mature on July 15, 2008, and
the 2014 notes mature on January 15, 2014.
Interest Payment Dates............................... January 15 and July 15, beginning January 15,
2004.
Guarantor............................................ The new notes will be unconditionally
guaranteed only by Fort James Corporation, our
wholly owned subsidiary, and Fort James
Operating Company, a wholly owned subsidiary
of Fort James Corporation. None of our other
subsidiaries, including subsidiaries of either
Fort James Corporation or Fort James Operating
Company, will guarantee the new notes. If we
cannot make payments on the new notes when
due, the Fort James Companies must make them
instead.
Ranking.............................................. The new notes and the guarantees of the Fort
James Companies will rank:
- equally with our and the Fort James
Companies' existing and future unsecured
senior indebtedness;
- senior to any of our and the Fort James
Companies' future subordinated
indebtedness;
- junior to our and the Fort James
Companies' secured indebtedness up to the
value of the collateral securing that
indebtedness; and
- effectively junior to all existing and
future indebtedness, including guarantees
of our revolving credit facility, and
other liabilities, including trade
payables, of all of our subsidiaries with
respect to the assets of those
subsidiaries, other than the Fort James
Companies.
5
As of June 28, 2003, after giving effect to
the offering and our use of the net
proceeds from the offering:
- we and our consolidated subsidiaries would
have had total debt (including short-term
debt) of $11,382 million;
- we and the Fort James Companies would have
had $292 million of secured indebtedness
outstanding and $9,993 million of
unsecured senior indebtedness outstanding
(excluding debt of non-guarantor
subsidiaries); and
- our subsidiaries other than the Fort James
Companies would have had $1,097 million of
indebtedness and $2,988 million of other
liabilities outstanding, including trade
payables and deferred income tax
liabilities.
See "Risk Factors -- Risks Related to Our
Indebtedness and the New Notes -- Claims of
creditors of all of our subsidiaries other
than Fort James Corporation and Fort James
Operating Company will have priority with
respect to the assets and earnings of such
subsidiaries over holders of the new notes."
Optional Redemption.................................. At any time, we may redeem the 2008 notes, and
at any time before January 15, 2009, we may
redeem the 2014 notes, in each case, in whole
or in part, at a price equal to 100% of their
principal amount plus the make-whole premium
described under "Description of the New
Notes -- Optional Redemption." At any time on
or after January 15, 2009, we may redeem the
2014 notes, in whole or in part, at the
redemption prices listed under "Description of
the New Notes -- Optional Redemption." At any
time prior to July 15, 2006, we may, on one or
more occasions, (1) redeem up to 35% of the
2008 notes with the proceeds of one or more
equity offerings at a price equal to 107.375%
of their principal amount plus accrued and
unpaid interest to the redemption date, and
(2) redeem up to 35% of the 2014 notes with
the proceeds of one or more equity offerings
at a price equal to 108.000% of their
principal amount plus accrued and unpaid
interest to the redemption date.
6
Offer to Repurchase.................................. If we sell assets under some circumstances, or
if we experience a change of control, we must
offer to repurchase all of the new notes at a
price equal to 100% or 101%, respectively, of
the principal amount plus accrued and unpaid
interest to the repurchase date.
Permitted Spin-Off Transaction....................... The indentures governing the new notes will
permit a one-time spin-off, split-up,
split-off or other transaction involving the
dividend, distribution or transfer by us of
all or some portion of our consumer products,
packaging and/or paper and pulp segments. To
make this dividend, distribution or transfer,
we must meet a number of conditions,
including:
- the company created by the spin-off must
complete a registered exchange offer in
which it offers holders of the new notes
the opportunity to exchange their notes
for exchange notes with substantially
identical terms to these notes;
- the company created by the spin-off must
be able to incur at least $1.00 of
additional debt pursuant to the fixed
charge coverage ratio test set forth under
"Description of the New Notes -- Certain
Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock" after
giving pro forma effect to the spin-off
transaction;
- each series of notes issued in the
exchange offer must have ratings at least
as high as the highest ratings given to
the comparable series of these notes in
the one-year period immediately prior to
the consummation of the spin-off
transaction; and
- we must offer to repurchase all of the new
notes at a price equal to 100% of the
principal amount of the notes plus accrued
and unpaid interest to the repurchase
date.
Basic Covenants...................................... We will issue each series of new notes under a
separate indenture. Before the time that the
new notes receive an investment grade rating
from both Standard & Poor's Ratings Group and
Moody's Investors Service, Inc. and certain
other conditions are satisfied, which we refer
to as a fall away event, the indentures will,
among other things, limit our ability and the
ability of our restricted subsidiaries to:
- borrow money and issue preferred stock;
7
- pay dividends on our stock or repurchase
our stock;
- make investments;
- create liens;
- create restrictions on the ability of our
restricted subsidiaries to pay dividends
or other amounts to us;
- enter into sale and leaseback
transactions;
- engage in certain transactions with
affiliates;
- expand into unrelated businesses; and
- consolidate, merge or sell all or
substantially all of our assets or
substantially all of the assets of either
Fort James Corporation or Fort James
Operating Company.
After a fall away event with respect to either
series of new notes, the above limitations
will no longer apply to that series of notes,
but the following covenants contained in the
applicable indenture will, among other things,
limit our ability and the ability of our
restricted subsidiaries to:
- create liens;
- enter into sale and leaseback
transactions; and
- consolidate, merge or sell all or
substantially all of our assets.
These covenants are subject to important
exceptions. For more detail, see "Description
of the New Notes -- Certain Covenants."
RISK FACTORS
You should consider carefully all of the information included or
incorporated by reference in this prospectus and, in particular, the information
under the heading "Risk Factors" beginning on page 11 in connection with the
exchange offers and an exchange of old notes for new notes.
8
SUMMARY FINANCIAL DATA
The following summary statement of operations data and other financial data
for each of the four fiscal years in the period ended December 28, 2002 and the
summary balance sheet data as of December 30, 2000, December 29, 2001 and
December 28, 2002 are derived from our consolidated financial statements
incorporated by reference into this prospectus, which have been audited by Ernst
& Young LLP, our independent auditors. The summary statement of operations data
and other financial data for the fiscal year ended December 31, 1998 and the
summary balance sheet data as of December 31, 1998 and January 1, 2000 are
derived from our consolidated financial statements, which were audited by our
former auditors, Arthur Andersen LLP. The summary statement of operations data
and other financial data for the six months ended June 28, 2003 and June 29,
2002 and the summary balance sheet data as of June 28, 2003 are derived from our
unaudited consolidated financial statements incorporated by reference into this
prospectus and, in our opinion, reflect all adjustments, consisting of normal
accruals, necessary for a fair presentation of the data for those periods. Our
financial data for the six months ended June 28, 2003 may not be indicative of
results that may be expected for the full year.
You should read the tables below in conjunction with our "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the notes to those statements included
in our annual report on Form 10-K for the fiscal year ended December 28, 2002
and our quarterly reports on Form 10-Q for the fiscal quarters ended March 29,
2003 and June 28, 2003, incorporated by reference into this prospectus.
SIX MONTHS ENDED
FISCAL YEAR(A) -------------------
----------------------------------------------- JUNE 28, JUNE 29,
1998 1999 2000 2001 2002 2003 2002
---- ---- ---- ---- ---- -------- --------
(in millions)
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $13,868 $18,409 $22,050 $25,016 $23,271 $9,615 $12,018
Costs and expenses:
Cost of sales.............................. 11,374 14,407 17,334 19,276 18,115 7,605 9,282
Selling and distribution................... 592 818 1,600 2,025 1,869 634 994
Depreciation, amortization and accretion... 806 815 910 1,343 1,030 522 519
General and administrative................. 534 765 856 1,072 1,054 401 532
Interest................................... 372 426 595 1,080 841 413 454
Other losses, net.......................... (8) 14 202 515 870 63 218
------- ------- ------- ------- ------- ------ -------
Total costs and expenses................. 13,670 17,245 21,497 25,311 23,779 9,638 11,999
------- ------- ------- ------- ------- ------ -------
Income (loss) from continuing operations
before income taxes........................ 198 1,164 553 (295) (508) (23) 19
Provision (benefit) for income taxes......... 87 448 210 181 (318) (29) 41
------- ------- ------- ------- ------- ------ -------
Income (loss) from continuing operations..... 111 716 343 (476) (190) 6 (22)
Income from discontinued operations, net of
taxes...................................... 176 400 162 70 --
------- ------- ------- ------- ------- ------ -------
Income (loss) before extraordinary loss and
accounting change.......................... 287 1,116 505 (406) (190)
Extraordinary loss, net of taxes (13) -- -- (12) --
Cumulative effect of accounting change, net
of taxes................................... -- -- -- 11 (545) 28 (545)
------- ------- ------- ------- ------- ------ -------
Net (loss) income............................ $ 274 $ 1,116 $ 505 $ (407) $ (735) $ 34 $ (567)
======= ======= ======= ======= ======= ====== =======
FISCAL YEAR(A) AS OF
----------------------------------------------- JUNE 28,
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- --------
(in millions)
BALANCE SHEET DATA (AT PERIOD END):
Current assets............................. $ 2,555 $ 4,661 $ 6,407 $ 5,460 $ 4,726 $ 4,779
Non-current assets......................... 8,892 10,844 23,011 20,904 19,903 19,766
Total assets............................... 11,447 15,505 29,418 26,364 24,629 24,545
Current liabilities........................ 2,402 3,849 5,676 5,810 4,045 4,423
Non-current liabilities.................... 5,921 7,781 18,020 15,649 16,024 15,454
Total liabilities.......................... 8,323 11,630 23,696 21,459 20,069 19,877
Shareholders' equity....................... 3,124 3,875 5,722 4,905 4,560 4,668
9
SIX MONTHS
FISCAL YEAR(A) ENDED
---------------------------------------------- JUNE 28,
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----------
(in millions, except ratios)
OTHER FINANCIAL DATA:
Capital expenditures.............................. $ 638 $ 723 $ 909 $ 739 $ 693 $ 310
EBITDA(b)......................................... 1,376 2,405 2,058 2,128 1,363 912
Ratio of total debt to EBITDA..................... 3.2 2.4 7.2 5.7 8.4 12.5
Ratio of EBITDA to interest expense............... 3.7 5.6 3.5 2.0 1.6 2.2
Net cash provided by (used for) investing
activities...................................... (613) (2,326) (6,751) 1,342 (62) (312)
Net cash provided by (used for) financing
activities...................................... (758) 1,074 5,210 (2,833) (944) (333)
---------------
(a) Information for, and as of the end of, fiscal 1998, fiscal 1999, fiscal 2000
and fiscal 2001 includes The Timber Company, which we disposed of in a
spin-off transaction in October 2001, as discontinued operations.
(b) EBITDA is defined as (loss) income from continuing operations before income
taxes plus interest expense, depreciation and amortization. EBITDA is not an
alternative measure of operating results or cash flows from operations, as
determined in accordance with generally accepted accounting principles, but
we include it because we believe it is a widely accepted indicator of our
ability to incur and service debt and make capital expenditures. EBITDA does
not give effect to cash used for principal repayments of debt or capital
expenditures or changes in working capital needs and thus does not reflect
excess funds available for discretionary uses. EBITDA as presented herein
may not be comparable to similarly titled measures reported by other
companies. The reconciliation of cash provided by operations to EBITDA is as
follows:
SIX MONTHS
FISCAL YEAR ENDED
---------------------------------------------- JUNE 28,
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----------
(in millions)
Net cash provided by operating
activities.............................. $1,368 $1,272 $1,556 $1,482 $1,010 $668
Adjustments to reconcile cash provided by
operating activities to EBITDA:
Deferred income taxes................... (38) (73) (82) 109 24 107
Other gains (losses), net............... 40 351 (141) (514) (870) (63)
Change in working capital............... (288) 438 17 (182) 649 (184)
Tax benefit on stock benefit plans...... (2) (24) (4) (23) -- --
Other, net.............................. 5 (27) 74 56 27 --
Income from discontinued operations..... (176) (400) (162) (70) -- --
Depreciation from discontinued
operations............................ (5) (6) (5) (3) -- --
Extraordinary loss, net of taxes........ 13 -- -- 12 -- --
Income tax provision (benefit).......... 87 448 210 181 (318) (29)
Interest expense........................ 372 426 595 1,080 841 413
------ ------ ------ ------ ------ ----
EBITDA.................................. $1,376 $2,405 $2,058 $2,128 $1,363 $912
====== ====== ====== ====== ====== ====
RATIO OF EARNINGS TO FIXED CHARGES
The following table presents our ratio of earnings to fixed charges
for the periods presented:
SIX MONTHS
FISCAL YEAR ENDED ENDED
----------------------------------- JUNE 28,
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----------
Ratios of earnings to fixed charges.................... 1.47x 3.47x 1.75x (c) (c) (c)
---------------
(c) In fiscal 2001, fiscal 2002 and the six months ended June 28, 2003, fixed
charges exceeded earnings by $305 million, $522 million and $25 million,
respectively.
10
RISK FACTORS
You should carefully consider the following risks and other information
contained in this prospectus, together with all of the other information
incorporated by reference in this prospectus, before deciding to exchange your
old notes for new notes. If any of the following risks or uncertainties actually
occurs, our business, financial condition and operating results could be
materially adversely affected.
RISKS RELATED TO OUR INDEBTEDNESS AND THE NOTES
OUR SUBSTANTIAL LEVEL OF INDEBTEDNESS COULD MATERIALLY ADVERSELY AFFECT OUR
ABILITY TO FULFILL OUR OBLIGATIONS UNDER THE NOTES, OUR ABILITY TO REACT TO
CHANGES IN OUR BUSINESS AND OUR ABILITY TO INCUR ADDITIONAL DEBT TO FUND FUTURE
NEEDS
We have a substantial amount of debt. As of June 28, 2003, we had total
debt (including short-term debt) of $11,382 million and shareholders' equity of
$4,668 million, and fixed charges exceeded earnings by $25 million for the six
months then ended. For more detail regarding our total debt, see "Description of
Other Indebtedness."
Our substantial debt could have important consequences for our noteholders.
For example, it could:
- make it more difficult for us to satisfy our obligations with
respect to the notes;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing funds
available for working capital, capital expenditures, acquisitions,
research and development and other purposes;
- increase our vulnerability to adverse economic and industry
conditions;
- limit our flexibility in planning for, or reacting to, changes in
our business and the industries in which we operate;
- limit our noteholders' rights to receive payments under the notes
if secured creditors have not been paid;
- place us at a competitive disadvantage compared to our competitors
that have relatively less debt;
- limit our ability to borrow additional funds, or to dispose of
assets to raise funds, if needed, for working capital, capital
expenditures, acquisitions, research and development and other
purposes; and
- prevent us from raising the funds necessary to repurchase all
notes tendered to us upon the occurrence of certain changes of
control, which would constitute a default under the indentures
governing the notes.
RESTRICTIONS IMPOSED BY THE INDENTURES GOVERNING THE NOTES, OUR REVOLVING CREDIT
FACILITY AND OUR OTHER OUTSTANDING INDEBTEDNESS MAY LIMIT OUR ABILITY TO OPERATE
OUR BUSINESS AND TO FINANCE OUR FUTURE OPERATIONS OR CAPITAL NEEDS OR TO ENGAGE
IN OTHER BUSINESS ACTIVITIES
The indentures governing the notes and our other debt agreements contain
various covenants that limit, among other things, our ability and the ability of
our restricted subsidiaries to:
- borrow money or issue preferred stock;
- pay dividends on our stock or repurchase our stock;
- make investments;
11
- create liens;
- create restrictions on the ability of our restricted subsidiaries
to pay dividends or other amounts to us;
- enter into sale and leaseback transactions;
- engage in certain transactions with affiliates;
- expand into unrelated businesses; and
- consolidate, merge or sell all or substantially all of our assets
or substantially all of the assets of Fort James Corporation or
Fort James Operating Company.
Some of the agreements governing our outstanding debt require us to
maintain compliance with certain financial ratios. Our ability to comply with
such ratios may be affected by events beyond our control. In the event of a
default under any of these agreements, the lenders could elect to declare all
amounts outstanding under the agreements to be immediately due and payable. If
the debt under these agreements or the notes were to be accelerated, it is
possible that our assets would not be sufficient to repay such debt in full. In
particular, noteholders will be paid only if we have assets remaining after we
pay amounts due on our secured debt, including our receivables facility.
CLAIMS OF CREDITORS OF ALL OF OUR SUBSIDIARIES OTHER THAN FORT JAMES CORPORATION
AND FORT JAMES OPERATING COMPANY WILL HAVE PRIORITY WITH RESPECT TO THE ASSETS
AND EARNINGS OF SUCH SUBSIDIARIES OVER HOLDERS OF THE NOTES
Fort James Corporation, our wholly owned subsidiary, and Fort James
Operating Company, a wholly owned subsidiary of Fort James Corporation, will
guarantee the new notes. None of our other subsidiaries, including subsidiaries
of the Fort James Companies, will guarantee the new notes, although our
revolving credit facility is guaranteed by all of our principal domestic
subsidiaries (including each of the Fort James Companies). Claims of creditors
of our non-guarantor subsidiaries, including trade creditors and lenders under
our revolving credit facility, generally will have priority with respect to the
assets and earnings of such subsidiaries over our claims or those of our
creditors, including holders of the new notes. As of June 28, 2003, our
non-guarantor subsidiaries had $1,097 million of indebtedness and $2,988 million
of other liabilities outstanding, including trade payables and deferred income
tax liabilities.
WE AND OUR SUBSIDIARIES MAY BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT, INCLUDING
SECURED DEBT
Subject to the restrictions in our revolving credit facility, the
indentures governing the notes and our other outstanding indebtedness, we and
our subsidiaries may incur significant additional debt, including secured debt
that would be effectively senior to the notes. The indentures governing the
notes allow us to grant liens on accounts receivable and inventory to secure
indebtedness without ratably securing the notes. At June 28, 2003, the amounts
of our consolidated accounts receivable and inventory were $2,091 million and
$2,175 million, respectively. As of June 28, 2003:
- we and the Fort James Companies had $292 million of secured
indebtedness outstanding;
- we and the Fort James Companies had $9,993 million of unsecured
senior indebtedness outstanding (excluding debt of non-guarantor
subsidiaries); and
- we and the Fort James Companies had $1,654 million available for
borrowing under our various credit facilities, which, if borrowed,
would be unsecured senior indebtedness. For more detail regarding
available borrowings under our various credit facilities, see
"Description of Other Indebtedness."
12
Although the terms of these facilities and the indentures governing the notes
contain restrictions on the incurrence of additional debt, these restrictions
are subject to a number of important exceptions, and debt incurred in compliance
with these restrictions could be substantial. If we and our restricted
subsidiaries incur significant additional debt, the related risks that we face
could intensify.
OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL, AND WE
MAY NOT BE ABLE TO GENERATE THE CASH REQUIRED TO SERVICE OUR DEBT
Our ability to make payments on and refinance our indebtedness, including
the notes, and to fund our operations will depend on our ability to generate
cash in the future. Our historical financial results have been, and our future
financial results are expected to be, subject to substantial fluctuations, and
will depend upon general economic conditions and financial, competitive,
legislative, regulatory and other factors that are beyond our control. If we are
unable to meet our debt service obligations or fund our other liquidity needs,
we may need to refinance all or a portion of our debt, including the notes,
before maturity, seek additional equity capital or sell assets. If any of these
events occurs, we may not be able to pay our debt or refinance it on
commercially reasonable terms, or at all, or to fund our liquidity needs.
If for any reason we are unable to meet our debt service obligations, we
would be in default under the terms of our agreements governing our outstanding
debt. If such a default were to occur, the lenders could elect to declare all
amounts outstanding under the facility immediately due and payable, and the
lenders would not be obligated to continue to advance funds under the revolving
credit facility. If the amounts outstanding under these agreements were to be
accelerated, it is possible that our assets would not be sufficient to repay in
full the money owed to the banks or to our debt holders, including holders of
the notes.
WE HAVE EXPERIENCED NET LOSSES IN RECENT PERIODS AND MAY CONTINUE TO EXPERIENCE
LOSSES IN THE FUTURE, WHICH COULD IMPAIR OUR ABILITY TO SATISFY OUR OBLIGATIONS
UNDER THE NOTES
We incurred net losses of $735 million for fiscal 2002 and $407 million for
fiscal 2001, and we may incur net losses in the future. These net losses were
the result of a number of factors, including a decline in operating results that
is largely attributable to weakness in market conditions for building products
and aggressive pricing by competitors in our consumer products businesses. We
expect to continue to face these and other challenges to profitability in the
foreseeable future. It is possible that our failure to regain or maintain
profitability in any given fiscal quarter or year could negatively affect our
ability to satisfy our obligations under the notes.
FRAUDULENT CONVEYANCE LAWS MAY PERMIT COURTS TO VOID THE FORT JAMES COMPANIES'
GUARANTEES OF THE NEW NOTES IN SPECIFIC CIRCUMSTANCES, WHICH WOULD INTERFERE
WITH THE PAYMENT UNDER THE FORT JAMES COMPANIES' GUARANTEES
Federal and state statutes may allow courts, under specific circumstances
described below, to void either or both of the Fort James Companies' guarantees
of the new notes. If such a voidance occurs, our noteholders might be required
to return payments received from the Fort James Companies in the event of either
Fort James Corporation's or Fort James Operating Company's bankruptcy or other
financial difficulty. Under United States federal bankruptcy law and comparable
provisions of state fraudulent conveyance laws, a guarantee could be set aside
if, among other things, the guarantor, at the time it incurred the debt
evidenced by its guarantee:
- incurred the guarantee with the intent of hindering, delaying or
defrauding current or future creditors; or
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- received less than reasonably equivalent value or fair
consideration for incurring the guarantee, and
- was insolvent or was rendered insolvent by reason of the
incurrence;
- was engaged, or about to engage, in a business or
transaction for which the assets remaining with it
constituted unreasonably small capital to carry on such
business;
- intended to incur, or believed that it would incur, debts
beyond its ability to pay as those debts matured; or
- was a defendant in an action for money damages, or had a
judgment for money damages entered against it, if, in
either case, after final judgment the judgment was
unsatisfied.
The tests for fraudulent conveyance, including the criteria for insolvency,
will vary depending upon the law of the jurisdiction that is being applied.
Generally, however, a debtor would be considered insolvent if, at the time the
debtor incurred the debt, either:
- the sum of the debtor's debts and liabilities, including
contingent liabilities, was greater than the debtor's assets at
fair valuation; or
- the present fair saleable value of the debtor's assets was less
than the amount required to pay the probable liability on the
debtor's total existing debts and liabilities, including
contingent liabilities, as they became absolute and matured.
If a court voids either or both of the Fort James Companies' guarantees or
holds them unenforceable, you will cease to be a creditor of the guarantors and
will be a creditor solely of us.
AN ACTIVE TRADING MARKET FOR THE NOTES MAY NOT DEVELOP, WHICH COULD REDUCE THEIR
VALUE
The new notes are a new issue of securities for which there is currently no
public market. We do not intend to list the new notes on any national securities
exchange or automated quotation system. Accordingly, no market for the new notes
may develop, and any market that develops may not last. If the new notes are
traded, they may trade at a discount from their initial offering price,
depending on prevailing interest rates, the market for similar securities, our
performance and other factors. To the extent that an active trading market does
not develop, you may not be able to resell your new notes at their fair market
value or at all.
If a market for the new notes does develop, it is possible that you will
not be able to sell your notes at a particular time or that the prices that you
receive when you sell will be favorable. It is also possible that any trading
market that does develop for the new notes will not be liquid. Future trading
prices of the new notes will depend on many factors, including:
- our operating performance, prospects and financial condition or the
operating performance, prospects and financial condition of companies
in our industry generally;
- the interest of securities dealers in making a market for the new
notes;
- prevailing interest rates; and
- the market for similar securities.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused volatility in prices. If a market for the new notes
develops, it is possible that the market for the new notes will be subject to
disruptions and price volatility. Any disruptions may have a negative effect on
holders of the new notes, regardless of our prospects and financial performance.
14
To the extent that old notes are surrendered and accepted in the exchange
offers, the trading market for unsurrendered old notes and for
surrendered-but-unaccepted old notes could be adversely affected due to the
limited amount of old notes that are expected to remain outstanding following
the exchange offers. 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 the security. Conversely, if many old notes are not surrendered,
or are surrendered-but-unaccepted, the trading market for the new notes could be
adversely affected. See "Plan of Distribution" and "The Exchange Offers" for
further information regarding the distribution of the new notes and the
consequences of failure to participate in the exchange offers.
RISKS RELATING TO OUR BUSINESS
SOME OF OUR BUSINESSES, PARTICULARLY OUR BUILDING PRODUCTS BUSINESS, ARE HIGHLY
CYCLICAL, AND PROLONGED PERIODS OF WEAK DEMAND OR EXCESS SUPPLY MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND OPERATING
RESULTS AND MAY IMPAIR OUR ABILITY TO SATISFY OUR OBLIGATIONS UNDER THE NOTES
Some of our businesses, especially our building products business, are
subject to cyclical market pressures. Prices are determined by overall supply
and demand in the market for our products and our competitors' products. In
particular, market prices of building products historically have been volatile
and cyclical, and we, like other producers, may have limited ability to control
the timing and amount of pricing changes for our products. Demand for building
products is driven mainly by factors outside of our control, such as general
economic and political conditions, the construction, repair and remodeling and
industrial markets, weather and population growth. The supply of building
products fluctuates based on available manufacturing capacity, and excess
capacity in the industry can result in significant declines in market prices for
those products. Likewise, cyclical pressures in demand and supply for our
consumer products, packaging, and bleached pulp and paper products may impact
our operating results for periods at a time. Prolonged periods of weak demand or
excess supply in any of our businesses could negatively impact our market share,
seriously reduce our margins and harm our liquidity, financial condition and
operating results.
PROLONGED WEAKNESS IN MARKET CONDITIONS FOR BUILDING PRODUCTS MAY FORCE US TO
CONTINUE TO REDUCE OR SUSPEND PRODUCTION AT OUR MILLS
Weak market conditions in the building products market may continue to
adversely affect our sales levels and profitability and may cause us to suspend
production at or permanently close certain of our mills and other facilities.
For example, in fiscal 2001, we announced temporary or permanent closures of
certain structural panels mills, lumber mills, industrial wood products mills,
building products distribution centers and gypsum plants. In addition, in fiscal
2002, we announced the temporary closure of four sawmills and the suspension of
production at three plywood plants and, in the second quarter of fiscal 2003, we
announced the closure of one particleboard plant. We may further reduce
production at our sawmills and plywood plants. Permanent closures of facilities
could cause us to incur charges for employee terminations and asset write-downs,
which could materially adversely affect our business, financial condition and
operating results.
WE FACE INTENSE COMPETITION IN EACH OF OUR BUSINESSES. IF WE CANNOT SUCCESSFULLY
COMPETE IN THE MARKETPLACE, OUR BUSINESS, FINANCIAL CONDITION AND OPERATING
RESULTS MAY BE MATERIALLY ADVERSELY AFFECTED AND OUR ABILITY TO SATISFY OUR
OBLIGATIONS UNDER THE NOTES MAY BE IMPAIRED
Consumer Products and Packaging. We face intense competition in the tissue
and disposable tabletop products, packaging, and bleached pulp and paper
industries in our major North American and European markets. Competition in the
various markets in which we
15
participate comes from companies of various sizes, several of which have greater
financial and other resources than we have and thus can better withstand adverse
economic or market conditions.
We compete on the basis of brand recognition and loyalty, product quality
and performance, price, marketing, product development, service, sales and
distribution. Competing in these industries involves the following key risks
that could have a material adverse effect on our business, financial condition
and operating results:
- failure to anticipate and respond to changing consumer preferences
and demographics;
- failure to develop new and improved products;
- failure of consumers to accept our brands and exhibit brand
loyalty;
- aggressive pricing by competitors, which may force us to decrease
prices or increase advertising and promotional spending in order
to maintain market share;
- failure of our advertising and promotional spending to increase
(or even maintain) sales volume and market share; and
- consolidations of retailers and distribution channels that shrink
our potential markets.
Building Products. Many of our building products are commodity products,
and if we do not maintain price competitiveness, we may lose significant market
share. Our ability to keep our prices at competitive levels depends in large
part on our ability to control our costs. We cannot assure you that we will be
able to maintain our costs at a level sufficient for us to compete effectively
and maintain current levels of sales and profitability. In addition, recent
consolidations in the building products business among our competitors and
increased access to the United States market by foreign competitors that benefit
from a strong United States dollar may put additional pressure on us to reduce
costs in order to maintain market share. If we are unable to effectively adjust
our price structure to address such increased competitive pressures, our sales
level and profitability could be harmed and our operations could be materially
adversely affected.
OUR INVESTMENTS IN RESEARCH AND DEVELOPMENT MAY NOT GENERATE NEW AND IMPROVED
CONSUMER PRODUCTS, WHICH COULD RESTRAIN OUR REVENUE GROWTH AND HARM OUR
OPERATING RESULTS AND MARKET SHARE
We intend to continue to make investments in research and development to
develop new and improved consumer products. We need to continue to develop new
products and improve our existing products in order to maintain our market
share. We may not have sufficient resources to invest in the development of new
and enhanced products. Our failure to continue making such investments could
restrain our revenue growth and harm our operating results and market share and
may impair our ability to satisfy our obligations under the notes. In addition,
even if we are able to invest sufficient resources in research and development,
these investments may not generate net sales that exceed our expenses, generate
any net sales at all or result in any commercially acceptable products.
OUR OPERATIONS REQUIRE SUBSTANTIAL CAPITAL, AND WE MAY NOT HAVE ADEQUATE CAPITAL
RESOURCES TO PROVIDE FOR ALL OF OUR CASH REQUIREMENTS AND OUR ABILITY TO SATISFY
OUR OBLIGATIONS UNDER THE NOTES MAY BE IMPAIRED
Our operations require substantial capital. Expansion or replacement of
existing facilities or equipment and compliance with environmental laws and
regulations may require substantial capital expenditures. Our capital resources
may not be sufficient for these purposes. If our capital resources are
inadequate to provide for our operating needs, capital expenditures and
16
other cash requirements, this shortfall could have a material adverse effect on
our business and liquidity and impact our ability to service our debt, including
the notes.
RECOGNITION OF A MINIMUM PENSION LIABILITY WOULD CAUSE A SIGNIFICANT REDUCTION
IN NET WORTH
As a result of stock market declines in 2002, the market value of the
assets in our pension plans, including our nonqualified and foreign plans, has
declined. Statement of Financial Accounting Standards No. 87, "Accounting for
Pensions," requires balance sheet recognition of a minimum liability if the fair
value of plan assets is less than the accumulated benefit obligation, or ABO, at
the end of the year. The ABO for our pension plans exceeded our pension plan
assets at October 31, 2002. As a result, we took a non-cash after-tax charge
directly to shareholders' equity of $580 million during fiscal 2002. In the
fourth quarter of fiscal 2002, we amended our credit facilities to exclude the
impact of this non-cash charge. Additionally, as a result of recent stock market
performance, we expect to make a cash contribution to our pension plans of
approximately $120 million in fiscal 2003, compared to $56 million in fiscal
2002. It is possible that cash contributions to our pension plans in future
years could cause us to be in breach of the net worth covenants under our credit
facilities.
IF THE COST OF KEY RAW MATERIALS INCREASES, OUR COST OF SALES WILL INCREASE, OUR
OPERATING RESULTS MAY BE MATERIALLY ADVERSELY AFFECTED AND OUR ABILITY TO
SATISFY OUR OBLIGATIONS UNDER THE NEW NOTES MAY BE IMPAIRED
We depend heavily on access to sufficient, reasonably-priced quantities of
wood, wood fiber, pulp and wastepaper. We use wood fiber to make pulp, which we
use along with purchased wastepaper to manufacture our tissue and paper
products. We also use wood fiber and wastepaper to manufacture containerboard.
