-----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, B5hMY3d9agv1eTvBnsFFGp/pyT/K0CDkl2QJT/uOucEf3JLxj4Esy6xI+cDhEzqW qMNUHlnbyjVpxlWPnO+qIQ== 0000912057-96-025957.txt : 19961115 0000912057-96-025957.hdr.sgml : 19961115 ACCESSION NUMBER: 0000912057-96-025957 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROWN VANTAGE INC CENTRAL INDEX KEY: 0000948073 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 541752384 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13868 FILM NUMBER: 96661052 BUSINESS ADDRESS: STREET 1: 300 LAKESIDE DR STREET 2: 14TH FL CITY: OAKLAND STATE: CA ZIP: 94612-3592 BUSINESS PHONE: 5108743400 MAIL ADDRESS: STREET 1: 300 LAKESIDE DR STREET 2: 14TH FLOOR CITY: OAKLAND STATE: CA ZIP: 94612-3592 10-Q 1 CROWN VANTAGE, INC. 10-Q SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: September 29, 1996 Commission File Number: 1-13868 - -------------------------------------------------------------------------------- CROWN VANTAGE INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Virginia 54-1752384 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 300 Lakeside Drive, Oakland, CA 94612-3592 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (510) 874-3400 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, 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 the past 90 days. Yes X No ---- ---- Number of shares of no par value common stock outstanding as of the close of business on November 12, 1996: 9,109,968 Shares ---------------- INDEX CROWN VANTAGE INC. PART I: Financial Information Item 1. Financial Statements - Condensed Consolidated Balance Sheets - September 29, 1996 and December 31, 1995. - Condensed Consolidated Statements of Operations - Third quarter and nine months ended September 29, 1996 and September 24, 1995. - Condensed Consolidated Statements of Cash Flows - Nine months ended September 29, 1996 and September 24, 1995. - Notes to Condensed Consolidated Financial Statements. - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II: Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES 2 PART I -- FINANCIAL INFORMATION ITEM 1 -- FINANCIAL STATEMENTS CROWN VANTAGE INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS)
ASSETS SEPTEMBER 29, 1996 DECEMBER 31, 1995 ------------------ ----------------- (UNAUDITED) ----------- Current Assets: Cash and cash equivalents $ 6,203 $ 5,335 Accounts receivable, net 56,789 106,674 Inventories 96,313 100,422 Prepaid expenses and other current assets 24,666 8,832 Deferred income taxes 14,899 14,899 ------------ ---------- Total current assets 198,870 236,162 Property, plant and equipment, net 669,387 668,340 Other assets 44,468 39,952 Unamortized debt issue costs 16,388 16,448 Intangibles, net 30,383 31,226 ------------ ---------- Total Assets $959,496 $992,128 ------------ ---------- ------------ ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 46,087 $ 57,569 Accrued liabilities 77,144 79,959 Current portion of long-term debt 7,308 11,883 ------------ ---------- Total current liabilities 130,539 149,411 Long-term debt 543,628 555,352 Accrued postretirement benefits other than pensions 101,609 100,358 Accrued pension 17,030 14,235 Other long-term liabilities 12,840 15,507 Deferred income taxes 114,222 112,039 ------------ ---------- Total Liabilities 919,868 946,902 ------------ ---------- Shareholder's Equity: Preferred Stock, no par value; Authorized - 500,000 shares; Issued and outstanding - None Common Stock, no par value; Authorized - 50,000,000 shares; Issued and outstanding 9,109,968 and 8,917,661 shares at September 29, 1996 and December 31, 1995, respectively 45,760 44,539 Unearned ESOP shares and other (9,912) (11,152) Cumulative foreign currency translation adjustment 61 (1,348) Retained earnings 3,719 13,187 ------------ ---------- 39,628 45,226 ------------ ---------- Total Liabilities and Shareholders' Equity $959,496 $992,128 ------------ ---------- ------------ ----------
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 CROWN VANTAGE INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Third Quarter (13 weeks) and Nine Months (39 weeks) Ended September 29, 1996 and September 24, 1995 (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE)
Third Quarter Nine Months ------------------------ ----------------------- 1996 1995 1996 1995 ----------- ----------- ----------- ---------- (UNAUDITED ) (UNAUDITED) Net sales $221,064 $264,779 $704,481 $798,709 Cost of goods sold 210,319 221,016 638,774 689,207 ----------- ----------- ----------- ---------- Gross margin 10,745 43,763 65,707 109,502 Selling and administrative expenses 13,792 15,398 38,132 43,497 ----------- ----------- ----------- ---------- Operating Income (Loss) (3,047) 28,365 27,575 66,005 Interest expense (15,337) (6,619) (47,167) (7,604) Other income, net 798 16 2,171 268 ----------- ----------- ----------- ---------- Income (loss) before income taxes (17,586) 21,762 (17,421) 58,669 Provision (benefit) for income taxes (8,018) 8,561 (7,953) 23,324 ----------- ----------- ----------- ---------- NET INCOME (LOSS) $ (9,568) $ 13,201 $ (9,468) $ 35,345 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- Loss per share $ (1.11) $ (1.10) --------- --------- --------- ---------
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 CROWN VANTAGE INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months (39 weeks) Ended September 29, 1996 and September 24, 1995 (IN THOUSANDS OF DOLLARS)
Nine Months ------------------------- 1996 1995 ------------ ----------- (UNAUDITED) Cash Provided by (Used for) Operating Activities: Net income (loss) $ (9,468) $ 35,345 Items not affecting cash: Depreciation and cost of timber harvested 57,712 59,244 Amortization of goodwill and other intangibles 844 1,046 Interest on Pay-in-Kind Notes 9,839 1,050 Other, net 5,394 3,472 Changes in current assets and liabilities: Accounts receivable (includes $40,000 sold in 1996) 49,885 (10,917) Inventories 4,109 (5,729) Other current assets (16,296) 423 Accounts payable (11,483) 10,316 Other current liabilities (2,424) 4,195 Other, net 1,565 3,972 ------------ ----------- Cash Provided by Operating Activities 89,677 102,417 ------------ ----------- Cash Used for Investing Activities: Expenditures for property, plant and equipment (58,907) (33,309) Other, net (371) - ------------ ----------- Cash Used for Investing Activities (59,278) (33,309) ------------ ----------- Cash Provided by (Used for) Financing Activities: Proceeds from draw down of Revolving Credit 171,000 59,000 Repayments of Revolving Credit (163,000) (25,000) Proceeds from issuance of Industrial Revenue Bonds less underwriting cost 12,100 - Proceeds from issuance of Term Notes - 190,592 Proceeds from issuance of Subordinated Notes - 242,500 Repayments of Term Loans and other long-term debt (49,631) (720) James River capital withdrawal - (533,126) ------------ ----------- Cash Used for Financing Activities (29,531) (66,754) ------------ ----------- Increase in cash and cash equivalents 868 2,354 Cash and cash equivalents at beginning of period 5,335 12,435 ------------ ----------- Cash and cash equivalents at end of period $6,203 $14,789 ------------ ----------- ------------ -----------
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 CROWN VANTAGE INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- ORGANIZATION Crown Vantage Inc. and subsidiaries (the "Company") became an independent company after the Board of Directors of James River Corporation of Virginia ("James River") approved the spin-off of assets, liabilities and operations which comprised a substantial part of James River's Communication Papers Business and the paper-based part of its Food and Consumer Packaging Business ("Predecessor Business"). At the close of business on August 25, 1995, James River distributed to its common shareholders all of the outstanding shares of the Company (the "Distribution"). The Distribution was made in the form of a tax-free dividend on the basis of one share of the Company's common stock for every ten shares of James River common stock. A total of 8,446,362 shares of the Company's common stock were issued and began trading on NASDAQ on August 28, 1995. James River transferred to the Company certain assets of the Predecessor Business and the Company assumed certain related liabilities from James River. In addition, the Company received $250 million in cash through a public offering of Senior Subordinated Notes and $253 million from initial borrowings under credit facilities with certain banks (collectively, the "Financing"). The proceeds from the Financing after payment of expenses and retention of $1.2 million cash ($485 million) were paid to James River together with $100 million Senior Pay-in-Kind Notes issued by the Company, as a return of James River's capital investment. The Distribution, transfer of assets and liabilities, Financing and return of capital are collectively referred to as the "Spin-Off." Also in connection with the Spin-Off, the Company entered into a Contribution Agreement and certain transition agreements with James River. The Company will rely on such agreements for certain services, and the supply of a portion of the products used in the Company's manufacturing business, generally over terms of one to three years, at agreed to prices consistent with market terms. NOTE 2 -- BASIS OF PRESENTATION The accompanying unaudited condensed financial statements include the consolidated operations, assets and liabilities of Crown Vantage Inc. (the "Parent"), Crown Paper Co., and Crown Paper Co.'s consolidated subsidiaries for the three months and nine months ended September 29, 1996 and the combined historical operations, assets and liabilities of the Predecessor Business while a part of James River for the three months and nine months ended September 24, 1995. For simplicity of presentation, these financial statements are referred to as consolidated financial statements herein. The condensed consolidated financial statements for the quarter and nine months ended September 24, 1995 have been prepared as if the Company had operated as an independent stand-alone entity, except the Company generally did not have significant borrowings, and there was no allocation of James River's consolidated borrowings, and related interest expense, except for interest capitalized as a component of properties. During the period ended September 24, 1995, the Company engaged in various transactions with James River and its affiliates that are characteristic of a group of companies under common control. Throughout this period, the Company participated in James River's centralized cash management system and, as such, its cash funding requirements were met by James River. The Company was charged by James River for direct costs and expenses associated with its operations which have been included in cost of goods sold or selling and administrative expenses, as appropriate. James River's administrative costs not directly attributable 6 to the Company, which historically had not been allocated, have been allocated to the Company for the quarter and nine months ended September 24, 1995 based on net sales and are included in selling and administrative expense. The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. The condensed consolidated balance sheet as of December 31, 1995 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended September 29, 1996 are not necessarily indicative of the results that may be expected for the year ended December 29, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in Crown Vantage Inc.'s Annual Report to Shareholders and Form 10-K for the year ended December 31, 1995. The Company adopted Statement of Financial Accounting Standards No. 121 ("Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of") in the first quarter of 1996. Adoption of Statement of Financial Accounting Standards No. 121 did not have a material effect on the Company's financial position or results of operations. NOTE 3 --LOSS PER SHARE The computation of loss per share for the quarter and nine months ended September 29, 1996 is based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the period (8,623,000 and 8,603,000 for the three and nine months ended September 29, 1996 respectively). The number of shares considered outstanding does not include 255,535 unearned shares held by the Employee Stock Ownership Plan Trust at September 29, 1996. In accordance with Statement of Position 93-6 ("Employers' Accounting for Employee Stock Ownership Plans"), shares held by the Trust are not considered outstanding for purposes of computing earnings per share until the shares are committed for release from the Trust. Earnings (loss) per share information is not presented for the quarter or nine months ended September 24, 1995 since the Company had no separate capital structure until August 25, 1995. See Note 10 for pro forma earnings (loss) per share information for the quarter and nine months ended September 24, 1995. NOTE 4 -- INCOME TAX The income tax benefits for the quarter and nine months ended September 29, 1996 have been provided at the Company's estimated tax rate of 39.75%. A substantial portion of the benefit will be realized by recovery of taxes paid in 1995. In addition, the Company recognized a benefit of approximately $1.0 million in the third quarter for reduction of estimated taxes payable for 1995. Historically the Company has been included in the consolidated federal and combined/unitary state income tax returns of James River. Income taxes in the consolidated financial statements for the quarter and nine months ended September 24, 1995 represent the Company's share of James River's income tax provision which is intended to approximate the amount which would have been recognized had the Company filed separate income tax returns. 7 NOTE 5 -- LONG TERM DEBT
Consolidated long-term debt consists of the following: September 29 December 31 1996 1995 --------------- -------------- (IN THOUSANDS OF DOLLARS) CROWN PAPER CO. Bank Credit Facility: Revolving credit, due 2002 $ 18,000 $ 10,000 Term Loan A, due 2002 50,953 97,500 Term Loan B, due 2003 99,250 99,750 ---------------- ------------- 168,203 207,250 11% Senior Subordinated Notes, due 2005 250,000 250,000 Industrial Revenue Bonds, payable to 2026 34,304 24,182 10% Note, payable in 1996 - 352 ---------------- ------------- 452,507 481,784 CROWN VANTAGE INC. 11.45% Senior Pay-in-Kind Notes, due 2007 less unamortized discount 98,429 85,451 ---------------- ------------- 550,936 567,235 Less current portion 7,308 11,883 ---------------- ------------- $543,628 $555,352 ---------------- ------------- ---------------- -------------
In June 1996, the Company prepaid $40 million on Term Loan A using proceeds obtained through the sale of certain accounts receivable (Note 8). In July 1996, the Company completed an $18 million refinancing of certain industrial revenue bonds issued by the Business Finance Authority of the State of New Hampshire (the "Refunding Bonds"). The Refunding Bonds were issued to refinance certain of the Company's pollution control and solid waste disposal facilities located in the State of New Hampshire. The bonds are due January 1, 2022 and bear interest at 7.75%. Also in July 1996, the Company finalized an agreement with the Business Finance Authority of the State of New Hampshire whereby a total of $12.3 million of bonds were sold (the "Project Bonds") to finance certain sewage and solid waste disposal facilities to be used by the Company. The proceeds from the sale of Project Bonds are to be used to finance eligible project costs. An amount equivalent to 50% of proceeds are to be prepaid to the Term Loans. Upon sale, $2.6 million, equivalent to 50% of proceeds, was prepaid on Term Loan A and an additional $4.0 million was deposited in an interest bearing account with a trustee to be drawn as needed to finance additional project costs. The Project Bonds bear interest at 7.875% and are due July 1, 2026. Maturities of long-term debt (after giving effect to the prepayments of Term Loan A) for the next five fiscal year ends are: 1997 - $7.9 million; 1998 - - $9.3 million; 1999 - $9.3 million; 2000 - $9.6 million; and 2001 - $22.2 million. 8 NOTE 6 -- INVENTORIES
