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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1999
REGISTRATION NO. 333-79511
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PACKAGING CORPORATION OF AMERICA
DAHLONEGA PACKAGING CORPORATION
DIXIE CONTAINER CORPORATION
PCA HYDRO, INC.
PCA TOMAHAWK CORPORATION
PCA VALDOSTA CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 2631 36-4277050
DELAWARE 2631 76-0302048
VIRGINIA 2631 54-0193683
DELAWARE 2631 76-0328424
DELAWARE 2631 76-0328421
DELAWARE 2631 76-0328422
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
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1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
TELEPHONE: (847) 482-2000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------
Copy to:
RICHARD B. WEST JAMES S. ROWE
PACKAGING CORPORATION OF AMERICA KIRKLAND & ELLIS
1900 WEST FIELD COURT 200 EAST RANDOLPH DRIVE
LAKE FOREST, ILLINOIS 60045 CHICAGO, ILLINOIS 60601
TELEPHONE: (847) 482-2000 TELEPHONE: (312) 861-2000
(Name, address, including zip code,
and telephone
number, including area code, of agent
for service)
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. / /
------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED JUNE 17, 1999.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE ARE NOT OFFERING TO SELL, OR ASKING YOU TO BUY, ANY SECURITIES. WE
WILL NOT MAKE ANY OFFER TO SELL THESE SECURITIES OR ACCEPT OFFER TO BUY THEM
UNTIL WE HAVE DELIVERED THIS PROSPECTUS IN ITS FINAL FORM. WE ALSO WILL NOT SELL
THESE SECURITIES IN ANY JURISDICTION WHERE IT WOULD BE ILLEGAL TO OFFER OR SELL
THEM, OR SOLICIT PURCHASERS, PRIOR TO REGISTERING OR QUALIFYING THEN UNDER THAT
JURISDICTION'S SECURITIES LAWS.
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PRELIMINARY PROSPECTUS
[LOGO]
PACKAGING CORPORATION OF AMERICA
OFFER TO EXCHANGE ALL OUTSTANDING
9 5/8% SENIOR SUBORDINATED NOTES DUE 2009
($550,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING) FOR
9 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2009 AND
OFFER TO EXCHANGE ALL OUTSTANDING
12 3/8% SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2010
($100,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING) FOR
12 3/8% SERIES B SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2010
INTEREST ON THE EXCHANGE NOTES PAYABLE APRIL 1 AND OCTOBER 1
DIVIDENDS ON THE NEW PREFERRED STOCK PAYABLE APRIL 1 AND OCTOBER 1
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TERMS OF THE EXCHANGE OFFER
- The exchange offer will expire at 5:00 p.m. New York City time,
, 1999, unless extended.
- We will exchange all notes and preferred stock that you validly tender and
do not validly withdraw.
- You may withdraw your tender of notes or preferred stock any time prior to
the expiration of the exchange offer.
- The exchange offer is not subject to any condition, other than that it not
violate any applicable law or interpretation of the staff of the
Securities and Exchange Commission.
- We will not receive any proceeds from the exchange offer.
- The exchange of notes and preferred stock will not be a taxable exchange
for U.S. federal income tax purposes.
- The terms of the exchange notes and new preferred stock are substantially
identical to the outstanding notes and preferred stock, except for certain
transfer restrictions and registration rights relating to the outstanding
notes and preferred stock.
- There is no existing market for the exchange notes or new preferred stock,
and we do not intend to apply for their listing on any securities
exchange.
