suppl
Filed pursuant to General Instruction II.L of Form F-10;
File No. 333-124781
Prospectus supplement
(To prospectus dated May 17, 2005)
US$400,000,000
71/8%
Notes due 2015
Interest payable February 15 and August 15
Issue Price: 99.904%
We are offering US$400,000,000 aggregate principal amount of our
71/8%
notes due August 15, 2015. We will pay interest on the
notes semi-annually in arrears on February 15 and
August 15 of each year, beginning on February 15,
2006. We may redeem some or all of the notes at any time at the
redemption prices described on page S-17. In the event of
certain changes affecting Canadian withholding taxes, the notes
may be redeemed at our option, in whole but not in part, at 100%
of their principal amount plus accrued and unpaid interest to
the date of redemption.
The notes will rank equally with all of our other unsecured,
unsubordinated obligations from time to time outstanding. The
notes will be effectively subordinated to all existing and
future indebtedness and other liabilities of Domtars
subsidiaries.
See Risk factors beginning on page S-12 of
this prospectus supplement, as well as the risk factors
discussed in the accompanying prospectus and the documents
incorporated by reference in this prospectus supplement and the
accompanying prospectus for a discussion of certain risks that
you should consider in connection with an investment in the
notes.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus supplement and the accompanying prospectus. Any
representation to the contrary is a criminal offense.
We are permitted, under a multijurisdictional disclosure
system adopted by the United States and Canada, to prepare this
prospectus supplement and the accompanying prospectus in
accordance with Canadian disclosure requirements, which are
different from United States disclosure requirements. We prepare
our financial statements, which are incorporated by reference
herein, in accordance with Canadian generally accepted
accounting principles, and they are subject to Canadian auditing
and auditor independence standards. As a result, they may not be
comparable to financial statements of United States
companies.
Owning the notes may subject you to tax consequences both in
the United States and Canada. This prospectus supplement may not
describe these tax consequences fully. You should read the tax
discussion contained in this prospectus supplement.
Your ability to enforce civil liabilities under the United
States federal securities laws may be affected adversely because
we are incorporated under the laws of Canada, most of our
officers and directors and some of the experts named in this
prospectus supplement and the accompanying prospectus are
Canadian residents, and certain of our assets and the assets of
those officers, directors and experts are located in Canada.
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Public offering |
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Underwriting |
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Proceeds, before |
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price(1) |
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fee |
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expenses, to Domtar |
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Per Note
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99.904% |
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1.000% |
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98.904% |
Total
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US$399,616,000 |
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US$4,000,000 |
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US$395,616,000 |
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(1) |
Plus accrued interest, if any, from August 5, 2005 if
settlement occurs after that date. |
The notes will not be listed on any securities exchange.
Currently, there is no public market for the notes.
We expect that delivery of the notes will be made to investors
in book-entry form through The Depository Trust Company on
or about August 5, 2005.
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Joint book-running managers |
JPMorgan |
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Citigroup |
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Co-managers |
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CIBC World Markets |
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Harris Nesbitt |
Putnam Lovell NBF Securities |
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RBC Capital Markets |
Scotia Capital |
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TD Securities |
Banc of America Securities LLC |
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Desjardins Securities International Inc. |
Deutsche Bank Securities |
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Morgan Stanley |
UBS Investment Bank |
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BNP PARIBAS |
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Rabo Securities USA, Inc. |
August 2, 2005
Table of contents
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Prospectus supplement
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Prospectus
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A-1 |
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About this prospectus supplement
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of the notes we are
offering and also adds to the information contained in the
accompanying prospectus and the documents incorporated by
reference in the accompanying prospectus. The second part is the
accompanying prospectus of Domtar dated May 17, 2005, or
the prospectus, which gives more general information, some of
which may not apply to this offering.
If the description of the notes varies between this
prospectus supplement and the prospectus, you should rely on the
information in this prospectus supplement.
In making your investment decision, you should rely only on
the information contained or incorporated by reference in this
prospectus supplement and the prospectus. We have not, and the
underwriters have not, authorized any other person to provide
you with different or additional information. If anyone provides
you with different or additional information, you should not
rely on it. We are not, and the underwriters are not, making an
offer to sell the notes in any jurisdiction where the offer or
sale is not permitted. You should assume that the information
appearing in this prospectus supplement, the prospectus and the
documents incorporated by reference is accurate only as of their
respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.
Unless otherwise specified or the context otherwise requires, in
this prospectus supplement, Domtar, we,
us and our refer to Domtar Inc., its
subsidiaries, its 50% investment interest in Norampac Inc. and
its other joint ventures. In this prospectus supplement, unless
otherwise indicated, all dollar amounts are expressed in, and
the term dollars and the symbol $ refer
to, Canadian dollars. The term US dollars and the
symbol US$ refer to United States dollars. Except as
otherwise indicated, all financial statements and financial data
contained in this prospectus supplement and in the documents
incorporated by reference in this prospectus supplement have
been prepared in accordance with Canadian generally accepted
accounting principles, or Canadian GAAP, which may differ from
United States generally accepted accounting principles, or US
GAAP.
The notes have not been and will not be qualified for sale under
the securities laws of Canada or any province or territory of
Canada. The notes are not being offered for sale and may not be
offered or sold, directly or indirectly, in Canada or to any
resident thereof, in violation of the securities laws of Canada
or any province or territory of Canada.
S-2
Documents incorporated by reference
This prospectus supplement is deemed, as of the date hereof, to
be incorporated by reference into the prospectus only for the
purposes of the offering of the notes. Other documents are also
incorporated or deemed to be incorporated by reference into the
prospectus and reference should be made to the prospectus for
full details. The documents listed under the heading
Documents Incorporated by Reference in the
prospectus are specifically incorporated by reference in, and
form an integral part of, this prospectus supplement. Material
change reports (excluding confidential material change reports),
interim or annual consolidated financial statements, including
comparative interim consolidated financial statements and
comparative consolidated financial statements for Domtar
Inc.s more recently completed financial year, together
with the accompanying report of Domtar Inc.s auditors, any
exhibits to interim and annual consolidated financial statements
containing updated earnings coverage information and any
information circulars of Domtar Inc. filed by Domtar Inc. with
the various securities regulatory authorities in Canada after
the date of this prospectus supplement and prior to the
completion or withdrawal of any offering hereunder, shall be
deemed to be incorporated by reference into this prospectus
supplement.
Any statement contained in the prospectus, in this prospectus
supplement or in any other document incorporated or deemed to be
incorporated by reference in the prospectus for the purposes of
the offering of the notes shall be deemed to be modified or
superseded for purposes of the prospectus, to the extent that a
statement contained in this prospectus supplement or in any
other subsequently filed document which also is or is deemed to
be incorporated by reference in the prospectus for the purposes
of the offering of the notes modifies or supersedes that
statement. The modifying or superseding statement need not state
that it has modified or superseded a prior statement or include
any other information set forth in the document that it modifies
or supersedes. The making of a modifying or superseding
statement shall not be deemed an admission for any purposes that
the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that is required to be stated
or that is necessary to make a statement not misleading in light
of the circumstances in which it was made. Any statement so
modified or superseded shall not constitute a part of the
prospectus or this prospectus supplement, except as so modified
or superseded.
Forward-looking statements
This prospectus supplement, and the documents incorporated by
reference in this prospectus supplement, may contain
forward-looking statements relating to trends in, or
representing managements beliefs about, Domtars
future growth, results of operations, performance and business
prospects and opportunities. These forward-looking statements
are generally denoted by the use of words such as
anticipate, believe, expect,
intend, aim, target,
plan, continue, estimate,
may, will, should and
similar expressions. These statements reflect managements
current beliefs and are based on information currently available
to management. Forward-looking statements are necessarily based
upon a number of estimates and assumptions that, while
considered reasonable by management, are inherently subject to
known and unknown risks and uncertainties such as, but not
limited to, general economic and business conditions, product
selling prices, raw material and operating costs, changes in
foreign currency exchange rates, our ability to integrate
acquired businesses into our existing operations, the ability to
realize anticipated cost savings, the performance of
S-3
operations, and other factors referenced herein and in
Domtars continuous disclosure filings. These factors
should be considered carefully and prospective investors should
not place undue reliance on the forward-looking statements.
Although the forward-looking statements contained in this
prospectus supplement, and the documents incorporated herein by
reference, are based upon what management believes to be
reasonable estimates and assumptions, Domtar cannot assure
prospective purchasers that actual results will not be
materially different from those expressed or implied by these
forward-looking statements. Domtar assumes no obligation to
update or revise these forward-looking statements to reflect new
events or circumstances. These risks, uncertainties and other
factors include, among other things, those discussed under
Risk factors in this prospectus supplement and the
accompanying prospectus as well as those discussed elsewhere in
the documents incorporated by reference in this prospectus
supplement and the accompanying prospectus.
Exchange rate data
The following table sets forth, for each period indicated, the
low and high exchange rates for one US dollar expressed in
Canadian dollars, the exchange rate at the end of such period
and the average of such exchange rates on the last day of each
month during such period, based on the Bank of Canada noon rate:
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Year Ended December 31, |
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2000 | |
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2001 | |
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2002 | |
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2003 | |
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2004 | |
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Low
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1.4341 |
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1.4936 |
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1.5110 |
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1.2924 |
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1.1774 |
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High
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1.5593 |
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1.6021 |
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1.6132 |
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1.5747 |
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1.3968 |
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Period End
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1.5002 |
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1.5926 |
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1.5796 |
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1.2924 |
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1.2036 |
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Average
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1.4850 |
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1.5484 |
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1.5704 |
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1.4015 |
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1.3015 |
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The following table sets forth, for each of the last six months,
the low and high exchange rates for one US dollar expressed in
Canadian dollars and the exchange rate at the end of the month
based on the Bank of Canada noon rate as described above:
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April | |
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June | |
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High
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1.2421 |
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1.2566 |
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1.2462 |
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1.2569 |
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1.2704 |
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1.2577 |
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Low
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1.1987 |
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1.2299 |
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1.2019 |
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1.2147 |
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1.2372 |
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1.2256 |
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End of Month
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1.2380 |
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1.2314 |
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1.2096 |
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1.2555 |
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1.2510 |
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1.2256 |
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On August 2, 2005, the Bank of Canada noon rate was $1.2125
= US$1.00
S-4
Prospectus summary
The following is a summary only and is qualified in its
entirety by, and should be read in conjunction with, the more
detailed information and financial statements appearing
elsewhere in this prospectus supplement and the accompanying
prospectus and in the documents incorporated by reference in
this prospectus supplement and the accompanying prospectus.
Domtar Inc.
Domtar Inc. was formed in 1929 under the laws of Canada and is
the third largest producer of uncoated freesheet paper in North
America. We are also a leading manufacturer of business papers,
commercial printing and publication papers, and technical and
specialty papers. We manage, according to internationally
recognized standards, 18 million acres of forestland in
Canada and the United States, and produce lumber and other wood
products. We have 10,000 employees across North America. We also
have a 50% investment interest in Norampac Inc., the largest
Canadian producer of containerboard.
Our reporting segments correspond to the following business
activities: Papers, Paper Merchants, Wood and Packaging.
Papers
We are the third largest integrated manufacturer and marketer of
uncoated freesheet paper in North America. We operate six pulp
and paper facilities in Canada and five in the United States,
with an annual paper production capacity of approximately
2.6 million tons, complemented by strategically located
warehouses and sales offices. Over 50% of our paper production
capacity is located in the United States and approximately 90%
of our paper sales are made to customers in the United States.
Uncoated and coated freesheet papers are used for business,
commercial printing and publication, and technical and specialty
applications.
We sell paper primarily through a large network of owned and
independent merchants that distribute our paper products
throughout North America. We also sell our products to a variety
of customers, including business offices, office equipment
manufacturers, retail outlets, commercial printers, publishers
and converters. In addition, we sell pulp in excess of our own
internal requirements. We also purchase pulp to optimize paper
production and reduce freight costs. For the first six months of
2005, our net market pulp position (shipments less purchases)
was approximately 295,000 tons.
Our Papers business is our most important segment, representing
55% of consolidated sales in the first six months of 2005, or
60% when including sales of Domtar paper through our own Paper
Merchants business.
Paper Merchants
Our Paper Merchants business comprises the purchasing,
warehousing, sale and distribution of various products made by
Domtar and other manufacturers. These products include business
and printing papers, graphic arts supplies and certain
industrial products. Domtar-owned paper merchants operate in the
United States and Canada under a single banner and umbrella
name, the Domtar Distribution Group, the fifth largest paper
merchant organization in North America. Ris Paper operates
throughout the Northeast, Mid-Atlantic and Midwest areas from 20
locations in the United States, including 16 distribution
centers. The Canadian business
S-5
operates as Buntin Reid in three locations in Ontario; JBR/ La
Maison du Papier in two locations in Quebec; and The Paper House
in two locations in Atlantic Canada. Our Paper Merchants
business represented 20% of consolidated sales in the first six
months of 2005, or 15% when excluding sales of Domtar paper.
Wood
Our Wood business comprises the manufacturing and marketing of
lumber and wood-based value-added products, and the management
of forest resources. We operate ten sawmills (six in Quebec and
four in Ontario, following the permanent closure of the
Chapleau, Ontario sawmill effective March 6, 2005) and one
remanufacturing facility (in Quebec), for an annual capacity of
approximately 1.1 billion board feet of lumber. We also
have investments in four businesses that produce wood products.
We seek to optimize 18 million acres of forestland directly
licensed or owned by us in Canada and the United States through
efficient management and the application of certified
sustainable forest management practices such that a continuous
supply of wood is available for future needs. Our Wood business
represented 12% of consolidated sales in the first six months of
2005.
Packaging
Our Packaging business comprises our 50% ownership interest in
Norampac, a joint venture between Domtar Inc. and Cascades Inc.
We do not manage the day-to-day operations of Norampac. The
Board of Directors of Norampac is composed of four
representatives each from Domtar Inc. and Cascades Inc. The
Chairman of the Board is proposed by Domtar Inc. and appointed
by the Board, while the President and Chief Executive Officer is
proposed by Cascades Inc. and appointed by the Board.
Norampacs debt is non-recourse to Domtar Inc. As required
by Canadian GAAP, we account for our 50% interest in Norampac
using the proportionate consolidation method.
Norampacs network of 25 corrugated packaging plants,
strategically located across Canada and the United States,
provides full-service packaging solutions and produces a broad
range of products. Norampacs eight containerboard mills
(located in Ontario, Quebec, British Columbia, New York State
and northern France), having a combined annual capacity of
approximately 1.6 million tons, directly or indirectly
supply essentially all the containerboard requirements of the
converting plants. Our Packaging business represented 13% of
consolidated sales in the first six months of 2005.
S-6
The offering
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Issuer |
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Domtar Inc. |
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Notes offered |
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US$400,000,000 aggregate principal amount of
71/8%
notes due August 15, 2015. |
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Interest |
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71/8%
per year, payable on February 15 and August 15 of each
year, commencing February 15, 2006. |
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Maturity |
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August 15, 2015. |
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Issue date |
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August 5, 2005. |
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Issue price |
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99.904%. |
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Ranking |
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The notes will be unsecured and unsubordinated obligations of
Domtar and will rank equally with all of Domtars other
unsecured, unsubordinated obligations outstanding from time to
time. Domtar conducts a substantial portion of its operations
through subsidiaries and the notes will be effectively
subordinated to all existing and future indebtedness and other
liabilities of Domtars subsidiaries. |
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Optional redemption |
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Domtar may redeem the notes, in whole or in part, at any time,
at the redemption prices described in this prospectus
supplement. See Description of the notes Optional
redemption. |
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Domtar may also redeem the notes in whole, but not in part, at
any time at 100% of principal amount of the notes, plus accrued
interest to the date of redemption, in the event of certain
changes affecting Canadian withholding taxes that would require
Domtar to pay additional amounts to holders of the
notes. See Description of the notes Redemption for
changes in withholding taxes. |
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Use of proceeds |
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Domtar intends to use the gross proceeds from the sale of the
notes to redeem its outstanding 8.75% notes due in August 2006
in an aggregate principal amount of US$150 million and the
balance to repay a substantial portion of its unsecured
revolving credit facility. See Use of proceeds. |
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Additional amounts |
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Any payments made by Domtar with respect to the notes will be
made without withholding or deduction for Canadian taxes unless
required by law. If Domtar is required by law to withhold or
deduct for Canadian taxes with respect to a payment to the
holders of notes, Domtar will pay the additional amount
necessary so that the net amount received by the holders of
notes after the withholding is not less than the amount that
they would have received in the absence of the withholding. See
Description of Debt Securities Payment of additional
amounts in the accompanying prospectus. |
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Form and settlement |
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Domtar will issue the notes in the form of one or more fully
registered global securities. We will deposit these global
securities in book-entry form with, or on behalf of, The
Depository Trust Company, which we refer to as the
Depositary, and register these |
S-7
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securities in the name of the Depositarys nominee. See
Description of the notes Book-entry system. |
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Minimum denomination |
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US$1,000 and integral multiples thereof. |
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No public market |
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The notes will be new securities for which there is no market.