September 29, 1996 December 31, 1995 ------------------ ----------------- (IN THOUSANDS OF DOLLARS) Raw material $ 25,993 $ 37,238 Work in process 5,709 5,856 Finished goods 42,228 40,745 Stores and supplies 34,722 35,141 ----------- ------------ 108,652 118,980 Reduction to state inventories at last-in, first-out cost (12,339) (18,558) ----------- ------------ $ 96,313 $ 100,422 ----------- ------------ ----------- ------------
NOTE 7 -- LITIGATION AND ENVIRONMENTAL MATTERS The Company is a party to various legal proceedings generally incidental to its business and is subject to a variety of environmental protection statutes and regulations. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings involving environmental matters. Although the ultimate disposition of legal proceedings cannot be predicted with certainty, it is the present opinion of the Company's management that the outcome of any claim which is pending or threatened, either individually or on a combined basis, will not have a materially adverse effect on the consolidated financial position of the Company but could materially affect consolidated results of operations in a given period. In addition, the Company has been identified as a potentially responsible party, along with others, under the Comprehensive Environmental Response, Compensation and Liability Act or similar federal and state laws regarding the past disposal of wastes at approximately 20 sites in the United States. It is the Company's policy to accrue remediation costs when it is probable that such costs will be incurred and when they can be reasonably estimated. Estimates of future response costs are necessarily imprecise due to, among other things, the possible identification of presently unknown sites and the allocation of costs among potentially responsible parties with respect to any such sites. However, based upon its previous experience with respect to the cleanup of hazardous substances as well as the regular detailed review of its known hazardous waste sites and estimated costs to remediate certain sites, the Company has accrued $10.9 million and $11.0 million at September 29, 1996 and December 31, 1995 respectively. The liabilities can change substantially due to such factors as the solvency of other potentially responsible parties, additional information on the nature or extent of contamination, methods of remediation required, and other actions by governmental agencies or private parties. Although the Company has accrued cleanup and remediation liabilities currently, expenditures generally are paid over an extended period of time, in some cases as long as 30 years. While it is not feasible to predict the outcome of all environmental liabilities, based on the most recent review by management of these matters, management is of the opinion that its share of the costs of investigation and remediation of the sites of which it is currently aware will not have a material adverse effect upon the consolidated financial position of the Company. 9 However, because of uncertainties associated with remediation activities, regulations, technologies, and the allocation of costs among various other parties, actual costs to be incurred at identified sites may vary from estimates. Therefore, management is unable to determine if the ultimate disposition of all known environmental liabilities will have a material adverse effect on the Company's consolidated results of operations in a given year. The accruals recorded by the Company are periodically reviewed for their adequacy, and the Company will continue to review the status of all significant existing or potential environmental issues and adjust its accruals as necessary. The accruals do not reflect any possible future insurance recoveries. In addition, as is the case with most manufacturing and many other entities, there can be no assurance that the Company will not be named as a potentially responsible party at additional sites in the future or that the costs associated with such additional sites would not be material. In December 1993, the EPA published draft rules which contain proposed regulations affecting pulp and paper industry discharges of wastewater and gaseous emissions ("Cluster Rules"). The final Cluster Rules were scheduled to be issued in late 1995; however, their issuance is now anticipated to occur no earlier than the fourth quarter of 1996 with compliance required three years later. These Cluster Rules may require significant changes in the pulping, bleaching and/or wastewater treatment processes presently used in some U.S. pulp and paper mills, including some of the Company's mills. Although it is reasonably possible that the implementation of the Cluster Rules could materially impact the Company's expenditures between 1997 and 2000, it is not currently possible to estimate such amounts. NOTE 8 -- SALE OF ACCOUNTS RECEIVABLE In June 1996, the Company entered into a five year agreement which provides for the sale of an undivided interest in a $40 million revolving pool of trade accounts receivable. As collections reduce accounts receivable included in the pool, the Company sells undivided interests in new receivables in order to bring the amount sold up to $40 million. The agreement provides for a maximum allowable amount of accounts receivable that can be sold of $60 million. Proceeds from the sale, which are reported as operating cash flows in the condensed consolidated statement of cash flows, were used to prepay $40 million of long-term debt. The proceeds from the initial and subsequent sales are less than the face amount of the undivided interests in accounts receivable sold. The discount from the face amount, which totaled $923,000 through September 1996, is included in selling and administrative expenses in the condensed consolidated statement of operations. NOTE 9 -- NEW ACCOUNTING PRONOUNCEMENT In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125 ("Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"). Statement of Financial Accounting Standards No. 125 ("SFAS No. 125") provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS No. 125 is effective for transactions occurring after December 31, 1996. The Company does not believe that adoption of SFAS No. 125 will have a material adverse effect on its financial position or results of operations. 10 NOTE 10 -- SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS The following supplemental unaudited pro forma condensed statements of operations are presented for informational purposes to present the results of operations assuming that the Spin-Off of the Predecessor Business had occurred as of December 26, 1994 and that the issuance of debt discussed in Note 1 had occurred as of December 26, 1994. This information may not necessarily be indicative of the future results of operations of the Company or what the results of operations would have been had the Company operated as a separate independent Company during the entire periods presented.
Nine Months Ended September 24, 1995 ----------------------------------------------- Pro forma Historical Adjustments Pro forma ------------ ----------- ---------- (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE) Net sales $ 798,709 $ (750)(a) $ 797,959 Less: Cost of goods sold 689,207 1,393(b) 690,600 ------------ ----------- ---------- Gross margin 109,502 (2,143) 107,359 Selling and administrative expenses 43,497 43,497 ------------ ----------- ---------- Operating Income 66,005 (2,143) 63,862 Interest expense (7,604) (41,109)(c) (48,713) Other income 268 268 ------------ ----------- ---------- Income before income taxes 58,669 (43,252) 15,417 Provision for income taxes 23,324 16,825(d) 6,499 ------------ ----------- ---------- NET INCOME $ 35,345 $(26,427) $ 8,918 ------------ ----------- ---------- ------------ ----------- ---------- Pro forma earnings per share $ 1.04(e) ---------- ----------
Three Months Ended September 24, 1995 --------------------------------------------- Pro forma Historical Adjustments Pro forma ----------- ------------- ---------- (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE) Net sales $ 264,779 $ (250)(a) $ 264,529 Less: Cost of goods sold 221,016 464(b) 221,480 ----------- ------------- ---------- Gross margin 43,763 (714) 43,049 Selling and administrative expenses 15,398 15,398 ----------- ------------- ---------- Operating Income 28,365 (714) 27,651 Interest expense (6,619) (10,154)(c) (16,773) Other income 16 16 ----------- ------------- ---------- Income before income taxes 21,762 (10,868) 10,894 Provision for income taxes 8,561 4,228(d) 4,333 ----------- ------------- ---------- NET INCOME $ 13,201 $ (6,640) $ 6,561 ----------- ------------- ---------- ----------- ------------- ---------- Pro forma earnings per share $ .76(e) ---------- ----------
11 a) Historically, the Company has produced approximately 38,000 tons of creped paper for converting to toweling for sale to James River's Consumer Products Business at the Company's cost to produce. In connection with the Spin-Off, the Company has entered into a product supply agreement whereby the Company will supply to James River creped paper for converting to toweling amounting to up to 20,000 tons annually at an agreed upon price. The financial effect of this agreement would have decreased each of net sales and income before income taxes by approximately $750,000 for the nine months of 1995 and $250,000 for the three months of 1995. The Company will utilize the remaining 18,000 tons of capacity as it deems appropriate. No adjustment has been made in the pro forma statements with respect to the Company's utilization of this remaining capacity. b) Historically, when the Company has purchased pulp from facilities within James River, the purchase price of the pulp was reflected at existing published prices less a discount ranging from 0% to 9% based upon a combination of prevailing market prices and volumes purchased. Beginning August 28, 1995, based upon a three year Pulp Purchase Agreement entered into by the Company and James River, the price of such pulp purchases will be at existing published prices less a discount ranging from 0% to 6% based upon a combination of prevailing market prices and volumes purchased. The effect of this agreement, if it was consummated at the beginning of the periods presented, would have increased cost of goods sold by approximately $1,393,000 for the nine months of 1995 and $464,000 for the three months of 1995. c) Reflects pro forma increases in the Company's interest expense assuming that amounts outstanding in 1996 with respect to the Senior Subordinated Notes, Senior Pay-in-Kind Notes, and borrowings under the Bank Credit Facility were outstanding during the corresponding period in 1995. Pro forma interest expense also includes line of credit fees, guaranty fees for IRB's and commitment fees on the unused portion of the Revolver for the periods presented. Included in pro forma interest expense is the amortization of the pro rata portion of debt issue costs related to the Financings which will be amortized over the lives of the related indebtedness. Variable rate debt of the Company is subject to ongoing interest rate fluctuations. The effect of a 1% increase in the interest rate on these borrowings would have the impact of increasing interest expense by approximately $1.3 million for the nine months of 1995 and $.7 million for the three months of 1995. d) Reflects the effects of the pro forma adjustments on income tax expense using an estimated marginal tax rate of 38.9% for the periods presented. e) Pro forma earnings per share is computed based upon 8,623,000 and 8,603,000 assumed weighted average shares outstanding for the three month and nine month periods, respectively. The number of shares considered outstanding does not include 255,535 shares held be the Employee Stock Ownership Plan Trust. In accordance with generally accepted accounting principles, shares held by the Trust are not considered outstanding for earnings per share calculations until the shares are committed for release from the Trust. 12 ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Crown Vantage Inc. and subsidiaries (the "Company") became an independent company after the Board of Directors of James River Corporation of Virginia ("James River") approved the spin-off of assets, liabilities and operations which comprised a substantial part of James River's Communication Papers Business and the paper-based part of its Food and Consumer Packaging Business ("Predecessor Business"). At the close of business on August 25, 1995, James River distributed to its common shareholders all of the outstanding shares of the Company (the "Distribution"). The Distribution was made in the form of a tax-free dividend on the basis of one share of the Company's common stock for every ten shares of James River common stock. A total of 8,446,362 shares of the Company's common stock were issued and began trading on NASDAQ on August 28, 1995. The following management's discussion and analysis of certain significant factors affecting the Company's results of operations during the periods included in the accompanying condensed consolidated statements of operations and changes in the Company's financial condition since December 31, 1995 is made on a historical basis. Historical results of Crown Vantage Inc. include the actual operations of the Company for the three months and nine months ended September 29, 1996, and the combined historical operations of the Predecessor Business while a part of James River for the three months and nine months ended September 24, 1995. James River provided certain corporate general and administrative services to the Company prior to the Spin-Off. These overhead costs for the quarter and nine months ended September 24, 1995 have been allocated to the Company based upon net sales and are included in selling and administrative expenses. The Company is a major producer of value-added paper products for a diverse array of end-uses. The Company's two business sectors and corresponding principal product categories are (i) printing and publishing papers, for applications such as special interest magazines, books, custom business forms and corporate communications and promotions (e.g., annual reports and stationery); and (ii) specialty papers, principally for food and retail packaging applications and conversion into such items as coffee filters, cups and plates. The Company operates 11 facilities using 33 diverse paper machines. The Company's two largest facilities are integrated operations located in St. Francisville, Louisiana and Berlin and Gorham, New Hampshire. St. Francisville produces coated groundwood papers for magazines and catalogs and uncoated specialty converting papers. Berlin-Gorham primarily produces uncoated printing and publishing papers as well as market pulp. The Company also produces uncoated printing and publishing papers at its non-integrated facilities in Adams, Massachusetts; Newark, Delaware; Ypsilanti, Michigan; and Dalmore and Guardbridge, Scotland. The Company's food and retail packaging papers are produced primarily at non-integrated facilities in Port Huron and Parchment, Michigan and Milford, New Jersey. In addition to its primary paper-making operations, the Company operates a cast-coating facility in Richmond, Virginia. 13 RESULTS OF OPERATIONS The Company's net sales for each business sector as well as pulp and miscellaneous, are as follows:
