-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VqiBW25NGP4QxDLKeMhOU8eqz9TqngMkvzT856fGfcBFeQ1NDE/av2ZjWYnwDT4a X5SmGrOpyPA4gOLpi5uWOg== 0000893220-03-000902.txt : 20030513 0000893220-03-000902.hdr.sgml : 20030513 20030513173135 ACCESSION NUMBER: 0000893220-03-000902 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLATFELTER P H CO CENTRAL INDEX KEY: 0000041719 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 230628360 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03560 FILM NUMBER: 03696478 BUSINESS ADDRESS: STREET 1: 96 S GEORGE ST STREET 2: STE 500 CITY: YORK STATE: PA ZIP: 17401 BUSINESS PHONE: 7172252709 MAIL ADDRESS: STREET 2: 228 S MAIN ST CITY: SPRING GROVE STATE: PA ZIP: 17362 10-Q 1 w86450e10vq.txt FORM 10-Q P.H. GLATFELTER COMPANY ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD from ______ to ______ For the quarterly period ended MARCH 31, 2003 Commission file number 1-3560 P.H. GLATFELTER COMPANY (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-0628360 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 96 SOUTH GEORGE STREET, SUITE 500 YORK, PENNSYLVANIA 17401 (717) 225-4711 (Address of principal executive offices) (Registrant's telephone number, including area code)
N/A (Former name or former address, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No . Indicate by check mark whether the filer is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No . As of April 30, 2003, P.H. Glatfelter Company had 43,707,861 shares of common stock outstanding. ================================================================================ P.H. GLATFELTER COMPANY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003 TABLE OF CONTENTS
Page ---- PART I - FINANCIAL INFORMATION ITEM 1 Financial Statements Condensed Consolidated Statements of Income for the three months ended March 31, 2003 and 2002 (unaudited) 3 Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 Independent Accountants' Report 16 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 17 ITEM 3 Quantitative and Qualitative Disclosures About Market Risks 26 ITEM 4 Controls and Procedures 27 PART II - OTHER INFORMATION ITEM 6 Exhibits and Reports on Form 8-K 28 SIGNATURES 29 CERTIFICATIONS 30 EXHIBIT INDEX 32
-2- GLATFELTER PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS P.H. GLATFELTER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
THREE MONTHS ENDED MARCH 31 In thousands, except per share amounts 2003 2002 - -------------------------------------- --------- --------- Net sales $ 143,614 $ 131,998 Energy sales - net 2,277 2,166 --------- --------- Total revenues 145,891 134,164 Cost of products sold 115,262 99,657 --------- --------- Gross profit 30,629 34,507 Operating expenses Selling, general and administrative expenses 15,211 14,492 Gain on sale of plant, equipment and timberlands (30,547) (568) --------- --------- Total operating expenses (15,336) 13,924 --------- --------- Operating income 45,965 20,583 Other nonoperating income (expense) Interest expense on debt (3,409) (3,744) Interest income on investments and other - net 187 242 Other (income) expense - net (890) 22 --------- --------- Total other income (expense) (4,112) (3,480) --------- --------- Income before income taxes 41,853 17,103 Income tax provision Current 3,743 4,021 Deferred 11,333 1,958 --------- --------- Total income tax provision 15,076 5,979 --------- --------- Net income $ 26,777 $ 11,124 ========= ========= EARNINGS PER SHARE Basic and diluted $ 0.61 $ 0.26 CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.175 $ 0.175
The accompanying notes are an integral part of the condensed consolidated financial statements. -3- GLATFELTER P.H. GLATFELTER COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
MARCH 31 December 31 In thousands 2003 2002 - ------------ ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 46,250 $ 32,248 Accounts receivable - net 68,309 60,377 Inventories 73,408 70,456 Prepaid expenses and other current assets 10,449 9,473 ----------- ----------- Total current assets 198,416 172,554 PLANT, EQUIPMENT AND TIMBERLANDS - NET 529,525 518,913 OTHER ASSETS 308,494 261,735 ----------- ----------- Total assets $ 1,036,435 $ 953,202 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 828 $ 795 Short-term debt 4,007 1,080 Accounts payable 28,364 27,782 Dividends payable 7,648 7,638 Income taxes payable 8,652 1,918 Accrued compensation, other expenses and deferred income taxes 53,759 54,909 ----------- ----------- Total current liabilities 103,258 94,122 LONG-TERM DEBT 255,486 218,709 DEFERRED INCOME TAXES 196,679 184,180 OTHER LONG-TERM LIABILITIES 86,378 82,358 ----------- ----------- Total liabilities 641,801 579,369 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock 544 544 Capital in excess of par value 40,648 40,798 Retained earnings 514,407 495,278 Accumulated other comprehensive loss (2,730) (3,708) ----------- ----------- 552,869 532,912 Less cost of common stock in treasury (158,235) (159,079) ----------- ----------- Total shareholders' equity 394,634 373,833 ----------- ----------- Total liabilities and shareholders' equity $ 1,036,435 $ 953,202 =========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements. -4- GLATFELTER P.H. GLATFELTER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
THREE MONTHS ENDED MARCH 31 In thousands 2003 2002 - ------------ -------- -------- OPERATING ACTIVITIES Net income $ 26,777 $ 11,124 Items included in net income not using (providing) cash Depreciation, depletion and amortization 12,585 11,082 Pension income (5,115) (7,817) Deferred income tax provision 11,333 1,958 Net gain on sales of plant, equipment and timberlands (30,547) (568) Expense related to 401(k) plans and other 220 425 Change in operating assets and liabilities Accounts receivable (6,749) (6,065) Inventories (1,932) (2,802) Other assets and prepaid expenses (1,491) (5,339) Accounts payable, accrued compensation and other expenses, deferred income taxes and other long term liabilities (3,136) (10,194) Income taxes payable 7,064 13,922 -------- -------- Net cash provided by operating activities 9,009 5,726 INVESTING ACTIVITIES Purchase of plant, equipment and timberlands (25,223) (7,984) Proceeds from disposal of fixed assets 274 580 -------- -------- Net cash used by investing activities (24,949) (7,404) FINANCING ACTIVITIES Net proceeds from revolving credit facilities 2,681 535 Proceeds from borrowing from SunTrust Financial 34,000 -- Payment of dividends (7,648) (7,481) Proceeds from stock options exercised 299 6,151 -------- -------- Net cash provided (used) by financing activities 29,332 (795) Effect of exchange rate changes on cash 610 257 -------- -------- Net change in cash and cash equivalents 14,002 (2,216) Cash and cash equivalents at the beginning of period 32,248 88,044 -------- -------- Cash and cash equivalents at the end of period $ 46,250 $ 85,828 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid (received) for Interest expense $ 6,209 $ 6,704 Income taxes (2,808) 265
The accompanying notes are an integral part of the condensed consolidated financial statements. -5- GLATFELTER P.H. GLATFELTER COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. ORGANIZATION P. H. Glatfelter Company and subsidiaries (d/b/a Glatfelter) is a manufacturer of specialized printing papers and engineered products. Headquartered in York, Pennsylvania, our manufacturing facilities are located in Spring Grove, Pennsylvania; Neenah, Wisconsin; Gernsbach, Germany; Scaer, France and the Philippines. Our products are marketed throughout the United States and in many foreign countries, either through wholesale paper merchants, brokers and agents or directly to customers. 2. BASIS OF PRESENTATION These unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission and include the accounts of Glatfelter and its wholly-owned subsidiaries. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Glatfelter's 2002 Annual Report on Form 10-K filed with the Securities and Exchange Commission. These condensed unaudited interim financial statements do not include all of the information and footnotes required for complete financial statements. In management's opinion, these financial statements reflect all adjustments, which are of a normal, recurring nature, necessary for a fair presentation of the results for the interim periods presented. Results for these interim periods are not necessarily indicative of results to be expected for the full year. Certain prior period amounts have been reclassified, where necessary, to conform to the current period presentation. 3. STOCK-BASED COMPENSATION Stock-based compensation is accounted for in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, as permitted by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Compensation expense for both restricted stock and performance stock awards is recognized ratably over the performance period based on changes in quoted market prices of Glatfelter stock and the likelihood of achieving the performance goals. This variable plan accounting recognition is due to the uncertainty of achieving performance goals and determining the resulting number of shares to ultimately be issued. No compensation expense is recorded for stock options granted to employees. PRO FORMA INFORMATION No compensation expense has been recognized for non-qualified stock options granted. The weighted-average grant date fair value of options granted during 2002, 2001 and 2000 was $2.48, $3.84 and $2.60, respectively. No options were granted in the first quarter of 2003. The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing using the following assumptions:
2002 2001 2000 ---- ---- ---- Risk-free interest rate 4.13% 5.57% 5.61% Expected dividend yield 5.15 4.58 7.61 Expected volatility 27.80 29.70 42.00 Expected life 6.5 YRS 10 yrs 10 yrs --------- --------- ---------
-6- GLATFELTER Had compensation cost for non-qualified stock options been determined consistent with SFAS No. 123, our net income and earnings per share would have been reduced to the following pro forma amounts:
THREE MONTHS ENDED MARCH 31 In thousands, except per share amounts 2003 2002 - -------------------------------------- -------- -------- Net income As reported $ 26,777 $ 11,124 Stock-based compensation expense, after tax (212) (296) -------- -------- Pro forma $ 26,565 $ 10,828 ======== ======== Earnings per share: Reported - basic and diluted $ 0.61 $ 0.26 Pro forma - basic and diluted 0.61 0.26 -------- --------
4. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standard ("SFAS") No. 143, "Accounting for Asset Retirement Obligations," was issued in June 2001 and applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. We adopted SFAS No. 143 on January 1, 2003, and it did not impact our consolidated financial position or results of operations. SFAS No. 145, "Recission of SFAS No. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections," was issued April 2002 and is effective for fiscal years beginning after May 15, 2002. This statement, among other things, rescinds the requirement to classify a gain or loss upon the extinguishment of debt as an extraordinary item on the income statement. It also requires lessees to account for certain modifications to lease agreements in a manner consistent with sale-leaseback transaction accounting. We adopted SFAS No. 145 on January 1, 2003, and it did not impact our consolidated financial position or results of operations. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," was issued in June 2002 and requires recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002, of which there were none in the first quarter of 2003. SFAS No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure, an Amendment to SFAS No. 123," was issued in December 2002. This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We have elected to continue accounting for stock-based compensation in accordance with APB Opinion No. 25. In November of 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of the Indebtedness of Others" ("FIN No. 45"). FIN No. 45 requires entities to establish liabilities for certain types of guarantees, and expands financial statement disclosures for others. The accounting requirements of FIN No. 45 are effective for guarantees issued or modified after December 31, 2002, and the disclosure requirements are effective for financial statements for interim or annual periods ending after December 15, 2002. The adoption of FIN No. 45 did not have any significant accounting implications for us as all of our commitments and guarantees are on behalf of our subsidiaries. Effective January 1, 2003, we adopted the requirements of FIN No. 45. SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," was issued in April 2003, amends and clarifies accounting for derivative instruments including derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. This standard is effective for contracts entered into or modified after June 30, 2003. Management has not yet determined the impact SFAS No. 149 will have on our consolidated financial position or results of operations. -7- GLATFELTER 5. GAIN ON SALE OF TIMBERLANDS On March 21, 2003, the Company completed its previously announced agreement to sell approximately 25,500 acres of its timberlands in Maryland, with a carrying amount of $6.0 million, to a subsidiary of The Conservation Fund (the "Buyer"). As consideration for the timberlands, the Company received a 10-year note from the Buyer in the principal amount of $37.9 million (the "Note"). The Note bears interest at 3.22% per annum with interest-only payments due in quarterly installments. After five years the interest rate on the Note will be adjusted to the then existing bank prime rate. The Note is secured by a letter of credit issued by a financial institution. The Company pledged the Note as collateral under a $34.0 million promissory note payable to SunTrust Financial (the "Note Payable"). The Note Payable bears a fixed rate of interest at 3.82% for five years at which time the Company can elect to renew the obligation. The pre-tax gain recognized from this transaction was $31.2 million. 6. EARNINGS PER SHARE The following table sets forth the details of basic and diluted earnings per share:
THREE MONTHS ENDED MARCH 31 In thousands, except per share amounts 2003 2002 - -------------------------------------- ------- ------- Net income $26,777 $11,124 ======= ======= Weighted average common shares outstanding used in computing basic earnings per share 43,681 42,952 Common shares issuable upon exercise of dilutive stock options, restricted stock awards and performance awards 21 660 ------- ------- Weighted average common shares outstanding and common share equivalents used in computing diluted earnings per share 43,702 43,612 ======= ======= Basic and diluted earnings per share $ 0.61 $ 0.26 ------- -------
7. INVENTORIES Inventories, net of reserves were as follows:
MARCH 31 December 31 In thousands 2003 2002 - ------------ ------- ------- Raw materials $12,924 $12,909 In-process and finished 37,900 35,621 Supplies 22,584 21,926 ------- ------- Total $73,408 $70,456 ======= =======
-8- GLATFELTER 8. RESTRUCTURING RESERVE The following schedule summarizes activity in our restructuring reserve during the first quarter of 2003:
THREE MONTHS ENDED In thousands MARCH 31, 2003 - ------------ -------------- Beginning balance $2,572 Payments made (521) ------ Ending balance $2,051 ======
9. LONG-TERM DEBT Long-term debt is summarized as follows:
MARCH 31 December 31 In thousands 2003 2002 - ------------ --------- --------- Revolving credit facility, due June 2006 $ 70,420 $ 67,681 6-7/8% Notes, due July 2007 150,000 150,000 Note payable - SunTrust, due March 2008 34,000 -- Other notes, various 1,894 1,823 --------- --------- Total long-term debt 256,314 219,504 Less current portion (828) (795) --------- --------- Long-term debt, excluding current portion $ 255,486 $ 218,709 ========= =========
On June 24, 2002, we entered into an unsecured $102.5 million multi-currency revolving credit facility (the "Facility") with a syndicate of three major banks. An additional $22.5 million was added to the Facility on September 24, 2002 with a fourth major bank. The Facility, which replaced an old facility, enables Glatfelter or its subsidiaries to borrow up to the equivalent of $125.0 million in certain currencies. Borrowings can be made for any time period from one day to six months and incur interest based on the domestic prime rate or a Eurocurrency rate, at our option, plus a margin ranging from .525% to 1.05%. The margin and a facility fee on the commitment balance are based on the higher of our debt ratings as published by Standard & Poor's and Moody's. The Facility requires us to meet certain leverage and interest coverage ratios, with both of which we are in compliance. On July 22, 1997, we issued $150.0 million principal amount of 6 7/8% Notes due July 15, 2007. Interest on the Notes is payable semiannually on January 15 and July 15. The Notes are redeemable, in whole or in part, at our option at any time at a calculated redemption price plus accrued and unpaid interest to the date of redemption, and constitute unsecured and unsubordinated indebtedness. The net proceeds from the sale of the Notes were used primarily to repay certain short-term unsecured debt and related interest. On March 21, 2003, we sold approximately 25,500 acres of timberlands and received as consideration a $37.9 million 10-year interest bearing note receivable from the buyer (See Note 5). We pledged the Note as collateral under a $34.0 million promissory note payable to SunTrust Financial (the "Note Payable"). The Note Payable bears a fixed rate of interest at 3.82% for five years at which time the Company can elect to renew the obligation. P. H. Glatfelter Company guarantees debt obligations of all its subsidiaries. All such obligations are recorded in these consolidated financial statements. At March 31, 2003 and December 31, 2002, we had $3.0 million of letters of credit issued to us by a financial institution. The letters of credit are for the benefit of certain state workers compensation insurance agencies in conjunction with our self-insurance program. No amounts were outstanding under the letters of credit. We bear the credit risk on this amount to the extent that we do not comply with the provisions of certain agreements. The letters of credit do not reduce the amount available under our lines of credit. -9- GLATFELTER 10. FINANCIAL DERIVATIVES In conjunction with our 2002 refinancing, we entered into a cross-currency swap transaction effective June 24, 2002. Under this transaction, we swapped $70.0 million for approximately E73.0 million and will pay interest on the Euro portion of the swap at a floating Eurocurrency Rate, plus applicable margins and will receive interest on the dollar portion of the swap at a floating U.S. Dollar LIBOR, plus applicable margins. The contract matures on June 24, 2006. The cross-currency swap is designed to provide protection from the impact that changes in currency rates have on certain U.S. Dollar-denominated debt obligations recorded at our subsidiary in Gernsbach, Germany. The cross currency swap is recorded at fair value of $(9.6) million in the Consolidated Balance Sheets and changes in fair value are recognized in earnings as "Other income (expense)" in the Consolidated Statements of Income. The mark-to-market adjustment was completely offset by a gain on the related remeasurement of the U.S. Dollar denominated debt obligations. The credit risks associated with our financial derivatives are controlled through the evaluation and monitoring of creditworthiness of the counterparties. Although we may be exposed to losses in the event of nonperformance by counterparties, we do not expect such losses, if any, to be significant. 11. COMPREHENSIVE INCOME The following table sets forth comprehensive income and its components:
THREE MONTHS ENDED MARCH 31 In thousands 2003 2002 - ------------ -------- -------- Net income $ 26,777 $ 11,124 Foreign currency translation adjustment 978 (317) -------- -------- Comprehensive income $ 27,755 $ 10,807 ======== ========
12. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS ECUSTA DIVISION In connection with the Ecusta Division sale in August 2001, the buyers assumed certain liabilities related to the operation of the Ecusta Division. In July 2002, we received notice from the buyers' legal counsel asserting claims for indemnification, without estimates of value, pursuant to the sale agreement. We are currently investigating these claims and have not yet determined the validity or value of these claims. As such, we cannot ascertain at this time what effect, if any, these claims may have on our consolidated financial position and/or results of operations. During August 2002, the buyers of the Ecusta Division shut down the paper manufacturing operation of the paper mill in Pisgah Forest, North Carolina, which was the most significant operation of the Ecusta Division. On October 23, 2002, two of the four related buyers of the Ecusta Division filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. We do not expect to receive any proceeds from the bankruptcy proceedings. As of March 31, 2003, we had recorded liabilities totaling $2.6 million related to post-retirement benefits, workers compensation and vendor payables. These liabilities were assumed by the buyers and they have agreed to indemnify and hold us harmless. We also recorded a corresponding receivable of $2.6 million for amounts due from the buyers. In addition to the workers compensation benefits included in the accrual discussed above, we received notice from State of North Carolina indicating we may be liable for $1.6 million in additional workers compensation benefits. While we disagree with this position, if we are held liable, we are entitled to indemnification by the buyers under terms of the sales agreement. The accompanying financial statements do not include an accrual for such amounts. -10- GLATFELTER In addition to these amounts, as of March 31, 2003, our trade accounts receivable include $2.2 million for products sold by our S&H subsidiary pursuant to a supply agreement with a party related to one of the buyers who has not filed for bankruptcy. Such accounts receivable balances totaled $1.6 million at April 30, 2003, reflecting additional sales partially offset by cash collections of $1.8 million. Since April 2003, we have had discussions with governmental authorities and private parties regarding the future of the Ecusta mill. While the future use and ownership of the mill remain unclear, it is possible the current owner of the mill will cease the operation of certain environmental-related systems and abandon the property. Should this occur, the governmental authorities have stated they will turn to us for the interim operation of the environmental- related systems and possibly for certain on-site work. At this time, we cannot predict whether this will occur. It is our understanding that the governmental authorities are continuing to investigate the environmental conditions at the mill, but that they believe that a three-month period of assured funding for the operation of environmental-related systems is necessary pending the results of their investigation. We are uncertain as to what additional Ecusta-related claims including environmental matters, if any, may be asserted against us for other liabilities that were assumed, or with respect to which we are indemnified by the buyers, or related to our former operation of the paper mill. At this time, no reserves have been recorded related to the receivables due from the buyers. We cannot ascertain at this time what effect, if any, these matters will have on our consolidated financial position and/or results of operations. -11- GLATFELTER ENVIRONMENTAL MATTERS We are subject to loss contingencies resulting from regulation by various federal, state, local and foreign governmental authorities with respect to the environmental impact of our mills. To comply with environmental laws and regulations, we have incurred substantial capital and operating expenditures in past years. We anticipate that environmental regulation of our operations will continue to become more burdensome and that capital and operating expenditures necessary to comply with environmental regulations will continue, and perhaps increase, in the future. In addition, we may incur obligations to remove or mitigate any adverse effects on the environment resulting from our operations, including the restoration of natural resources and liability for personal injury and for damages to property and natural resources. Because environmental regulations are not consistent worldwide, our ability to compete in the world marketplace may be adversely affected by capital and operating expenditures required for environmental compliance. SPRING GROVE, PENNSYLVANIA We are subject to the "Cluster Rule," a 1998 federal regulation in which the United States Environmental Protection Agency ("EPA") aims to regulate air and water emissions from certain pulp and paper mills, including kraft pulp mills, such as our Spring Grove facility. Issued under both the Clean Air Act and the Clean Water Act, the Cluster Rule establishes baseline emissions limits for toxic and conventional pollutant releases to both water and air. Subject to permit approvals, we have undertaken an initiative at our Spring Grove facility under the Voluntary Advanced Technical Incentive Program set forth by the EPA in the Cluster Rule. This initiative, the "New Century Project," will require capital expenditures currently estimated to be approximately $37.0 million to be incurred before April 2004. The New Century Project includes improvements in brownstock washing, installation of an oxygen delignification bleaching process, 100 percent chlorine dioxide substitution and a hardwood ozone bleaching system. Through March 31, 2003, we have invested approximately $20.4 million in this project. We presently do not anticipate difficulties in implementing the New Century Project; however, we have not yet received all the required governmental approvals, nor have we installed all the necessary equipment. We are voluntarily cooperating with an investigation by the Pennsylvania DEP which commenced in February 2002, of our Spring Grove facility related to certain discharges, which are alleged to be unpermitted, to the Codorus Creek. There is no indication that these discharges had an impact on human health or the environment. We are currently engaged in negotiations with the Pennsylvania DEP regarding these matters. In 1999, EPA and the Pennsylvania DEP issued us separate Notices of Violation ("NOVs") alleging violations of air pollution control laws, primarily for purportedly failing to obtain appropriate pre-construction air quality permits in conjunction with certain modifications to our Spring Grove facility. For