Domtar cannot assure you that a liquid market for the notes will
develop or be maintained. |
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Risk factors |
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Investment in the notes involves certain risks. You should
carefully consider the information in this prospectus supplement
and the accompanying prospectus and in the documents
incorporated by reference in this prospectus supplement and the
accompanying prospectus before investing in the notes. See
Risk factors. |
Recent developments
Operating results
Our unaudited interim consolidated financial statements and the
related notes for the six months ended June 30, 2005
(including Managements Discussion and Analysis relating
thereto) and June 30, 2004 were filed with the United
States Securities and Exchange Commission and the
Autorité des marchés financiers in Canada on
July 27, 2005 and are incorporated herein by reference.
Credit rating downgrades
During the second quarter of 2005, we were downgraded by
Moodys Investors Service (Moodys), from
a Baa3 rating to a Ba2 rating, and by Standard &
Poors Rating Services (Standard &
Poors), from a BBB- rating to a BB+ rating. Both
Moodys and Standard & Poors have a
stable outlook with respect to our credit ratings.
Reductions in our credit ratings can impact our access to and
cost of capital and financial flexibility in the future.
S-8
Selected historical consolidated financial data
We have derived the following selected historical consolidated
financial data for the years ended December 31, 2002, 2003
and 2004 and as of December 31, 2003 and 2004 from our
audited consolidated financial statements. The consolidated
financial statements for the years ended December 31, 2002,
2003 and 2004 and as of December 31, 2003 and 2004
incorporated by reference in this prospectus supplement have
been audited by PricewaterhouseCoopers LLP.
We have derived the following selected historical consolidated
financial data for the six months ended June 30, 2005 and
2004 and as of June 30, 2005 from our unaudited interim
consolidated financial statements. In the opinion of management,
the unaudited interim consolidated financial statements include
all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the financial
information for such periods. Our historical results are not
necessarily indicative of the results that may be expected for
any future period or for a full year. You should read the
selected historical consolidated financial data in conjunction
with our audited consolidated financial statements and the
related notes and our unaudited interim consolidated financial
statements and the related notes and, in each case,
Managements Discussion and Analysis, all
incorporated by reference in this prospectus supplement.
Our consolidated financial statements are prepared in accordance
with Canadian GAAP, which differs in some respects from US GAAP.
For a discussion of the principal differences between Canadian
GAAP and US GAAP, see note 25 to our audited consolidated
financial statements.
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Six months | |
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ended June 30, | |
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Years ended December 31, | |
(In millions of Canadian dollars, except per share amounts) |
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2005 | |
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2004 | |
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2004 | |
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2003 | |
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2002 | |
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(unaudited) | |
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Operating results:
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Sales
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$ |
2,546 |
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$ |
2,571 |
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$ |
5,115 |
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$ |
5,167 |
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$ |
5,859 |
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Operating expenses
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Cost of sales
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2,159 |
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2,236 |
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4,381 |
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4,335 |
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4,686 |
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Selling, general and administrative
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128 |
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147 |
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306 |
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319 |
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329 |
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Amortization
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185 |
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185 |
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368 |
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385 |
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398 |
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Closure and restructuring costs
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16 |
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8 |
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48 |
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24 |
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63 |
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Impairment loss
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|
|
|
|
|
|
|
|
|
|
201 |
|
|
|
|
|
|
|
Net gains on disposals of property, plant and equipment
|
|
|
(7 |
) |
|
|
|
|
|
|
(37 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
2,481 |
|
|
|
2,576 |
|
|
|
5,066 |
|
|
|
5,262 |
|
|
|
5,475 |
|
|
|
|
Operating profit
(loss)(1)
|
|
|
65 |
|
|
|
(5 |
) |
|
|
49 |
|
|
|
(95 |
) |
|
|
384 |
|
Financing expenses
|
|
|
73 |
|
|
|
80 |
|
|
|
148 |
|
|
|
169 |
|
|
|
192 |
|
Amortization of deferred gain
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
(4 |
) |
|
|
(5 |
) |
|
|
|
Earnings (loss) before income taxes
|
|
|
(6 |
) |
|
|
(83 |
) |
|
|
(94 |
) |
|
|
(260 |
) |
|
|
197 |
|
Income tax expense (recovery)
|
|
|
(18 |
) |
|
|
(38 |
) |
|
|
(52 |
) |
|
|
(67 |
) |
|
|
56 |
|
|
|
|
Net earnings (loss)
|
|
|
12 |
|
|
|
(45 |
) |
|
|
(42 |
) |
|
|
(193 |
) |
|
|
141 |
|
Dividend requirements of preferred shares
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
Net earnings (loss) applicable to common shares
|
|
$ |
11 |
|
|
$ |
(46 |
) |
|
$ |
(43 |
) |
|
$ |
(195 |
) |
|
$ |
140 |
|
|
|
|
|
|
|
S-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Six months | |
|
|
|
|
ended June 30, | |
|
Years ended December 31, | |
(In millions of Canadian dollars, except per share amounts) |
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
|
(unaudited) | |
|
|
Net earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.05 |
|
|
$ |
(0.20 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.86 |
) |
|
$ |
0.62 |
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.05 |
|
|
$ |
(0.20 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.86 |
) |
|
$ |
0.61 |
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$ |
252 |
|
|
$ |
180 |
|
|
$ |
428 |
|
|
$ |
514 |
|
|
$ |
809 |
|
Capital expenditures
|
|
|
80 |
|
|
|
95 |
|
|
|
204 |
|
|
|
236 |
|
|
|
226 |
|
Weighted average number of common shares outstanding (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
229.5 |
|
|
|
228.4 |
|
|
|
228.7 |
|
|
|
227.3 |
|
|
|
227.2 |
|
|
Diluted
|
|
|
230.6 |
|
|
|
228.4 |
|
|
|
228.7 |
|
|
|
227.3 |
|
|
|
228.1 |
|
Amounts under U.S. GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$ |
4 |
|
|
$ |
(69 |
) |
|
$ |
(76 |
) |
|
$ |
(153 |
) |
|
$ |
218 |
|
|
|
|
|
|
|
|
Net earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.01 |
|
|
$ |
(0.31 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.68 |
) |
|
$ |
0.96 |
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.01 |
|
|
$ |
(0.31 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.68 |
) |
|
$ |
0.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(In millions of Canadian dollars) |
|
June 30, 2005 | |
| |
|
|
(unaudited) | |
Balance sheet data:
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
70 |
|
Property, plant and equipment
|
|
|
4,123 |
|
Total assets
|
|
|
5,763 |
|
Short-term bank indebtedness
|
|
|
29 |
|
Long-term
debt(5)
|
|
|
2,169 |
|
Shareholders equity
|
|
|
2,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Six Months | |
|
|
|
|
ended June 30, | |
|
Years ended December 31, | |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
Trade
shipments(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Papers (in thousands of
ST)(3)
|
|
|
1,253 |
|
|
|
1,322 |
|
|
|
2,562 |
|
|
|
2,499 |
|
|
|
2,613 |
|
Market pulp (in thousands of ADST)
|
|
|
302 |
|
|
|
409 |
|
|
|
808 |
|
|
|
769 |
|
|
|
789 |
|
Lumber (in millions of FBM)
|
|
|
584 |
|
|
|
495 |
|
|
|
1,009 |
|
|
|
999 |
|
|
|
1,037 |
|
Containerboard (in thousands of
ST)(4)
|
|
|
164 |
|
|
|
151 |
|
|
|
300 |
|
|
|
320 |
|
|
|
338 |
|
Corrugated containers (in millions of
SF)(4)
|
|
|
3,421 |
|
|
|
3,366 |
|
|
|
6,802 |
|
|
|
6,699 |
|
|
|
6,378 |
|
(1) Operating profit is a non-GAAP measure that is
determined by deducting cost of sales, selling, general and
administrative expenses (SG&A), amortization expense,
closure and restructuring costs, impairment loss and net gains
on disposal of property, plant and equipment from sales. EBITDA
(Earnings Before Interest (Financing Expenses), Taxes and
Amortization) is also a non-
S-10
GAAP measure and is determined by adding back amortization
expense, including portions related to specified items
(impairment losses and write-downs), financing expenses and
income taxes to net earnings. We focus on operating profit and
EBITDA as these measures enable us to compare our results
between periods without regard to debt service or income taxes
(for operating profit) and without regard to amortization (for
EBITDA). As such, we believe it would be useful for investors
and other users to be aware of these measures so they can better
assess our performance. Our operating profit and EBITDA measures
have no standardized meaning prescribed by GAAP and are not
necessarily comparable to similar measures presented by other
companies and therefore should not be considered in isolation.
The following table reconciles net earnings under Canadian GAAP
to EBITDA for the six months ended June 30, 2005 and 2004
and for the years ended December 31, 2004, 2003 and 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Six Months | |
|
|
|
|
ended June 30, | |
|
Years ended December 31, | |
(In millions of Canadian dollars) |
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
|
(unaudited) | |
|
|
Net earnings (loss)
|
|
$ |
12 |
|
|
$ |
(45 |
) |
|
$ |
(42 |
) |
|
$ |
(193 |
) |
|
$ |
141 |
|
Income tax expense (recovery)
|
|
|
(18 |
) |
|
|
(38 |
) |
|
|
(52 |
) |
|
|
(67 |
) |
|
|
56 |
|
Financing expenses
|
|
|
73 |
|
|
|
80 |
|
|
|
148 |
|
|
|
169 |
|
|
|
192 |
|
Amortization of deferred gain
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
(4 |
) |
|
|
(5 |
) |
Amortization
|
|
|
185 |
|
|
|
185 |
|
|
|
368 |
|
|
|
385 |
|
|
|
398 |
|
Impairment loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201 |
|
|
|
|
|
Closure and restructuring (portion related to fixed asset
write-downs)
|
|
|
2 |
|
|
|
|
|
|
|
11 |
|
|
|
23 |
|
|
|
27 |
|
|
|
|
EBITDA
|
|
$ |
252 |
|
|
$ |
180 |
|
|
$ |
428 |
|
|
$ |
514 |
|
|
$ |
809 |
|
|
|
|
|
|
|
(2) |
Figures represent shipments to external customers. |
|
(3) |
Figures exclude shipments made by our Paper Merchants business. |
|
(4) |
Figures represent 50% of Norampac trade shipments. |
|
(5) |
Includes the portion of long-term debt due within one year. |
S-11
Risk factors
You should carefully consider the risks and the other
information in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference in this
prospectus supplement and the accompanying prospectus before
investing in our notes. The risks and uncertainties described
below, in the accompanying prospectus and in the documents
incorporated by reference are not the only ones we may face.
Additional risks and uncertainties that we are unaware of, or
that we currently deem to be immaterial, may also become
important factors that affect us. If any of the following risks
actually occurs, our business, financial condition or results of
operations could be materially adversely affected, with the
result that the trading price of our notes could decline and you
could lose all or part of your investment.
We have significant indebtedness and may incur additional
indebtedness, which could adversely affect our financial health
and prevent us from fulfilling our obligations related to the
notes.
We currently have and after this offering will continue to have
a significant amount of indebtedness and significant debt
service obligations. As at June 30, 2005, after giving
effect to the offering of the notes and assuming the application
of net proceeds therefrom as described in this prospectus
supplement, we would have had $2,169 million of debt
(excluding intercompany debt and other liabilities, such as our
underfunded pension liability).
This degree of leverage could have important consequences to
you. For example, it could make it more difficult for us to
satisfy our obligations with respect to the notes and other
indebtedness; increase our vulnerability to adverse economic and
industry conditions; require us to dedicate a substantial
portion of cash from operations to the payment of debt service,
thereby reducing the availability of cash to fund working
capital, capital expenditures and other general corporate
purposes; limit our ability to obtain financing for working
capital, capital expenditures, acquisitions or general corporate
purposes; place us at a disadvantage compared to our competitors
that have less leverage; and limit our flexibility in planning
for, or reacting to, changes in our business and in the paper
and forest products industry. Despite our current level of
indebtedness, we may still be able to incur substantially more
indebtedness in the future. This would further exacerbate the
risk associated with our substantial indebtedness.
We may not generate sufficient cash flow to service all of
our obligations, including our obligations related to the notes,
and may be unable to refinance existing indebtedness.
Our ability to make payments on and to refinance our
indebtedness, including the notes, and to fund our operations,
working capital and capital expenditures, depends on our ability
to generate cash in the future. Our cash flow is subject to
general economic, industry, financial, competitive, operating,
regulatory and other factors that are beyond our control. Our
business may not generate cash flow in an amount sufficient to
enable us to repay our indebtedness, including the notes, or to
fund our other liquidity needs. Our earnings coverage ratio,
calculated in accordance with Canadian securities legislation,
was less than one-to-one for the twelve month period ended
June 30, 2005. See Earnings coverage.
We may need to refinance all or a portion of our indebtedness
and other obligations, including the notes, on or before
maturity. Our ability to refinance our indebtedness or obtain
additional financing will depend on, among other things: our
financial condition at the time; restrictions
S-12
in the terms governing our revolving credit facility, and other
factors, including the condition of the financial markets or the
paper and forest products industry. As a result, we may not be
able to refinance any of our indebtedness or other obligations,
including the notes, on commercially reasonable terms, or at
all. If we do not generate sufficient cash flow from operations,
and additional borrowings or refinancing are not available to
us, we may not have sufficient cash to enable us to meet all of
our obligations, including payments on the notes.
The notes will be structurally subordinated to the
indebtedness and other obligations of Domtars subsidiaries
as well as effectively subordinated to any of our future secured
indebtedness.
The notes will be general unsecured obligations of Domtar Inc.
and none of Domtar Inc.s subsidiaries will guarantee the
notes. As a result, the notes will be structurally subordinated
to all future liabilities, including trade payables, of Domtar
Inc.s subsidiaries, and the claims of creditors of those
subsidiaries, including trade creditors, will have priority as
to the assets and cash flows of those subsidiaries. In the event
of a bankruptcy, insolvency, liquidation, dissolution,
reorganization or any similar proceeding in relation to any of
Domtar Inc.s subsidiaries, holders of liabilities of such
subsidiaries will be entitled to payment on their claims from
assets of those subsidiaries before any of these assets are made
available for distribution to Domtar Inc. As at June 30,
2005, Domtar Inc.s subsidiaries had approximately
$3 million of debt (excluding intercompany debt and
obligations related to securitization and the debt of Domtar
Inc.s joint ventures which is non-recourse to Domtar Inc.).
In the event that we are declared bankrupt, become insolvent or
are liquidated, dissolved, reorganized or subject to any similar
proceeding, any future secured indebtedness will be entitled to
be paid in full from our assets securing such indebtedness
before any payment may be made with respect to the notes.
Holders of the notes will participate ratably in our remaining
assets with all holders of our unsecured indebtedness that is
deemed to rank equally with the notes, and with all of the other
general creditors (including our pension fund, to the extent of
any underfunded liability, and trade creditors), based upon the
respective amounts owed to each holder or creditor. In any of
the foregoing events, there may be insufficient assets to pay
amounts due on the notes. As a result, holders of the notes may
receive less from our assets, ratably, than holders of any
future secured indebtedness we may incur.
We are currently rated as non-investment grade by Standard
& Poors and Moodys.
Our credit rating is currently BB+ with Standard &
Poorss, Ba2 with Moodys and BBB (low) with
Dominion Bond Rating Service Limited. There is no way to predict
with certainty any future rating actions by these agencies.
Downgrades in our credit ratings can increase our cost of
borrowing, including the interest rates associated with our
revolving credit facility, and can adversely impact our access
to capital and financial flexibility as well as the value of the
notes.
Absence of public market for the notes.
No active trading market currently exists for the notes and an
active trading market may not develop in the future. The notes
will not be listed on any stock exchange. If an active trading
market does not develop, it could have an adverse effect on the
market price of, and your ability to sell, the notes.
Historically, the market for non-investment grade debt has been
subject to disruptions that have caused substantial volatility
in the prices of securities similar to the notes. The market for
the notes, if any, may be subject to similar disruptions, and
other
S-13
factors, including general economic conditions and our financial
condition, performance and prospects. These factors could
adversely affect you as a holder of notes.
Use of proceeds
We estimate that we will receive net proceeds from this offering
of approximately US$395 million, after deducting the
underwriting fee and estimated offering expenses payable by us.
We intend to use the gross proceeds from the sale of the notes
to redeem our outstanding 8.75% notes due in August 2006 in an
aggregate principal amount of US$150 million and the
balance to repay a substantial portion of our unsecured
revolving credit facility, under which we had borrowed
$316 million (US$258 million) as of
June 30, 2005. Pending such uses, we may invest the
net proceeds in short-term marketable securities or reduce the
utilization of our securitization programs.
S-14
Capitalization
The following table sets forth our cash and cash equivalents,
short-term bank indebtedness and capitalization as of
June 30, 2005 on an actual basis and as adjusted to give
effect to the sale of the notes and assuming the application of
the entire gross proceeds therefrom to the repayment of existing
debt as described under Use of proceeds.