Furthermore, we expect to purchase annually over $1 billion of wood and wood
fiber for use by our building products business. We purchase all of our wood and
wood fiber from third parties. If the costs of these or other raw materials we
purchase increase, our cost of sales will increase, and our operating results
may be materially adversely affected. We also buy and sell pulp and can be
impacted by pulp price fluctuations. Furthermore, we may not be able to pass
increased raw materials prices on to our customers if the market or existing
agreements with our clients do not allow us to raise the prices of our finished
products. If price adjustments significantly trail the increase in raw materials
prices or if we cannot effectively hedge against price increases, our operating
results may be materially adversely affected and our ability to satisfy our
obligations under the notes may be impaired.
IF WE CANNOT ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR OPERATING
RESULTS MAY BE HARMED
As a company that manufactures and markets consumer products, we rely
heavily on trademarks and copyrights to protect our brands, patents and trade
secrets in the manufacture of many of our products. These protections may not
adequately safeguard our intellectual property rights and we may incur
significant costs to defend our intellectual property rights, which may harm our
operating results. Although we are not aware that any of our intellectual
property rights infringe upon the proprietary rights of third parties, third
parties may make such claims in the future. Any infringement claims, whether
with or without merit, could be time-consuming, result in costly litigation or
damages, undermine the exclusivity and value of our brands, decrease sales or
require us to enter into royalty or licensing agreements that may not be on
acceptable terms.
17
RISK FACTORS RELATING TO ENVIRONMENTAL REGULATION AND ASBESTOS LIABILITY
WE INCUR SUBSTANTIAL COSTS RELATED TO COMPLIANCE WITH CURRENT AND FUTURE
ENVIRONMENTAL LAWS AND REGULATIONS AND TO ADDRESS ENVIRONMENTAL LIABILITIES FOR
WHICH WE ARE HELD RESPONSIBLE, EACH OF WHICH COULD MATERIALLY ADVERSELY AFFECT
OUR BUSINESS, CASH FLOW AND LIQUIDITY
Our business is subject to stringent environmental laws and regulations,
particularly with respect to discharges of pollutants and other emissions on or
into land, water and air, and the use, disposal and remediation of hazardous
substances and contaminants. Compliance with these laws and regulations is an
important factor in our business. We have incurred and expect to continue to
incur significant expenditures to comply with applicable environmental laws and
regulations. Moreover, some or all of the environmental laws and regulations to
which we are subject could become more stringent in the future, which could
affect our production costs and overall profitability. Our failure to comply
with applicable environmental laws and regulations and permit requirements could
result in civil or criminal fines or penalties or enforcement actions, including
regulatory or judicial orders enjoining or curtailing operations or requiring
corrective measures, the installation of pollution control equipment or other
mandated actions.
In addition, we currently are, and from time to time in the future will be,
involved in a number of environmental matters and legal proceedings. These
matters and proceedings in the past have caused, and in the future may cause, us
to incur substantial costs. Such proceedings are based on liability under
environmental laws for damages resulting from past or present spills or releases
of hazardous or toxic substances on or from our properties, or on tort liability
relating to exposure to hazardous substances. Liability under these laws may be
imposed without regard to whether we knew of, or caused, the release of such
substances on our property. In connection with various sales of businesses
completed in the past, we have agreed to indemnify the purchasers of those
businesses against certain environmental claims. Accordingly, we may incur
substantial additional costs should we be required to make payments under those
indemnification agreements, and those costs could materially adversely affect
our operating results, cash flow and liquidity. In addition, recently, various
lawsuits seeking class-action status and alleging harm from exposure to wood
products treated with Chromated Copper Arsenate, or CCA, have been filed in
state and federal courts against us and other companies. See "Business -- Legal
Proceedings."
PAYMENTS FOR ASBESTOS-RELATED CLAIMS (THE TOTAL AMOUNTS OF WHICH ARE UNCERTAIN)
MAY MATERIALLY ADVERSELY AFFECT OUR CASH FLOW AND LIQUIDITY
We and many other companies are defendants in suits brought in various
courts around the nation by plaintiffs who allege that they have suffered
personal injury as a result of exposure to asbestos containing products. These
suits allege a variety of lung and other diseases based on alleged exposure to
products previously manufactured by us. Our asbestos liabilities relate
primarily to joint systems products manufactured by Bestwall Gypsum Company and
our gypsum business that contained small amounts of asbestos fiber. We
discontinued using asbestos in the manufacture of these products in 1977.
From the commencement of this litigation through June 28, 2003, we either
had settled, had dismissed or were in the process of settling a total of
approximately 300,900 asbestos claims. For this same period, our asbestos
payments for liability, defense and administration, before insurance recoveries
and tax benefits, totaled approximately $529 million. We generally settle
asbestos claims for amounts we consider reasonable given the facts and
circumstances of each claim.
In the Fall of 2001, we retained National Economic Research Associates
(NERA) and Peterson Consulting, nationally recognized consultants in asbestos
liability and insurance, to work with us to project the amount, net of
insurance, that we would pay for our asbestos-related
18
liabilities and defense costs through 2011. Based on the analysis of NERA and
Peterson Consulting, at the end of 2001 we established reserves for the probable
and reasonably estimable asbestos liabilities and defense costs we believed we
would pay through 2011, and established receivables for insurance recoveries
that were deemed probable. In the fourth quarter of 2001, we recorded a pre-tax
charge to earnings of $350 million to cover the projected asbestos liabilities
and defense costs, net of expected insurance recoveries, we expected to pay
through 2011.
However, during 2002 we paid, pre-tax and before insurance, approximately
$181 million for our asbestos liabilities and defense costs, which was $75
million more than we expected to pay based on NERA's estimate. These higher
payments were caused by a $10 million judgment which we paid in one case decided
on appeal by the Maryland Supreme Court in 2002, and higher than expected
settlements paid in less than 1% of the total cases we resolved in 2002, all of
which involved mesothelioma claims. During 2001, we paid, pre-tax and before
insurance, approximately $84 million for our asbestos liabilities and defense
costs. Because of 2002's higher asbestos liabilities and defense costs, we asked
NERA to review its original estimate and adjust it as needed. NERA's revised
estimate projects that our total, undiscounted asbestos liabilities, including
defense costs, over the ten-year period from 2002 through 2012 will be slightly
less than $1.2 billion, before any insurance recoveries and ignoring any
possible tax benefits. The principal factor contributing to the increase in
NERA's total estimate was the projected effect of the higher indemnity and
defense costs we experienced in 2002 on our costs in future years. In addition,
NERA extended its original estimate through 2012, which accounted for
approximately $60 million of the total accrual, before insurance. We believe
that NERA's projection represents its best estimate of the reasonably estimable
asbestos costs we will incur based upon currently available information.
At the end of 2002, as at the end of 2001, we and Peterson Consulting
analyzed publicly available information bearing on the creditworthiness of our
various insurers, and employed insurance allocation methodologies which we and
Peterson Consulting believed appropriate to ascertain the amount of probable
insurance recoveries from our insurers for the accrued asbestos liabilities. The
analysis took into account self-insurance reserves, policy exclusions, liability
caps and gaps in our coverage, as well as insolvencies among certain of our
insurance carriers. Although we and Peterson Consulting believe these
assumptions are appropriate, there are other assumptions that could have been
employed that would have resulted in materially lower insurance recovery
estimates. Based on this analysis, our total expected insurance recoveries for
our projected asbestos liabilities and costs over the period through 2012 will
be about $670 million. As a result, in the fourth quarter of 2002 we recorded an
additional pre-tax charge to earnings of $315 million which, when added to
amounts remaining from charges recorded in 2001, we believe are sufficient to
cover our projected asbestos liabilities and defense costs, net of expected
insurance recoveries.
Projecting our net liability for asbestos litigation is subject to a number
of important risks and uncertainties, including:
- the possibility that the number of asbestos claims filed against
us in the future will be greater than projected;
- the risk that the cost of defending and settling our current and
future asbestos claims will be higher than projected, resulting in
more rapid depletion of our insurance coverage and higher
out-of-pocket costs;
- the possibility of additional insolvencies among our insurance
carriers;
- the risk that final resolution of allocation, coverage or other
issues affecting our available insurance coverage will result in
lower insurance recoveries than forecast;
19
- the possibility that adverse jury verdicts could require us to pay
damages in amounts greater than the amounts for which we now
settle cases; and
- the risk that bankruptcies of other asbestos defendants may
increase our costs.
These and other factors could cause our actual asbestos liabilities,
defense costs and insurance recoveries to be higher or lower than those
currently projected and/or recorded, which may affect the validity of our
overall projections. We intend to monitor our accrued asbestos liabilities,
defense costs and insurance recoveries against these overall projections, and we
will make adjustments to such accruals as required by generally accepted
accounting principles.
For all of these reasons, it is possible that our currently accrued
asbestos liabilities will not be accurate, that our accrued insurance recoveries
will not be realized, or that we will be required in the future to incur
additional charges relating thereto. Given these uncertainties, we believe that
it is reasonably possible that we will incur asbestos liabilities for the period
through 2012 and beyond in amounts in excess of the NERA estimate, but cannot
estimate such excess amount at this time.
Beginning in late March and continuing during the second fiscal quarter of
2003, we experienced new case filings in Mississippi at a rate significantly
higher than we expected. We believe that most of these new filings were caused
by plaintiffs filing cases in advance of the effective date of tort law changes
in the State of Mississippi. Similar tort law legislation was recently enacted
in the State of Texas and we expect to experience an increase in the number of
new case filings in Texas in the third and fourth fiscal quarters of 2003 as a
result of this legislation.
The announcement of additional reserves, adverse jury verdicts or other
negative developments involving our asbestos liabilities may cause the value or
trading prices of the notes to decrease significantly. All amounts we pay for
asbestos liabilities that are not covered by our insurance will reduce our cash
flow available to pay interest and principal on the notes. If the higher costs
experienced in fiscal 2002 continue, or the actual amounts payable by us in the
future to settle claims or satisfy judgments were to be substantially greater
than NERA has estimated or the actual amounts recoverable from insurance were to
be substantially lower than Peterson Consulting has estimated, it could cause us
to default on covenants in our credit facilities, cause our credit ratings to be
downgraded, restrict our access to the capital markets and otherwise have a
material adverse effect on our financial condition, results of operations, cash
flows or liquidity. See "Business -- Legal Proceedings -- Asbestos Litigation."
20
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. We have also made
forward-looking statements in reports filed with the SEC that we incorporate by
reference into this prospectus. For purposes of the exchange offers, the safe
harbor provisions of Section 27A of the Securities Act do not apply to these
forward-looking statements. Statements that are not historical facts, including
statements about our beliefs and expectations, are forward-looking statements.
Forward-looking statements include statements generally preceded by, followed by
or that include the words "believe," "expect," "anticipate," "plan," "estimate"
or similar expressions. These statements include, among others, statements
regarding our expected business outlook, anticipated financial and operating
results, strategies, contingencies, financing plans, working capital needs,
sources of liquidity, capital expenditures, amounts and timing of expenditures
and the adequacy of our reserves with respect to liabilities relating to
asbestos-containing products or the environment (and amounts and timing of
insurance recoveries covering those expenses) and contemplated transactions.
Forward-looking statements reflect our current expectations and are not
guarantees of performance. These statements are based on our management's
beliefs and assumptions, which in turn are based on currently available
information. Important assumptions relating to these forward-looking statements
include, among others, assumptions regarding demand for our products, expected
pricing levels, raw material costs, the timing and cost of planned capital
expenditures, the estimated cost of environmental compliance, expected outcomes
of pending litigation, the expected costs of pending and future asbestos and
environmental claims, the solvency of our insurers and the ultimate resolution
of allocation and coverage issues with those insurers (including, without
limitation, issues relating to asbestos and environmental claims), competitive
conditions and general economic conditions. These assumptions could prove
inaccurate. Forward-looking statements also involve risks and uncertainties,
which could cause actual results to differ materially from those contained in
any forward-looking statement. Many of these factors are beyond our ability to
control or predict. Such factors include, but are not limited to, factors
discussed under the heading "Risk Factors" and the following:
- changes in general economic conditions and interest rates;
- changes in the availability of capital;
- changes in competitive conditions and prices in our markets;
- changes in the relationship between supply of and demand for our
products;
- foreign currency fluctuations relative to the United States dollar;
- fluctuations in raw material and labor costs;
- changes in other significant operating expenses;
- unanticipated expenditures with respect to environmental, safety and
health laws; and
- timing and occurrence of events, including events and resulting
expenses related to asbestos-related claims against us.
You should not place undue reliance on any forward-looking statements,
which are based on current expectations. Further, forward-looking statements
speak only as of the date they are made, and we undertake no obligation to
update publicly any of them in light of new information or future events.
21
USE OF PROCEEDS
The exchange offers are intended to satisfy our obligations under the old
notes, the indentures and the registration rights agreement. Neither we nor the
Fort James Companies will receive any proceeds from the exchange offers. You
will receive, in exchange for old notes tendered by you and accepted by us in
the exchange offers, new notes of the same series in the same principal amount.
The old notes surrendered in exchange for the new notes 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 indebtedness.
Our net proceeds from the offering and sale of the old notes, which do not
include accrued interest on the old notes, were approximately $492 million,
after deducting related fees and expenses of the offering and the discount
payable to the initial purchasers. We used these net proceeds to repay $492
million outstanding under our revolving credit facility, which had $765 million
of borrowings outstanding at June 28, 2003 and a weighted average interest rate
of 3.9% at June 28, 2003 and a maturity date of November 28, 2005. For more
detail regarding our total debt and available borrowings, see "Description of
Other Indebtedness."
22
CAPITALIZATION
The following table sets forth our capitalization as of June 28, 2003. You
should read the table below in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and the notes to those statements incorporated by reference
into this prospectus.
AS OF
JUNE 28, 2003
-------------
(in millions)
Cash and short-term investments............................. $ 58
Short-term debt............................................. $ 1,531
Long-term debt:
Revolving credit facility................................. $ 765
Other long-term debt, excluding current portion........... 8,586
2008 notes and 2014 notes................................. 500
-------
Total long term debt................................... 9,851
Shareholders' equity:
Common stock.............................................. $ 203
Additional paid-in capital................................ 3,473
Retained earnings......................................... 1,439
Long term incentive plan deferred compensation............ (60)
Accumulated other comprehensive loss...................... (387)
-------
Total shareholders' equity............................. 4,668
-------
Total capitalization................................... $14,519
=======
23
THE EXCHANGE OFFERS
PURPOSE AND EFFECT OF THE EXCHANGE OFFERS
As a condition to the initial sale of the old notes, we, each of the Fort
James Companies and the initial purchasers entered into a registration rights
agreement dated as of June 3, 2003. Pursuant to the registration rights
agreement, we and the Fort James Companies agreed to:
- file a registration statement under the Securities Act with respect to
the new notes with the SEC by September 1, 2003; and
- use our reasonable best efforts to cause the registration statement to
become effective under the Securities Act on or before November 30,
2003.
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 offers.
A copy of the registration rights agreement has been incorporated by reference
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 offers means any person in
whose name old notes are registered on the trustee's books or 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 notes
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 "The Exchange
Offers -- Procedures for Tendering Old Notes." However, if you intend to
participate in a distribution of the new notes, or you are an "affiliate" of us
or either of the Fort James Companies, as defined in Rule 405 of the Securities
Act, you must comply with the registration requirements of the Securities Act
and deliver a prospectus, unless an exemption from registration is otherwise
available to you. You have to represent to us in the letter of transmittal
accompanying this prospectus that you meet the conditions exempting you from the
registration requirements.
We base our view on interpretations by the staff of the SEC in no-action
letters issued to other issuers in exchange offers like ours. However, we have
not asked the SEC to consider these particular exchange offers in the context of
a no-action letter. Therefore, you cannot be sure that the SEC will treat them
in the same way it has treated other exchange offers in the past.
A broker-dealer that has bought old notes for 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. This prospectus may be used by
a broker-dealer to resell any of its new notes. See "Plan of Distribution" for
more information regarding broker-dealers.
The exchange offers are not being made to, nor will we accept surrenders
for exchange from, holders of old notes in any jurisdiction in which these
exchange offers or the acceptance of the exchange offers would not be in
compliance with the securities or blue sky laws of such jurisdiction.
24
TERMS OF THE EXCHANGE OFFERS
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 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 offers
and not validly withdrawn before the expiration date. Holders may tender some or
all of their old notes pursuant to the exchange offers. However, old notes may
be tendered only in principal amounts that are integral multiples of $1,000.
The form and terms of the new notes are the same as the form and terms of
the old notes except that:
- the new notes will be registered under the Securities Act and,
therefore, the new notes will not bear legends restricting the
transfer of the new notes, and
- holders of the new notes will not be entitled to any of the
registration rights of holders of old notes under the registration
rights agreement, which rights will terminate upon the consummation of
the exchange offers, or to the penalty interest provisions of the
registration rights agreement.
The new notes 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 is
applicable to and 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
applicable indenture. The exchange offers do not depend on any minimum aggregate
principal amount of old notes being surrendered for exchange.
As of the date of this prospectus, $350,000,000 aggregate principal amount
of the old 2008 notes is outstanding and $150,000,000 aggregate principal amount
of the old 2014 notes is outstanding, all of which is registered in the name of
Cede & Co., as nominee for DTC. Solely for reasons of administration, we have
fixed the close of business on August 27, 2003 as the record date for the
exchange offers 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 these exchange offers.
As a holder of old notes, you do not have any appraisal or dissenters'
rights or any other right to seek monetary damages in court under the Georgia
Business Corporation Code, as amended, or the applicable indenture governing the
notes. We intend to conduct the exchange offers in accordance with the
provisions of the registration rights agreement, the applicable requirements of
the Exchange Act, and the related rules and regulations of the SEC. Old notes
that are not surrendered for exchange in the exchange offers will remain
outstanding and interest on those notes will continue to accrue.
We will be deemed to have accepted validly surrendered 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 surrender old notes in the exchange offers, 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 offers, other than certain applicable taxes described under
"-- Fees and Expenses."
25
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The "expiration date" means 5:00 p.m., New York City time, on September 30,
2003, unless we extend the exchange offers, in which case the expiration date is
the latest date and time to which we extend the exchange offers.
In order to extend the exchange offers, we will:
- notify the exchange agent of any extension by oral or written
communication;
- issue a press release or other public announcement, which will report
the approximate number of old notes deposited, 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 offers, all old notes previously
surrendered and not withdrawn will remain subject to the exchange offers.
We reserve the right:
- to delay accepting any old notes (in the event that the terms of the
exchange offers are materially altered and the exchange offers are
extended),
- to amend the terms of the exchange offers in any manner,
- to extend the exchange offers, or
- if, in the opinion of our counsel, the consummation of the exchange
offers would violate any law or interpretation of the staff of the
SEC, to terminate or amend the exchange offers 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 offers 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 offers for a period of time that we
will determine, depending upon the significance of the amendment and the manner
of disclosure to the registered holders, if the exchange offers would have
otherwise expired.
We will have no obligation to publish, advertise, or otherwise communicate
any public announcement that we may choose to make, other than by making a
timely release to an appropriate news agency.
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 absolute right to waive any conditions of the
exchange offers, which we, in our reasonable discretion, determine are not
satisfied or any defects or irregularities in the surrender of old notes. All
conditions of the exchange offers will be satisfied or waived prior to the
expiration of the exchange offers. If a waiver constitutes a material change to
the exchange offers, 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 offers for at least five business
days. If we do not accept any surrendered old notes for any reason set forth in
the terms and conditions of the exchange offers 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. We will deliver new
notes to tendering holders of old notes that are accepted for exchange and we
will return any old notes that we do not accept for exchange for any reason to
their tendering holder promptly after expiration or termination of the exchange
offers. See "-- Return of Old Notes."
26
INTEREST ON THE NEW NOTES
The new notes will accrue cash interest on the same terms as the old notes,
i.e., at the rate of 7 3/8% per year for each new 2008 note and at the rate of
8% per year for each new 2014 note, each using a 360-day year consisting of
twelve 30-day months and payable semi-annually in arrears on January 15 and July
15 of each year. Interest payments will be made to holders of record of the new
notes on the immediately preceding January 1 and July 1. Old notes accepted for
exchange will not receive accrued interest at the time of exchange. However,
each new note will bear interest:
- from the later of (1) the last interest payment date on which interest
was paid on the old note surrendered in exchange for the new note or
(2) if the old note is exchanged for the new note on a date after the
record date for an interest payment date to occur on or after the date
of the exchange and as to which that interest will be paid, the date
of that interest payment date, or
- if no interest has been paid on the old note, from June 3, 2003.
PROCEDURES FOR TENDERING OLD NOTES
If you wish to surrender old notes you must:
- complete and sign the letter of transmittal or send a timely
confirmation of a book-entry transfer of old notes to the exchange
agent,
- have the signatures on the letter of transmittal guaranteed if
required by the letter of transmittal, and
- mail or deliver the required documents to the exchange agent at its
address set forth in the letter of transmittal for receipt before the
expiration date.
In addition, either:
- certificates for old notes must be received by the exchange agent
along with the letter of transmittal;
- 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 before the expiration date; or
- you must comply with the procedures described below under
"-- Guaranteed Delivery Procedures."
If you do not withdraw your surrender of old notes before the expiration
date, it will indicate an agreement between you, us and Fort James that you have
agreed to surrender 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 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
nominee effect the above transactions for you.
If you are a beneficial owner of the old notes and you hold those old notes
through a broker, dealer, commercial bank, trust company, or other nominee and
you want to surrender your old notes, you should contact that intermediary
promptly and instruct it to surrender the old notes on your behalf.
27
Generally, an eligible institution must guarantee signatures on a letter of
transmittal unless:
- you tender your old notes as the registered holder, which term
includes 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
- you surrender your old notes for the account of an eligible
institution.
An "eligible institution" is:
- a member firm 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 Exchange Act.
In each instance, the entity must be a member of one of the signature
guarantee programs identified in the 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 in the
letter of transmittal.
Your surrender will be deemed to have been received as of the date when:
- the exchange agent receives a properly completed and signed letter of
transmittal accompanied by the old notes, or a confirmation of
book-entry transfer of the old notes into the exchange agent's account
at DTC with an agent's message, or
- the exchange agent receives a notice of guaranteed delivery from an
eligible institution.
Issuances of new notes in exchange for old notes surrendered 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 surrendered
old notes, or confirmation of a book-entry transfer of the old notes into the
exchange agent's account at DTC pursuant to the book-entry procedures described
below.
We will make the determination regarding all questions relating to the
validity, form, eligibility, including time of receipt, acceptance, and
withdrawal of surrendered 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
surrendered. 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 surrender as to any
particular old note. Our interpretation of the terms and conditions of the
exchange offers, 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 surrenders of old notes within the time we
determine. Although we intend to notify holders of defects or irregularities in
connection with surrenders of old notes, neither we, the exchange agent, nor
anyone else will incur any liability for failure to give that notice. Surrenders
of old notes will not be deemed to have been made until any defects or
irregularities have been cured or waived.
We have no current plan to acquire any old notes that are not surrendered
in the exchange offers or to file a registration statement to permit resales of
any old notes that are not surrendered pursuant to the exchange offers. We
reserve the right in our sole discretion to
28
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 offers.
Pursuant to the letter of transmittal, if you elect to surrender 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 surrendered old notes,
with 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
transactions described in the letter of transmittal.
By executing the letter of transmittal and surrendering old notes in the
exchange offers, you will be representing to us that, among other things,
- you have full power and authority to tender, exchange, assign, and
transfer the old notes surrendered,
- we will acquire good title to the old notes being surrendered, 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,
- you are acquiring the new notes in the ordinary course of your
business,
- you are not engaging in and do not intend to engage in a distribution
of the new notes,
- you have no arrangement or understanding with any person to
participate in the distribution of the new notes,
- you acknowledge and agree that if you are a broker-dealer registered
under the Exchange Act or you are participating in the exchange offers
for the purpose of distributing the new notes, you must comply with
the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale of the new notes,
and that you cannot rely on the position of the SEC's staff set forth
in their no-action letters,
- you understand that a secondary resale transaction described above and
any resales of new notes obtained by you in exchange for old notes
acquired by you directly from us should be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K of the SEC, and
- you are not an "affiliate," as defined in Rule 405 under the
Securities Act, of us or either of the Fort James Companies, or, if
you are an "affiliate," that you will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent
applicable.
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 in
the letter of transmittal that you will deliver a prospectus in connection with
any resale of the new notes. See "Plan of Distribution."
Participation in the exchange offers is voluntary. You are urged to consult
your financial advisors in making your decision on whether to participate in the
exchange offers.
29
RETURN OF OLD NOTES
If any old notes are not accepted for any reason described in this
prospectus, or if old notes are 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 surrendered 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 to an account maintained with DTC as promptly as practicable.
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 offers 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 effectively 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 DTC has received
an express acknowledgment from the participant in DTC tendering the old notes
that the participant has received and agrees to be bound by the terms of the
letter of transmittal, and that we may enforce this agreement against the
participant.
A delivery 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 is transmitted to and received by the exchange agent at its
address set forth in the letter of transmittal for receipt 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 surrender 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
before the expiration date, or (3) the procedure for book-entry transfer cannot
be completed on a timely basis, you may nonetheless participate in the exchange
offers if:
- you surrender your notes through an eligible institution;
- 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 surrendered; the notice of guaranteed delivery must state
that the surrender is being made by the notice of guaranteed delivery
and guaranteeing that, within five 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
- the properly executed letter of transmittal, as well as the
certificate(s) representing all surrendered old notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, and
all other documents required by the letter of transmittal are received
30
by the exchange agent within five New York Stock Exchange trading days
after the expiration date.
Unless old notes are surrendered 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 surrender. The exchange agent will send you a
notice of guaranteed delivery upon your request if you want to surrender your
old notes according to the guaranteed delivery procedures described above.
WITHDRAWALS OF TENDERS OF OLD NOTES
You may withdraw your surrender of old notes at any time before the
expiration date.
To withdraw old notes surrendered in the exchange offers, the exchange
agent must receive a written notice of withdrawal at its address set forth below
before the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn,
- identify the old notes to be withdrawn, including the certificate
number or numbers, if applicable, and principal amount of the old
notes,
- contain a statement that the holder is withdrawing the election to
have the old notes exchanged,
- be signed by the holder in the same manner as the original signature
on the letter of transmittal used to surrender the old notes, and
- 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
surrendered pursuant to the procedure for book-entry transfer, any
notice of withdrawal must specify the name and number of the account
at DTC.
We, in our sole discretion, will make the final determination on all
questions regarding the validity, form, eligibility, and time of receipt of
notices of withdrawal, and our determination will bind all parties. Any old
notes withdrawn will be deemed not to have been validly surrendered for purposes
of the exchange offers and no new notes will be issued in exchange unless the
old notes so withdrawn are validly surrendered again. Properly withdrawn old
notes may be surrendered again by following one of the procedures described
above under "-- Procedures for Tendering Old Notes" at any time 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 surrendered by
book-entry transfer, into an account for your benefit at DTC pursuant to the
book-entry transfer procedures described above, promptly after withdrawal,
rejection of surrender or termination of the exchange offers.
ADDITIONAL OBLIGATIONS
We may be required, under certain circumstances, to file a shelf
registration statement. See "Description of the New Notes -- Registration
Rights; Special Interest." In any event, we are under a continuing obligation,
for a period of up to 180 days after the SEC declares the registration statement
of which this prospectus is a part effective, to keep the registration statement
effective, subject to our ability to suspend the effectiveness of any
registration statement as described in the registration rights agreement.
31
CONDITIONS OF THE EXCHANGE OFFERS
Notwithstanding any other term of the exchange offers, or any extension of
the exchange offers, we do not have to accept for exchange, or exchange new
notes for, any old notes, and we may terminate the exchange offers before
acceptance of the old notes, if:
- any statute, rule, or regulation has been enacted or any action has
been taken by any court or governmental authority that, in our
reasonable judgment, seeks to or would prohibit, restrict, or
otherwise render consummation of the exchange offers illegal; or
- any change, or any development that would cause a change, in our
business or financial affairs has occurred that, in our reasonable
judgment, might materially impair our ability to proceed with the
exchange offers or that would materially impair the contemplated
benefits to us of the exchange offers (these benefits being the
satisfaction of our obligations under the registration rights
agreement to issue and exchange the new notes for the old notes as
described in "-- Purpose and Effect of the Exchange Offers."); or
- a change occurs in the current interpretations by the staff of the SEC
that, in our reasonable judgment, might materially impair our ability
to proceed with the exchange offers.
If we, in our reasonable discretion, determine that any of the above
conditions is not satisfied, we may:
- refuse to accept any old notes and return all surrendered old notes to
the surrendering holders,
- extend the exchange offers and retain all old notes surrendered before
the expiration date, subject to the holders' right to withdraw the
surrender of the old notes, or
- waive any unsatisfied conditions regarding the exchange offers and
accept all properly surrendered old notes that have not been
withdrawn. If this waiver constitutes a material change to the
exchange offers, 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 offers for
at least five business days if the exchange offers would have
otherwise expired. All conditions of the exchange offers will be
satisfied or waived prior to the expiration of the exchange offers.
EXCHANGE AGENT
We have appointed The Bank of New York as the exchange agent for the
exchange offers. 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 address:
The Bank of New York
101 Barclay Street
Reorganization Unit - Floor 7E
New York, New York 10286
Att: Duong Nguyen
Tel: (212) 815-3687
Fax: (212) 298-1915
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
facsimile, telephone, or in person by our
32
officers and regular employees or by officers and employees of our affiliates.
No additional compensation will be paid to any officers and employees who engage
in soliciting tenders.
We have not retained any dealer-manager or other soliciting agent for the
exchange offers and will not make any payments to brokers, dealers, or others
soliciting acceptance of the exchange offers. 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 expenses incurred in connection with the performance of our
obligations in the exchange offers, including registration fees, fees and
expenses of the exchange agent, the transfer agent and registrar, and printing
costs, among others.
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
surrendered 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 surrendered, 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
surrendering 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, the amount of those transfer taxes will be billed 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, they may not
be offered, sold, pledged or otherwise transferred except:
- to us or to any of our subsidiaries,
- inside the United States to a qualified institutional buyer in
compliance with Rule 144A under the Securities Act,
- inside the United States to an institutional accredited investor that,
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, if such transfer is in respect of an
aggregate principal amount of old notes at the time of transfer of
less than $100,000, an opinion of counsel acceptable to us that the
transfer complies with the Securities Act,
- outside the United States in compliance with Rule 904 under the
Securities Act,
- pursuant to the exemption from registration provided by Rule 144 under
the Securities Act, if available, or
- pursuant to an effective registration statement under the Securities
Act.
The liquidity of the old notes could be adversely affected by the exchange
offers. See "Risk Factors -- Risks Related to Our Indebtedness and the
Notes -- An active trading market for the notes may not develop, which could
reduce their value."
ACCOUNTING TREATMENT
For accounting purposes, we will recognize no gain or loss as a result of
the exchange offers. We will amortize the expenses of the exchange offers and
the unamortized expenses related to the issuance of the old notes over the
remaining term of the notes.
33
BUSINESS
We are engaged in four principal business operations: the manufacture of
tissue products (including bath tissue, paper towels, and napkins) and
disposable tabletop products (including disposable cups, plates and cutlery);
the manufacture of containerboard and packaging (including linerboard, medium
and corrugated packaging); the manufacture of bleached pulp and paper (including
paper, market and fluff pulp, kraft and bleached board); and the manufacture and
distribution of building products (including plywood, oriented strand board,
various industrial wood products, and softwood and hardwood lumber as well as
certain non-wood products including gypsum board, chemicals and other products).
Prior to November 2, 2002, we were engaged in the distribution of paper
products, packaging and facility supplies through our paper products
distribution business, Unisource Worldwide, Inc., or Unisource. Effective
November 2, 2002, we sold a 60 percent controlling interest in Unisource to an
affiliate of Bain Capital, LLC.
Prior to October 6, 2001, we were also engaged in the growing of timber on
approximately 4.7 million acres of timberlands that we owned or leased. In 2001,
these timberlands supplied approximately 10% of the overall timber requirements
of our manufacturing facilities. On October 6, 2001 we completed the spin off of
The Timber Company and its merger with and into Plum Creek Timber Company, Inc.,
or Plum Creek.