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SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN RISKS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN
THE EXCHANGE NOTES AND THE NEW PREFERRED STOCK.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the exchange notes or the new
preferred stock or determined that this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this prospectus is , 1999
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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PROSPECTUS SUMMARY
THIS SUMMARY CONTAINS BASIC INFORMATION ABOUT PACKAGING CORPORATION OF AMERICA
AND THE EXCHANGE OFFER. IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THIS ENTIRE PROSPECTUS, INCLUDING THE
FINANCIAL DATA AND RELATED NOTES AND THE DOCUMENTS TO WHICH WE HAVE REFERRED
YOU, BEFORE MAKING AN INVESTMENT DECISION. UNLESS THE CONTEXT OTHERWISE
INDICATES, REFERENCES IN THIS PROSPECTUS TO "PCA," "WE," "OUR" AND "US" REFER TO
PACKAGING CORPORATION OF AMERICA AND ITS SUBSIDIARIES AS A COMBINED ENTITY, AND
REFERENCES TO "TPI" REFER TO TENNECO PACKAGING INC. UNLESS THE CONTEXT OTHERWISE
REQUIRES, REFERENCES TO THE "GROUP" ARE TO THE CONTAINERBOARD GROUP OF TPI AS
DESCRIBED IN THE NOTES TO THE AUDITED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN
THIS PROSPECTUS.
COMPANY OVERVIEW
PCA is a leading integrated producer of containerboard and corrugated packaging
products in North America. We manufacture a broad range of linerboard and
corrugating medium in our four mills, each of which is located near its primary
fiber supply. In 1998, our mills produced 2.1 million tons of containerboard,
ranking us as the sixth largest containerboard producer in North America.
Through our nationwide network of 67 converting plants, consisting of 39
corrugator plants and 28 sheet/specialty and other plants, we convert
approximately 75% to 80% of the containerboard produced at our mills into
corrugated packaging products for sale to both local and national customers. In
1998, our converting plants shipped approximately 25 billion square feet of
corrugated packaging products, including shipping boxes, point-of-sale packages,
point-of-purchase displays and other advertising and promotional products,
ranking us as one of the top six integrated producers of corrugated packaging
products in North America.
Based on two cost studies performed by Jacobs-Sirrine, an industry consultant,
in 1998, we have one of the lowest cash cost containerboard mill systems in the
industry, with from 70% to 85% of our production capacity ranked in the
lowest-cost quartile of the industry. The Jacobs-Sirrine study ranked our two
largest mills, Counce and Tomahawk, among the lowest cash cost kraft linerboard
and semi-chemical corrugating medium mills, respectively, in North America. As a
result of our low cost operations and the implementation of our differentiated
business strategy, we have historically been able to generate EBITDA margins
that are relatively more stable and higher than industry averages. For the
fiscal year ended December 31, 1998, PCA's revenues and adjusted EBITDA (as
defined below) were $1,571.0 million and $327.4 million, respectively, on a pro
forma basis. For the three months ended March 31, 1999, PCA's revenues and
EBITDA were $391.3 million and $62.0 million respectively, on a pro forma basis.
In addition to our mills and converting plants, we own or control approximately
950,000 acres of timberland located in close proximity to our mills, providing
favorable access to our primary fiber requirements. We also own three sawmills,
three recycling facilities, a 50% interest in a wood chipping venture and an
air-dry yard operation.
INDUSTRY OVERVIEW
Corrugated containers are a safe and economical means of transporting industrial
and consumer goods and products. More goods and products are shipped in
corrugated containers than in any other type of packaging. Since 1975, the
demand for corrugated containers has grown at a compound annual rate of 3.1%,
with demand for corrugated containers increasing in all but four years during
this 23-year period. At no time during this period did demand for corrugated
containers decrease in consecutive years.
Containerboard, consisting of linerboard and corrugating medium, is the
principal raw material used to manufacture corrugated containers. Linerboard is
used as the inner and outer facing (liner) of a corrugated container.
Corrugating medium is fluted and laminated to linerboard in corrugator plants to
produce corrugated sheets. The sheets are subsequently printed, cut, folded and
glued in corrugator plants or sheet plants to produce corrugated containers.
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The market for containerboard is highly cyclical. Historically, prices for
containerboard have generally reflected changes in supply, which is primarily
determined by additions and reductions to industry capacity and inventory levels
and, to a lesser extent, changes in demand. Containerboard demand is dependent
upon both the demand for corrugated packaging products, which closely tracks
industrial production, and export activity. Domestic demand for corrugated
packaging products is more stable than export demand and generally corresponds
to changes in the rate of growth in the U.S. economy.