Net Sales and Tonnage by Sector for the Nine Months Ended September 29, 1996 September 24, 1995 ----------------------------- ---------------------------- Tons Sales Tons Sales ------------- ------------ ------------- ------------ (thousands) (millions) (thousands) (millions) Printing and Publishing Papers Coated groundwood 193.4 $ 170.6 208.7 $ 185.6 Uncoated 181.9 181.1 180.1 202.0 Specialty Papers Food and retail packaging 176.9 229.7 189.2 264.6 Converting 125.3 112.5 122.4 116.7 Pulp and Miscellaneous 28.7 10.6 34.9 29.8 ------------- ------------ ------------- ------------ 706.2 $ 704.5 735.3 $ 798.7 ------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------
Net Sales and Tonnage by Sector for the Quarter Ended September 29, 1996 September 24, 1995 --------------------------- --------------------------- Tons Sales Tons Sales ------------ ----------- ------------- ---------- (thousands) (millions) (thousands) (millions) Printing and Publishing Papers Coated groundwood 69.4 $ 53.2 69.7 $ 68.1 Uncoated 60.1 56.6 57.7 65.7 Specialty Papers Food and retail packaging 57.7 69.7 57.9 84.1 Converting 44.6 37.4 36.3 37.3 Pulp and Miscellaneous 11.6 4.2 12.2 9.6 ------------ ----------- ------------- ---------- 243.4 $221.1 233.8 $264.8 ------------ ----------- ------------- ---------- ------------ ----------- ------------- ----------
14 NET SALES The Company's net sales decreased 11.8% to $704.5 million for the nine months ended September 29, 1996 as compared to $798.7 million for the same period in 1995. Net sales decreased 16.5% to $221.1 million for the three months ended September 29, 1996 as compared to $ 264.8 million for the same period in 1995. The decrease for the nine month period of 1996 resulted primarily from a 8.2% decline in average selling price per ton for the nine months in 1996 as compared to 1995. The decrease in sales for the quarter ended September 29, 1996 as compared to the quarter ended September 24, 1995 was also attributable to a decline in average selling price per ton which totalled 19.8%, partially offset by a 4.1% increase in sales volume. Net sales of coated groundwood paper (which is used principally in the production of magazines and catalogs) for the nine month period ended September 29, 1996 were $170.6 million, a 8.1% decline as compared to the same period in 1995. Sales volume decreased 15,300 tons for the first nine months of 1996 compared to 1995, while the average price per ton decreased only slightly from $889 in 1995 to $882 in 1996. Net sales of coated groundwood papers decreased $15.0 million in the third quarter of 1996 as compared to the third quarter of 1995, a 21.9% decline. While demand remained strong in the third quarter of 1996, the average price per ton decreased by 21.5% to $767 as compared to the third quarter of 1995 average price per ton of $977. A continued overhang of coated groundwood paper inventory at the customer level suppressed prices in the third quarter of 1996 despite improvements in demand from earlier in the year. Net sales of uncoated printing and publishing papers decreased from $202.0 million for the first nine months of 1995 to $181.1 million for the first nine months of 1996, a 10.4% decline. Average selling price per ton for the first nine months of 1996 declined by $126 or 11.2% as compared to the same period in 1995, while 1996 sales volume was slightly improved over 1995. Net sales of uncoated printing and publishing papers in the third quarter of 1996 were $56.6 million, down $9.1 million from the third quarter of 1995. The decrease in net sales is primarily due to a 17.2% decline in average selling price per ton in the third quarter of 1996 as compared to the third quarter of 1995, partially offset by a 4.1% increase in tons sold. Food and retail packaging paper net sales totaled $229.7 million during the first nine months of 1996, a $34.9 million decline from the same period in 1995. The 13.2% decrease in net sales is the result of a l2,300 ton decrease in sales volume, coupled with a $99 per ton (7.1%) decline in average selling price per ton during the nine month period ended September 29, 1996 compared to the same period in 1995. For the third quarter of 1996, net sales were $69.7 million, down $14.4 million from third quarter 1995. Average selling price per ton in the third quarter of 1996 was $1,207, down 16.9% from the average selling price per ton of $1,453 in the third quarter of 1995. Demand for food and retail packaging papers was virtually unchanged quarter to quarter with sales volume of 57,700 tons in the third quarter of 1996 as compared to 57,900 tons in the third quarter of 1995. Net sales of specialty converting papers during the first nine months of 1996 were $112.5 million, a 3.6% decrease compared to the first nine months of 1995. The decrease is the result of a 5.8% decrease in average selling price per ton, partially offset by a 2.4% increase in tons sold . Net sales of specialty converting papers in the third quarter of 1996 totaled $37.4 million, as compared to net sales of $37.3 million in the third quarter of 1995. Tons sold in the third quarter of 1996 were 44,600, a 22.9% increase over the same period in 1995. However, average selling price per ton in the third quarter of 1996 declined $189 to $838 as compared to $1,027 in the third quarter of 1995. 15 Net sales of pulp and miscellaneous products decreased to $10.6 million for the nine months ended September 29, 1996 as compared to $29.8 million in the same period in 1995. Tons sold in the nine month period of 1996 decreased to 28,700 tons compared to 34,900 tons in the same period of 1995. This decrease was due primarily to the increased internal use of pulp produced by the Company. The average sales price per ton in the first nine months of 1996 was $368, a 57.0% decrease from the same period in 1995. In the third quarter, net sales of pulp and miscellaneous products decreased from $9.6 million in 1995 to $4.2 million in 1996. Tons sold decreased to 11,600 in the third quarter of 1996 from 12,200 in the third quarter of 1995. During the third quarter of 1996, the average sales price per ton decreased 54.5% to $357 as compared to $783 in the third quarter of 1995. OPERATING INCOME
Operating Income by Sector Operating Income by Sector for the Quarter Ended for the Nine Months Ended ------------------------------ --------------------------------- Sept. 29, 1996 Sept. 24, 1995 Sept. 29, 1996 Sept. 24, 1995 -------------- -------------- -------------- --------------- (Millions) (Millions) Printing and Publishing Papers $ (1.5) $ 22.5 $ 20.6 $ 48.6 Food and retail packaging (1.3) (5.9) 3.9 (8.7) Converting 1.2 6.6 10.7 15.3 Pulp and Miscellaneous (1.4) 5.2 (7.6) 10.8 -------- -------- -------- -------- $ (3.0) $ 28.4 $ 27.6 $ 66.0 -------- -------- -------- -------- -------- -------- -------- --------
The Company had operating income of $27.6 million for the nine month period in 1996 compared to operating income of $66.0 million for the same period in 1995. In the third quarter of 1996, the Company had an operating loss of $3.0 million, as compared to operating income of $28.4 million in the third quarter of 1995. Operating income for printing and publishing papers decreased to $20.6 million in the nine months of 1996 compared to $48.6 million for 1995. The decrease in operating income resulted primarily from the 11.2% decrease in uncoated paper prices discussed above as well as the 15,300 ton decrease in coated groundwood sales during the first nine months of 1996 as compared to 1995. The operating loss for printing and publishing papers was $1.5 million in the third quarter of 1996 as compared to $22.5 million of operating income in the third quarter of 1995. The decrease in operating income was primarily because of the 21.5% decline in average selling price per ton for coated groundwood papers discussed above. Food and retail packaging operating income increased from a loss of $8.7 million for the first nine months of 1995 to a profit of $ 3.9 million in the first nine months of 1996. The increase in operating profits is attributable to a 30% decrease in pulp costs and cost reduction initiatives implemented in 1996. The Company's packaging mills are non-integrated and, as a result, operating results generally improve during periods of declining pulp costs. Operating results improved from a loss of $ 5.9 million in the third quarter of 1995 to a loss of $1.3 million in the third quarter of 1996. Third quarter 1996 operating results improved as a result of the lower pulp costs and cost reduction initiatives. 16 Operating income for converting papers decreased to $10.7 million in the nine months of 1996 as compared to $15.3 million in the first nine months of 1995. The decrease in operating profits is attributable to a 1l.7% decrease in average selling price per ton at the Company's specialty converting facility. This decrease was partially offset by a 6,400 ton increase in tons sold at the Company's cast coating facility which generally produces higher margin products. Operating profits for the third quarter of 1996 were $1.2 million, as compared to operating profits of $6.6 million in the third quarter of 1995. The decrease in average selling price per ton discussed above resulted in the $5.4 million decrease in operating profits. Selling and administrative expenses decreased $5.4 million for the nine month period of 1996 compared to the same period in 1995 as a result of certain cost reduction initiatives underway. For the third quarter, selling and administrative expenses were down $1.6 million in 1996 compared to 1995 for the same reasons. INTEREST EXPENSE Interest expense increased $39.6 million and $8.7 million for the nine month and three month periods of 1996 compared to the same periods in 1995 as a result of the borrowings incurred in connection with the Spin-Off (see Liquidity and Sources of Capital). LIQUIDITY AND SOURCES OF CAPITAL Prior to the Spin-Off, the assets of the Company comprised a substantial part of the Communications Paper Business and the paper-based part of the Food and Consumer Packaging Business of James River. For the periods presented for 1995, the Company participated in James River's centralized cash management system and, as such, its cash funding requirements, if any, were met by James River. Since consummation of the Spin-Off, the Company no longer has any such financial arrangements with James River and now relies on internally generated funds and its ability to access funds from the equity and debt markets. In connection with the Spin-Off, the Company obtained $250 million in financing through a public offering of Senior Subordinated Notes and $253 million initial borrowing under a $350 million credit facility from a group of banks (collectively, the "Financing"). The net proceeds from the Financing were paid to James River together with $100 million Senior Pay-in-Kind Notes as a return of James River's capital investment. Under the bank credit facility the revolving credit available is in the aggregate amount of $150 million with a $75 million sublimit for letters of credit (of which $42 million has been used at September 29, 1996) and can be used for general corporate purposes, working capital needs, letters of credit and permitted investments. At September 29, 1996, $18.0 million of the revolving credit was outstanding and $90 million of the aggregate line was available if needed. 17 Principal amounts on the Term Loan A and Term Loan B are due in quarterly installments together with accrued interest. In addition to scheduled repayments, the Company is obligated to make prepayments upon the occurrence of certain events. During June 1996, the Company prepaid $40 million on Term Loan A using proceeds from the sale of certain trade accounts receivable. Term Loan A was further prepaid by $2.6 million, an amount equivalent to 50% of proceeds from the issuance of bonds (see below). The Company anticipates that cash flows provided by operating activities will be sufficient to pay its operating expenses and satisfy its debt repayments for the remainder of 1996. Cash flows provided by operating activities were $89.7 million for the nine months ended September 29, 1996 compared to $102.4 million in the first nine months of 1995. Operating cash flows increased by $40 million as a result of the sale of certain trade accounts receivable in June 1996 (see Note 8). Earnings before interest, taxes, depreciation and amortization (EBITDA) were $88.3 million for the first nine months of 1996, as compared to $126.6 million in 1995. The Company's capital expenditures for the nine months ended September 29, 1996 were $58.9 million compared to $33.3 million in the same period in 1995. A fully-integrated pulp and paper mill generally consists of an extensive network of buildings, machines and equipment, which require continual upgrade, replacement, modernization and improvement to remain competitive and meet changing customer preferences and regulatory requirements. The Company's strategic capital plans involve aggregate capital expenditure for the remainder of 1996 of approximately $24 million. These capital expenditures will be financed primarily by cash flows from operations. In July 1996, the Company completed an $18 million refinancing of certain industrial revenue bonds issued by the Business Finance Authority of the State of New Hampshire (the "Refunding Bonds"). The Refunding Bonds were issued to refinance certain of the Company's pollution control and solid waste disposal facilities located in the State of New Hampshire. The bonds are due January 1, 2022 and bear interest at 7.75%. Also in July 1996, the Company finalized an agreement with the Business Finance Authority of the State of New Hampshire whereby a total of $12.3 million of bonds were sold (the "Project Bonds") to finance certain sewage and solid waste disposal facilities to be used by the Company. The proceeds from the sale of Project Bonds are to be used to finance eligible project costs. An amount equivalent to 50% of proceeds are to be prepaid to the Term Loans. Upon sale, $2.6 million, equivalent to 50% of proceeds, was prepaid on Term Loan A and an additional $4.0 million was deposited in an interest bearing account with a trustee to be drawn as needed to finance additional project costs. The Project Bonds bear interest at 7.875% and are due July 1, 2026. 18 PART II -- OTHER INFORMATION ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Ex. 3(ii) Restated Bylaws of Crown Vantage Inc. (as amended July 31, 1996) (Electronic Filing Only) Ex. 11 Statement re: Computation of Per Share Earnings Ex. 27 Financial Data Schedule (Electronic Filing Only) Ex. 99(i) Crown Vantage Inc. 1995 Incentive Stock Plan (as amended March 21, 1996 and May 7, 1996)(Electronic Filing Only) (b) Reports on Form 8-K -- None 19 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. CROWN VANTAGE INC. (Registrant) /s/ Charles H. Shreve - --------------------- Charles H. Shreve Senior Vice President, Chief Accounting Officer (Duly Authorized Officer and Chief Accounting Officer) November 12, 1996 21 EX-3.