Among North American producers, we rank first in the production of tissue
paper products, disposable tableware, structural wood panels and industrial wood
panels; second in wood bonding and industrial thermosetting resins; third in
gypsum wallboard; fourth in lumber products, containerboard, corrugated
packaging and market pulp; and fifth in paper (uncoated free-sheet). Our
building products distribution business is the leading supplier of wholesale
building products in the United States. Our chemical business also supplies
paper chemicals and tall oil based chemicals.
Most of our products are made of solid wood, virgin and recycled wood
fiber, or wood by-products. We purchase the majority of these readily available
raw materials from timber owners, independent log merchants and brokers, and
recycled fiber brokers.
Our strategy is to improve our portfolio of businesses by divesting or
exiting non-strategic businesses, and by acquiring and investing in businesses
that are high value-added and that position us closer to consumers. A key
component of that strategy is improving our bath tissue, paper towel and napkin
business, which is commonly referred to as the tissue business. We believe that
our acquisition of Fort James Corporation in 2000 directly facilitated that
strategy. In 2001, in connection with our redirection of our focus away from
commodity-based businesses, we sold a portion of our pulp and paper assets to
Domtar Inc., and divested our timber businesses by redeeming all of the
outstanding shares of stock of The Timber Company and merging our timber
businesses with Plum Creek.
In May 2002, our board of directors approved separating our consumer
products, packaging and bleached pulp and paper businesses (along with its
remaining interest in the Unisource paper distribution business) from our
building products manufacturing and distribution business. After this
separation, Georgia-Pacific would have consisted of only the building products
manufacturing and distribution business. In September 2002, this separation was
indefinitely suspended in light of conditions in the financial and capital
markets, operating results in our principal businesses, and the market's
perception of our asbestos liabilities.
Our four principal businesses are broken down into six operating segments:
North America consumer products, international consumer products, packaging,
bleached pulp and paper, building products manufacturing and building products
distribution.
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CONSUMER PRODUCTS
We are the largest North American producer of tissue products; a leading
manufacturer of tissue products in Europe; and through our Dixie business, the
largest producer of disposable tableware in North America. The consumer products
include a wide array of branded and private label consumer and commercial tissue
products. These include bath tissue, paper towels and napkins, which are made
from virgin and recycled fibers, as well as disposable plates, cups and cutlery.
Primary production of these products takes place in 26 tissue mills throughout
Europe and the United States and 12 disposable tableware plants in North
America. Worldwide tissue capacity is approximately 3.9 million tons, making
this business one of the world's largest producers of tissue products. Markets
for tissue products are generally influenced by population growth, changes in
per capita consumption, and levels of economic activity in a geographic market.
The consumer products business operates as two segments: North America
consumer products and international consumer products.
NORTH AMERICA CONSUMER PRODUCTS SEGMENT
With a 31% volume market share, we are the largest producer of tissue
products in North America. The business produces bath tissue, paper towels and
napkins made from virgin and recycled fibers, in both branded and private label
tissue products, for the retail and commercial markets. According to industry
statistics, our North American retail and commercial manufacturing cash cost
position is the lowest among its leading industry competitors. Fourteen
production and converting facilities located throughout the United States and
two converting facilities in Mexico produce finished goods to serve the North
American market. In 2002, North American sales accounted for approximately
$5,455 million, or 77% our worldwide consumer products sales.
RETAIL TISSUE. In the retail (or "at-home") channel, which accounted for
approximately 68% of domestic tissue sales in 2002, we produce both branded and
private label products. The rankings of our principal retail brands, based on
unit share, include Quilted Northern and Angel Soft bath tissue (the number two
and three bathroom tissue brands, respectively), Sparkle and Brawny paper towels
(the number three and four paper towel brands, respectively), and five of the
seven leading napkin brands including Mardi Gras napkins (the leading paper
napkin brand) and Vanity Fair premium dinner napkins (the number one premium
napkin brand). Other retail brands include Sparkle and Brawny paper napkins, and
Soft'N Gentle bathroom and facial tissue, MD bath tissue, Mardi Gras towels, Zee
napkins (number one on the West Coast), and Green Forest towels and napkins.
We also supply private label or customer brand products to some of the
largest retailers in the United States. We believe that we are the leading
supplier to the United States private label towel and tissue market, with a
market share of approximately 44%.
We believe we are the leading supplier of tissue, towel and napkin products
to the warehouse club, the fastest growing channel in the consumer products
industry. Additionally, we have well-established relationships with the leaders
in the rapidly expanding mass merchandise channel, as well as long-term
relationships with major retailers in the grocery channel. We believe our
position in expanding retail channels provides superior growth prospects
compared to the overall market.
COMMERCIAL TISSUE. In 2002, the remaining 32% of domestic tissue sales came
from commercial and industrial (or "away-from-home") markets. These sales were
made through independent paper distributors, food service and janitorial
distributors, and directly to national fast food accounts for use in
restaurants, offices, factories, hospitals, schools and hotels and through our
office product distribution business (Unisource), wholly-owned until November,
35
2002, when a controlling interest was sold. Our principal away-from-home brands
include proprietary dispensing systems for the Cormatic, Ultimatic and Guardian
brands; and Envision, the leading brand of environmentally positioned 100%
recycled tissue, towel and napkin products.
According to the American Forest & Paper Association, in 2001, we sold more
tissue products in the commercial channel than any other company in North
America and based on volume have a 40% share. With a 48% share in the food
service industry and a 43% share in the health care industry, we believe we have
the largest market share in the fastest growing end-use markets for commercial
tissue products.
We are the market leader in proprietary dispensers and also have leading
market positions in the paper distribution, janitorial supply and manufacturing
end-use markets. The commercial tissue market benefits from attractive long-term
fundamentals, including unit volume growth due to increased dining and
entertaining outside of the home.
DIXIE. The Dixie business, with one of the best-known names in disposable
plates, cups and cutlery, has the number one market share in the $12 billion
North American disposable tableware market. Our principal retail tabletop brand,
Dixie, is virtually synonymous with the paper cup it created over 80 years ago.
Through a twelve-plant network of focused production facilities in North
America, Dixie manufactures a full range of products for both retail and
foodservice markets.
We believe that we are the leading supplier of tabletop products to the
warehouse club channel. We believe that we are one of the largest producers of
disposable cups, plates and related products for the foodservice industry.
Foodservice customers include distributors, restaurants, hotels, office
buildings and institutions, many of the same customers to which we sell our
North American tissue. Approximately 57% of sales are into retail distribution
channels and the remaining 43% are into foodservice distribution channels. In
2002, Dixie's net sales were approximately $907 million.
INTERNATIONAL CONSUMER PRODUCTS SEGMENT
The international consumer products segment is a leading supplier of
paper-based consumer products in many European countries. Product lines in both
the retail and away-from-home markets include bathroom and facial tissue, paper
towels and napkins. Retail sales include both branded and private label
products. We also market feminine hygiene products and pharmacy supplies in
select countries. These products are manufactured across Europe in 11 mills with
an annual capacity of over 906,000 tons, or are purchased from others. Eleven
stand-alone converting plants strategically located throughout Europe and China
supplement converting operations located at the primary production mills. The
combined network provides cost-effective market reach given the high European
distribution costs and the resulting decrease in the maximum practical
distribution radius from any one-mill site. In 2002, net sales for the
International business accounted for approximately $1,663 million, or 23% of our
worldwide consumer products sales.
During 2002, tissue-based products accounted for approximately 87% of our
annual International Consumer Products sales with the balance comprised of
feminine hygiene products, ancillary products such as health care and pharmacy
items, and unconverted tissue parent rolls. We sell our tissue, towel and napkin
products through both retail and away-from-home distribution channels in Europe.
Approximately 76% of our European towel and tissue sales were into retail
distribution channels and 21% were into away-from-home and other channels. Sales
into retail channels are supported by both branded and private label product
offerings.
Our principal European brands include Lotus bathroom tissue and
handkerchiefs (both hold the number one position in France), Moltonel bathroom
tissue (the number two tissue in France), Lotus kitchen towels (the number one
kitchen towel in the Netherlands), O'Kay kitchen
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towels (the number one kitchen towel in France), Colhogar kitchen towels and
bathroom tissue the number one kitchen towel and number two bathroom tissue
positions), KittenSoft towels and bathroom tissue (both hold number one
positions in Ireland), EMBO bathroom tissue (the number one tissue in Finland),
Tenderly bathroom tissue (the number two tissue in Italy), Delica kitchen
towels, napkins and bathroom tissue (the number one towel and napkins and number
two bath tissue in Greece), Vania feminine hygiene products (one of the leaders
in France), Selpak premium tissue products (the leader in Turkey) and Demak'Up
cotton facial pads (the leader in Europe).
Our largest European operations are in France and the United Kingdom, which
combined account for approximately 69% of its European tissue sales. Aggregating
at-home branded, private label and away-from-home production, we believe we are
the largest producer of tissue products in France, Finland, Turkey and the
United Kingdom and the second largest producer in Greece.
PACKAGING
The packaging segment focuses on providing packaging solutions for a wide
variety of industrial customers. Its primary products include corrugated
containers and containerboard. Our four containerboard mills rank fourth in
North American containerboard production with a capacity of 3.8 million tons,
approximately 10% of North American capacity. The containerboard mills produce
unbleached linerboard and medium, in roll form, that is shipped to converting
facilities. One of the largest domestic producers of containerboard, the
packaging segment is the third largest supplier of containerboard to independent
converters in the United States.
We have three principal types of converting facilities: corrugated box
plants, which fabricate corrugated sheets from containerboard and print, cut,
fold and join them to create finished boxes; sheet feeders, which also fabricate
corrugated sheets and then deliver them to other converters who complete the
finished box; and graphic packaging facilities, which fabricate corrugated
sheets and utilize graphic capabilities and design techniques to meet
specialized customer requirements. The segment's 53 converting plants consume
approximately 70% of the segment's containerboard production; the remainder is
sold to independent box converters in the United States, Latin America and Asia.
Georgia-Pacific is the fourth largest supplier of corrugated containers in the
United States.
In addition to standard corrugated containers, the segment's packaging
plants supply many specialty-packaging products. These include display-ready
corrugated packaging that works interchangeably with the Corporation's line of
reusable plastic containers, double and triple-wall boxes, bulk bins,
water-resistant packaging, and high-finish and preprinted packaging for point-
of-sale displays. Our Color-Box subsidiary produces high quality litho-laminated
packaging at nine specialty printing, coating and converting facilities. It is
the largest litho-laminate corrugated manufacturer in North America.
Markets for containerboard and packaging products are affected primarily by
changes in industry capacity, the level of industrial activity in the United
States, and export markets. Containerboard exports totaled 248,000 tons during
2002 compared to 2001's level of 266,000 tons. In 2002, exports for the
packaging segment were $112 million, approximately 4% of segment net sales.
BLEACHED PULP AND PAPER
The bleached pulp and paper segment produces market pulp, paper and other
products at nine facilities in North America. Combined production capacity for
pulp and paper is 3.7 million tons. The bleached pulp and paper segment's mills
are among the industry's lowest cost producers. Exports from this business
segment consist chiefly of market pulp bound for Asia, Europe, and Latin
America. In 2002, exports for the bleached pulp and paper segment were
37
$432 million, approximately 17% of segment sales. Markets for pulp and paper
products are affected primarily by changes in industry capacity, the level of
economic growth in the United States and export markets, and fluctuations in
currency exchange rates.
PAPER. We are the fifth largest North American producer of uncoated
free-sheet paper. Uncoated free-sheet paper is used in office copy machines and
printers, commercial printing, business forms, stationery, tablets, books,
envelopes, labels and checks. The bleached pulp and paper segment's four
uncoated free-sheet paper mills have a combined annual capacity of 1.2 million
tons, approximately 7% of North American capacity. These products are sold
through paper distributors, office product distributors, printing equipment
manufacturers, retailers and converters. Products are sold under a variety of
brand names including: Spectrum, Eureka and GeoCycle.
MARKET PULP. We rank eighth in the production of market pulp worldwide. The
bleached pulp and paper segment includes three pulp mills with a combined annual
capacity of nearly 1.6 million tons, approximately 19% of United States
capacity. These mills produce primarily Southern softwood and Northern hardwood
pulps sold to industrial users for the manufacture of many paper grades.
Our Brunswick facility is the largest fluff pulp production facility in the
world. It contributes approximately 826,000 tons annually to make us the second
largest producer of fluff pulp in the world. Fluff pulp is used primarily in the
manufacture of disposable diapers and other sanitary items.
BLEACHED BOARD. The bleached pulp and paper segment manufactures
approximately 500,000 tons of bleached paper board annually for use in frozen
food containers, food service items and other products. The combined bleached
board capacities at Naheola, Alabama and Crossett, Arkansas us the fourth
largest bleached board producer in North America.
PAPER DISTRIBUTION
In November 2002, we completed the sale of a 60% controlling interest in
Unisource, our paper distribution business, to an affiliate of Bain Capital,
LLC. Beginning in November 2002, the profits from the remaining 40% equity
investment in Unisource were included in the bleached pulp and paper segment.
BUILDING PRODUCTS MANUFACTURING
Building Products Manufacturing is one of the leading manufacturers of
building products in the United States. The segment manufactures wood panels
(including plywood, oriented strand board, or OSB, and industrial panels),
lumber, gypsum products, chemicals and other products. These products are
manufactured at 131 facilities in the United States, 7 plants in Canada, 2
plants in South America, and a joint venture in South Africa. These products are
sold directly to industrial customers, independent dealers and wholesalers, and
large building product retailers or through our building products distribution
business.
The building products business is affected by the level of housing starts;
the level of home repairs, remodeling and additions; commercial building
activity; the availability and cost of financing; and changes in industry
capacity. The demand for building products tends to be stronger during the
second and third quarters when weather conditions favor construction. Exports
for the building products manufacturing segment in 2002 were $113 million
(approximately 2% of segment sales), primarily to the Caribbean and Europe.
Building products manufacturing is organized into five divisions:
STRUCTURAL PANELS. Based on panel production capacity of 8.7 billion square
feet, we are the largest producer of structural wood panels in North America. We
account for about 19% of North
38
American panel capacity. The division's 20 softwood plywood plants produce
approximately 32% of North American capacity and, its six OSB plants can produce
2.2 billion square feet or 9% of annual North American capacity. With most of
these plants located in the Southeast, the business benefits from an ample
supply of timber, favorable weather conditions, regional population growth,
national economic growth and other factors.
Two facilities manufacture engineered lumber products. Demand for the
building products segment's engineered lumber products has increased in recent
years as wood I-joists (made from veneer, OSB and sawn lumber) have increasingly
become the product of choice for floor joist applications. Laminated veneer
lumber, or LVL, and wood I-joists are designed to meet the precise structural
performance requirements of roofing and flooring systems. The segment produces
both LVL and I-joists.
INDUSTRIAL WOOD PRODUCTS. The building products manufacturing segment is
the largest producer of industrial wood panels and the fourth largest producer
of hardwood plywood in North America. The division's particleboard plants
produce more than 1.4 billion square feet of panels annually, which is
approximately 17% of U.S. and Canadian capacity. We believe we are the largest
producer of particleboard flooring and currently supplies more than 35% of the
flooring substrate for the manufactured housing market. Seventeen mills
manufacture composite panels of particleboard, MDF, hardboard and softboard, as
well as hardwood plywood, interior decorative panels and thermally fused
melamine panels. Applications include furniture, cabinets, housing, retail
fixtures, and other industrial products.
LUMBER. As the fourth largest lumber producer in North America, we have the
capacity to manufacture about 2.5 billion board feet annually or approximately
4% of North American lumber production. Most of our 33 lumber mills are located
in the Southern United States. Lumber products are manufactured from Southern
pine, a variety of Appalachian and Southern hardwoods, cedar, spruce, hemlock
and Douglas fir. During fourth quarter of 2002, we closed our western softwood
mill in Ft. Bragg, California. This mill was responsible for one-third of our
western softwood production capacity.
Our building products business ranks as one of the top producers of
pressure-treated lumber in the nation. Approximately 36% of its southern pine
lumber production is pressure-treated to protect it for use in outdoor
applications such as decks, fences, bridges and playground equipment. We own six
pressure-treated lumber plants, two of which are idle. Southeast Wood Treating,
Inc. operates the other four treating facilities as well as seven additional
plants it owns. With production from 11 facilities, the business can sell more
than one billion board feet of lumber annually.
GYPSUM PRODUCTS. We operate 18 gypsum board plants throughout the United
States and Canada and, with an annual capacity of 6.5 billion square feet, have
the third largest gypsum wallboard capacity in North America. Gypsum products
include wallboard, DensGuard specialty panels, fire-door cores, industrial
plaster and joint compound. The business is substantially vertically integrated
in paper and gypsum rock, operating three recycled gypsum paperboard mills and
ten gypsum quarries/mines. Gypsum reserves are approximately 301 million
recoverable tons, an estimated 64-year supply at current production rates.
We are the only producer of fiberglass-faced and backed gypsum sheathing
and decking products in the United States. Additionally, we are one of only two
mineral fire door core producers in the U.S., as well as a major producer of
mineral fire stop door components. We produce almost 50% of the value-added
industrial plaster in the United States.
In March 2002, the Delair, New Jersey gypsum paperboard plant with an
annual capacity of 60 thousand tons was sold. Delair represented 19% of our
gypsum paper capacity. In June 2002, the 65 thousand ton Sigurd, Utah plaster
plant was closed.
39
CHEMICALS. Our chemical business is a leading supplier of wood bonding
resins, industrial thermosetting resins, formaldehyde, paper chemicals, and tall
oil based chemicals. These chemicals and resins are used in a variety of
specialty applications, including production of wood panels, papermaking,
roofing, thermal insulation, metalworking, coatings, fertilizers, and
transportation. The business ships more than four billion pounds of bonding and
thermosetting resins, formaldehyde, pine chemicals, and paper chemicals annually
from 17 United States and 2 South American plants. The business also operates
through a joint venture in South Africa with Chemical Services, Ltd. During
2002, we closed our Houston, Texas and Rock Hill, South Carolina plants. These
two plants had a capacity of 214 million pounds, 8% of our annual formaldehyde
production.
BUILDING PRODUCTS DISTRIBUTION
The building products distribution business is the leading domestic
wholesaler of building products. It sells building products to independent
dealers, industrial customers and large home improvement centers from two sales
centers in North America and distributes product from 63 warehouse locations
throughout the United States and one in Canada. The building products
distribution business provides a nationwide outlet for a significant portion of
our lumber and structural panel products. Approximately 71% of the business'
sales are building products purchased from third parties. Our building products
distribution business believes that its geographic coverage and product breadth
are unmatched in North America.
TIMBER RESOURCES
The principal raw material used by us is timber and wood fiber. During
2002, Plum Creek supplied 10% of the overall timber requirements of our
facilities. We purchase our remaining timber requirements from third-party
landowners in the open market. No single supplier, other than Plum Creek,
supplied more than 10% of our timber requirements.
Effective on the merger date of October 6, 2001, Georgia-Pacific and Plum
Creek entered into a timber supply agreement that is effective for 10 years and
subject to an automatic ten-year renewal period, unless either party delivers a
timely termination notice. This agreement covers four key southern timber
basins: Southeast Arkansas, Mississippi, Florida and Southeast Georgia. Under
the agreement, Plum Creek must offer to us specified percentages of its annual
harvest, subject to absolute minimum and maximum limitations in each basin. We
can elect between 36%-51% of such annual harvest each year in Mississippi,
Florida and Southeast Georgia, and between 52%-65% in Southeast Arkansas. The
total annual softwood volume will range from a minimum of 2.7 million tons to a
maximum of 4.2 million tons. The prices for such timber will be negotiated at
arm's length between Plum Creek and us every six months.
PATENTS, COPYRIGHTS, LICENSES, TRADE SECRETS AND TRADEMARKS
We are the owner of numerous patents, copyrights, trademarks, licenses and
trade secrets, as well as substantial know-how and technology (herein
collectively referred to as "technology") relating to our products and the
processes for their production, the packages used for our products, the design
and operation of various processes and equipment used in our business and
certain quality assurance and financial software. The manufacturing and
processing of many of our products are among our important trade secrets.
We also own numerous trademarks, which are very important to our business,
especially our consumer products business. Depending on the jurisdiction,
trademarks are valid as long as they are in use and/or their registrations are
properly maintained and they have not become generic. Registrations of
trademarks can generally be renewed indefinitely as long as the trademarks are
in use. We have registered and licensed the right to use our trademarks in
40
conjunction with certain merchandise other than products we manufacture. In
part, our success can be attributed to the existence of our trademarks.
COMPETITION
Our competitors in the tissue and disposable tabletop products, packaging,
and bleached pulp and paper businesses are large domestic and international
diversified consumer products and paper companies, including Procter & Gamble,
Kimberly-Clark and Svenska Cellulosa Aktiebolaget SCA, manufacturers of private
label and generic products, and national and regional packaging companies, such
as Smurfit-Stone Container Corporation, International Paper Company and
Weyerhaeuser Company. Some of our local competitors in the tissue and disposable
tabletop products, packaging, and bleached pulp and paper businesses in
international markets are less susceptible to changes in currency exchange rates
than we are and also benefit from government subsidies. We compete in the tissue
and disposable tabletop products, packaging, and bleached pulp and paper
businesses primarily on the basis of product quality and performance, brand
recognition, brand loyalty, customer service, marketing, advertising, price,
product development and distribution efficiencies. We incur substantial
advertising, marketing and promotional costs in order to maintain or improve our
brands' market positions or introduce new products.
Our competitors in the building products business are other large national
and smaller regional building products manufacturers, including Weyerhaeuser
Company, Louisiana-Pacific Corporation and USG (United States Gypsum)
Corporation. We compete in the building products business on the basis of
product quality, customer service, price, logistics, product innovation and
product mix.
See "Risk Factors -- Risks Relating to Our Business -- We face intense
competition in each of our businesses. If we cannot successfully compete in the
marketplace, our business, financial condition and operating results may be
materially adversely affected and our ability to satisfy our obligations under
the notes may be impaired."
EMPLOYEES
At June 28, 2003, we employed approximately 61,000 employees, of whom
approximately 7,000 were in Europe and approximately 1,600 were in Canada and
Mexico. Approximately 24,600 of our employees work for our tissue and disposable
tabletop products business, 9,400 work for our packaging business, 4,400 work
for our bleached pulp and paper business, 21,000 work in building products and
1,600 are responsible for corporate administration. Our future performance
depends, in significant part, upon our ability to attract new personnel and
retain existing personnel in key areas, including marketing, engineering,
technical support and sales. Competition for personnel is intense, and we cannot
be sure that we will be successful in attracting or retaining personnel in the
future.
Approximately 43% of our United States employees are represented by labor
unions pursuant to 211 collective bargaining agreements. Excluding union
contracts relating to Unisource, 40 union contracts are subject to negotiation
and renewal in fiscal 2003, including 11 at large facilities. During the first
six months of 2003, 15 of these contracts were renewed. In the past five years,
we have experienced three domestic work stoppages at our Fort Dodge, Iowa gypsum
facility (affecting 56 employees for two months), our Parchment, Michigan Dixie
facility (affecting 200 employees for six weeks) and our Akron, Ohio box plant
facility (affecting 14 employees for one day). During this same period, we also
experienced 18 work stoppages in our foreign business, affecting an average of
152 employees for an average of less than five days per work stoppage. We
consider our relationships with our employees and their representative
organizations to be good.
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LEGAL PROCEEDINGS
We are a party to various legal proceedings incidental to our business and
are subject to a variety of environmental and pollution control laws and
regulations in all jurisdictions in which we operate. As is the case with other
companies in similar industries, we face exposure from actual or potential
claims and legal proceedings involving environmental matters. Liability
insurance in effect during the last several years provides only very limited
coverage for environmental matters.
We are involved in environmental remediation activities at approximately
172 sites, both owned by us and owned by others, where we have been notified
that we are or may be a potentially responsible party, or a PRP, under the
United States Comprehensive Environmental Response, Compensation and Liability
Act, or CERCLA, or similar state "superfund" laws. Of the known sites in which
we are involved, we estimate that approximately 39% are being investigated,
approximately 20% are being remediated and approximately 41% are being monitored
(an activity that occurs after either site investigation or remediation has been
completed). The ultimate costs to us for the investigation, remediation and
monitoring of many of these sites cannot be predicted with certainty, due to the
often unknown nature and magnitude of the pollution or the necessary cleanup,
the varying costs of alternative cleanup methods, the amount of time necessary
to accomplish such cleanups, the evolving nature of cleanup technologies and
governmental regulations, and the inability to determine our share of multiparty
cleanups or the extent to which contribution will be available from other
parties, all of which factors are taken into account to the extent possible in
estimating our liabilities. We have established reserves for environmental
remediation costs for these sites that we believe are probable and reasonably
able to be estimated. To the extent that we are aware of unasserted claims,
consider them probable and can estimate their potential costs, we include
appropriate amounts in the reserves.
Based on analyses of currently available information and previous
experience with respect to the cleanup of hazardous substances, we believe it is
reasonably possible that costs associated with these sites may exceed current
reserves by amounts that may prove insignificant or that could range, in the
aggregate, up to approximately $126 million. This estimate of the range of
reasonably possible additional costs is less certain than the estimates upon
which reserves are based, and in order to establish the upper limit of such
range, assumptions least favorable to us among the range of reasonably possible
outcomes were used. In estimating both our current reserve for environmental
remediation and the possible range of additional costs, we have not assumed we
will bear the entire cost of remediation of every site to the exclusion of other
known PRPs who may be jointly and severally liable. The ability of other PRPs to
participate has been taken into account, based generally on their financial
condition and probable contribution on a per-site basis.
42
Presented below is the activity in our environmental liability account for
the last three fiscal years and the first six months of each of 2003 and 2002.
FIRST
SIX MONTHS FISCAL YEAR
----------- ------------------
2003 2002 2002 2001 2000
---- ---- ---- ---- ----
(in millions)
BEGINNING BALANCE...................................... $306 $318 $318 $121 $ 57
EXPENSE CHARGED TO EARNINGS:
Related to previously existing matters............... -- 12 14 2 29
Related to new matters............................... -- -- -- 15 2
AMOUNTS RELATED TO ACQUISITIONS/(DIVESTITURES):
Amounts assumed by others in divestitures............ -- -- -- -- --
Original purchase price allocations.................. -- -- -- -- 49
Changes in allocation of purchase price.............. -- -- -- 207 --
RECLASSIFICATION OF RESERVES........................... (3) -- -- -- --
PAYMENTS............................................... (6) (9) (26) (27) (16)
---- ---- ---- ---- ----
ENDING BALANCE......................................... $297 $321 $306 $318 $121
==== ==== ==== ==== ====
Expense charged to earnings in the above table includes amounts accrued for
new matters and changes in existing estimates. Payments represent amounts paid
in full or partial settlement or for environmental studies and similar costs.
KALAMAZOO RIVER SUPERFUND SITE
We are currently implementing an Administrative Order by Consent ("AOC")
entered into with the Michigan Department of Natural Resources and the United
States Environmental Protection Agency ("United States EPA") regarding an
investigation of the Kalamazoo River Superfund site. The Kalamazoo River
Superfund site is comprised of 35 miles of the Kalamazoo River, three miles of
Portage Creek and a number of operable units in the form of landfills, waste
disposal areas and impoundments. We became a PRP for the site in December 1990
by signing the AOC. There are two other named PRPs at this time. The contaminant
of concern is polychlorinated biphenyls ("PCBs") in the river sediments and
residuals in the landfills and waste disposal areas.
A draft Remedial Investigation/Feasibility Study ("RI/FS") for the
Kalamazoo River was submitted to the State of Michigan on October 30, 2000 by us
and other PRPs. The draft RI/FS evaluated five remedial options ranging from no
action to total dredging of the river and off-site disposal of the dredged
materials. In February 2001, the PRPs, at the request of the State of Michigan,
also evaluated nine additional potential remedies. The cost for these remedial
options ranges from $0 to $2.5 billion. The draft RI/FS recommends a remedy
involving stabilization of over 20 miles of riverbank and long-term monitoring
of the riverbed. The total cost for this remedy is approximately $73 million. It
is unknown over what time frame these costs will be paid out. The United States
EPA has recently taken over management of the RI/FS and is evaluating the
proposed remedy. We cannot predict what impact or change will result from the
United States EPA's assuming management of the site.
We are paying 50% of the costs for the river portion of the RI/FS
investigation based on an interim allocation. This 50% interim allocation
includes the share assumed by Fort James prior to its acquisition by us. Several
other companies have been identified by government agencies as PRPs, and all but
one is believed to be financially viable. We are currently engaged in cost
recovery litigation against two other parties, and have identified several more
parties that we believe have some share of liability for the river.
As part of implementing the AOC, we have investigated the closure of two
disposal areas which are contaminated with PCBs. The cost to remediate one of
the disposal areas, the King
43
Highway Landfill, was approximately $9 million. The remediation of that area is
essentially complete and we are waiting for final approval of the closure from
the State of Michigan. A 30-year post-closure care period will begin upon
receipt of closure approval. Expenditures accrued for post-closure care will be
made over the following 30 years. We are solely responsible for closure and
post-closure care of the King Highway Landfill.
It is anticipated that the cost for closure of the second disposal area,
the Willow Boulevard/A Site landfill, will be approximately $8 million. We are
still negotiating the final closure agreement with the State of Michigan. It is
anticipated these costs will be paid out over the next five years, and for
post-closure care for 30 years following certification of the closure. We are
solely responsible for closure and post-closure care of the Willow Boulevard
portion of the landfill, and are sharing investigation costs for the A Site
portion of the landfill with Millennium Holdings on an equal basis. A final
determination as to how closure and post-closure costs for the A Site will be
allocated between us and Millennium Holdings has not been made, however, our
share should not exceed 50%.
We have spent approximately $32.3 million on the Kalamazoo River Superfund
site through June 28, 2003 broken down as follows:
SITE (IN MILLIONS)
---- -------------
River....................................................... $18.3
King Highway................................................ 9.2
A Site...................................................... 1.7
Willow Blvd................................................. 3.1
-----
$32.3
=====
All of these amounts were charged to earnings.
The reserve for the Kalamazoo River Superfund site is based on the
assumption that the bank stabilization remedy will be selected as the final
remedy by the United States EPA and the State of Michigan, and that the costs of
the remedy will be shared by several other PRPs. Based on analyses of currently
available information and previous experience with respect to the cleanup of
hazardous substances, we believe that the reserves are adequate; however, it is
reasonably possible that costs associated with the Kalamazoo River Superfund
site may exceed current reserves by amounts that may prove insignificant or that
could range, in the aggregate, up to approximately $70 million.
FOX RIVER SUPERFUND SITE
The Fox River site in Wisconsin is comprised of 39 miles of the Fox River
and Green Bay. The site was nominated by the United States EPA (but never
finally designated) as a Superfund Site due to contamination of the river by
PCBs through wastewater discharged from the recycling of carbonless copy paper
from 1953-1971. We became a PRP through our acquisition of Fort James.
In October 2001, the Wisconsin Department of Natural Resources ("WDNR") and
the United States EPA released for public comment a draft RI/FS and proposed
remedial action plan ("PRAP") for the Fox River and Green Bay. The draft sets
forth a proposed remedy with an estimated total cost of $308 million. We
provided comments on this plan to the relevant agencies in January 2002. Those
comments questioned the WDNR's assumed costs for dredging, as information from
other remediation dredging projects indicated costs per cubic yard of material
dredged were significantly higher than those used by WDNR. We, along with other
PRPs, also questioned the need to dredge the amount of sediment called for by
the proposed remedy. We believe that other alternatives involving substantially
less dredging would meet the risk reduction goals of WDNR.