COMPETITIVE STRENGTHS AND BUSINESS STRATEGY
The key elements of our competitive strengths and business strategy are the
following:
- LOW-COST PRODUCER. We are a leading low-cost producer of containerboard
and corrugated packaging products in North America. According to two cost
studies performed by Jacobs-Sirrine in 1998, our mills are among the
lowest cash cost integrated containerboard mills in the industry, with
from approximately 70% to 85% of our production capacity ranked in the
lowest-cost quartile of the industry. The Jacobs-Sirrine study ranked our
two largest mills, Counce and Tomahawk, among the lowest cash cost kraft
linerboard and semi-chemical corrugating medium mills, respectively, in
North America. Management attributes our low-cost status to (1) our
productivity enhancement programs, which resulted in more than $80 million
in annual mill cost savings from late-1996 through 1998, (2) strategic
capital investments over the past five years designed to enhance mill
efficiency and improve our manufacturing processes, and (3) substantial
reductions in our fiber cost (the single largest cost in containerboard
production) since 1996 (up to $15 per ton) by increasing the amount of
low-cost hardwood and recycled fiber in our fiber mix and achieving
greater yield from softwood in our production of linerboard.
- INTEGRATED OPERATIONS. We are a highly integrated producer of
containerboard and corrugated packaging products. The relative earnings
stability of our converting plants acts to partially offset the more
cyclical earnings of our mills. Because each of our converting plants
seeks to maximize its own profitability by selecting the appropriate
customers, product mix and production levels for its operations, our
converting plants have been able to generate strong and consistent cash
flow despite fluctuations in containerboard prices. Rather than using our
converting plants as captive outlets for our mill production, we pursue a
"demand pull" strategy by which our converting plants generally purchase
from our mills only the amount of containerboard which they believe is
necessary to support their respective customers' requirements and to
maximize plant profitability. Since the price of corrugated containers
tends to fluctuate in direct proportion to containerboard prices, our
converting plants generally are able to earn a relatively stable spread
over the price of containerboard.
- FOCUS ON VALUE-ADDED PRODUCTS AND SERVICES. We have pursued a strategy of
providing our customers with value-added products such as custom die cut
and specialty boxes, point-of-sale packaging and point-of-purchase
displays and superior customer service through shorter production runs,
faster turnaround times and enhanced graphics capabilities. Since 1995, we
have acquired four graphics plants and five sheet/specialty plants to
augment our existing graphics and manufacturing capabilities. We have also
created a nationwide network of five graphic design centers to meet
sophisticated customer needs. Through our nationwide network of 67
converting facilities, including our large number of sheet/specialty
plants, we are able to offer coast-to-coast "local" coverage and provide
additional services and converting capabilities. As a result, our selling
price per thousand square feet ("MSF") has consistently exceeded the
industry average since 1995.
- DIVERSIFIED CUSTOMER BASE. With over 8,000 active customers and over
13,000 shipping locations, our customer base is broadly diversified across
industries and geographic locations, reducing our dependence on any single
customer or market. No customer represents more than 5% of our total sales
and our top ten customers represent less than 20% of our total sales. We
have focused our sales efforts on smaller, local accounts, which usually
demand more customized products and services than higher volume national
accounts. Approximately 75% of our current revenues are derived from local
accounts.
2
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- PROVEN AND EXPERIENCED MANAGEMENT. We have an experienced management team
with an average of 23 years of industry experience, including an average
of 15 years of service with PCA. Upon the closing of the Transactions,
Paul T. Stecko resigned from his post as President and Chief Operating
Officer of Tenneco in order to become our Chairman and Chief Executive
Officer. In addition, William J. Sweeney, formerly Executive Vice
President of TPI, now serves as our Executive Vice President. Mr. Sweeney
has over 30 years of experience in the paperboard packaging industry.
Since 1993, TPI has recruited a number of seasoned, technically-skilled
industry veterans to PCA's management.