The table should be read together with our unaudited interim
consolidated financial statements as of June 30, 2005 and
the related notes thereto, which are incorporated by reference
in this prospectus supplement and are prepared in accordance
with Canadian GAAP. For the purposes of the capitalization
table, all US dollar amounts have been translated into Canadian
dollars based on the Bank of Canada noon rate of $1.2256 per
US$1.00 on June 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
June 30, 2005 | |
(In millions of Canadian dollars) |
|
Actual | |
|
As adjusted | |
| |
|
|
(unaudited) | |
Cash and cash
equivalents(1)
|
|
|
$ 70 |
|
|
|
$ 56 |
|
|
|
|
|
|
|
Short-term bank indebtedness
|
|
|
$ 29 |
|
|
|
$ 29 |
|
|
|
|
|
|
|
Long-term debt (including portion due within one year)
Unsecured revolving credit facility due
2010(2)
|
|
|
$ 316 |
|
|
|
$ 10 |
|
|
Unsecured debentures and notes:
|
|
|
|
|
|
|
|
|
|
|
8.75% notes due
2006(1)
|
|
|
184 |
|
|
|
|
|
|
|
10% debentures due 2011
|
|
|
82 |
|
|
|
82 |
|
|
|
7.875% notes due 2011
|
|
|
735 |
|
|
|
735 |
|
|
|
5.375% notes due 2013
|
|
|
429 |
|
|
|
429 |
|
|
|
9.5% debentures due 2016
|
|
|
153 |
|
|
|
153 |
|
|
|
10.85% debentures due 2017
|
|
|
75 |
|
|
|
75 |
|
|
|
Notes offered hereby
|
|
|
|
|
|
|
490 |
|
|
Capital lease obligations
|
|
|
11 |
|
|
|
11 |
|
|
Other
|
|
|
6 |
|
|
|
6 |
|
|
Norampac long-term
debt(3)
|
|
|
178 |
|
|
|
178 |
|
|
|
|
|
|
|
Total long-term debt
|
|
|
2,169 |
|
|
|
2,169 |
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
Common shares: unlimited common shares, without par value,
authorized; 230,598,274 shares issued and outstanding, actual
and as adjusted
|
|
|
1,780 |
|
|
|
1,780 |
|
|
Preferred shares: unlimited preferred shares authorized:
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Shares: 69,576 shares outstanding,
actual and as adjusted
|
|
|
2 |
|
|
|
2 |
|
|
|
Series B Preferred Shares: 1,410,000 shares outstanding,
actual and as adjusted
|
|
|
35 |
|
|
|
35 |
|
|
Contributed surplus
|
|
|
12 |
|
|
|
12 |
|
|
Retained
earnings(4)
|
|
|
395 |
|
|
|
390 |
|
|
Accumulated foreign currency translation adjustments
|
|
|
(184 |
) |
|
|
(184 |
) |
|
|
|
|
|
|
Total shareholders equity
|
|
|
2,040 |
|
|
|
2,035 |
|
|
|
|
|
|
|
|
Total capitalization
|
|
|
$4,209 |
|
|
|
$4,204 |
|
|
|
|
|
|
|
|
(1) Cash and cash equivalents, as adjusted, reflect payment
of the premium to redeem our 8.75% notes due August 2006,
underwriting fees and offering expenses.
(2) This figure does not include our outstanding letters of
credit in the amount of $14 million as at June 30,
2005. As at August 1, 2005, $365 million was
outstanding under our unsecured revolving credit facility,
excluding outstanding letters of credit of $14 million.
(3) Under Canadian GAAP, we are required to proportionately
consolidate Norampac and this amount represents our
50% share of Norampacs long-term debt, which is
non-recourse to us.
(4) Retained earnings, as adjusted, reflect the estimated
after-tax cost of the payment of the premium to redeem our 8.75%
notes due 2006.
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Earnings coverage
The following consolidated earnings coverage ratios are
calculated as at December 31, 2004 and June 30, 2005,
and give effect to the issuance, repayment or redemption of all
long term debt of Domtar Inc. and its subsidiaries since
December 31, 2004 and are adjusted to give effect to the
offering of the notes and the use of proceeds. Domtars
interest requirements amounted to $165 million and
$154 million for the 12 months ended December 31,
2004 and June 30, 2005, respectively. Domtars
earnings before interest, income tax and non-controlling
interest for the 12 months ended December 31, 2004 and
June 30, 2005, were $54 million and $124 million,
respectively. The incremental dollar amount of earnings required
to attain a ratio of one-to-one would have been
$111 million and $30 million for these periods.
Description of the notes
In this section only, we, us,
our or Domtar refer only to Domtar Inc.
without any of its subsidiaries.
General
The notes will initially be issued in an aggregate principal
amount of US$400,000,000 and will mature on August 15,
2015. The notes will bear interest at the rate per annum shown
on the front cover of this prospectus supplement from
August 5, 2005 or from the most recent interest payment
date to which interest has been paid or provided for, payable
semi-annually on February 15 and August 15 of each
year, commencing February 15, 2006, to the persons in whose
names the notes are registered at the close of business on the
preceding February 1 or August 1, as the case may be.
Principal and interest on the notes will be payable in lawful
money of the United States. On maturity or redemption, Domtar
will repay the indebtedness represented by the notes by paying
the trustee in lawful money of the United States an amount equal
to the principal amount of the outstanding notes plus any
accrued and unpaid interest thereon. Interest on the notes will
be computed on the basis of a 360-day year of twelve 30-day
months. The yearly rate of interest that is equivalent to the
rate payable under the notes is the rate payable multiplied by
the actual number of days in the year and divided by 360 and is
disclosed herein solely for purpose of providing the disclosure
required by the Interest Act (Canada). The notes will be
subject to redemption only in the circumstances and upon the
terms described below under Optional
Redemption and Redemption for Changes in
Withholding Taxes.
We may from time to time without notice to, or the consent of,
the holders of the notes, create and issue additional notes
under the indenture, equal in rank to the notes in all respects
(or in all respects except for the payment of interest accruing
prior to the issue date of the new notes, or except for the
first payment of interest following the issue date of the new
notes) so that the new notes may be consolidated and form a
single series with the notes and have the same terms as to
status, redemption and otherwise as the notes offered under this
prospectus supplement.
Ranking
The notes will be unsecured and unsubordinated obligations of
Domtar and will rank equally with all of Domtars other
unsecured, unsubordinated obligations outstanding from time to
S-16
time. Domtar conducts a substantial portion of its operations
through subsidiaries and the notes will be effectively
subordinated to all existing and future indebtedness and other
liabilities of Domtars subsidiaries. At June 30,
2005, Domtars subsidiaries had $3 million of
indebtedness outstanding to third parties (excluding obligations
related to securitization).
Optional redemption
The notes will be redeemable, in whole or in part, at the option
of Domtar at any time at a redemption price equal to the greater
of:
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(1) |
100% of the principal amount of the notes, and |
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(2) |
as determined by the Independent Investment Banker, the sum of
the present values of the remaining scheduled payments of
principal and interest on the notes (not including any portion
of the payments of interest accrued as of the date of
redemption) discounted to the redemption date on a semi-annual
basis (assuming a 360-day year consisting of twelve 30-day
months) at the Adjusted Treasury Rate, plus 50 basis points, |
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plus, in each case, accrued and unpaid interest thereon to the
date of redemption.
Adjusted Treasury Rate means, with respect to
any redemption date, the rate per annum equal to the semi-annual
equivalent yield to maturity of the Comparable Treasury Issue,
assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable
Treasury Price for that redemption date.
Comparable Treasury Issue means the United
States Treasury security selected by an Independent Investment
Banker as having an actual or interpolated maturity comparable
to the remaining term of the notes that would be utilized, at
the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt of comparable
maturity to the remaining term of such notes.
Comparable Treasury Price means, with respect
to any redemption date, the average of the Reference Treasury
Dealer Quotations for the redemption date.
Independent Investment Banker means one of
the Reference Dealers selected by Domtar.
Reference Dealer means (1) J.P. Morgan
Securities Inc. and its successors; provided, however,
that if it shall cease to be a primary US Government securities
dealer in New York City (a Primary Treasury
Dealer), Domtar shall substitute for it another Primary
Treasury Dealer, and (2) any other Primary Treasury Dealer
selected by the Trustee after consultation with Domtar.
Reference Treasury Dealer Quotation means,
with respect to each Reference Dealer and any redemption date,
the average, as determined by the Independent Investment Banker,
of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount)
quoted by the Reference Dealer at 5:00 p.m. on the third
business day preceding that redemption date.
Redemption for changes in withholding taxes
The notes will be subject to redemption at any time, in whole
but not in part, at a redemption price equal to the principal
amount thereof together with accrued and unpaid interest to the
date fixed for redemption, upon the giving of a notice as
described below, if (1) Domtar
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determines that (a) as a result of any change in or
amendment to the laws (or any regulations or rulings promulgated
thereunder) of Canada or of any political subdivision or taxing
authority thereof or therein affecting taxation, or any change
in official position regarding application or interpretation of
such laws, regulations or rulings (including a holding by a
court of competent jurisdiction), which change or amendment is
announced or becomes effective on or after the date of this
prospectus supplement, Domtar has or will become obligated to
pay, on the next succeeding interest payment date, additional
amounts or (b) on or after the date of this prospectus
supplement, any action has been taken by any taxing authority
of, or any decision has been rendered by a court of competent
jurisdiction in, Canada or any political subdivision or taxing
authority thereof or therein, including any of those actions
specified in clause (a) above, whether or not such action
was taken or decision was rendered with respect to Domtar, or
any change, amendment, application or interpretation shall be
officially proposed, which, in any such case, in the written
opinion to Domtar of legal counsel of recognized standing, will
result in an obligation to pay, on the next succeeding interest
payment date, additional amounts with respect to any notes and
(2) in any such case, Domtar in its business judgment
determines that such obligation cannot be avoided by the use of
reasonable measures available to Domtar; provided,
however, that (i) no such notice of redemption may be
given earlier than 90 or later than 30 days prior to the
earliest date on which Domtar would be obligated to pay such
additional amounts where a payment in respect of the notes is
then due, and (ii) at the time such notice of redemption is
given, such obligation to pay such additional amounts remains in
effect.
In the event that Domtar elects to redeem the notes pursuant to
the provisions set forth in the preceding paragraph, Domtar
shall deliver to the trustee a certificate, signed by an
authorized officer, stating that Domtar is authorized to redeem
the notes pursuant to their terms.
Book-entry system
The Depository Trust Company (DTC), New York,
NY, will act as securities depository for the notes. The notes
will be issued as fully-registered securities registered in the
name of Cede & Co. (DTCs partnership nominee) or such
other name as may be requested by an authorized representative
of DTC. One fully-registered certificate will be issued for each
issue of the notes, in the aggregate principal amount of the
issue, and will be deposited with DTC.
The following is based on information furnished by DTC.
DTC, the worlds largest depository, is a limited-purpose
trust company organized under the New York Banking Law a
banking organization within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a
clearing corporation within the meaning of the New
York Uniform Commercial Code, and a clearing agency
registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC holds and provides asset
servicing for over 2 million issues of U.S. and non-U.S.
equity issues, corporate and municipal debt issues, and money
market instruments from over 85 countries that DTCs
participants (Direct Participants) deposit with DTC.
DTC also facilitates the post-trade settlement among Direct
Participants of sales and other securities transactions in
deposited securities, through electronic computerized book-entry
transfers and pledges between Direct Participants
accounts. This eliminates the need for physical movement of
securities certificates. Direct Participants include both U.S.
and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other
organizations. DTC is a wholly-owned subsidiary of The
Depository Trust & Clearing Corporation (DTCC).
DTCC, in
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turn, is owned by a number of Direct Participants of DTC and
Members of the National Securities Clearing Corporation,
Government Securities Clearing Corporation, MBS Clearing
Corporation, and Emerging Markets Clearing Corporation, (NSCC,
GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by
the New York Stock Exchange, Inc., the American Stock Exchange
LLC, and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others such as
both U.S. and non-U.S. securities brokers and dealers, banks,
trust companies, and clearing corporations that clear through or
maintain a custodial relationship with a Direct Participant,
either directly or indirectly (Indirect
Participants). DTC has Standard & Poors highest
rating: AAA. The DTC Rules applicable to its Participants are on
file with the Securities and Exchange Commission. More
information about DTC can be found at www.dtcc.com and
www.dtc.org.
Purchases of notes under the DTC system must be made by or
through Direct Participants, which will receive a credit for the
notes on DTCs records. The ownership interest of each
actual purchaser of notes (Beneficial Owner) is in
turn to be recorded on the Direct and Indirect
Participants records. Beneficial Owners will not receive
written confirmation from DTC of their purchase. Beneficial
Owners are, however, expected to receive written confirmations
providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect
Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the notes are
to be accomplished by entries made on the books of Direct and
Indirect Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing
their ownership interests in notes, except in the event that use
of the book-entry system for the notes is discontinued.
To facilitate subsequent transfers, all notes deposited by
Direct Participants with DTC are registered in the name of
DTCs partnership nominee, Cede & Co., or such other
name as may be requested by an authorized representative of DTC.
The deposit of notes with DTC and their registration in the name
of Cede & Co. or such other DTC nominee do not effect any
change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of the notes; DTCs records
reflect only the identity of the Direct Participants to whose
accounts such notes are credited, which may or may not be the
Beneficial Owners. The Direct and Indirect Participants will
remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants,
and by Direct Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will
consent or vote with respect to the notes unless authorized by a
Direct Participant in accordance with DTCs Procedures.
Under its usual procedures, DTC mails an Omnibus Proxy to Domtar
as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.s consenting or voting rights to
those Direct Participants to whose accounts notes are credited
on the record date (identified in a listing attached to the
Omnibus Proxy).
Redemption proceeds, distributions, and dividend payments on the
notes will be made to Cede & Co., or such other nominee
as may be requested by an authorized representative of DTC.
DTCs practice is to credit Direct Participants
accounts upon DTCs receipt of funds and corresponding
detail information from Domtar or the trustee, on payable date
in accordance with their respective holdings shown on DTCs
records. Payments by Participants to Beneficial
S-19
Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts
of customers in bearer form or registered in street
name, and will be the responsibility of such Participant
and not of DTC nor its nominee, the trustee, or Domtar,
subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of redemption proceeds,
distributions, and dividend payments to Cede & Co.
(or such other nominee as may be requested by an authorized
representative of DTC) is the responsibility of Domtar or the
trustee, disbursement of such payments to Direct Participants
will be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners will be the responsibility of
Direct and Indirect Participants.
DTC may discontinue providing its services as depository with
respect to the notes at any time by giving reasonable notice to
Domtar or the trustee. Under such circumstances, in the event
that a successor depository is not obtained, Security
certificates are required to be printed and delivered.
Domtar may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In
that event, certificates representing the notes will be printed
and delivered.
The information in this section concerning DTC and DTCs
book-entry system has been obtained from sources that Domtar
believes to be reliable, but Domtar takes no responsibility for
the accuracy thereof.
Credit ratings
As of the date of this prospectus supplement, we have received a
Ba2 rating from Moodys Investors Service, Inc., or
Moodys, a BB+ rating from Standard & Poors, a
division of The McGraw-Hill Companies, Inc., or S&P, and a
rating of BBB (low) from Dominion Bond Rating Service, or
DBRS, in respect of the notes to be issued pursuant to this
prospectus supplement. Credit ratings are intended to provide
investors with an independent measure of credit quality of an
issue of securities. Ratings for debt instruments range from
Aaa from Moodys, AAA from S&P
and AAA from DBRS, which represent the highest
quality of securities, to C from Moodys,
D from S&P and D from DBRS which
represent the lowest quality of securities rated. Each rating
should be evaluated independently of another rating. The Ba2
rating for the notes is the second of the three sub-categories
within the fifth of the nine standard categories of
Moodys, the BB+ rating is the highest of the three
sub-categories within the fifth of the ten standard categories
of ratings granted by S&P and the BBB (low) rating is
the lowest rating of the three sub-categories within the fourth
of the ten standard categories of DBRS. The credit ratings
accorded to the notes by the rating agencies are not
recommendations to purchase, hold or sell the notes inasmuch as
such ratings do not comment as to market price or suitability
for a particular investor. There is no assurance that any rating
will remain in effect for any given period of time or that any
rating will not be revised or withdrawn entirely by a rating
agency in the future if in its judgment circumstances so
warrant, and if any such rating is revised or withdrawn, we are
under no obligation to update this prospectus supplement.
S-20
Certain income tax considerations
United States federal income tax considerations
The following is a general discussion of the principal
United States federal income tax considerations relevant to
the purchase, ownership and disposition of the notes by initial
investors that are United States Holders, as defined below.
This discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, as amended (the
Code), existing, temporary and proposed Treasury
regulations promulgated thereunder, and administrative and
judicial interpretations thereof, all as in effect or proposed
on the date hereof and all of which are subject to change,
possibly with retroactive effect, or different interpretations.