44
In late July of 2003, WDNR issued a Record of Decision ("ROD") setting
forth a cleanup plan for the lower portions of the Fox River, including the area
into which the Fort James mill discharged wastewater. The ROD now estimates the
total cost of the cleanup at approximately $400 million. We are analyzing the
ROD to understand its critical assumptions, including among others the volume of
sediment to be dredged, the assumed cost of such dredging, the methods of
disposing of the dredged wastes, and the possible use of remedies other than
dredging. In addition, our share of the total cleanup cost has not been
determined. Until these and other factors are known, we continue to believe our
reserves for the cleanup are adequate, but depending on the resolution of such
factors it is reasonably possible that our share of the total cleanup cost may
not utilize our entire reserves, or it may exceed our reserves by amounts that
could range from insignificant up to approximately $20 million.
Six other companies have been identified by the governments as PRPs, most
of which are believed to be financially viable. Under an interim allocation, we
are paying 30 percent of costs incurred by the PRPs in analyzing and responding
to the various agency reports, including the RI/FS and PRAP. We believe our
ultimate liability will be less than 30 percent. It is unknown over what time
frame these costs will be paid out.
We have spent approximately $33.6 million from 1995 to June 28, 2003 on the
Fox River site, some of which was spent by Fort James prior to its acquisition
by us.
We have entered into an agreement with the WDNR and the United States Fish
and Wildlife Service ("FWS") that would settle claims for natural resource
damages under CERCLA, the Federal Water Pollution Control Act, and state law for
approximately $12.5 million, and to date have paid approximately $8.7 million of
this amount. The agreement will be effective when entered by a Federal District
Court in Wisconsin. The United States Department of Justice moved in March of
2003 for the agreement to be entered by the Federal District Court. The $12.5
million to be paid under this agreement is separate and apart from any costs
related to remediation of the Fox River site.
In 1999, we and Chesapeake Corporation formed a joint venture to which a
Chesapeake subsidiary, Wisconsin Tissue Mills, Inc., contributed tissue mills
and other assets located along the Fox River. Wisconsin Tissue is one of the
PRPs for the Fox River site. Chesapeake and Wisconsin Tissue specifically
retained all liabilities arising from Wisconsin Tissue's status as a PRP, and
indemnified the joint venture and us against these liabilities. In 2001, we
(having acquired all of Chesapeake's interest) sold this joint venture to
Svenska Cellulosa Aktiebolaget (publ) ("SCA") and indemnified SCA and the joint
venture against all environmental liabilities (including all liabilities arising
from the Fox River site for which Wisconsin Tissue is ultimately responsible)
arising prior to the closing of the SCA sale. As part of the agreement pursuant
to which we acquired Chesapeake's interest in the joint venture, Chesapeake
specifically agreed that we would retain Chesapeake's prior indemnification for
these liabilities.
WHATCOM WATERWAY SUPERFUND SITE
The Whatcom Waterway is a Federal channel located adjacent to our pulp and
paper mill in Bellingham, Washington. The State declared the Whatcom Waterway a
Superfund site due to historical contamination of sediments with woody debris,
phenolics and mercury. On March 6, 1995, the Washington Department of Ecology
named us as a Potentially Liable Party ("PLP") in the case. The State is
presently preparing to name other PLPs in the case.
We completed an RI/FS and identified a preferred remedial alternative
comprised of a combination of dredging, capping and habitat restoration with a
total estimated cost of $23 million. It is anticipated these costs will be paid
out over the next five to ten years. We have completed interim remedial action
and habitat restoration of a portion of the site. Environmental monitoring of
this portion of the site is ongoing. The reserve for the Whatcom Waterway site
is based on the assumptions that the $23 million proposed remedy involving
limited dredging and
45
capping will be selected by the State of Washington as the final remedy and that
the cost of the remedy will be shared among a small group of PLPs.
We have spent approximately $3.4 million through June 28, 2003 on the
Whatcom Waterway site, all of which was charged to earnings.
See "Risk Factors -- Risk Factors Relating to Environmental Regulation and
Asbestos Liability -- We incur substantial costs related to compliance with
current and future environmental laws and regulations and to address
environmental liabilities for which we are held responsible, each of which could
materially adversely affect our business, cash flow and liquidity."
OTHER
We are in discussion with the State of Mississippi (Department of
Environmental Quality) concerning alleged Prevention of Significant
Deterioration (PSD) violations under the Clean Air Act. We believe we have
strong arguments that we did not violate PSD but a penalty may be assessed in
excess of $100,000. We are unable at this time to be more specific in the amount
of the penalty but the final amount will not result in a material impact to us.
ASBESTOS LITIGATION
We and many other companies are defendants in suits brought in various
courts around the nation by plaintiffs who allege that they have suffered
personal injury as a result of exposure to asbestos-containing products. Our
asbestos liabilities relate primarily to joint systems products manufactured by
Bestwall Gypsum Company and our gypsum business that contained small amounts of
asbestos fiber. We acquired Bestwall in 1965, and discontinued using asbestos in
the manufacture of these products in 1977.
These suits allege a variety of lung and other diseases based on alleged
exposure to our products. In many cases, the plaintiffs are unable to
demonstrate that they have suffered any compensable loss as a result of their
exposure, or that any injuries they have incurred did in fact result from
exposure to our products. Virtually all asbestos suits involve multiple
defendants and seek money damages. We are unable to provide any meaningful
disclosure about the total amount of these damages, for the following reasons:
First, we do not track this data in any form since we do not consider the amount
of damages, if any, alleged in the initial complaint relevant in assessing our
exposure to asbestos liabilities. Second, we previously reviewed this issue and
estimated that only a small percentage of the claims then pending against us
contained any specific demand for damages, as opposed to a general demand for
damages as the plaintiff may prove at trial, or a demand which was stated as
being in excess of the minimum jurisdictional limit of a particular court.
Third, even those complaints which did contain a specific damage demand nearly
always involved multiple defendants (anywhere from 30 to over 100), most of
which never manufactured joint systems products. As part of that prior review
(which we have not updated), we did not identify any complaint which stated a
specific demand for money damages solely from us. Finally, even for claims which
allege specific damages, plaintiffs' lawyers often allege the same amount of
damages regardless of the specific disease a plaintiff may have. In addition, in
many such cases no specific disease is alleged, and thus the damages alleged are
meaningless because the ultimate settlement value of any claim is significantly
influenced by the actual disease the plaintiff is able to prove.
46
The following table presents information about the approximate number of
our asbestos claims during the past three fiscal years and the first six months
of each of 2003 and 2002:
FIRST
SIX MONTHS FISCAL YEAR ENDED
--------------- ------------------------
2003 2002 2002 2001 2000
---- ---- ---- ---- ----
Claims Filed(1)................................ 29,500 17,600 41,700 39,700 55,600
Claims Resolved(2)............................. 31,200 15,400 35,100 30,900 46,000
Claims Unresolved at End of Period............. 67,100 64,400 68,800 62,200 53,400
---------------
(1) Claims Filed includes all asbestos claims for which service has been
received and/or a file has been opened by us.
(2) Claims Resolved includes asbestos claims which have been settled or
dismissed or which are in the process of being settled or dismissed based
upon agreements or understandings in place with counsel for the claimants.
In addition, Fort James Corporation, our wholly-owned subsidiary, currently
is defending approximately 730 asbestos premises liability claims.
From the commencement of this litigation through June 28, 2003, we either
had settled, had dismissed or were in the process of settling a total of
approximately 300,900 asbestos claims. For this same period our asbestos
payments, for liability, defense and administration, before insurance recoveries
and tax benefits, totaled approximately $529 million. We generally settle
asbestos claims for amounts we consider reasonable given the facts and
circumstances of each claim.
In the Fall of 2001, we retained National Economic Research Associates
(NERA) and Peterson Consulting, nationally recognized consultants in asbestos
liability and insurance, to work with us to project the amount, net of
insurance, that we would pay for our asbestos-related liabilities and defense
costs through 2011. Based on the analysis of NERA and Peterson Consulting, at
the end of 2001 we established reserves for the probable and reasonably
estimable asbestos liabilities and defense costs we believed we would pay
through 2011, and established receivables for insurance recoveries that were
deemed probable. In the fourth quarter of 2001, we recorded a pre-tax charge to
earnings of $350 million to cover the projected asbestos liabilities and defense
costs, net of expected insurance recoveries, we expected to pay through 2011.
NERA's estimate was based on historical data supplied by us and publicly
available studies. NERA concluded that, based on the latency periods of
asbestos-related diseases (both cancers and non-cancers), the peak incidence of
these diseases occurred prior to 2002. It expected, based on the last dates of
manufacture of asbestos-containing products in the United States, that the
number of new diagnoses of asbestosis and other non-cancerous diseases would
drop beginning in 2001. It also cited annual surveys of the National Cancer
Institutes that show the annual incidence of mesothelioma began to decline in
the mid-1990s. NERA expected these factors, as well as the advancing age of the
allegedly exposed population, its movement away from work centers as its members
retire, and NERA's view that many asbestos claims filed in the 1990s were based
in part on mass screenings of possibly-exposed individuals, would result in the
number of claims filed against us for asbestos-related injuries beginning to
decline in 2002. While the number of new claims filed against us in 2002 was
slightly higher than in 2001, we are of the view that the number of new claims
filed against us was consistent with NERA's estimate.
However, during 2002 we paid, pre-tax and before insurance, approximately
$181 million for our asbestos liabilities and defense costs, which was $75
million more than we expected to pay based on NERA's estimate. These higher
payments were caused by a $10 million judgment
47
which we paid in one case decided on appeal by the Maryland Supreme Court in
2002, and higher than expected settlements paid in less than 1% of the total
cases we resolved in 2002, all of which involved mesothelioma claims. During
2001, we paid, pre-tax and before insurance, approximately $84 million for our
asbestos liabilities and defense costs. Because of 2002's higher asbestos
liabilities and defense costs, we asked NERA to review its original estimate and
adjust it as needed. NERA's revised estimate shows that our total, undiscounted
asbestos liabilities, including defense costs, over the ten-year period from
2002 through 2012 will be slightly less than $1.2 billion, before any insurance
recoveries and ignoring any possible tax benefits. The principal factor
contributing to the increase in NERA's total estimate was the projected effect
of the higher indemnity and defense costs we experienced in 2002 on our costs in
future years. In addition, NERA extended its original estimate through 2012,
which accounted for approximately $60 million of the total accrual, before
insurance. We believe that NERA's projection represents its best estimate of the
reasonably estimable asbestos costs we will incur based upon currently available
information.
At the end of 2002, as at the end of 2001, we and Peterson Consulting
analyzed publicly available information bearing on the creditworthiness of our
various insurers, and employed insurance allocation methodologies which we and
Peterson Consulting believed appropriate to ascertain the amount of probable
insurance recoveries from our insurers for the accrued asbestos liabilities. The
analysis took into account self-insurance reserves, policy exclusions, liability
caps and gaps in our coverage, as well as insolvencies among certain of our
insurance carriers. Although we and Peterson Consulting believe these
assumptions are appropriate, there are other assumptions that could have been
employed that would have resulted in materially lower insurance recovery
estimates. Based on this analysis, our total expected insurance recoveries for
our projected asbestos liabilities and costs over the period through 2012 will
be about $670 million. As a result, in the fourth quarter of 2002 we recorded an
additional pre-tax charge to earnings of $315 million which, when added to
amounts remaining from charges recorded in 2001, we believe are sufficient to
cover our projected asbestos liabilities and defense costs, net of expected
insurance recoveries. We recorded the reserves for our asbestos liabilities as
"Other current liabilities" and "Other long-term liabilities," and the related
insurance recoveries as "Other current assets" and "Other assets," in our
consolidated balance sheets.
The charge to earnings taken in the fourth quarter of 2002 was due to the
increase in our projected asbestos liabilities contained in NERA's revised
estimate, insolvencies of certain insurance companies which wrote a part of our
excess layers of product liability insurance, as well as assumptions by Peterson
Consulting and us about the outcome of likely allocation and coverage issues
involving this insurance. The insurance receivable recorded by us did not assume
any recovery from insolvent carriers, and assumed that those carriers which were
solvent would continue to be solvent throughout the period of NERA's estimate.
However, there were no assurances that those assumptions were correct. In June
of 2003, however, one carrier for which we had recorded a future receivable of
$22 million was declared insolvent; we are evaluating the potential impact, if
any, that this might have on the total net insurance receivable given the
current allocation, coverage, discount assumptions and other factors.
Substantially all of the insurance recoveries deemed probable are from insurance
companies rated A- (excellent) or better by A.M. Best Company. No more than 25%
of such insurance recoveries are from any one company, though several of the
insurers are under common control. We have limited amounts of product liability
insurance remaining beyond the amounts recorded for the period through 2012.
48
The following table summarizes accruals to, and payments from, our reserve
for our total asbestos personal injury liabilities, and receipts from our
insurance carriers, and additions to our expected insurance receivables, for the
last three fiscal years and the first six months of each of 2003 and 2002 (in
millions):
FIRST SIX MONTHS FISCAL YEAR END
----------------- --------------------------
2003 2002 2002 2001 2000
-------- ------ -------- ------ ------
ASBESTOS LIABILITIES
Beginning Balance........................... $1,162.5 $836.6 $ 836.6 $136.5 $ 88.0
Accruals.................................... -- -- 507.0 783.7 106.1
Payments.................................... (89.2) (79.7) (181.1) (83.6) (57.6)
-------- ------ -------- ------ ------
Ending Balance.............................. $1,073.3 $756.9 $1,162.5 $836.6 $136.5
======== ====== ======== ====== ======
INSURANCE RECEIVABLE
Beginning Balance........................... $ 669.7 $527.2 $ 527.2 $171.9 $105.6
Receipts.................................... (74.2) -- (49.5) (65.6) (36.3)
Accruals.................................... -- -- 192.0 420.9 102.6
-------- ------ -------- ------ ------
Ending Balance.............................. $ 595.5 $527.2 $ 669.7 $527.2 $171.9
======== ====== ======== ====== ======
The analyses of NERA and Peterson Consulting in both 2001 and 2002 are
based on their professional judgment. The more important assumptions in NERA's
projection of the number of claims that will be filed against us include the
population exposed to asbestos-containing products manufactured by us, the
expected occurrence of various diseases in these exposed populations, the rate
at which these exposed populations actually file claims, and activities of the
asbestos plaintiffs' bar designed to maximize its profits from these claims. The
cost of settling claims is driven by these same assumptions, as well as by
prevailing judicial and social environments in the jurisdictions in which claims
are filed, the rulings by judges and the attitudes of juries in those
jurisdictions, the demands of the asbestos plaintiffs' bar with respect to the
value of each claim, the insolvencies of other defendants to a particular claim,
and the impact of verdicts against other defendants on settlement demands
against us.
Generally, NERA's projections assume:
- That the number of new claims to be filed against us each year through
2012 will decline at a fairly constant rate each year beginning in
2003;
- That the percentage of claims settled by us will be about
three-quarters of the total number of claims resolved (whether by
settlement or dismissal) each year through 2012;
- That the average estimated per case settlement costs, as adjusted to
reflect the higher indemnity costs experienced in 2002, are
anticipated to decrease slightly over the period through 2012; and
- That the total amounts paid by us in settlements, and in defense and
administrative costs, will decline at varying rates over the period
through 2012.
Among the more important assumptions made by Peterson in projecting our future
insurance recoveries are the resolution of allocation issues among various
layers of insurers, the application of particular theories of recovery based on
decided cases, and the continuing solvency of various insurance companies.
Given these assumptions, and the uncertainties involved in each of them,
our actual asbestos liabilities, defense costs and insurance recoveries could be
higher or lower than those currently projected and/or recorded. However, these
assumptions are only some of those
49
contained in the NERA and Peterson projections, and all of these assumptions are
only one aspect of the overall projections made by those firms. Changes in the
foregoing assumptions, or others, whether from time to time or over the period
covered by these projections, may or may not affect the validity of the overall
projections. We intend to monitor our accrued asbestos liabilities, defense
costs and insurance recoveries against these overall projections, and we will
make adjustments to these accruals as required by generally accepted accounting
principles. In addition, unless federal asbestos legislation has been enacted by
the end of 2003, we plan on extending our projections of asbestos liabilities an
additional year, through 2013, and accruing such amounts, and any other
adjustments required by generally accepted accounting principles, in the fourth
quarter of this year.
For all of these reasons, it is possible that our currently accrued
asbestos liabilities will not be accurate, that our accrued insurance recoveries
will not be realized, or that we will be required in the future to incur
additional charges relating thereto. Given these uncertainties, we believe that
it is reasonably possible that we will incur asbestos liabilities for the period
through 2012 and beyond in amounts in excess of the NERA estimate, but cannot
estimate such excess amount at this time. We believe that it is reasonably
possible that such excess liabilities could be material to our operating results
in any given quarter or year but, based on the information available to us at
present, do not believe that it is reasonably possible that the additional
liabilities would have a material adverse effect on our long-term results of
operations, liquidity or consolidated financial position.
Beginning in late March and continuing during the second fiscal quarter of
2003, we experienced new case filings in Mississippi at a rate significantly
higher than we expected. We believe that most of these new filings were caused
by plaintiffs filing cases in advance of the effective date of tort law changes
in the State of Mississippi. Similar tort law legislation was recently enacted
in the State of Texas and we expect to experience an increase in the number of
new case filings in Texas in the third and fourth fiscal quarters of 2003 as a
result of this legislation.
See "Risk Factors -- Risk Factors Relating to Environmental Regulation and
Asbestos Liability -- Payments for asbestos-related claims (the total amounts of
which are uncertain) may materially adversely affect our cash flow and
liquidity."
OTHER LITIGATION
RETIREMENT PLAN LITIGATION. On April 14, 1997, a class action lawsuit
alleging claims under the Employee Retirement Income Security Act of 1974 was
filed against us and the Georgia-Pacific Corporation Salaried Employees
Retirement Plan (the "Plan") (together, the "Defendants") in the United States
District Court for the Northern District of Georgia, seeking recovery of alleged
underpayments of lump-sum benefits to persons taking early retirement from us
(the "Plaintiff class"), together with interest, attorney's fees and costs.
After the District Court granted the Defendants' motion for summary judgment in
March 1999, the United States Court of Appeals for the Eleventh Circuit reversed
the District Court's ruling in August 2000 and remanded the case for further
proceedings, holding that the terms of the Plan required a calculation of
lump-sum benefits that could result in additional payments to members of the
class. In September 2000, the Defendants filed a petition for rehearing and
rehearing en banc with the Eleventh Circuit, which was denied. The Defendants
also filed a petition for certiorari to the United States Supreme Court in
January 2001, which was denied. In March 2002, the District Court issued an
Order granting in part and denying in part the summary judgment motions of both
the Plaintiff class and the Defendants. In addition, the Order remanded some
issues to the Plan administrator for interpretation and specified that the
parties must file another proposed order implementing these rulings within a
certain time period.
50
We have determined that, in all likelihood, damages will be awarded to the
Plaintiff class, which will require the Plan to make additional payments to
members of the Plaintiff class and may in turn affect our net periodic pension
cost and obligation to fund the Plan over time. In November 2002, the Defendants
reached a settlement in principle with the Plaintiff class subject to definitive
documents, which settlement would not result in a material impact on our funding
obligation or results of operations. However, early in the first quarter of
2003, the settlement negotiations were terminated. Notwithstanding termination
of the negotiations, the Plaintiff class filed a motion seeking a ruling that an
enforceable agreement was reached. After a hearing on the issues in June 2003,
the District Court ruled that the parties had not reached an enforceable
settlement agreement, and the court held a status conference regarding further
briefing on the underlying issues left unresolved by the court's March 2002
order.
CROWN VANTAGE LITIGATION. In August 1995, Fort James, at the time a
publicly-held corporation, transferred certain assets and liabilities of its
communications paper and food packaging businesses to two newly formed
companies, Crown Vantage, Inc. ("CV") (a wholly-owned subsidiary of Fort James)
and CV's subsidiary, Crown Paper Co. ("CP"). CP then entered into a $350 million
credit facility with certain banks and issued $250 million face amount of senior
notes. Approximately $483 million in proceeds from these financings were
transferred to Fort James in payment for the transferred assets and other
consideration. CV also issued to Fort James a pay-in-kind note with a face
amount of $100 million. CV shares were then spun off to the Fort James
shareholders and CV operated these businesses as a stand-alone company beginning
in August 1995.
In March 2001, CP and CV filed for bankruptcy. Various creditors have
indicated that the borrowings made by CP and CV, and the payments to Fort James
for the assets transferred to CV and CP, caused those companies to become
insolvent, and that the transfer of these assets therefore was a fraudulent
conveyance. In April 2001, Fort James filed suit against CP and CV in Federal
Bankruptcy Court in Oakland, California seeking a declaratory judgment that the
transactions did not involve any fraudulent conveyance and that other parties
and actions were the cause of the bankruptcy of CV and CP. In September 2001, CV
filed suit against Fort James asserting, among other claims, that the
transactions described above constituted fraudulent conveyances and seeking
unspecified damages. In October 2002, Fort James filed a lawsuit in Chancery
Court in Delaware seeking a declaration that CV had released Fort James from all
the claims asserted in the fraudulent conveyance litigation in connection with a
settlement in 1998 of certain issues that arose in connection with the spin off.
Fort James does not believe that any of its actions in establishing CV or CP
involved a fraudulent conveyance or caused the bankruptcy of those companies,
and it intends to defend itself vigorously.
Although the ultimate outcome of these and other environmental matters and
legal proceedings cannot be determined with certainty, based on presently
available information management believes that adequate reserves have been
established for probable losses with respect thereto. Management further
believes that the ultimate outcome of these and other environmental matters and
legal proceedings could be material to operating results in any given quarter or
year but will not have a material adverse effect on our long-term results of
operations, liquidity or consolidated financial position.
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MANAGEMENT
Our executive officers and key employees as of March 29, 2003 were as
follows:
NAME AGE POSITION
---- --- --------
Alston D. Correll......................... 61 Chairman, Chief Executive Officer and a
Director
Lee M. Thomas............................. 58 President, Chief Operating Officer and a
Director
Patricia A. Barnard....................... 53 Executive Vice President -- Human
Resources
James E. Bostic, Jr. ..................... 55 Executive Vice President -- Environmental,
Government Affairs and Corporate Services
Michael C. Burandt........................ 58 President -- North American Consumer
Products
Danny W. Huff............................. 52 Executive Vice President -- Finance and
Chief Financial Officer
James F. Kelley........................... 61 Executive Vice President and General
Counsel
Steven J. Klinger......................... 44 Executive Vice President and President --
Packaging
David J. Paterson......................... 48 Executive Vice President and President --
Building Products
John F. Lundgren.......................... 50 President -- European Consumer Products
Ronald L. Paul............................ 59 Executive Vice President -- Wood Products
George W. Wurtz III....................... 46 Executive Vice President and President --
Pulp and Paper
James E. Terrell.......................... 53 Vice President and Controller
ALSTON D. CORRELL has been Chief Executive Officer of Georgia-Pacific since
May 1993, Chairman since December 1993 and served as President from July 1991
until September 2002. Mr. Correll has been a director of Georgia-Pacific since
May 1992.
LEE M. THOMAS has been President and Chief Operating Officer of
Georgia-Pacific since March 2003. Prior to that time he served as President of
Georgia-Pacific since September 2002. Mr. Thomas has been a director of
Georgia-Pacific since May 2002. He served as President of our building products
and distribution businesses from March 2002 until September 2002. Prior to that
time, Mr. Thomas served as Executive Vice President -- Consumer Products from
November 2001 until March 2002, Executive Vice President -- Paper and Chemicals
from December 1997 until November 2000, Executive Vice President -- Paper from
January 1997 until December 1997, Senior Vice President -- Environmental,
Government Affairs and Communications from February 1994 until January 1995 and
Senior Vice President -- Environmental and Governmental Affairs from March 1993
until January 1994.
PATRICIA A. BARNARD has been Executive Vice President -- Human Resources
since January 2001. Prior to that time she served as Senior Vice
President -- Human Resources from March 1999 until January 2001 and Vice
President -- Compensation and Benefits from February 1998 until March 1999.
Prior to that time, she served as Group Director -- Human Resources, Paper &
Chemicals from 1997 to 1998 and Group Director -- Human Resources, Paper from
1995 until 1997.
JAMES E. BOSTIC, JR. has been Executive Vice President -- Environmental,
Government Affairs and Corporate Services since January 2001. Prior to that
time, he served as Senior Vice
52
President -- Environmental, Government Affairs and Communications from February
1995 until January 2001, Group Vice President -- Paper from April 1992 until
January 1995, Group Vice President -- Butler Paper and Mail-Well from January
1992 to April 1992 and Vice President -- Butler Paper and Mail-Well from January
1991 to January 1992.
MICHAEL C. BURANDT has been President -- North American Consumer Products
since November 2000. Prior to that time, he served as Senior Vice
President -- Packaged Products from May 1998 until November 2000, and Vice
President -- Packaged Products from December 1994 until May 1998.
DANNY W. HUFF has been Executive Vice President -- Finance and Chief
Financial Officer since November 1999. Prior to that time, he served as Vice
President and Treasurer from February 1996 until November 1999 and Treasurer
from October 1993 until February 1996.
JAMES F. KELLEY has been Executive Vice President and General Counsel since
August 2000. Prior to that time, he served as Senior Vice President -- Law and
General Counsel from December 1993 until August 2000.
STEVEN J. KLINGER has been Executive Vice President and
President -- Packaging since March 2003. Prior to that time, he served as
President -- Packaging from January 2002 until March 2003, Vice
President -- Operations -- Packaging from January 2000 until January 2002,
Southeast Regional Manager -- Containerboard and Packaging from January 1998
until January 2000 and Regional Manager, J&J Corrugated, a subsidiary of ours,
from January 1997 until January 1998.
DAVID J. PATERSON has been Executive Vice President and
President -- Building Products since March 2003, prior to that time he served as
Executive Vice President -- Pulp and Paperboard from August 2001 to March 2003,
President -- Paper from January 2001 until August 2001, Senior Vice
President -- Communication Papers from August 2000 until January 21, 2001 and
Vice President -- Sales and Marketing Pulp and Bleached Board from May 1994
until August 2000.
JOHN F. LUNDGREN has been our President -- European Consumer Products since
January 2001. From 1995 until January 2001, he served in the same position with
Fort James Corporation.
RONALD L. PAUL has been Executive Vice President -- Wood Products since
September 1997. Prior to that time, he served as Vice President -- Structural
Panels and Building Products Engineering from May 1996 until September 1997 and
Vice President -- Engineering and Technology -- Building Products from May 1995
until May 1996.
GEORGE W. WURTZ III has been Executive Vice President and President -- Pulp
and Paper since March 2003. Prior to that time, he served as President -- Paper,
Bleached Board and Kraft from August 2001 until March 2003, Senior Vice
President -- Consumer Products from November 2000 until August 2001. From 1987
until November 2000, he served in a number of management positions with Fort
James, most recently as Senior Vice President -- Manufacturing for North
America.
JAMES E. TERRELL was elected Vice President of Georgia-Pacific in January
1991 and has served as Controller since 1989.
Our Board of Directors elects our officers. The Chief Executive Officer has
the authority to appoint one or more Vice Presidents to hold such office until
the next annual organizational meeting of the Board. The Chief Executive Officer
also has the authority to approve the compensation of officers at the Vice
President level. The Compensation Committee of the Board of Directors determines
the compensation of all other officers, including officers who are also our
directors. There are no other arrangements or understandings between the
respective officers and any other person pursuant to which such officers are
elected.
53
DESCRIPTION OF OTHER INDEBTEDNESS
MULTI-YEAR REVOLVING CREDIT FACILITY
In November 2000, we entered into an unsecured revolving credit facility
under which our aggregate borrowing availability at June 28, 2003 was $3,000
million. We elected to optionally reduce the commitments under the revolving
credit facility effective June 6, 2003. Amounts available thereunder are now
comprised of (i) $2,500 million in revolving loans and (ii) $500 million in term
loans due November 2005. Our revolving credit facility terminates on November
28, 2005. At June 28, 2003, we had $765 million of borrowings outstanding under
this facility, and an additional $581 million was allocated to reserves for
letters of credit. As of June 28, 2003, borrowings under our revolving credit
facility had a weighted average annual interest rate of 3.9%. The interest rate
on borrowings under our revolving credit facility may be adjusted according to a
rate grid based on our debt ratings. Fees associated with this revolving credit
facility include a facility fee of 0.4% per annum on the aggregate commitments
of the lenders, as well as up-front fees. Fees and margins may also be adjusted
according to a pricing grid based on our debt ratings. Certain of our domestic
subsidiaries, which include any subsidiaries that have assets that constitute at
least 10% of our total assets, have guaranteed our obligations under the
revolving credit facility.
The revolving credit facility, as amended by the Seventh Credit Facility
Amendment, requires a maximum leverage ratio (funded indebtedness to net worth
plus funded indebtedness) of 67.50% on June 28, 2003, September 27, 2003 and
January 3, 2004; and 65.00% on April 3, 2004 and thereafter. The restrictive
covenants, as amended by the Seventh Credit Facility Amendment, also require a
minimum interest coverage ratio (as defined in the revolving credit facility) of
2.25 to 1.00 on June 28, 2003, September 27, 2003 and January 3, 2004; 2.50 to
1.00 on April 3, 2004; 2.75 to 1.00 on July 3, 2004; and 3.00 to 1.00 on October
2, 2004 and thereafter. In addition, the restrictive covenants require a minimum
net worth (as defined in the revolving credit facility, generally, the sum of
80% of our net worth as of the credit agreement closing date and other items,
including, but not limited to, 50% of net income from the fourth fiscal quarter
of 2000 through year-to-date, excluding net losses) that changes quarterly and a
maximum debt level of $12,594 million for so long as our leverage ratio exceeds
65.00%. We were in compliance with these debt covenants as of June 28, 2003,
with a leverage ratio of 65.35%, an interest coverage ratio of 2.45 to 1.00, a
debt balance (as defined in the revolving credit facility) of $11,211 million
and an adjusted net worth surplus of $449 million.
In addition to the foregoing, we and our restricted subsidiaries must
comply with other restrictive covenants, including covenants regarding the
creation or assumption of liens, transactions with affiliates and the creation
or implementation of certain sale-leaseback arrangements. The revolving credit
facility also contains certain covenants restricting our ability to merge,
consolidate or otherwise transfer or dispose of all or substantially all of our
assets.
The revolving credit facility contains customary events of default,
including, but not limited to, payment defaults, covenant defaults, breaches of
representations and warranties, cross defaults to certain other material
agreements and indebtedness, bankruptcy and other insolvency events and material
judgments.
We may prepay outstanding borrowings under the revolving credit facility in
whole or in part at any time without penalty, other than amounts due under bid
loans.
On June 3, 2003, we completed an offering of $350,000,000 aggregate
principal amount of our 7 3/8% Senior Notes due 2008 and $150,000,000 aggregate
principal amount of our 8% Senior Notes due 2014 in a transaction exempt from
registration under the Securities Act. We used the net proceeds from the
offering to repay a portion of amounts outstanding under our revolving credit
facility.
54
ACCOUNTS RECEIVABLE FACILITIES
At June 28, 2003, we had commitments totaling $900 million under our
accounts receivable secured borrowing program, which expires in December 2003,
all of which were outstanding. On March 31, 2003, we increased our borrowings
under our accounts receivable secured borrowing program by $200 million and used
the funds to pay down a portion of our revolving credit facility. As of June 28,
2003, borrowings under our accounts receivable facility had a weighted average
interest rate of 2.3%. As collections of our receivables reduce previously
pledged interests, we may pledge new receivables under this program. Our
accounts receivable facility contains the same restrictive covenants as the
revolving credit facility. We were in compliance with these debt covenants as of
June 28, 2003.
NOTES AND DEBENTURES
As of June 28, 2003, we had outstanding borrowings of approximately $7,802
million under certain publicly held notes and debentures, including $1,020
million of notes issued by Fort James that we guaranteed in connection with our
acquisition of Fort James in November 2000.