EQUITY SPONSOR
Madison Dearborn Partners, LLC ("Madison Dearborn" or "MDP"), the financial
sponsor for the Transactions, is a leading private equity investment firm. MDP,
through limited partnerships of which it is the general partner, has
approximately $4 billion of assets under management. Madison Dearborn focuses on
investments in several specific sectors including natural resources,
communications, consumer, health care and industrial. MDP's objective is to
invest, in partnership with outstanding management teams, in companies which
have the potential for significant long-term equity appreciation. Since 1980,
MDP's principals have invested approximately $2 billion in more than 100
management buyout and private equity transactions in which the firm acted as a
leading investor. Previous investments sponsored by Madison Dearborn include
Buckeye Cellulose Corporation, Nextel Communications, Reiman Publications, The
Georgia Marble Company, Spectrum Healthcare, Hines Horticulture and Tuesday
Morning Corporation. PCA is Madison Dearborn's largest equity investment to
date.
THE TRANSACTIONS
On April 12, 1999, TPI, a wholly owned subsidiary of Tenneco Inc., sold its
containerboard and corrugated packaging products business to PCA for $2.2
billion. PCA Holdings LLC, an entity organized and controlled by MDP and its
coinvestors, acquired a 55% common equity interest in PCA, and TPI contributed
its containerboard and corrugated packaging products business to PCA in exchange
for cash, the assumption of debt and a 45% common equity interest in PCA (in
each case before giving effect to the issuances of common equity to management
made in June 1999).
The financing of the Transactions consisted of (1) borrowings under a new $1.46
billion senior credit facility for which J.P. Morgan Securities Inc. and BT
Alex. Brown Incorporated are co-lead arrangers, (2) the offering of the notes
and the preferred stock, (3) a cash equity investment of $236.5 million by
Madison Dearborn and its coinvestors and (4) a rollover equity investment by TPI
valued at $193.5 million.
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The following sets forth the ownership of PCA, after giving effect to purchases
of common stock by management that occurred in June 1999:
[LOGO]
- --------------
* PCA has also issued options to management to purchase common stock, which, if
exercised, would result in management owning in the aggregate approximately
8.8% of the common equity of PCA.
4
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THE EXCHANGE OFFER
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THE EXCHANGE NOTES
NOTES REGISTRATION RIGHTS
AGREEMENT....................... You are entitled to exchange your outstanding notes for
registered notes with terms that are identical in all
material respects. This exchange offer is intended to
satisfy these rights. After this exchange offer is
complete, you will no longer be entitled to the benefits
of the exchange or registration rights granted under the
notes registration rights agreement which we entered
into as part of the offering of the notes.
THE EXCHANGE OFFER................ We are offering to exchange $1,000 principal amount of
9 5/8% Series B Senior Subordinated Notes due 2009 which
have been registered under the Securities Act for each
$1,000 principal amount of our outstanding 9 5/8% Senior
Subordinated Notes due 2009 which were issued on April
12, 1999 in a transaction exempt from registration under
the Securities Act in accordance with Rule 144A and
Regulation S. Your outstanding notes must be properly
tendered and accepted in order to be exchanged. All
outstanding notes that are validly tendered and not
validly withdrawn will be exchanged.
$550,000,000 in aggregate principal amount of our notes
is currently outstanding.
We will issue the exchange notes, which have been
registered under the Securities Act, on or promptly
after the expiration of this exchange offer.
EXPIRATION DATE................... This exchange offer will expire at 5:00 p.m., New York
City time, on , 1999, unless we decide to extend
the expiration date.
CONDITIONS TO THE EXCHANGE
OFFER........................... This exchange offer is subject to the condition that it
does not violate applicable law or staff interpretations
of the Securities and Exchange Commission. If we
determine that this exchange offer is not permitted by
applicable federal law, we may terminate the exchange
offer. This exchange offer is not conditioned upon any
minimum principal amount of our outstanding notes being
tendered. The holders of our outstanding notes have
certain rights against us under the notes registration
rights agreement should we fail to consummate this
exchange offer.