(II) 2 AMENDMENT TO BY-LAWS RESTATED BYLAWS OF CROWN VANTAGE INC. (as amended July 31, 1996) ARTICLE I - MEETINGS OF STOCKHOLDERS Section 1.1 CLOSING OF TRANSFER BOOKS AND FIXING OF RECORD DATE. For the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors or the Executive Committee shall fix in advance a date as the record date for any such determination of stockholders, such date to be not more than 70 days before the meeting or action. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this article, such determination shall apply to any adjournment thereof, except as is otherwise provided by law. Section 1.2 PLACE AND TIME OF MEETINGS. Meetings of stockholders shall be held at such place, either within or without the Commonwealth of Virginia, and at such time, as may be provided in the notice of the meeting. Section 1.3 ORGANIZATION AND ORDER OF BUSINESS. The Chairman, President and Chief Executive Officer (the "Chairman") shall serve as chairman at all meetings of the stockholders. In his or her absence if he or she declines to serve, a majority of the shares entitled to vote at such meeting may appoint any person to act as chairman. The Secretary of the Corporation or, in his absence, an Assistant Secretary, shall act as secretary at all meetings of the stockholders. In the event that neither the Secretary nor any Assistant Secretary is present, the chairman of the meeting may appoint any person to act as secretary of the meeting. The Chairman shall have the authority to make such rules and regulations, to establish such procedures and to take such steps as he or she may deem necessary or desirable for the proper conduct of each meeting of the stockholders, including, without limitation, the authority to make the agenda and to establish procedures for (i) the dismissal of business not properly presented, (ii) the maintenance of order and safety, (iii) placing limitations on the time allotted to questions or comments on the affairs of the Corporation, (iv) placing restrictions on attendance at a meeting by persons or classes of persons who are not stockholders or their proxies, (v) restricting entry to a meeting after the time prescribed for the commencement thereof and (vi) the commencement, conduct and close of voting on any matter. Section 1.4 ANNUAL MEETING. The annual meeting of stockholders shall be held on the third or second Thursday in April of each year as set by the Board of Directors or on such other dates as shall be approved by the Board of Directors. At each annual meeting of stockholders, only such business shall be conducted as is proper to consider and has been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by a stockholder of the Corporation who is a stockholder of record of a class of shares entitled to vote on such business at the time of the giving of the notice hereinafter described in this Section 1.4 and who complies with the notice procedures set forth in this Section 1.4. In order to bring business before an annual meeting of stockholders, a stockholder, in addition to complying with any other applicable requirements, must have given timely written notice of his intention to bring such business before the meeting to the Secretary of the Corporation. To be timely, a stockholder's notice must be given, either by personal delivery or by United States certified mail, postage prepaid, addressed to the Secretary of the Corporation at the principal office of the Corporation and received (i) on or after January 1st of the year in which the meeting will be held and before February 1st of the year in which the meeting will be held or (ii) not less than 60 days before the date of the annual meeting if the date of such meeting, as prescribed in these Bylaws, has been changed by more than 30 days. Each such stockholder's notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) the name and address, as they appear on the Corporation's stock transfer books, of the stockholder proposing such business, (ii) 2 the class and number of shares of stock of the Corporation beneficially owned by such stockholder, (iii) a representation that such stockholder is a stockholder of record and intends to appear in person or by proxy at such meeting to bring before the meeting the business specified in the notice, (iv) a brief description of the business desired to be brought before the meeting, including the complete text of any resolutions to be presented at the meeting and the reasons for wanting to conduct such business, and (v) any material interest which the stockholder has in such business. The Secretary of the Corporation shall deliver each such stockholder's notice that has been timely received to the Chairman or a committee designated by the Board of Directors for review. Notwithstanding the foregoing provisions of this Section 1.4, a stockholder seeking to have a proposal included in the Corporation's proxy statement for an annual meeting of stockholders shall comply with the requirements of Regulation 14A under the Securities Exchange Act of 1934, as amended from time to time, or with any successor regulation. Section 1.5 SPECIAL MEETINGS. Special meetings of the stockholders may be called by the Chairman or the Board of Directors. Only business within the purpose or purposes described in the notice for a special meeting of stockholders may be conducted at the meeting. Section 1.6 NOTICE OF MEETINGS. Written notice stating the place, day and hour of each meeting of stockholders and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by mail not less than ten nor more than 60 days before the date of the meeting (except when a different time is required in these Bylaws or by law) to each stockholder of record entitled to vote at such meeting and to such nonvoting stockholders as may be required by law. Such notice shall be deemed to be effective when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation. Notice of a stockholders' meeting to act on (i) an amendment of the Articles of Incorporation; (ii) a plan of merger or share exchange; (iii) the sale, lease, exchange or other disposition of 3 all or substantially all the property of the Corporation otherwise than in the usual and regular course of business, or (iv) the dissolution of the Corporation, shall be given, in the manner provided above, not less than 25 nor more than 60 days before the date of the meeting. Any notice given pursuant to this paragraph shall state that the purpose, or one of the purposes, of the meeting is to consider such action and shall be accompanied by (x) a copy of the proposed amendment, (y) a copy of the proposed plan of merger or share exchange, or (z) a summary of the agreement pursuant to which the proposed transaction will be effected. If only a summary of the agreement is sent to the stockholders, the Corporation shall also send a copy of the agreement to any stockholder who requests it. If a meeting is adjourned to a different date, time or place, notice need not be given if the new date, time or place is announced at the meeting before adjournment. However, if a new record date for an adjourned meeting is fixed (which shall be done if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting), notice of such date shall be given to those persons entitled to notice who are stockholders as of the new record date, unless a court provides otherwise. Section 1.7 QUORUM AND VOTING REQUIREMENTS. Each outstanding share of common stock shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. Shares of other classes and series shall be entitled to such vote as may be provided in the Articles of Incorporation. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless otherwise required by law, a majority of the votes entitled to be cast on a matter by a voting group constitutes a quorum of that voting group for action on that matter. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or shall be set for that adjourned meeting. If a quorum exists, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by law or by the Articles of Incorporation. Directors 4 shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present unless a different vote in required by the Articles of Incorporation. Less than a quorum may adjourn a meeting. Section 1.8 PROXIES. A stockholder may vote his shares in person or by proxy. A stockholder may appoint a proxy to vote or otherwise act for him or her by signing an appointment form, either personally or by his attorney-in- fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent authorized to tabulate votes and is valid for 11 months unless a longer period is expressly provided in the appointment form. An appointment of a proxy is revocable by the stockholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest. The death or incapacity of the stockholder appointing a proxy does not affect the right of the Corporation to accept the proxy's authority unless notice of the death or incapacity is received by the Secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment. An irrevocable appointment is revoked when the interest with which it is coupled is extinguished. A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if he or she did not know of its existence when he or she acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares. Subject to any legal limitations on the right of the Corporation to accept the vote or other action of a proxy and to any express limitation on the proxy's authority appearing on the face of the appointment form, the Corporation is entitled to accept the proxy's vote or other action as that of the stockholder making the appointment. Any fiduciary entitled to vote any shares may vote such shares by proxy. Section 1.9 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A stockholder may waive any notice required by law, the Articles of Incorporation or these Bylaws before or after the date and time of the meeting that is the subject of such notice. The waiver shall be in writing, be signed by the stockholder entitled to the notice, and be delivered to the Secretary of the Corporation for inclusion in the minutes or filing with the corporate records. 5 A stockholder's attendance at a meeting (i) waives objection to lack of notice or defective notice of the meeting, unless the stockholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (ii) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the stockholder objects to considering the matter when it is presented. Section 1.10 ACTION WITHOUT MEETING. Action required or permitted to be taken at a stockholders' meeting may be taken without a meeting and without action by the Board of Directors if the action is taken by all the stockholders entitled to vote on the action. The action shall be evidenced by one or more written consents describing the action taken, signed by all the stockholders entitled to vote on the action, and delivered to the Secretary of the Corporation for inclusion in the minutes or filing with the corporate records. Action taken under this section shall be effective according to its terms when all consents are in the possession of the Corporation. A stockholder may withdraw a consent only by delivering a written notice of withdrawal to the Corporation prior to the time that all consents are in the possession of the Corporation. If not otherwise fixed pursuant to the provisions of Section 1.1, the record date for determining stockholders entitled to take action without a meeting is the date the first stockholder signs the consent described in the preceding paragraph. If notice of proposed action is required to be given to nonvoting stockholders and the action is to be taken by unanimous consent of the voting stockholders, the Corporation shall give its nonvoting stockholders written notice of the proposed action at least ten days before the action is taken. The notice shall contain or be accompanied by the same material that would have been required by law to be sent to nonvoting stockholders in a notice of a meeting at which the proposed action would have been submitted to the stockholders for action. Section 1.11 VOTING LIST. The officer or agent having charge of the stock transfer books of the Corporation shall make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting or any 6 adjournment thereof, with the address of and the number of shares held by each. The list shall be arranged by voting group and within each voting group by class or series of shares. Such list shall be kept on file at the registered office of the Corporation, or at its principal office or at the office of its transfer agent or registrar, for a period of ten days prior to such meeting and shall be subject to the inspection of any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting for the purposes thereof. The original stock transfer books shall be prima facia evidence as to who are the stockholders entitled to examine such list or transfer books or to vote at any meeting of the stockholders. The right of a stockholder to inspect such list at any other time shall be subject to the limitations established by law. If the requirements of this section have not been substantially complied with, the meeting shall, on the demand of any stockholder in person or by proxy, be adjourned until such requirements are met. Refusal or failure to prepare or make available the stockholders' list does not affect the validity of action taken at the meeting prior to the making of any such demand, but any action taken by the stockholders after the making of any such demand shall be invalid and of no effect. ARTICLE II - DIRECTORS Section 2.1 GENERAL POWERS. The Corporation shall have a Board of Directors. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation managed under the direction of, its Board of Directors, subject to any limitation set forth in the Articles of Incorporation. Section 2.2 NUMBER AND TERM. The number of directors of the Corporation shall be eight. This number may be changed from time to time by amendment to these Bylaws to increase or decrease by 30 percent or less the number of directors last elected by the stockholders, but only the stockholders may increase or decrease the number by more than 30 percent. No decrease in number shall have the effect of shortening the term of any incumbent director. 