all but one of the modifications cited by EPA, we applied for and obtained from the Pennsylvania DEP the pre-construction permits that we concluded were required by applicable law. EPA reviewed those applications before the permits were issued. The Pennsylvania DEP's NOV pertained only to the modification for which we did not receive a pre-construction permit. We conducted an evaluation at the time of this modification and determined that the pre-construction permit cited by EPA and the Pennsylvania DEP was not required. We have been informed that EPA and the Pennsylvania DEP will seek substantial emissions reductions, as well as civil penalties, to which we believe we have meritorious defenses. Nevertheless, we are unable to predict the ultimate outcome of these matters or the costs, if any, involved. NEENAH, WISCONSIN We have previously reported with respect to potential environmental claims arising out of the presence of polychlorinated biphenyls ("PCBs") in sediments in the lower Fox River and in the Bay of Green Bay, downstream of our Neenah, Wisconsin facility. We acquired the Neenah facility in 1979 as part of the acquisition of the Bergstrom Paper Company. In part, this facility uses wastepaper as a source of fiber. At no time did the Neenah facility utilize PCBs in the pulp and paper making process, but discharges from the facility containing PCBs from wastepaper may have occurred from 1954 to the late 1970s. Any PCBs that the Neenah facility discharged into the Fox River resulted from the presence of NCR(R)-brand carbonless copy paper in the wastepaper that was received from others and recycled. As described below, various state and federal governmental agencies have formally notified seven potentially responsible parties ("PRPs"), including Glatfelter, that they are potentially responsible for response costs and "natural resource damages" ("NRDs") arising from PCB contamination in the lower Fox River and -12- GLATFELTER in the Bay of Green Bay, under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and other statutes. The six other identified PRPs are NCR Corporation, Appleton Papers Inc., Georgia Pacific (formerly Fort Howard Corp. and Fort James), WTM I Co. (a subsidiary of Chesapeake Corp.), Riverside Paper Corporation, and U.S. Paper Mills Corp. (a subsidiary of Sonoco Products Company). We believe some of these PRPs may have corporate or contractual relationships with unidentified entities that may shift monetary obligations arising from the lower Fox River and Bay of Green Bay. CERCLA establishes a two-part liability structure that makes responsible parties liable for (1) "response costs" associated with the remediation of a release of hazardous substances and (2) NRDs related to that release. Courts have interpreted CERCLA to impose joint and several liability on responsible parties for response costs, subject to equitable allocation in certain instances. Prior to a final settlement by all responsible parties and the final cleanup of the contamination, uncertainty regarding the application of such liability will persist. On January 7, 2003, the Wisconsin Department of Natural Resources (the "Wisconsin DNR") and EPA issued a Record of Decision ("ROD") for the cleanup of reaches of the lower Fox River known as Operable Unit 1 ("OU1") (which consists of Little Lake Butte des Morts, the portion of the river that is closest to our Neenah facility) and Operable Unit 2 ("OU2") (which is the portion of the river between dams at Appleton and Little Rapids). This ROD does not address the entire lower Fox River or the Bay of Green Bay nor does it place any value on claims for NRDs associated with this matter. The environmental agencies have stated that the Record of Decision related to the remainder of the river and the Bay of Green Bay is expected to be issued during mid-2003. Subject to extenuating circumstances and alternative solutions arising during the cleanup, the ROD requires the removal of approximately 784,000 cubic yards of sediment from Little Lake Butte des Morts. The ROD also requires the monitoring of the two operable units. Wisconsin DNR and EPA estimate that the remedy for these two reaches will cost approximately $75 million but could cost within a range from approximately $52 million to $112 million. The $75 million estimate is approximately the same amount estimated for these sections of the river in the Proposed Remedial Action Plan ("PRAP") issued in October, 2001 related to this matter. We are continuing to analyze the ROD to determine the viability of the remedy set forth therein and its potential impact on us. The total cost estimate of the PRAP, including OU1 and OU2, was $307.6 million (without a contingency factor) over a 7-18 year time period. The most significant component of the estimated costs is attributable to large-scale sediment removal by dredging. Based on cost estimates of large-scale dredging response actions at other sites, we believe the PRAP's cost projections may underestimate actual costs of the proposed remedy by approximately $450 million. As noted above, NRD claims are theoretically distinct from costs related to the primary remediation of a Superfund site. Calculating the value of NRD claims is difficult, especially in the absence of a completed remedy for the underlying contamination. The State of Wisconsin, the United States Fish and Wildlife Service ("FWS"), the National Oceanic and Atmospheric Administration ("NOAA"), four Indian tribes and the Michigan Attorney General have asserted that they possess NRD claims related to the lower Fox River and the Bay of Green Bay. In June 1994, FWS notified the seven identified PRPs that it considered them potentially responsible for NRDs. The federal, tribal and Michigan agencies claiming to be NRD trustees have proceeded with the preparation of an NRD assessment. While the final assessment will be delayed until after the selection of a remedy, the federal trustees released a plan on October 25, 2000 that values their NRDs for injured natural resources between $176 million and $333 million. We believe that the federal NRD assessment is technically and procedurally flawed. We also believe that the NRD claims alleged by the various alleged trustees are legally and factually without merit. On June 20, 2002, the United States, the State of Wisconsin and the Fort James Operating Company ("Fort James") lodged a consent decree with the U.S. District Court for the Eastern District of Wisconsin. If entered, that consent decree would resolve certain outstanding claims, primarily NRD claims, against Fort James and a related entity. Under the terms of the proposed consent decree, Fort James would pay $6.2 million in cash to the United States and the State of Wisconsin in settlement of various claims related to NRDs and cost -13- GLATFELTER recovery related to dredging of sediments at Deposits 56/57. Fort James also agrees to convey 1,063 acres of land to the State and to perform delineated NRD "restoration" projects at a cost of up to $3.9 million. We submitted comments on the proposed consent decree to the U.S. Department of Justice. These comments suggest that the United States, the State of Wisconsin and certain alleged natural resource trustees not move to enter this proposed consent decree, due to various procedural and substantive infirmities.Nevertheless, on March 28, 2003, the federal government made such a motion with respect to which the courts have not yet ruled. Because the plaintiffs have yet to provide a factual or legal justification for the settlement, we are not able to extrapolate an estimated settlement amount for Glatfelter from the proposed consent decree. We are actively negotiating a potential settlement with the Wisconsin agencies and with the federal government for all of our potential liabilities for response costs and NRDs associated with the contamination. The Wisconsin DNR and FWS have published studies, the latter in draft form, estimating the amount of PCBs discharged by each identified PRP to the lower Fox River and the Bay of Green Bay. These reports estimate our Neenah facility's share of the volumetric discharge to be as high as 27%. We do not believe the volumetric estimates used in these studies are accurate because the studies themselves disclose that they are not accurate and are based on assumptions for which there is no evidence. We believe that our volumetric contribution is significantly lower than the estimates. Further, we do not believe that a volumetric allocation would constitute an equitable distribution of the potential liability for the contamination. Other factors, such as the location of contamination, location of discharge and a party's role in causing discharge must be considered in order for the allocation to be equitable. We have entered into interim cost-sharing agreements with four of the other six PRPs, pursuant to which such PRPs have agreed to share both defense costs and costs for scientific studies relating to PCBs discharged into the lower Fox River. These interim cost-sharing agreements have no bearing on the final allocation of costs related to this matter. Based upon our evaluation of the magnitude, nature and location of the various discharges of PCBs to the river and the relationship of those discharges to identified contamination, we believe our share of any liability among the seven identified PRPs is much less than one-seventh of the whole. We also believe that additional potentially responsible parties exist other than the seven identified PRPs. For instance, certain of the identified PRPs discharged their wastewater through public wastewater treatment facilities, which we believe makes the owners of such facilities potentially responsible in this matter. We also believe that entities providing wastepaper-containing PCBs to each of the recycling mills, including our Neenah facility, are also potentially responsible for this matter. We continue to believe that this matter will likely result in litigation, but cannot predict the timing, nature, extent or magnitude of such litigation. We currently are unable to predict our ultimate cost related to this matter. RESERVES FOR ENVIRONMENTAL LIABILITIES The amount and timing of future expenditures for environmental compliance, cleanup, remediation and personal injury, NRDs and property damage liability (including, but not limited to, those related to the lower Fox River and the Bay of Green Bay) cannot be ascertained with any certainty due to, among other things, the unknown extent and nature of any contamination, the extent and timing of any technological advances for pollution abatement, the response actions that may be required, the availability of qualified remediation contractors, equipment and landfill space and the number and financial resources of any other PRPs. We have established reserves relating to unasserted claims for environmental liabilities for those matters for which it is probable that a claim will be made, that an obligation may exist and for which the amount of the obligation is reasonably estimable. As of March 31, 2003 and December 31, 2002, we had accrued reserves for all contingent liabilities related to environmental matters of approximately $30.3 million. These accruals are primarily included in "other long-term liabilities" on the Consolidated Balance Sheets. No adjustments were made to the reserve during the first quarter of 2003 or during the first quarter of 2002. NEENAH, WISCONSIN - RANGE OF REASONABLY POSSIBLE OUTCOMES. Based on analysis of currently available information and experience regarding the cleanup of hazardous substances, we believe that it is reasonably possible that our costs associated with the lower Fox River and the Bay of Green Bay may exceed current reserves by amounts that may prove to be insignificant or that could range, in the aggregate, up to approximately $125 million, over a period that is undeterminable but could range beyond 20 years. We believe that the likelihood of an outcome in the upper end of the monetary range is significantly less than -14- GLATFELTER other possible outcomes within the range and that the possibility of an outcome in excess of the upper end of the monetary range is remote. In our estimate of the upper end of the range, we have assumed full-scale dredging as set forth in the ROD for Operable Unit 1 and 2. We have also assumed full-scale dredging for the remainder of the river and the Bay of Green Bay, as set forth in the PRAP, at a significantly higher cost than estimated in the PRAP. We have also assumed our share of the ultimate liability to be 18%, which is significantly higher than we believe is appropriate or will occur and a level of NRD claims and claims for reimbursement of expenses from other parties that, although reasonably possible, is unlikely. In estimating both our current reserve for environmental remediation and other environmental liabilities and the possible range of additional costs, we have not assumed that we will bear the entire cost of remediation and damages to the exclusion of other known PRPs who may be jointly and severally liable. The ability of other PRPs to participate has been taken into account, based generally on their financial condition and probable contribution. Our evaluation of the other PRPs' financial condition included the review of publicly disclosed financial information. The relative probable contribution is based upon our knowledge that at least two PRPs manufactured the paper that included the PCBs and as such, in our opinion, bear a higher level of responsibility. In addition, our assessment is based upon the magnitude, nature and location of the various discharges of PCBs to the river and the relationship of those discharges to identified contamination. We have also considered that over a number of years, certain PRPs were under the ownership of large multinational companies, which appear to retain some liability for this matter. We continue to evaluate our exposure and the level of our reserves, including, but not limited to, our potential share of the costs and NRDs (if any) associated with the lower Fox River and the Bay of Green Bay. We believe that we are insured against certain losses related to the lower Fox River and the Bay of Green Bay, depending on the nature and amount of the losses. Insurance coverage, which is currently being investigated under reservations of rights by various insurance companies, is dependent upon the identity of the plaintiff, the procedural posture of the claims asserted and how such claims are characterized. We do not know when the insurers' investigations as to coverage will be completed and we are uncertain as to what the ultimate recovery will be and whether it will be significant in relation to the losses for which we have accrued. SUMMARY Our current assessment is that we should be able to manage these environmental matters without a long-term, material adverse impact on us. These matters could, however, at any particular time or for any particular year or years, have a material adverse effect on our consolidated financial position, liquidity and/or results of operations or could result in a default under our loan covenants. Moreover, there can be no assurance that our reserves will be adequate to provide for future obligations related to these matters, that our share of costs and/or damages for these matters will not exceed our available resources, or that such obligations will not have a long-term, material adverse effect on our consolidated financial position, liquidity or results of operations. With regard to the lower Fox River and the Bay of Green Bay, if we are not successful in managing the matter and are ordered to implement the remedies proposed in the ROD and the PRAP, such orders would have a material adverse effect on our consolidated financial position, liquidity and results of operations and would result in a default under our loan covenants. We are also involved in other lawsuits that are ordinary and incidental to our business. The ultimate outcome of these lawsuits cannot be predicted with certainty, however, we do not expect that such lawsuits in the aggregate or individually will have a material adverse effect on our consolidated financial position, liquidity or results of operations. 13. SEGMENT INFORMATION We manage our organization along separate business units: Engineered Products, Long-Fiber & Overlay Papers, and Printing and Converting Papers, as well as Tobacco Papers, which is being exited. In the latter part of 2002, we completed the implementation of a new information system to provide, among other things, more complete business unit reporting. However, we are currently unable to provide detail business unit profitability reporting for periods prior to the system implementation. Results of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to generally accepted accounting principles; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the business unit are allocated primarily based on an estimated utilization of support area services. The following table sets forth net sales by business unit:
Three Months Ended March 31 Percent of Total ----------------- ----------------- Dollars in millions 2003 2002 Change 2003 2002 - -------------------------------------------------------------------------------- BUSINESS UNIT Engineered Products $32.3 $29.7 $2.6 22.5% 22.5% Long-Fiber & Overlay Papers 35.3 26.6 8.7 24.6 20.1 Printing and Converting Papers 72.0 70.7 1.3 50.1 53.6 Tobacco Papers 4.0 5.0 (1.0) 2.8 3.8 ---------------------------------------------- Total $143.6 $132.0 $11.6 100.0% 100.0% ==============================================
The following table sets forth profitability by business unit and the composition of consolidated income before income taxes:
Three Months Ended March 31, 2003 ----------------------------------- Operating Operating Dollars in millions Profit Margin - -------------------------------------------------------------------------------- BUSINESS UNIT Engineered Products $1.3 4.0% Long-Fiber & Overlay Papers 6.2 17.6 Printing and Converting Papers 1.8 2.5 Tobacco Papers (1.3) (32.5) ------ ------ Total Business Unit $8.0 5.4% Energy sales, net 2.3 Pension income, net 5.1 Gain on sale of plant, equipment and timberlands, net 30.6 ------ Total consolidated operating income 46.0 Interest expense, net (3.6) Other income (expense), net (0.5) ------ Income before income taxes $41.9 ======
Management evaluates results of operations before energy sales, gains from asset sales and the effects of non-cash pension income because it believes this is a more meaningful representation of the operating performance of its core papermaking businesses, the profitability of business units and the extent of cash flow generated from core operations. This presentation is closely aligned with the management and operating structure of our company. It is also on this basis that management performance is evaluated internally and by the Company's Board of Directors. -15- GLATFELTER INDEPENDENT ACCOUNTANTS' REPORT P. H. Glatfelter Company: We have reviewed the accompanying condensed consolidated balance sheet of P. H. Glatfelter Company and subsidiaries as of March 31, 2003 and the related condensed consolidated statements of income and cash flows for the three months ended March 31, 2003 and 2002. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of P. H. Glatfelter Company and subsidiaries as of December 31, 2002, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2003 (which includes an explanatory paragraph concerning the Company's adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2002 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania May 12, 2003 -16- GLATFELTER ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF INCOME The following discussion should be read in conjunction with the information in the unaudited condensed consolidated financial statements and notes thereto included herein and Glatfelter's Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in its 2002 Annual Report on Form 10-K. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Quarterly Report on Form 10-Q are forward looking. We use words such as anticipates, believes, expects, future, intends and similar expressions to identify forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. Our actual results may differ significantly from management's expectations. The following discussion includes forward-looking statements regarding expectations of, among others, net sales, cost of products sold, pension costs, environmental costs and liquidity, all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements: i. variations in demand for, or pricing of, our products; ii. changes in the cost or availability of raw materials we use, in particular market pulp, pulp substitutes and wastepaper; abaca fiber, and changes in energy-related costs; iii. our ability to develop new, high value-added engineered products; iv. changes in industry paper production capacity, including the construction of new mills, the closing of mills and incremental changes due to capital expenditures or productivity increases; v. cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damage related thereto, such as costs associated with the NOVs issued by the EPA and the Pennsylvania DEP, the costs of natural resource restoration or damages related to the presence of polychlorinated biphenyls ("PCBs") in the lower Fox River on which our Neenah mill is located; and the effect of complying with the wastewater discharge limitations of the Spring Grove mill permits; vi. the gain or loss of significant customers and/or on-going viability of such customers; vii. risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates; viii. geopolitical events, including war and terrorism; ix. enactment of adverse state, federal or foreign legislation or changes in government policy or regulation; x. our ability to identify, finance and consummate future alliances or acquisitions; xi. adverse results in litigation; xii. disruptions in production and/or increased costs due to labor disputes; xiii. the effect on us, if any, associated with the financial condition of the buyers of the Ecusta Division; and, xiv. our ability to realize the value of our timberlands. CRITICAL ACCOUNTING POLICIES The following discussion and analysis of our consolidated financial position and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to sales returns, doubtful accounts, inventories, investments and financial derivative instruments, long-lived assets and contingencies, including environmental matters. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances; the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. -17- GLATFELTER We believe the following represent the most significant and subjective estimates used in the preparation of our consolidated financial statements. i. We maintain reserves for expected sales returns and allowances based principally on our return practices and our historical experience. If actual sales returns differ from the estimated return rates projected, we may need to increase or decrease our reserves for sales returns and allowances, which could affect our reported income. ii. We maintain allowances for doubtful accounts for estimated losses resulting from our customers' failure to make required payments. If actual customer payments differ from our estimates, we may need to increase or decrease our allowances for doubtful accounts, which could affect our reported income. iii. We evaluate the recoverability of our long-lived assets, including property, equipment and intangible assets periodically or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Our evaluations include analyses based on the cash flows generated by the underlying assets, profitability information, including estimated future operating results, trends or other determinants of fair value. If the value of an asset determined by these evaluations is less than its carrying amount, a loss is recognized for the difference between the fair value and the carrying value of the asset. Future adverse changes in market conditions or poor operating results of the related business may indicate an inability to recover the carrying value of the assets, thereby possibly requiring an impairment charge in the future. iv. Accounting for defined-benefit pension plans requires various assumptions, including, but not limited to, discount rates, expected rates of return on plan assets and future compensation growth rates. Accounting for our retiree medical plans also requires various assumptions, which include, but are not limited to, discount rates and annual rates of increase in the per capita costs of health care benefits. We evaluate these assumptions at least once each year and make changes as conditions warrant. Changes to these assumptions will increase or decrease our reported income, which will result in changes to the recorded benefit plan assets and liabilities. v. We maintain accruals for losses associated with environmental obligations when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing legislation and remediation technologies. These accruals are adjusted periodically as assessment and remediation actions continue and/or further legal or technical information develops. Such undiscounted liabilities are exclusive of any insurance or other claims against third parties. Recoveries of environmental remediation costs from other parties, including insurance carriers, are recorded as assets when their receipt is assured beyond a reasonable doubt. vi. We have made estimates and accrued for liabilities assumed by the buyers of the Ecusta Division. In addition, we have recorded receivables due from the buyers to reimburse us for such liabilities as well as for other expenses we were to pay on the buyers' behalf. We continue to evaluate the collectibility of the receivables due from the buyers and, at March 31, 2003, have determined that no reserves are necessary for such receivables. However reserves may be necessary in future periods. Reference is made to our Annual Report on Form 10-K for the year ended December 31, 2002, Item 8 - Financial Statements and Supplementary Data - Note 2 and the Notes included in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, for a discussion of our accounting policies with respect to these and other items. OVERVIEW We are one of the world's leading manufacturers of specialized papers and engineered products. During 2002 we completed the reorganization of the way we manage our business. We now operate three business units: Engineered Products, Long-Fiber & Overlay Papers and Printing and Converting Papers. We also completed our IMPACT project, which included the installation of a worldwide enterprise resource planning ("ERP") information system. -18- GLATFELTER RESULTS OF OPERATIONS FIRST QUARTER OF 2003 VERSUS FIRST QUARTER OF 2002 The following table sets forth summarized results of operations.