This discussion does not address the tax considerations to
subsequent purchasers of notes. This discussion is limited to
initial investors who purchase the notes at the issue
price within the meaning of section 1273 of the Code,
which will be the first price at which a substantial amount of
the notes is sold to the public, excluding bond houses, brokers
or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers, and who hold the
notes as capital assets, within the meaning of
section 1221 of the Code. Moreover, this discussion is for
general information only and does not address all of the tax
considerations that may be relevant to particular initial
investors in light of their personal circumstances or to certain
types of initial investors (such as certain financial
institutions, insurance companies, tax-exempt entities,
retirement plans, regulated investment companies, dealers in
securities, brokers, expatriates, partnerships, persons who have
acquired notes as part of a straddle, hedge, conversion
transaction or other integrated investment or persons whose
functional currency is not the US dollar) subject to special tax
rules.
As used herein, the term United States Holder
means a beneficial owner of a note that is, for
United States federal income tax purposes:
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(i) |
an individual who is a citizen or resident of the
United States, |
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(ii) |
a corporation or other entity taxable as a corporation created
or organized in the United States or under the laws of the
United States or of any state thereof (including the
District of Columbia), |
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(iii) |
an estate the income of which is subject to United States
federal income tax regardless of its source, or |
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(iv) |
a trust if a United States court is able to exercise
primary supervision over the trusts administration and one
or more United States persons have authority to control all
substantial decisions of such trust or if the trust has validly
elected to be treated as a United States person under applicable
Treasury regulations. |
If a partnership (including for this purpose any entity treated
as a partnership for United States federal income tax purposes)
is a beneficial owner of a note, the treatment of a partner in
the partnership will generally depend upon the status of the
partner and upon the activities of the partnership. A holder of
a note that is a partnership and partners in such partnership
should consult their own tax advisors about the United States
federal income tax consequences of holding and disposing of the
note.
Prospective purchasers are urged to consult their own tax
advisors as to the particular tax considerations to them of the
purchase, ownership and disposition of the notes, including
the
S-21
applicability of any United States federal tax laws or
any state, local or foreign tax laws, and any changes
(or proposed changes) in applicable tax laws or
interpretations thereof.
Payment of interest on the notes
Interest (including any Canadian withholding tax or Additional
Amounts) paid or payable on a note will be taxable to a
United States Holder as ordinary interest income, generally
at the time it is received or accrued, in accordance with such
United States Holders regular method of accounting for
United States federal income tax purposes.
Such interest will constitute income from sources without the
United States and, for taxable years beginning before
January 1, 2007, generally will constitute passive
income or financial services income, or, if
Canadian withholding tax is imposed at a rate of 5% or more,
such income will constitute high withholding tax
interest for United States foreign tax credit purposes.
For taxable years beginning after December 31, 2006, such
interest will constitute passive category income or
general category income.
Taxation of additional amounts
Generally, payments of interest on the notes will not be subject
to Canadian withholding tax. See Canadian Federal
Income Tax Considerations for Non-Resident Holders. In the
event that Additional Amounts are paid in respect of withholding
or deduction for taxes imposed on payments on the notes, such
Additional Amounts will be taxable to a United States Holder as
ordinary income at the time such amounts are accrued or
received, in accordance with the United States Holders
method of accounting for United States federal income tax
purposes. The amount taxable to a United States Holder also will
include all taxes withheld or deducted in respect thereof. Thus,
a United States Holder may be required to report income in an
amount greater than the cash it received in respect of payments
on its notes. However, a United States Holder may, subject to
certain limitations, be eligible to claim as a credit or
deduction for purposes of computing its United States federal
income tax liability the taxes withheld or deducted. The rules
relating to United States foreign tax credits are extremely
complex, and United States Holders should consult their own tax
advisors with regard to the availability of a United States
foreign tax credit and the application of the United States
foreign tax credit to their particular situation.
Sale, redemption or retirement of the notes
Upon the sale, redemption, retirement at maturity or other
taxable disposition of a note, a United States Holder generally
will recognize taxable gain or loss equal to the difference
between the sum of cash plus the fair market value of all other
property received on such disposition (except to the extent such
cash or property is attributable to accrued but unpaid interest,
which will be taxable as ordinary income) and such United States
Holders adjusted tax basis in the note (generally its
cost). Such gain or loss recognized on the disposition of a note
generally will be capital gain or loss and will be long-term
capital gain or loss if, at the time of the disposition, the
United States Holders holding period for the note is more
than one year. The maximum United States federal income tax rate
on long-term capital gains recognized by noncorporate United
States Holders, effective until taxable years beginning after
December 31, 2008, is 15%. Gain or loss on the sale,
redemption, retirement at maturity or other taxable disposition
of a note will generally constitute United States source income
or loss for United States foreign tax credit purposes.
S-22
Information reporting and backup withholding
In general, information reporting requirements and backup
withholding (at a rate of 28% on payments made with respect to
the notes before the end of calendar year 2010 and at a rate of
31% on payments made with respect to the notes after calendar
year 2010) may apply to certain United States Holders. Certain
United States Holders, including corporations, are not subject
to backup withholding. In general, backup withholding will apply
to a noncorporate United States Holder if the United States
Holder:
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fails to furnish its Taxpayer Identification Number
(TIN) (which for an individual is the holders
Social Security number); |
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furnishes an incorrect TIN; |
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is notified by the Internal Revenue Service (the
IRS) that it has failed to properly report payments
of interest and dividends; or |
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under certain circumstances, fails to certify, under penalties
of perjury, that it has furnished a correct TIN, that it is a
United States person for United States federal income tax
purposes and that it has not been notified by the IRS that it is
subject to backup withholding due to underreporting of interest
or dividends, or otherwise fails to comply with applicable
requirements of the backup withholding rules provided that the
required information is furnished to the IRS in a timely manner. |
The amount withheld under the backup withholding rules from a
payment to a United States Holder will be allowed as a credit
against such United States Holders United States federal
income tax liability and may entitle such United States Holder
to a refund.
Canadian federal income tax considerations for non-resident
holders
In the opinion of Ogilvy Renault LLP, and Osler, Hoskin &
Harcourt LLP, the following is a general summary of the
principal Canadian federal income tax considerations generally
applicable to a person who acquires notes in this offering and
who, at all relevant times, for purposes of the Income Tax
Act (Canada), or the Tax Act, is not (and is not deemed to
be) a resident of Canada, deals at arms length with
Domtar, does not use or hold and is not deemed to use or hold
the notes in, or in the course of, carrying on business in
Canada and, is not an insurance company carrying on business in
Canada and elsewhere, and is not an authorized foreign bank
within the meaning of the Tax Act (a Non-Resident
Holder). This summary is based upon the current provisions
of the Tax Act, the regulations thereunder, all specific
proposals to amend the Tax Act and the regulations publicly
announced by the Minister of Finance of Canada prior to the date
hereof and counsels understanding of the current
administrative practices published by the Canada Revenue Agency.
This summary does not otherwise take into account any changes in
law, whether by legislative, governmental or judicial decision
or action, nor does it take into account or consider any
provincial, territorial or foreign income tax considerations.
The summary is of a general nature only and is not intended
to be, nor should it be construed to be, legal or tax advice to
any particular investor. Accordingly, prospective investors are
urged to consult their own tax advisors with respect to their
particular circumstances.
S-23
Interest payment
A Non-Resident Holder will not be subject to tax (including
withholding tax) under the Tax Act on interest, principal or
premium paid or credited by Domtar or on the proceeds received
on the disposition of a note, including a redemption, payment on
maturity or purchase for cancellation.
Dispositions
Gains realized on the disposition or deemed disposition of a
note by a Non-Resident Holder, including on a redemption,
payment on maturity, or purchase for cancellation, will not be
subject to tax under the Tax Act.
S-24
Underwriting
Subject to the terms and conditions set forth in the
underwriting agreement dated the date of this prospectus
supplement between us and the underwriters, we have agreed to
sell to each underwriter and each underwriter has severally
agreed to purchase from us, the principal amount of the notes
set forth opposite its name below:
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Principal amount | |
Underwriters |
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of notes | |
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J.P. Morgan Securities Inc.
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US$ |
100,000,000 |
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Citigroup Global Markets Inc.
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100,000,000 |
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CIBC World Markets Corp.
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20,000,000 |
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Harris Nesbitt Corp.
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20,000,000 |
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Putnam Lovell NBF Securities Inc.
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20,000,000 |
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RBC Capital Markets Corporation
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20,000,000 |
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Scotia Capital (USA) Inc.
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20,000,000 |
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TD Securities (USA) LLC
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20,000,000 |
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Banc of America Securities LLC
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13,000,000 |
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Desjardins Securities International Inc.
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13,000,000 |
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Deutsche Bank Securities Inc.
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13,000,000 |
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Morgan Stanley & Co. Incorporated
|
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13,000,000 |
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UBS Securities LLC
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13,000,000 |
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BNP Paribas Securities Corp.
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7,500,000 |
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Rabo Securities USA, Inc.
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7,500,000 |
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Total
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US$ |
400,000,000 |
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The underwriting agreement provides that the obligations of the
several underwriters to purchase and pay for the notes may, in
certain circumstances, be terminated at their discretion on the
basis of their assessment of the state of the financial markets
and may also be terminated upon the occurrence of certain stated
events. The underwriters are obligated to take and pay for all
of the notes if any are taken.
The underwriters initially propose to offer part of the notes
directly to the public at the offering price that appears on the
cover page of this prospectus supplement and part to certain
dealers at a price that represents a concession not in excess of
0.60% of the principal amount of the notes. Any underwriter may
allow, and any such dealer may reallow, a concession not in
excess of 0.35% of the principal amount of the notes to certain
other dealers. After the initial offering of the notes, the
underwriters may from time to time vary the offering price and
other selling terms.
The notes are a new issue of securities with no established
trading market and will not be listed on any national securities
exchange. The underwriters have advised us that they intend to
make a market for the notes, but they have no obligation to do
so and may discontinue market making at any time without
providing any notice. No assurance can be given as to the
liquidity of any trading market for the notes.
We estimate that our total offering expenses will be
approximately $1 million.
S-25
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the US Securities Act
of 1933, as amended, or to contribute to payments which the
underwriters may be required to make in respect of any such
liabilities.
In connection with the offering of the notes, the underwriters
may engage in transactions that stabilize, maintain or otherwise
affect the price of the notes. Specifically, the underwriters
may overallot in connection with the offering of the notes,
creating a syndicate short position. In addition, the
underwriters may bid for, and purchase, notes in the open market
to cover syndicate short positions or to stabilize the price of
the notes. Finally, the underwriting syndicate may reclaim
selling concessions allowed for distributing the notes in the
offering of the notes, if the syndicate repurchases previously
distributed notes in syndicate covering transactions,
stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the notes above
independent market levels. The underwriters are not required to
engage in any of these activities, and may end any of them at
any time.
J.P. Morgan Securities Inc. will make securities available for
distribution on the Internet through a proprietary web site
and/or a third-party system operated by Market Axess Inc., an
Internet-based communications technology provider. Market Axess
Inc. is providing the system as a conduit for communications
between J.P. Morgan Securities Inc. and its customers and is not
a party to this offering. Market Axess Inc., a registered
broker-dealer, will receive compensation from J.P. Morgan
Securities Inc. based on transactions the underwriter conducts
through the system. J.P. Morgan Securities Inc. will make
securities available to its customers through the Internet
distributions, whether made through a proprietary or third-party
system, on the same terms as distributions made through other
channels.
In the ordinary course of their respective businesses, the
underwriters and their affiliates have engaged, and may in the
future engage, in commercial banking and/or investment banking
transactions with us and our affiliates for which they have
received customary fees and expenses. Specifically, affiliates
of the underwriters of the offering are lenders under our credit
facilities. These affiliates will receive a proportionate share
of the amount of the credit facilities to be repaid with the
proceeds of this offering. Because more than 10% of the net
proceeds of the offering may be paid to members or affiliates of
members of the National Association of Securities Dealers, Inc.,
participating in the offering, the offering will be conducted in
accordance with NASD Conduct Rule 2710(c)(8). Pursuant to
that rule, the appointment of a qualified independent
underwriter is not necessary in connection with this offering,
as the offering is of a class of securities rated BBB or better
by DBRS rating service.
The underwriters have also agreed that they will not offer or
sell, directly or indirectly, any of the notes in Canada or to
any individual or company in Canada in contravention of the
securities laws of Canada or any province or territory thereof.
Each underwriter has severally agreed that it will not
distribute any material related to the notes in Canada in
contravention of the securities laws of Canada or any province
or territory thereof.
S-26
Legal matters
Certain legal matters in connection with this offering will be
passed upon on our behalf by Ogilvy Renault LLP and Debevoise
& Plimpton LLP and on behalf of the underwriters by Osler,
Hoskin & Harcourt LLP and Shearman & Sterling LLP. As of
August 1, 2005, the partners and associates of Ogilvy
Renault LLP and Osler, Hoskin & Harcourt LLP beneficially
owned, directly or indirectly, less than 1% of our issued and
outstanding securities or of any associate or affiliate of ours.
Experts
Our auditors are PricewaterhouseCoopers LLP, Chartered
Accountants, 1250 René Lévesque Boulevard West,
Suite 2800, Montreal, Quebec, H3B 2G4. Our
consolidated financial statements as of December 31, 2004
and 2003 and for each of the three years in the three year
period ended December 31, 2004 incorporated by reference in
this prospectus supplement have been so included in reliance
upon the report of PricewaterhouseCoopers LLP, Chartered
Accountants given on the authority of said firm as experts in
auditing and accounting.
Auditors consent
To the Board of Directors of Domtar Inc.
We have read the prospectus supplement of Domtar Inc.
(Domtar) dated August 2, 2005 relating to
the offering of debt securities of Domtar. We have complied with
Canadian generally accepted standards for an auditors
involvement with offering documents.
We consent to the incorporation by reference in the
above-mentioned prospectus supplement of our report to the
shareholders of Domtar on the consolidated balance sheets of
Domtar as at December 31, 2004 and 2003 and the
consolidated statements of earnings, retained earnings and cash
flows for each of the years in the three-year period ended
December 31, 2004. Our report to the shareholders is dated
February 23, 2005.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Montreal, Quebec
August 2, 2005
S-27
Prospectus
Debt Securities
US$500,000,000
By this prospectus, we may offer from time to time debt
securities in an aggregate principal amount of up to
US$500,000,000 (or its equivalent in any other currency used to
denominate the debt securities) during the 25 month period
that this short form base shelf prospectus, including any
amendments hereto, remains valid.
We will provide specific terms of the debt securities in
supplements to this prospectus. You should read this prospectus
and any supplement carefully before you invest. A supplement may
also change or update information contained in this prospectus.
We will not use this prospectus to confirm sales of any of the
debt securities unless it is accompanied by a prospectus
supplement.
Unless we state otherwise in a prospectus supplement, we will
not list any of the debt securities on any securities exchange.
Neither the Securities and Exchange Commission nor any state
securities regulator has approved or disapproved these
securities, or determined if this prospectus or any prospectus
supplement is truthful or complete. Any representation to the
contrary is a criminal offense.
Investing in the debt securities involves risks. See
Risk Factors beginning on page 20 of this
prospectus.
We are permitted, under a multijurisdictional disclosure
system adopted by the United States, to prepare this prospectus
in accordance with Canadian disclosure requirements, which are
different from those of the United States. We prepare our
financial statements in accordance with Canadian generally
accepted accounting principles, and they may be subject to
Canadian auditing and auditor independence standards. They may
not be comparable to financial statements of United States
companies.
Owning the debt securities may subject you to tax
consequences both in the United States and Canada. This
prospectus or any applicable prospectus supplement may not
describe these tax consequences fully. You should read the tax
discussion in any applicable prospectus supplement.
Your ability to enforce civil liabilities under the United
States federal securities laws may be affected adversely because
we are incorporated under the laws of Canada, some of our
officers and directors and some of the experts named in this
prospectus are Canadian residents, and certain of our assets and
the assets of those officers, directors and experts are located
outside the United States.
The date of this prospectus is May 17, 2005.
You should rely only on the information contained in or
incorporated by reference in this prospectus. We have not
authorized anyone to provide you with different information. We
are not making an offer of these securities in any jurisdiction
where the offer is not permitted. You should not assume that the
information contained in this prospectus is accurate as of any
date other than the date on the front of this prospectus.
TABLE OF CONTENTS
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Unless otherwise specified or the context otherwise requires, in
this prospectus, Domtar, we,
us and our refer to Domtar Inc., its
subsidiaries, its 50% investment interest in Norampac Inc., and
its other joint ventures. In accordance with industry practice,
in this prospectus we use the term ton when
referring to a short ton, an imperial unit of measurement which
equals 0.9072 metric tonnes, and the term tonne when
referring to a metric tonne. In this prospectus, unless
otherwise indicated, all dollar amounts are expressed in, and
the term dollars and the symbol $ refer
to, Canadian dollars. The term US dollars and
the symbol US$ refer to the United States dollars.