Our outstanding notes and debentures are as follows:
PRINCIPAL AMOUNT TITLE
---------------- -----
$350,000,000................................. 7 3/8% Senior Notes due 7/15/08
$150,000,000................................. 8% Senior Notes due 1/15/14
$500,000,000................................. 7 1/2% Senior Notes due 5/15/06
$600,000,000................................. 8 1/8% Senior Notes due 5/15/11
$250,000,000................................. 9 1/2% Debentures due 12/01/11
$250,000,000................................. 7.7% Debentures due 6/15/15
$243,000,000................................. 9 7/8% Debentures due 11/01/21
$250,000,000................................. 9 5/8% Debentures due 3/15/22
$250,000,000................................. 9 1/2% Debentures due 5/15/22
$239,450,000................................. 9 1/8% Debentures due 7/01/22
$250,000,000................................. 8 1/4% Debentures due 3/01/23
$250,000,000................................. 8 1/8% Debentures due 6/15/23
$250,000,000................................. 8 5/8% Debentures due 4/30/25
$250,000,000................................. 7 3/8% Debentures due 12/01/25
$300,000,000................................. 7 1/4% Debentures due 6/01/28
$500,000,000................................. 7 3/4% Debentures due 11/15/29
$400,000,000................................. 8 7/8% Senior Notes due 5/15/31
$700,000,000................................. 8 7/8% Senior Notes due 2/1/10
$800,000,000................................. 9 3/8% Senior Notes due 2/1/13
The notes and debentures issued by Fort James that we guaranteed in
connection with the acquisition of Fort James are as follows:
PRINCIPAL AMOUNT TITLE
---------------- -----
$250,000,000................................. 6.7% Notes due 11/15/03
$320,000,000................................. 6 5/8% Notes due 9/15/04
$300,000,000................................. 6 7/8% Notes due 9/15/07
$ 30,715,000................................. 9 1/4% Debentures due 11/15/21
$ 88,000,000................................. 7 3/4% Debentures due 11/15/23
$ 15,500,000................................. 7.92% Medium-Term Notes due 12/23/03
$ 5,000,000................................. 7.95% Medium-Term Notes due 12/01/04
$ 5,000,000................................. 7.95% Medium-Term Notes due 12/01/04
$ 6,000,000................................. 7.92% Medium-Term Notes due 12/27/04
In the indentures pursuant to which these notes and debentures were issued,
we agreed not to create any liens (other than certain permitted liens) on our
principal properties without
55
also equally and ratably securing the notes and debentures, or enter into any
sale and leaseback transactions or merge or sell our company or all or
substantially all of our assets unless certain conditions are satisfied.
EURO-DENOMINATED BONDS
Fort James, which we acquired in November 2000, had $218 million (net of
discount) of Euro-denominated bonds. At June 28, 2003, the aggregate outstanding
bonds totaled $341 million (net of discount) and the interest rate was 4.8%.
These bonds mature on June 29, 2004. The fiscal agency agreement pursuant to
which these bonds were issued limits our ability to create liens on our assets
without equally and ratably securing the bonds and contains customary events of
default.
EUROPEAN CREDIT FACILITIES
In connection with the acquisition of Fort James, we assumed $156 million
of European credit facility indebtedness. At June 28, 2003, the aggregate
principal amount of our European debt outstanding under these facilities was $74
million and such borrowings bore interest at a weighted average annual interest
rate equal to 4.0% as of such date. This indebtedness has maturity dates ranging
from April 1, 2005 through April 1, 2012. Certain of these credit facilities
contain customary covenants that are consistent with those in our other
outstanding indebtedness.
INDUSTRIAL REVENUE BONDS
At June 28, 2003, we had outstanding borrowings of approximately $864.7
million under certain industrial revenue bonds with maturity dates ranging from
August 2003 through June 2031. At June 28, 2003, $706.8 million of these
obligations bore interest at fixed rates ranging from 1.0% to 8.25% and $157.9
million bore interest at variable rates ranging from 1.13% to 3.31%. The terms
of these bonds limit our ability to merge, consolidate or otherwise transfer or
dispose of all or substantially all of our assets and contain customary events
of default.
CAPITAL LEASES
At June 28, 2003, we had outstanding borrowings of $293.8 million under
capital leases (including premium) and other loans. These leases limit our
ability to merge, consolidate or otherwise transfer or dispose of all or
substantially all of our assets unless certain conditions are satisfied and
contain customary events of default.
In December 2002, as part of the Unisource transaction, we entered into
financing lease arrangements pursuant to which we sold to unaffiliated third
parties warehouse facilities used and formerly owned by Unisource and leased
back these facilities from such parties and subleased them to Unisource. Our
leases include covenants customary for agreements of this type.
LETTERS OF CREDIT
At June 28, 2003, we had $18 million available under letters of credit
(excluding letters of credit available under our revolving credit facility).
Amounts available under these letters of credit primarily support our automobile
and general liability insurance policies, our Canadian accounts receivable
secured borrowing program and our purchase of products and services from vendors
abroad.
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OTHER DEBT
At June 28, 2003, we also had approximately $400 million of other
indebtedness, which is comprised of (1) approximately $100 million of 7.2%
Senior Notes due December 15, 2006 that were issued by one of our subsidiaries
and guaranteed by us in connection with our acquisition of Domtar, Inc.'s gypsum
wallboard business in 1996 and (2) $300 million of variable rate purchase notes
due August 22, 2003 that were issued by us in connection with our acquisition of
Brunswick Pulp & Paper Company in 1988. These purchase notes contain customary
covenants that limit our ability to create liens on our principal properties
without equally and ratably securing the notes, to enter into sale and leaseback
transactions and to merge, consolidate or sell all or substantially all of our
assets.
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DESCRIPTION OF THE NEW NOTES
The form and terms of the new notes and the old notes are identical in all
material respects, except that transfer restrictions, penalty interest
provisions and registration rights applicable to the old notes do not apply to
the new notes. Unless otherwise specified or unless the context requires
otherwise, references in this section to the "notes" are references to the new
notes offered in the exchange offers. Each series of old notes were, and the new
notes will be, issued under a separate indenture, each dated as of June 3, 2003,
among our company, each of the Fort James Companies and The Bank of New York, as
trustee. The indentures are subject to and governed by the Trust Indenture Act
of 1939. The following is a summary of the material provisions of the
indentures. It does not include all of the provisions of the indentures. You
should read the indentures, including the definitions of certain terms contained
therein and those terms made part of the indentures by reference to the Trust
Indenture Act, in their entirety for provisions that may be important to you.
The indentures have been incorporated by reference as exhibits to the
registration statement of which this prospectus is a part. You can find
definitions of certain capitalized terms used in this description under
"-- Certain Definitions." For purposes of this Description of the New Notes,
references to "Georgia-Pacific," "our company," "we," "our" or "us" refer solely
to Georgia-Pacific Corporation, and not to any of its subsidiaries, references
to "Fort James" refer only to Fort James Corporation, a wholly-owned subsidiary
of Georgia-Pacific, and not to any of its subsidiaries, and references to "Fort
James Operating Co." refer only to Fort James Operating Company, a wholly-owned
subsidiary of Fort James, and not to any of its subsidiaries. References to the
"Fort James Companies" refer to Fort James and Fort James Operating Co.,
collectively.
The registered holder of a note will be treated as the owner of it for all
purposes. Only registered holders will have rights under the indentures.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The notes will be:
- our general unsecured obligations;
- pari passu in right of payment with all of our existing and future
unsecured senior Indebtedness;
- effectively junior to our secured Indebtedness up to the value of
the collateral securing such Indebtedness;
- senior in right of payment to any of our future subordinated
Indebtedness; and
- unconditionally guaranteed by Fort James and Fort James Operating
Co.
As of the date of the indentures, all of our subsidiaries were "Restricted
Subsidiaries." However, under the circumstances described below under the
caption "-- Certain Covenants -- Designation of Restricted and Unrestricted
Subsidiaries," we may from time to time designate any of our subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many
of the restrictive covenants in the indentures and will not guarantee the notes.
58
THE GUARANTEES
The notes will be guaranteed by Fort James and Fort James Operating Co.
The guarantees will be:
- a general unsecured obligation of Fort James and Fort James
Operating Co.;
- pari passu in right of payment with all existing and future
unsecured senior Indebtedness of Fort James and Fort James
Operating Co.;
- effectively junior to Fort James' and Fort James Operating Co.'s
secured Indebtedness up to the value of the collateral securing
such Indebtedness; and
- senior in right of payment to any future subordinated Indebtedness
of each of Fort James and Fort James Operating Co.
None of our other subsidiaries will guarantee the notes. The notes will
effectively rank junior to all Indebtedness, including guarantees of our
revolving credit facility, and other liabilities, including trade payables, of
our subsidiaries that do not guarantee the notes with respect to the assets of
those subsidiaries. As of June 28, 2003, after giving effect to the offering and
our use of the net proceeds from the offering, our non-guarantor subsidiaries
had approximately $1,097 million of Indebtedness and $2,988 million of other
liabilities outstanding. In the event of a bankruptcy, liquidation or
reorganization of any of these non-guarantor subsidiaries, the non-guarantor
subsidiaries will pay the holders of their debt and their trade creditors before
they will be able to distribute any of their assets to us. See footnote 7 to our
consolidated financial statements incorporated by reference in this prospectus.
PRINCIPAL, MATURITY AND INTEREST
On June 3, 2003, Georgia-Pacific issued $350 million in aggregate principal
amount of 2008 notes and $150 million in aggregate principal amount of 2014
notes in the offering. Subject to compliance with the covenant described below
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock," Georgia-Pacific may issue additional notes under
either indenture from time to time after the offering. In the case of each
series, the notes and any additional notes subsequently issued under that
indenture will be treated as a single class for all purposes under that
indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. Georgia-Pacific will issue notes in denominations of $1,000
and integral multiples of $1,000. The 2008 notes will mature on July 15, 2008,
and the 2014 notes will mature on January 15, 2014.
Interest on the 2008 notes will accrue at the rate of 7 3/8% per annum and
will be payable semi-annually in arrears on January 15 and July 15 of each year,
beginning on January 15, 2004. Georgia-Pacific will make each interest payment
to the holders of record on the immediately preceding January 1 and July 1.
Interest on the 2014 notes will accrue at a rate of 8% per annum and will
be payable semi-annually in arrears on January 15 and July 15 of each year,
beginning on January 15, 2004. Georgia-Pacific will make each interest payment
to the holders of record on the immediately preceding January 1 and July 1.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
For so long as the notes remain in the form of global securities, we will
pay all principal, interest and premium, if any, on the notes to the applicable
depository or its nominee as the
59
registered holder of the global securities representing the notes. All other
payments on notes will be made at the office or agency of the paying agent and
registrar within the City and State of New York unless Georgia-Pacific elects to
make interest payments by check mailed to the holders at their address set forth
in the register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustees will initially act as paying agent and registrar.
Georgia-Pacific may change the paying agent or registrar without prior notice to
the holders of the notes, and Georgia-Pacific or any of its Subsidiaries may act
as paying agent or registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the applicable
indenture. The registrar and the applicable trustee may require a holder, among
other things, to furnish appropriate endorsements and transfer documents in
connection with a transfer of notes. Holders will be required to pay all taxes
due on transfer. Georgia-Pacific is not required to transfer or exchange any
note selected for redemption. Also, Georgia-Pacific is not required to transfer
or exchange any note for a period of 15 days before a selection of notes to be
redeemed.
THE SUBSIDIARY GUARANTEES
The notes will be guaranteed by Fort James and Fort James Operating Co. The
obligations of Fort James and Fort James Operating Co. under the Subsidiary
Guarantees will be limited as necessary to prevent the Subsidiary Guarantees
from constituting a fraudulent conveyance under applicable law. See "Risk
Factors -- Risks Relating to Our Indebtedness and the Notes -- Fraudulent
conveyance laws may permit courts to void the Fort James Companies' guarantees
of the new notes in specific circumstances, which would interfere with the
payment under the Fort James Companies' guarantees."
Each of Fort James and Fort James Operating Co. has agreed that if it sells
or otherwise disposes of all or substantially all of its assets to, or
consolidates with or merges with or into, any Person that is (either before or
after giving effect to such transaction) an Affiliate of Georgia-Pacific, it
will cause that Affiliate to assume all of the obligations of Fort James or Fort
James Operating Co., as applicable, under the indentures, its Subsidiary
Guarantees and the registration rights agreement pursuant to supplemental
indentures reasonably satisfactory to the trustees. In addition, neither Fort
James nor Fort James Operating Co. may sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge with or into,
any Person that is not an Affiliate of Georgia-Pacific (whether or not Fort
James or Fort James Operating Co., as applicable, is the surviving Person) other
than Georgia-Pacific unless (1) immediately after giving effect to the
transaction, no Default or Event of Default exists and (2) the Net Proceeds of
such sale or other disposition are applied in accordance with the applicable
provisions of the indentures.
Notwithstanding the foregoing, the Subsidiary Guarantees of either
guarantor (i.e., Fort James or Fort James Operating Co., as the case may be)
will be released automatically:
(1) upon the sale or other disposition of all or substantially all of
the assets of the guarantor (including by way of merger or consolidation)
to a Person that is not (either before or after giving effect to such
transaction) Georgia-Pacific or an Affiliate of Georgia-Pacific, if the
sale or other disposition complies with the "Asset Sale" provisions of the
indentures;
(2) upon the sale of all of the Capital Stock of the guarantor (either
directly or, in the case of Fort James Operating Co., through the sale of
all of the Capital Stock of Fort James
60
if Fort James owns all of the Capital Stock of Fort James Operating Co. at
the time of the sale) to a Person that is not (either before or after
giving effect to such transaction) an Affiliate of Georgia-Pacific, if the
sale complies with the "Asset Sale" provisions of the indentures;
(3) upon the legal defeasance of the notes as described below under the
caption "-- Legal Defeasance and Covenant Defeasance";
(4) upon the merger or dissolution of the guarantor into, or the
transfer of all or substantially all of the assets of the guarantor to, (A)
Fort James or Georgia-Pacific, if the guarantor is Fort James Operating
Co., or (B) Georgia-Pacific, if the guarantor is Fort James;
(5) upon a Permitted Spin-Off Transaction if Fort James or Fort James
Operating Co. is no longer a Subsidiary after consummation of the Permitted
Spin-Off Transaction; or
(6) upon the occurrence of a Fall Away Event.
See "-- Repurchase at the Option of Holders -- Asset Sales."
OPTIONAL REDEMPTION
2008 NOTES
Georgia-Pacific may at any time at its option redeem all or part of the
2008 notes upon not less than 30 nor more than 60 days' prior notice at a
redemption price equal to the greater of (1) 100% of the principal amount of the
2008 notes being redeemed and (2) as determined by the Quotation Agent, the sum
of the present values of 100% of the principal amount of the 2008 notes being
redeemed, plus all scheduled payments of interest on such 2008 notes to and
including July 15, 2008 (but not including accrued and unpaid interest to the
redemption date), in each case discounted to the redemption date on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Adjusted Treasury Rate plus 50 basis points, together in each case with
accrued and unpaid interest and Special Interest, if any, to the applicable
redemption date.
Additionally, at any time prior to July 15, 2006, Georgia-Pacific may at
its option on any one or more occasions redeem up to 35% of the aggregate
principal amount of the 2008 notes issued under the related indenture at a
redemption price equal to 107.375% of the principal amount, plus accrued and
unpaid interest and Special Interest, if any, to the redemption date, with the
net cash proceeds of one or more Equity Offerings; provided that:
(1) at least 65% of the aggregate principal amount of 2008 notes issued
on the date of the related indenture remains outstanding immediately after
the occurrence of such redemption (excluding 2008 notes held by
Georgia-Pacific and its Subsidiaries); and
(2) the redemption occurs within 120 days of the date of the closing of
such Equity Offering.
2014 NOTES
At any time prior to January 15, 2009, Georgia-Pacific may at its option
redeem all or part of the 2014 notes upon not less than 30 nor more than 60
days' prior notice at a redemption price equal to the greater of (1) 100% of the
principal amount of the 2014 notes being redeemed and (2) as determined by the
Quotation Agent, the sum of the present values of 104.000% of the principal
amount of the 2014 notes being redeemed, plus all scheduled payments of interest
on such 2014 notes to and including January 15, 2009 (but not including accrued
and unpaid interest to the redemption date), in each case discounted to the
redemption date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted
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Treasury Rate plus 50 basis points, together in each case with accrued and
unpaid interest and Special Interest, if any, to the applicable redemption date.
Additionally, at any time prior to July 15, 2006, Georgia-Pacific may at
its option on any one or more occasions redeem up to 35% of the aggregate
principal amount of 2014 notes issued under the related indenture at a
redemption price equal to 108.000% of the principal amount, plus accrued and
unpaid interest and Special Interest, if any, to the redemption date, with the
net cash proceeds of one or more Equity Offerings; provided that:
(1) at least 65% of the aggregate principal amount of 2014 notes issued
on the date of the related indenture remains outstanding immediately after
the occurrence of such redemption (excluding 2014 notes held by
Georgia-Pacific and its Subsidiaries); and
(2) the redemption occurs within 120 days of the date of the closing of
such Equity Offering.
Except pursuant to the preceding paragraphs, the 2014 notes will not be
redeemable at Georgia-Pacific's option prior to January 15, 2009.
On or after January 15, 2009, Georgia-Pacific may redeem all or a part of
the 2014 notes upon not less than 30 nor more than 60 days' prior notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Special Interest, if any, on the 2014 notes
redeemed, to the applicable redemption date, if redeemed during the twelve-month
period beginning on January 15 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2009........................................................ 104.000%
2010........................................................ 102.667%
2011........................................................ 101.333%
2012 and thereafter......................................... 100.000%
MANDATORY REDEMPTION
Georgia-Pacific is not required to make mandatory redemption or sinking
fund payments with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs at any time, unless Georgia-Pacific has
exercised its right to redeem the notes as described above under the caption
"-- Optional Redemption," each holder of notes will have the right to require
Georgia-Pacific to repurchase all or any part (equal to $1,000 or an integral
multiple of $1,000) of that holder's notes pursuant to a Change of Control offer
on the terms set forth in the indentures for a repurchase price in cash equal to
101% of the aggregate principal amount of notes repurchased plus accrued and
unpaid interest and Special Interest, if any, on the notes repurchased, to the
date of purchase. Within 30 days following any Change of Control,
Georgia-Pacific will mail a notice to each holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
notes on the payment date specified in the notice, which date will be no earlier
than 30 days and no later than 60 days from the date such notice is mailed,
pursuant to the procedures required by the indentures and described in such
notice. Georgia-Pacific will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control. To the extent that
the provisions of any securities laws
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or regulations conflict with the Change of Control provisions of the indentures,
Georgia-Pacific will comply with the applicable securities laws and regulations
and will not be deemed to have breached its obligations under the Change of
Control provisions of the indentures by virtue of such conflict.
On the Change of Control payment date, Georgia-Pacific will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control offer;
(2) deposit with the paying agent an amount equal to the aggregate
purchase price in respect of all notes or portions of notes properly
tendered; and
(3) deliver or cause to be delivered to the trustees the notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of notes being purchased by Georgia-Pacific.
The paying agent will promptly mail to each holder of notes properly
tendered the purchase price for such notes, and the trustees will promptly
authenticate and mail (or cause to be transferred by book-entry) to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each new note will be in a principal amount
of $1,000 or an integral multiple of $1,000.
Georgia-Pacific will publicly announce the results of the Change of Control
offer on or as soon as practicable after the Change of Control payment date.
Prior to a Fall Away Event, the provisions described above that require
Georgia-Pacific to make a Change of Control offer following a Change of Control
will be applicable whether or not any other provisions of the indentures are
applicable. Except as described above with respect to a Change of Control, the
indentures do not contain provisions that permit the holders of the notes to
require that Georgia-Pacific repurchase or redeem the notes in the event of a
takeover, recapitalization or similar transaction.
Georgia-Pacific will not be required to make a Change of Control offer upon
a Change of Control if a third party makes the Change of Control offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indentures applicable to a Change of Control offer made by
Georgia-Pacific and purchases all notes properly tendered and not withdrawn
under the Change of Control offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of Georgia-Pacific and
its Restricted Subsidiaries taken as a whole. Although there is a limited body
of case law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under applicable law. Accordingly, the
ability of a holder of notes to require Georgia-Pacific to repurchase its notes
as a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of Georgia-Pacific and its Restricted Subsidiaries taken
as a whole to another Person or group may be uncertain.
ASSET SALES
Georgia-Pacific will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) Georgia-Pacific (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least equal to the
fair market value, as determined in good faith by Georgia-Pacific's Board
of Directors, of the assets or Equity Interests issued or sold or otherwise
disposed of; and
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(2) at least 75% of the consideration received in the Asset Sale by
Georgia-Pacific or such Restricted Subsidiary is in the form of cash or
Replacement Assets, or a combination of both. For purposes of this
provision, each of the following will be deemed to be cash:
(a) any liabilities, as shown on Georgia-Pacific's most recent
consolidated balance sheet, of Georgia-Pacific or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are
by their terms subordinated to the notes or the Subsidiary Guarantees)
that are assumed by the transferee of any such assets pursuant to an
agreement that releases Georgia-Pacific or such Restricted Subsidiary
from further liability or with respect to which the transferee has
granted a full and complete indemnity to Georgia-Pacific or such
Restricted Subsidiary;
(b) any securities, notes or other obligations received by
Georgia-Pacific or any such Restricted Subsidiary from such transferee
that are converted by Georgia-Pacific or such Restricted Subsidiary
into cash, to the extent of the cash received in that conversion,
within 180 days after receipt; and
(c) Cash Equivalents.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Georgia-Pacific or any Restricted Subsidiary may apply those Net Proceeds:
(1) to repay Indebtedness and other Obligations under any Credit
Facility;
(2) to repay (or repurchase) any secured Indebtedness;
(3) to repay (or repurchase) any Indebtedness of a Restricted
Subsidiary other than Fort James;
(4) to repay (or repurchase) any Indebtedness with a final Stated
Maturity that is prior to the final Stated Maturity of the notes;
(5) to acquire all or substantially all of the assets of, or a majority
of the Voting Stock of, another Permitted Business (including by means of a
merger, consolidation or other business combination permitted under the
applicable indenture);
(6) to make a capital expenditure; or
(7) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any Net Proceeds, Georgia-Pacific and any
Restricted Subsidiary may temporarily reduce revolving credit borrowings or
otherwise invest the Net Proceeds in any manner that is not prohibited by the
indentures.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $50.0 million, Georgia-Pacific will,
within 30 days, make an offer to all holders of notes, and, at Georgia-Pacific's
option, to all holders of other Indebtedness that is pari passu with the notes,
to purchase the maximum principal amount of notes and such other pari passu
Indebtedness that may be purchased out of the Excess Proceeds. The offer price
in any Asset Sale offer will be equal to 100% of the principal amount of the
notes being repurchased plus accrued and unpaid interest and Special Interest,
if any, to the date of purchase, and will be payable in cash. If any Excess
Proceeds remain after consummation of an Asset Sale offer, Georgia-Pacific may
use those Excess Proceeds for any purpose not otherwise prohibited by the
indentures. If the aggregate principal amount of notes and other pari passu
Indebtedness tendered into such Asset Sale offer exceeds the amount of Excess
Proceeds, the trustees will select the notes and such other pari passu
Indebtedness to be purchased on a pro rata basis. Upon completion of (1) each
Asset Sale offer and (2) a Permitted Spin-Off Transaction, the amount of Excess
Proceeds will be reset at zero.
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Georgia-Pacific will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of the indentures, Georgia-Pacific will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indentures by virtue of such
conflict.
The agreements governing Georgia-Pacific's other Indebtedness contain
prohibitions of certain events, including events that would constitute an Asset
Sale or Change of Control. In addition, the exercise by the holders of notes of
their right to require Georgia-Pacific to repurchase the notes upon an Asset
Sale or Change of Control could cause a default under these other agreements,
even if the Asset Sale or Change of Control does not, due to the financial
effect of such repurchases on Georgia-Pacific. Finally, Georgia-Pacific's
ability to pay cash to the holders of notes upon a repurchase may be limited by
Georgia-Pacific's then existing financial resources. Georgia-Pacific's failure
to make or consummate an Asset Sale or Change of Control offer or pay the
applicable Asset Sale or Change of Control payment when due would result in an
Event of Default and would give the trustee and the holders of the notes the
rights described below under the caption "-- Events of Default and Remedies."
SELECTION AND NOTICE
If less than all of the 2008 notes or 2014 notes are to be redeemed at any
time, the applicable trustee will select notes for redemption as follows:
(1) if the applicable notes are listed on any national securities
exchange, in compliance with the requirements of the principal national
securities exchange on which they are listed; or
(2) if the applicable notes are not listed on any national securities
exchange, on a pro rata basis, by lot or by such method as that trustee
deems fair and appropriate.
No notes of $1,000 or less can be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address, except that redemption notices may be mailed more than 60 days prior to
a redemption date if the notice is issued in connection with a defeasance of the
notes or a satisfaction and discharge of either of the indentures. Notices of
redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of the holder of notes
upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
CERTAIN COVENANTS
CHANGES IN COVENANTS WHEN NOTES RATED INVESTMENT GRADE
If on any date following the date of the indentures either series of notes
has an Investment Grade Rating from both of the Rating Agencies and no Default
or Event of Default has occurred and is continuing (a "Fall Away Event"), then,
beginning on that day and continuing at all times thereafter regardless of any
subsequent changes in the rating of those notes, the provisions of
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the applicable indenture summarized under the following captions will no longer
be applicable to that series of notes:
(1) "-- Repurchase at the Option of Holders";
(2) "-- Certain Covenants -- Restricted Payments";
(3) "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock";
(4) "-- Certain Covenants -- Liens" (but only the first paragraph of
such covenant);
(5) "-- Certain Covenants -- Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries";
(6) "-- Certain Covenants -- Merger, Consolidation or Sale of Assets"
(but only clause (4) of such covenant);
(7) "-- Certain Covenants -- Transactions with Affiliates";
(8) "-- Certain Covenants -- Sale and Leaseback Transactions" (but only
the first paragraph of such covenant);
(9) "-- Certain Covenants -- Payments for Consent"; and
(10) "-- Certain Covenants -- Business Activities."
If either series of the notes achieves an Investment Grade Rating, there
can be no assurance that such rating will be maintained.
RESTRICTED PAYMENTS
Georgia-Pacific will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of Georgia-Pacific's Equity Interests (including,
without limitation, any payment in connection with any merger or
consolidation involving Georgia-Pacific) or to the direct or indirect
holders of Georgia-Pacific's Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of Georgia-Pacific);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving Georgia-Pacific) any Equity Interests of
Georgia-Pacific;
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or the Subsidiary Guarantees, except a payment of
interest or principal at the Stated Maturity thereof (other than (x)
intercompany Indebtedness permitted under clause (7) of the covenant
described below under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock" and (y) the purchase, repurchase or other
acquisition of subordinated Indebtedness purchased in anticipation of
satisfying a payment of principal at the Stated Maturity thereof, in each
case within one year of such Stated Maturity); or
(4) make any Restricted Investment (all such payments and other actions
set forth in these clauses (1) through (4) above being collectively
referred to as "Restricted Payments"),
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unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing;
(2) Georgia-Pacific could incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described below under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Georgia-Pacific and its Restricted
Subsidiaries after the date of the indentures (excluding Restricted
Payments permitted by clauses (2), (3), (4), (5), (6), (7), (8) and (9) of
the next succeeding paragraph), is less than the sum, without duplication,
of:
(a) 50% of the Consolidated Net Income of Georgia-Pacific for the
period (taken as one accounting period) from the beginning of the
fiscal quarter ended March 29, 2003 to the end of Georgia-Pacific's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), provided that for the purposes of this clause (a), in
the event of a Permitted Spin-Off Transaction, Consolidated Net Income
shall thereafter be calculated on a pro forma basis, as if such
Permitted Spin-Off Transaction had been consummated on January 30,
2003, plus
(b) 100% of the aggregate net cash proceeds received by
Georgia-Pacific since January 30, 2003 (i) as a contribution to its
common equity capital or from the issue or sale of Equity Interests of
Georgia-Pacific (other than Disqualified Stock) or (ii) from the issue
or sale of convertible or exchangeable Disqualified Stock or
convertible or exchangeable debt securities of Georgia-Pacific upon
conversion into or exchange for such Equity Interests (other than
Equity Interests (or Disqualified Stock or debt securities) sold to a
Subsidiary of Georgia-Pacific), plus
(c) 100% of the fair market value as of the date of issuance of
any Equity Interests (other than Disqualified Stock) issued by
Georgia-Pacific as consideration for the purchase by Georgia-Pacific or
any of its Restricted Subsidiaries of all or substantially all of the
assets of, or a majority of the Voting Stock of, another Permitted
Business (including by means of a merger, consolidation or other
business combination permitted under the indentures), plus
(d) to the extent that any Restricted Investment that was made
after January 30, 2003 is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition, if
any) and (ii) the initial amount of such Restricted Investment, plus
(e) to the extent that any Unrestricted Subsidiary of
Georgia-Pacific is redesignated as a Restricted Subsidiary after
January 30, 2003, the lesser of (i) the fair market value of
Georgia-Pacific's Investment in such Subsidiary as of the date of such
redesignation or (ii) such fair market value as of the date on which
such Subsidiary was originally designated as an Unrestricted
Subsidiary.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the dividend
payment would have complied with the provisions of the indentures;
(2) any Restricted Payments required to complete a Permitted Spin-Off
Transaction;
67
(3) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of Georgia-Pacific or any
Restricted Subsidiary or of any Equity Interests of Georgia-Pacific in
exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary of Georgia-Pacific)
of, Equity Interests of Georgia-Pacific (other than Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement, defeasance or other
acquisition will be excluded from clause (3)(b) of the preceding paragraph;
(4) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Georgia-Pacific or any Restricted Subsidiary
with the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness;
(5) so long as no Default or Event of Default shall have occurred and
be continuing, the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of Georgia-Pacific or any
Restricted Subsidiary of Georgia-Pacific from employees, former employees,
directors or former directors of Georgia-Pacific or any of its Restricted
Subsidiaries or their authorized representatives upon the death, disability
or termination of the employment of such employees or former employees or
termination of the term of such director or former director; provided that
the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests may not exceed $25.0 million in any twelve-month
period; provided further that such amount in any calendar year may be
increased by an amount not to exceed the cash proceeds of key man life
insurance policies received by Georgia-Pacific and its Restricted
Subsidiaries after January 30, 2003 less the amount of any Restricted
Payments previously made pursuant to this proviso;
(6) repurchases of Equity Interests deemed to occur upon (i) the
exercise of stock options if such Equity Interests represent a portion of
the exercise price thereof and (ii) the withholding of a portion of the
Equity Interests granted or awarded to an employee to pay taxes associated
therewith; or
(7) the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of Georgia-Pacific issued in accordance with
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock" to the extent such dividends
are included in the definition of Fixed Charges;
(8) so long as no Default or Event of Default shall have occurred and
be continuing, the declaration and payment of dividends to holders of
Georgia-Pacific's common stock in respect of any fiscal quarter ending on
or prior to March 31, 2005; provided that any such dividends declared and
paid pursuant to this clause (8) shall not exceed $35.0 million in any such
fiscal quarter; or
(9) so long as no Default or Event of Default shall have occurred and
be continuing, other Restricted Payments in an aggregate amount, when taken
together with all other Restricted Payments made pursuant to this clause
(9), not to exceed $200.0 million.