THREE MONTHS ENDED MARCH 31 ---------------- In millions 2003 2002 CHANGE - ----------- ------ ------ ------ Net sales $143.6 $132.0 $ 11.6 Energy sales, net 2.3 2.2 0.1 ------ ------ ------ Total revenue 145.9 134.2 11.7 Cost of products sold 115.3 99.7 15.6 ------ ------ ------ Gross profit 30.6 34.5 (3.9) Operating expenses Selling, general and administrative expenses 15.2 14.5 0.7 Gain on sale of plant, equipment and timberlands (30.6) (0.6) (30.0) ------ ------ ------ Total operating expenses (15.4) 13.9 (29.3) ------ ------ ------ Operating income 46.0 20.6 25.4 Interest expense, net (3.2) (3.5) 0.3 Other income (expense), net (0.9) 0.0 (0.9) ------ ------ ------ Income before income taxes 41.9 17.1 24.8 Income taxes 15.1 6.0 9.1 ------ ------ ------ Net income $ 26.8 $ 11.1 $ 15.7 ====== ====== ======
Net income and diluted earnings per share for the first quarter of 2003 of $26.8 million and $0.61, respectively, compared to $11.1 million and $0.26, respectively, for the comparable quarter in 2002. The 2003 first quarter results include a pre-tax gain of $31.2 million, or $20.0 million after-tax, from the previously announced sale of approximately 25,500 acres of timberlands, as well as a $0.7 million after-tax loss on the sale of certain paper making equipment. Earnings for the first quarter of 2003 before these asset sales were $7.5 million, or $0.17 per diluted share. On this basis, the decline in earnings was primarily due to higher costs of products sold and lower non-cash pension income in the first quarter of 2003. Reported earnings in the quarter-to- quarter comparison were also favorably impacted by the weakening of the U.S. Dollar versus the Euro and the resulting impact on translated results of international operations. The weaker U.S. Dollar had an estimated favorable impact on net income of approximately $0.8 million, after tax, in the first quarter of 2003. NET SALES Our consolidated net sales totaled $143.6 million for the first quarter of 2003 compared to $132.0 million for the year-earlier first quarter, an increase of $11.6 million, or 8.8%. Sales growth was primarily attributable to increased volumes in our Long Fiber & Overlay and Engineered Products business units. The increase was also due to the effect of an 8.7% increase in average net selling price, driven, in large part, by the effect of a weaker U.S. Dollar relative to the Euro. In the quarter-to-quarter comparison, the weaker U.S. Dollar benefited translated net sales of international operations by approximately $7.7 million. During the first quarter of 2003, sales volume for our Engineered Products increased by approximately 6.0% compared to the first quarter of 2002, and average net selling prices increased moderately. Our Long-Fiber & Overlay Papers business unit experienced increased sales volume for its products. However, excluding the effects of a weaker U.S. Dollar relative to the Euro, this unit's pricing remained relatively constant. In the Printing and Converting Papers business unit, our net sales volume declined less than 1% compared to the same period a year ago. Printing and Converting Papers, a more mature business unit, continued to experience declining prices, reversing favorable pricing trends that were seen during the third quarter of 2002. Tobacco Papers represent a business unit that we are exiting pending completion of our agreement to provide tobacco papers to an affiliate of one of the buyers of our Ecusta Division. We expect sales from this unit to approximate $8.0 million to $10.0 million in 2003. The lower proportion of tobacco papers sales relative to our total sales is expected to have a favorable impact on our gross margin. -19- GLATFELTER ENERGY SALES, NET Energy sales, net totaled $2.3 million in the first quarter of 2003 compared with $2.2 million in the comparable quarter of 2002. Energy sales represent net revenue earned from the sale of excess power generated by our Spring Grove mill. COST OF PRODUCTS SOLD AND GROSS PROFIT Cost of products sold ("COS") increased $15.6 million, or 15.6%, in the quarter-to-quarter comparison. COS is approximately $5.3 million higher in the first quarter of 2003 than in the prior-year first quarter due to the weakening of the U.S. Dollar compared to the Euro and the resulting impact on translated COS of international operations. In addition, the increase in COS consisted of approximately $2.0 million of higher market pulp and wastepaper costs, $2.0 million of energy-related costs, $0.6 million attributable to the impact of heavy snows during 2003 and $1.9 million of lower non-cash pension income. Approximately $1.5 million of the increase in COS was due to higher sales volumes. Gross profit in the first quarter of 2003 totaled $30.6 million, a decline of $3.9 million from the year-earlier quarter, and our gross margin was 21.3% and 26.1% in the first quarter of 2003 and 2002, respectively, reflecting the net effect of the factors discussed above in Net Sales and COS. Our gross margin includes net non-cash pension income resulting from the overfunded status of our defined benefit pension plans. The following table is presented to provide additional analysis of the changes in COS, eliminating the benefit of net non-cash pension income.
THREE MONTHS ENDED MARCH 31 ---------------- In millions 2003 2002 CHANGE - ----------- ------ ------ ------ Cost of products sold excluding net pension income $119.8 $106.1 $ 13.7 Benefit of pension income (4.5) (6.4) 1.9 ------ ------ ------ Cost of products as reported $115.3 $ 99.7 $ 15.6 ====== ====== ======
Our net non-cash pension income allocable to cost of products sold is expected to total $18.6 million for the full year 2003 compared to $26.9 million in 2002. Non-cash pension income is estimated each year using certain actuarial assumptions and certain other factors, including the fair value of our pension assets as of the first date of the calendar year. The fair value of our pension assets has decreased significantly since January 1, 2002. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES In the first quarter of 2003, SG&A expenses totaled $15.2 million compared with $14.5 million in the year-earlier quarter. The increase was primarily due to a $0.9 million unfavorable effect of a weaker U.S. Dollar on translated SG&A expenses of international operations, a $0.5 million increase in depreciation expense related to our investment in a worldwide ERP information system, and an $0.8 million reduced amount of non-cash pension income. -20- GLATFELTER The following table is presented to provide additional analysis of SG&A expenses eliminating the benefit of net non-cash pension income.
THREE MONTHS ENDED MARCH 31 ----------------- In millions 2003 2002 Change - ----------- ----- ----- ------ SG&A excluding net pension income $15.8 $15.9 $(0.1) Benefit of pension income (0.6) (1.4) 0.8 ----- ----- ----- SG&A as reported $15.2 $14.5 $ 0.7) ===== ===== =====
The fair value of our pension assets has decreased significantly since January 1, 2002. For the full year 2003, non-cash pension income allocable to SG&A expenses is projected to be $2.6 million compared to $5.7 million in 2002. GAIN ON SALES OF PLANT, EQUIPMENT AND TIMBERLANDS During the first quarter of 2003 we recognized a net gain from the sale of plant, equipment and timberlands of $30.6 million. This primarily represents a $31.2 million gain from the sale in March 2003 of approximately 25,500 acres of timberlands to a subsidiary of The Conservation Fund, a non profit land conservation fund (the "Buyer"). As consideration for the timberlands, we received a 10-year note from the Buyer in the principal amount of $37.9 million (the "Note"). The Note bears interest at 3.22% per annum with interest-only payments due in quarterly installments. After five years the interest rate on the Note will be adjusted to the then existing bank prime rate. The full amount of the Note is secured by a letter of credit issued by a financial institution. As more fully discussed in Liquidity and Capital Resources, we pledged the Note and letter of credit as collateral for a $34.0 million term loan from a financial institution. In connection with the timberland sale, we entered in a Supply Agreement (the "Agreement") with the Buyer pursuant to which we agreed to purchase from the Buyer a minimum of 275,400 tons of pine pulpwood at market prices over the eight-year term of the Agreement. INTEREST EXPENSE, NET Interest expense, net consisted of the following:
THREE MONTHS ENDED MARCH 31 -------------- In millions 2003 2002 CHANGE - ----------- ----- ----- ------ Interest expense on debt $(3.4) $(3.7) $0.3 Interest income on investments and other - net 0.2 0.2 -- ----- ----- ---- Interest expense, net $(3.2) $(3.5) $0.3 ===== ===== ====
Interest expense decreased in the quarter-to-quarter comparison primarily due lower debt outstanding in the current year compared to the prior-year quarter. On average, total debt outstanding declined approximately $50.0 million. The weakening of the U.S. Dollar compared to the Euro, and the resulting impact on translated interest expense for U.S. Dollar results partially offset the favorable effect of lower debt balances. OTHER INCOME (EXPENSE), NET Other income (expense), net totaled $(0.9) million primarily due to foreign currency transaction losses and net expense on cross-currency rate swaps. INCOME TAXES Income taxes increased $9.1 million to $15.1 million for the quarter ended March 31, 2003. The change in the income tax provision for the first quarter of 2003 compared to the same period of 2002 is primarily due to a $24.8 million increase in earnings before income taxes. -21- GLATFELTER BUSINESS UNITS We manage our organization along separate business units: Engineered Products, Long-Fiber & Overlay Papers, and Printing and Converting Papers, as well as Tobacco Papers, which is being exited. In the latter part of 2002, we completed the implementation of a new information system to provide, among other things, more complete business unit reporting. However, we are currently unable to provide detail business unit profitability reporting for periods prior to the system implementation. Results of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to generally accepted accounting principles; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the business unit are allocated primarily based on an estimated utilization of support area services. The following table sets forth net sales by business unit:
THREE MONTHS ENDED MARCH 31 PERCENT OF TOTAL --------------- ---------------- Dollars in millions 2003 2002 CHANGE 2003 2002 - ------------------- ------ ------ ------ ------ ------- BUSINESS UNIT Engineered Products $ 32.3 $ 29.7 $ 2.6 22.5% 22.5% Long-Fiber & Overlay Papers 35.3 26.6 8.7 24.6 20.1 Printing and Converting Papers 72.0 70.7 1.3 50.1 53.6 Tobacco Papers 4.0 5.0 (1.0) 2.8 3.8 ------ ------ ------ ------ ------ Total $143.6 $132.0 $ 11.6 100.0% 100.0% ====== ====== ====== ====== ======
The following table sets forth profitability information by business unit and the composition of consolidated income before income taxes:
THREE MONTHS ENDED MARCH 31, 2003 Operating Operating Dollars in millions Profit Margin - ------------------- ------ ------ BUSINESS UNIT Engineered Products $ 1.9 5.9% Long-Fiber & Overlay Papers 6.2 17.6 Printing and Converting Papers 1.2 1.7 Tobacco Papers (1.3) (32.5) ----- Total Business Unit $ 8.0 5.4% Energy sales, net 2.3 Pension income, net 5.1 Gain on sale of plant, equipment and timberlands, net 30.6 ----- Total consolidated operating income 46.0 Interest expense, net (3.6) Other income (expense), net (0.5) ----- Income before income taxes $41.9 =====
Management evaluates results of operations before energy sales, gains from asset sales and the effects of non-cash pension income because it believes this is a more meaningful representation of the operating performance of its core papermaking businesses, the profitability of business units and the extent of cash flow generated from core operations. This presentation is closely aligned with the management and operating structure of our company. It is also on this basis that management performance is evaluated internally and by the Company's Board of Directors. -22- GLATFELTER OUTLOOK Thus far in 2003, demand for printing and converting papers has remained sluggish. Recently announced increases in pulp costs indicate a possibility of increasing selling prices for Printing and Converting Papers during the year. Historically, pulp price increases have preceded selling price increases for this business unit by several months. The outlook for the Engineered Products and Long-Fiber & Overlay Papers business units is relatively stable. We anticipate a reduction in sales volume during the remainder of 2003 for Long-Fiber & Overlay Papers due to downtime associated with the rebuild of a paper machine in Gernsbach. COS is subject to variations in market prices for, among others, market pulp, wastepaper and energy, in addition to fluctuations in the value of the U.S. Dollar relative to the Euro on translated results of international operations. Generally, the cost of these materials has experienced significant increases over recent quarters. Although we are unable to predict with any degree of certainty the extent or composition of further increases, if any, we believe the extent or magnitude of any additional cost increases may moderate during the balance of 2003. The cost of market pulp and wastepaper is expected to be higher in 2003 than in 2002 based on price increases in the pulp market in effect during the first quarter of 2003, our evaluation of market trends, and indicators including, but not limited to, short term prices for market pulp, chip availability, capacity and market consumption. Market prices for natural gas significantly influence our Neenah and Gernsbach facilities' production costs. The Neenah and Gernsbach facilities require approximately 1.4 million decatherms and 0.9 million decatherms of heat, respectively, annually. A portion of the Neenah facility's steam requirements is met through a long-term supply agreement with Minergy Corporation. The cost of steam purchased from Minergy is based on the market price for natural gas. Based on expected production levels, a $1 per decatherm increase in the cost of gas is expected to increase the cost of operating our Neenah facility by approximately $1.4 million per year. In some instances, we can partially mitigate the effects of price increases in natural gas by internally generating a portion of our steam needs at the Neenah facility. Under a supply contract, the cost of gas consumed by Gernsbach is based on the price of oil. Thus far during 2003, Gernsbach has experienced much less volatility in its cost of natural gas than that of our Neenah facility. LIQUIDITY AND CAPITAL RESOURCES CAPITAL RESOURCES AND LIQUIDITY Total assets were $1.0 billion and $953.2 million and shareholders' equity was $394.6 million and $373.8 million, at March 31, 2003 and December 31, 2002, respectively. Our business is capital intensive and requires significant expenditures for new or enhanced equipment and environmental compliance matters and, to support our business strategy, research and development efforts to develop new or enhanced products. Liquidity is provided primarily from operating cash flow together with credit facilities. In addition, during the first quarter of 2003, we completed the 25,500-acre sale of timberlands as part of our ongoing initiative to realize value from all of our assets. The following table summarizes cash flow information.
THREE MONTHS ENDED MARCH 31 -------------- In millions 2003 2002 CHANGE - ----------- ----- ----- ------ Cash and cash equivalents at beginning of period $32.2 $88.0 $(55.8) Cash provided by (used for) Operating activities 9.0 5.7 3.3 Investing activities (24.9) (7.4) (17.5) Financing activities 29.3 (0.8) 30.1 Effect of exchange rate changes on cash 0.6 0.3 0.3 ----- ----- ------ Net cash provided (used) 14.0 (2.2) 16.2 ----- ----- ------ Cash and cash equivalents at end of period $46.2 $85.8 $(39.6) ===== ===== ======
-23- GLATFELTER An analysis of cash flows follows: Operating Activities. Cash provided by operating activities totaled $9.0 million for the first three months of 2003 and $5.7 million in the year-earlier first quarter. Operating cash flow increased primarily due to initiatives to improve working capital. Although the timberland sale resulted in an after-tax gain of $20.2 million, cash will be received from the buyer upon payment of its 10-year note. Cash from the timberland sale was realized by pledging the Note as collateral for a $34.0 million term loan. The resulting cash proceeds are reflected as cash provided by financing activities. Investing Activities. Net cash used in investing activities totaled $24.9 million in the first quarter of 2003 compared with $7.4 million in the first quarter of 2002. Capital expenditures during 2003 primarily relate to the New Century Project and the rebuild of a papermaking machine in Gernsbach, Germany. Financing Activities. Net financing activities provided $29.3 million of cash during the first quarter of 2003 compared with an $0.8 million use of cash in the first quarter of 2002. The primary source of cash from financing activities during the first quarter of 2003 was the $34.0 million borrowed under a term loan secured by the pledge of the Note received in connection with the timberland sale. Proceeds from this borrowing together with $2.7 million of other borrowings, primarily under our revolving credit facility, were partially offset by $7.6 million of cash dividends paid on our common stock during the quarter. In the first quarter of 2002, $7.5 million of cash dividends paid were substantially offset by $6.2 million of proceeds from the exercise of stock options at a time when the market price of our common stock exceeded the exercise price of stock options. The following table sets forth Glatfelter's outstanding indebtedness.
MARCH 31 December 31 In thousands 2003 2002 - ------------ --------- --------- Revolving credit facility, due June 2006 $ 70,420 $ 67,681 6-7/8% Notes, due July 2007 150,000 150,000 Note payable - SunTrust, due March 2008 34,000 -- Other notes, various 1,894 1,823 --------- --------- Total long-term debt 256,314 219,504 Less current portion (828) (795) --------- --------- Long-term debt, excluding current portion $ 255,486 $ 218,709 ========= =========
On June 24, 2002, we entered into an unsecured $102.5 million multi-currency revolving credit facility (the "Facility") with a syndicate of three major banks. An additional $22.5 million was added to the Facility on September 24, 2002 with a fourth major bank. The Facility, which replaced an old facility, enables us to borrow up to the equivalent of $125.0 million in certain currencies. Borrowings incur interest based on the domestic prime rate or a Eurocurrency rate, at our option, plus a margin ranging from .525% to 1.05%. Borrowings can be made for any time period from one day to six months. The margin and a facility fee on the commitment balance are based on the higher of our debt ratings as published by Standard & Poor's and Moody's. The Facility requires Glatfelter to meet certain leverage and interest coverage ratios, with both of which we are in compliance. The Facility also provides an additional source of liquidity in the form of a $50.0 million accounts receivable securitization program. Should we elect to do so, we have the ability to securitize certain eligible domestic accounts receivable. Although the Facility provides this financing vehicle, we have no plans to use it in the foreseeable future. As the Facility matures on June 24, 2006, it has been classified on the Balance Sheet as "Long-term debt." As of March 31, 2003, $70.4 million was outstanding and an additional $54.6 million was available for borrowing under the Facility. -24- GLATFELTER In conjunction with our refinancing, we entered into a cross-currency swap transaction with a major financial institution, effective June 24, 2002, with a termination date of June 24, 2006. Under this transaction, we swapped $70.0 million for approximately E73 million and will pay interest on the Euro portion of the swap at a floating Eurocurrency Rate, plus applicable margins and will receive interest on the dollar portion of the swap at a floating U.S. Dollar LIBOR rate, plus applicable margins. The cross-currency swap effectively hedges exposure to foreign currency risk associated with certain intercompany borrowings through 2006. On March 21, 2003, we sold approximately 25,500 acres of timberlands and received as consideration a $37.9 million 10-year interest-bearing note from the buyer (See Note 5). We pledged the Note as collateral under a $34.0 million promissory note payable to SunTrust Financial (the "Note Payable"). The Note Payable bears a fixed rate of interest at 3.82% for five years at which time the Company can elect to renew the obligation. PNC Financial Services Group, Inc. ("PNC") beneficially owns approximately 35% of our common stock, primarily as a trustee for numerous trusts for the benefit of Glatfelter family members. PNC Bank, National Association, a subsidiary of PNC, is a member of a syndicate of banks under the Facility. One member of our Board of Directors is the retired Regional Chairman of PNC Bank National Association, Philadelphia/South Jersey markets. In 1997, we issued $150.0 million principal amount of 6 7/8% Notes due July 15, 2007. Interest on the 6 7/8% Notes is payable semiannually on January 15 and July 15. The 6 7/8% Notes are redeemable, in whole or in part, at our option at any time at a calculated redemption price plus accrued and unpaid interest to the date of redemption, and constitute unsecured and unsubordinated indebtedness. The net proceeds from the sale of the 6 7/8% Notes were used primarily to repay certain short-term unsecured debt and related interest. CAPITAL SPENDING During the first quarter of 2003, capital expenditures totaled $25.2 million compared with $8.0 million in the first quarter of 2002 and $51.2 million for the full year 2002. Capital expenditures are expected to be $75.2 million for the full year 2003. For the near-term period beyond 2003, capital expenditures are expected to be at or below levels of annual depreciation. The following table summarizes capital spending by major project, by year:
L&OP In millions New Century Gernsbach - ----------- ----------- --------- Prior to 2003 $12.3 $ 5.6 During first quarter 2003 8.1 13.9 ----- ----- To date 20.4 19.5 Forecast 2003 14.9 13.3 After 2003 1.5 -- ----- ----- Project total $36.8 $32.8 ===== =====
New Century Project - The New Century Project is an initiative underway at our Spring Grove facility under the Voluntary Advanced Technical Incentive Program as set forth by the EPA's "Cluster Rule". This project includes new hardwood brownstock washing, installation of hardwood oxygen delignification, 100% chlorine dioxide substitution on both the hardwood and softwood fiber lines, and a hardwood ozone bleaching system. To comply with the Cluster Rule, we will also install equipment to reduce air emissions of air pollutants and odorous compounds. Long-Fiber & Overlay Papers ("L&OP") Gernsbach - During 2002, we began our project to expand long-fiber and overlay papers capacity in Gernsbach, Germany. The rebuild of our #9 paper machine is expected to allow us to produce new and advanced products and achieve greater cost efficiency. The increase in the expected cost to complete the paper machine rebuild reflects the effect of the weakening of the U.S. Dollar relative to the Euro and the resulting impact on translated capital expenditures of our subsidiary in Gernsbach, Germany. -25- GLATFELTER DIVIDEND PAYMENTS During the first quarter of 2003 and 2002 and for the full year 2002, cash dividends paid on common stock totaled $7.6 million, $7.5 million and $30.3 million, respectively. Our Board of Directors determines what, if any, dividends will be paid to our shareholders. Dividend payment decisions are based upon then-existing factors and conditions and, therefore, historical trends of dividend payments are not necessarily indicative of future payments. Environmental Matters We are subject to loss contingencies resulting from regulation by various federal, state, local and foreign governmental authorities with respect to the environmental impact of our mills. To comply with environmental laws and regulations, we have incurred substantial capital and operating expenditures in past years. We anticipate that environmental regulation of our operations will continue to become more burdensome and that capital and operating expenditures necessary to comply with environmental regulations will continue, and perhaps increase, in the future. In addition, we may incur obligations to remove or mitigate any adverse effects on the environment resulting from our operations, including the restoration of natural resources and liability for personal injury and for damages to property and natural resources. Because environmental regulations are not consistent worldwide, our ability to compete in the world marketplace may be adversely affected by capital and operating expenditures required for environmental compliance. (See Item 1 - Financial Statements - Note 12 for a summary of significant environmental matters.) We expect to meet all our near- and longer-term cash needs from a combination of operating cash flow, cash and cash equivalents, sale of timberlands, our existing credit facility or other bank lines of credit and other long-term debt. However, as discussed in Item 1 - Financial Statements - Note 12, an unfavorable outcome of various environmental matters could have a material adverse impact on our consolidated financial position, liquidity and/or results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Our market risk exposure primarily results from changes in interest rates and currency exchange rates. At March 31, 2003, we had debt outstanding of approximately $256.2 million, of which $70.4 million, or 27.5% was variable rate. The table below presents average principal outstanding and related interest rates for the next five years. Fair values included herein have been determined based upon rates currently available to us for debt with similar terms and remaining maturities.