Except as otherwise indicated, all financial statements and
financial data contained in this prospectus and in the documents
incorporated by reference in this prospectus have been prepared
in accordance with Canadian generally accepted accounting
principles, or Canadian GAAP, which may differ from United
States generally accepted accounting principles, or US GAAP.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the Autorité des marchés financiers
in Canada and with the United States Securities and Exchange
Commission, or the SEC, using a shelf registration process.
Under this process, we may sell the securities described in this
prospectus from time to time. This prospectus provides you with
a general description of the securities we may offer. Each time
we sell debt securities under the registration statement, we
will provide a prospectus supplement that will contain specific
information about the terms of that offering of debt securities.
The prospectus supplement may also add, update or change
information contained in this prospectus. Any statement that we
make in this prospectus will be modified or superseded by any
inconsistent statement made by us in a prospectus supplement.
The Rules of the SEC and the Canadian securities commissions or
similar authorities allow us to incorporate by reference
information in this prospectus. The information incorporated by
reference is considered to be a part of this prospectus, and
certain information that we file or furnish later with the SEC
or the Canadian securities commissions or similar authorities
will automatically update and supersede this information. See
Documents Incorporated by Reference.
You should read both this prospectus and any prospectus
supplement together with additional information described under
the heading Where You Can Find More Information.
No person has been authorized to give any information or to make
any representations, other than those contained or incorporated
by reference in this prospectus and, if given or made, such
information or representation must not be relied upon as having
been authorized by Domtar, or any underwriter, agent or dealer.
Neither the delivery of this prospectus nor any sale made
hereunder shall under any circumstances create any implication
that there has been no change in the affairs of Domtar since the
date hereof or that the information contained or incorporated by
reference herein is correct as of any time subsequent to the
date of such information. This prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any
securities by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such offer or solicitation.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of Domtar, filed with the various
securities commissions or similar authorities in each of the
provinces and territories of Canada and with the SEC, are
specifically incorporated by reference into and form an integral
part of this short form prospectus:
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the Annual Information Form dated March 24, 2005 for the
year ended December 31, 2004; |
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the audited consolidated balance sheets as at December 31,
2004 and 2003 and the audited consolidated statements of
earnings, retained earnings and cash flows for each of the years
in the three-year period ended December 31, 2004, together
with the related notes thereto and the auditors report on
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the Managements Discussion and Analysis for the fiscal
year ended December 31, 2004 covering the three-year period
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the Management Proxy Circular dated March 24, 2005 relating
to the meeting of shareholders held on April 28,
2005; and |
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the unaudited interim consolidated financial statements for the
three months ended March 31, 2005 (including
Managements Discussion and Analysis relating thereto) and
March 31, 2004. |
Any documents of the type referred to in the preceding
paragraph, any interim financial statements and any material
change reports (excluding confidential material change reports)
filed by us with the securities commissions or similar
authorities in the provinces and territories of Canada,
subsequent to the date of this prospectus and prior to the
termination of this offering, shall be deemed to be incorporated
by reference in this prospectus.
We also incorporate by reference each of the following documents
that we will file with or furnish to the SEC during the
25 month period that this prospectus remains valid:
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reports filed or furnished pursuant to Sections 13(a) and
(c) of the US Securities Exchange Act of 1934, as amended,
or the Exchange Act; and |
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any reports filed or furnished pursuant to Section 15(d) of
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in each case, including reports on Form 6-K if and to the
extent specified in such Form 6-K as being incorporated by
reference in this prospectus.
Copies of the documents incorporated by reference and of the
permanent information record may be obtained on request without
charge from the secretary of Domtar Inc., 395 de Maisonneuve
Boulevard West, Montreal, Quebec H3A 1L6 (telephone
(514) 848-5400).
Any statement contained in this prospectus or in a document
incorporated or deemed to be incorporated by reference in this
prospectus shall be deemed to be modified or superseded for
purposes of this prospectus, to the extent that a statement
contained in this prospectus or in any other subsequently filed
document that also is or is deemed to be incorporated by
reference in this prospectus modifies or replaces such
statement. The modifying or superseding statement need not state
that it has modified or superseded a prior statement or include
any other information set forth in the document that it modifies
or supersedes. The making of a modifying or superseding
statement shall not be deemed an admission for any purposes that
the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that is required to be stated
or that is necessary to make a statement not misleading in light
of the circumstances in which it was made. Any statement so
modified or superseded shall not be deemed in its unmodified or
superseded form to constitute a part of this prospectus.
Upon a new annual information form and the related annual
audited consolidated financial statements together with the
auditors report thereon and managements discussion
and analysis contained therein being filed by us with, and where
required, accepted by, the applicable securities regulatory
authorities during the currency of this prospectus, the previous
annual information form, the previous annual audited
consolidated financial statements and all interim financial
statements, quarterly managements discussion and analysis,
material change reports and management proxy circulars filed
prior to the commencement of the financial year in which the new
annual information form was filed no longer shall be deemed to
be incorporated by reference in this prospectus for the purpose
of future offers and sales of debt securities hereunder.
A prospectus supplement containing the specific terms of an
offering of debt securities, updated disclosure of earnings
coverage ratios, if applicable, and other information in
relation to those debt securities will be delivered to
purchasers of such debt securities together with this prospectus
and shall be deemed to be incorporated by reference into this
prospectus as of the date of such prospectus supplement solely
for the purposes of the offering of the debt securities covered
by that prospectus supplement.
FORWARD-LOOKING STATEMENTS
This prospectus, and the documents incorporated by reference in
this prospectus, may contain forward-looking statements relating
to trends in, or representing managements beliefs about,
Domtars future growth, results of operations, performance
and business prospects and opportunities. These forward-looking
statements are generally denoted by the use of words such as
anticipate, believe, expect,
intend, aim, target,
plan, continue, estimate,
may, will, should and
similar expressions. These statements reflect managements
current beliefs and are based on information currently available
to management. Forward-looking statements are necessarily based
upon a number of estimates and assumptions that, while
considered reasonable by management, are inherently subject to
known and unknown risks and uncertainties such as, but not
limited to, general economic and business conditions, product
selling prices, raw material and operating costs, changes in
foreign currency exchange rates, our
2
ability to integrate acquired businesses into our existing
operations, and other factors referenced herein and in
Domtars continuous disclosure filings. These factors
should be considered carefully and prospective investors should
not place undue reliance on the forward-looking statements.
Although the forward-looking statements contained in this
prospectus, and the documents incorporated herein by reference,
are based upon what management believes to be reasonable
estimates and assumptions, Domtar cannot assure prospective
purchasers that actual results will not be materially different
from those expressed or implied by these forward-looking
statements. Domtar assumes no obligation to update or revise
these forward-looking statements to reflect new events or
circumstances. These risks, uncertainties and other factors
include, among other things, those discussed under Risk
Factors as well as those discussed elsewhere in this
prospectus.
DOMTAR INC.
Domtar Inc. was formed in 1929 under the laws of Canada and was
continued under the Canada Business Corporations Act by a
certificate of continuance dated December 30, 1977 and
subsequently amalgamated with certain wholly-owned subsidiaries
by certificates of amalgamation dated December 31, 1977,
October 31, 1978 and July 31, 1979. The first two of
these certificates of amalgamation were issued in the course of
the consolidation of substantially all of our Canadian
operations into a single corporation. The July 31, 1979
certificate of amalgamation confirmed our amalgamation with two
wholly-owned subsidiaries. On January 1, 2000, Domtar Inc.
amalgamated with its wholly-owned subsidiary E.B. Eddy Forest
Products Ltd., to continue under the name of Domtar Inc.
Our significant subsidiaries are Domtar Industries Inc., Domtar
A.W. Corp., Domtar Maine Corp. and Ris Paper Company, Inc., all
of which are 100% owned. Domtar Industries Inc., Domtar A.W.
Corp. and Domtar Maine Corp. are incorporated in the State of
Delaware and Ris Paper Company, Inc. is incorporated in the
State of New York. We do not hold any non-voting shares in these
subsidiaries.
Domtar has approximately 10,600 employees across North America.
Our head and principal office is located at 395 de Maisonneuve
Boulevard West, Montreal, Quebec H3A 1L6 and our telephone
number is (514) 848-5400.
Our reporting segments correspond to the following business
activities: Papers, Paper Merchants, Wood and Packaging.
Papers
We are the third largest integrated manufacturer and marketer of
uncoated freesheet paper in North America. We operate six
pulp and paper facilities in Canada and five in the United
States, with an annual paper production capacity of
approximately 2.6 million tons of paper, which are
complemented by strategically located warehouses and sales
offices. More than 50% of our paper production capacity is
located in the United States and approximately 90% of our paper
sales are made to customers in that country. Uncoated and coated
freesheet papers, our principal products, are used for business,
commercial printing and publication, and technical and specialty
applications.
We sell paper through a large network of owned and independent
merchants that distribute our paper products throughout North
America. We also sell our products to a variety of customers
including business offices, office equipment manufacturers,
retail outlets, commercial printers, publishers and converters.
In addition, we sell pulp in excess of our own internal
requirements. We also purchase pulp to optimize paper production
and freight costs. In 2004, our net market pulp position
(shipments less purchases) was approximately 700,000 tons.
Our Papers business is our most important segment and
represented 56% of our consolidated sales during the year ended
on December 31, 2004, or 62% when including sales of Domtar
paper through our own Paper Merchants business.
3
Paper Merchants
Our Paper Merchants business comprises the purchasing,
warehousing, sale and distribution of various products made by
us, as well as by other manufacturers. These products include
business and printing papers, graphic arts supplies and certain
industrial products. Domtar-owned paper merchants operate in the
United States and Canada. Our Canadian paper merchants operate a
total of eight branches in eastern Canada (three by Buntin Reid
in Ontario, two by JBR/ La Maison du Papier in Quebec and
three by The Paper House in the Atlantic Provinces) while our
U.S. paper merchant (Ris Paper) services a large customer
base from 20 locations in the Northeast, Midwest and the
Mid-Atlantic regions of the United States. Our Paper
Merchants business represented 21% of our consolidated sales
during the year ended on December 31, 2004, or 15% when
excluding sales of Domtar paper.
Wood
Our Wood business comprises the manufacturing and marketing of
lumber and wood-based value-added products from our operating
facilities in Ontario and Quebec, as well as the management of
forest resources in Ontario and Quebec. We operate 10 sawmills
(six in Quebec and four in Ontario, following the permanent
closure of the Chapleau sawmill effective March 6, 2005)
and one remanufacturing facility (in Quebec), with an aggregate
annual capacity of approximately 1.1 billion board feet of
lumber. We also have investments in four businesses that produce
wood products. We seek to optimize 18 million acres of
forestlands directly licensed or owned by us in Canada and the
United States through efficient management and the application
of certified sustainable forest management practices such that a
continuous supply of wood is available for future needs. Our
Wood business represented 11% of our consolidated sales during
the year ended December 31, 2004.
Packaging
Our Packaging business comprises our 50% ownership interest in
Norampac Inc. (Norampac), a joint venture between Domtar Inc.
and Cascades Inc. We do not manage the day-to-day operations of
Norampac. The Board of Directors of Norampac is composed of four
representatives from each of Domtar Inc. and Cascades Inc. The
Chairman of the Board is proposed by Domtar Inc. and appointed
by the Board, while the President and Chief Executive Officer is
proposed by Cascades Inc. and appointed by the Board.
Norampacs debt is non-recourse to Domtar Inc. As required
by Canadian GAAP, we account for our 50% interest in Norampac
using the proportionate consolidation method. Norampacs
network of 25 corrugated packaging plants, strategically
located across Canada and the United States, provides
full-service packaging solutions and produces a broad range of
products. Norampacs eight containerboard mills (located in
Ontario, Quebec, British Columbia, New York State and northern
France), having a combined annual capacity of approximately
1.6 million tons, directly or indirectly supply essentially
all the container-board requirements of the converting plants.
Our Packaging business represented 12% of our consolidated sales
during the year ended December 31, 2004.
RECENT DEVELOPMENTS
On May 11, 2005, Standard & Poors Ratings
Services announced it had lowered our long-term corporate credit
and senior unsecured debt ratings to BB+ (stable outlook) from
BBB- (negative outlook). On May 11, 2005, Moodys
Investors Service announced it had placed our Baa3 senior
unsecured debt rating on review for possible downgrade.
USE OF PROCEEDS
Unless we state otherwise in a prospectus supplement, we will
use the net proceeds from the sale of debt securities described
in this prospectus for general corporate purposes, including
refinancing of existing debt.
4
EARNINGS COVERAGE
The following consolidated earnings coverage ratios are
calculated as at December 31, 2004 and March 31, 2005,
and give effect to the issuance, repayment or redemption of all
long term debt of Domtar Inc. and its subsidiaries since
December 31, 2004. These earnings coverage ratios do not
give effect to the proposed issuance of any debt securities
pursuant to this prospectus and any prospectus supplement, since
the aggregate principal amounts and the terms of such securities
are not presently known. Domtars interest requirements
amounted to $154 million and $148 million for the
12 months ended December 31, 2004 and March 31,
2005, respectively. Domtars earnings before interest,
income tax and non-controlling interest for the 12 months
ended December 31, 2004 and March 31, 2005, were
$54 million and $121 million, respectively. The
incremental dollar amount of earnings required to attain a ratio
of one-to-one would have been $100 million and
$27 million for these periods.
DESCRIPTION OF DEBT SECURITIES
We may issue the debt securities in one or more series under an
indenture, which we refer to as the indenture, between us and
JPMorgan Chase Bank, as trustee. The following description of
the terms and provisions of the debt securities and the
indenture is a summary. It summarizes only those portions of the
indenture that we believe will be most important to your
decision to invest in our debt securities. You should keep in
mind, however, that it is the indenture, and not this summary,
which defines your rights as a debtholder. There may be other
provisions in the indenture which are also important to you. You
should read the indenture for a full description of the terms of
the debt securities. A copy of the form of indenture is filed as
an exhibit to the registration statement that includes this
prospectus. See Where You Can Find More Information
for information on how to obtain a copy of the indenture. In
this section only, we, us,
our or Domtar refer only to Domtar Inc.
without any of its subsidiaries.
Under applicable Canadian law, a Canadian licensed trust company
may be required to be appointed as co-trustee under the
indenture in certain circumstances. We will apply to the
appropriate Canadian regulatory authorities for exemptive relief
from this and other requirements of Canadian law applicable to
the indenture. If we do not obtain such relief, we will comply
with the applicable legislative requirements at the time of the
applicable offering.
The Debt Securities are Unsecured Obligations
Our debt securities will be unsecured obligations and will rank
equally with all of our existing and future unsecured and
unsubordinated obligations. We conduct a substantial portion of
our operations through subsidiaries and the debt securities will
be effectively subordinated to all existing and future
indebtedness and other liabilities of our subsidiaries.
Unless we state otherwise in the applicable prospectus
supplement, the indenture will not limit us or our subsidiaries
from incurring additional indebtedness or issuing other secured
or unsecured debt under the indenture or any other indenture
that we may have entered into or enter into in the future.
Terms of the Debt Securities
We may issue debt securities in one or more series, through a
supplement to the indenture or through a resolution of our board
of directors or an authorized committee of our board of
directors. You should refer to the applicable prospectus
supplement for the specific terms of the debt securities. These
may include the following:
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the title, designation and purchase price; |
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any limit upon the aggregate principal amount of the series; |
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the maturity date(s) or the method of determining the maturity
date(s); |
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the interest rate(s), if any, or the method for calculating the
interest rate(s), if any; |
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the interest payment dates and the record dates for the interest
payments; |
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the circumstances, if any, in which interest may be deferred; |
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the dates from which interest will accrue and the method of
determining those dates; |
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the place or places where we will pay principal, premium, if
any, and interest and where you may present the debt securities
for registration of transfer or exchange; |
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the place or places where notices and demands relating to the
debt securities and the indenture may be made; |
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any redemption or early payment provisions; |
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any sinking fund or other similar provisions; |
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authorized denominations if other than denominations of US$1,000; |
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currency, currencies, or currency units, if other than the
currency of the United States, in which principal, premium, if
any, and interest will be paid, or in which the debt securities
will be denominated; |
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any additions, modifications or deletions in the events of
default or covenants specified in the indenture relating to the
debt securities; |
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if other than the principal amount of the debt securities, the
portion of the principal amount of the debt securities that is
payable upon declaration of acceleration of maturity; |
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any additions or changes to the indenture necessary to permit or
facilitate issuing the debt securities of any series in bearer
form, registrable or not registrable as to principal, and with
or without interest coupons; |
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if the amount of payments of principal, premium, if any, and
interest on the debt securities may be determined with reference
to an index and how such amounts will be determined; |
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whether a temporary global security will be issued and the terms
upon which temporary debt securities may be exchanged for
definitive debt securities; |
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whether the debt securities will be issued in whole or in part
in the form of one or more global securities; |
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the identity of the depositary for any global securities; |
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the appointment of any paying agent(s); |
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the terms and conditions of any obligation or right we would
have or any option you would have to convert or exchange the
debt securities into other securities or cash or property of
Domtar or any other person and any changes to the indenture to
permit or facilitate such conversion or exchange; and |
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other specific terms, including any additional events of default
or covenants, not inconsistent with the provisions of the
indenture. |
(Section 301 of the indenture)
Special Payment Terms of the Debt Securities
We may issue one or more series of debt securities at a
substantial discount below their stated principal amount. These
debt securities may bear no interest or interest at a rate which
at the time of issuance is below market rates. We will describe
any Canadian and United States federal tax consequences and
special considerations relating to any series of debt securities
in the applicable prospectus supplement.