7 Each director shall hold office until his death, resignation or removal or until his successor is elected. Section 2.3 NOMINATION OF CANDIDATES. No person shall be eligible for election as a director unless nominated (i) by the Board of Directors upon recommendation of the Nominating Committee or otherwise or (ii) by a stockholder entitled to vote on the election of directors pursuant to the procedures set forth in this Section 2.3. Nominations, other than those made by the Board of Directors, may be made only by a stockholder who is a stockholder of record of a class of shares entitled to vote for the election directors at the time of the giving of the notice hereinafter described in this Section 2.3 and only if written notice of the stockholder's intent to nominate one or more persons for election as directors at a meeting of stockholders has been given, either by personal delivery or by United States certified mail, postage prepaid, addressed to the Secretary of the Corporation at the principal office of the Corporation and received (i) on or after January 1st of the year in which the meeting will be held and before February 1st of the year in which the meeting will be held, if the meeting is to be an annual meeting and clause (ii) is not applicable, or (ii) not less than 60 days before an annual meeting, if the date of the applicable annual meeting, as prescribed in these Bylaws, has been changed by more than 30 days, or (iii) not later than the close of business on the tenth day following the day on which notice of a special meeting of stockholders called for the purpose of electing directors is first given to stockholders. Each such stockholder's notice shall set forth the following: (i) as to the stockholder giving the notice (a) the name and address of such stockholder as they appear on the Corporation's stock transfer books, (b) the class and number of shares of stock of the Corporation beneficially owned by such stockholder, (c) a representation that such stockholder is a stockholder of record and intends to appear in person or by proxy at such meeting to nominate the person or persons specified in the notice, and (d) a description of all arrangements or understandings, if any, between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made; and (ii) as to each person whom the stockholder wishes to nominate for election as a director (a) the 8 name, age, business address and, if known, residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the Corporation which are beneficially owned by such person, and (d) all other information that is required to be disclosed about nominees for election as directors in solicitations of proxies for the election of directors under the Securities Exchange Act of 1934, as amended, or otherwise by the rules and regulations of the Securities and Exchange Commission. In addition, each such notice shall be accompanied by the written consent of each proposed nominee to serve as a director if elected. Each such consent shall also contain a statement from the proposed nominee to the effect that the information about him or her contained in the notice is correct. Section 2.4 ELECTION. Except as provided in Section 2.5 of this Article and in the Articles of Incorporation, the directors shall be elected by the common stockholders and preferred stockholders entitled to vote with the common stockholders at the annual meeting of stockholders, and those nominees who receive the greatest number of votes shall be deemed elected even though they do not receive a majority of the votes cast. No individual shall be named or elected as a director without his prior consent. Section 2.5 REMOVAL; VACANCIES. The stockholders may remove one or more directors for cause. If a director is elected by a voting group, only the stockholders of that voting group may vote to remove him or her. Unless the Articles of Incorporation require a greater vote, a director may be removed if the number of votes cast to remove him or her constitutes a majority of the votes entitled to be cast at an election of directors of the voting group or voting groups by which such director was elected. A director may be removed by the stockholders only at a meeting called for the purpose of removing him or her and the notice of the meeting must state that the purpose, or one of the purposes of the meeting, is removal of the director. A vacancy on the Board of Directors, including a vacancy resulting from the removal of a director or an increase in the number of directors, may be filled by (i) the stockholders, (ii) the Board of Directors or (iii) the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors, and may, in the case of a resignation that will 9 become effective at a specified later date, be filled before the vacancy occurs but the new director may not take office until the vacancy occurs. Section 2.6 COMPENSATION. The Board of Directors may fix the compensation of directors for their services and may provide for the payment of all expenses incurred by directors in attending regular and special meetings of the Board of Directors. ARTICLE III - DIRECTORS' MEETINGS Section 3.1 ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of Directors, which shall be considered a regular meeting, shall be held immediately following each annual meeting of stockholders, for the purpose of electing officers and carrying on such other business as may properly come before the meeting. The Board of Directors may also adopt a schedule of additional meetings which shall be considered regular meetings. Regular meetings shall be held at such times and at such places, within or without the Commonwealth of Virginia, as the Chairman shall designate. If no place is designated, regular meetings shall be held at the principal office of the Corporation. Section 3.2 SPECIAL MEETINGS. Special meetings of the Board of Directors shall be held on the call of the Chairman or any three members of the Board of Directors at the principal office of the Corporation or at such other place as the Chairman, or in his absence, the President, shall designate. Section 3.3 TELEPHONE MEETINGS. The Board of Directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. Section 3.4 NOTICE OF MEETINGS. No notice need be given of regular meetings of the Board of Directors. Notice of special meetings of the Board of Directors shall be given to each director in person or delivered to his residence or 10 business address, or such other place as he or she may have directed in writing, not less than 24 hours before the meeting by mail, messenger, telecopy, telegraph, or other means of written communication or by telephoning such notice to him or her. Any such notice shall set forth the time and place of the meeting and state the purpose for which it is called. Section 3.5 QUORUM; VOTING. A majority of the number of directors fixed in these Bylaws shall constitute a quorum for the transaction of business at a meeting of the Board of Directors. If a quorum is present when a vote is taken, the affirmative vote of a majority of the directors present is the act of the Board of Directors unless the act of a greater number is required by law, the Articles of Incorporation or these Bylaws. A director who is present at a meeting of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless (i) he or she objects at the beginning of the meeting, or promptly upon his arrival, to holding it or transacting specified business at the meeting; or (ii) he or she votes against, or abstains from, the action taken. Section 3.6 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A director may waive any notice required by law, the Articles of Incorporation, or these Bylaws before or after the date and time stated in the notice, and such waiver shall be equivalent to the giving of such notice. Except as provided in the next paragraph of this section, the waiver shall be in writing, signed by the director entitled to the notice and filed with the minutes or corporate records. A director's attendance at or participation in a meeting waives any required notice to him or her of the meeting unless the director at the beginning of the meeting or promptly upon his arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Section 3.7 ACTION WITHOUT MEETING. Action required or permitted to be taken at a Board of Directors' meeting may be taken without a meeting if the action is taken by all members of the Board. The action shall be evidenced by one or more written consents describing the action taken, signed by each director either before or after the action taken, and included in the 11 minutes or filed with the corporate records reflecting the action taken. Action taken under this section shall be effective when the last director signs the consent unless the consent specifies a different effective date in which event the action taken is effective as of the date specified therein, provided the consent states the date of execution by each director. ARTICLE IV - COMMITTEE OF DIRECTORS Section 4.1 COMMITTEES. The Board of Directors may create one or more committees and appoint members of the Board of Directors to serve on them. Unless otherwise provided herein, each committee shall have two or more members who serve at the pleasure of the Board of Directors. The creation of a committee and appointment of members to it shall be approved by the number of directors required to take action under Section 3.5 of these Bylaws. Section 4.2 AUTHORITY OF COMMITTEES. To the extent specified by the Board of Directors, each committee may exercise the authority of the Board of Directors, except that a committee may not (i) approve or recommend to stockholders action that is required by law to be approved by stockholders; (ii) fill vacancies on the Board of Directors or any of its committees; (iii) amend the Articles of Incorporation without stockholder approval; (iv) adopt, amend, or repeal these Bylaws; (v) approve a plan of merger not requiring stockholder approval; (vi) authorize or approve a distribution, except according to a general formula or method prescribed by the Board of Directors; or (vii) authorize or approve the issuance, or sale or contract for sale, of stock or determine the designation and relative rights, preferences, and limitations of a class or series of stock, except that the Board of Directors may authorize a committee, or a senior executive officer of the Corporation, to do so within limits specifically prescribed by the Board of Directors. Section 4.3 EXECUTIVE COMMITTEE. The Board of Directors shall appoint an Executive Committee consisting of two or more directors, which committee shall have all of the authority of the Board of Directors except to the extent such authority is limited by the provisions of Section 4.2. 12 Section 4.4 AUDIT COMMITTEE. The Board of Directors shall appoint an Audit Committee consisting of not less than three directors, none of whom shall be officers, which committee shall regularly review the adequacy of the Corporation's internal financial controls, review with the Corporation's independent public accountants the annual audit and other financial statements, and recommend the selection of the Corporation's independent public accountants. Section 4.5 NOMINATING COMMITTEE. The Board of Directors shall appoint a Nominating Committee consisting of not less than three directors, a majority of whom shall not be officers or employees, which committee shall recommend to the Board of Directors the names of persons to be nominated for election as directors of the Corporation. Section 4.6 COMPENSATION COMMITTEE. The Board of Directors shall appoint a Compensation Committee consisting of not less than three directors, none of whom shall be officers, which committee shall recommend to the Board of Directors the compensation of directors and executive officers of the Corporation, make awards under the Corporation's discretionary employee benefit plans, and make recommendations from time to time to the Board of Directors regarding the Corporation's compensation program. Section 4.7 COMMITTEE MEETINGS; MISCELLANEOUS. The provisions of these Bylaws which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the Board of Directors shall also apply to committees of directors and their members. ARTICLE V - OFFICERS Section 5.1 OFFICERS. The officers of the Corporation shall be a Chairman, President and Chief Executive Officer; a Secretary; a Chief Financial Officer; and such additional officers, including Vice Presidents and other officers, as the Board of Directors may deem necessary or advisable to conduct the business of the Corporation. The Chairman shall be a member of the Board of Directors. The Board of Directors shall also designate those officers who are deemed to be "Executive Officers." Any two 13 offices may be combined except the offices of President and Secretary. Section 5.2 ELECTION, TERM. Officers shall be elected at each annual meeting of the Board of Directors and shall hold office, unless removed, until the next annual meeting of the Board of Directors or until their successors are elected. Any officer may resign at any time upon written notice to the Board of Directors. Section 5.3 REMOVAL OF OFFICERS. Officers may be removed, with or without cause, at any time by the Board of Directors. Section 5.4 DUTIES OF THE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER. The Chairman shall have general charge of, and be charged with, the duty of supervision of the business of the Corporation. In addition, he or she shall perform such duties, from time to time, as may be assigned to him or her by the Board of Directors. Unless he or she declines to serve, the Chairman shall preside at all meetings of the stockholders and the Board of Directors and perform such duties, from time to time, as may be assigned to him or her by the Board of Directors. Section 5.5 DUTIES OF THE SECRETARY. The Secretary shall have the duty to see that a record of the proceedings of each meeting of the stockholders and the Board of Directors, and any committee of the Board of Directors, is properly recorded and that notices of all such meetings are duly given in accordance with the provisions of these Bylaws or as required by law; he or she may affix the corporate seal to any document the execution of which is duly authorized, and when so affixed may attest the same; and, in general, he or she shall perform all duties incident to the office of secretary of a corporation, and such other duties as, from time to time, may be assigned to him or her by the Chairman or the Board of Directors, or as may be required by law. Section 5.6 DUTIES OF THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall have charge of and be responsible for all securities, funds, receipts and disbursements of the Corporation, and shall deposit or cause to be deposited, in the name of the Corporation, all monies or valuable effects in such 14 banks, trust companies or other depositories as shall, from time to time, be selected by or under authority granted by the Board of Directors; he or she shall be custodian of the financial records of the Corporation; he or she shall keep or cause to be kept full and accurate records of all receipts and disbursements of the Corporation and shall render to the Chairman and the Board of Directors, whenever requested, an account of the financial condition of the Corporation; and shall perform such duties as may be assigned to him or her by the Chief Executive Officer or the Board of Directors. Section 5.7 DUTIES OF OTHER OFFICERS. The other officers of the Corporation shall have such authority and perform such duties as shall be prescribed by the Board of Directors or by officers authorized to appoint them to their respective offices. To the extent that such duties are not so stated, such officers shall have such authority and perform the duties which generally pertain to their respective offices, subject to the control of the Chief Executive Officer or the Board of Directors. Section 5.8 VOTING SECURITIES OF OTHER CORPORATIONS. Any one of the Chairman or the Chief Financial Officer shall have power to act for and vote on behalf of the Corporation at all meetings of the stockholders of any corporation in which this Corporation holds stock, or in connection with any consent of stockholders in lieu of any such meeting. Section 5.9 BONDS. The Board of Directors may require that any or all officers, employees and agents of the Corporation give bond to the Corporation, with sufficient sureties, conditioned upon the faithful performance of the duties of their respective offices or positions. ARTICLE VI - CERTIFICATES OF STOCK Section 6.1 FORM. Stock of the Corporation shall, when fully paid, be evidenced by certificates containing such information as is required by law and approved by the Board of Directors. Certificates shall be signed by the Chairman, the Chief Financial Officer, or any Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and may (but need not) be sealed with the seal of the Corporation. The 15 seal of the Corporation and any or all of the signatures on such certificates may be a facsimile, engraved or printed. In case any such officer or any transfer agent or registrar who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to hold office before such certificate is issued, the certificate shall, nevertheless, be valid. Section 6.