Period or Year Ended December 31 At March 31, 2003 ----------------------------------------------------- ------------------- Carrying Fair Dollars in thousands 2003 2004 2005 2006 2007 Value Value - -------------------- -------- -------- -------- -------- -------- -------- -------- LONG-TERM DEBT Average principal outstanding At fixed interest rates $180,499 $184,610 $180,174 $180,000 $115,250 $185,894 $193,594 At variable interest rates 70,420 70,420 70,420 34,036 70,420 70,420 Weighted-average interest rate On fixed interest rate debt 6.38% 6.31% 6.31% 6.31% 5.97% On variable interest rate debt 3.44 3.44 3.44 3.44 CROSS-CURRENCY SWAP Pay variable - EURIBOR E72,985 E72,985 E72,985 E72,985 Variable rate paid 3.30% 3.30% 3.30% 3.30% Receive variable - US$ LIBOR $70,000 $70,000 $70,000 $70,000 Variable rate received 1.94% 1.94% 1.94% 1.94%
Variable rate debt outstanding represents borrowing under our revolving credit facility. Borrowings incur interest based on the domestic prime rate or a Eurocurrency rate, at our option, plus a margin. March 31, 2003, the interest rate paid was 3.44%. An instantaneous 100 basis point increase or decrease in the interest rate on variable rate debt would increase or decrease annual interest expense by $0.7 million. -26- GLATFELTER At March 31, 2003, all variable-rate debt was recorded at S&H, our wholly-owned subsidiary in Gernsbach, Germany, where the functional currency is the Euro. At March 31, 2003, we had a cross-currency swap agreement outstanding with a termination date of June 24, 2006. Under this transaction, we swapped $70.0 million for approximately E73 million and will pay interest on the Euro portion of the swap at a floating Eurocurrency Rate (EURIBOR), plus applicable margins and will receive interest on the dollar portion of the swap at a floating U.S. Dollar LIBOR rate, plus applicable margins. The cross-currency swap is designed to provide protection from the impact that changes in currency rates have on certain U.S. Dollar-denominated debt obligations recorded at our S&H subsidiary in Gernsbach, Germany. The cross currency swaps are recorded at fair value on the Consolidated Balance Sheet and changes in fair value are recognized in earnings as "Other income (expense)" in the Consolidated Statements of Income. Changes in fair value of the cross-currency swap transaction are substantially offset by changes in the value of U.S. Dollar denominated obligations when they are remeasured in Euros, the functional currency of S&H (See Item 1 - Financial Statements - Note 10). We are subject to certain risks associated with changes in foreign currency exchange rates to the extent our operations are conducted in currencies other than the U.S. Dollar. During the quarter ended March 31, 2003, approximately 69% of our net sales were shipped from the United States, 25% from Germany, and 6% from other international locations. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Our chief executive officer and our principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)), within 90 days of the filing of this Quarterly Report on Form 10-Q, have concluded that, as of the evaluation date, our disclosure controls and procedures were adequate and effective to ensure that material information relating to P. H. Glatfelter Company and its consolidated subsidiaries would be made known to them by others within those entities. CHANGES IN INTERNAL CONTROLS There were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of the evaluation, nor were there any significant deficiencies or material weaknesses in our internal controls. As a result, no corrective actions were required or undertaken. -27- GLATFELTER PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The following exhibits are incorporated by reference or filed herewith. 10.1 Employment agreement between the Registrant and John C. van Roden, Jr., Chief Financial Officer. 10.2 Severance agreement between the Registrant and Robert C. Newcomer, President and Chief Operating Officer (exhibits ommitted). 10.3 Term Loan Agreement, dated as of March 21, 2003, among GPW Timberlands, LLC, (a wholly owned subsidiary of the Registrant) and Suntrust Bank, as Administrative Agent. 15 Letter in lieu of consent regarding review report of unaudited interim financial information. 99.1 Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 - Chief Executive Officer. 99.2 Certification of John C. van Roden, Jr., Senior Vice President and Chief Financial Officer, of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 - Chief Financial Officer (b) REPORTS ON FORM 8-K During the quarter ended March 31, 2003, the Company filed the following Current Reports on Form 8-K. i. Form 8-K dated as of January 13, 2003, reporting certain environmental matter developments involving our facility in Neenah, Wisconsin, filed pursuant to Item 5. ii. Form 8-K dated as of January 16, 2003, reporting the retirement, effective June 30, 2003, of Robert P. Newcomer, President and Chief Operating Officer, filed pursuant to Item 5. iii. Form 8-K dated as of March 21, 2003, reporting the completion of the Company's previously announced agreement to sell approximately 25,500 acres of land, filed pursuant to Item 5. -28- GLATFELTER SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 13, 2003 By: /s/ John C. van Roden, Jr. --------------------------------- John C. van Roden, Jr. Senior Vice President and Chief Financial Officer -29- GLATFELTER CERTIFICATION PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002 I, George H. Glatfelter II, Chief Executive Officer of P. H. Glatfelter Company, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2003 of P. H. Glatfelter Company; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of Glatfelter as of, and for the periods presented in this Quarterly Report; 4. Glatfelter's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Glatfelter and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to Glatfelter, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; (b) evaluated the effectiveness of Glatfelter's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and (c) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. Glatfelter's other certifying officer and I have disclosed, based on our most recent evaluation, to Glatfelter's auditors and the audit committee of the board of directors: (a) all significant deficiencies in the design or operation of internal controls which could adversely affect Glatfelter's ability to record, process, summarize and report financial data and have identified for Glatfelter's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in Glatfelter's internal controls; and 6. Glatfelter's other certifying officer and I have indicated in this Quarterly Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 By: /s/ George H. Glatfelter II ---------------------------------- George H. Glatfelter II Chief Executive Officer -30- GLATFELTER CERTIFICATION PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002 I, John C. van Roden, Jr., Senior Vice President and Chief Financial Officer of P. H. Glatfelter Company, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2003 of P. H. Glatfelter Company; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of Glatfelter as of, and for the periods presented in this Quarterly Report; 4. Glatfelter's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Glatfelter and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to Glatfelter, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; (b) evaluated the effectiveness of Glatfelter's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and (c) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. Glatfelter's other certifying officer and I have disclosed, based on our most recent evaluation, to Glatfelter's auditors and the audit committee of the board of directors: (a) all significant deficiencies in the design or operation of internal controls which could adversely affect Glatfelter's ability to record, process, summarize and report financial data and have identified for Glatfelter's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in Glatfelter's internal controls; and 6. Glatfelter's other certifying officer and I have indicated in this Quarterly Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 By: /s/ John C. van Roden, Jr. ---------------------------------- John C. van Roden, Jr. Senior Vice President and Chief Financial Officer -31- GLATFELTER EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 10.1 Employment agreement between the Registrant and John C. van Roden, Jr., Chief Financial Officer. 10.2 Severance agreement between the Registrant and Robert C. Newcomer, President and Chief Operating Officer (exhibits omitted). 10.3 Term Loan Agreement, dated as of March 21, 2003, among GPW Timberlands, LLC, (a wholly owned subsidiary of the Registrant) and Suntrust Bank, as Administrative Agent. 15 Letter in lieu of consent regarding review report of unaudited interim financial information. 99.1 Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 - Chief Executive Officer. 99.2 Certification of John C. van Roden, Jr., Senior Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 - Chief Financial Officer.
32 EX-10.1 3 w86450exv10w1.txt EMPLOYMENT AGREEMENT, JOHN C. VAN RODEN, JR. EXHIBIT 10.1 March 21, 2003 Mr. John van Roden 1439 Lanes End Villanova, PA 19085 Dear John: I am pleased to extend this formal employment offer to join Glatfelter as Senior Vice President & Chief Financial Officer reporting directly to the Chairman & CEO of the company. We believe you will bring outstanding leadership to our organization as we continue our pursuit of the company's Vision. You will be formally approved as an executive officer at the next regularly scheduled Board meeting. We are interested in starting your first day of employment on April 7, 2003. Your starting base salary is $23,750 per month; this is an annualized amount of $285,000 per year. We receive our pay on the last day of each month. You will receive a pro rated paycheck dependent upon your start date. As an executive of the company, your salary will be reviewed on an annual basis by our Compensation Committee and modified based upon performance. Typically we review officer's compensation at the December board meeting. In addition to the starting base salary, you will receive a $15,000 signing bonus payable April 30. Your assignment is incentive bonus eligible with a target incentive established at 50% of your salary range midpoint. The target bonus is $146,802. Incentive for 2003 will be pro rated (and guaranteed at target) based upon your start date. Our incentive is based on achievement of key financial objectives established by the Board. During the orientation process, we will cover the specific metrics for 2003. As our Senior Vice President & Chief Financial Officer you will participate in our long-term incentive plan which has several variables which vest over a three-year period. Effective with your start date, you will be eligible for a restricted stock grant of 1,900 shares, stock options of 11,000 shares, and performance cash pool valued at $40,000. The performance cash pool is linked to total shareholder performance against peer companies. Specific details on the program including the strike price will be covered during your first week of employment. Attached is a document outlining the basic mechanics to the program. Additional awards are made annually by the compensation committee at our December meeting. Glatfelter provides a nice selection of benefits. Attached is a summary document but I will highlight a few items: - - Your personal vacation eligibility is established at five (5) weeks. - - Eleven holidays which includes one floating holiday. - - A comprehensive medical and dental plan. Specific details are covered in the summary document. - - A 401k plan - eligibility begins after 60 days of employment. Our plan does contain a matching contribution of up to a total match of 1.5% into our stock. Details are covered in a separate brochure. - - Pension benefits. As a senior executive, we will provide a combined qualified and nonqualified pension benefit. You will be eligible for our Supplemental Executive Retirement Plan. - - There are a variety of additional benefits outlined in the attached document. Questions on the benefits information should be directed to Pat Kessler, Compensation & Benefits Analyst at 717-225-2701. Attached is a document outlining relocation support to the York area. As discussed during the interview process, relocation for this assignment is critical. Our program is designed to assist with this process. Included in our relocation program is two months of salary to address expenses associated with your relocation. As an officer of the company, you will be provided a change in control agreement, which will be reviewed during the orientation period. There is a formality to verify your education credentials; this process will require your written authorization on the enclosed form. Additionally, we require the successful completion of a pre employment drug screening process. You may use your personal physician for this process. Arrangements for this process can be made through Mikki Wheeler in the Human Resources department. You will be required to sign a confidentiality agreement. A copy is attached for your review. It is a standard agreement but I do encourage you to read it carefully and direct questions to my attention. You will have the use of a laptop and cell phone for your assignment. Official company hours are 8:00 a.m. to 5:00 p.m. Monday through Friday. Given your assignment, we do anticipate that your work schedule will require modification due to travel requirements and business demands. Maureen Brenner will coordinate your office support requirements. Currently our business dress code is business casual. We would like your decision on this offer by close of business April 4. You may indicate acceptance of this offer by your signature and date below. Our facsimile line is 717-812-0251. We will begin the scheduling of the orientation process immediately upon acceptance. The entire team is excited to have you join the organization. I believe you will find your assignment challenging, have the opportunity to learn new skills, and help our company reach its goals. Congratulations on your new assignment. You may reach my office at 717-225-2747 or home number (717-792-6285) to address any questions regarding this offer. Sincerely, William T. Yanavitch Vice President Human Resources Glatfelter Cc: Mr. George Glatfelter Ms. Pat Kessler Mrs. Mikki Wheeler Personnel file Accepted: ----------------------- Mr. John van Roden Date: --------------------------- EX-10.2 4 w86450exv10w2.txt SEVERANCE AGREEMENT, ROBERT C. NEWCOMER CONFIDENTIAL EXHIBIT 10.2 MEMORANDUM TO: Robert P. Newcomer FROM: William Yanavitch II DATE: March 25, 2003 This offer (the "Severance Offer") is being made to you concerning your separation from employment with the Glatfelter Company (the "Company"). This Severance Offer is intended as a confidential statement and supersedes all prior understandings and agreements whether written or oral. In recognition of your contributions to the Company and to aid you in your transition to new employment, you are being offered the following: 1. You will continue to be employed as President and Chief Operating Officer through June 30, 2003, at which time your employment will end unless your position terminates earlier under paragraph 3 or is extended under paragraph 4. During the term of your employment you agree to perform the duties assigned to you faithfully, diligently and to the best of your ability, and to cooperate fully with the officers and directors of the Company. It is recognized, however, that you may devote a significant portion of time during your work days to search for a new position, including taking time off for research purposes, consultations with outplacement professionals, and interviews. Notwithstanding the other terms of this paragraph 1, the Company reserves the right to place you on a paid leave of absence until June 30, 2003. Throughout your employment, the Company will provide you with an office and facilities commensurate with your position. 2. Except as specified herein, you will continue to receive your base salary, at the annual rate of $391,128, and benefits provided senior executives or other employees at your grade level, or otherwise provided to you in the past, through June 30, 2003, and payment of 2002 Management Incentive, Profit-Sharing and Long-Term Incentive awards that are payable in 2003. The Company will pay you the amounts that are due to you under the Company's Management Incentive Plan ("MIP") and the Company profit sharing plan ("Profit Sharing Plan") as soon as administratively practicable after each such payment becomes due for the year 2002. The amounts payable under this paragraph 2, and all other amounts payable under this Severance Offer, shall be subject to legally required withholdings and deductions. 3. The Company will have the right to terminate your employment for Cause, as further set forth herein. "Cause" means, for purposes of this Severance Offer, conduct materially injurious to the Company, following notice thereof and reasonable opportunity to cure. In the event of such a termination for Cause, the Company shall have no further obligation under this Memorandum, except the obligation to pay you an amount equal to the portion of your compensation as defined in paragraph 2 as may be accrued and unpaid on the date of termination. 4. The Company will have the right to request that you provide significant services through June 30, 2003. However, if the Company assigns you such significant responsibilities that you cannot reasonably devote at least 20 hours per week to your search for a new position (as further set forth in paragraph 1) throughout the period ending June 30, 2003, the Company will pay you an additional $32,594 on or about July 1, 2003. After June 30, 2003, you may perform services for the Company as a consultant, as you and the Company may further agree. 5. If you die or become totally disabled during your employment hereunder, you will be treated as any other executive employee of the Company under the same circumstances, except to the extent set forth in this Severance Offer or Exhibit A hereto. 6. So long as you do not voluntarily terminate your employment before July 1, 2003, you will receive the following payments and benefits, subject to the conditions set forth herein: (a) The Company will pay you $488,910 as severance pay. It is expected that such amount will be paid in a single sum on July 1, 2003. However, the Company reserves the right to pay you such amount in installments of at least $32,594, not less frequently than monthly, beginning July 1, 2003. If the Company elects to pay you other than in a single sum, the Company will notify you of that decision before July 1, 2003 and will review that decision at least quarterly until the entire amount has been paid to you, and may pay you any remaining amount due at any time. (b) You will continue to vest in and be paid prior MIP and Profit Sharing Plan awards (such as your performance share awards) through June 30, 2003, except as further provided herein. Previously deferred MIP compensation plus accrued interest will be paid to you on or about July 1, 2003. In lieu of any further award under the MIP or Profit Sharing Plan on account of your service for the period January 1-June 30, 2003, the Company will pay you an additional amount of $115,000. As further severance pay, the Company will also pay you $230,000 in lieu of any further award under the MIP or Profit Sharing Plan on account of your termination of employment. Such additional payments will be made on or about July 1, 2003 and will be eligible compensation under the Company's 401(k) savings plan. (c) With respect to the Company's Key Employee Long-Term Incentive Plan (the "LTIP"): (1) In lieu of any further award under the LTIP, the Company will pay you an additional amount of $66,000, on or about July 1, 2003. (2) After your separation from employment on June 30, 2003, you will be eligible under this agreement to exercise the stock options previously granted to you under the LTIP as of that date and which are vested as of that date, at any time until the earlier of July 1, 2008 (five (5) years from the termination date) and the stated expiration of the date of such stock options. You may elect to exercise your stock options through a "cashless exercise", and may do so within this period by notifying the Company, in writing, regarding your cashless exercise of such option(s). When you notify the Company of a cashless exercise, the Company will pay you, in a single sum as soon as administratively practicable, an amount of cash equal to the difference between the exercise price of the stock option(s) and the closing price of Company common stock on the date you notify the Company regarding your cashless exercise of the option(s) multiplied by the number of shares with respect to which options are then exercised. In the event of your death before July 1, 2008, a cashless exercise of such stock option(s) may be made by the legal representative of your estate for a period of one year from the date of death (or stated expiration date of the option, if shorter). If, after June 30, 2003, the Company reprices or otherwise modifies the terms of options granted to participants in the LTIP prior to that date, and such repricing or change applies to all or substantially all such options, or cancels such options and issues new options in their place, the repricing, change or reissuance of options will apply equally to you unless such repricing or change is less favorable to you than the terms of the options as granted to you. (3) The Company will pay you $423,000 in respect of all vested shares of restricted stock held by you. Such payment shall be made on or about July 1, 2003, and your rights to and under such shares shall be cancelled as of such date. (d) Throughout your employment and until the date you become eligible for health benefits under Medicare, the Company will continue health and dental benefits under health and dental plans providing coverage, benefits, and out-of-pocket costs not less favorable than now in effect, as further set forth in Exhibit C hereto, which is made part of this Severance Offer, and the Company will pay the cost for those benefits. Exhibit C shall incorporate by reference the 2003 Summary Plan Description for the health plan described in Exhibit C, whether or not such Summary Plan Description has been made final and adopted by the Company on the date of this offer. (e) You will be an active participant in the Company's life insurance plan through June 30, 2003. On or about July 1, 2003, the Company will pay you $36,000 in lieu of further payments by the Company for life insurance coverage following your termination of employment (and any taxes on such payment). (f) You will continue to be covered under the Company's long-term disability (LTD) benefit program through June 30, 2003. On or about July 1, 2003, the Company will pay you $131,000 in lieu of further payments by the Company for long-term disability coverage following your termination of employment (and any taxes on such payment). If you become disabled prior to July 1, 2003, any severance pay you receive under paragraph 6(a) will be reduced, dollar for dollar, by any short or long-term disability benefit payable with respect to the same period of time. (g) Your active participation in the Company's 401(k) Savings Plan (the "401(k) Plan") will end as of your June 30, 2003 termination date. You will not be permitted to defer amounts from your severance pay to the 401(k) Plan except as the 401(k) Plan may provide or as set forth herein. You will have the same options as any other terminated employee to request and receive distribution of your 401(k) Plan account (which can be rolled over to an individual retirement account or another employer's qualified plan that accepts rollovers), or to keep your 401(k) Plan account invested for distribution at a later date. (h) The Company will arrange and pay for professional outplacement with one or more outplacement firms to be selected by the Company and you. (i) The Company will pay the cost of financial planning in an amount up to $15,000, plus legal services reasonably incurred in the negotiation and review of this Severance Offer, and the cost of estate planning. The Company will pay any costs incurred by you to enforce the performance of this Severance Offer. (j) The Company will provide relocation assistance, in an amount not to exceed $15,000, to facilitate your move to another location outside the greater York area where your new employer picks up the principal expenses. This assistance will cover incidental expenses and items that may or may not be covered under the new employer's relocation policy. The Company will provide a relocation allowance similar in most respects to the Company's policy for current exempt employees, in the event the costs of our relocation are not provided for under the terms of your new employment. Eligibility for this relocation assistance is available until the end of the Severance Period. Specific relocation issues should be addressed to the attention of William Yanavitch. (k) You are currently eligible for participation in the Final Average Compensation Pension under Article V of the Company's Supplemental Executive Retirement Plan (the "FAC Pension"), to supplement your vested pension under the Company's Retirement Plan for Salaried Employees. The FAC Pension otherwise payable to you will be adjusted to take into account further service and elements of compensation previously addressed with you. The calculation and amount of the adjusted FAC Pension is set forth in Exhibit A. It is payable to you commencing July 1, 2003, and is payable in the form of an unreduced joint and 75% survivor annuity with your wife as the surviving beneficiary unless otherwise arranged by you and the Company. (l) The Company will pay the cost of an annual executive physical until you reach age 62. (m) The Company will provide you with a mutually agreed upon letter of reference if requested and such other personal references as appropriate. All such requests for references must be directed to William Yanavitch, Vice President of Human Resources. (n) The Company will issue a mutually agreed upon statement announcing your retirement. You and the Company will not issue any statement which publicly or privately disparages the conduct or reputation of the other. (o) The Company will provide an office for your use, and appropriate administrative support, through June 30, 2005. The Company at its expense will also provide you with a laptop computer, a facsimile machine, and a cellular phone for your use through June 30, 2005. (p) The Company will provide, on a nontaxable basis, executive development at one or more nationally recognized programs agreed upon by you. The cost of such programs shall not exceed $20,000. (q) The Company will pay or reimburse the cost of membership dues for the Lafayette Club through June 30, 2005. (r) The Company, at its expense and when doing so is not a significant additional burden on the Company, will provide you and your family with transportation to Wisconsin on the Company's airplane through June 30, 2005, and at its convenience after that date. (s) You will be entitled to six weeks of paid vacation until June 30, 2003, and will be paid at your regular rate of pay for any vacation that is unused as of that date. 7. In exchange for all amounts, benefits and other property paid to you or for your benefit under the Severance Offer: (a) You hereby agree that the Change in Control Employment Agreement dated as of December 31, 2000 by and between the Company and yourself (the "Change in Control Agreement") is terminated as of your last day of employment, provided, however, that the terms section 6(d)(iv) thereof (relating to the funding of the Company's Supplemental Executive Retirement Plan) of such agreement, and any other provision of the Change in Control Employment Agreement relating to the vesting and funding of any benefit following a Change in Control (as defined therein), shall remain effective with respect to you through the end of the Severance Period. Any amount payable to you or for your benefit under this Severance Offer which would remain unpaid on the date of any "Change in Control," as such term is defined in the Change in Control Agreement, but for the operation of this sentence, shall be accelerated and paid in full, without any adjustment, on or before the date of the Change in Control. Until your last day of employment, the Change in Control Agreement shall remain in effect, but shall not supersede the terms of Section 6(k) of this Severance Offer, it being intended that you will receive the amount of the enhanced pension payable to you under Section 6(k) and Exhibit A whether or not a Change in Control occurs. (b) You will execute the General Release Agreement attached as Exhibit B. By doing so, you will be releasing the Company from any and all claims that you possibly could assert, including without limitation, any and all claims based on your employment or the termination of your employment (including without limitation, any and all claims under the federal Age Discrimination in Employment Act, Title VII of the Civil Rights Act, the Americans with Disabilities Act and state and local discrimination laws), except for claims based on the enforcement or validity of this agreement being offered to you, for unemployment compensation and for any accrued benefits under an employee benefit plan maintained by the Company under the Employee Retirement Income Security Act. (c) You hereby resign as an officer of the Company effective your last day of employment. (d) You represent and warrant that you will comply with all of the terms of the agreement concerning inventions and