6
The purchase price of the debt securities of any series may be
payable in one or more foreign currencies or currency units. The
debt securities of any series may be denominated in one or more
foreign currencies or currency units, or the principal of,
premium, if any, or interest on the debt securities of any
series may be payable in one or more foreign currencies or
currency units. We will describe the restrictions, elections,
Canadian and United States federal income tax considerations,
specific terms and other information relating to any such series
of debt securities and any foreign currencies or foreign
currency units in the applicable prospectus supplement.
If we use any index to determine the amount of payments of
principal of, premium, if any, or interest on any series of debt
securities, we will also describe in the applicable prospectus
supplement the special Canadian and United States federal income
tax, accounting and other considerations applicable to the debt
securities of that series.
Denominations, Registration and Transfer
Unless we state otherwise in the applicable prospectus
supplement, we will issue the debt securities in fully
registered form without coupons and in denominations of US$1,000
and integral multiples of US$1,000. (Section 302 of the
indenture)
Except as we may describe in the applicable prospectus
supplement, debt securities of any series will be exchangeable
for other debt securities of the same issue and series, in any
authorized denominations, of a like aggregate principal amount
and having the same terms. You may present debt securities for
exchange as described above, or for registration of transfer, at
the office of the security registrar. You will not incur a
service charge but you will be required to pay any taxes and
other governmental charges as described in the indenture. We
will appoint the trustee as security registrar under the
indenture. (Section 305 of the indenture)
Global Debt Securities
We may issue all or any part of a series of debt securities in
the form of one or more global securities that will be deposited
with a depositary. Unless we state otherwise in the applicable
prospectus supplement, the depositary will be the Depository
Trust Company, or DTC. We will issue global debt securities in
registered form and in either temporary or definitive form.
Unless it is exchanged for individual debt securities, a global
security may not be transferred except:
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by the depositary to its nominee; |
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by a nominee of the depositary to the depositary or another
nominee; or |
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by the depositary or any nominee to a successor of the
depositary, or a nominee of the successor. (Section 305 of
the indenture) |
We will describe the specific terms of the depositary
arrangement in the applicable prospectus supplement. We expect
that the following provisions will generally apply to these
depositary arrangements.
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Beneficial Interests in a Global Debt
Security |
If we issue a global debt security, the depositary for the
global debt security or its nominee will credit on its
book-entry registration and transfer system the principal
amounts of the debt securities represented by the global debt
security to the accounts of persons that have accounts with it.
We refer to those persons as participants in this
prospectus. The accounts will be designated by the dealers,
underwriters or agents for the debt securities, or by us if the
debt securities are offered and sold directly by us. Ownership
of beneficial interests in a global debt security will be
limited to participants or persons who may hold interests
through participants. Ownership and transfers of beneficial
interests in the global debt security will be shown on, and
transactions can be effected only through, records maintained by
the applicable depositary or its nominee, for interests of
participants, and the records of participants, for interests of
persons who hold through participants. The laws of some states
may require that you take physical delivery
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of securities in definitive form. These limits and laws may
impair your ability to transfer beneficial interests in a global
debt security.
So long as the depositary or its nominee is the registered owner
of a global debt security, the depositary or nominee will be
considered the sole owner or holder of the debt securities
represented by the global debt security for all purposes under
the indenture. Except as provided below under Issuance of
Individual Debt Securities, you
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will not be entitled to have any of the debt securities
represented by the global debt security registered in your name; |
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will not receive or be entitled to receive physical delivery of
any debt securities in definitive form; and |
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will not be considered the owner or holder of the debt
securities under the indenture. |
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Payments of Principal, Premium and Interest |
We will make principal, premium, if any, and interest payments
on global debt securities to the depositary that is the
registered holder of the global debt security or its nominee.
The depositary for the global debt securities will be solely
responsible and liable for all payments made on account of your
beneficial ownership interests in the global debt security and
for maintaining, supervising and reviewing any records relating
to your beneficial ownership interests.
We expect that the depositary or its nominee, upon receipt of
any principal, premium or interest payment, immediately will
credit participants accounts with amounts in proportion to
their respective beneficial interests in the principal amount of
the global debt security as shown on the records of the
depositary or its nominee. We also expect that payments by
participants to you, as an owner of a beneficial interest in the
global debt security held through those participants, will be
governed by standing instructions and customary practices, as is
now the case with securities held for the accounts of customers
in bearer form or registered in street name. These
payments will be the responsibility of those participants.
Issuance of Individual Debt Securities
Unless we state otherwise in the applicable prospectus
supplement, if a depositary for a series of debt securities is
at any time unwilling, unable or ineligible to continue as
depositary and we do not appoint a successor depositary within
90 days, we will issue individual debt securities in
exchange for the global debt security. In addition, we may at
any time and in our sole discretion, subject to any limitations
described in the prospectus supplement relating to the debt
securities, determine not to have any debt securities
represented by one or more global debt securities. If that
occurs, we will issue individual debt securities in exchange for
the global debt security.
Further, we may specify that you may, on terms acceptable to us,
the trustee and the depositary, receive individual debt
securities in exchange for your beneficial interest in a global
debt security, subject to any limitations described in the
prospectus supplement relating to the debt securities. In that
instance, you will be entitled to physical delivery of
individual debt securities equal in principal amount to that
beneficial interest and to have the individual debt securities
registered in your name. Unless we otherwise specify, we will
issue those individual debt securities in denominations of
US$1,000 and integral multiples of US$1,000. (Section 305
of the indenture)
Payment of Additional Amounts
The indenture provides that we will make all payments of
principal, premium, if any, and interest on the debt securities
of any series free and clear of, and without withholding or
deduction for, or on account of, any taxes, duties, levies,
imposts, assessments or other governmental charges (which we
refer to in this prospectus as taxes) imposed or
levied by or on behalf of the government of Canada or of any
province
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or territory thereof or any political subdivision thereof, or by
any authority or agency therein or thereof having power to
impose or levy taxes, unless such withholding or deduction is
required by law or by the interpretation or administration
thereof. In the event we are required to withhold or deduct, we
will pay such additional amounts as may be necessary so that the
net amount received by each holder of affected debt securities,
after such withholding or deduction, will equal the amount that
the holder would have received without such withholding or
deduction. We refer to such payments in this prospectus as
additional amounts. We will not pay additional
amounts:
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to the extent that the taxes are imposed or levied by virtue of
the beneficial owner of the debt securities being a natural or
legal person with whom we do not deal at arms length, for
purposes of relevant Canadian tax law, at the time such payment
is made; |
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to the extent that the taxes are imposed or levied by virtue of
the beneficial owner of the debt securities not complying with
any certification, identification, information, documentation or
reporting requirement if such compliance is legally required to
exempt the beneficial owner from, or to reduce the amount of,
such deduction or withholding; or |
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to the extent that the taxes are imposed or levied by virtue of
the beneficial owner of the debt securities carrying on its
business in or being connected with Canada or any province or
territory thereof, other than by virtue of the mere holding of,
or receiving payments on, the debt securities.
(Section 1012 of the indenture) |
Redemption
Unless we state otherwise in the applicable prospectus
supplement, the debt securities will not be subject to any
sinking fund.
Unless we state otherwise in the applicable prospectus
supplement, we may, at our option and at any time, redeem any
series of debt securities, in whole or in part, at a redemption
price equal to 100% of the principal amount plus accrued and
unpaid interest up to but not including the redemption date.
(Section 1101 of the indenture) We may redeem debt
securities in part only in the amount of US$1,000 or integral
multiples of US$1,000 or, if the authorized denomination of such
debt securities is other than US$1,000, in the amount of such
other denomination or integral multiples of such denomination.
(Section 1102 of the indenture)
We will mail notice of any redemption of your debt securities at
least 30 days but not more than 60 days before the
redemption date to you at your registered address. Unless we
default in payment of the redemption price, on and after the
redemption date interest will cease to accrue on the debt
securities or the portions called for redemption.
(Sections 1105, 1107 of the indenture)
Covenants
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Consolidation, Merger and Sale of Assets |
We will not consolidate with, amalgamate with or merge into any
other person or convey, transfer or lease our properties and
assets substantially as an entirety to any person, and no person
may consolidate with or merge into us, unless:
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we will be the surviving company in any merger, amalgamation or
consolidation, |
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if we consolidate with, amalgamate with or merge into another
person or convey or transfer our properties and assets
substantially as an entirety to any person, the successor person
is an entity organized and validly existing under the laws of
the United States of America or any state thereof or the
District of Columbia, or the laws of Canada or any province or
territory thereof, and the successor entity expressly assumes
our obligations relating to the debt securities, |
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immediately after giving effect to the consolidation,
amalgamation, merger, conveyance or transfer, there exists no
event of default, and no event which, after notice or lapse of
time or both, would become an event of default, and |
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other conditions described in the indenture are met. |
This covenant would not apply to the direct or indirect
conveyance, transfer or lease of all or any portion of the
stock, assets or liabilities of any of our wholly owned
subsidiaries to us or to our other wholly owned subsidiaries. In
addition, this covenant would not apply to any recapitalization
transaction, a change of control of Domtar Inc. or a highly
leveraged transaction unless such transaction or change of
control were structured to include a merger, amalgamation or
consolidation by us or the conveyance, transfer or lease of our
properties and assets substantially as an entirety.
(Section 801 of the indenture)
With certain exceptions set forth below, the indenture provides
that neither we nor our restricted subsidiaries may create,
incur, assume or permit to exist any indebtedness for borrowed
money (including any guarantees of indebtedness for borrowed
money) that is secured by a mortgage, lien, pledge, or other
security interest (which we refer to in this prospectus as a
mortgage) upon any principal property belonging to
us or to any of our restricted subsidiaries, or on any shares of
capital stock or debt of any of our restricted subsidiaries,
whether such principal property, shares or debt are owned by us
or our restricted subsidiaries on the date of the indenture or
acquired in the future.
Unless we state otherwise in the applicable prospectus
supplement, the indenture permits us to incur secured debt if we
provide that the debt securities will be secured by a mortgage
equally and ratably with or in priority to the new secured debt.
In this event, we may also provide that any of our other debt,
including indebtedness guaranteed by us or by any of our
restricted subsidiaries, will be secured equally with or in
priority to the new secured debt. In addition, the indenture
provides that the restriction on incurring secured indebtedness
will not apply to:
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mortgages in favor of us or any wholly-owned restricted
subsidiary; |
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any mortgage to secure a purchase money obligation, so long as
the mortgage does not apply to other property owned by us or any
restricted subsidiary at the time of the commencement of the
construction or improvement of, or immediately prior to the
consummation of the acquisition of, the property that is subject
to the purchase money obligation; |
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mortgages existing upon any property or asset of the corporation
or other entity which is amalgamated or merged with or into or
is consolidated into, or substantially all the assets or shares
of capital stock of which are acquired by, us or any of our
restricted subsidiaries, at the time of such amalgamation,
merger, consolidation or acquisition, so long as any such
mortgage (1) does not extend to any other property or
asset, other than improvements to the property or asset subject
to such mortgage and (2) was not incurred in anticipation
of such amalgamation, merger, consolidation or acquisition; |
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mortgages securing obligations issued by Canada or any province
or territory thereof; the United States, any state thereof
or the District of Columbia; or any political subdivision,
agency or authority of any of the foregoing, to finance the
acquisition, construction or improvement of property subject to
such mortgages, including, among other things, mortgages
incurred in connection with pollution control, industrial
revenue or similar financings; |
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any mortgage required to be given or granted by any restricted
subsidiary pursuant to the terms of any trust deed or similar
document entered into by such restricted subsidiary prior to the
date on which it became a restricted subsidiary; |
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mortgages existing as of the date of the indenture; and |
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extensions, renewals, alterations or replacements of any
mortgage referred to in the preceding six clauses, subject to
certain limitations specified in the indenture.
(Section 1008 of the indenture). |
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Limitation on Sale and Leaseback
Transactions |
The indenture also restricts transactions involving the sale and
leaseback by us or any of our restricted subsidiaries of any of
our or their principal property, except for leases which will
not exceed three years, including renewals, unless the net
proceeds of the sale or transfer of the property to be leased
are at least equal to the fair market value of such property and
unless:
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the indenture would have allowed us or any of our restricted
subsidiaries to create a mortgage on such property to secure
debt in an amount at least equal to the attributable obligation
(as defined herein) in respect of such sale and leaseback
transaction without securing the debt securities pursuant to the
terms of the covenant described under Negative
Pledge above; or |
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within 180 days, we apply an amount equal to the greater of
the net proceeds or fair value (as determined in accordance with
the applicable provisions of the indenture) of the sale and
leaseback transaction to: |
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the voluntary retirement of indebtedness for borrowed money
incurred by us or any of our restricted subsidiaries and owed to
an unrelated party, which indebtedness matures more than one
year after the date on which it was incurred and which is senior
to or ranks equally with the debt securities in right of
payment; or |
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the purchase of additional property that will constitute or form
a part of principal property, and which has a fair market value
at least equal to the net proceeds or fair value of the sale and
leaseback transaction. (Section 1009 of the indenture) |
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Exemption for Specified Secured Debt and Sale and
Leaseback Transactions |
We and any of our restricted subsidiaries may create additional
mortgages securing debt (including extensions, renewals,
alterations or replacements thereof) or enter into sale and
leaseback transactions without being required to secure the debt
securities (in the case of the creation of mortgages) or repay
indebtedness or acquire property (in the case of sale and
leaseback transactions) so long as the sum of the aggregate
amount of this secured debt (not including secured debt that is
otherwise permitted as described above under the second
paragraph of Negative Pledge) and the value of all
of these sale and leaseback transactions (not including
transactions permitted as described under Limitation on
Sale and Leaseback Transactions) does not exceed ten
percent (10%) of our consolidated net tangible assets.
(Sections 1008 and 1009 of the indenture).
Certain Definitions
When we use the term attributable obligation, we
mean, in respect of a sale and leaseback transaction, the
present value (discounted at the rate of interest implicit in
such transaction, if known, or at the rate of 10% if such
implicit rate is not known) of the obligation of the lessee for
the net rental payments during the remaining term of the lease
(including any period for which such lease has been extended or
may, at the option of the lessor, be extended) entered into in
connection therewith, such present value to be established as at
the date as of which the amount of the payment is determined and
in accordance with Canadian GAAP as in effect from time to time.
The term net rental payments under any lease for any
period means the sum of the rental and other payments required
to be paid in such period by the lessee thereunder, not
including, however, any amounts required to be paid by such
lessee (whether or not designated as rental or additional
rental) on account of indemnities (other than any constituting
basic rent) or maintenance and repairs, insurance, taxes,
assessments, water rates, utilities or similar charges required
to be paid by such lessee thereunder or any amounts required to
be paid by such lessee thereunder contingent upon the amount of
sales, production or other measures of economic performance.
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When we use the term consolidated net tangible
assets, we mean, with respect to any person, the total of
all assets appearing on the most recent consolidated balance
sheet of such person, less the sum of the following amounts
appearing on such consolidated balance sheet:
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amounts, if any, at which goodwill, trademarks, trade names,
copyrights, patents and other similar intangible assets (other
than timber licenses) and unamortized stock or debt commission,
discount, expense and premium shall appear as assets, |
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all amounts at which investments in subsidiaries which are not
being consolidated shall appear on such consolidated balance
sheet as assets, |
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the amount of all liabilities appearing on such consolidated
balance sheet as current liabilities, and |
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any minority interest appearing on such consolidated balance
sheet, |
all as determined on a consolidated basis in accordance with
Canadian GAAP as in effect from time to time, except that our
investment in Norampac will be accounted for as an equity
investment.
When we use the term principal facility, we mean any
mill, converting plant or manufacturing plant owned or leased at
the date of the indenture or acquired or leased by us or any
subsidiary after such date and which is located within Canada or
the United States, other than any mill or plant the fair value
of which as determined by our board of directors does not at the
time exceed 1% of our consolidated net tangible assets.
When we use the term principal property, we mean, as
the context may require, any real or immovable property forming
part of or constituting any principal facility or timberlands.