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES. The Corporation may issue a new stock certificate in the place of any certificate theretofore issued which is alleged to have been lost, stolen or destroyed and may require the owner of such certificate, or his legal representative, to give the Corporation a bond, sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. Section 6.3 TRANSFER. The Board of Directors may make such rules and regulations concerning the issue, registration and transfer of certificates representing the stock of the Corporation as it deems necessary or proper and may appoint transfer agents and registrars. Unless otherwise provided, transfers of stock and of the certificates representing such stock shall be made upon the books of the Corporation by surrender of the certificates for the stock transferred, accompanied by written assignments given by the owners or their attorneys-in-fact. ARTICLE VII - MISCELLANEOUS PROVISIONS Section 7.1 CORPORATE SEAL. The corporate seal of the Corporation shall be circular and shall have inscribed thereon, within and around the circumference, "CROWN VANTAGE INC." In the center shall be the word "SEAL". Section 7.2 FISCAL YEAR. The fiscal year of the Corporation shall be determined in the discretion of the Board of Directors, but in the absence of any such determination it shall be a fiscal year of either 52 or 53 weeks ending on the last Sunday in December. Section 7.3 AMENDMENTS. These Bylaws may be amended or repealed, and new Bylaws may be made, at any regular or special 16 meeting of the Board of Directors by a majority of the Board. Bylaws made by the Board of Directors may be repealed or changed and new Bylaws may be made by the stockholders, and the stockholders may prescribe that any Bylaw made by them shall not be altered, amended or repealed by the Board of Directors. ARTICLE VIII - VIRGINIA CONTROL SHARE ACQUISITION STATUTE The provisions of Article 14.1 of the Virginia Stock Corporation Act (Section 13.1-728.1 et seq.) in effect on the 14th day of August, 1995, shall not apply to the acquisition of shares of this Corporation. 17 EX-11 3 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (in thousands, except per share earnings)
Nine Months Ended September 29, 1996 ------------------------------------ Primary Fully Diluted -------------- ------------------- Average shares outstanding 8,603 8,569 Effect of dilutive stock options - due to the Company's net loss, assumed conversion of stock options is anti-dilutive 0 0 -------------- ------------------- Totals 8,603 8,569 -------------- ------------------- -------------- ------------------- Net loss $(9,468) $(9,468) -------------- ------------------- -------------- ------------------- Loss per share $ (1.10) $ (1.10) -------------- ------------------- -------------- -------------------
Three Months Ended September 29, 1996 ------------------------------------- Primary Fully Diluted -------------- ------------------- Average shares outstanding 8,623 8,622 Effect of dilutive stock options - due to the Company's net loss, assumed conversion of stock options would be anti-dilutive 0 0 -------------- ------------------- Totals 8,623 8,622 -------------- ------------------- -------------- ------------------- Net loss $(9,568) $(9,568) -------------- ------------------- -------------- ------------------- Loss per share $(1.11) $(1.11) -------------- ------------------- -------------- -------------------
No earnings per share amounts are presented for the quarter or nine months ended September 24, 1995 since the Company had no separate capital structure until August 25, 1995. 20 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-29-1996 JAN-01-1996 SEP-29-1996 6,203 0 57,494 705 96,313 198,870 1,214,687 545,300 959,496 130,539 0 0 0 45,760 (6,132) 959,496 704,481 704,481 638,774 638,774 0 929 47,167 (17,421) (7,953) (9,468) 0 0 0 (9,468) (1.10) (1.10)
EX-99.(I) 5 1995 INCENTIVE STOCK PLAN CROWN VANTAGE INC. 1995 INCENTIVE STOCK PLAN (as amended March 21 and May 7, 1996) CROWN VANTAGE INC. (the "Company") hereby adopts this Crown Vantage Inc. 1995 Incentive Stock Plan. 1. PURPOSE. The purpose of the Crown Vantage Inc. 1995 Incentive Stock Plan (the "Plan") is to further the long term stability and financial success of the Company by attracting and retaining key employees of the Company and its Subsidiaries through the use of stock incentives. It is believed that ownership of Company Stock will stimulate the efforts of those employees of the Company upon whose judgment and interest the Company is and will be largely dependent for the successful conduct of its business. It is also believed that awards granted to such employees under this Plan will strengthen their desire to remain with the Company and will further the identification of those employees' interests with those of the Company's shareholders. The Plan has been adopted by the Board of Directors of the Company and approved by James River Corporation of Virginia ("James River"), the Company's sole shareholder. This Plan shall become effective as of the record date of the distribution of shares of Company Stock by James River to its shareholders. The Plan is intended to conform to the provisions of Securities and Exchange Commission Rule 16b-3 ("Rule 16b-3"). 2. DEFINITIONS. As used in the Plan, the following terms have the meanings indicated: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Applicable Withholding Taxes" means the aggregate amount of federal, state and local income and payroll taxes that the Company is required to withhold in -1- connection with any exercise of an Option or the award, lapse of restrictions or payment with respect to Restricted Stock, Incentive Stock or Deferred Stock. (c) "Award" means the award of an Option, Restricted Stock, Incentive Stock or Deferred Stock under the Plan. (d) "Board" means the Board of Directors of the Company. (e) "Change of Control" means: (i) The acquisition by any unrelated person of beneficial ownership (as that term is used for purposes of the Act) of 20% or more of the then outstanding shares of common stock of the Company or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors. The term "unrelated person" means any person other than (x) the Company and its Subsidiaries, (y) an employee benefit plan or trust of the Company or its Subsidiaries, and (z) a person who acquires stock of the Company pursuant to an agreement with the Company that is approved by the Board in advance of the acquisition, unless the acquisition results in a Change of Control pursuant to subsection (ii) below. For purposes of this subsection, a "person" means an individual, entity or group, as that term is used for purposes of the Act. (ii) As a result of, or in connection with, any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Company before such transactions shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means the committee appointed to administer the Plan as provided in Section 17. -2- (h) "Company" means Crown Vantage Inc. (i) "Company Stock" means common stock of the Company. In the event of a change in the capital structure of the Company (as provided in Section 16), the shares resulting from such a change shall be deemed to be Company Stock within the meaning of the Plan. (j) "Corporate Change" means a consolidation, merger, dissolution or liquidation of the Company or a Subsidiary, or a sale or distribution of assets or stock (other than in the ordinary course of business) of the Company or a Subsidiary; provided that, unless the Committee determines otherwise, a Corporate Change shall only be considered to have occurred with respect to Participants whose business unit is affected by the Corporate Change. (k) "Date of Grant" means the date as of which an Award is made by the Committee. (l) "Deferred Stock" means hypothetical shares of Company Stock granted pursuant to Section 9. (m) "Fair Market Value" means if the Company Stock is traded on an exchange, the mean of the highest and lowest registered sales prices of the Company Stock on the exchange on which the Company Stock generally has the greatest trading volume, if the Company Stock is traded in the over-the- counter market, the mean between the closing bid and asked prices as reported by Nasdaq, or if the Committee determines that another method of determining the fair market value of Company Stock is appropriate, the Fair Market Value shall be determined by the Committee in its discretion. Fair Market Value shall be determined as of the applicable date specified in the Plan or, if there if are no trades on such date, the value shall be determined as of the last preceding day on which the Company Stock is traded. -3- (n) "Incentive Stock" means Company Stock awarded when performance goals are achieved pursuant to an incentive plan established by the Committee as provided in Section 8. (o) "Incentive Stock Option" means an Option intended to meet the requirements of, and qualify for favorable Federal income tax treatment under, Code section 422. (p) "Insider" means a person subject to Section 16(b) of the Act. (q) "James River" means James River Corporation of Virginia. (r) "Nonstatutory Stock Option" means an Option that does not meet the requirements of Code section 422, or that is otherwise not intended to be an Incentive Stock Option and is so designated. (s) "Option" means a right to purchase Company Stock granted under the Plan, at a price determined in accordance with the Plan. (t) "Participant" means any employee who receives an Award under the Plan. (u) "Reload Feature" means a feature of an Option, as described in the Participant's stock option agreement, that provides for the automatic grant of a Reload Option in accordance with the provisions of Section 10(b). (v) "Reload Option" means an Option granted to a Participant equal to the number of shares of already owned Company Stock that are delivered by the Participant to exercise an Option, as described in Section 10(b). (w) "Restricted Stock" means Company Stock awarded upon the terms and subject to the restrictions set forth in Section 7. (x) "Rule 16b-3" means Rule 16b-3 of the Act. A reference in the Plan to Rule 16b-3 shall include a reference to any corresponding subsequent rule or any amendments to Rule 16b-3 enacted after the effective date of the Plan. -4- (y) "Subsidiary" means an entity of which the Company owns 50% or more of the total combined voting power of all classes of stock. (z) "Shareholder" means a person who owns, directly or indirectly, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or Subsidiary of the Company. Indirect ownership of stock shall be determined in accordance with Code section 424(d). 3. GENERAL. The following types of Awards may be granted under the Plan: Options, Restricted Stock, Incentive Stock and Deferred Stock. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options. 4. STOCK. Subject to Section 16 of the Plan, there shall be reserved for issuance under the Plan an aggregate of 1,400,000 shares of Company Stock, which shall be authorized, but unissued, shares. Shares granted under Options that expire or otherwise terminate unexercised and shares that are forfeited pursuant to restrictions on Restricted Stock, Incentive Stock or Deferred Stock may again be subjected to an Award under the Plan. For purposes of determining the number of shares that are available for Awards under the Plan, such number shall, if permissible under Rule 16b-3, include the number of shares surrendered by a Participant or retained by the Company in payment of Applicable Withholding Taxes. 5. ELIGIBILITY. (a) Any employee of the Company or a Subsidiary who, in the judgment of the Committee, has contributed or can be expected to contribute to the profits or growth of the Company shall be eligible to receive Awards under the Plan. Directors of the Company who are employees and are not members of the Committee are eligible to participate in the Plan. Awards of Deferred Stock may only be granted to employees who are management or highly compensated employees of the Company, a parent or a Subsidiary. The Committee shall have the power and complete discretion, as provided in Section 17, to select eligible employees to receive Awards and to determine for each -5- employee the terms, conditions and nature of the Award and the number of shares to be allocated to each employee as part of the Award. The Committee is expressly authorized to make an Award to a Participant conditioned upon the surrender for cancellation of an existing Award. (b) The grant of an Award shall not obligate the Company or any Subsidiary to pay an employee any particular amount of remuneration, to continue the employment of the employee after the grant or to make further grants to the employee at any time thereafter. 6. STOCK OPTIONS. (a) Whenever the Committee deems it appropriate to grant Options, notice shall be given to the eligible employee stating the number of shares for which Options are granted, the Option price per share, whether the Options are Incentive Stock Options or Nonstatutory Stock Options, and the conditions to which the grant and exercise of the Options are subject. This notice, when duly accepted in writing by the Participant, shall become a stock option agreement between the Company and the Participant. (b) The Committee shall establish the exercise price of Options. The exercise price of a Nonstatutory Stock Option shall be not less than 85% of the Fair Market Value of the shares of Company Stock covered by the Option on the Date of Grant. The exercise price of an Incentive Stock Option shall be not less than 100% of the Fair Market Value of such shares on the Date of Grant; provided that if the Participant is a 10% Shareholder, the exercise price of an Incentive Stock Option shall be not less than 110% of the Fair Market Value of such shares on the Date of Grant. (c) An employee may not receive awards of Options under the Plan with respect to more than 200,000 shares of Company Stock during any 12-month period. (d) Options may be exercised in whole or in part at such times as may be specified by the Committee in the Participant's stock option agreement. The Committee may impose such vesting conditions and other requirements as the Committee deems -6- appropriate, and the Committee may include such provisions regarding a Change of Control or Corporate Change as the Committee deems appropriate. (e) The Committee shall establish the term of each Option in the Participant's stock option agreement. The term of an Incentive Stock Option shall not be longer than ten years from the Date of Grant, except that an Incentive Stock Option granted to a 10% Shareholder may not have a term in excess of five years. No Option may be exercised after the expiration of its term or, except as set forth in the Participant's stock option agreement, after the termination of the Participant's employment. The Committee shall set forth in the Participant's stock option agreement when, and under what circumstances, an Option may be exercised after termination of the Participant's employment. (f) An Incentive Stock Option, by its terms, shall be exercisable in any calendar year only to the extent that the aggregate Fair Market Value (determined at the Date of Grant) of the Company Stock with respect to which Incentive Stock Options are exercisable by the Participant for the first time during the calendar year does not exceed $100,000 (the "Limitation Amount"). Incentive Stock Options granted after 1986 under the Plan and all other plans of the Company and any parent or Subsidiary of the Company shall be aggregated for purposes of determining whether the Limitation Amount has been exceeded. The Board may impose such conditions as it deems appropriate on an Incentive Stock Option to ensure that the foregoing requirement is met. If Incentive Stock Options that first become exercisable in a calendar year exceed the Limitation Amount, the excess Options will be treated as Nonstatutory Stock Options to the extent permitted by law. (g)If a Participant dies and if the Participant's stock option agreement provides that part or all of the Option may be exercised after the Participant's death, then such portion may be exercised by the personal representative of the Participant's estate during the time period specified in the stock option agreement. -7- (h) The Committee may, in its discretion, grant Options containing a Reload Feature as described in Section 10(b) and may amend previously granted Nonstatutory Stock Options to provide such a Reload Feature. 