confidential information and you will preserve the confidential nature of all trade secrets and other proprietary information of the Company. You also represent and warrant that by your last day of employment, you will deliver to the Company, all Company keys, equipment, books, journals, records, computers, customer lists, publications, files, computer disks, memoranda and documents of any kind or description and other materials acquired during the course of your employment and not make use of or disclose to anyone, without the prior written consent of the Company, any information or documents concerning or related to the Company, whether confidential or not, that you have acquired to date, except as provided for under paragraph 6(o) of this Severance Offer. (e) You represent and warrant that you will comply with all terms in the Company Corporate Disclosure and Securities Trading Policy, as delivered to you. In addition to any existing obligation under your Employee's Agreement, the Corporate Disclosure and Securities Trading Policy or under the common law, you represent and warrant for all time that all confidential information of the Company and/or any related entities (whether written, graphic, oral, committed to memory or otherwise) in your possession, including without limitation, information relating to the operations or marketing plans of the Company and/or any related entities, shall remain strictly confidential and secret so long as that information has not been published in a form generally available to the public. (f) You will not discuss the Company's business, prospects, methods of operation or other similar topics, to the extent such topics are confidential or proprietary, with anyone other than the officers and board of directors of the Company. You also will not engage in any activities or make any statements that may disparage or reflect negatively on the Company, its officers, directors or shareholders. (g) You will keep the terms and conditions of the Severance Offer confidential, except that you may reveal the terms and conditions of this Severance Offer to your spouse, attorney and financial advisor or such other party approved by the Company, so long as they first agree not to disclose them to anyone else. The Company will make reasonable efforts to keep the terms and conditions of this Severance Offer confidential and to limit disclosure on a need-to-know basis. The parties, however, understand that, by way of example and not limitation, the Company may need to disclose the terms and conditions of this Severance Offer to the Company's independent auditors, the board of directors and as required by applicable law. (h) Both during and after your employment with the Company, you will cooperate with any reasonable request of the Company to participate in the preparation for, response to, prosecution of and/or defense of any pending, actual or threatened litigation involving the Company. If the Company requests such participation after your employment ends, it will reimburse you for all reasonable out-of-pocket expenses you incur as a result of such cooperation. (i) If the Company determines that you have breached your obligations set forth in this Memorandum, the Company shall give you written notice thereof and 14 days' opportunity to cure. If you fail to cure such breach, the Company may bring an action to recoup any amounts paid or payable after June 30, 2003, which shall be repaid by you following a determination by a court having jurisdiction of the matter (and exhaustion of any appeals therefrom) that you in fact breached your obligations hereunder. (As required by regulations issued by the EEOC, the foregoing sentence does not apply with respect to a claim under the Federal Age Discrimination in Employment Act). In addition, if you breach your obligations set forth in subparagraphs 7(d), (e), (f), (g) or (h) above, the Company also shall be entitled to seek temporary and permanent injunctive relief to restrain any further breach of those obligations following notice and opportunity to cure. (j) You agree that your agreement with respect to the Severance Offer shall be deemed to be made in the Commonwealth of Pennsylvania and it shall be interpreted, construed and governed by the laws of Pennsylvania, without giving effect to the principles of conflicts of law under Pennsylvania law. You also agree to submit to the jurisdiction of the state and federal courts located in Pennsylvania in the event there is any claim that you have breached this agreement. Please consider this offer for up to 21 days from today. You may accept this Severance Offer by returning a signed and notarized copy of the General Release Agreement attached as Exhibit B by no later than 5:00 p.m. on April 14, 2003 to William Yanavitch. If you return it before April 14, 2003, you will be voluntarily waiving your right to consider it for the entire 21-day period. In addition, you will have 7 days after you return a signed copy of the General Release Agreement to revoke it by submitting a signed revocation notice to William Yanavitch if you choose to do so. Upon the expiration of that 7 day period, the General Release Agreement will become effective. If you do not return a signed and notarized copy of the General Release Agreement to William Yanavitch by 5:00 p.m. on April 14, 2003, or if you revoke the General Release Agreement within the 7 day revocation period, you will not receive the separation payments and enhanced benefits described in this Agreement. You should consult with your personal attorney whether to sign the required General Release Agreement. On behalf of the Company, I thank you for your past service and I wish you well in your future endeavors. EX-10.3 5 w86450exv10w3.txt TERM LOAN AGREEMENT, DATED AS OF MARCH 21, 2003 Execution Copy EXHIBIT 10.3 TERM LOAN AGREEMENT dated as of March 21, 2003 among GPW TIMBERLANDS, LLC as Borrower THE LENDERS FROM TIME TO TIME PARTY HERETO and SUNTRUST BANK as Administrative Agent ================================================================================ SUNTRUST ROBINSON HUMPHREY CAPITAL MARKETS, a division of SunTrust Capital Markets, Inc. as Lead Arranger TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS; CONSTRUCTION 1 Section 1.1. Definitions 1 Section 1.2. Accounting Terms and Determination 15 Section 1.3. Terms Generally 15 ARTICLE II AMOUNT AND TERMS OF THE LOAN 15 Section 2.1. Term Loan 15 Section 2.2. Repayment of Term Loan 16 Section 2.3. Evidence of Indebtedness 16 Section 2.4. Prepayments 16 Section 2.5. Interest on Loans 17 Section 2.6. Fees 17 Section 2.7. Computation of Interest and Fees 17 Section 2.8. Extension of Maturity Date 17 Section 2.9. Increased Costs 18 Section 2.10. Taxes 19
Section 2.11. Payments Generally; Pro Rata Treatment; Sharing of Set-offs 20 Section 2.12. Breakage Indemnity 23 ARTICLE III CONDITIONS PRECEDENT TO LOAN 24 Section 3.1. Conditions To Effectiveness 24 ARTICLE IV REPRESENTATIONS AND WARRANTIES 26 Section 4.1. Existence; Power 26 Section 4.2. Organizational Power; Authorization 26 Section 4.3. Governmental Approvals; No Conflicts 26 Section 4.4. Indebtedness 26 Section 4.5. Litigation 26 Section 4.6. Compliance with Laws and Agreements 27 Section 4.7. Taxes 27 Section 4.8. Margin Regulations 27 Section 4.9. Ownership of Property 27 ARTICLE V AFFIRMATIVE COVENANTS 27 Section 5.1. Financial Statements and Other Information 27 Section 5.2. Existence 27 Section 5.3. Compliance with Laws, Etc. 27 Section 5.4. Payment of Obligations 27 Section 5.5. Books and Records 28 Section 5.6. Use of Proceeds 28 Section 5.7. Non-consolidation 28 Section 5.8. Notice of Default 30 ARTICLE VI NEGATIVE COVENANTS 30 Section 6.1. Negative Pledge 30 Section 6.2. Fundamental Changes 30 Section 6.3. Indebtedness 30 Section 6.4. Amendments to the Purchase Note/Conservation Fund Letter of Credit 31 Section 6.5. Business Activities 31 Section 6.6. No Amendment to Organization Documents 31 ARTICLE VII EVENTS OF DEFAULT 31 Section 7.1. Events of Default 31 ARTICLE VIII THE ADMINISTRATIVE AGENT 33 Section 8.1. Appointment of Administrative Agent 33 Section 8.2. Nature of Duties of Administrative Agent 33 Section 8.3. Lack of Reliance on the Administrative Agent 34 Section 8.4. Certain Rights of the Administrative Agent 34 Section 8.5. Reliance by Administrative Agent 34 Section 8.6. The Administrative Agent in its Individual Capacity 35 Section 8.7. Successor Administrative Agent 35 Section 8.8. Authorization to Execute other Loan Documents 36 ARTICLE IX MISCELLANEOUS 36 Section 9.1. Notices 36 Section 9.2. Waiver; Amendments 37 Section 9.3. Expenses; Indemnification 38 Section 9.4. Successors and Assigns 39 Section 9.5. Governing Law; Jurisdiction; Consent to Service of Process 41 Section 9.6. WAIVER OF JURY TRIAL 42 Section 9.7. Right of Setoff 42 Section 9.8. Counterparts; Integration 42 Section 9.9. Survival 43 Section 9.10. Severability 43 Section 9.11. Confidentiality 43 Section 9.12. Interest Rate Limitation 44
Exhibits Exhibit A Form of Note Exhibit B Form of Assignment and Acceptance
TERM LOAN AGREEMENT THIS TERM LOAN AGREEMENT (this "Agreement") is made and entered into as of March 21, 2003, by and among GPW TIMBERLANDS, LLC, a Delaware limited liability company (the "Borrower"), the several banks and other financial institutions from time to time party hereto (the "Lenders"), and SUNTRUST BANK, in its capacity as Administrative Agent for the Lenders (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, the Borrower has requested that the Lenders make a term loan in an aggregate principal amount equal to $34,000,000.00 to the Borrower; and WHEREAS, subject to the terms and conditions of this Agreement, the Lenders are willing to severally make the respective Pro Rata Share of the term loan to the Borrower. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Borrower, the Lenders and the Administrative Agent agree as follows: ARTICLE I DEFINITIONS; CONSTRUCTION Section 1.1. Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined): "Administrative Agent" shall have the meaning set forth in the introductory paragraph hereof. "Administrative Questionnaire" shall mean, with respect to each Lender, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent duly completed by such Lender. "Affiliate" shall mean, as to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" shall mean the power, directly or indirectly, either to (i) vote 10% or more of securities having ordinary voting power for the election of directors (or persons performing similar functions) of a Person or (ii) direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms "controlling", "controlled by", and "under common control with" have meanings correlative thereto. "Applicable Lending Office" shall mean, for each Lender the "Lending Office" of such Lender (or an Affiliate of such Lender) designated in the Administrative Questionnaire submitted by such Lender or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office by which its Term Loan is to be made and maintained. "Approved Fund" shall mean any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. "Assignment and Acceptance" shall mean an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.4(b)) and accepted by the Administrative Agent, in the form of Exhibit B attached hereto or any other form approved by the Administrative Agent. "Bankruptcy Code" shall mean the Bankruptcy Code as codified in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time. "Bargain Sale Contract" shall mean that certain Contract for the Purchase and Bargain Sale of Property, dated as of December 16, 2002, by and among Pulp Wood, the Conservation Fund, and Fidelity National Title Insurance Company, as amended, supplemented or otherwise modified from time to time. "Borrower" shall have the meaning set forth in the introductory paragraph hereof. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in Atlanta, Georgia are authorized or required by law to close. "Capital Stock" shall mean, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such Person's capital stock, partnership interests, membership interests or other equivalent interests and any rights (other than debt securities convertible into or exchangeable for capital stock), warrants or options exchangeable for or convertible into such capital stock or other interests. "Capitalized Lease" shall mean, at the time any determination thereof is to be made, any lease of property, real or personal, in respect of which the present value of the minimum rental commitment is capitalized on the balance sheet of the lessee in accordance with GAAP. "Capitalized Lease Obligation" shall mean, at the time any determination thereof is to be made, the amount of the liability in respect of a Capitalized Lease which would at such time be so required to be capitalized on such a balance sheet in accordance with GAAP. "Change in Law" shall mean (i) the adoption of any applicable law, rule or regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any Governmental Authority after the date of this Agreement, or (iii) compliance by any Lender (or its Applicable Lending Office) (or for purposes of Section 2.11(b), by such Lender's holding company, if applicable) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Change of Control" shall mean (i) the sale, lease or transfer of all or substantially all of the Guarantor's assets to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), (ii) the liquidation or dissolution of the Guarantor, (iii) any Person or group of Persons (within the meaning of the Exchange Act) shall have acquired, after the Closing Date, beneficial ownership (within the meaning of Rule 13(d)(3) promulgated by the SEC under the Exchange Act) of more than fifty percent (50%) of the issued and outstanding shares of the Guarantor's Voting Securities, or (iv) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Guarantor's board of directors (together with any new directors whose election by the Guarantor's board of directors or whose nomination for election by the Guarantor's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office. "Closing Date" shall mean March 21, 2003. "Code" shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time, including the regulations proposed or promulgated thereunder, or any successor statute and the regulations proposed or promulgated thereunder. "Collateral" shall mean all tangible and intangible property, real and personal, of the Borrower or of any guarantor of the Obligations that is the subject of a Lien granted pursuant to a Loan Document to the Administrative Agent for the benefit of the Administrative Agent and the Lenders to secure the whole or any part of the Obligations or any Guarantee thereof. "Collateral Accounts" shall mean any deposit account or investment account constituting Collateral. "Consent, Waiver and Agreement" shall mean that certain Consent, Waiver and Agreement in form and substance satisfactory to the Administrative Agent executed by the Conservation Fund in favor of the Administrative Agent for the benefit of the Administrative Agent and the Lenders. "Conservation Fund" shall mean Sustainable Conservation, Inc., a Maryland corporation. "Conservation Fund Event" shall mean (i) a breach by the Conservation Fund of any representation, warranty or covenant of the Conservation Fund under the Purchase Note, or a breach by The Conservation Fund, a Maryland corporation, of any agreement contained in the letter agreement dated March 21, 2003 between The Conservation Fund, a Maryland corporation, and the issuer of the Conservation Fund Letter of Credit, (ii) the existence of any defense to payment under the Purchase Note or the Conservation Fund Letter of Credit, in either case in accordance with their respective terms, including, without limitation, any counterclaim or claim or right of setoff, deduction, defense, abatement, suspension, limitation, deferment, diminution, recoupment or other right that the Conservation Fund may have against the Borrower, the Parent or any of its other Subsidiaries or Affiliates, or against the Administrative Agent or any Lender or any of their respective Affiliates, (iii) any rescission, reduction, restoration, or avoidance of any amount received by the Administrative Agent or any Lender under the Purchase Note or the Conservation Fund Letter of Credit or otherwise on account of the Collateral or any proceeds thereof (in any such case whether received for its own account or for the account of the Borrower), (iv) any action taken by the Conservation Fund or any person acting on behalf of the Conservation Fund (including, without limitation, any debtor-in-possession, trustee or creditors committee in any bankruptcy or insolvency of the Conservation Fund) to challenge or impair any provision of the Loan Documents, the validity, enforceability, perfection or priority of the Administrative Agent's or any Lender's Liens on the Collateral or the exercise by the Administrative Agent or any Lender of any rights or remedies with respect thereto, or (v) fraud or willful misconduct of the Conservation Fund. "Conservation Fund Letter of Credit" shall mean that certain Irrevocable Standby Letter of Credit No. [_____________] issued by SunTrust Bank, a Georgia banking corporation, on March 21, 2003 for the account of the Conservation Fund, naming Pulp Wood as beneficiary in the stated amount of $37,850,000 and having a stated expiration date of March 21, 2008 and which was transferred to Borrower and which was subsequently transferred into the name of the Administrative Agent to secure the Obligations, as amended, supplemented, extended, renewed or otherwise modified from time to time. "Default" shall mean any condition or event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "Default Interest" shall have the meaning set forth in Section 2.5(b). "Dollar(s)" and the sign "$" shall mean lawful money of the United States of America. "Eligible Assignee" means (a) a Lender; (b) an Affiliate of a Lender; (c) an Approved Fund; and (d) any other Person (other than a natural Person) approved by the Administrative Agent, and unless (x) such Person is taking delivery of an assignment in connection with physical settlement of a credit derivatives transaction or (y) an Event of Default has occurred and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed). If the consent of the Borrower to an assignment or to an Eligible Assignee is required hereunder (including a consent to an assignment which does not meet the minimum assignment thresholds specified in paragraph (b)(i) of Section 9.4), the Borrower shall be deemed to have given its consent ten Business Days after the date notice thereof has actually been delivered by the assigning Lender (through the Administrative Agent) to the Borrower, unless such consent is expressly refused by the Borrower by written notice delivered to the Administrative Agent prior to such fifth Business Day. "Employee Benefit Plan" shall mean an "employee benefit plan" as defined in Section 3(3) of ERISA, which is or has been established or maintained, or to which contributions are or have been made, by the Guarantor or any of its ERISA Affiliates, any Subsidiary of the Guarantor or ERISA Affiliates of such Subsidiary. "Environmental Law" shall mean any and all applicable foreign, federal, state or local laws, statutes, ordinances, codes, rules, regulations, orders, decrees, judgments, directives and cleanup or action standards, levels or objectives imposing liability or standards of conduct for or relating to the protection of health, safety or the environment, including, but not limited to, the following statutes as now written and hereafter amended: the Federal Water Pollution Control Act, as codified in 33 U.S.C. Section 1251 et seq., the Clean Air Act, as codified in 42 U.S.C. Section 7401 et seq., the Toxic Substances Control Act, as codified in 15 U.S.C. Section 2601 et seq., the Solid Waste Disposal Act, as codified in 42 U.S.C. Section 6901 et seq., the Comprehensive Environmental Response, Compensation and Liability Act, as codified in 42 U.S.C. Section 9601 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, as codified in 42 U.S.C. Section 11001 et seq., and the Safe Drinking Water Act, as codified in 42 U.S.C. Section 300f et seq., and any related regulations, as well as all relevant state and local equivalents. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as from time to time amended. "ERISA Affiliate" shall mean, with respect to any Person, any trade or business (whether or not incorporated) which, together with such Person, is under common control as described in Section 414(c) of the Code, is a member of a "controlled group", as defined in Section 414(b) of the Code, or is a member of an "affiliated service group", as defined in Section 414(m) of the Code, which includes such Person. Unless otherwise qualified, all references to an "ERISA Affiliate" in this Agreement shall refer to an ERISA Affiliate of the Guarantor or any Subsidiary. "Event of Default" shall have the meaning provided in Article VII. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended and as codified in 15 U.S.C. 78a et seq., and as hereafter amended. "Excluded Taxes" shall mean with respect to the Administrative Agent, any Lender, or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which any Lender is located and (c) in the case of a Non-US Lender, any withholding tax that (i) is imposed on amounts payable to such Non-US Lender at the time such Non-US Lender becomes a party to this Agreement, (ii) is imposed on amounts payable to such Non-US Lender at any time that such Non-US Lender designates a new lending office, other than taxes that have accrued prior to the designation of such lending office that are otherwise not Excluded Taxes, or (iii) is attributable to such Non-US Lender's failure to comply with Section 2.10(e). "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average rounded upwards, if necessary, to the next 1/100th of 1% of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent. "Foreign Pension Plan" shall mean any plan, fund (including, without limitation, any super-annuation fund) or other similar program established or maintained outside of the United States of America by the Guarantor or any one or more of its Subsidiaries primarily for the benefit of employees of the Guarantor or such Subsidiaries residing outside the United States of America, which plan, fund, or similar program provides or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which is not subject to ERISA or the Code. "GAAP" shall mean generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.2. "Governmental Authority" shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") shall mean any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly and including any obligation, direct or indirect, of the guarantor (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued in support of such Indebtedness or obligation; provided, that the term "Guarantee" shall not include endorsements for collection or deposits in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which Guarantee is made or, if not so stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. The term "Guarantee" used as a verb has a corresponding meaning. "Guaranteed Creditors" shall mean and include the Agent, the Lenders, and any Related Parties and their respective successors, endorsees, transferees and assigns. "Guarantor" shall mean Parent and its successors and assigns (including, without limitation, a receiver, trustee or debtor-in-possession of or for the Guarantor). "Guarantor Credit Agreement" shall mean that certain Credit Agreement, dated as of June 24, 2002 by and among Guarantor, various of its Subsidiaries that are parties thereto as Borrowers, the lenders from time to time party thereto and Deutsche Bank AG New York Branch, as administrative agent for the lenders, as the same may be amended, supplemented, restated or otherwise modified from time to time, and together with any and all agreements and instruments evidencing or governing Indebtedness or commitments to provide Indebtedness that refinance, replace or refund, in whole or in part, Indebtedness or commitments to provide Indebtedness under said Credit Agreement, including without limitations, successive refinancings, replacements and refundings. "Guaranty and Indemnification Agreement" shall mean that certain Guaranty and Indemnification Agreement, dated as of the date hereof, executed by the Parent, in favor of the Administrative Agent for the benefit of the Administrative Agent and the Lenders, as amended, supplemented or otherwise modified from time to time. "Indebtedness" of any Person shall mean, without duplication (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business, (iv) all obligations of such Person under any conditional sale or other title retention agreement(s) relating to property acquired by such Person, (v) all capital lease obligations of such Person, (vi) all obligations, contingent or otherwise, of such Person in respect of letters of credit, acceptances or similar extensions of credit, (vii) all Guarantees of such Person of the type of Indebtedness described in clauses (i) through (vi) above, (viii) all Indebtedness of a third party secured by any Lien on property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (ix) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any common stock of such Person and (x) all obligations under hedging agreements. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor. "Indemnified Taxes" shall mean Taxes other than Excluded Taxes. "Interest Collection Account" shall mean that certain demand deposit account with the Administrative Agent, in the name of the Borrower, into which quarterly interest payments due and payable on the Purchase Note shall be deposited, and the Borrower shall authorize the Administrative Agent to apply amounts on deposit therein to the Obligations as and when such Obligations become due. "Interest Payment Date" shall mean the last day of each calendar quarter, commencing with the calendar quarter ending June 30, 2003 provided that if such day is not a Business Day, the Interest Payment Date with respect to such calendar quarter shall be the next preceding Business Day. "Interest Reserve" shall mean, as of any date of determination, all cash required to be deposited either in the Interest Reserve Money Market Account or the Interest Reserve/Principal Collection DDA Account, as may be applicable pursuant to the terms of this Agreement. "Interest Reserve Amount" shall mean, on any date of determination, an amount equal to $100,000. "Interest Reserve/Principal Collection DDA Account" shall mean a demand deposit account with the Administrative Agent, in the name of the Borrower, governed by the Interest Reserve/Principal Collection DDA Account Agreement and pledged by the Borrower to the Administrative Agent, for its benefit and the benefit of the Lenders, to secure the Obligations and in which Borrower shall have deposited (i) on the Closing Date the Interest Reserve Amount, (ii) on any date for which the balance in the Interest Reserve Money Market Account is less than the Interest Reserve Amount, an amount sufficient to cause the balance to be not less than the Interest Reserve Amount, and (iii) any and all principal payments received under the Purchase Note. "Interest Reserve/Principal Collection DDA Account Agreement" shall mean that certain Interest Reserve/Principal Collection DDA Account Agreement, dated as of the date hereof, by and among the Borrower, SunTrust Bank, as depository bank and the Administrative Agent, pursuant to which the Borrower shall grant a security interest in the Interest Reserve/Principal Collection DDA Account and shall establish the Administrative Agent's control thereof under Sections 9-104 and 9-314 of the UCC in favor of the Administrative Agent, for its benefit and the benefit of the Lenders, as the same may be amended, restated, supplemented or otherwise modified from time to time. "Interest Reserve Money Market Account" shall mean a money market account with the Administrative Agent, in the name of the Borrower, governed by the Interest Reserve Money Market Account Agreement and pledged by the Borrower to the Administrative Agent, for its benefit and the benefit of the Lenders, to secure the Obligations. "Interest Reserve Money Market Account Agreement" shall mean that certain Interest Reserve Money Market Account Agreement, dated as of the date hereof, by and among the Borrower, SunTrust Bank, as securities intermediary and the Administrative Agent, pursuant to which the Borrower shall grant a security interest in the Interest Reserve Money Market Account and shall establish the Administrative Agent's control thereof under Sections 9-106 and 9-314 of the UCC in favor of the Administrative Agent, for its benefit and the benefit of the Lenders, as the same may be amended, restated, supplemented or otherwise modified from time to time. "IRS" shall mean the United States Internal Revenue Service, or any successor or analogous organization. "LC Bank" shall mean the bank that issues the Conservation Fund Letter of Credit or that issues any letter of credit that replaces the Conservation Fund Letter of Credit in accordance with the terms of the Purchase Note. "LC Event" shall mean, (i) the replacement of any LC Bank with another LC Bank that is not approved in writing by the Administrative Agent and the Required Lenders in their sole discretion exercised in good faith (without limitation to the Administrative Agent's and the Required Lenders' sole discretion with respect to any issuer of a replacement LC Bank, the Administrative Agent and such Lenders may elect not to approve a replacement LC Bank because (a) of the amount of any Lender's other credit exposure to such replacement LC Bank, (b) such replacement LC Bank shall have a long-term debt rating assigned by S&P's and Moody's of less than A+/Aa3 (or the then equivalent rating), or (c) such replacement LC Bank shall