When we use the term purchase money obligation, we
mean any indebtedness, whether or not secured, incurred in
respect of the cost of acquisition of any property (including
shares of capital stock or debt, each as defined in the
indenture) or of the cost of construction or improvement of any
property acquired, constructed or improved after the date of the
indenture, which indebtedness existed at the time of acquisition
or was created, issued, incurred, assumed or guaranteed
contemporaneously with the acquisition, construction or
improvement or within 120 days after the completion thereof
(or subsequently if created pursuant to a firm commitment
financing arrangement obtained within such 120-day period,
provided that the related indebtedness is created within
90 days after the expiration of such 120-day period) and
includes any extension, renewal or refunding of any such
indebtedness if the principal amount thereof outstanding on the
date of such extension, renewal or refunding is not increased.
When we use the term restricted subsidiary, we mean
(a) a subsidiary which, as at the end of our then most
recently completed fiscal quarter, had consolidated net tangible
assets representing 5% or more of our consolidated net tangible
assets and owns or leases any interest in a principal property
and (b) any other subsidiary which our board of directors
shall have determined to be a restricted subsidiary. Any
determination mentioned in (b) shall be irrevocable,
provided, however, that our board of directors may
determine that a restricted subsidiary described in
(b) shall cease to be a restricted subsidiary if:
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a person other than us or a restricted subsidiary shall hold a
minority interest in such restricted subsidiary of at least 15%
of the common shareholders equity (or equivalent equity
interests) of such restricted subsidiary, and |
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immediately after such restricted subsidiary becomes an
unrestricted subsidiary, no event of default or event which,
with the giving of notice or passage of time, would constitute
an event of default, shall exist. |
When we use the term timberlands, we mean any real
or immovable property located within Canada or the United States
and (a) which is owned by us or any subsidiary and
contains, or (b) with respect to which we or any subsidiary
is entitled under any lease, license or similar agreement to cut
and remove, standing timber which is (or upon completion of a
growth cycle then in process is expected to become) of a
commercial quantity and of merchantable quality, other than
(i) any such property which at the time of determination is
not held primarily for the production of lumber or other wood
products,
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(ii) any such property the fair value of which as
determined by our board of directors does not at the time exceed
1% of our consolidated net tangible assets or (iii) any
reserves of oil and gas located under such property.
(Section 101 of the indenture)
Modification of the Indenture
We and the trustee under the indenture may, without the consent
of any holders of debt securities, enter into supplemental
indentures that amend, waive or supplement the terms of the
indenture for specified purposes. These purposes include:
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to evidence the succession of another person to us as the
obligor under the indenture and the debt securities; |
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to convey, transfer, assign, mortgage or pledge any property to
or with the trustee; |
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to surrender any right or power the indenture may confer on us; |
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to provide for the issuance under the indenture of debt
securities in bearer form and to provide for exchangeability of
such securities for debt securities to be issued under the
indenture in fully registered form; |
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to establish the form or terms of debt securities of any series
as permitted by the indenture; |
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to add to the covenants made in the indenture for the benefit of
the holders of all debt securities, or of all debt securities of
any particular series; |
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to add any additional events of default; |
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to secure the debt securities; |
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to evidence and provide for the acceptance of appointment by an
additional or successor trustee with respect to the debt
securities of one or more series; |
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to cure any ambiguity, defect or inconsistency in the indenture,
so long as the rights of any holder of debt securities are not
adversely affected in any material respect; or |
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to maintain the qualification of the indenture under the Trust
Indenture Act or other applicable law. |
(Section 901 of the indenture)
We and the trustee under the indenture may modify and amend the
indenture with the consent of the holders of not less than a
majority in aggregate principal amount of the series of debt
securities affected. However, no modification or amendment may,
without the consent of the holder of each outstanding debt
security affected:
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change the stated maturity of the principal of, or any
installment of interest payable on, any outstanding debt
security; |
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reduce the principal amount of, or the rate of interest on, any
outstanding debt securities or the premium, if any, payable upon
the redemption thereof, or the amount of principal of an
original issue discount security, that would be due and payable
upon redemption of such security or would be provable in
bankruptcy, or adversely affect any right of repayment of the
holder of any outstanding debt security; |
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reduce the amount of principal of a debt security payable upon
acceleration of the maturity thereof; |
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change the place of payment or the currency in which the
principal of or premium, if any, or the interest on any
outstanding debt security is payable; |
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impair your right to institute suit for the enforcement of any
payment on or with respect to any outstanding debt security; |
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reduce the percentage of the holders of outstanding debt
securities necessary to modify or amend the indenture, to waive
compliance with certain provisions of the indenture or certain
defaults and consequences of the defaults or to reduce the
quorum or voting requirements set forth in the indenture; or |
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modify any of these provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action
or to provide that certain other provisions may not be modified
or waived without the consent of all of the holders of the debt
securities affected; or |
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modify the circumstances under which we must pay certain
additional amounts to holders of the debt securities. |
(Section 902 of the indenture)
The holders of not less than a majority in aggregate principal
amount of the outstanding debt securities of any series may, on
behalf of the holders of all debt securities of that series,
waive compliance by us with certain restrictive provisions of
the indenture. (Section 1011 of the indenture) The holders
of not less than a majority in aggregate principal amount of the
outstanding debt securities of a series may, on behalf of the
holders of all debt securities of that series, waive past
defaults by us under certain covenants of the indenture which
relate to that series. However, a default in the payment of the
principal of, premium, if any, or interest on, any debt security
of that series or relating to a provision which under the
indenture cannot be modified or amended without the consent of
the holder of each outstanding debt security of that series
affected cannot be so waived. (Section 513 of the indenture)
Events of Default
Under the terms of the indenture, each of the following
constitutes an event of default for a series of debt securities:
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failure to pay principal, or premium, if any, when due; |
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failure to pay any interest when due, continued for 30 days; |
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failure to perform any other covenant contained in the indenture
continued for 60 days, after written notice; |
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certain events of bankruptcy, insolvency or
reorganization; and |
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any event of default described in the applicable supplemental
indenture or board resolution under which the series of debt
securities is issued. |
(Section 501 of the indenture)
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Effect of an Event of Default |
If an event of default exists (other than an event of default in
the case of certain events of bankruptcy), the trustee or the
holders of not less than 25% in aggregate principal amount of a
series of outstanding debt securities may declare the principal
amount, or, if the debt securities are original issue discount
securities, the portion of the principal amount as may be
specified in the terms of that series, of the debt securities of
that series to be due and payable immediately, by a notice in
writing to us, and to the trustee if given by holders. Upon that
declaration the principal (or specified) amount will become
immediately due and payable. However, at any time after a
declaration of acceleration has been made, but before a judgment
or decree for payment of the money due has been obtained, the
holders of not less than a majority in aggregate principal
amount of a series of outstanding debt securities may, subject
to conditions specified in the indenture, rescind and annul that
declaration.
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If an event of default in the case of certain events of
bankruptcy exists, the principal amount of all debt securities
outstanding under the indenture shall automatically, and without
any declaration or other action on the part of the trustee or
any holder of such outstanding debt, become immediately due and
payable. (Section 502 of the indenture)
Subject to the provisions of the indenture relating to the
duties of the trustee, if an event of default then exists, the
trustee will be under no obligation to exercise any of its
rights or powers under the indenture (other than the payment of
any amounts on the debt securities furnished to it pursuant to
the indenture) at your (or any other persons) request,
order or direction, unless you have (or such other person has)
offered to the trustee reasonable security or indemnity. Subject
to the provisions for the security or indemnification of the
trustee, the holders of a majority in aggregate principal amount
of a series of outstanding debt securities have the right to
direct the time, method and place of conducting any proceeding
for any remedy available to the trustee, or exercising any trust
or power conferred on the trustee in connection with the debt
securities of that series. (Sections 601, 512 of the
indenture)
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Legal Proceedings and Enforcement of Right to
Payment |
You will not have any right to institute any proceeding in
connection with the indenture or for any remedy under the
indenture, unless you have previously given to the trustee
written notice of a continuing event of default with respect to
debt securities of any series. In addition, the holders of at
least 25% in aggregate principal amount of a series of the
outstanding debt securities must have made written request, and
offered reasonable security or indemnity, to the trustee to
institute that proceeding as trustee, and, within 60 days
following the receipt of that notice, the trustee must not have
received from the holders of a majority in aggregate principal
amount of the outstanding debt securities of that series a
direction inconsistent with that request, and must have failed
to institute the proceeding. However, you will have an absolute
and unconditional right to receive payment of the principal of,
premium, if any, and interest on that debt security on or after
the due dates expressed in the debt security (or, in the case of
redemption, on or after the redemption date) and to institute a
suit for the enforcement of that payment. (Section 507 of
the indenture)
We are required to furnish to the trustee an annual statement as
to compliance with all conditions and covenants under the
indenture. (Section 1004 of the indenture) The indenture
provides that the trustee may withhold notice to you of any
default, except in respect of the payment of principal or
interest on the debt securities, if it considers it in the
interests of the holders of the debt securities to do so.
(Section 602 of the indenture)
Satisfaction and Discharge
The indenture provides that when, among other things, all debt
securities not previously delivered to the trustee for
cancellation:
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have become due and payable, or |
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will become due and payable at their stated maturity within one
year, or |
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are to be called for redemption within one year under
arrangements satisfactory to the trustee for the giving of
notice of redemption by the trustee in our name and at our
expense, |
and we deposit or cause to be deposited with the trustee, in
trust, an amount of money or US government obligations, or a
combination thereof (such amount to be certified in the case of
US government obligations) sufficient to pay and discharge the
entire indebtedness on the debt securities not previously
delivered to the trustee for cancellation, for the principal,
and premium, if any, and interest to the date of the deposit or
to the stated maturity or redemption, as the case may be, then
the indenture will cease to be of further effect, and we will be
deemed to have satisfied and discharged the indenture. However,
we will continue to be obligated to pay all other sums due under
the indenture and to provide the officers certificates and
opinions of counsel described in the indenture.
(Section 401 of the indenture)
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Defeasance and Covenant Defeasance
Unless we state otherwise in the applicable prospectus
supplement, the indenture provides that we may discharge all of
our obligations, other than as to transfers and exchanges, under
the debt securities of any series at any time, and that we may
also be released from our obligations described above under
Negative Pledge and Limitation on Sale and
Leaseback Transactions and certain aspects of our
obligations described above under Consolidation, Merger
and Sale of Assets and from certain other obligations,
including obligations imposed by a supplemental indenture, if
any, and elect not to comply with those sections and obligations
without creating an event of default. Discharge under the first
procedure is called defeasance and under the second
procedure is called covenant defeasance.
Defeasance and covenant defeasance may be effected only if,
among other things:
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we irrevocably deposit with the trustee cash or United States
government obligations or a combination thereof, as trust funds
in an amount certified to be sufficient to pay on each date that
they become due and payable, the principal of, premium, if any,
and interest on all outstanding debt securities of that series; |
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we deliver to the trustee an opinion of counsel in the United
States to the effect that: |
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the holders of debt securities of such series will not recognize
income, gain or loss for United States federal income tax
purposes as a result of the defeasance or covenant
defeasance; and |
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the defeasance or covenant defeasance will not otherwise alter
those holders United States federal income tax treatment
of principal and interest payments on the debt securities of
such series; |
in the case of defeasance, this opinion must be based on a
ruling of the Internal Revenue Service or a change in United
States federal income tax law occurring after the date of this
prospectus, since that result would not occur under current tax
law; and
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we deliver to the trustee an opinion of counsel in Canada to the
effect that: |
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the holders of the debt securities of such series will not
recognize income, gain or loss for Canadian federal or
provincial income or other tax purposes as a result of such
defeasance or covenant defeasance; and |
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the defeasance or covenant defeasance will not otherwise alter
those holders Canadian federal income tax treatment of
principal and interest payments on the debt securities of such
series; |
in the case of defeasance, this opinion must be based on a
ruling of the Canada Customs and Revenue Agency or a change in
Canadian income tax law occurring after the date of this
prospectus, since that result would not occur under current tax
law; and
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no event of default under the indenture has occurred and is
continuing; |
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we are not an insolvent person within the meaning of
the Bankruptcy and Insolvency Act (Canada) on the date of
such deposit or, in the case of defeasance, at any time during
the period ended on the
91st day
following such deposit; |
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we have delivered to the trustee an opinion of counsel to the
effect that such deposit shall not cause the trustee or the
trust so created to be subject to the US Investment Company Act
of 1940, as amended; and |
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other conditions specified in the indenture, including the
delivery of certain legal opinions and officers
certificates, have been satisfied. (Article Twelve of the
indenture) |
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Payment and Paying Agents
Unless we state otherwise in the applicable prospectus
supplement, we will pay principal of, premium, if any, and
interest on your debt securities at the office of the trustee
for your debt securities in the City of New York or at the
office of any paying agent that we may designate. We may at any
time designate additional paying agents or rescind the
designation of any paying agent. We must maintain a paying agent
in each place of payment for the debt securities.
(Sections 1001, 1002 of the indenture)
Unless we state otherwise in the applicable prospectus
supplement, we will pay any interest on debt securities to the
registered owner of the debt security at the close of business
on the regular record date for the interest, except in the case
of defaulted interest. (Section 307 of the indenture)
Any moneys deposited with the trustee or any paying agent, or
then held by us in trust, for the payment of the principal of,
premium, if any, and interest on any debt security that remain
unclaimed for two years after the principal, premium or interest
has become due and payable will, at our request, be repaid to
us. After repayment to us, you are entitled to seek payment only
from us as a general unsecured creditor. (Section 1003 of
the indenture)
Enforceability of Judgments
Since a significant portion of our assets and certain of our
subsidiaries, as well as the assets of a number of our directors
and officers, are outside the United States, any judgment
obtained in the United States against us, including
judgments with respect to the payment of principal, premium, if
any, or interest on the notes may not be collectible within the
United States.
We have been advised by our Canadian counsel, Ogilvy Renault
LLP, that the laws of the Province of Quebec permit a motion to
be brought before a court of competent jurisdiction in the
Province of Quebec to recognize and enforce a judgment in
personam of any federal or state court located in the Borough of
Manhattan in the City of New York (the New York
Court) that is not impeachable as void or voidable under
the laws of the State of New York (the New York
Laws) for a sum certain unless: (i) the New York
Court rendering such judgment does not have jurisdiction over
the judgment debtor (although submission by us in the indenture
to the non-exclusive jurisdiction of the New York Court will be
sufficient for that purpose); (ii) such judgment is not
final and enforceable at the place it was rendered;
(iii) such judgment was rendered in contravention of the
fundamental principles of procedure; (iv) there were
proceedings pending in the Province of Quebec or judgment was
rendered in the Province of Quebec or in a third country meeting
the necessary conditions for recognition in the Province of
Quebec between the same parties, based on the same facts and
having the same object; (v) such judgment is manifestly
inconsistent with public order as understood in international
relations, as that term is applied by a court of competent
jurisdiction in the Province of Quebec; (vi) such judgment
enforces obligations arising from the taxation laws of a foreign
country, unless there is reciprocity, or arising from other laws
of a public nature, such as penal or expropriation laws;
(vii) the action to enforce such judgment is not commenced
in the Province of Quebec within the applicable prescriptive
period; or (viii) the foreign judgment is contrary to an
order made by the Attorney General of Canada under the
Foreign Extraterritorial Measures Act (Canada) or by the
Competition Tribunal under the Competition Act (Canada)
in respect of certain judgments defined therein.
If the judgment of the New York Court is rendered by default,
the plaintiff must prove that the act of procedure initiating
the proceedings was duly served on the defendant (in accordance
with the laws of the place where such judgment was rendered,
i.e., New York Laws), and a court of competent jurisdiction in
the Province of Quebec may refuse recognition or enforcement of
the judgment if the defendant proves that, owing to the
circumstances, it was unable to learn of the act of procedure or
it was not given sufficient time to offer its defense.
In any such motion brought before a court of competent
jurisdiction in the Province of Quebec, the court will confine
itself to verifying whether the judgment of the New York Court
meets the foregoing requirements without entering into any
examination of the merits of the judgment.
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Under the Currency Act (Canada), a court of competent
jurisdiction in the Province of Quebec may only render judgment
for a sum of money in Canadian currency, and in enforcing a
foreign judgment for a sum of money in a foreign currency, a
court of competent jurisdiction in the Province of Quebec will
render its decision in the Canadian currency equivalent of such
foreign currency calculated at the rate of exchange prevailing
on the date the judgment become enforceable at the place where
it was rendered.
In the opinion of Ogilvy Renault LLP, there are no reasons under
the present laws of the Province of Quebec for avoiding
recognition of judgments of a New York Court under the
indenture, or the notes issued thereunder, based upon public
order as understood in international relations, as the term is
applied by a court of competent jurisdiction in the Province of
Quebec.
The recognition and enforceability in the Province of Quebec of
any such judgment of the New York Court may be limited by
applicable Canadian federal and provincial bankruptcy
insolvency, reorganization, arrangement, winding-up, moratorium,
or other laws generally affecting the enforceability of
creditors rights.