7. RESTRICTED STOCK AWARDS. (a) Whenever the Committee deems it appropriate to grant a Restricted Stock Award, notice shall be given to the Participant stating the number of shares of Restricted Stock for which the Award is granted and the terms and conditions to which the Award is subject. This notice, when accepted in writing by the Participant, shall become an Award agreement between the Company and the Participant. Certificates representing the shares shall be issued in the name of the Participant, subject to the restrictions imposed by the Plan and the Committee. A Restricted Stock Award may be made by the Committee in its discretion without cash consideration. (b) The Committee may place such restrictions on the transferability and vesting of Restricted Stock as the Committee deems appropriate, including restrictions relating to continued employment and financial performance goals. Without limiting the foregoing, the Committee may provide performance acceleration parameters under which all, or a portion, of the Restricted Stock will vest on the Company's achievement of established performance objectives. Restricted Stock may not be sold, assigned, transferred, disposed of, pledged, hypothecated or otherwise encumbered until the restrictions on such shares shall have lapsed or shall have been removed pursuant to subsection (c) below. (c) The Committee may provide in a Restricted Stock Award, or subsequently, that the restrictions will lapse if a Change of Control or Corporate Change occurs. The Committee may at any time, in its sole discretion, accelerate the time at which any or all restrictions will lapse or may remove restrictions on Restricted Stock as it deems appropriate. -8- (d) A Participant shall hold shares of Restricted Stock subject to the restrictions set forth in the Award agreement and in the Plan. In other respects, the Participant shall have all the rights of a shareholder with respect to the shares of Restricted Stock, including, but not limited to, the right to vote such shares and the right to receive all cash dividends and other distributions paid thereon. Certificates representing Restricted Stock shall bear a legend referring to the restrictions set forth in the Plan and the Participant's Award agreement. If stock dividends are declared on Restricted Stock, such stock dividends or other distributions shall be subject to the same restrictions as the underlying shares of Restricted Stock. 8. INCENTIVE STOCK AWARDS. (a) Incentive Stock may be issued pursuant to the Plan in connection with incentive programs established from time to time by the Committee. The Committee shall establish such performance criteria as it deems appropriate as a prerequisite for the issuance of Incentive Stock. A Participant who is eligible to receive Incentive Stock will have no rights as a shareholder before receipt of the Incentive Stock certificates. Incentive Stock may be issued without cash consideration. A Participant's interest in an incentive program may not be sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered. (b) The Committee may provide in the incentive program, or subsequently, that Incentive Stock will be issued if a Change of Control or Corporate Change occurs, even though the performance goals set by the Committee have not been met. 9. DEFERRED STOCK AWARDS. (a) The Committee may make Deferred Stock Awards as the Committee deems appropriate. The value of a Deferred Stock Award shall be converted as of the Date of Grant into hypothetical shares of Company Stock valued at the Fair Market Value of the Company Stock as of the Date of Grant. The Company shall establish a book account on its records for the Participant and shall credit to the Participant's book -9- account the number of hypothetical shares of Company Stock granted pursuant to the Award. No actual shares of Company Stock or other certificates shall be issued when an Award is granted. Deferred Stock may be issued without cash consideration. A Participant's interest in Deferred Stock may not be sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered. (b) Each Participant's book account shall be adjusted to take into account cash dividends that are declared on Company Stock. The Committee shall determine the amount of cash dividends that are declared as of each record date with respect to shares of Company Stock equal to the number of hypothetical shares of Company Stock that are credited to the Participant's book account as of the record date. The total dividends shall then be converted into hypothetical shares of Company Stock by dividing the amount of the dividends by the Fair Market Value of the Company Stock as of the record date, and the nearest number of hypothetical shares of Company Stock so determined shall be credited to the Participant's book account. Each Participant's book account shall be adjusted to take into account any stock dividends or other non-cash distributions pursuant to Section 16. (c) The Committee shall establish such vesting provisions and other conditions with respect to Deferred Stock Awards as the Committee deems appropriate. (d) When the Committee determines that a Deferred Stock Award is to be made, the Committee shall give the Participant an opportunity to elect, from the forms of payment described below, the form in which the amount credited to his book account is to be paid. The Participant must make the election in writing when he is first notified that he will be granted a Deferred Stock Award. The election shall be irrevocable and may not be modified by the Participant. The forms of payment are as follows: (i) The Participant may elect the pre-retirement form of payment, under which the amount credited to his book account will be paid to him in increments as it becomes vested. -10- (ii) The Participant may elect the post-retirement form of payment, under which the amount credited to his book account will be paid to him in substantially equal annual installments after his retirement from the Company and its Subsidiaries at or after age 65. At the time the Participant makes the election, the Participant shall designate the period over which the installment payments will be made. The Committee will have discretion to modify the form of installment payment designated by the Participant, if the Committee deems such a modification to be appropriate. If a Participant elects the post-retirement form of payment and dies after the installment payments begin, the remaining installments will be paid to the Participant's beneficiary. All elections under this subsection shall be made subject to the provisions of Section 11. (e) If a Participant dies or otherwise terminates employment, any portion of the Participant's vested interest in his book account that has not previously been distributed shall be paid to the Participant (or, in the case of his death, to his beneficiary) as follows: (i) Unless the Committee determines otherwise, if (x) the Participant's termination of employment occurs because he retires at or after age 50, dies or becomes disabled and (y) the Participant elected the post-retirement form of payment, the Participant's vested interest in his book account shall be paid in the manner selected by the Participant pursuant to subsection (d) above, commencing at a date determined by the Committee (which may be earlier than the Participant's 65th birthday). (ii) In all other cases, the vested amount shall be paid in a lump sum payment or in installments, as the Committee deems appropriate. (f) If a Participant retires from employment with the Company and its Subsidiaries at or after age 65 or on account of early retirement, as determined by the Committee, or if a Participant dies while he is employed by the Company or a Subsidiary, the -11- Participant's interest in his book account shall be fully vested. The Committee may specify in a Participant's Deferred Stock Agreement other circumstances that will cause a Participant's interest in the book account to become fully vested. Except as provided above or in the Participant's Deferred Stock Award agreement, a Participant's nonvested interest in his book account shall be forfeited if his employment terminates for any reason before early retirement, as specified by the Committee. (g) When payment of a Deferred Stock benefit is to be made, the Committee shall determine whether payment shall be made in whole shares of Company Stock equal to the number of hypothetical whole shares of Company Stock to be distributed or in a combination of whole shares of Company Stock and cash, in such proportions as the Committee deems appropriate. When a payment is made partly in cash, the hypothetical shares of Company Stock then credited to the Participant's book account shall be valued, for purposes of the payment, at the Fair Market Value of Company Stock at the time the payment is made. The Committee shall have sole discretion to determine the form of payment. Applicable Withholding Taxes shall automatically be withheld from all payments. 10. METHOD OF EXERCISE OF OPTIONS. (a) Options may be exercised by giving written notice of the exercise to the Company, stating the number of shares the Participant has elected to purchase under the Option. Such notice shall be effective only if accompanied by the exercise price in full in cash; provided that, if the terms of an Option so permit, the Participant may deliver Company Stock that the Participant has owned for at least six months (valued at Fair Market Value on the date of exercise), or cause shares of Company Stock (valued at their Fair Market Value on the date of exercise) to be withheld in satisfaction of all or any part of the exercise price, deliver a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company, from the sale or loan proceeds with respect to the sale of Company Stock or a loan secured by Company Stock, the amount necessary to pay the exercise price and, if required by the -12- Committee, Applicable Withholding Taxes, or deliver an interest bearing promissory note, payable to the Company, in payment of all or part of the exercise price, together with such collateral and subject to such terms as may be required by the Committee at the time of exercise. The interest rate under any such promissory note shall be equal to the minimum interest rate required at the time to avoid imputed interest to the Participant under the Code. (b) If a Participant exercises an Option that has a Reload Feature by delivering already owned shares of Company Stock, the Participant shall automatically be granted a Reload Option. The Reload Option shall be subject to the following provisions: (i) The Reload Option shall cover the number of shares of Company Stock delivered by the Participant to exercise the Option; (ii) The Reload Option will not have a Reload Feature; (iii)The exercise price of shares of Company Stock covered by a Reload Option shall be not less than 100% of the Fair Market Value of such shares on the date the Participant delivers shares of Company Stock to exercise the Option; and (iv) The Reload Option shall be subject to the same restrictions on exercisability as those imposed on the underlying Option and such other restrictions as the Committee deems appropriate. (c) Notwithstanding anything herein to the contrary, Awards shall always be granted and exercised in such a manner as to conform to the provisions of Rule 16b-3. 11. DEFERRAL OF PAYMENT. (a) The Committee may provide in an Award agreement that payment of a Participant's benefit under the Plan shall be deferred if and to the extent that the sum of the Participant's Plan benefit, plus all other compensation paid or payable to the -13- Participant for the fiscal year in which the Plan benefit would otherwise be paid exceeds the maximum amount of compensation that the Company may deduct under Code section 162(m) with respect to the Participant for the year. The Committee may provide in an Award agreement that a benefit deferred pursuant to this Section shall be paid in the first fiscal year of the Company in which the sum of the Participant's Plan benefit and all other compensation paid or payable to the Participant does not exceed the maximum amount of compensation deductible by the Company under Code section 162(m). This Section shall only apply to Participants and Plan benefits covered by Code section 162(m). (b) The Committee may defer payment of part or all of a Plan benefit with respect to a Participant who is an Insider, to the extent necessary or appropriate to comply with Rule 16b-3. (c) The Committee shall have sole discretion to determine whether and to what extent Plan benefits are to be deferred pursuant to this Section, how such deferred amounts are to be calculated and when deferred amounts shall be paid. The Committee's determination shall be final and binding. 12. APPLICABLE WITHHOLDING TAXES. Each Participant shall agree, as a condition of receiving an Award, to pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, all Applicable Withholding Taxes with respect to the Award. Until the Applicable Withholding Taxes have been paid or arrangements satisfactory to the Company have been made, no stock certificates (or, in the case of Restricted Stock, no stock certificates free of a restrictive legend) shall be issued to the Participant. As an alternative to making a cash payment to the Company to satisfy Applicable Withholding Tax obligations, the Committee may establish procedures permitting the Participant to elect to deliver shares of already owned Company Stock or have the Company retain that number of shares of Company Stock that would satisfy all or a specified portion of the Applicable Withholding Taxes. Any such election shall be made -14- only in accordance with procedures established by the Committee and, in the case of an Insider, in accordance with Rule 16b-3. 