have a long-term debt rating assigned by S&P's and Moody's of greater than A+/Aa3 (or the then equivalent rating) but shall be on negative watch, negative credit watch, negative outlook or other similar reports) or (ii) the then existing LC Bank is assigned a long-term debt rating by S&P's or Moody's of less than A+/Aa3 (or the then equivalent rating); provided, that in the event of a split of such long-term debt ratings, the lower rating shall apply. "Lenders" shall have the meaning set forth in the introductory paragraph of this Agreement. "Lien" shall mean any mortgage, pledge, security interest, lien (statutory or otherwise), charge, encumbrance, hypothecation, assignment, deposit arrangement, or other arrangement having the practical effect of the foregoing or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having the same economic effect as any of the foregoing). "Loan" shall mean the extension of credit by a Lender hereunder and "Loans" shall mean all of such Loans by all Lenders collectively. "Loan Documents" shall mean, collectively, this Agreement, the Notes, the Interest Reserve/Principal Collection DDA Account Agreement, the Interest Reserve Money Market Account Agreement, the Consent, Waiver and Agreement, the Guaranty Agreement, the Pledge Agreement and any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing. "Maryland Board of Public Works Approval" shall mean the approval, authorization and validation of the Bargain Sale Contract by Governor Parris N. Glendening, Comptroller William Donald Shafer and Treasurer Nancy K. Kopp, such approval being final and not subject to revocation, rescission, suspension or to be otherwise modified or terminated. "Material Adverse Effect" shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singularly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences whether or not related, a material adverse change in, or a material adverse effect on, (i) the condition (financial or otherwise), assets, liabilities or prospects of the Borrower or of the Parent Group, taken as a whole, (ii) the ability of the Borrower or of the Parent Group, taken as a whole, to perform any of its obligations under the Loan Documents, (iii) the rights and remedies of the Administrative Agent and the Lenders under any of the Loan Documents or (iv) the legality, validity or enforceability of any of the Loan Documents. "Maturity Date" shall mean the earlier of (i) March 26, 2008, or such later date to which the Maturity Date is extended pursuant to Section 2.8, or (ii) the date on which the outstanding principal amount of the Term Loan has been declared, or automatically has become, due and payable (whether by acceleration or otherwise). "Moody's" shall mean Moody's Investors Service, Inc, or any successor or assignee of the business of such company in the business of rating securities. "Multiemployer Plan" shall mean any plan described in Section 4001(a)(3) of ERISA to which contributions are or have, within the preceding six years, been made, or are or were, within the preceding six years, required to be made, by the Guarantor or any of its ERISA Affiliates or any Subsidiary of the Guarantor or ERISA Affiliates of such Subsidiary. "Non-US Lender" shall mean any Lender that is not a United States Person under Section 7701(a)(3) of the Code. "Note" shall mean a promissory note of the Borrower payable to the order of each Lender in the outstanding principal amount of such Lender's Pro Rata Share of the Term Loan, in the form of Exhibit A. "Obligations" shall mean all amounts owing by the Borrower to the Administrative Agent or any Lender pursuant to or in connection with this Agreement or any other Loan Document, including without limitation, all principal, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), all reimbursement obligations, reasonable fees, reasonable expenses, indemnification and reimbursement payments, reasonable costs and expenses (including all reasonable fees and expenses of counsel to the Administrative Agent and any Lender incurred pursuant to this Agreement or any other Loan Document), whether direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising hereunder or thereunder, and all obligations and liabilities incurred in connection with collecting and enforcing the foregoing, together with all renewals, extensions, modifications or refinancings thereof. "Other Taxes" shall mean any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "PBGC" shall mean the Pension Benefit Guaranty Corporation created by Section 4002(a) of ERISA. "Parent" shall mean P. H. Glatfelter Company, a Pennsylvania corporation. "Parent Group" shall mean the Parent and its Subsidiaries and Affiliates, other than the Borrower. "Participant" shall have the meaning set forth in Section 9.4(d). "Payment Office" shall mean the office of the Administrative Agent located in Atlanta, Georgia, or such other location as to which the Administrative Agent shall have given written notice to the Borrower and the other Lenders. "Permitted Change of Control" shall mean a Change of Control which occurs pursuant to clause (i) or (iii) of the definition of Change of Control and as to which (i) in the event of the sale, lease or transfer of all or substantially all of the Guarantor's assets to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act) such Person or any member of such group shall have a long-term debt rating assigned by S&P and Moody's of not less than BB/Ba2 (in the event of a split rating the higher rating shall apply), (ii) in the event any Person or group (within the meaning of the Exchange Act) shall have acquired, after the Closing Date, beneficial ownership (within the meaning of Rule 13(d)(3) promulgated by the SEC under the Exchange Act) of more than fifty percent (50%) of the issued and outstanding shares of the Guarantor's Voting Securities, such Person or any member of such group shall have a long-term debt rating assigned by S&P and Moody's of not less than BB/Ba2 (in the event of a split rating the higher rating shall apply), and (iii) in the event of a Change of Control as described in either (i) or (ii) above, the Guarantor shall have provided the Administrative Agent with notice as required under Section 4(iii) of the Guaranty and Indemnification Agreement. "Permitted Change of Control Rating" shall mean, as to any given Permitted Change of Control, the rating determined as of the effective date of such Permitted Change of Control for the applicable Person or any member of a group described in the definition thereof, and in the event of a split rating, shall mean the lower such rating. "Permitted Lien" shall mean (i) Liens created under any Loan Document; (ii) Liens imposed by law for taxes not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP; and (iii) Liens in favor of a banking institution arising as a matter of law encumbering deposits (including the right of set-off) held by such banking institutions incurred in the ordinary course of business and which are within the general parameters customary in the banking industry other than with respect to deposit accounts constituting Collateral. provided, that the term "Permitted Lien" shall not include any Lien securing Indebtedness other than the Liens created under any Loan Document securing the Obligations. "Permitted Investments" shall mean: (iv) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States (or by any agency or instrumentality thereof to the extent such obligations are backed by the full faith and credit of the United States), in each case maturing within one year from the date of acquisition thereof; (v) commercial paper having a rating, at the time of acquisition thereof, of at least P-1 (or the then equivalent rating) by S&P or A-1 (or the then equivalent rating) by Moody's and in either case maturing within one year from the date of acquisition thereof; (vi) certificates of deposit, bankers' acceptances, demand deposits and time deposits maturing within one year of the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any Lender or any commercial bank organized under the laws of the United States or any state thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; (vii) repurchase agreements with a term of not more than 60 days for securities described in clause (i) above and entered into with a financial institution satisfying the criteria described in clause (iii) above; and (viii) mutual funds investing solely in any one or more of the Permitted Investments described in clauses (i) through (iv) above. "Person" shall mean any individual, partnership, firm, corporation, association, joint venture, limited liability company, trust or other entity, or any Governmental Authority. "Plan" shall mean any plan described in Section 4021(a) of ERISA and not excluded pursuant to Section 4021(b) thereof, which is or has, within the preceding six years, been established or maintained, or to which contributions are or have, within the preceding six years, been made, by the Guarantor or any of its ERISA Affiliates or any Subsidiary of the Guarantor or any ERISA Affiliates of such Subsidiary, but not including any Multiemployer Plan. "Plan Administrator" has the meaning assigned to the term "administrator" in Section 3(16)(A) of ERISA. "Plan Sponsor" has the meaning assigned to the term "plan sponsor" in Section 3(16)(B) of ERISA. "Pledge Agreement" shall mean that certain Pledge Agreement in form and substance satisfactory to the Administrative Agent, dated as of the date hereof, executed by the Borrower in favor of the Administrative Agent for the benefit of the Lenders, pursuant to which Borrower pledges the Purchase Note to secure the Obligations as the same may be amended, supplemented or otherwise modified from time to time. "Preferred Stock" shall mean preferred stock of the Guarantor which (i) is not convertible or exchangeable into Indebtedness, (ii) may not, upon the occurrence of any event or circumstance or otherwise by its terms, be required to be redeemed by the Guarantor or be redeemable at the option of the holder thereof, in each case, at any time prior to the first anniversary of the Termination Date and (iii) does not contain other terms (other than customary market terms for preferred stock of similar companies) which could reasonably be expected to adversely affect the interests of the Lenders. "Pro Rata Share" shall mean, with respect to any Lender at any time, a percentage the numerator of which shall be the outstanding principal amount of such Lender's portion of the Term Loan, and the denominator of which shall be the outstanding principal amount of the Term Loan. "Pulp Wood" shall mean Glatfelter Pulp Wood Company, a Maryland corporation. "Purchase Note" shall mean that certain Purchase Note in the principal amount of $37,850,000, dated as of March 21, 2003, which was executed by the Conservation Fund in favor of Pulp Wood and which was endorsed to order of Borrower. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations. "Related Parties" shall mean, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Replacement Letter of Credit" shall have the meaning set forth in Section 2.8(a). "Required Lenders" shall mean, at any time, Lenders whose portions of the Term Loan in the aggregate exceed 50% of the aggregate outstanding principal amount of the Term Loan. "Reportable Event" shall mean a "reportable event" described in Section 4043(c) of ERISA or in the regulations thereunder with respect to a Plan for which the requirement of notice to the PBGC has not been waived, the filing of a notice of intent to terminate a Plan, the termination of a Plan, any event requiring disclosure under Section 4063(a) or 4062(e) of ERISA, receipt of a notice of withdrawal liability with respect to a Multiemployer Plan pursuant to Section 4202 of ERISA or receipt of a notice of reorganization or insolvency with respect to a Multiemployer Plan pursuant to Section 4242 or 4245 of ERISA. "Requirement of Law" shall mean, as to any Person, any law (including common law), treaty, rule or regulation or judgment, decree, determination or award of an arbitrator or a court or other Governmental Authority, including without limitation, any Environmental Law, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" shall mean any of the Chief Executive Officer, the President, the Chief Financial Officer, any Executive Vice President, the Controller, any Vice President or the Treasurer of the Guarantor. "SEC" shall mean the United States Securities and Exchange Commission or any successor thereto. "Securities" shall mean any stock, shares, voting trust certificates, bonds, debentures, options, warrants, notes, or other evidences of Indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "Securities Act" shall mean the Securities Act of 1933, as amended and as codified in 15 U.S.C. Section 77a et seq., and as hereafter amended. "Solvent" shall mean, when used with respect to any Person, that (i) the fair salable value of its assets is in excess of the total amount of its liabilities (including for purposes of this definition all liabilities, whether or not reflected on a balance sheet prepared in accordance with GAAP, and whether direct or indirect, fixed or contingent, disputed or undisputed); (ii) it is able to pay its debts or obligations in the ordinary course as they mature; and (iii) it has capital sufficient to carry on its business and all business in which it is about to engage. "S&P" shall mean Standard & Poor's, a division of McGraw Hill, Inc., or any successor or assignee of the business of such division in the business of rating securities. "Subsidiary" of any Person shall mean any corporation, partnership (limited or general), limited liability company, trust or other entity of which a majority of the stock (or equivalent ownership or controlling interest) having voting power to elect a majority of the board of directors (if a corporation) or to select the trustee or equivalent controlling interest, shall, at the time such reference becomes operative, be directly or indirectly owned or controlled by such Person or one or more of the other subsidiaries of such Person or any combination thereof. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Guarantor. "Taxes" shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Term Loan" shall mean the term loan in the original principal amount of up to $34,000,000 made by the Lenders to the Borrower pursuant to the terms hereof. "Term Loan Agreement" shall mean this Agreement. "Unmatured Event of Default" shall mean an event, act or occurrence which with the giving of notice or the lapse of time (or both) would become an Event of Default. "UCC' shall mean the Uniform Commercial Code in effect from time to time in the State of Georgia. "Voting Securities" shall mean any class of Capital Stock of a Person pursuant to which the holders thereof have, at the time of determination, the general voting power under ordinary circumstances to vote for the election of directors, managers, trustees or general partners of such Person (irrespective of whether or not at the time any other class or classes will have or might have voting power by reason of the happening of any contingency). "Written" or "In Writing" shall mean any form of written communication or a communication by means of telecopier device or authenticated telex, telegraph or cable. Section 1.2. Accounting Terms and Determination. Unless otherwise defined or specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time, applied on a basis consistent with the most recent audited consolidated financial statement of the Borrower delivered pursuant to Section 5.1. Section 1.3. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the word "to" means "to but excluding". Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person's successors and permitted assigns, (iii) the words "hereof", "herein" and "hereunder" and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, (iv) all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules to this Agreement and (v) all references to a specific time shall be construed to refer to the time in the city and state of the Administrative Agent's principal office, unless otherwise indicated. ARTICLE II AMOUNT AND TERMS OF THE LOAN Section 2.1. Term Loan. Subject to the terms and conditions set forth herein, each Lender severally agrees to make a term loan (all term loans made by the Lenders, collectively, the "Term Loan") to the Borrower on the Closing Date in the amount set forth opposite such Lender's name on Schedule 1 hereto. The execution and delivery of this Agreement by the Borrower and the satisfaction of all conditions precedent pursuant to Section 3.1 shall be deemed to constitute the Borrower's request to borrow the Term Loan on the Closing Date. Section 2.2. Repayment of Term Loan. The Borrower unconditionally promises to pay to the Administrative Agent for the account of the Lenders the unpaid principal amount of the Term Loan on the Maturity Date. Section 2.3. Evidence of Indebtedness. Each Lender shall maintain in accordance with its usual practice appropriate records evidencing the indebtedness of the Borrower to such Lender resulting from the Term Loan, including the amounts of principal and interest payable thereon and paid to such Lender from time to time under this Agreement. The Administrative Agent shall maintain appropriate records in which shall be recorded (i) the amount of the Term Loan made hereunder by each Lender, (ii) the date and amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder in respect of the Term Loan and (iii) both the date and amount of any sum received by the Administrative Agent hereunder from the Borrower in respect of the Term Loan and each Lender's Pro Rata Share thereof. The entries made in such records shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded (absent manifest error); provided, that the failure or delay of any Lender or the Administrative Agent in maintaining or making entries into any such record or any error therein shall not in any manner affect the obligation of the Borrower to repay the Term Loan (both principal and unpaid accrued interest) in accordance with the terms of this Agreement. Section 2.4. Prepayments. The Borrower shall have the right at any time and from time to time to prepay the Term Loan, in whole but not in-part, without premium or penalty, by giving irrevocable written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent no later than 12:00 noon (Atlanta, Georgia time) three (3) Business Days prior to any such prepayment. Each such notice shall be irrevocable and shall specify the proposed date of such prepayment and the principal amount to be prepaid. Upon receipt of any such notice, the Administrative Agent shall promptly notify each Lender of the contents thereof and of such Lender's Pro Rata Share of any such prepayment. If such notice is given, the aggregate amount specified in such notice shall be due and payable on the date designated in such notice, together with accrued interest to such date on the amount so prepaid in accordance with Section 2.5; provided, that the Borrower shall also pay all amounts required pursuant to Section 2.12. (b) Immediately upon receipt by the Borrower of any proceeds received by the Borrower upon Borrower's exercise of the acceleration provisions of the Purchase Note, or in the event the Purchase Note is redeemed, the Borrower shall prepay the Term Loan in an amount equal to the outstanding principal amount of the Term Loan; provided, that the Borrower shall also pay all amounts required pursuant to Section 2.12. Any such prepayment shall be applied in accordance with Section 2.4(c). (c) Unless a Default or an Event of Default has occurred and is continuing, any prepayments made by the Borrower pursuant to Section 2.4(a) or (b) above shall be applied as follows: first, to the Administrative Agent's fees and reimbursable expenses then due and payable pursuant to any of the Loan Documents; second, to all other fees and reimbursable expenses of the Lenders then due and payable pursuant to any of the Loan Documents, pro rata to the Lenders based on their respective Pro Rata Shares of such expenses; third, to interest then due and payable on the Term Loan, pro rata to the Lenders based on their respective Pro Rata Shares of the Term Loan; and fourth, to the principal balance of the Term Loan, until the same shall have been paid in full, pro rata to the Lenders based on their respective Pro Rata Shares of the Term Loan. Section 2.5. Interest on Loans. Subject to subsections (b) and (c) of this Section 2.5, through and including the date that is five (5) days after the fifth (5th) anniversary of the Closing Date, the Borrower shall pay interest on the Term Loan at the rate of [__%] per annum. Thereafter, if the Maturity Date is extended pursuant to Section 2.8, the Borrower shall pay interest on the Term Loan at a rate equal to [__%] per annum plus the Administrative Agent's costs of funds for the period for which the Maturity Date is extended, as determined by it in its sole discretion and announced to Borrower on the Business Day immediately preceding the first day of such period of extension. (b) Beginning on the effective date of any Permitted Change of Control for which the Permitted Change of Control Rating is less than BBB-/Baa3, and continuing thereafter until the Term Loan is repaid in full, Borrower shall pay interest on the Term Loan at the rate which would otherwise be applicable to the Term Loan plus (i) one-quarter of one percent (0.25%) per annum if the Permitted Change of Control Rating is BB+/Ba1, and (ii) six-tenths of one percent (0.60%) per annum if the Permitted Change of Control Rating is BB/Ba2. (c) Upon the occurrence and during the continuance of an Event of Default, at the option of the Required Lenders, the Borrower shall pay interest ("Default Interest") at the rate otherwise applicable under subsections (a) or (b) of this Section 2.5 plus an additional two percent (2.00%) per annum. (d) Interest on the outstanding principal amount of the Term Loan shall accrue from and including the date the Term Loan is made to but excluding the date of repayment in full thereof. Interest shall be payable quarterly in arrears on each Interest Payment Date not later than 10:00 p.m. (Atlanta, Georgia time) on the date when due in immediately available funds free and clear of all defenses, setoffs, counterclaims or withholdings or deductions for taxes and on the Maturity Date. All Default Interest shall be payable on demand. Section 2.6. Fees. The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon by the Borrower and the Administrative Agent. Section 2.7. Computation of Interest and Fees. All computations of interest and fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent of an interest amount or fee hereunder shall be made in good faith and, except for manifest error, shall be final, conclusive and binding for all purposes. Section 2.8. Extension of Maturity Date. In the event that the Conservation Fund Letter of Credit shall be renewed, extended or replaced such that the stated expiry date of such renewed, extended or replacement letter of credit (the "Replacement Letter of Credit") is a date that is on or after the fifth (5th) anniversary of the original expiry date of the Conservation Fund Letter of Credit, the Borrower may, by written notice to the Administrative Agent (which shall promptly deliver a copy to each Lender) given no later than 180 days prior to the original Maturity Date, request that the Lenders extend the original Maturity Date to a date that is not later than one hundred and five (105) days before the stated expiry date of the Replacement Letter of Credit. Each Lender shall, by written notice to the Borrower and the Administrative Agent given within fifteen (15) Business Days after receipt of such request, advise the Borrower and the Administrative Agent whether or not such Lender consents to the extension request (and any Lender which does not respond during such 15 Business Day period shall be deemed to have advised the Borrower and the Administrative Agent that it will not agree to such extension). (b) In the event that, on the 15th Business Day after receipt of the notice delivered pursuant to subsection (a) above, all of the Lenders shall have agreed to extend the original Maturity Date, upon written notice to the Borrower of such agreement the Maturity Date shall be deemed to have been extended to the requested date but in no event later than the earlier of one hundred and five (105) days before the stated expiry of the Replacement Letter of Credit or March 21, 2013. Section 2.9. Increased Costs. If any Change in Law shall impose, modify or deem applicable any reserve, special deposit or similar requirement hereunder against assets of, deposits with or for the account of, or credit extended by, any Lender; or impose on any Lender any other condition affecting this Agreement and the result of the foregoing is to increase the cost to such Lender of maintaining such loan or to reduce the amount received or receivable by such Lender hereunder (whether of principal, interest or any other amount), then the Borrower shall promptly pay, upon written notice (such notice to state in reasonable detail the reasons therefor) from and demand by such Lender on the Borrower (such notice to state in reasonable detail the reasons therefor) (with a copy of such notice and demand to the Administrative Agent), to the Administrative Agent for the account of such Lender, within five Business Days after the date of such notice and demand, additional amount or amounts sufficient to compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender shall have determined that on or after the date of this Agreement any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital (or on the capital of such Lender's parent corporation) as a consequence of its obligations hereunder to a level below that which such Lender or such Lender's parent corporation could have achieved but for such Change in Law (taking into consideration such Lender's policies or the policies of such Lender's parent corporation with respect to capital adequacy) then, from time to time, within five (5) Business Days after receipt by the Borrower of written demand by such Lender (with a copy thereof to the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender or such Lender's parent corporation for any such reduction suffered. (c) A certificate of a Lender setting forth in reasonable detail the amount or amounts necessary to compensate such Lender or such Lender's parent corporation, as the case may be, specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower (with a copy to the Administrative Agent) and shall be conclusive, absent manifest error. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation. Section 2.10. Taxes. Unless otherwise required by applicable law, any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided, that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or any Lender shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender, within five (5) Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability and reasonable detail regarding the reasons therefor delivered to the Borrower by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent documentation reasonably satisfactory to the Administrative Agent evidencing such payment to such Governmental Authority. (e) Any Non-US Lender that is entitled to an exemption from or reduction of withholding tax under the Code or any treaty to which the United States is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. Without limiting the generality of the foregoing, each Non-US Lender agrees that it will deliver to the Administrative Agent and the Borrower (or in the case of a Participant, to the Lender from which the related participation shall have been purchased), as appropriate, two (2) duly completed copies of (i) Internal Revenue Service Form W-8 ECI, or any successor form thereto, certifying that the payments received from the Borrower hereunder are effectively connected with such Non-US Lender's conduct of a trade or business in the United States; or (ii) Internal Revenue Service Form W-8 BEN, or any successor form thereto, certifying that such Non-US Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest; or (iii) Internal Revenue Service Form W-8 BEN, or any successor form prescribed by the Internal Revenue Service, together with a certificate (A) establishing that the payment to the Non-US Lender qualifies as "portfolio interest" exempt from U.S. withholding tax under Code section 871(h) or 881(c), and (B) stating that (1) the Non-US Lender is not a bank for purposes of Code section 881(c)(3)(A), or the obligation of the Borrower hereunder is not, with respect to such Non-US Lender, a loan agreement entered into in the ordinary course of its trade or business, within the meaning of that section; (2) the Non-US Lender is not a 10% shareholder of the Borrower within the meaning of Code section 871(h)(3) or 881(c)(3)(B); and (3) the Non-US Lender is not a controlled foreign corporation that is related to the Borrower within the meaning of Code section 881(c)(3)(C); or (iv) such other Internal Revenue Service forms as may be applicable to the Non-US Lender, including Forms W-8 IMY or W-8 EXP. Each such Non-US Lender shall deliver to the Borrower and the Administrative Agent such forms on or before the date that it becomes a party to this Agreement (or in the case of a Participant, on or before the date such Participant purchases the related participation). In addition, each such Non-US Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-US Lender. Each such Non-US Lender shall promptly notify the Borrower and the Administrative Agent at any time that it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the Internal Revenue Service for such purpose). Section 2.11. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees, or of amounts payable under Section 2.9, 2.10, 2.12, or otherwise) prior to 10:00 p.m. (Atlanta, Georgia time), on the date when due, by wire transfer of immediately available funds, free and clear of any defenses, rights of set-off, counterclaim, or withholding or deduction of taxes except as required by applicable law. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at the Payment Office or as otherwise set forth in clauses (b), (c) and (d) below, except that payments pursuant to Sections 2.9, 2.10, 2.12 and 9.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be made payable for the period of such extension. All payments hereunder shall be made in Dollars. (b) The Borrower hereby irrevocably instructs the Administrative Agent, on the day following receipt of any principal payments paid on the Purchase Note into the Interest Reserve/Principal Collection DDA Account, to withdraw from the Interest Reserve/Principal Collection DDA Account an amount not to exceed the then outstanding principal amount of the Term Loan, without presentment, demand or other formalities of any kind, and to apply such payments to the unpaid principal amount of the Term Loan, provided, however, that after the occurrence and during the continuance of an Event of Default the Administrative Agent may apply such payments first, to the Administrative Agent's fees and reimbursable expenses then due and payable pursuant to any of the Loan Documents; second, to all other fees and reimbursable expenses of the Lenders then due and payable pursuant to any of the Loan Documents, pro rata to the Lenders based on their respective Pro Rata Shares of such expenses; third, to interest then due and payable on the Term Loan, pro rata to the Lenders based on their respective Pro Rata Shares of the Term Loan and fourth, to the principal balance of the Term Loan, until the same shall have been paid in full, pro rata to the Lenders based on their respective Pro Rata Shares of the Term Loan. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. (c) The Borrower hereby irrevocably instructs the Administrative Agent to withdraw, on each Interest Payment Date, from the Interest Collection Account, without presentment, demand or other formalities of any kind, an amount not to exceed accrued and unpaid interest on the Term Loan at such time and to remit to the Lenders such amount for the payment of accrued and unpaid interest then due and payable under the Term Loan, provided, however, that after the occurrence and during the continuance of an Event of Default the Administrative Agent may apply such amount first, to the Administrative Agent's fees and reimbursable expenses then due and payable pursuant to any of the Loan Documents; second, to all other fees and reimbursable expenses of the Lenders then due and payable pursuant to any of the Loan Documents, pro rata to the Lenders based on their respective Pro Rata Shares of such expenses; third, to interest then due and payable on the Term Loan, pro rata to the Lenders based on their respective Pro Rata Shares of the Term Loan and fourth, to the principal balance of the Term Loan, until the same shall have been paid in full, pro rata to the Lenders based on their respective Pro Rata Shares of the Term Loan. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. Provided no Default or Event of Default has occurred and is continuing, the Interest Collection Account will be fully available to the Borrower. To the extent that the aggregate amount transferred from the Interest Collection Account on any Interest Payment Date is less than the amount of accrued and unpaid interest then due and payable on the Term Loan, the Borrower hereby irrevocably instructs the Administrative Agent (and the Administrative Agent may, but shall be under no obligation) to transfer any funds deposited in the Interest Reserve Money Market Account to the Interest Reserve DDA Account in an amount equal to such shortfall for payment of such interest, without presentment, demand or other formalities of any kind. (d) To the extent that the amounts paid by the Borrower under clause (b) above on any Interest Payment Date (other than on the Maturity Date) are insufficient to pay the Lenders in full for the amount of interest due and payable on the Term Loan on such Interest Payment Date for any reason, the Borrower agrees to pay such shortfall to the Administrative Agent for the benefit of the Lenders within two (2) Business Days after written notice by the Administrative Agent to the Borrower. (e) Borrower shall deposit into the Interest Reserve/Principal Collection DDA Account in immediately available funds an amount equal (i) on the Closing Date to the Interest Reserve Amount, (ii) on any date for which the Interest Reserve is less than the Interest Reserve Amount, an amount sufficient to cause the Interest Reserve to be not less than the Interest Reserve Amount, and (iii) upon receipt by Borrower of any principal amount under the Purchase Note, to such principal amount. The Administrative Agent shall transfer any amounts deposited pursuant to clauses (i) and (ii) herein into the Interest Reserve/Principal Money Market Account, provided that the Administrative Agent, for purposes of determining the Interest Reserve and Borrower's compliance with clauses (i) and (ii) herein, shall use the available balance in both the Interest Reserve/Principal Collection DDA account (if any) and the available balance in the Interest Reserve Money Market Account for purposes of such determination. The Interest Reserve, the Interest Reserve/Principal Collection DDA Account and the Interest Reserve Money Market Account shall be held by the Administrative Agent as Collateral for the payment and performance of the Obligations pursuant to the Interest Reserve/Principal Collection DDA Account Agreement and the Interest Reserve Money Market Account Agreement, as applicable. The Administrative Agent shall have "control" (as defined in the UCC) over the Interest Reserve/Principal Collection DDA Account and the Interest Reserve Money Market Account for purposes of perfecting the Lien in the Interest Reserve, the Interest Reserve/Principal Collection DDA Account (as described in the Interest Reserve DDA Account Agreement) and the Interest Reserve Money Market Account (as described in the Interest Reserve Money Market Account Agreement), and shall have exclusive dominion and control, including the exclusive right of withdrawal, over the Interest Reserve/Principal Collection DDA Account and the Interest Reserve Money Market Account, subject to the right of the Borrower to direct investment of the Interest Reserve pursuant to the following sentence. The Interest Reserve in the Interest Reserve Money Market Account shall at all times be invested in Permitted Investments and funds deposited with the Federal Reserve Bank of New York which earn the overnight rate paid by the Federal Reserve Bank, in each case with maturities prior to the Maturity Date, which investments shall be made by the Administrative Agent at the Borrower's written discretion (so long as no Event of Default has occurred and is continuing), as well as at the Borrower's sole risk and expense. Interest and profits, if any, on such investments shall accumulate in the Interest Reserve Money Market Account; provided, further, if at any time, the Interest Reserve Money Market Account contains investments which are not Permitted Investments or funds deposited with the Federal Reserve Bank of New York which earn the overnight rate paid by the Federal Reserve Bank, the Borrower authorizes the Administrative Agent to liquidate such investments, the proceeds of which shall be reinvested at the direction of the Borrower (so long as no Event of Default has occurred and is continuing) in Permitted Investments or such deposits with the Federal Reserve Bank of New York and held in the Interest Reserve Money Market Account. (f) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest, fees and other amounts when due and payable hereunder, such funds shall be applied as follows: first, to the Administrative Agent's fees and reimbursable expenses then due and payable pursuant to any of the Loan Documents; second, to all other fees and reimbursable expenses of the Lenders then due and payable pursuant to any of the Loan Documents, pro rata to the Lenders based on their respective Pro Rata Shares of such expenses; third, to interest then due and payable on the Term Loan, pro rata to the Lenders based on their respective Pro Rata Shares of the Term Loan; and fourth, to the principal balance of the Term Loan, until the same shall have been paid in full, pro rata to the Lenders based on their respective Pro Rata Shares of the Term Loan. (g) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on the Term Loan that would result in such Lender receiving payment of a greater proportion of the aggregate amount of the Term Loan and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the outstanding amount of the Term Loan of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Term Loans; provided, that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment obtained by a Lender as consideration for the assignment of or sale of a participation in its Pro Rata Share of the Term Loan to any assignee or participant, other than to the Borrower or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (h) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders, the amount or amounts due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. (i) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.11(g) or 9.3(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. Section 2.12. Breakage Indemnity. In the event of the payment of any principal of the Term Loan other than on the Maturity Date (including as a result of an Event of Default or acceleration), the Borrower shall compensate each Lender, within five (5) Business Days after written demand from the Administrative Agent, for any loss, cost or expense attributable to such event (excluding lost profits). Such compensation shall be an amount equal to the excess, if any, of (a) the amount of interest (as reasonably determined by the Administrative Agent in consultation with such Lender) that such Lender would have paid as its cost of funds with respect to the Term Loan (which may or may not be deposits of comparable amounts having terms comparable to the Term Loan) over (b) the amount of interest (as reasonably determined by the Administrative Agent in consultation with such Lender) which would accrue to such Lender on the amount so prepaid, if such amount were redeployed by such Lender at the Federal Funds Rate as of the date such prepayment for the period commencing on such date and ending on the Maturity Date. A certificate as to any additional amount payable under this Section 2.12 stating in reasonable detail the reasons therefor submitted to the Borrower by any Lender (with a copy to the Administrative Agent) shall be conclusive, absent manifest error. ARTICLE III CONDITIONS PRECEDENT TO LOAN Section 3.1. Conditions To Effectiveness. The obligations of the Lenders to make the Term Loan hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.2). (a) The Closing Date shall have occurred on or before March 21, 2003, and the Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Closing Date, including reimbursement or payment of all out-of-pocket expenses (including reasonable fees, charges and disbursements of counsel to the Administrative Agent) required to be reimbursed or paid by the Borrower hereunder or under any other Loan Document. (b) The Administrative Agent (or its counsel) shall have received the following each of which shall be in form and substance satisfactory to the Administrative Agent: (i) a counterpart of this Agreement signed by or on behalf of each party hereto or written evidence satisfactory to the Lender (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement; (ii) a duly executed Note payable to each Lender in the principal amount of its Pro Rata Share of the Term Loan; (iii) the duly executed Pledge Agreement, together with the original Purchase Note and accompanying instrument of transfer executed in blank, and the Conservation Fund Letter of Credit transferred to the Administrative Agent, naming the Administrative Agent as beneficiary thereto; (iv) the duly executed Interest Reserve/Principal Collection DDA Account Agreement and Interest Reserve Money Market Account Agreement; (v) a copy of the executed Bargain Sale Contract and any other documents or agreements executed in connection therewith certified by Pulp Wood to be a true, correct and complete copy thereof all in form and substance satisfactory to the Administrative Agent; (vi) a certified copy from the Secretary of State of the Borrower's state of organization of the certificate of formation of the Borrower; (vii) a certified copy from the Secretary of State of Pulp Wood's state of incorporation of the articles of incorporation of Pulp Wood; (viii) a certified copy from the Secretary of State of the Parent's state of incorporation of the articles of incorporation of the Parent; (ix) a copy of all organizational documents of the Borrower certified by the Borrower to be a true, correct and complete copy thereof all in form and substance satisfactory to the Administrative Agent; (x) a copy of all organizational documents of Pulp Wood certified by Pulp Wood to be a true, correct and complete copy thereof, all in form and substance satisfactory to the Administrative Agent; (xi) a copy of all organizational documents of the Parent certified by the Parent to be a true, correct and complete copy thereof, all in form and substance satisfactory to the Administrative Agent; (xii) the duly executed Guaranty and Indemnification Agreement; (xiii) a duly executed funds disbursement agreement; (xiv) a duly executed certificate from the Parent addressing such matters as the Administrative Agent shall reasonably request in form and substance satisfactory to the Administrative Agent; (xv) a favorable written opinion of Saul Ewing LLP, counsel to the Borrower, Pulp Wood and the Parent addressed to the Administrative Agent and the Lenders and covering such matters relating to the Borrower, the Parent, Pulp Wood, the Loan Documents and the transactions contemplated therein, as the Administrative Agent shall request including, without limitation, an opinion regarding the non-consolidation of Borrower due to a bankruptcy of Parent or any other member of the Parent Group (including but not limited to Pulp Wood); (xvi) a duly executed solvency certificate signed by the Treasurer (or equivalent) of the Parent as to the solvency of the Parent, in form and substance satisfactory to the Administrative Agent; (xvii) a duly executed solvency certificate signed by the Treasurer (or equivalent) of Pulp Wood as to the solvency of Pulp Wood, in form and substance satisfactory to the Administrative Agent; (xviii) a duly executed solvency certificate signed by the Treasurer of the Borrower as to the solvency of the Borrower, in form and substance satisfactory to the Administrative Agent; (xix) a duly executed Consent, Waiver and Agreement, in form and substance satisfactory to the Lender executed by the Borrower and the Conservation Fund in favor of the Administrative Agent and the Lenders, and (xx) the duly executed UCC financing statements, naming Borrower as debtor and the Administrative Agent as Secured Party. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Administrative Agent and each Lender as follows: Section 4.1. Existence; Power. The Borrower (i) is validly existing limited liability company under the laws of the State of Delaware, and (ii) has all requisite limited liability company power and authority to carry on its business as now conducted and to own its properties and other assets. Section 4.2. Organizational Power; Authorization. The execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents to which it is a party are within the Borrower's legal organizational powers and have been duly authorized by all necessary action. This Agreement has been duly executed and delivered by the Borrower, and constitutes, and each other Loan Document to which the Borrower is a party, when executed and delivered by the Borrower, will constitute, valid and binding obligations of the Borrower, enforceable against it in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity. Section 4.3. Governmental Approvals; No Conflicts. The execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents to which the Borrower is a party (a) do not require any consent or approval of, registration or filing with, or action by, any Governmental Authority, (b) will not violate any applicable law, rule or regulation or the certificate of formation or limited liability company agreement of the Borrower or any judgment, order or ruling of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or instrument binding on the Borrower or any of its assets or give rise to a right thereunder to require any payment to be made by the Borrower and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower, except Liens (if any) created under the Loan Documents. Section 4.4. Indebtedness. As of the Closing Date the Borrower has no outstanding Indebtedness other than the Indebtedness created pursuant to this Agreement and the other Loan Documents. Section 4.5. Litigation. No litigation, investigation or proceeding of or before any arbitrators or Governmental Authority is pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower. Section 4.6. Compliance with Laws and Agreements. The Borrower is in compliance with (a) all applicable laws, rules, regulations, judgments and orders of any Governmental Authority, and (b) all indentures, agreements or other instruments binding upon it or its properties. Section 4.7. Taxes. The Borrower has timely filed or caused to be filed all Federal income tax returns and all other material tax returns that are required to be filed by it, and has paid all taxes shown to be due and payable on such returns or on any assessments made against it or its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority. Section 4.8. Margin Regulations. None of the proceeds of the Term Loan will be used in any manner that violates any rule or regulation of the Board of Governors of the Federal Reserve System, including Regulations T, U or X. Section 4.9. Ownership of Property. Borrower has good title to all of its property, free and clear of any Liens except Permitted Liens. ARTICLE V AFFIRMATIVE COVENANTS The Borrower covenants and agrees that so long as the principal of and interest on the Term Loan or any other amount under this Agreement or any other Loan Document remains unpaid: Section 5.1. Financial Statements and Other Information. If Parent (or any permitted successor to Parent) ceases to be a company subject to the reporting requirements 15(d) of the Securities and Exchange Act, the Borrower will deliver to the Administrative Agent as soon as available and in any event within 90 days after the end of each calendar year a copy of its financial statements prepared in accordance with GAAP and such other supporting documentation as reasonably requested by the Administrative Agent, each in form and substance satisfactory to the Administrative Agent. Section 5.2. Existence. The Borrower will do or cause to be done all things necessary to preserve, renew and maintain in full force and effect its legal existence. Section 5.3. Compliance with Laws, Etc. The Borrower will comply with all laws, rules, regulations and requirements of any Governmental Authority applicable to it or its properties. Section 5.4. Payment of Obligations. The Borrower will pay and discharge all of its obligations and liabilities (including without limitation all tax liabilities and claims that could result in a statutory Lien) before the same shall become delinquent or in default; provided, however, that such payment and discharge shall not be required with respect to any such obligations or liabilities, so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Borrower shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP. Section 5.5. Books and Records. The Borrower will keep proper books of record and account which accurately reflect all of its business affairs and transactions. Section 5.6. Use of Proceeds. The Borrower will not use any part of the proceeds of the Term Loan, whether directly or indirectly, for any purpose that would violate any rule or regulation of the Board of Governors of the Federal Reserve System, including Regulations T, U or X. Section 5.7. Non-consolidation. The Borrower shall be operated in such a manner that the separate legal existence of the Borrower, on the one hand, and any member of the Parent Group, on the other hand, will not be disregarded in the event of the bankruptcy or insolvency of any member of the Parent Group and, without limiting the generality of the foregoing: (a) the Borrower shall maintain its legal existence as a limited purpose entity whose activities are restricted in its limited liability company agreement and other organizational documents to those activities expressly permitted hereunder, and the Borrower shall not engage in any activity other than those activities expressly permitted hereunder and under the other Loan Documents, nor shall the Borrower enter into any agreement other than this Agreement or the other Loan Documents to which it is a party; (b) other than the purchase and acceptance through capital contribution of the Purchase Note, the Conservation Fund Letter of Credit and any capital contributions of cash, the payment of dividends or distributions and the return of capital to the Parent or Pulp Wood and arm's length transactions with respect to the provision of office space, office equipment, office supplies and administrative services, the Borrower shall not engage in intercorporate transactions with any member of the Parent Group; (c) the Borrower shall hold regular organization meetings and proceedings and otherwise observe its organizational formalities and have a business office separate from that of each member of the Parent Group; (d) the financial statements and books and records of the Borrower and the Parent shall reflect the separate corporate existence of the Borrower in a manner such that it will not be difficult or costly to segregate, ascertain or otherwise identify its assets and liabilities; provided that the Borrower's financial statements may be consolidated and reported with those of Pulp Wood, provided that appropriate notation shall be made on such consolidated financial statements to indicate the separateness of the Borrower and Pulp Wood and to indicate that the Borrower's assets and credit are not available to satisfy the debts and obligations of Pulp Wood; (e) (i) the Borrower shall maintain its assets separately from the assets of any other Person of the Parent Group (including through the maintenance of appropriately detailed and separate records, books of account and bank accounts, (ii) the Borrower's funds (including all money, checks and other cash proceeds) and assets, and records relating thereto, shall not be commingled with those of any member of the Parent Group and (ii) the separate creditors of the Borrower shall be entitled to be satisfied out of the Borrower's assets (and Borrower shall pay its own liabilities, expenses and losses only from its own assets) and Borrower shall not hold out is credit as being available to satisfy the obligations of any other Person or pledge its assets for the benefit of any other Person, other than with respect to the Loan; (f) except as otherwise expressly permitted hereunder, under the other Loan Documents and under the Borrower's organizational documents, no member of the Parent Group (i) shall pay the Borrower's expenses, (ii) guarantee the Borrower's obligations, or (iii) advance funds to the Borrower for the payment of expenses or otherwise (iv) Borrower shall not guarantee or become obligated for the debts of any other Person; (g) all business correspondence and other communications of the Borrower shall be conducted in the Borrower's own name, on its own stationery and through a separately-listed telephone number; (h) the Borrower shall not merge or consolidate with any other person; (i) the Borrower shall conduct transactions with third parties (to the extent permitted herein) in its name and as a person that is separate and distinct from the Parent or the Parent Group and shall correct any known misunderstanding regarding its separate identity; (j) Borrower shall compensate all consultants, independent contractors, employees and agents from its own funds for services provided to it by such consultants, independent contractors and agents and shall maintain a sufficient number of employees in light of its contemplated business operations; (k) unless it is itself entitled to elect the so-called "check the box" tax treatment case in order to file a consolidated tax return with Pulp Wood, Borrower shall cause to be prepared and filed all legally required tax returns and other filings for itself (including federal and state income tax returns) separately from the tax returns and filings of the Parent Group; (l) unless it is itself entitled to elect the so-called "check the box" tax treatment case in order to file a consolidated tax return with Pulp Wood, Borrower shall hold itself out as separate and distinct from any other person and identify itself as a separate division or separate department of any other person; (m) Borrower shall maintain separate annual financial statements prepared (and pay or bear the cost of the preparation of such financial statements) in accordance with GAAP showing its assets and liabilities separate and distinct from those of any other person; (n) the Borrower shall maintain at least two (2) independent managers each of whom (i) is not a member, director, officer, employee or associate, or any relative of the foregoing, of any member of the Parent Group, all as provided in its limited liability company agreement, (ii) has (A) prior experience as an independent manager for a limited liability company whose organization documents require the unanimous consent of all independent managers thereof before such limited liability company can consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy and (B) at least three years of employment experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management or placement services to issuers of securitization or structured finance instruments, agreements or securities, and (iii) is otherwise acceptable to the Administrative Agent (it being understood that any manager affiliated with Global Securitization Services, LLC, Lord Securities Corporation or Amacar, L.L.C. or a similar organization acceptable to the Administrative Agent which is in the business of providing independent managers for special-purpose financing entities such as the Borrower shall be acceptable to the Administrative Agent); (o) the limited liability company agreement of the Borrower shall at all times require (i) the affirmative vote of each independent manager before a voluntary petition under Section 301 of the Bankruptcy Code may be filed by the Borrower, and (ii) the Borrower to maintain (A) correct and complete books and records of account and (B) minutes of the meetings and other proceedings of its members and board of managers; (p) Borrower shall not acquire the obligations or securities of its Members or their respective affiliates; (q) Borrower shall maintain adequate capital in light of its contemplated business operations; and Section 5.8. Notice of Default. The Borrower will deliver written notice promptly and in any event within three Business Days after the occurrence of any Event of Default or Default, accompanied by a statement of the Manager of Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower proposes to take with respect thereto. ARTICLE VI NEGATIVE COVENANTS The Borrower covenants and agrees that so long as the principal of or interest on the Term Loan or any other amount under this Agreement or any other Loan Document remains unpaid: Section 6.1. Negative Pledge. The Borrower will not create, incur, assume or suffer to exist any Lien on any of the Collateral, other than Permitted Liens. Section 6.2. Fundamental Changes. The Borrower will not sell, lease, transfer or otherwise dispose of (in a single transaction or a series of transactions) any of its assets (in each case, whether now owned or hereafter acquired), liquidate or dissolve or merge with or into any other Person; provided that nothing herein shall prohibit the Borrower from paying any dividend or making any distribution to its members in accordance with applicable law (other than from the proceeds of the Collateral). Section 6.3. Indebtedness. The Borrower shall not incur or assume any Indebtedness except Indebtedness incurred pursuant to this Agreement and the other Loan Documents; Section 6.4. Amendments to the Purchase Note/Conservation Fund Letter of Credit. The Borrower shall not amend, supplement or otherwise modify, or consent to any amendment, supplement or other modification of, the Bargain Sale Contract, the Purchase Note or the Conservation Fund Letter of Credit. Section 6.5. Business Activities. The Borrower shall not (i) engage in any business or own any assets other than the Purchase Note, the Conservation Fund Letter of Credit, the Interest Collection Account and amounts on deposit therein, the Interest Reserve/Principal Collection DDA Account and Interest Reserve Money Market Account and amounts on deposit therein or investments credited thereto, (ii) hold out its credit as being available to satisfy the debts or obligations of any other person or (iii) act as agent for any member of the Parent Group, but instead shall present itself to the public as an entity separate from each such member and shall correct any known misunderstanding regarding its separate identity; Section 6.6. No Amendment to Organization Documents. Borrower shall not (i) make any changes in any of its business