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Georgia-Pacific or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors whose resolution with
respect thereto will be final and binding and will be delivered to the trustees.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
Georgia-Pacific will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly
68
liable, contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt), and Georgia-Pacific will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that Georgia-Pacific may
incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and
its Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) or
issue preferred stock, if the Fixed Charge Coverage Ratio for Georgia-Pacific's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock or preferred stock is issued
would have been at least 2.0 to 1 determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or the preferred stock or Disqualified Stock had
been issued, as the case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness, Disqualified Stock or preferred
stock, as applicable (collectively, "Permitted Debt"):
(1) the incurrence by Georgia-Pacific or any of its Restricted
Subsidiaries (and the Guarantee thereof by any Restricted Subsidiary or
Georgia-Pacific, as applicable) of Indebtedness and letters of credit under
Credit Facilities in an aggregate principal amount at any one time
outstanding under this clause (1) (with letters of credit (other than
letters of credit contemplated by clause (12) below) being deemed to have a
principal amount equal to the maximum potential liability of
Georgia-Pacific and the Restricted Subsidiaries thereunder), when taken
together with the aggregate principal amount of all then-outstanding
Indebtedness incurred pursuant to clause (14) of this paragraph, not to
exceed the greater of:
(a) the Designated Amount; or
(b) the Borrowing Base as of the date of such incurrence;
(2) the incurrence by Georgia-Pacific and its Restricted Subsidiaries
of the Existing Indebtedness;
(3) the incurrence by Georgia-Pacific, Fort James and Fort James
Operating Co. of Indebtedness represented by the old notes and the related
Subsidiary Guarantees to be issued on the date of the indentures and the
new notes and the related Subsidiary Guarantees to be issued pursuant to
the registration rights agreement;
(4) the incurrence by Georgia-Pacific or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case, incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property (real or personal), plant or
equipment (whether through the direct purchase of assets or through the
purchase of the Capital Stock of any Person owning such assets) used in the
business of Georgia-Pacific or such Restricted Subsidiary, in an aggregate
principal amount at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (4), not to exceed the
greater of (i) $300.0 million or (ii) 3.0% of the Consolidated Net Tangible
Assets of Georgia-Pacific and its Restricted Subsidiaries;
(5) the incurrence by Georgia-Pacific or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the indentures
to be incurred under the first paragraph of this covenant or clause (2),
(3), (4), (5), (12), (13), (17) or (18) of this paragraph;
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(6) the incurrence by Georgia-Pacific or any of its Restricted
Subsidiaries of obligations with respect to letters of credit securing
obligations entered into in the ordinary course of business to the extent
such letters of credit are not drawn upon or, if drawn upon, such drawing
is reimbursed within five Business Days following receipt of a demand for
reimbursement;
(7) the incurrence by Georgia-Pacific or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among Georgia-Pacific
and any of its Restricted Subsidiaries; provided, however, that:
(a) if Georgia-Pacific, Fort James or Fort James Operating Co. is
the obligor on such Indebtedness and such Indebtedness is held by a
Restricted Subsidiary other than Fort James or Fort James Operating
Co., such Indebtedness must be expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the notes,
in the case of Georgia-Pacific, or the Subsidiary Guarantees, in the
case of Fort James or Fort James Operating Co.; and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than
Georgia-Pacific or a Restricted Subsidiary of Georgia-Pacific and (ii)
any sale or other transfer of any such Indebtedness to a Person that is
not either Georgia-Pacific or a Restricted Subsidiary of
Georgia-Pacific will be deemed, in each case, to constitute an
incurrence of such Indebtedness by Georgia-Pacific or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause
(7);
(8) the issuance of shares of preferred stock by a Restricted
Subsidiary to Georgia-Pacific or another Restricted Subsidiary; provided
that any subsequent issuance or transfer of any Capital Stock or any other
event which, in either case, results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any other subsequent transfer of
any such shares of preferred stock (except to Georgia-Pacific or another
Restricted Subsidiary) shall be deemed in each case to be an issuance of
such shares of preferred stock that was not permitted by this clause (8);
(9) the incurrence by Georgia-Pacific or any of its Restricted
Subsidiaries of:
(a) Hedging Obligations incurred in the ordinary course of
business and not for speculative purposes;
(b) Indebtedness in respect of performance, surety or appeal
bonds provided in the ordinary course of business; and
(c) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations of
Georgia-Pacific or any of its Restricted Subsidiaries incurred in
connection with the disposition of any business, assets or Subsidiary
of Georgia-Pacific in an aggregate amount not to exceed the gross
proceeds actually received by Georgia-Pacific or any Restricted
Subsidiary in connection with such disposition;
(10) the guarantee by Georgia-Pacific or any of its Restricted
Subsidiaries of Indebtedness of Georgia-Pacific or a Restricted Subsidiary
of Georgia-Pacific that was permitted to be incurred by another provision
of this covenant;
(11) the incurrence by Georgia-Pacific or any of its Restricted
Subsidiaries of Indebtedness represented by letters of credit for the
account of Georgia-Pacific or such Restricted Subsidiary, as the case may
be, in order to provide security for workers' compensation claims,
environmental remediation or other environmental matters or payment
obligations in connection with self-insurance or similar requirements, in
each case to the extent arising in the ordinary course of business;
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(12) the incurrence by Georgia-Pacific or any of its Restricted
Subsidiaries of Indebtedness represented by letters of credit pursuant to
or made in connection with that certain Insurance Allocation and Services
Agreement, dated November 27, 2002, between Georgia-Pacific and Unisource
Worldwide, Inc., in an aggregate principal amount at any time outstanding
not to exceed $25.0 million;
(13) the incurrence by Georgia-Pacific or any of its Restricted
Subsidiaries of Indebtedness represented by industrial revenue bonds
incurred to finance the construction or improvement of their respective
operations in an aggregate principal amount at any time outstanding
pursuant to this clause (13), including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace Indebtedness incurred
pursuant to this clause (13), not to exceed the greater of (i) $200.0
million or (ii) 2.0% of the Consolidated Net Tangible Assets of
Georgia-Pacific and its Restricted Subsidiaries;
(14) the incurrence by any Receivables Subsidiary of Indebtedness
pursuant to a Receivables Program; provided, however, that the aggregate
principal amount of Indebtedness incurred pursuant to this clause (14) at
any one time outstanding, when taken together with the aggregate principal
amount of all then-outstanding Indebtedness incurred pursuant to clause (1)
of this paragraph, does not exceed the Designated Amount;
(15) the incurrence by Georgia-Pacific or a Restricted Subsidiary of
Indebtedness to the extent the net proceeds thereof are promptly deposited
to defease all outstanding notes as described below under the caption
"-- Legal Defeasance and Covenant Defeasance";
(16) the incurrence by Georgia-Pacific or any of its Restricted
Subsidiaries of Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar institution
inadvertently drawn against insufficient funds in the ordinary course of
business;
(17) the incurrence by any Foreign Subsidiary of Indebtedness in an
aggregate principal amount at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (17), not to exceed $500.0
million; and
(18) the incurrence by Georgia-Pacific or any of its Restricted
Subsidiaries of additional Indebtedness or the issuance of Disqualified
Stock by Georgia-Pacific or preferred stock by any Restricted Subsidiary in
an aggregate principal amount or liquidation preference (or accreted value,
as applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (18), not to exceed $500.0 million.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant:
(1) in the event that an item of proposed Indebtedness meets the
criteria of more than one of the categories of Permitted Debt described in
clauses (1) through (18) above, or is entitled to be incurred pursuant to
the first paragraph of this covenant, Georgia-Pacific will be permitted to
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 covenant;
(2) Indebtedness under Credit Facilities outstanding on the date of the
indentures will be deemed to have been incurred on such date in reliance on
the exception provided by clause (1) of the definition of Permitted Debt
and Indebtedness under a Receivables Program outstanding on the date of the
indentures will be deemed to have been incurred on such date in reliance on
the exception provided by clause (14) of the definition of Permitted
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Debt, and Georgia-Pacific will not be permitted to reclassify any portion
of such Indebtedness thereafter;
(3) the outstanding principal amount of any particular Indebtedness
shall be counted only once and any obligations arising under any guarantee,
Lien, letter of credit or similar instrument supporting such Indebtedness
shall not be double counted;
(4) the accrual of interest, the 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 Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness
or an issuance of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges of Georgia-Pacific as accrued; and
(5) the maximum amount of Indebtedness that Georgia-Pacific or a
Restricted 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.
LIENS
Prior to a Fall Away Event, Georgia-Pacific will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly create, incur,
assume or suffer to exist any Lien securing Indebtedness, Attributable Debt or
trade payables (other than Permitted Liens) on any asset now owned or hereafter
acquired, unless all payments due under the indentures and the notes are secured
on an equal and ratable basis with (or prior to) the obligations so secured
until such time as such obligations are no longer secured by a Lien.
After a Fall Away Event, Georgia-Pacific will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien
(other than Fall Away Permitted Liens) upon (1) any Principal Property of
Georgia-Pacific or any Restricted Subsidiary, (2) any Equity Interest of a
Restricted Subsidiary or (3) any Indebtedness of a Restricted Subsidiary owed to
Georgia-Pacific or another Restricted Subsidiary, unless Georgia-Pacific secures
the outstanding notes equally and ratably with (or prior to) all Indebtedness
secured by such Lien.
Notwithstanding the foregoing, after a Fall Away Event, Georgia-Pacific and
its Restricted Subsidiaries will be permitted to create or assume Liens without
complying with the foregoing paragraph, provided that the aggregate amount of
all Indebtedness of Georgia-Pacific and its Restricted Subsidiaries that is
secured by these Liens (other than (1) Indebtedness secured solely by Fall Away
Permitted Liens, (2) Indebtedness that is secured equally and ratably with (or
on a basis subordinated to) the notes and (3) the notes) plus the aggregate
amount of all Attributable Debt of Georgia-Pacific and its Restricted
Subsidiaries with respect to all Sale and Leaseback Transactions outstanding at
such time (other than Sale and Leaseback Transactions permitted by the second
paragraph under "-- Sale and Leaseback Transactions"), would not exceed 10.0% of
the Consolidated Net Tangible Assets of Georgia-Pacific and its Restricted
Subsidiaries.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
Georgia-Pacific will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to Georgia-Pacific or any of its Restricted Subsidiaries;
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(2) make loans or advances to Georgia-Pacific or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Georgia-Pacific or any
of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements in effect on the date of the indentures and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of those agreements and any new
agreements, provided that the encumbrances or restrictions contained in any
such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements, refinancings or new agreements,
taken as a whole, are not materially more restrictive than the encumbrances
or restrictions contained in agreements in place on the date of the
indentures;
(2) the indentures, the notes and the Subsidiary Guarantees;
(3) any applicable law, rule, regulation or order;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Georgia-Pacific or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness or Capital Stock was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person or the property or assets of the Person so acquired, and
any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of those instruments,
provided that the encumbrances or restrictions contained in any such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings, taken as a whole, are not
materially more restrictive than the encumbrances or restrictions contained
in instruments in effect on the date of acquisition;
(5) customary non-assignment provisions in leases or other agreements
entered into in the ordinary course of business and consistent with past
practices;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on that property of the nature
described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition (including a
Permitted Spin-Off Transaction) of a Restricted Subsidiary that restricts
distributions by that Restricted Subsidiary pending its sale or other
disposition (including a Permitted Spin-Off Transaction);
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness, taken as a whole, are not materially more restrictive than
those contained in the agreements governing the Indebtedness being
refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
under the provisions of the covenant described above under the caption
"-- Liens" or below under the caption "-- Sale and Leaseback Transactions"
that limit the right of the debtor to dispose of the assets subject to such
Liens;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, asset sale agreements,
stock sale agreements and other similar agreements entered into in the
ordinary course of business;
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(11) Indebtedness of Foreign Subsidiaries permitted to be incurred
subsequent to the date of the indentures pursuant to the provisions of the
covenant described above under the caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock";
(12) restrictions on cash or other deposits or net worth imposed by
customers or lessors under contracts or leases entered into in the ordinary
course of business; and
(13) with respect to a Receivables Subsidiary, encumbrances and
restrictions that are imposed pursuant to a Receivables Program of such
Receivables Subsidiary; provided that such encumbrances and restrictions
are customarily required by the institutional sponsor or arranger at the
time of entering into such Receivables Program in similar types of
documents relating to the purchase of similar receivables in connection
with the financing thereof.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Georgia-Pacific may not, directly or indirectly: (1) consolidate or merge
with or into another Person (whether or not Georgia-Pacific is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of Georgia-Pacific and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person, unless:
(1) either: (a) Georgia-Pacific is the surviving corporation; or (b)
the Person formed by or surviving any such consolidation or merger (if
other than Georgia-Pacific) or to which such sale, assignment, transfer,
conveyance or other disposition has been made is either (i) a corporation
organized or existing under the laws of the United States, any state of the
United States or the District of Columbia or (ii) a partnership or limited
liability company organized or existing under the laws of the United
States, any state of the United States or the District of Columbia that has
at least one Restricted Subsidiary that is a corporation organized or
existing under the laws of the United States, any state of the United
States or the District of Columbia, which corporation becomes a co-issuer
of the notes pursuant to supplemental indentures duly and validly executed
by the trustees;
(2) the Person formed by or surviving any such consolidation or merger
(if other than Georgia-Pacific) or the Person to which such sale,
assignment, transfer, conveyance or other disposition has been made assumes
all the obligations of Georgia-Pacific under the notes, the indentures and
the registration rights agreement pursuant to agreements reasonably
satisfactory to the trustees;
(3) immediately after such transaction, no Default or Event of Default
exists; and
(4) Georgia-Pacific or the Person formed by or surviving any such
consolidation or merger (if other than Georgia-Pacific), or to which such
sale, assignment, transfer, conveyance or other disposition has been made
will, on the date of such transaction after giving pro forma effect thereto
and any related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock."
Notwithstanding the foregoing clause (4), if
(a) any Restricted Subsidiary consolidates with, merges into or
transfers all or part of its properties and assets to Georgia-Pacific or to
any other Restricted Subsidiary of Georgia-Pacific, or
(b) Georgia-Pacific merges with an Affiliate incorporated in the United
States primarily for the purpose of reincorporating Georgia-Pacific in
another jurisdiction,
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then no violation of this covenant will be deemed to have occurred, as long as
the requirements of clauses (1), (2) and (3) of this covenant are satisfied.
In addition, Georgia-Pacific may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. Except for clause (1)(b) of the preceding
paragraph, this "Merger, Consolidation or Sale of Assets" covenant will not
apply to a sale, assignment, transfer, conveyance or other disposition of assets
between or among Georgia-Pacific and its Restricted Subsidiaries or to a
Permitted Spin-Off Transaction or to any sale, assignment, transfer, conveyance
or other disposition of assets between or among Georgia-Pacific and any of its
Subsidiaries required in connection with a Permitted Spin-Off Transaction.
TRANSACTIONS WITH AFFILIATES
Georgia-Pacific will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms, when taken as a whole, that
are no less favorable to Georgia-Pacific or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction by Georgia-Pacific or such Restricted Subsidiary with an
unrelated Person; and
(2) Georgia-Pacific delivers to the trustees:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in
excess of $25.0 million, a resolution of the Board of Directors set
forth in an officers' certificate certifying that such Affiliate
Transaction complies with this covenant and that such Affiliate
Transaction has been approved by a majority of the disinterested
members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in
excess of $100.0 million, an opinion as to the fairness to
Georgia-Pacific of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of
national standing.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment, compensation, benefit or indemnification agreement
or arrangement (and any payments or other transactions pursuant thereto)
entered into by Georgia-Pacific or any of its Restricted Subsidiaries in
the ordinary course of business with an officer, employee or director and
any transactions pursuant to stock option plans, stock ownership plans and
employee benefit plans or arrangements;
(2) transactions between or among Georgia-Pacific and/or its Restricted
Subsidiaries (including any Person that becomes a Restricted Subsidiary as
a result of any such transaction);
(3) transactions with a Person that is an Affiliate of Georgia-Pacific
solely because Georgia-Pacific owns an Equity Interest in, or controls,
such Person;
(4) payment of fees to directors who are not otherwise employees of
Georgia-Pacific;
(5) sales of Equity Interests (other than Disqualified Stock) to
Affiliates of Georgia-Pacific;
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(6) Restricted Payments that are permitted by the provisions described
above under the caption "-- Restricted Payments";
(7) loans or advances to employees or consultants in the ordinary
course of business of Georgia-Pacific or its Restricted Subsidiaries;
(8) transactions between a Receivables Subsidiary and any Person in
which the Receivables Subsidiary has an Investment or any other
transactions in connection with a Receivables Program of Georgia-Pacific or
a Restricted Subsidiary;
(9) a Permitted Spin-Off Transaction and actions taken and agreements
entered into between or among Georgia-Pacific and its Subsidiaries required
to complete a Permitted Spin-Off Transaction; and
(10) transactions pursuant to or contemplated by any agreement of
Georgia-Pacific or any Restricted Subsidiary as in effect as of the date of
the indentures or any amendment thereto or any replacement agreement so
long as any such amendment or replacement agreement, taken as a whole, is
not materially more disadvantageous to the holders than the original
agreement as in effect on the date of the indentures.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors of Georgia-Pacific may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if that designation would not cause
a Default. If a Restricted Subsidiary is designated as an Unrestricted
Subsidiary, the aggregate fair market value of all outstanding Investments owned
by Georgia-Pacific and its Restricted Subsidiaries in the Subsidiary properly
designated will be deemed to be an Investment made as of the time of the
designation and will reduce the amount available for Restricted Payments under
the first paragraph of the covenant described above under the caption
"-- Restricted Payments" or Permitted Investments, as determined by
Georgia-Pacific. That designation will only be permitted if the Investment would
be permitted at that time and if the Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. The Board of Directors may redesignate
any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation
would not cause a Default.
SALE AND LEASEBACK TRANSACTIONS
Prior to a Fall Away Event, Georgia-Pacific will not, and will not permit
any of its Restricted Subsidiaries to, enter into any Sale and Leaseback
Transaction; provided that Georgia-Pacific or any Restricted Subsidiary may
enter into a Sale and Leaseback Transaction if:
(1) Georgia-Pacific or that Restricted Subsidiary, as applicable, could
have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such Sale and Leaseback Transaction under the Fixed Charge
Coverage Ratio test in the first paragraph of the covenant described above
under the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to the
first paragraph of the covenant described above under the caption
"-- Liens";
(2) the gross cash proceeds of that Sale and Leaseback Transaction are
at least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in an officers' certificate delivered to
the trustees, of the property that is the subject of that Sale and
Leaseback Transaction; and
(3) the transfer of assets in that Sale and Leaseback Transaction is
permitted by, and Georgia-Pacific applies the proceeds of such transaction
in compliance with, the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales."
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After a Fall Away Event, Georgia-Pacific will not, and will not permit any
Restricted Subsidiary to, enter into any Sale and Leaseback Transaction
involving any Principal Property, except for any Sale and Leaseback Transaction
involving a lease not exceeding three years, unless:
(1) Georgia-Pacific or that Restricted Subsidiary, as applicable, would
be entitled to incur Indebtedness secured by a Lien on that Principal
Property without equally and ratably securing the notes;
(2) an amount equal to the Attributable Debt of the Sale and Leaseback
Transaction is applied within 180 days to:
(a) the voluntary retirement of any of Indebtedness of
Georgia-Pacific or any Restricted Subsidiary maturing more than one
year after the date incurred, and which is senior to or pari passu in
right of payment with the notes; or
(b) the purchase of other property that will constitute Principal
Property having a value at least equal to the net proceeds of the sale;
or
(3) Georgia-Pacific or that Restricted Subsidiary, as applicable,
delivers to the trustees for cancellation notes in an aggregate principal
amount at least equal to the net proceeds of the sale.
Notwithstanding the foregoing, after a Fall Away Event, Georgia-Pacific may
enter into Sale and Leaseback Transactions that would not otherwise be permitted
under the limitations described in the preceding paragraph, provided that the
sum of the aggregate amount of all Indebtedness of Georgia-Pacific and its
Restricted Subsidiaries that is secured by Liens on any properties or assets of
Georgia-Pacific and any Restricted Subsidiaries (other than (1) Indebtedness
secured solely by Fall Away Permitted Liens, (2) Indebtedness that is secured
equally and ratably with (or on a basis subordinated to) the notes and (3) the
notes) and the aggregate amount of all Attributable Debt of Georgia-Pacific and
its Restricted Subsidiaries with respect to all Sale and Leaseback Transactions
outstanding at such time (other than Sale and Leaseback Transactions permitted
by the preceding paragraph) would not exceed 10.0% of the Consolidated Net
Tangible Assets of Georgia-Pacific and its Restricted Subsidiaries.
BUSINESS ACTIVITIES
Georgia-Pacific will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business, except to such extent as
would not be material to Georgia-Pacific and its Restricted Subsidiaries taken
as a whole.
PAYMENTS FOR CONSENT
Georgia-Pacific will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any holder of notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the indentures or the notes unless such consideration is offered to be paid
and is paid to all holders of the notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
REPORTS
Whether or not required by the SEC, so long as any notes are outstanding,
Georgia-Pacific will furnish to the holders of notes, within the time periods
specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
Georgia-Pacific were required
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to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the
annual information only, a report on the annual financial statements by
Georgia-Pacific's certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC
on Form 8-K if Georgia-Pacific were required to file such reports.
In addition, following the consummation of the exchange offers, whether or
not required by the SEC, Georgia-Pacific will file a copy of all of the
information and reports referred to in clauses (1) and (2) above with the SEC
for public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, Georgia-Pacific and Fort James have agreed that, for so
long as any notes remain outstanding, they will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
With respect to each series of notes, each of the following is an Event of
Default:
(1) default for 30 days in the payment when due of interest on, or
Special Interest with respect to, such notes;
(2) default in payment when due of the principal of or premium, if any,
on such notes;
(3) failure by Georgia-Pacific or any of its Restricted Subsidiaries to
comply with the provisions described under the captions "-- Repurchase at
the Option of Holders -- Change of Control" or "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets";
(4) failure by Georgia-Pacific or any of its Restricted Subsidiaries
for 60 days after notice from the applicable trustee or the holders of at
least 25% in aggregate principal amount of either series of the notes
outstanding to comply with any of the other agreements in the applicable
indenture;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Georgia-Pacific or any of its
Significant Subsidiaries (or the payment of which is guaranteed by
Georgia-Pacific or any of its Significant Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
indentures, if that default:
(a) is caused by a failure to pay principal of, or interest or
premium, if any, on such Indebtedness after the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has
been so accelerated, aggregates $100.0 million or more and has not been
discharged in full or such acceleration rescinded or annulled within 20
days of such Payment Default or acceleration;
(6) failure by Georgia-Pacific or any of its Significant Subsidiaries
to pay final, non-appealable judgments aggregating in excess of $100.0
million, which judgments are not paid, discharged or stayed for a period of
60 days;
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(7) except as permitted by the applicable indenture, the Subsidiary
Guarantees relating to such notes shall be held in any judicial proceeding
to be unenforceable or invalid or shall cease for any reason to be in full
force and effect or Fort James or Fort James Operating Co., or any Person
acting on behalf of Fort James or Fort James Operating Co., shall deny or
disaffirm its obligations under such Subsidiary Guarantees; and
(8) certain events of bankruptcy or insolvency described in the
indentures with respect to Georgia-Pacific or any of its Significant
Subsidiaries.
In the case of an Event of Default described above in clause (8), all
outstanding notes will become due and payable immediately without further action
or notice. If any other Event of Default occurs and is continuing, the
applicable trustee or the holders of at least 25% in principal amount of the
then outstanding notes of the applicable series may declare that series of notes
to be due and payable immediately.
Holders of the notes may not enforce the applicable indenture or notes
except as provided in such indenture. Subject to certain limitations, with
respect to either series of notes, holders of a majority in principal amount of
the then outstanding notes of that series may direct the applicable trustee in
its exercise of any trust or power. Either trustee may withhold from holders of
the notes notice of any continuing Default or Event of Default if it determines
that withholding notice is in their interest, except a Default or Event of
Default relating to the payment of principal, interest or Special Interest.
With respect to either series of notes, the holders of a majority in
aggregate principal amount of notes of that series then outstanding by notice to
the applicable trustee may on behalf of the holders of that series of notes
waive any existing Default or Event of Default and its consequences under the
applicable indenture except a continuing Default or Event of Default in the
payment of interest or premium and Special Interest on, or the principal of,
that series of notes.
Georgia-Pacific is required to deliver to the trustees annually a statement
regarding compliance with the indentures. Upon becoming aware of any Default or
Event of Default, Georgia-Pacific is required to deliver to the trustees a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of
Georgia-Pacific, Fort James or Fort James Operating Co., as such, will have any
liability for any obligations of Georgia-Pacific, Fort James or Fort James
Operating Co. under the notes, the indentures, the Subsidiary Guarantees, or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of notes by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes. The waiver may not be effective to waive liabilities under the
federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Georgia-Pacific may, at its option and at any time, elect to have all of
its obligations discharged with respect to either or both series of notes and
all obligations of Fort James and Fort James Operating Co. discharged with
respect to the related Subsidiary Guarantees ("Legal Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium and Special Interest,
if any, on such notes when such payments are due from the trust referred to
below;
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(2) Georgia-Pacific'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;
(3) the rights, powers, trusts, duties and immunities of the trustees,
and Georgia-Pacific's, Fort James' and Fort James Operating Co.'s
obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indentures.
In addition, Georgia-Pacific may, at its option and at any time, elect to
have the obligations of Georgia-Pacific, Fort James and Fort James Operating Co.
released with respect to certain covenants in either or both indentures
("Covenant Defeasance") and thereafter any omission to comply with those
covenants will not constitute a Default or Event of Default with respect to the
applicable notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "-- Events of Default and Remedies" will no longer
constitute Events of Default with respect to the applicable notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Georgia-Pacific must irrevocably deposit with the applicable
trustee, in trust, for the benefit of the holders of the applicable notes,
cash in U.S. dollars, non-callable Government Securities, or a combination
of cash in U.S. dollars and non-callable Government Securities, in amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or interest and
premium and Special Interest, if any, on the outstanding notes of the
applicable series on the stated maturity or on the applicable redemption
date, as the case may be, and Georgia-Pacific must specify whether such
notes are being defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, Georgia-Pacific has delivered to
the applicable trustee an opinion of counsel reasonably acceptable to such
trustee confirming that (a) Georgia-Pacific has received from, or there has
been published by, the Internal Revenue Service a ruling or (b) since the
date of the indentures, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel will confirm that, the holders of the applicable
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
(3) in the case of Covenant Defeasance, Georgia-Pacific has delivered
to the applicable trustee an opinion of counsel reasonably acceptable to
such trustee confirming that the holders of the applicable 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;
(4) no Default or Event of Default has occurred and is continuing on
the date of such deposit under the applicable indenture (other than a
Default or Event of Default resulting from the borrowing of funds to be
applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than
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the indentures) to which Georgia-Pacific or any of its Restricted
Subsidiaries is a party or by which Georgia-Pacific or any of its
Restricted Subsidiaries is bound;
(6) Georgia-Pacific must deliver to the applicable trustee an officers'
certificate stating that the deposit was not made by Georgia-Pacific with
the intent of preferring the holders of notes being defeased over the other
creditors of Georgia-Pacific with the intent of defeating, hindering,
delaying or defrauding creditors of Georgia-Pacific or others; and
(7) Georgia-Pacific must deliver to the applicable trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant Defeasance have
been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the 2008 notes
and the related indenture or the 2014 notes and the related indenture may be
amended or supplemented with the consent of the holders of at least a majority
in principal amount of the 2008 notes or the 2014 notes, as the case may be,
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, notes), and any
existing default or compliance with any provision of the 2008 notes and the
related indenture or the 2014 notes and the related indenture may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding 2008 notes or 2014 notes, as the case may be (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, notes).
With respect to each series of notes, without the consent of each holder
affected, an amendment or waiver may not (with respect to any notes held by a
non-consenting holder):
(1) reduce the principal amount of such notes whose holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any such
note or alter the provisions with respect to the redemption of such notes
(other than provisions relating to the covenants described above under the
caption "-- Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any such note;
(4) waive a Default or Event of Default in the payment of principal of,
or interest or premium, or Special Interest, if any, on such notes (except
a rescission of acceleration of such notes by the holders of at least a
majority in aggregate principal amount of the applicable series of notes,
and a waiver of the payment default that resulted from such acceleration);
(5) make any such note payable in money other than that stated in such
notes;
(6) make any change in the provisions of the applicable indenture
relating to waivers of past Defaults or the rights of holders of such notes
to receive payments of principal of, or interest or premium or Special
Interest, if any, on such notes;
(7) waive a redemption payment with respect to any such note (other
than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders");
(8) release Fort James and/or Fort James Operating Co. from any of its
obligations under its Subsidiary Guarantee of such series of notes or the
applicable indenture, except in accordance with the terms of such
indenture; or
(9) make any change in the preceding amendment and waiver provisions.
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With respect to either series of notes, notwithstanding the preceding
paragraph, without the consent of any holder of such notes, Georgia-Pacific,
Fort James, Fort James Operating Co. and the applicable trustee may amend or
supplement the applicable indenture, the applicable notes or the applicable
Subsidiary Guarantees:
(1) to cure any ambiguity, defect, omission or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Georgia-Pacific's obligations to
holders of such notes in the case of a merger or consolidation or sale of
all or substantially all of Georgia-Pacific's assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of such notes or that does not adversely affect the
legal rights under the applicable indenture of any such holder;
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of the applicable indenture under the Trust
Indenture Act; or
(6) to provide for the issuance of additional notes in accordance with
the limitations set forth in the applicable indenture.
SATISFACTION AND DISCHARGE
Each indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all applicable notes that have been authenticated, except
lost, stolen or destroyed notes that have been replaced or paid and
applicable notes for whose payment money has been deposited in trust
and thereafter repaid to Georgia-Pacific, have been delivered to the
trustee for cancellation; or
(b) all applicable notes that have not been delivered to the
trustee for cancellation have become due and payable by reason of the
mailing of a notice of redemption or otherwise or will become due and
payable within one year and Georgia-Pacific, Fort James or Fort James
Operating Co. has irrevocably deposited or caused to be deposited with
the trustee as trust funds in trust solely for the benefit of the
holders, cash in U.S. dollars, non-callable Government Securities, or a
combination of cash in U.S. dollars and non-callable Government
Securities, in amounts as will be sufficient without consideration of
any reinvestment of interest, to pay and discharge the entire
indebtedness on the applicable notes not delivered to the applicable
trustee for cancellation for principal, premium and Special Interest,
if any, and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on
the date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which Georgia-Pacific, Fort James or
Fort James Operating Co. is a party or by which Georgia-Pacific, Fort James
or Fort James Operating Co. is bound;
(3) Georgia-Pacific, Fort James or Fort James Operating Co. has paid or
caused to be paid all sums payable by it under the applicable indenture;
and
(4) Georgia-Pacific has delivered irrevocable instructions to the
applicable trustee under the applicable indenture to apply the deposited
money toward the payment of the applicable notes at maturity or the
redemption date, as the case may be.
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In addition, Georgia-Pacific must deliver an officers' certificate and an
opinion of counsel to the applicable trustee stating that all conditions
precedent to satisfaction and discharge have been satisfied.
CONCERNING THE TRUSTEES
If a trustee becomes a creditor of Georgia-Pacific, Fort James or Fort
James Operating Co., the applicable indenture limits its right to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the SEC for permission to continue, or resign.
The holders of a majority in principal amount of the then outstanding 2008
notes or 2014 notes, as the case may be, will have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the trustee, subject to certain exceptions. The applicable
indenture provides that in case an Event of Default occurs and is continuing,
the trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs. Subject to such
provisions, the trustees will be under no obligation to exercise any of their
rights or powers under the applicable indenture at the request of any holder of
2008 notes or 2014 notes, as the case may be, unless such holder has offered to
the trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indentures and
the registration rights agreement without charge by following the instructions
under the caption "Where You Can Find More Information."
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, notes will be issued in registered, global form
in minimum denominations of $1,000 and integral multiples of $1,000 in excess of
$1,000. Notes will be issued at the closing of these exchange offers only
against exchange of old notes in immediately available funds.
The notes initially will be represented by two or more notes in registered,
global form without interest coupons (collectively, the "Global Notes"). The
Global Notes will be deposited upon issuance with the applicable trustee as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Global Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of notes in certificated
form.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC 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 changes by them. Georgia-Pacific takes no responsibility for these operations
and procedures and urges investors to contact the system or their participants
directly to discuss these matters.