13. NONTRANSFERABILITY OF AWARDS. (a) Awards, by their terms, shall not be transferable by the Participant except by will or by the laws of descent and distribution or except as described below. Options shall be exercisable, during the Participant's lifetime, only by the Participant or by his guardian or legal representative. (b) The Committee may grant Nonstatutory Stock Options that permit a Participant to transfer the Options to one or more immediate family members, to a trust for the benefit of immediate family members or to a partnership whose only partners are immediate family members. Consideration may not be paid for the transfer of Options. The transferee of an Option shall be subject to all conditions applicable to the Option prior to its transfer. The agreement granting the Option shall set forth the transfer conditions and restrictions. The Committee may impose on any transferable Option and on stock issued upon the exercise of an Option such limitations and conditions as the Committee deems appropriate. Except to the extent otherwise permitted by Rule 16b-3, Options that are intended to be exempt from Section 16(b) of the Act pursuant to Rule 16b-3 may not be transferable except by will or by the laws of descent and distribution. 14. EFFECTIVE DATE OF THE PLAN. This Plan shall be effective as of the record date of the distribution of shares of Company Stock by James River to its shareholders. 15. TERMINATION, MODIFICATION, CHANGE. If not sooner terminated by the Board, this Plan shall terminate at the close of business on August 1, 2005. No Awards shall be made under the Plan after its termination. The Board may terminate the Plan or may amend the Plan in such respects as it shall deem advisable; provided, that, if and to the extent required by Rule 16b-3, no change shall be made that increases the total number of shares of Company Stock reserved for issuance pursuant to Awards granted under the Plan (except pursuant to -15- Section 16), expands the class of persons eligible to receive Awards, or materially increases the benefits accruing to Participants under the Plan, unless such change is authorized by the shareholders of the Company. Notwithstanding the foregoing, the Board may unilaterally amend the Plan and Awards as it deems appropriate to ensure compliance with Rule 16b-3 and to cause Incentive Stock Options to meet the requirements of the Code and regulations thereunder. Except as provided in the preceding sentence, a termination or amendment of the Plan shall not, without the consent of the Participant, adversely affect a Participant's rights under an Award previously granted to him. CHANGE IN CAPITAL STRUCTURE. (a) In the event of a stock dividend, stock split or combination of shares, spin-off, reclassification, recapitalization, merger or other change in the Company's capital stock (including, but not limited to, the creation or issuance to shareholders generally of rights, options or warrants for the purchase of common stock or preferred stock of the Company), the number and kind of shares of stock or securities of the Company to be issued under the Plan (under outstanding Awards and Awards to be granted in the future), the exercise price of Options, and other relevant provisions shall be appropriately adjusted by the Committee, whose determination shall be binding on all persons. If the adjustment would produce fractional shares with respect to any Award, the Committee may adjust appropriately the number of shares covered by the Award so as to eliminate the fractional shares. (b) In the event the Company distributes to its shareholders a dividend, or sells or causes to be sold to a person other than the Company or a Subsidiary or affiliate shares of stock in any corporation (a "Spinoff Company") which, immediately before the distribution or sale, was a majority owned Subsidiary of the Company, the Committee shall have the power, in its sole discretion, to make such adjustments as the Committee deems appropriate. The Committee may make adjustments in the number and kind of shares or other securities to be issued under the Plan (under outstanding Awards and Awards to be granted in the future), the exercise price of Options, and other relevant -16- provisions, and, without limiting the foregoing, may substitute securities of a Spinoff Company for securities of the Company. The Committee shall make such adjustments as it determines to be appropriate, considering the economic effect of the distribution or sale on the interests of the Company's shareholders and the Participants in the businesses operated by the Spinoff Company. The Committee's determination shall be binding on all persons. If the adjustment would produce fractional shares with respect to any Award, the Committee may adjust appropriately the number of shares covered by the Award so as to eliminate the fractional shares. (c) If a Change of Control or Corporate Change occurs, the Committee may take such actions with respect to outstanding Awards as the Committee deems appropriate. These actions may include, but shall not be limited to, accelerating the vesting and payment of Awards, releasing restrictions on Awards, and accelerating the expiration dates of Options. The effectiveness of such acceleration or release of restrictions shall be conditioned upon the consummation of the applicable Change of Control or Corporate Change. (d) Notwithstanding anything in the Plan to the contrary, the Committee may take the foregoing actions without the consent of any Participant, and the Committee's determination shall be conclusive and binding on all persons for all purposes. The Committee shall make its determinations consistent with Rule 16b-3 and the applicable provisions of the Code. 17. ADMINISTRATION OF THE PLAN. (a) The Plan shall be administered by a Committee consisting of two or more outside directors of the Company, who shall be appointed by the Board. The Board may designate the Compensation Committee of the Board, or a subcommittee of the Compensation Committee, to be the Committee for purposes of the Plan. If and to the extent required by Rule 16b-3, all members of the Committee shall be "disinterested persons" as that term is defined in Rule 16b-3, and the Committee shall be comprised solely of two or more "outside directors" as that term is defined for purposes of Code -17- section 162(m). If any member of the Committee fails to qualify an "outside director" or (to the extent required by Rule 16b-3) a "disinterested person," such person shall immediately cease to be a member of the Committee and shall not take part in future Committee deliberations. The Committee from time to time may appoint members of the Committee and may fill vacancies, however caused, in the Committee. (b) The Committee shall have the authority to impose such limitations or conditions upon an Award as the Committee deems appropriate to achieve the objectives of the Award and the Plan. Without limiting the foregoing and in addition to the powers set forth elsewhere in the Plan, the Committee shall have the power and complete discretion to determine which eligible employees shall receive an Award and the nature of the Award, the number of shares of Company Stock to be covered by each Award, whether Options shall be Incentive Stock Options or Nonstatutory Stock Options, whether to include a Reload Feature in an Option and the conditions of any Reload Feature, the Fair Market Value of Company Stock, the time or times when an Award shall be granted, whether an Award shall become vested over a period of time, according to a performance-based vesting schedule or otherwise, and when it shall be fully vested, the terms and conditions under which restrictions imposed upon an Award shall lapse, whether a Change of Control or Corporate Change exists, the terms of incentive programs, performance criteria and other factors relevant to the issuance of Incentive Stock or the lapse of restrictions on Restricted Stock, Deferred Stock or Options, when Options may be exercised, whether to approve a Participant's election with respect to Applicable Withholding Taxes, conditions relating to the length of time before disposition of Company Stock received in connection with an Award is permitted, notice provisions relating to the sale of Company Stock acquired under the Plan, and any additional requirements relating to Awards that the Committee deems appropriate. Notwithstanding the foregoing, no "tandem stock options" (where two stock options are issued together and the exercise of one option affects the right to exercise the other option) may be issued in connection with Incentive Stock Options. -18- (c) When granting Awards to employees of a foreign Subsidiary, the Committee shall have complete discretion and authority to grant such Awards in accordance with all present and future applicable laws. (d) The Committee shall have the power to amend the terms of previously granted Awards so long as the terms as amended are consistent with the terms of the Plan and, where applicable, consistent with the qualification of an Option as an Incentive Stock Option. The consent of the Participant must be obtained with respect to any amendment that would adversely affect the Participant's rights under the Award, except that such consent shall not be required if such amendment is for the purpose of complying with Rule 16b-3 or any requirement of the Code applicable to the Award. (e) The Committee may adopt rules and regulations for carrying out the Plan. The Committee shall have the express discretionary authority to construe and interpret the Plan and the Award agreements, to resolve any ambiguities, to define any terms, and to make any other determinations required by the Plan or an Award agreement. The interpretation and construction of any provisions of the Plan or an Award agreement by the Committee shall be final and conclusive. The Committee may consult with counsel, who may be counsel to the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. (f) A majority of the members of the Committee shall constitute a quorum, and all actions of the Committee shall be taken by a majority of the members present. Any action may be taken by a written instrument signed by all of the members, and any action so taken shall be fully effective as if it had been taken at a meeting. 18. ISSUANCE OF COMPANY STOCK. The Company shall not be required to issue or deliver any certificate for shares of Company Stock before (i) the admission of such shares to listing on any stock exchange on which the Company Stock may then be listed, or listing of such shares for trading on the Nasdaq National Market System, (ii) receipt of any required registration or other qualification of such shares under any state or federal law or regulation that the Company's counsel shall determine is necessary or advisable, and (iii) -19- the Company shall have been advised by counsel that all applicable legal requirements have been complied with. The Company may place on a certificate representing Company Stock any legend required to reflect restrictions pursuant to the Plan, and any legend deemed necessary by the Company's counsel to comply with federal or state securities laws. The Company may require a customary written indication of a Participant's investment intent. Until a Participant has been issued a certificate for the shares of Company Stock acquired, the Participant shall possess no shareholder rights with respect to the shares. 19. CLAIMS PROCEDURE. (a) Each Participant shall be entitled to file with the Committee a written claim for benefits under the Plan. The Committee will review the claim. If the claim is denied, in whole or in part, the Committee will furnish the claimant, within 90 days after the Committee's receipt of the claim (or within 180 days after such receipt, if special circumstances require an extension of time), a written notice of denial of the claim containing specific reasons for the denial, specific reference to the pertinent provisions on which the denial is based, a description of any additional material or information necessary for the claimant to perfect the claim, and an explanation of why the material or information is necessary, and an explanation of the claims review procedure. (b) The claimant may request a review of the claim denial by an appeals committee appointed by the Board. The review may be requested in writing at any time within 90 days after the claimant receives written notice of the denial of the claim. The appeals committee shall afford the claimant a full and fair review of the decision denying the claim and, if so requested, shall permit the claimant to review any documents that are pertinent to the claim, permit the claimant to submit to the committee issues and comments in writing, and afford the claimant an opportunity to meet with a quorum of the committee as part of the review procedure. The committee's decision on review shall be made in writing and shall be issued within 60 days following receipt of the -20- request for review. The period for a decision may be extended to a date not later than 120 days after such receipt if the committee determines that special circumstances require an extension. The decision on review shall include specific reasons for the decision and specific references to the Plan provisions on which the decision of the committee is based. 20. RIGHTS UNDER THE PLAN. Title to and beneficial ownership of all benefits described in the Plan shall at all times remain with the Company. Participation in the Plan and the right to receive payments under the Plan shall not give a Participant any proprietary interest in the Company or any Subsidiary or any of their assets. No trust fund shall be created in connection with the Plan, and there shall be no required funding of amounts that may become payable under the Plan. A Participant shall, for all purposes, be a general creditor of the Company. The interest of a Participant in the Plan cannot be assigned, anticipated, sold, encumbered or pledged and shall not be subject to the claims of his creditors. 21. BENEFICIARY. A Participant may designate, on a form provided by the Committee, one or more beneficiaries to receive any payments under Awards of Restricted Stock, Deferred Stock or Incentive Stock after the Participant's death. If a Participant makes no valid designation, or if the designated beneficiary fails to survive the Participant or otherwise fails to receive the benefits, the Participant's beneficiary shall be the first of the following persons who survives the Participant: the Participant's surviving spouse, the Participant's surviving descendants, PER STIRPES, or the personal representative of the Participant's estate. 22. NOTICE. All notices and other communications required or permitted to be given under this Plan shall be in writing and shall be deemed to have been duly given if delivered personally or mailed first class, postage prepaid, as follows (a) if to the Company - at its principal business address to the attention of the Secretary; (b) if to any Participant - at the last address of the Participant known to the sender at the time the notice or other communication is sent. -21- 23. INTERPRETATION. The terms of this Plan are subject to all present and future regulations and rulings of the Secretary of the Treasury or his delegate relating to the qualification of Incentive Stock Options under the Code, to the extent applicable, and they are subject to all present and future rulings of the Securities Exchange Commission with respect to Rule 16b-3. If any provision of the Plan conflicts with any such regulation or ruling, to the extent applicable, that provision of the Plan shall be void and of no effect. IN WITNESS WHEREOF, the Company has caused this Plan to be executed this 20th day of June, 1996. CROWN VANTAGE INC. By /CHRISTOPHER M. MCLAIN/ ----------------------- Christopher M. McLain Senior Vice President and General Counsel, Corporate Secretary -22- -----END PRIVACY-ENHANCED MESSAGE-----