We have also been advised by Ogilvy Renault LLP that an action
could be brought against us in the first instance in a court of
competent jurisdiction in the Province of Quebec on the basis of
civil liability predicated solely upon the United States federal
securities laws if such court is satisfied that the
United States is the Lex loci delicit (that is, the
place where the wrong was committed) for such a claim, subject
to such courts inherent discretion to decline to hear such
an action where it is not the convenient forum or where
concurrent proceedings are being brought elsewhere.
Governing Law
The debt securities and the indenture will be governed by and
construed in accordance with the laws of the State of New York.
Information Concerning the Trustee
The trustee under the indenture will have all the duties and
responsibilities of an indenture trustee specified in the Trust
Indenture Act. The trustee is not required to expend or risk its
own funds or otherwise incur financial liability in performing
its duties or exercising its rights and powers if it reasonably
believes that it is not reasonably assured of repayment or
adequate indemnity. (Section 601 of the indenture)
JPMorgan Chase Bank is the trustee under the indenture. The
trustees current address is 4 New York Plaza,
15th
Floor, New York, New York 10004, Attention: Institutional
Trust Services.
The trustee under the indenture acts as depositary for funds of,
makes loans to, and/or performs other services for, us and our
subsidiaries in the normal course of business.
Consent to Jurisdiction and Service
Domtar has designated CT Corporation System, 111 Eighth Avenue,
New York, New York 10011, as its authorized agent for service of
process in the United States in any suit, action or proceeding
with respect to the indenture or any debt securities.
(Section 116 of the indenture)
PLAN OF DISTRIBUTION
We may offer and sell the debt securities to or through
underwriters or dealers purchasing as principals, and may also
sell the debt securities to one or more purchasers directly or
through agents. Debt securities may be sold from time to time in
one or more transactions at a fixed price or prices, or at
non-fixed prices. If offered on a non-fixed price basis, the
debt securities may be offered at prevailing market prices at
the time of sale or at prices to be negotiated with purchasers.
The prices at which the debt securities may be offered may vary
as between purchasers and during the period of distribution;
consequently, any dealers overall compensation will
increase or decrease by the amount by which the
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aggregate price paid for the debt securities by the purchasers
exceeds or is less than the gross proceeds paid by the dealers,
acting as principals, to us.
If, in connection with the offering of debt securities at a
fixed price or prices, the underwriters, dealers or agents, as
the case may be, have made a bona fide effort to sell all of the
debt securities at the initial offering price fixed in the
applicable prospectus supplement, the public offering price may
be decreased and thereafter further changed, from time to time,
to an amount not greater than the initial public offering price
fixed in such prospectus supplement, in which case the
compensation realized by the underwriters will be decreased by
the amount that the aggregate price paid by purchasers for the
debt securities is less than the gross proceeds paid by the
underwriters to us.
A prospectus supplement will identify each underwriter, dealer
or agent engaged by us, as the case may be, in connection with
the offering and sale of a particular series or issue of debt
securities, and will also set forth the terms of the offering,
including the public offering price (or the manner of
determination thereof if offered on a non-fixed price basis),
the proceeds to us and any compensation payable to the
underwriters, dealers or agents.
We may solicit directly offers to purchase the debt securities,
and we may directly sell the debt securities to institutional or
other investors. We will describe the terms of any direct sales
in the applicable prospectus supplement.
We may authorize our agents and underwriters to solicit offers
by certain institutions to purchase the securities at the public
offering price under delayed delivery contracts. If we use
delayed delivery contracts we will disclose that we are using
them in the applicable prospectus supplement and will describe
the terms and conditions in the applicable prospectus
supplement, including:
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when we will demand payment and delivery of the debt securities
under the delayed delivery contracts; and |
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the commission that underwriters and agents soliciting purchases
of the debt securities under delayed delivery contracts will be
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Under agreements which may be entered into by us, underwriters,
dealers and agents who participate in the distribution of the
debt securities may be entitled to indemnification by us against
certain liabilities, including liabilities arising out of any
misrepresentation in this prospectus and the documents
incorporated by reference herein, other than liabilities arising
out of a misrepresentation made by underwriters, dealers or
agents who participate in the offering of the debt securities.
The underwriters, dealers or agents with whom we enter into
agreements may be customers of, engage in transactions with or
perform services for us in the ordinary course of business.
In connection with any offering of debt securities, the
underwriters, dealers or agents, as the case may be, may
over-allot or effect transactions which stabilize or maintain
the market price of the debt securities of such series or issue
at a level above that which might otherwise prevail in the open
market. Such transactions, if commenced, may be discontinued at
any time. Unless indicated in the applicable prospectus
supplement, we do not expect to apply to list the debt
securities on a securities exchange. Any underwriters, dealers
or agents to or through whom debt securities are sold by us for
public offering and sale may make a market in the debt
securities, but such underwriters, dealers or agents will not be
obligated to do so and may discontinue any market making at any
time without notice. No assurance can be given that a trading
market in the debt securities of any series or issue will
develop or as to the liquidity of any trading market for the
debt securities.
Unless we state otherwise in the applicable prospectus
supplement, the debt securities will not be qualified for sale
under the securities laws of Canada or any province or territory
of Canada, and may not be offered or sold, directly or
indirectly, in Canada or to residents of Canada in contravention
of the securities laws of any province or territory of Canada.
Each underwriter and each dealer participating in the
distribution of debt securities will agree that, unless
otherwise indicated in the applicable prospectus supplement, it
will not, directly or indirectly, offer, sell or deliver any
debt securities purchased by it in connection with such
distribution, in Canada or to residents of Canada in
contravention of the securities law of any province or territory
of Canada.
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RISK FACTORS
You should carefully consider the risks described below and
the other information in this prospectus before investing in our
debt securities. The risks and uncertainties described below are
not the only ones we may face. Additional risks and
uncertainties that we are unaware of, or that we currently deem
to be immaterial, may also become important factors that affect
us. If any of the following risks actually occurs, our business,
financial condition or results of operations could be materially
adversely affected, with the result that the trading price of
our debt securities could decline and you could lose all or part
of your investment.
Product Prices and Industry Conditions
Our financial performance is sensitive to the selling prices of
our products that are impacted by supply and demand.
The markets for most paper, pulp, lumber and packaging products
are cyclical and are influenced by a variety of factors beyond
our control. These factors include periods of excess product
supply due to industry capacity additions, periods of decreased
demand due to weak general economic activity in North America or
international markets, inventory de-stocking by customers, and
fluctuations in currency exchange rates. Demand for lumber also
depends on the level of housing starts, commercial building
activity and the availability and cost of mortgage financing.
In addition, we may compete with product substitutes, which can
impact demand for our products. Our paper products compete with
electronic transmission and document storage alternatives, as
well as grades of paper we do not produce. As the use of these
alternatives grows, demand for our paper products may decline or
shift to other paper grades. Moreover, demand for some of our
wood products may decline if customers purchase steel
alternatives. Demand for some of our corrugated container
products may decline if customers purchase plastic alternatives.
During periods of low prices, we have experienced in the past,
and could experience in the future, reduced revenues and
margins, resulting in substantial declines in profitability and
sometimes, net losses.
Any substantial shift in demand for our products or sustained
period of low prices could have a material adverse effect on our
business, financial results and financial condition, including,
but not limited to, facility closures or impairment of assets.
Foreign Exchange
The revenues for most of our products are affected by
fluctuations in the exchange rate between the Canadian dollar
and the U.S. dollar. As a result, any decrease in the value
of the U.S. dollar relative to the Canadian dollar reduces
our profitability. Our U.S. dollar sales, net of
U.S. dollar purchases for our operating activities,
represent approximately US$1 billion annually (excluding
Norampac). In addition, our sales in Canada are impacted by the
exchange rate fluctuations, as the prices for many of our
products are generally driven by U.S. prices of similar
products. Our exposure to the U.S. dollar is reduced by
interest on our U.S. dollar denominated debt (approximately
$0.1 billion annually, excluding Norampac). Exchange rate
fluctuations are beyond our control and the U.S. dollar may
continue to depreciate against the Canadian dollar in the
future, which would result in lower revenues and margins.
Sustained periods of a strong Canadian dollar could have a
material adverse effect on our business, financial results and
financial condition, including, but not limited to, facility
closures or impairment of assets.
Operational Risks
The activities conducted by our businesses are subject to a
number of operational risks including competition, performance
of key suppliers and distributors, renewal of collective
agreements, regulatory risks, successful integration of new
acquisitions, retention of key personnel and reliability of
information systems. In addition, operating costs for our
businesses can be affected by changes in energy prices, fiber
prices, other raw material prices and freight costs as a result
of changing economic or political conditions or due to
particular supply and demand considerations.
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We use hardwood and softwood fiber for the production of paper
and softwood for the production of lumber. Our forestry strategy
is to optimize wood flows within our fiber supply area and to
maximize value and minimize cost while securing an adequate wood
supply for our operations. Our hardwood and softwood fiber
resources are obtained from harvesting rights on public lands,
purchases from third parties and from our owned land.
The Province of Quebec has adopted new legislation, which became
effective April 1, 2005, that reduces allowable
wood-harvesting volumes by an average of 20% on public lands and
25% on territories covered by an agreement between the
Government of Quebec and the Cree First Nations. As a result,
the amount of fiber we are permitted to harvest annually under
our existing licenses from the Quebec government will be reduced
by approximately 500,000 cubic meters. This will only affect the
supply of fiber for our Northern Quebec softwood sawmill and
market pulp operations.
We are currently working on finding solutions such as seeking
alternate sources of fiber. If we are unable to maintain an
adequate supply of fiber, our Northern Quebec softwood sawmill
and market pulp operations would have to operate significantly
below their capacity, which would have a material adverse impact
on these operations and may result in closures or impairment of
assets.
There is no assurance that access to fiber will continue at the
same levels achieved in the past. The cost of hardwood and
softwood fiber and the availability of wood chips may be
affected.
Environment
We are subject to U.S. and Canadian environmental laws and
regulations for effluent and air emissions, harvesting,
silvicultural activities, waste management and groundwater
quality, among others. These laws and regulations require us to
obtain and comply with the authorization requirements of the
appropriate governmental authorities, who exercise considerable
discretion for permit issuances and their timing. Changes in
environmental laws and regulations and/or their application may
require us to make significant expenditures that could
negatively impact our financial results and financial condition.
Failure to comply with applicable environmental laws,
regulations and permit requirements may result in fines,
penalties or enforcement actions by the regulators, including
regulatory or judicial orders enjoining or curtailing operations
or requiring corrective measures, installation of environmental
control equipment or remedial actions, any of which could entail
significant expenditures and negatively impact our financial
results and financial condition.
We continue to take remedial action under our Care and Control
program at a number of former operating sites, especially in the
wood preserving sector, due to possible soil, sediment or
groundwater contamination. The investigation and remediation
process is lengthy and subject to the uncertainties of changes
in legal requirements, technological developments and the
allocation of liability among potentially responsible
parties.
In addition, the pulp and paper industry in the United States is
subject to Cluster Rules and Boiler M.A.C.T. (Maximum Achievable
Control Technology) Rules that further regulate effluent and air
emissions. We comply with all present regulations in all
material respects.
Lumber Export Duties
The United States Department of Commerce announced that it had
imposed cash deposit requirements on the Canadian softwood
lumber industry with a final aggregate countervailing and
antidumping rate of 27.22%, that is, 18.79% for countervailing
and 8.43% for antidumping. Since May 22, 2002, based upon a
final decision of the United States International Trade
Commission, we have made the required cash deposits on our
exports of softwood lumber to the United States. The Canadian
government has challenged both the countervailing and
antidumping rates with the World Trade Organization and the
North American Free Trade Agreement. As of January 1, 2005,
cash deposits for countervailing and
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antidumping duties are being made and expensed by Domtar at a
new rate of 20.95%, that is, 17.17% for countervailing and 3.78%
for antidumping.
We are currently experiencing, and may continue to experience,
reduced revenues and margins in our Wood business as a result of
countervailing and antidumping duty applications or any new
arrangements between the United States and Canada.
Legal Proceedings
In the normal course of our operations, we become involved in
various legal actions mostly related to contract disputes,
patent infringements, environmental and product warranty claims
and labor issues. While the final outcome with respect to
actions outstanding or pending cannot be predicted with
certainty, it is our belief that their resolution will not have
a material adverse effect on our financial position, earnings or
cash flows.
In April 2003, the Canadian Competition Bureau (the
Bureau) began an investigation of Canadas
major distributors of carbonless paper and other fine paper
products, including our Paper Merchants in Canada. In March
2004, the Bureau expanded its investigation to include dealings
between the Corporation and Xerox Canada Limited. Although the
investigation is continuing, we are not able to predict the
outcome of this investigation or the impact, if any, it may have
on us.
LEGAL MATTERS
Certain legal matters in connection with this offering will be
passed upon on our behalf by Ogilvy Renault LLP and
Debevoise & Plimpton LLP. If any underwriters named in
a prospectus supplement retain their own counsel to pass upon
legal matters relating to the debt securities, the counsel will
be named in the prospectus supplement.
EXPERTS
Our auditors are PricewaterhouseCoopers LLP, Chartered
Accountants, 1250 René Lévesque Boulevard West,
Suite 2800, Montreal, Quebec, H3B 2G4. Our consolidated
financial statements as of December 31, 2004 and 2003 and
for each of the three years in the three year period ended
December 31, 2004 incorporated by reference in this
prospectus have been so included in reliance upon the report of
PricewaterhouseCoopers LLP, Chartered Accountants given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, a registration statement on
Form F-10 under the Securities Act relating to the debt
securities offered by this prospectus. This prospectus, which
forms part of the registration statement, does not contain all
the information included in the registration statement. Some
information is omitted and you should refer to the registration
statement and its exhibits.
You may review a copy of the registration statement, including
exhibits and documents filed with it, as well as any reports,
statements or other information we file in the future with the
SEC at the SECs public reference facilities in
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may also obtain copies of these
materials from the Public Reference Section of the SEC,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. You may call
the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. These filings are also electronically available
from the SECs Electronic Document Gathering and Retrieval
System (http://www.sec.gov), which is commonly known by the
acronym EDGAR, as well as from commercial document
retrieval services.
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We are required to file reports under the Exchange Act, and
other information with the SEC. Under a multijurisdictional
disclosure system adopted by the United States, such reports and
other information may generally be prepared in accordance with
the disclosure requirements of Canada, which requirements are
different from those of the United States. In addition, we are
subject to the filing requirements prescribed by the securities
legislation of all Canadian provinces or territories. You are
invited to read and copy any reports, statements or other
information that we file with the Canadian provincial securities
commissions or other similar regulatory authorities at their
respective public reference rooms. These filings are also
electronically available from the Canadian System for Electronic
Document Analysis and Retrieval (http://www.sedar.com), which is
commonly known by the acronym SEDAR. The Canadian
System for Electronic Document Analysis and Retrieval is the
Canadian equivalent of the SECs EDGAR system. Reports and
other information about us should also be available for
inspection at the offices of the Toronto Stock Exchange and the
New York Stock Exchange.
As a foreign private issuer under the Exchange Act,
we intend to provide to our shareholders proxy statements and
annual reports prepared in accordance with applicable Canadian
law. Our annual reports will be available within 90 days of
the end of each fiscal year and will contain our audited
consolidated financial statements. We will also make available
quarterly reports containing unaudited consolidated financial
statements for each of the first three fiscal quarters. We
intend to prepare these financial statements in accordance with
Canadian GAAP and to include a reconciliation to US GAAP in the
notes to the annual consolidated financial statements. We are
exempt from provisions of the Exchange Act which require us to
provide proxy statements in prescribed form to shareholders and
which relate to short swing profit reporting and liability.
DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT
The following documents have been or will be filed with the SEC
as part of or incorporated by reference in the registration
statement of which this prospectus forms a part:
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the documents referred to under Documents Incorporated by
Reference; |
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form of indenture; |
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qualification of JPMorgan Chase Bank as Trustee on Form T-1; |
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consent of PricewaterhouseCoopers LLP; |
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consent of Ogilvy Renault LLP; |
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powers of attorney; and |
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calculation of earnings coverage ratios. |
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AUDITORS CONSENT
To the Board of Directors of Domtar Inc.
We have read the base shelf prospectus of Domtar Inc.
(Domtar) dated May 17, 2005 relating to the
offering of debt securities of Domtar. We have complied with
Canadian generally accepted standards for an auditors
involvement with offering documents.
We consent to the incorporation by reference in the
above-mentioned prospectus of our report to the shareholders of
Domtar on the consolidated balance sheets of Domtar as at
December 31, 2004 and 2003 and the consolidated statements
of earnings, retained earnings and cash flows for each of the
years in the three-year period ended December 31, 2004. Our
report to the shareholders is dated February 23, 2005.
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/s/ PricewaterhouseCoopers LLP |
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Chartered Accountants |
Montreal, Quebec
May 17, 2005
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FSC SW-COC-681
FSC Trademark© 1996 |
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Forest Stewardship Council A.C. |
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This prospectus was |
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FSC certified, part |
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of the Domtar EarthChoice® |
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family of environmentally |
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