objectives, purposes or operations, (ii) make any change in its capital structure as described, including the issuance of any membership interests or economic rights or units or other securities convertible into membership interests or economic rights or units, (iii) reincorporate or reorganize itself under the laws of any jurisdiction other than the jurisdiction in which it is incorporated or organized as of the date hereof, or (iv) amend any of its other organizational documents. ARTICLE VII EVENTS OF DEFAULT Section 7.1. Events of Default. If any of the following events (each an "Event of Default") shall occur: (a) the Borrower shall fail to pay any principal of the Term Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment or otherwise; or (b) the Borrower shall fail to pay any interest on the Term Loan or any fee or any other amount (including, without limitation, any amounts required to be paid pursuant to Section 2.11(d) but excluding any amount described in clause (a) of this Section) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) business days; or (c) any representation or warranty made or deemed made by or on behalf of the Borrower in or in connection with this Agreement or any other Loan Document (including the Schedules attached thereto) and any amendments or modifications hereof or waivers hereunder, or in any certificate, report, financial statement or other document submitted to the Administrative Agent or the Lenders by the Borrower or any representative of the Borrower pursuant to or in connection with this Agreement or any other Loan Document shall prove to be incorrect in any material respect when made or deemed made or submitted; or (d) the Borrower shall fail to observe or perform any covenant or agreement contained in Sections 5.1, 5.2, 5.3, 5.6, 5.7 or Article VI; or (e) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those referred to in clauses (a), (b), (c) and (d) above) or the Borrower shall fail to observe or perform any covenant or agreement in any other Loan Document, and such failure shall remain unremedied for ten (10) days after notice thereof; or (f) the Borrower shall (i) commence a voluntary case or other proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a custodian, trustee, receiver, liquidator or other similar official of it or any substantial part of its property, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (i) of this subsection (f), (iii) apply for or consent to the appointment of a custodian, trustee, receiver, liquidator or other similar official for the Borrower, or for any part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any of the foregoing; or (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any of the Borrower, or its debts, or any substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect or (ii) the appointment of a custodian, trustee, receiver, liquidator or other similar official for any of the Borrower for any part of its assets, and such involuntary proceeding or petition shall not be dismissed within sixty (60) days of the commencement or filing thereof; or (h) the Borrower shall become unable to pay, shall admit in writing its inability to pay, or shall fail to pay, its debts as they become due; or (i) any judgment shall be rendered against the Borrower or any order shall be entered that materially affects the rights and remedies of the Lenders or the Administrative Agent under any of the Loan Documents or in any of the Collateral; or (j) an LC Event shall occur; (k) the Borrower shall be dissolved, liquidated or its legal existence shall otherwise cease; (l) an "Event of Default" shall occur under the Pledge Agreement or the Purchase Note or an "Event of Default" shall occur under the Guaranty and Indemnification Agreement; (m) SunTrust Bank ceases to be the issuer of The Conservation Fund Letter of Credit; (n) any provision of any Loan Document shall for any reason cease to be valid and binding on, or enforceable against the Borrower or the Parent (to the extent the Parent is a party thereto), or the Borrower or the Parent shall so state in writing, or the Borrower or the Parent shall seek to terminate any Loan Document; then, and in every such event (other than an event with respect to the Borrower described in clause (f) or (g) of this Section) and at any time thereafter during the continuance of such event, the Administrative Agent may, and upon the written request of the Required Lenders shall, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) declare the principal of and any accrued interest on the Term Loan and all other Obligations owing hereunder to be, whereupon the same shall become, due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; (ii) exercise all remedies contained in any other Loan Document; and (iii) exercise any other remedies available at law or in equity; and that, if an Event of Default specified in either clause (f) or (g) of this Section shall occur, the principal of the Term Loan then outstanding, together with accrued interest thereon, and all fees and other Obligations shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE VIII THE ADMINISTRATIVE AGENT Section 8.1. Appointment of Administrative Agent. Each Lender irrevocably appoints SunTrust Bank as the Administrative Agent and authorizes it to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent under this Agreement and the other Loan Documents, together with all such actions and powers that are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder or under the other Loan Documents by or through any one or more sub-agents or attorneys-in-fact appointed by the Administrative Agent. The Administrative Agent and any such sub-agent or attorney-in-fact may perform any and all of its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions set forth in this Article shall apply to any such sub-agent or attorney-in-fact and the Related Parties of the Administrative Agent, any such sub-agent and any such attorney-in-fact and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Section 8.2. Nature of Duties of Administrative Agent. The Administrative Agent shall not have any duties or obligations except those expressly set forth in this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or an Event of Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except those discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.2), and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower that is communicated to or obtained by the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it, its sub-agents or attorneys-in-fact with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.2) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall not be deemed to have knowledge of any Default or Event of Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or any Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements, or other terms and conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article III or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent may consult with legal counsel (including counsel for the Borrower) concerning all matters pertaining to such duties. Section 8.3. Lack of Reliance on the Administrative Agent. Each of the Lenders acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lenders also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, continue to make its own decisions in taking or not taking of any action under or based on this Agreement, any related agreement or any document furnished hereunder or thereunder. Section 8.4. Certain Rights of the Administrative Agent. If the Administrative Agent shall request instructions from the Required Lenders with respect to any action or actions (including the failure to act) in connection with this Agreement, the Administrative Agent shall be entitled to refrain from such act or taking such act, unless and until it shall have received instructions from such Lenders; and the Administrative Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders where required by the terms of this Agreement. Section 8.5. Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed, sent or made by the proper Person. The Administrative Agent may also rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or not taken by it in accordance with the advice of such counsel, accountants or experts. Section 8.6. The Administrative Agent in its Individual Capacity. The bank serving as the Administrative Agent shall have the same rights and powers under this Agreement and any other Loan Document in its capacity as a Lender as any other Lender and may exercise or refrain from exercising the same as though it were not the Administrative Agent; and the terms "Lenders", "Required Lenders", "holders of Notes", or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The bank acting as the Administrative Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or Affiliate of the Borrower as if it were not the Administrative Agent hereunder. Section 8.7. Successor Administrative Agent. The Administrative Agent may resign at any time by giving at least 30 days' prior notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent, subject to the approval by the Borrower (such approval not to be unreasonably withheld or delayed) provided that no Default or Event of Default shall exist at such time. If no successor Administrative Agent shall have been so appointed, and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a commercial bank, insurance company or other financial institution organized under the laws of the United States of America or any state thereof or a bank, insurance company or other financial institution which maintains an office in the United States, having a combined capital and surplus of at least $500,000,000. (b) Upon the acceptance of its appointment as the Administrative Agent hereunder by a successor, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. If within 45 days after written notice is given of the retiring Administrative Agent's resignation under this Section 8.7 no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (i) the retiring Administrative Agent's resignation shall become effective, (ii) the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Lenders shall thereafter perform all duties of the retiring Administrative Agent under the Loan Documents until such time as the Required Lenders appoint a successor Administrative Agent as provided above. After any retiring Administrative Agent's resignation hereunder, the provisions of this Article VIII shall continue in effect for the benefit of such retiring Administrative Agent and its representatives and agents in respect of any actions taken or not taken by any of them while it was serving as the Administrative Agent. Section 8.8. Authorization to Execute other Loan Documents. Each Lender hereby authorizes the Administrative Agent to execute on behalf of all Lenders all Loan Documents other than this Agreement. ARTICLE IX MISCELLANEOUS Section 9.1. Notices. (a) Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: To the Borrower: GPW Timberlands, LLC 103 Springer Building, 3411 Siverside Road, Wilmington, DE 19810 Attention: John R. Anke Telecopy Number: 302-478-3667
With copies to: P. H. Glatfelter Company Legal Department To the Administrative Agent: SunTrust Bank 919 East Main Street, 22nd Floor Richmond, VA 23219 Attention: Stephen B. Derby Telecopy Number: (804) 782-7548
With copies to: King & Spalding 191 Peachtree Street, N.E. Atlanta, Georgia 30303 Attention: Hector Llorens, Esq. Telecopy Number: 404-572-5100 To any other Lender: the address set forth in the Administrative Questionnaire
Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All such notices and other communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the mail or if delivered, upon delivery; provided, that notices delivered to the Administrative Agent shall not be effective until actually received by such Person at its address specified in this Section 9.1. (b) Any agreement of the Administrative Agent and the Lenders herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower. The Administrative Agent and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Administrative Agent and Lenders shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Administrative Agent or the Lenders in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Term Loan and all other Obligations hereunder shall not be affected in any way or to any extent by any failure of the Administrative Agent and the Lenders to receive written confirmation of any telephonic or facsimile notice or the receipt by the Administrative Agent and the Lenders of a confirmation which is at variance with the terms understood by the Administrative Agent and the Lenders to be contained in any such telephonic or facsimile notice. Section 9.2. Waiver; Amendments. No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder or any other Loan Document, and no course of dealing between the Borrower and the Administrative Agent or any Lender, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power hereunder or thereunder. The rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies provided by law. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. (b) No amendment or waiver of any provision of this Agreement or the other Loan Documents, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower, the Administrative Agent and the Required Lenders, or the Borrower and the Administrative Agent with the consent of the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment or waiver shall: (i) reduce the principal amount of or any Lender's share of the Term Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby; (ii) postpone the date fixed for any payment of any principal of, or interest on, the Term Loan or any fees hereunder or reduce the amount of, waive or excuse any such payment, without the written consent of each Lender affected thereby; or (iii) change Section 2.11(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender; (iv) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the consent of each Lender; (v) release any guarantor or limit the liability of any such guarantor under any guaranty agreement, without the written consent of each Lender; or (vi) release any of the Collateral securing any of the Obligations, without the written consent of each Lender; provided further, that no such agreement shall amend, modify or otherwise affect the rights, duties or obligations of the Administrative Agent without the prior written consent of the Administrative Agent. Section 9.3. Expenses; Indemnification. The Borrower shall pay (i) all reasonable, out-of-pocket costs and expenses of the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and its Affiliates, in connection with the preparation, negotiation, execution, delivery and administration of the Loan Documents and any amendments, modifications or waivers thereof (whether or not the transactions contemplated in this Agreement or any other Loan Document shall be consummated), and (ii) all out-of-pocket costs and expenses (including, without limitation, the reasonable fees, charges and disbursements of outside counsel and (without duplication) the allocated cost of inside counsel) incurred by the Administrative Agent or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement, (including its rights under this Section) including, without limitation, all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Term Loan (b) The Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing (each, an "Indemnitee") against, and hold each of them harmless from, any and all costs, losses, liabilities, claims, damages and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, which may be incurred by or asserted against any Indemnitee arising out of, in connection with or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any other agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of any of the transactions contemplated hereby, (ii) the making of the Term Loan or any actual or proposed use of the proceeds therefrom, (iii) any breach by the Borrower of any of the representations and warranties contained in this Agreement or any other Loan Document, or in any other certificate, letter, writing, agreement or instrument which has been or may in the future be delivered by the Borrower to the Administrative Agent or any Lender pursuant to or in connection with this Agreement or any other Loan Document, or any breach of any covenant of the Borrower contained in this Agreement, (iv) the existence of any Lien or adverse claim on any of the Collateral, other than Permitted Liens, (v) the existence of any Conservation Fund Event, (vi) the rescission, reduction, restoration, or avoidance of any amount paid by or for the account of Borrower under any Loan Document, or any Lien or other interest granted to the Administrative Agent or any Lender in the Collateral, whether as a "voidable preference", "fraudulent conveyance, transfer or obligation" or otherwise, (vii) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided, that the Borrower shall not be obligated to indemnify any Indemnitee for any of the foregoing arising out of such Indemnitee's gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final and nonappealable judgment, or (viii) any failure of the Administrative Agent's or any Lender's Lien to be a valid, enforceable, perfected, first priority Lien in the Collateral. (c) The Borrower shall pay, and hold the Administrative Agent and each of the Lenders harmless from and against, any and all present and future stamp, documentary, and other similar taxes with respect to this Agreement and any other Loan Documents, any collateral described therein, or any payments due thereunder, and save the Administrative Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes. (d) To the extent that the Borrower fails to pay any amount required to be paid to the Administrative Agent under clauses (a), (b) or (c) of this Section 9.3 hereof, each Lender severally agrees to pay to the Administrative Agent such Lender's Pro Rata Share (determined as of the time that the unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided, that the unreimbursed expense or indemnified payment, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (e) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to actual or direct damages) arising out of, in connection with or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated therein, the Term Loan or the use of proceeds thereof. (f) All amounts due under this Section shall be payable promptly after written demand therefor. Section 9.4. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of the Term Loan at the time owing to it); provided that (i) except in the case of an assignment of the entire remaining amount of the assigning Lender's portion of the Term Loan at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the portion of the Term Loan outstanding hereunder of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000, unless the Administrative Agent otherwise consents, (ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the portion of the Term Loan assigned, (iii) each Eligible Assignee must comply, if applicable, with the provisions contained in Section 2.10(e), and (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $1,000, and the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, from and after the effective date specified in each Assignment and Acceptance, the Eligible Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.9, 2.10, 2.12 and 9.3. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (d) of this Section. (c) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in Atlanta, Georgia a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders and principal amount of the Term Loan owing to each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive (absent manifest error), and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Any Lender may, without the consent of, or notice to, the Borrower or the Administrative Agent sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of the portion of the Term Loan owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver with respect to the following to the extent affecting such Participant: (i) reduce the principal amount of the Term Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, (ii) postpone the date fixed for any payment of any principal of, or interest on, the Term Loan or any fees hereunder or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date for the termination; (iii) change Section 2.11(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby; (iv) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder; (v) release any guarantor or limit the liability of any such guarantor under any guaranty agreement without the written consent of each Lender; or (vi) release all or a substantial part of the Collateral securing any of the Obligations. Subject to paragraph (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.9, 2.10, and 2.12 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.7 as though it were a Lender, provided such Participant agrees to be subject to Section 9.7 as though it were a Lender. (e) A Participant shall not be entitled to receive any greater payment under Section 2.9 and Section 2.10 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Non-US Lender if it were a Lender shall not be entitled to the benefits of Section 2.10 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.10(e) as though it were a Lender. (f) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. Section 9.5. Governing Law; Jurisdiction; Consent to Service of Process. This Agreement shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof) of the State of Georgia (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the United States District Court of the Northern District of Georgia, and Superior Court of in Fulton County, Georgia and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Georgia state court or, to the extent permitted by applicable law, such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in paragraph (b) of this Section and brought in any court referred to in paragraph (b) of this Section. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in Section 9.1. Nothing in this Agreement or in any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by law. Section 9.6. WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. Section 9.7. Right of Setoff. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, each Lender shall have the right, at any time or from time to time, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set off and apply against all deposits (general or special, time or demand, provisional or final) of the Borrower at any time held or other obligations at any time owing by such Lender to or for the credit or the account of the Borrower against any and all Obligations held by such Lender irrespective of whether such Lender shall have made demand hereunder and although such Obligations may be unmatured. Each Lender agrees promptly to notify the Administrative Agent and the Borrower after any such set-off and any application made by such Lender; provided, that the failure to give such notice shall not affect the validity of such set-off and application. Section 9.8. Counterparts; Integration. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement and the other Loan Documents, constitute the entire agreement among the parties hereto and thereto regarding the subject matters hereof and thereof and supersede all prior agreements and understandings, oral or written, regarding such subject matters. Section 9.9. Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of the Term Loan, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on the Term Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid. The provisions of Sections 2.9, 2.10, 2.12, and 9.3 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Term Loan or the termination of this Agreement or any provision hereof. All representations and warranties made herein, in the certificates, reports, notices, and other documents delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and the making of the Term Loan. Section 9.10. Severability. Any provision of this Agreement or any other Loan Document held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof or thereof; and the illegality, invalidity or unenforceability of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 9.11. Confidentiality. Each of the Administrative Agent and each Lender agrees to take normal and reasonable precautions to maintain the confidentiality of any information designated in writing as confidential and provided to it by the Borrower, except that such information may be disclosed (i) to any Related Party of the Administrative Agent or any such Lender, including without limitation accountants, legal counsel and other advisors, provided such accountants, legal counsel or other advisors are subject to professional standards that require such accountants, legal counsel or other advisors to keep such information confidential to the same extent required by the Lenders hereunder or such accountants, legal counsel or other advisors agree to keep such information confidential to the same extent required by the Lenders hereunder, (ii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iii) to the extent requested by any regulatory agency or authority, (iv) to the extent that such information becomes publicly available other than as a result of a breach of this Section, or which becomes available to the Administrative Agent, any Lender or any Related Party of any of the foregoing on a nonconfidential basis from a source other than the Borrower, (v) in connection with the exercise of any remedy hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, and (vi) to any actual or prospective assignee or Participant, provided, that such actual or prospective assignee or Participant agrees to keep such information confidential to the same extent required by the Lenders hereunder, or (vii) with the consent of the Borrower. Any Person required to maintain the confidentiality of any information as provided for in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such information as such Person would accord its own confidential information. Section 9.12. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to the Term Loan, together with all fees, charges and other amounts which may be treated as interest on the Term Loan under applicable law (collectively, the "Charges"), shall exceed the maximum lawful rate of interest (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by a Lender in accordance with applicable law, the rate of interest payable in respect of the Term Loan hereunder, together with all other Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and other Charges that would have been payable in respect of the Term Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and other Charges payable to such Lender in respect of other periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate to the date of repayment, shall have been received by such Lender. (remainder of page left intentionally blank) IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers or trustee, as the case may be, as of the day and year first above written. GPW TIMBERLANDS, LLC By______________________________(Seal) Name: Title: SUNTRUST BANK as Administrative Agent, and as a Lender By_______________________________(Seal) Name: Title: [SIGNATURE PAGE TO TERM LOAN AGREEMENT] EX-15 6 w86450exv15.txt LETTER IN LIEU OF CONSENT REGARDING REVIEW REPORT EXHIBIT 15 LETTER IN LIEU OF CONSENT REGARDING REVIEW REPORT OF UNAUDITED INTERIM FINANCIAL INFORMATION P. H. Glatfelter Company: We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited condensed consolidated financial statements of P. H. Glatfelter Company and subsidiaries for the three months ended March 31, 2003 and 2002, as indicated in our report dated May 12, 2003; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, is incorporated by reference in Registration Statement Nos. 33-25884, 33-37198, 33-49660, 33-53338, 33-54409, 33-62331, 333-12089, 333-26587, 333-34797, 333-53977 and 333-66991 on Forms S-8 and Registration Statement No. 333-36295 on Form S-4. We are also aware that the aforementioned report, pursuant to Rule 436 (c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania May 12, 2003 EX-99.1 7 w86450exv99w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 18 U.S.C. SECTION 1350 In connection with the Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2003 of P. H. Glatfelter Company (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, George H. Glatfelter II, Chief Executive Officer of the Company, certify to the best of my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: 1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to Glatfelter and will be retained by Glatfelter and furnished to the Securities and Exchange Commission or its staff upon request. Date: May 13, 2003 By: /s/ George H. Glatfelter II --------------------------- George H. Glatfelter II Chief Executive Officer P.H. Glatfelter Company EX-99.2 8 w86450exv99w2.txt CERTIFICATION OF SENIOR V.P AND C.F.O. Exhibit 99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 18 U.S.C. SECTION 1350 In connection with the Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2003 of P. H. Glatfelter Company (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John C. van Roden, Jr., Senior Vice President and Chief Financial Officer of the Company, certify to the best of my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: 1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to Glatfelter and will be retained by Glatfelter and furnished to the Securities and Exchange Commission or its staff upon request. Date: May 13, 2003 By: /s/ John C. van Roden, Jr. ----------------------------------------- John C. van Roden, Jr. Senior Vice President and Chief Financial Officer P.H. Glatfelter Company -----END PRIVACY-ENHANCED MESSAGE-----