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DTC has advised Georgia-Pacific that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interests
in, and transfers of ownership interests in, each security held by or on behalf
of DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised Georgia-Pacific that, pursuant to procedures
established by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants with portions of the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on,
and the transfer of ownership of these interests will be effected only
through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other
owners of beneficial interest in the Global Notes).
Investors in the Global Notes who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Notes who
are not Participants may hold their interests therein indirectly through
organizations which are Participants in such system. The laws of some states
require that certain Persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such Persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants, the ability of a Person having beneficial interests in
a Global Note to pledge such interests to Persons that do not participate in the
DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURES FOR ANY PURPOSE.
Payments in respect of the principal of, and interest and premium and
Special Interest, if any, on a Global Note registered in the name of DTC or its
nominee will be payable to DTC in its capacity as the registered holder under
the indentures. Under the terms of the indentures, Georgia-Pacific and the
trustees will treat the Persons in whose names the notes, including the Global
Notes, are registered as the owners of the notes for the purpose of receiving
payments and for all other purposes. Consequently, neither Georgia-Pacific, the
trustees nor any agent of Georgia-Pacific or the trustees has or will have any
responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or
any of its Participants or Indirect Participants.
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DTC has advised Georgia-Pacific that its current practice, upon receipt of
any payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the trustees or Georgia-Pacific. Neither
Georgia-Pacific nor the trustees will be liable for any delay by DTC or any of
its Participants in identifying the beneficial owners of the notes, and
Georgia-Pacific and the trustees may conclusively rely on and will be protected
in relying on instructions from DTC or its nominee for all purposes.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
DTC has advised Georgia-Pacific that it will take any action permitted to
be taken by a holder of notes only at the direction of one or more Participants
to whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the notes, DTC reserves the right
to exchange the Global Notes for legended notes in certificated form, and to
distribute such notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and may
discontinue such procedures at any time. Neither Georgia-Pacific nor the
trustees nor any of their respective agents will have any responsibility for the
performance by DTC or its respective participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies Georgia-Pacific that it is unwilling or unable to
continue as depositary for the Global Notes and Georgia-Pacific fails to
appoint a successor depositary or (b) has ceased to be a clearing agency
registered under the Exchange Act;
(2) Georgia-Pacific, at its option, notifies the applicable trustee in
writing that it elects to cause the issuance of the Certificated Notes; or
(3) there has occurred and is continuing a Default or Event of Default
with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the applicable trustee by
or on behalf of DTC in accordance with the indentures. In all cases,
Certificated Notes delivered in exchange for any Global Note or beneficial
interests in Global Notes will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures) and will bear an applicable
restrictive legend unless that legend is not required by applicable law.
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SAME DAY SETTLEMENT AND PAYMENT
Georgia-Pacific will make payments in respect of the notes represented by
the Global Notes (including principal, premium, if any, interest and Special
Interest, if any) by wire transfer of immediately available funds to the
accounts specified by the Global Note holder. Georgia-Pacific will make all
payments of principal, interest and premium and Special Interest, if any, with
respect to Certificated Notes by wire transfer of immediately available funds to
the accounts specified by the holders of the Certificated Notes or, if no such
account is specified, by mailing a check to each such holder's registered
address. The notes represented by the Global Notes are expected to be eligible
to trade in the PORTAL market and to trade in DTC's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such notes will,
therefore, be required by DTC to be settled in immediately available funds.
Georgia-Pacific expects that secondary trading in any Certificated Notes will
also be settled in immediately available funds.
REGISTRATION RIGHTS; SPECIAL INTEREST
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the registration rights agreement in its entirety
because it, and not this description, defines your registration rights as
holders of the old notes. See "-- Additional Information."
In connection with the closing of the offering, Georgia-Pacific, Fort
James, Fort James Operating Co. and the Initial Purchasers entered into the
registration rights agreement effective June 3, 2003. Pursuant to the
registration rights agreement, Georgia-Pacific and Fort James agreed to file
with the SEC a registration statement of which this prospectus is a part (as
used in this subsection, the "exchange offer registration statement") with
respect to the registered new notes having the same terms as the old notes and
which are to be exchanged for the new notes. Upon the effectiveness of the
exchange offer registration statement, Georgia-Pacific, Fort James and Fort
James Operating Co. agreed to offer to the holders of Transfer Restricted
Securities (defined below) pursuant to an exchange offer who are able to make
certain representations the opportunity to exchange their Transfer Restricted
Securities for new notes.
The registration rights agreement provides that:
(1) Georgia-Pacific, Fort James and Fort James Operating Co. will file
the exchange offer registration statement with the SEC on or prior to 90
days after the closing of the offering (September 1, 2003);
(2) Georgia-Pacific, Fort James and Fort James Operating Co. will use
reasonable best efforts to have the exchange offer registration statement
declared effective by the SEC on or prior to 180 days after the closing of
the offering (November 30, 2003);
(3) Georgia-Pacific and Fort James will use reasonable best efforts to
commence and complete the exchange offers on or prior to the 30th business
day, or longer, if required by the federal securities laws, after the date
on which the registration statement to which this prospectus relates is
declared effective by the SEC, new notes in exchange for all old notes that
have been properly tendered and not withdrawn on or prior to the expiration
of the exchange offer; and
(4) if obligated to file the shelf registration statement,
Georgia-Pacific and Fort James will use reasonable best efforts to file the
shelf registration statement with the SEC on or prior to 60 days after such
filing obligation arises and to cause the shelf registration statement to
be declared effective by the SEC on or prior to 150 days after such
obligation arises.
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If:
(1) Georgia-Pacific, Fort James and Fort James Operating Co. are not:
(a) required to file the exchange offer registration statement;
or
(b) permitted to consummate the exchange offer because the
exchange offers are not permitted by applicable law or SEC policy; or
(2) any holder of Transfer Restricted Securities notifies
Georgia-Pacific prior to the 20th day following consummation of the
exchange offers that:
(a) it is prohibited by law or SEC policy from participating in
the exchange offers; or
(b) that it may not resell the new notes acquired by it in the
exchange offers to the public without delivering a prospectus and the
prospectus contained in the exchange offer registration statement is
not appropriate or available for such resales; or
(c) that it is a broker-dealer and owns notes acquired directly
from Georgia-Pacific or an affiliate of Georgia-Pacific,
then Georgia-Pacific, Fort James and Fort James Operating Co. will file with the
SEC a shelf registration statement to cover resales of the notes by the holders
of the notes who satisfy certain conditions relating to the provision of
information in connection with the shelf registration statement.
Georgia-Pacific, Fort James and Fort James Operating Co. will use
reasonable best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the SEC.
For purposes of the preceding, "Transfer Restricted Securities" means each
old note until:
(1) the date on which such note has been exchanged by a Person other
than a broker-dealer for a new note in the exchange offers;
(2) following the exchange by a broker-dealer in the exchange offers of
an old note for a new note, the date on which such new note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of
such sale a copy of the prospectus contained in the exchange offer
registration statement;
(3) the date on which such note has been effectively registered under
the Securities Act and disposed of in accordance with the shelf
registration statement;
(4) the date on which such note is distributed to the public pursuant
to Rule 144 under the Securities Act;
(5) the date on which such note is eligible to be sold pursuant to
paragraph (k) of Rule 144; or
(6) the date on which such note ceases to be outstanding.
If:
(1) Georgia-Pacific, Fort James and Fort James Operating Co. fail to
file any of the registration statements required by the registration rights
agreement on or before the date specified above for such filing; or
(2) any of such registration statements is not declared effective by
the SEC on or prior to the date specified above for such effectiveness (the
"Effectiveness Target Date"); or
87
(3) Georgia-Pacific, Fort James and Fort James Operating Co. fail to
consummate the exchange offer before the 31st business day after the
Effectiveness Target Date with respect to the exchange offer registration
statement; or
(4) the shelf registration statement or the exchange offer registration
statement is declared effective but thereafter is withdrawn or subject to
an effective stop order pursuant to Section 8(d) of the Securities Act
suspending the effectiveness of Transfer Restricted Securities during the
periods specified in the registration rights agreement (each such event
referred to in clauses (1) through (4) above, a "Registration Default"),
then Georgia-Pacific, Fort James and Fort James Operating Co. will pay Special
Interest to each affected holder of notes, with respect to the first 90-day
period immediately following the occurrence of the first Registration Default in
an amount equal to 0.25% per annum of the principal amount of notes held by such
holder.
The amount of the Special Interest will increase by an additional 0.25% per
annum of the principal amount of notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of Special Interest for all Registration Defaults of 1.0% per annum of the
principal amount of notes.
Following the cure of all Registration Defaults, the accrual of Special
Interest will cease.
Holders of old notes will be required to make certain representations to
Georgia-Pacific (as described in the registration rights agreement) in order to
participate in the exchange offers and will be required to deliver certain
information to be used in connection with the shelf registration statement and
to provide comments on the shelf registration statement within the time periods
set forth in the registration rights agreement in order to have their old notes
included in the shelf registration statement and benefit from the provisions
regarding Special Interest set forth above. By acquiring Transfer Restricted
Securities, a holder will be deemed to have agreed to indemnify Georgia-Pacific,
Fort James and Fort James Operating Co. against certain losses arising out of
information furnished by such holder in writing for inclusion in any shelf
registration statement. Holders of notes will also be required to suspend their
use of the prospectus included in the shelf registration statement under certain
circumstances upon receipt of written notice to that effect from
Georgia-Pacific.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indentures. Reference
is made to the indentures for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person,
but excluding Indebtedness of such other Person that is extinguished, retired or
repaid concurrently with such other Person becoming a Restricted Subsidiary of,
or at the time it is merged into or consolidates with, such specified Person.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue,
88
assuming a price for the Comparable Treasury Issue (expressed as a percentage of
its principal amount) equal to the Comparable Treasury Price for such redemption
date.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings. Notwithstanding the foregoing, no Person (other
than Georgia-Pacific or any Subsidiary of Georgia-Pacific) in whom a Receivables
Subsidiary makes an Investment in connection with a Receivables Program shall be
deemed to be an Affiliate of Georgia-Pacific or any of its Subsidiaries solely
by reason of such Investment.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights; provided that the sale, conveyance or other disposition of all or
substantially all of the assets of Georgia-Pacific and its Restricted
Subsidiaries taken as a whole will be governed by the provisions described
above under the caption "-- Repurchase at the Option of Holders -- Change
of Control" and/or the provisions described above under the caption
"-- Certain Covenants -- Merger, Consolidation or Sale of Assets" and not
by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of Georgia-Pacific's
Restricted Subsidiaries.
Notwithstanding the preceding, none of the following items will be deemed
to be an Asset Sale:
(1) any single transaction or series of related transactions that
involves Equity Interests or assets having a fair market value of less than
$25.0 million;
(2) a transfer of assets between or among Georgia-Pacific and one or
more of its Restricted Subsidiaries (including any Person that becomes a
Restricted Subsidiary in connection with such transaction);
(3) an issuance of Equity Interests by a Restricted Subsidiary to
Georgia-Pacific or to another Restricted Subsidiary;
(4) the sale or lease of equipment, inventory or accounts receivable in
the ordinary course of business;
(5) any sale or other disposition of Receivables and Related Assets
pursuant to or in connection with a Receivables Program;
(6) a Permitted Spin-Off Transaction and any sale, lease, conveyance or
other disposition of any assets or rights required to complete a Permitted
Spin-Off Transaction;
(7) sales of assets received by Georgia-Pacific or any Restricted
Subsidiary upon the foreclosure on a Lien;
(8) the lease, assignment or sublease of any real or personal property
in the ordinary course of business;
(9) any sale, lease or other disposition in the ordinary course of
business of obsolete, worn out or damaged equipment no longer being used by
Georgia-Pacific or its Restricted Subsidiaries;
89
(10) any sale or disposition deemed to occur in connection with
creating or granting any Permitted Lien;
(11) the sale, lease, conveyance or other disposition of any of the
Excluded Assets;
(12) the sale or other disposition of cash or Cash Equivalents; and
(13) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments."
"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
Sale and Leaseback Transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such lease, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation or, except in the context of the definitions of "Change of
Control" and "Continuing Directors," any committee thereof;
(2) with respect to a partnership, the Board of Directors of the
general partner of the partnership; and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Borrowing Base" means, as of any date, an amount equal to:
(1) 85% of the face amount of all accounts receivable owned by
Georgia-Pacific and its Restricted Subsidiaries (other than any Receivables
Subsidiary) as of the end of the most recent fiscal quarter preceding such
date that were not more than 180 days past due; plus
(2) 50% of the book value of all inventory owned by Georgia-Pacific and
its Restricted Subsidiaries as of the end of the most recent fiscal quarter
preceding such date; minus
(3) the aggregate amount of trade payables of Georgia-Pacific and its
Restricted Subsidiaries outstanding as of the end of the most recent fiscal
quarter preceding such date, all calculated on a consolidated basis in
accordance with GAAP,
provided that in the event of a Permitted Spin-Off Transaction, when calculating
the Borrowing Base as of the end of the most recent fiscal quarter preceding
such Permitted Spin-Off Transaction, the Borrowing Base shall be determined on a
pro forma basis, as if the Permitted Spin-Off Transaction had been consummated
at the beginning of such fiscal quarter.
"Business Day" means each day other than a Saturday, a Sunday or a day on
which commercial banking institutions are authorized or required by law to close
in New York City.
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"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person,
but excluding any debt securities convertible into such equity securities.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality of the United
States government (provided that the full faith and credit of the United
States is pledged in support of those securities) having maturities of not
more than one year from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case, with any domestic commercial bank having capital
and surplus in excess of $500.0 million and a Thomson Bank Watch Rating (or
the successor thereto) of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
or S&P and in each case maturing within one year after the date of
acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of Georgia-Pacific and its Restricted Subsidiaries,
taken as a whole, to any "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), other than a sale, transfer, conveyance or other
disposition of assets that occurs as part of a Permitted Spin-Off
Transaction;
(2) the adoption of a plan relating to the liquidation or dissolution
of Georgia-Pacific;
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person" (as
that term is used in Section 13(d)(3) of the Exchange Act), becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the Voting
Stock of Georgia-Pacific, measured by voting power rather than number of
shares; or
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(4) the first day on which a majority of the members of the Board of
Directors of Georgia-Pacific are not Continuing Directors.
Notwithstanding the foregoing, a transaction effected to create a holding
company of Georgia-Pacific will not be deemed to involve a Change of Control if
(1) pursuant to such transaction Georgia-Pacific becomes a Wholly Owned
Subsidiary of such holding company and (2) the holders of the Voting Stock of
such holding company immediately following such transaction are the same as the
holders of Voting Stock of Georgia-Pacific immediately prior to such
transaction.
"Comparable Treasury Issue" means the U.S. Treasury security selected by
the Quotation Agent as having a maturity comparable to the remaining term of the
notes that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of the notes.
"Comparable Treasury Price" means, with respect to any redemption date:
(1) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on
the third Business Day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated "Composite 3:30 p.m.
Quotations for U.S. Government Securities"; or
(2) if such release (or any successor release) is not published or does
not contain such prices on such Business Day, (a) the average of the
Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or (b) if the Quotation Agent obtains fewer than three such
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized by such Person or any of its Restricted Subsidiaries in connection
with an Asset Sale, to the extent such losses were deducted in computing
such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(3) Consolidated Interest Expense, to the extent that any such expense
was deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses or charges
(excluding any such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of
such Person and its Restricted Subsidiaries for such period to the extent
that such depreciation, amortization and other non-cash expenses or charges
were deducted in computing such Consolidated Net Income; plus
(5) any unusual or nonrecurring charges or expenses, including any
nonrecurring charges or expenses incurred within six months of a Permitted
Spin-Off Transaction as a result of such Permitted Spin-Off Transaction, to
the extent that such charges or expenses were deducted in computing such
Consolidated Net Income; plus
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(6) non-cash charges incurred by Georgia-Pacific in the fourth quarter
of fiscal 2002 with respect to asbestos-related liability reserves in the
amount of up to $315 million, to the extent that such charges were deducted
in computing such Consolidated Net Income; minus
(7) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business,
in each case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the total interest
expense of a Person and its consolidated Restricted Subsidiaries determined in
accordance with GAAP, net of any interest income relating to the obligations
giving rise to such interest expense, plus, to the extent not included in such
total interest expense and to the extent incurred by such Person or its
Restricted Subsidiaries, without duplication:
(1) interest expense attributable to Capital Lease Obligations and
imputed interest with respect to Attributable Debt;
(2) amortization of debt discount;
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financings;
(6) net costs associated with interest rate swap, cap or collar
agreements and other agreements designed to protect such Person against
fluctuations in interest rates;
(7) the interest component of any deferred payment obligations; and
(8) any premiums, fees, discounts, expenses and losses on the sale of
Receivables and Related Assets (and any amortization thereof) payable in
connection with a Receivables Program,
(in each case as determined on a consolidated basis in conformity with GAAP),
and less, to the extent included in such total interest expense, (a) the
amortization during such period of capitalized financing costs associated with a
Permitted Spin-Off Transaction and (b) the amortization during such period of
other capitalized financing costs; provided, however, that the aggregate amount
of amortization relating to any such other capitalized financing costs deducted
in calculating Consolidated Interest Expense shall not exceed 5% of the
aggregate amount of the financing giving rise to such capitalized financing
costs.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (or loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting will
be included only to the extent of the amount of dividends or distributions
paid in cash (or to the extent converted into cash) to or by the specified
Person or a Restricted Subsidiary of the Person;
(2) the Net Income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, except
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to the extent that such Net Income is actually paid to such Person or one
of its Restricted Subsidiaries through dividends, loans or otherwise;
(3) the cumulative effect of a change in accounting principles will be
excluded;
(4) any non-cash goodwill impairment charges incurred subsequent to the
date of the indentures resulting from the application of SFAS No. 142 will
be excluded, provided that such non-cash goodwill impairment charges were
not attributable in any way to asbestos-related liability, including,
without limitation, any threatened, pending or settled asbestos claim;
(5) any non-cash charges incurred subsequent to the date of the
indentures relating to the underfunded portion of any pension plans will be
excluded;
(6) any non-cash charges incurred subsequent to the date of the
indentures resulting from the application of SFAS No. 123 will be excluded;
(7) any non-cash charges incurred subsequent to the date of the
indentures with respect to asbestos-related liability reserves will be
excluded; provided, however, that to the extent that the aggregate Net Cash
Payments made by Georgia-Pacific or any of its Restricted Subsidiaries
since the date of the indentures exceed Georgia-Pacific's asbestos-related
liability reserves existing on the date of the indentures, such Net Cash
Payments will be deducted in the period in which they are made for purposes
of calculating Consolidated Net Income; and
(8) the Net Income of any Unrestricted Subsidiary will be included to
the extent distributed or otherwise paid in cash (or to the extent
converted into cash) to the specified Person or one of its Restricted
Subsidiaries.
"Consolidated Net Tangible Assets" means total assets (less accumulated
depreciation and valuation reserves and other reserves and items deductible from
gross book value of specific asset accounts under GAAP) after deducting
therefrom (1) all current liabilities, (2) any item representing investments in
Unrestricted Subsidiaries and (3) all goodwill, trade names, trademarks,
patents, unamortized debt discount, organization expenses and other like
intangibles, all as set forth on the most recent balance sheet of
Georgia-Pacific and its consolidated Restricted Subsidiaries and computed in
accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Georgia-Pacific who:
(1) was a member of such Board of Directors on the date of the
indentures; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Credit Agreement" means the Credit Agreement (Multi-Year Revolving Credit
Facility), dated as of November 3, 2000, among Georgia-Pacific, the lenders
named therein, Bank of America, N.A., as Agent and Issuing Bank, and Merrill
Lynch Capital Corporation and Morgan Stanley Senior Funding Inc., as
Co-Syndication Agents, and Banc of America Securities LLC, Merrill Lynch Capital
Corporation and Morgan Stanley Senior Funding Inc., as Book Managers and Lead
Arrangers, as such agreement may be amended, restated, refunded, renewed,
replaced or refinanced (including increasing the amount borrowed thereunder) in
whole or in part from time to time.
"Credit Facilities" means one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans or letters of credit, in each case, as amended,
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restated, refunded, renewed, replaced or refinanced (including increasing the
amount borrowed thereunder) in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Amount" means, with respect to any Person:
(1) prior to a Permitted Spin-Off Transaction, $5,400 million, less the
aggregate amount of all Net Proceeds of Asset Sales required to be applied
pursuant to the terms of one or more Credit Facilities by Georgia-Pacific
or any of its Restricted Subsidiaries since the date of the indentures to
repay any term Indebtedness under any such Credit Facility or to repay
revolving credit Indebtedness under any such Credit Facility and to
correspondingly reduce commitments thereunder; and
(2) following a Permitted Spin-Off Transaction, the greater of:
(a) the product of (x) $5,400 million, less the aggregate amount
of all Net Proceeds of Asset Sales required to be applied pursuant to
the terms of one or more Credit Facilities by Georgia-Pacific or any of
its Restricted Subsidiaries from the date of the indentures through the
date of the Permitted Spin-Off Transaction to repay any term
Indebtedness under any such Credit Facility or to repay revolving
credit Indebtedness under any such Credit Facility and to
correspondingly reduce commitments thereunder and (y) a fraction:
(i) the numerator of which is the Consolidated Cash Flow of
such Person for its most recently ended four fiscal quarters for
which internal financial statements are available immediately
preceding the date on which the Permitted Spin-Off Transaction
occurred, determined on a pro forma basis, as if the Permitted
Spin-Off Transaction had been consummated at the beginning of such
four-quarter period, and
(ii) the denominator of which is the Consolidated Cash Flow
of Georgia-Pacific for its most recently ended four full fiscal
quarters for which internal financial statements are available
immediately preceding the date on which the Permitted Spin-Off
Transaction occurred, and
less the aggregate amount of all Net Proceeds of Asset Sales required
to be applied pursuant to the terms of one or more Credit Facilities by
Georgia-Pacific or any of its Restricted Subsidiaries since the date of
the Permitted Spin-Off Transaction to repay any term Indebtedness under
any such Credit Facility or to repay revolving credit Indebtedness
under any such Credit Facility and to correspondingly reduce
commitments thereunder; and
(b) the aggregate amount available for borrowing or otherwise
committed as of the date of such Permitted Spin-Off Transaction under
all Credit Facilities of such Person entered into in connection with
such Permitted Spin-Off Transaction less the aggregate amount of all
Net Proceeds of Asset Sales required to be applied pursuant to the
terms of one or more Credit Facilities of such Person since the date of
the Permitted Spin-Off Transaction to repay any term Indebtedness under
any such Credit Facility or to repay revolving credit Indebtedness
under any such Credit Facility and to correspondingly reduce
commitments thereunder.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that
is 91 days after
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the date on which the notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders of the Capital Stock have the right to require Georgia-Pacific to
repurchase such Capital Stock upon the occurrence of a change of control or an
asset sale will not constitute Disqualified Stock if the terms of such Capital
Stock provide that Georgia-Pacific may not repurchase or redeem any such Capital
Stock pursuant to such provisions unless such repurchase or redemption complies
with the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments."
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of
Georgia-Pacific formed under the laws of the United States or any state of the
United States or the District of Columbia.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any primary private or public offering of Equity
Interests of Georgia-Pacific (other than Disqualified Stock) to Persons who are
not Affiliates of Georgia-Pacific other than (1) public offerings with respect
to Georgia-Pacific's common stock registered on Form S-8 and (2) issuances upon
exercise of options by employees of Georgia-Pacific or any of its Restricted
Subsidiaries.
"Excluded Assets" means certain assets identified in the indentures having
an aggregate book value not exceeding $40.0 million as of the date of the
indentures.
"Existing Indebtedness" means any Indebtedness of Georgia-Pacific and its
Restricted Subsidiaries in existence on the date of the indentures, until such
amounts are repaid.
"Fall Away Permitted Liens" means:
(1) Liens on any Principal Property existing at the time of its
acquisition and Liens created contemporaneously with or within 180 days
after (or created pursuant to firm commitment financing arrangements
obtained within that period) the completion of the acquisition, improvement
or construction of such Principal Property to secure payment of the
purchase price of such Principal Property or the cost of such construction
or improvements;
(2) Liens on property of a Person existing at the time such Person
becomes a Restricted Subsidiary or is merged with or into or consolidated
with Georgia-Pacific or any Restricted Subsidiary of Georgia-Pacific;
provided that such Liens were in existence prior to the contemplation of
such Person becoming a Restricted Subsidiary or such merger or
consolidation and do not extend to any assets other than those of the
Person that becomes a Restricted Subsidiary or is merged into or
consolidated with Georgia-Pacific or the Restricted Subsidiary;
(3) Liens on assets existing at the time of acquisition of the assets
by Georgia-Pacific or any Restricted Subsidiary of Georgia-Pacific,
provided that such Liens were in existence prior to the contemplation of
such acquisition;
(4) Liens securing Indebtedness or other obligations of a Restricted
Subsidiary owing to Georgia-Pacific or a Restricted Subsidiary;
(5) Liens in favor of a governmental unit to secure payments under any
contract or statutory obligation, or to secure debts incurred in financing
the acquisition of or improvements to property subject thereto;
(6) Liens created or assumed in the ordinary course of the business of
exploring for, developing or producing oil, gas or other minerals
(including borrowings in connection therewith) on, or on any interest in,
or on any proceeds from the sale of, property acquired
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for such purposes, production therefrom (including the proceeds thereof) or
material or equipment located thereon;
(7) Liens in favor of any customer arising in respect of, and not
exceeding the amount of, performance deposits and partial, progress,
advance or other payments by that customer for goods produced or services
rendered to that customer in the ordinary course of business;
(8) Liens to extend, renew or replace any Liens referred to in clauses
(1) through (7) or this clause (8) or any Lien existing on the date of the
indentures;
(9) mechanics' and similar Liens;
(10) Liens arising out of litigation or judgments being contested; and
(11) Liens for taxes not yet due or being contested, landlords' Liens,
tenants' rights under leases, easements and similar Liens not impairing the
use or value of the property involved.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the Consolidated Interest Expense of such Person and its Restricted
Subsidiaries for such period; plus
(2) any interest expense on Indebtedness of any person other than such
Person or any of its Restricted Subsidiaries that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets
of such Person or one of its Restricted Subsidiaries, whether or not such
Guarantee or Lien is called upon; plus
(3) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of preferred stock of such Person or
any of its Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of Georgia-Pacific (other than
Disqualified Stock) or to Georgia-Pacific or a Restricted Subsidiary of
Georgia-Pacific, times (b) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal,
in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any specified Person
for any four-quarter period, the ratio of the Consolidated Cash Flow of such
Person and its Restricted Subsidiaries for such period to the Fixed Charges of
such Person and its Restricted Subsidiaries for such period. In the event that
the specified Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary
working capital borrowings) or issues, repurchases or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated and on or prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated
giving pro forma effect to such incurrence, assumption, Guarantee, repayment,
repurchase or redemption of Indebtedness, or such issuance, repurchase or
redemption of preferred stock, and the use of the proceeds therefrom as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions or dispositions that have been made by the specified
Person or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on
or prior to the Calculation Date (including any acquisitions or
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dispositions made during such reference period or subsequent to such
reference period and on or prior to the Calculation Date by any Person that
became a Restricted Subsidiary or was merged with and into the specified
Person or any of its Restricted Subsidiaries on or prior to such
Calculation Date) will be given pro forma effect as if they had occurred on
the first day of the four-quarter reference period and Consolidated Cash
Flow for such reference period will be calculated on a pro forma basis in
accordance with Regulation S-X under the Securities Act, but without giving
effect to clause (3) of the proviso set forth in the definition of
Consolidated Net Income;
(2) interest on Capital Lease Obligations and Attributable Debt shall
be deemed to accrue at an interest rate reasonably determined by a
responsible financial or accounting officer of Georgia-Pacific to be the
rate of interest implicit in such Capital Lease Obligation or Attributable
Debt in accordance with GAAP;
(3) the consolidated interest expense attributable to interest on (a)
any Indebtedness computed on a pro forma basis that 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 (b) borrowings under a revolving credit facility computed
on a pro forma basis shall be computed based upon the average daily balance
of such borrowings during the applicable period;
(4) the interest rate on any Indebtedness that bears a floating rate of
interest shall be calculated as if the weighted average interest rate that
would have been applicable to such Indebtedness over the latest 12-month
period ending on the last calendar month immediately prior to the
Calculation Date had been the applicable rate on such Indebtedness for the
entire reference period (taking into account any Hedging Obligation
designed to protect such Person or any of its Restricted Subsidiaries
against fluctuations in interest rates (including any agreement that
exchanges a fixed rate interest obligation for a floating rate interest
obligation) applicable to such Indebtedness if such Hedging Obligation has
a remaining term in excess of 12 months);
(5) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, will be excluded; and
(6) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, will be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date.
"Foreign Subsidiary" means any Restricted Subsidiary of Georgia-Pacific
that is not a Domestic Restricted Subsidiary.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indentures.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
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"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) currency exchange, interest rate or commodity swap agreements,
currency exchange, interest rate or commodity cap agreements and currency
exchange, interest rate or commodity collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange, interest rates or commodity
prices.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent and without duplication:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of bankers' acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price
of any property, except any such balance that constitutes an accrued
expense or trade payable, or similar obligations to trade creditors; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount; and
(2) the principal amount of the Indebtedness, in the case of any other
Indebtedness.
Notwithstanding the foregoing, "Indebtedness" shall not include (A) advance
payments by customers in the ordinary course of business for services or
products to be provided or delivered in the future or (B) deferred taxes.
"Investment Grade Rating" means a rating of Baa3 or better by Moody's (or
its equivalent under any successor rating categories of Moody's) and BBB- or
better by S&P (or its equivalent under any successor rating categories of S&P)
(or, in each case, if such Rating Agency ceases to rate the notes for reasons
outside of the control of Georgia-Pacific, the equivalent investment grade
credit rating from any Rating Agency selected by Georgia-Pacific as a
replacement Rating Agency).
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for value of Indebtedness, Equity Interests or other securities,
together with all items that are or would be classified as investments on a
balance sheet prepared in accordance with GAAP. If Georgia-Pacific or any
Restricted Subsidiary of Georgia-Pacific sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of
Georgia-Pacific
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such that, after giving effect to any such sale or disposition, such Person is
no longer a Restricted Subsidiary of Georgia-Pacific, Georgia-Pacific will be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of Georgia-Pacific's Investments in such
Restricted Subsidiary that were not sold or disposed of in an amount determined
as provided in the final paragraph of the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments." "Investments" shall
exclude extensions of trade credit by Georgia-Pacific or any of its Restricted
Subsidiaries in the ordinary course of business.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction,
provided that in no event shall an operating lease be deemed to constitute a
Lien.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Payments" means, with respect to any asbestos-related liabilities
and/or related defense costs, the aggregate cash payments made by
Georgia-Pacific or any of its Restricted Subsidiaries relating to or to satisfy
any liabilities or related defense costs, net of (1) any insurance proceeds
received in cash by Georgia-Pacific or any of its Restricted Subsidiaries with
respect to such liabilities and costs, and (2) any cash tax savings resulting
from any such payments in excess of the tax savings taken into account in
establishing the asbestos-related liability reserves existing on the date of the
indentures.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain or loss, together with any related provision for taxes on
such gain (but not loss), realized in connection with: (a) any Asset Sale;
or (b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain or loss, together with any related provision
for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by
Georgia-Pacific or any of its Restricted Subsidiaries in respect of any Asset
Sale (including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
(1) costs relating to such Asset Sale, including, without limitation, legal,
accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result of the Asset Sale, taxes paid or
payable as a result of the Asset Sale, in each case, after taking into account
any available tax credits or deductions and any tax sharing arrangements, (2)
amounts required to be applied to the repayment of Indebtedness, other than
Indebtedness under a Credit Facility, secured by a Lien on the asset or assets
that were the subject of such Asset Sale, (3) any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP against any liabilities associated with the asset disposed of in such
transaction and retained by Georgia-Pacific or any of its Restricted
Subsidiaries after such sale or other disposition thereof, including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction and (4) all distributions or other
payments made to minority interest holders required in connection with the Asset
Sale.
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"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Georgia-Pacific nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable as a guarantor or otherwise or (c)
constitutes the lender; and
(2) no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both
any holder of any other Indebtedness (other than the notes) of
Georgia-Pacific or any of its Restricted Subsidiaries to declare a default
on such other Indebtedness or cause the payment of such other Indebtedness
of Georgia-Pacific or any of its Restricted Subsidiaries to be accelerated
or payable prior to its stated maturity.
"Obligations" means any principal, interest, penalties, fees, taxes, costs,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing, securing or relating to any Indebtedness, whether
or not a claim in respect thereof has been asserted.
"Permitted Business" means any business conducted by Georgia-Pacific and
its Restricted Subsidiaries on the date of the indentures, any reasonable
extension thereof, and any additional business reasonably related, incidental,
ancillary or complimentary thereto.
"Permitted Investments" means:
(1) any Investment in Georgia-Pacific or in a Restricted Subsidiary of
Georgia-Pacific;
(2) any Investment in Cash Equivalents;
(3) any Investment by Georgia-Pacific or any Restricted Subsidiary of
Georgia-Pacific in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of
Georgia-Pacific; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, Georgia-Pacific or a Restricted Subsidiary of
Georgia-Pacific;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Georgia-Pacific;
(6) any Investments received in compromise of obligations of trade
creditors or customers that were incurred in the ordinary course of
business, including pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of any trade creditor or
customer;
(7) Hedging Obligations;
(8) Investments constituting loans, advances or extensions of credit to
employees, officers and directors made in the ordinary course of business;
(9) Investments in existence on the date of the indentures and an
Investment in any Person to the extent such Investment replaces or
refinances an Investment in such Person existing on the date of the
indentures in an amount not exceeding the amount of the Investment being
replaced or refinanced; provided, however, that the new Investment is on
101
terms and conditions no less favorable to Georgia-Pacific than the
Investment being renewed or replaced;
(10) an Investment in a trust, limited liability company, special
purpose entity or other similar entity in connection with a Receivables
Program; provided, however, that the only assets transferred to such trust,
limited liability company, special purpose entity or other similar entity
consist of Receivables and Related Assets of such Receivables Subsidiary;
(11) Investments in any of the notes;
(12) Guarantees of Indebtedness of Georgia-Pacific or any of its
Restricted Subsidiaries issued in accordance with the covenant described
above under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock";
(13) Investments in Unisource required by the Subordinated Secured
Liquidity Facility Agreement, dated November 27, 2002, among
Georgia-Pacific, Unisource Worldwide, Inc. and the Guarantors named therein
and by the Insurance Allocation and Services Agreement, dated November 27,
2002, between Georgia-Pacific and Unisource Worldwide, Inc., in an
aggregate amount not to exceed $125.0 million; and
(14) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (14) since the date of the
indentures not to exceed $200.0 million.
"Permitted Liens" means:
(1) Liens on inventory or receivables of Georgia-Pacific and its
Restricted Subsidiaries securing Indebtedness and other Obligations under
Credit Facilities that were permitted to be incurred by clause (1) of the
second paragraph of the covenant described above under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock";
(2) Liens in favor of Georgia-Pacific or a Restricted Subsidiary;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with Georgia-Pacific or any Restricted
Subsidiary of Georgia-Pacific; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or
consolidated with Georgia-Pacific or the Restricted Subsidiary;
(4) Liens on assets existing at the time of acquisition of the assets
by Georgia-Pacific or any Restricted Subsidiary of Georgia-Pacific,
provided that such Liens were in existence prior to the contemplation of
such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant described
above under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock" covering only the assets acquired with
such Indebtedness;
(7) Liens existing on the date of the indentures;
(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as is required in
conformity with GAAP has been made therefor;
102
(9) Liens on Receivables and Related Assets to reflect sales of
receivables pursuant to a Receivables Program permitted by clause (14) of
the second paragraph of the covenant described above under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness;
(10) Liens in favor of issuers of tender, bid, surety, appeal or
performance bonds or letters of credit or bankers' acceptances issued
pursuant to the request of and for the account of Georgia-Pacific or any
Restricted Subsidiary in the ordinary course of its business; provided,
however, that such letters of credit do not support Indebtedness;
(11) Liens securing Indebtedness or other obligations of a Restricted
Subsidiary owing to Georgia-Pacific or a Restricted Subsidiary (other than
a Receivables Subsidiary);
(12) Liens incurred in the ordinary course of business of
Georgia-Pacific or any Restricted Subsidiary of Georgia-Pacific with
respect to obligations that do not exceed $5.0 million at any one time
outstanding;
(13) Liens securing industrial revenue or pollution control bonds that
were permitted by the terms of the indentures to be incurred;
(14) Liens securing Permitted Refinancing Indebtedness incurred to
refinance Indebtedness that was previously so secured, provided that any
such Lien is limited to all or part of the same property or assets (plus
assets or property affixed or appurtenant thereto or proceeds in respect
thereof) that secured (or, under the written arrangements under which the
original Lien arose, could secure) the Indebtedness being refinanced or is
in respect of property that is the security for a Permitted Lien;
(15) Liens securing Hedging Obligations so long as such Hedging
Obligations are permitted to be incurred under the Indentures;
(16) Liens incurred in connection with a Sale and Leaseback Transaction
with respect to Attributable Debt that does not exceed $300.0 million at
any one time outstanding; and
(17) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of
Georgia-Pacific or any of its Restricted Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace, defease
or refund other Indebtedness of Georgia-Pacific or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest on the
Indebtedness and the amount of all expenses and premiums incurred in
connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness is subordinated in right of payment to
the notes on terms at least as favorable to the holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
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(4) such Indebtedness is incurred either by Georgia-Pacific or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Spin-Off Transaction" means the one-time spin-off, split-up,
split-off or other transaction involving the dividend, distribution or transfer
by Georgia-Pacific of all or some portion of its consumer products, packaging
and/or paper and pulp segments, as such segments are reported in
Georgia-Pacific's audited financial statements on the date of the indentures
(the entity comprising such segment(s) after giving effect to the dividend or
distribution, "Newco"), provided that each of the following conditions have been
met:
(1) Newco shall have completed a registered exchange offer in which it
shall have offered to the holders of each series of notes the opportunity
to exchange their notes for Spin-Off Notes; provided, further that:
(a) Newco will, on the date of such Permitted Spin-Off
Transaction after giving pro forma effect thereto and to all related
transactions (including, without limitation, the incurrence by Newco of
any Indebtedness (including the assumption by Newco of any Indebtedness
of Georgia-Pacific or any of its subsidiaries) and the disposition by
Newco of any assets) as if the same had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described
above under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock";
(b) each of the Rating Agencies shall have given the applicable
Spin-Off Notes a rating that is equal to or better than such Rating
Agency's highest rating of the notes being exchanged for such Spin-Off
Notes during the one-year period immediately prior to the consummation
of the Permitted Spin-Off Transaction (it being understood that the
ratings of the Spin-Off Notes shall take into account all transactions
relating to the Permitted Spin-Off Transaction, including, without
limitation, the incurrence by Newco of any Indebtedness (including the
assumption by Newco of any Indebtedness of Georgia-Pacific or any of
its Subsidiaries) and the disposition by Newco of any assets), and
(c) such exchange offer shall have remained open for at least 20
business days; and
(2) Georgia-Pacific shall have completed a cash tender offer for the
notes in which it shall have offered to purchase the notes from the holders
on the terms set forth in the applicable indenture for a purchase price in
cash equal to 100% of the aggregate principal amount of notes repurchased
plus accrued and unpaid interest and Special Interest, if any, on the notes
repurchased, to the date of purchase, which offer shall have remained open
for at least 20 business days.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Principal Property" means any mill, manufacturing plant or facility owned
by Georgia-Pacific and/or one or more Restricted Subsidiaries and located within
the continental United States of America having a gross book value in excess of
1.0% of the Consolidated Net Tangible Assets of
104
Georgia-Pacific and its Restricted Subsidiaries; provided that the term
"Principal Property" shall not include any mill, plant or facility that:
(1) is acquired after the date of the indentures for the disposal of
solid waste, or control or abatement of atmospheric pollutants or
contaminants, or water, noise or other pollutants, or
(2) in the opinion of the Board of Directors, is not of material
importance to the total business conducted by Georgia-Pacific and its
Restricted Subsidiaries, considered as a whole.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
trustees to act as the Quotation Agent after consultation with Georgia-Pacific.
"Rating Agency" means (1) each of Moody's and S&P and (2) if Moody's or S&P
ceases to rate the notes for reasons outside of the control of Georgia-Pacific,
a "nationally recognized statistical rating organization" within the meaning of
Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act selected by Georgia-Pacific as a
replacement agency for Moody's or S&P, as the case may be.
"Receivables and Related Assets" means accounts receivable, instruments,
chattel paper, obligations, general intangibles and other similar assets,
including interests in merchandise or goods, the sale or lease of which give
rise to the foregoing, related contractual rights, guarantees, insurance
proceeds, collections, other related assets and proceeds of all the foregoing.
"Receivables Program" means, with respect to any Person, any accounts
receivable securitization program pursuant to which such Person pledges, sells
or otherwise transfers or encumbers its accounts receivable, including a trust,
limited liability company, special purpose entity or other similar entity.
"Receivables Subsidiary" means a Wholly Owned Subsidiary of Georgia-Pacific
or a Restricted Subsidiary of Georgia-Pacific (or another Person in which
Georgia-Pacific or any Restricted Subsidiary of Georgia-Pacific makes an
Investment and to which Georgia-Pacific or any Restricted Subsidiary of
Georgia-Pacific transfers Receivables and Related Assets) which engages in no
activities other than in connection with the financing of Receivables and
Related Assets and which is designated by the Board of Directors of
Georgia-Pacific as a Receivables Subsidiary.
"Reference Treasury Dealer" means any of Banc of America Securities LLC,
Citigroup Global Markets Inc., Goldman, Sachs & Co. and UBS Warburg LLC and
their respective successors; provided, however, that if any of the foregoing
shall cease to be a primary U.S. Government securities dealer in New York City
(a "Primary Treasury Dealer"), Georgia-Pacific shall substitute therefor another
Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the applicable trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to such trustee by such Reference Treasury Dealer at 5:00 pm on the
third business day preceding such redemption date.
"Replacement Assets" means (1) long-term assets that will be used or useful
in a Permitted Business, (2) substantially all of the assets of another
Permitted Business, or (3) a majority of the Voting Stock of any Person engaged
in a Permitted Business that will become on the date of acquisition thereof a
Restricted Subsidiary as a result of such acquisition.
"Restricted Investment" means an Investment other than a Permitted
Investment.
105
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any arrangement with any Person
providing for the leasing by Georgia-Pacific or any Restricted Subsidiary of any
properties or assets of Georgia-Pacific and/or such Restricted Subsidiary
(except for leases between Georgia-Pacific and any Restricted Subsidiary,
between any Restricted Subsidiary and Georgia-Pacific or between Restricted
Subsidiaries), which properties or assets have been or are to be sold or
transferred by Georgia-Pacific or such Subsidiary to such Person with the
intention of taking back a lease of such properties or assets.
"S&P" means Standard & Poor's Ratings Service, a division of The McGraw
Hill Companies, and its successors.
"Significant Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary that would be a "significant subsidiary" as defined in Article 1,
Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such
Regulation is in effect on the date hereof.
"Special Interest" means interest payable on the notes in the event of a
Registration Default, the amount of which shall be determined as provided above
under the caption "-- Registration Rights; Special Interest."
"Spin-Off Notes" means two series of notes to be offered in a registered
exchange offer by Newco and, if Fort James becomes a Subsidiary of Newco as a
result of the Permitted Spin-Off Transaction, guaranteed by Fort James, on terms
and with covenants that are identical to those included in the indentures (as
applicable), with such variations from the notes and the indentures as the
trustees and Newco shall have mutually agreed.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid (including with respect to
sinking fund obligations) in the original documentation governing such
Indebtedness, and will not include any contingent obligations to repay, redeem
or repurchase any such interest or principal prior to the date originally
scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees of the corporation, association
or other business entity is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).
"Total Assets" means, with respect to any specified Person at any date,
without duplication, the total consolidated assets of that Person and its
Subsidiaries, as determined in accordance with GAAP.
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"Unrestricted Subsidiary" means each Subsidiary of Georgia-Pacific that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
resolution of the Board of Directors, but only to the extent that each such
Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with Georgia-Pacific or any Restricted Subsidiary of
Georgia-Pacific unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to Georgia-Pacific or
such Restricted Subsidiary than those that might be obtained at the time
from Persons who are not Affiliates of Georgia-Pacific;
(3) is a Person with respect to which neither Georgia-Pacific nor any
of its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Georgia-Pacific or any of its
Restricted Subsidiaries.
Any designation of a Subsidiary of Georgia-Pacific as an Unrestricted
Subsidiary will be evidenced to the trustees by filing with the trustees a
certified copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indentures and any Indebtedness of such
Subsidiary will be deemed to be incurred by a Restricted Subsidiary of
Georgia-Pacific as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock," Georgia-Pacific will be in default of such covenant. The Board of
Directors of Georgia-Pacific may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation will be
deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of
Georgia-Pacific of any outstanding Indebtedness of such Unrestricted Subsidiary
and such designation will only be permitted if (1) such Indebtedness is
permitted under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect of the Indebtedness, by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of
such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any specified Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) will at the time be owned by
such Person and/or by one or more Wholly Owned Subsidiaries of such Person.
107
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the exchange of old notes for new notes, as well as the
ownership and disposition of the new notes. Unless otherwise stated under the
heading "Non-U.S. holders," below, this summary deals only with notes held as
capital assets by U.S. holders, as defined below. It does not deal with special
classes of holders such as banks, thrifts, real estate investment trusts,
regulated investment companies, insurance companies, dealers in securities or
currency or tax-exempt investors. This summary also does not address the tax
consequences to U.S. holders that have a functional currency other than the U.S.
Dollar, partnerships or other entities treated as partnerships that hold notes,
persons that hold notes as part of a straddle, hedging, constructive sale or
conversion transaction, or shareholders, partners or beneficiaries of a holder
of notes. It also does not include any description of any tax consequences under
the tax laws of any state or local government or of any foreign government that
may be applicable to the notes. This summary is based on the Internal Revenue
Code of 1986, as amended, which we refer to in this prospectus as the Code,
Treasury regulations under the Code, which we refer to in this prospectus as the
Treasury Regulations, and administrative and judicial interpretations of the
Code, as of the date of this prospectus, all of which are subject to change,
possibly on a retroactive basis.
As used in this section, the term "U.S. holder" means any beneficial owner
of notes that is, for United States federal income tax purposes,
- a citizen or resident of the United States,
- corporation (or other entity taxable as a corporation) created or
organized in or under the laws of the United States, any state thereof
or the District of Columbia,
- an estate the income of which is subject to United States federal
income taxation regardless of its source, or
- a trust if (1) a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more United States persons have the authority to control all
substantial decisions of the trust or (2) the trust has in effect a
valid election to be treated as a domestic trust for United States
federal income tax purposes.
As used in this discussion, the term Non-U.S. holder means a beneficial
owner of notes that is not a U.S. holder.
You should consult your own tax advisor to determine the effect of federal,
state, local and foreign income tax laws with respect to the exchange of old
notes for new notes and the continuing investment in the notes.
TAX CONSEQUENCES OF THE EXCHANGE OFFERS
Under current law, the exchange of old notes for new notes pursuant to
these exchange offers will not be treated as an "exchange" for federal income
tax purposes. Accordingly,
- holders will not recognize taxable gain or loss upon the receipt of
new notes in exchange for old notes in the exchange offers,
- the holding period for a new note received in the exchange offers will
include the holding period of the old note surrendered in exchange
therefor, and
- the adjusted tax basis of a new note immediately after the exchange
will be the same as the adjusted tax basis of the old note surrendered
in exchange therefor.
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We are obligated to pay additional interest on the notes under certain
circumstances described under "Description of Notes -- Registration Rights;
Special Interest." Although the matter is not free from doubt, such additional
interest should be taxable as interest under the rules described below in the
event that additional interest is paid. It is possible, however, that the
Internal Revenue Service, or the IRS, may take a different position with respect
to the treatment of such additional interest. Holders should consult their own
tax advisors about payments of such additional interest.
U.S. HOLDERS
INTEREST INCOME. Stated interest on a new note will be includible in a
U.S. holder's gross income as ordinary interest income at the time it is accrued
or received in accordance with the U.S. holder's method of accounting for United
States federal income tax purposes.
MARKET DISCOUNT. A U.S. holder who purchases a note for an amount that is
less than its stated principal amount will be treated as having purchased the
note with "market discount" unless the discount is less than a specified de
minimis amount. Under the market discount rules, a U.S. holder generally will be
required to treat any gain realized on the sale, exchange, retirement or other
disposition of a note as ordinary income to the extent of any accrued market
discount not previously included in income. For this purpose, market discount
will be considered to accrue ratably during the period from the date of the U.S.
holder's acquisition of the note to the maturity date of the note, unless the
U.S. holder makes an election to accrue market discount on a constant yield
basis. A U.S. holder may be required to defer the deduction of all or a portion
of the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a note with market discount until the maturity date of the
note or certain earlier dispositions.
A U.S. holder may elect to include market discount in income currently as
it accrues (on either a ratable or constant yield basis), in which case the
rules described above regarding (1) the treatment as ordinary income of gain
upon the disposition of the note and (2) the deferral of interest deductions,
will not apply. Generally, currently included market discount is treated as
ordinary interest income for federal income tax purposes. An election to include
market discount as it accrues will apply to all debt instruments with market
discount acquired by the U.S. holder on or after the first day of the taxable
year to which the election applies and may be revoked only with the consent of
the Internal Revenue Service.
AMORTIZABLE BOND PREMIUM. In general, a U.S. holder acquires a debt
instrument with "amortizable bond premium" if the U.S. holder's basis in the
debt instrument immediately after its acquisition (generally, the holder's
acquisition cost) exceeds the sum of all amounts payable on the debt instrument
after the acquisition date (other than stated interest). A special rule applies
to determine the amounts that are payable on debt instruments (such as the
notes) that may be redeemed at the issuer's option prior to maturity. Under this
special rule, the issuer will be deemed to exercise a call option or combination
of call options in the manner that maximizes the holder's yield on the debt
instrument. The result of this special rule is that smaller amounts of premium
will be allocable to the period prior to the date on which the debt instrument
may be redeemed. If the issuer does not in fact exercise its right to redeem the
debt instrument on the applicable redemption date, the debt instrument will be
treated (solely for purposes of the amortizable bond premium rules) as having
matured and then as having been reissued for the holder's "adjusted acquisition
price," which is an amount equal to the U.S. holder's adjusted tax basis in the
debt instrument, less the sum of (i) any amortizable bond premium allocable to
prior accrual periods and (ii) any payments previously made on the debt
instrument (other than stated interest payments). The debt instrument deemed to
have been reissued will again be subject to the amortizable bond premium rules
with respect to the remaining dates on which the debt instrument is redeemable.
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In general, a U.S. holder amortizes bond premium under Section 171 of the
Code by offsetting the stated interest allocable to an accrual period with the
bond premium allocable to the accrual period, which is determined under a
constant yield method pursuant to applicable Treasury Regulations. If the bond
premium allocable to an accrual period exceeds the stated interest allocable to
such period, the excess is treated by the holder as a bond premium deduction.
The bond premium deduction for each accrual period is limited to the amount by
which the U.S. holder's total interest inclusions on the debt instrument in
prior accrual periods exceed the total amount treated by such holder as a bond
premium deduction on the debt instrument in prior accrual periods. Any amounts
not deductible in an accrual period may be carried forward to the next accrual
period and treated as bond premium allocable to that period. In order to
amortize bond premium under these rules, a U.S. holder must make an affirmative
election in the manner prescribed by applicable Treasury Regulations. Once made,
the election applies to all taxable debt instruments then owned and thereafter
acquired by the U.S. holder on or after the first day of the taxable year to
which such election applies, and may be revoked only with the consent of the
Internal Revenue Service.
CONSTANT YIELD ELECTION. In lieu of applying the rules described above,
U.S. holders may make a "constant yield election" under Treasury Regulation
section 1.1272-3 with respect to their notes. Generally, if this election were
to be made with respect to a note, all stated interest and market discount, as
adjusted by any acquisition premium, would be treated by the electing U.S.
holder as if it were original issue discount and would be included in the
holder's gross income as it accrues on a constant yield basis, regardless of the
holder's regular method of tax accounting. In determining the note's yield for
this purpose, the adverse presumption under the amortizable bond premium rules
(pursuant to which an issuer's call right is deemed to be exercised if it
maximizes the holder's yield) would not apply. A constant yield election applies
only to the note with respect to which it is made and may not be revoked without
the consent of the Internal Revenue Service. A U.S. holder considering this
election should consult a tax advisor.
SALE, EXCHANGE OR RETIREMENT OF NEW NOTES. Upon sale, exchange (other than
an exchange of old notes for new notes pursuant to these exchange offers), or
retirement of a new note, a U.S. holder generally will recognize gain or loss
equal to the difference between the U.S. holder's adjusted tax basis in the new
note and the amount realized on the sale, exchange, or retirement (less any
accrued but previously unpaid interest, which would be treated as a payment of
previously accrued interest on the new notes). A U.S. holder's adjusted tax
basis in a new note will generally equal the holder's acquisition cost for such
new note, increased by the amount of market discount previously included in
income by such holder with respect to such new note and reduced by any principal
payments received, and any amortizable bond premium deducted, by the U.S.
holder. Subject to the market discount rules discussed above, gain or loss so
recognized will be capital gain or loss and will be long-term capital gain or
loss if, at the time of the sale, exchange, or retirement, the new note was held
for more than one year. Under current law, net capital gains of non-corporate
taxpayers, under certain circumstances, are taxed at lower rates than items of
ordinary income. The deduction of capital losses is subject to certain
limitations.
NON-U.S. HOLDERS
INTEREST INCOME. Generally, interest income of a Non-U.S. holder that is
not effectively connected with a United States trade or business will be subject
to a withholding tax at a 30% rate or, if applicable, a lower tax rate specified
by a treaty. However, interest income earned on the new notes by a Non-U.S.
holder may qualify for the "portfolio interest" exemption and therefore not be
subject to United States federal income tax or withholding tax, if such interest
110
income is not effectively connected with a United States trade or business of
the Non-U.S. holder and if:
- the Non-U.S. holder does not actually or constructively own 10% or
more of the total combined voting power of all classes of our stock
entitled to vote,
- the Non-U.S. holder is not a controlled foreign corporation that is
related to us through stock ownership,
- the Non-U.S. holder certifies to us or our agent, under penalties of
perjury, that it is not a U.S. holder and provides its name and
address or otherwise satisfies applicable identification requirements,
and
- neither we nor our paying agent knows or has reason to know that the
conditions of the exemption are, in fact, not satisfied.
In the case of new notes held by partnerships, the certification described
above must be provided by the partners, rather than by the partnerships and the
partnership must provide certain information, including a U.S. taxpayer
identification number. A look through rule applies in the case of tiered
partnerships.
Unless an applicable treaty otherwise provides, a Non-U.S. holder generally
will be taxed in the same manner as a U.S. holder with respect to interest if
the interest income is effectively connected with a United States trade or
business of the Non-U.S. holder and, in the case of a Non-U.S. holder that is
eligible for benefits of an income tax treaty with the United States, is
attributable to a permanent establishment maintained by the Non-U.S. holder in
the United States. Such effectively connected interest received or accrued by a
corporate Non-U.S. holder may also, under certain circumstances, be subject to
an additional "branch profits" tax at a 30% rate or, if applicable, a lower tax
rate specified by a treaty. Even though such effectively connected interest is
subject to U.S. income tax and may be subject to the branch profits tax, it is
not subject to U.S. withholding tax if the holder delivers a properly executed
IRS Form W-8ECI (or a suitable substitute form) to us or our paying agent and
neither we nor our paying agent knows or has reason to know that the information
on the form is incorrect.
SALE, EXCHANGE, OR RETIREMENT OF NEW NOTES. A Non-U.S. holder generally
will not be subject to United States federal income tax or withholding tax on
any gain realized on the sale, exchange, or retirement of new notes unless
- the gain is effectively connected with a United States trade or
business of the Non-U.S. holder, or
- in the case of a Non-U.S. holder who is an individual, such holder is
present in the United States for a period or periods aggregating 183
days or more during the taxable year of the disposition, and either
such holder has a "tax home" in the United States or the disposition
is attributable to an office or other fixed place of business
maintained by such holder in the United States.
CERTAIN U.S. FEDERAL ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS. A note
held by an individual who is not a citizen or resident at the time of death will
not be includable in the decedent's gross estate for United States federal
estate tax purposes, provided that the Non-U.S. holder did not at the time of
death actually or constructively own 10% or more of the combined voting power of
all classes of our stock entitled to vote and provided that, at the time of the
Non-U.S. holder's death, payments with respect to the note would not have been
effectively connected with the holder's conduct of a trade or business within
the United States.
111
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting on IRS Form 1099 will apply to payments
to a U.S. holder of principal, premium, if any, and interest on a new note and
the proceeds of the sale of a new note. Backup withholding tax may apply to such
payments to a non-corporate U.S. holder if that U.S. holder:
- fails to furnish or certify its correct taxpayer identification number
to us or our paying agent in the manner required,
- is notified by the IRS that it has failed to report payments of
interest or dividends properly,
- or under certain circumstances, fails to certify that it has not been
notified by the IRS that it is subject to backup withholding for
failure to report interest or dividend payments.
Information reporting on IRS Form 1099 and backup withholding tax will not
apply to payments of interest on new notes to a Non-U.S. holder if the
certification or identification requirements described in "-- Non-U.S.
holders -- Interest Income" are satisfied by the holder, unless the payor knows
or has reason to know that the holder is not entitled to an exemption from
information reporting or backup withholding tax. Where a payment of interest on
a note can be reliably associated with certain documentation provided by a
Non-U.S. holder, information reporting to the Internal Revenue Service on Form
1042-S generally will apply to such payment. Information reporting with respect
to interest paid to a Non-U.S. holder generally does not apply, however, if the
Non-U.S. holder holds its notes through a qualified intermediary and required
procedures are satisfied.
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of new notes effected outside
the United States by a foreign office of a "broker" (as defined in applicable
Treasury Regulations), unless the broker is a United States person or has
certain connections to the United States. Payment of the proceeds of any such
sale effected outside the United States by a foreign office of a broker
described in the preceding sentence will not be subject to backup withholding
tax, but will be subject to information reporting requirements, unless the
broker has documentary evidence in its records that the beneficial owner is a
Non-U.S. holder and certain other conditions are met, or the beneficial owner
otherwise establishes an exemption. Payment of the proceeds of any such sale to
or through the United States office of a broker is subject to information
reporting and backup withholding requirements unless the beneficial owner of the
new notes provides the certification described in "Non-U.S. holders -- Interest
Income" or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a credit against that holder's United States federal income tax liability and
may entitle the holder to a refund, provided that the required information is
furnished to the Internal Revenue Service. The rate for backup withholding tax
is 30% for 2002-2003, 29% for 2004-2005, and 28% for 2006 and later years,
subject to a scheduled increase after 2010.
THE FOREGOING SUMMARY OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND
DISPOSITION OF NOTES IS INTENDED FOR GENERAL INFORMATION. YOU ARE URGED TO
CONSULT WITH YOUR OWN TAX ADVISOR AS THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF
THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE CONTINUING INVESTMENT IN THE
NOTES AS WELL AS THE CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN INCOME TAX LAW.
NON-U.S. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE EFFECT OF
INCOME TAX TREATIES AND REPORTING REQUIREMENTS WITH REGARD TO AN INVESTMENT IN
THE NOTES.
112
PLAN OF DISTRIBUTION
We are not using any underwriters for the exchange offers.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offers 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 the broker-dealer as a result of market-making or other trading
activities. For a period of up to 180 days after the expiration of the exchange
offers, 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 addition, during this 180 day period, all dealers effecting
transactions in the new notes may be required to deliver a prospectus. In any
event, we are under a continuing obligation, for a period of up to 180 days
after the SEC declares the registration statement of which this prospectus is a
part effective, to keep the registration statement effective, subject to our
ability to suspend the effectiveness of the registration statement as described
in the registration rights agreement.
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 offers 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 resale,
at prices related to the prevailing market prices or 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 for its own account pursuant to the
exchange offers 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, and 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.
We have agreed to pay all expenses incident to the exchange offers other
than commissions or concessions of any brokers or dealers and 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.
LEGAL MATTERS
The validity of the new notes and the subsidiary guarantees will be passed
upon for us by King & Spalding LLP, New York, New York.
EXPERTS
The consolidated financial statements of Georgia-Pacific Corporation
appearing in Georgia-Pacific Corporation's Annual Report (Form 10-K) for the
year ended December 28, 2002 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
113
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's website at http://www.sec.gov. Please note that the SEC's
website is included in this prospectus as an inactive textual reference only.
The information contained on the SEC's website is not incorporated by reference
into this prospectus and should not be considered to be part of this prospectus.
You may also read and copy any document we file with the SEC at its public
reference facility at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
also obtain copies of the documents at prescribed rates by writing to the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference facility. Our SEC filings are also available at the
office of the New York Stock Exchange. For further information on obtaining
copies of our public filings at the New York Stock Exchange, you should call
(212) 656-5060.
We "incorporate by reference" into this prospectus certain information we
file with the SEC, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is an important part of this prospectus and information that we subsequently
file with the SEC will automatically update and supercede information in this
prospectus and in our other filings with the SEC. We incorporate by reference
the documents listed below, which we have already filed with the SEC, and any
future filings we make with the SEC under Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until all securities covered by this
prospectus have been exchanged and all conditions to the consummation of the
exchange offers have been satisfied:
- Our Annual Report on Form 10-K for the fiscal year ended December 28,
2002;
- Our Quarterly Report on Form 10-Q for the fiscal quarter ended March
29, 2003; and
- Our Quarterly Report on Form 10-Q for the fiscal quarter ended June
28, 2003.
You may obtain a copy of these filings, other than an exhibit to a filing,
unless that exhibit is specifically incorporated by reference into that filing,
at no cost, by writing or calling us at the following address: 133 Peachtree
Street, N.E., Atlanta, Georgia 30303, (404) 652-4000, Attention: Corporate
Secretary.
TO OBTAIN TIMELY DELIVERY OF THIS INFORMATION, YOU MUST REQUEST IT NO LATER
THAN FIVE (5) BUSINESS DAYS BEFORE SEPTEMBER 23, 2003, THE EXPIRATION DATE OF
THE EXCHANGE OFFERS.
In addition, while any notes remain outstanding, we will make available,
upon request, to any holder and any prospective purchaser of notes the
information required pursuant to Rule 144A(d)(4) under the Securities Act during
any period in which we are not subject to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
NEITHER WE, FORT JAMES NOR FORT JAMES OPERATING CO. HAVE AUTHORIZED ANYONE ELSE
TO PROVIDE YOU WITH ADDITIONAL OR DIFFERENT INFORMATION. WE ARE ONLY OFFERING TO
EXCHANGE THE OLD NOTES FOR NEW NOTES IN STATES WHERE THE OFFER IS PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE ON THE FRONT OF THIS DOCUMENT.
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No person has been authorized to give any information or to make any
representations other than those contained in this prospectus, and, if given or
made, such information and representations must not be relied upon as having
been authorized. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or any offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of Georgia-Pacific Corporation since the date hereof or
that the information contained herein is correct as of any time subsequent to
its date.
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GEORGIA-PACIFIC CORPORATION
OFFERS TO EXCHANGE
7 3/8% SENIOR NOTES DUE 2008
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
ALL OUTSTANDING UNREGISTERED
7 3/8% SENIOR NOTES DUE 2008
AND
8% SENIOR NOTES DUE 2014
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
ALL OUTSTANDING UNREGISTERED
8% SENIOR NOTES DUE 2014
AUGUST 29, 2003
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