RESALE OF THE EXCHANGE NOTES...... We believe that the exchange notes issued pursuant to
this exchange offer in exchange for our outstanding
notes may be offered for resale, resold and otherwise
transferred by you without compliance with the
registration and prospectus delivery provisions of the
Securities Act. We have based this belief on letters
issued in connection with past offerings of this kind in
which the staff of the Securities and Exchange
Commission has interpreted the laws and regulations
relating to the resale of notes to the public without
the requirement of further registration under the
Securities Act. In order for the exchange notes to be
offered for resale, resold or otherwise transferred:
- you must acquire the exchange notes in the ordinary
course of your business;
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- you must not intend to participate, and have no
arrangement or understanding with any person to
participate, in the distribution of the exchange notes
issued to you pursuant to this exchange offer;
- you must not be a broker-dealer who purchased your
outstanding notes directly from us for resale pursuant
to Rule 144A or any other available exemption under
the Securities Act; and
- you must not be an "affiliate" of ours within the
meaning of Rule 405 under the Securities Act.
If our belief is inaccurate and you transfer any
exchange note issued to you in pursuant to this exchange
offer in violation of the prospectus delivery provisions
of the Securities Act or without an exemption from
registration thereunder, you may incur liability under
the Securities Act. We do not assume or indemnify you
against any such liability.
Each broker-dealer that is issued exchange notes
pursuant to this exchange offer for its own account in
exchange for outstanding notes which were acquired by
such broker-dealer as a result of market-making or other
trading activities must acknowledge that it will deliver
a prospectus meeting the requirements of the Securities
Act in connection with any resale of such exchange
notes. The letter of transmittal relating to the
exchange notes states that a broker-dealer who makes
this acknowledgment and delivers such a prospectus will
not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. A
broker-dealer may use this prospectus for an offer to
resell, resale or other transfer of the exchange notes
issued to it pursuant to this exchange offer. We have
agreed that, for a period of 180 days after the date
this exchange offer is completed, we will make this
prospectus and any amendment or supplement to this
prospectus available to any such broker-dealer for use
in connection with any such resales. We believe that no
registered holder of the outstanding notes is an
affiliate of PCA within the meaning of Rule 405 under
Securities Act.
This exchange offer is not being made to, nor will we
accept surrenders for exchange from, holders of
outstanding notes in any jurisdiction in which this
exchange offer or its acceptance would not comply with
the securities or blue sky laws of such jurisdiction.
Furthermore, persons who acquire the exchange notes are
responsible for compliance with these securities or blue
sky laws regarding resales. We assume no responsibility
for compliance with these requirements.
ACCRUED INTEREST ON THE EXCHANGE
NOTES AND THE OUTSTANDING
NOTES........................... Each exchange note will bear interest from its issuance
date. The holders of notes that are accepted for
exchange will receive, in cash, accrued interest on such
notes to, but not including, the issuance date of the
exchange notes. Such interest will be paid with the
first interest payment on the exchange notes. Interest
on the notes accepted for exchange will cease to accrue
upon issuance of the exchange notes.
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Consequently, those holders who exchange their
outstanding notes for exchange notes will receive the
same interest payment on October 1, 1999, which is the
first interest payment date with respect to the
outstanding notes and the exchange notes to be issued
pursuant to this exchange offer, that they would have
received had they not accepted this exchange offer.
PROCEDURES FOR TENDERING NOTES.... If you wish to tender your notes for exchange pursuant
to this exchange offer, you must transmit to United
States Trust Company of New York, as notes exchange
agent, on or prior to the expiration date either:
- a properly completed and duly executed copy of the
letter of transmittal accompanying this prospectus, or a
facsimile of such letter of transmittal, together with
your outstanding notes and any other documentation
required by such letter of transmittal, at the address
set forth on the cover page of the letter of
transmittal; or
- if you are effecting delivery by book-entry transfer,
a computer-generated message transmitted by means of the
Automated Tender Offer Program System of The
Depository Trust Company in which you acknowledge and
agree to be bound by the terms of the letter of
transmittal and which, when received by the notes
exchange agent, forms a part of a confirmation of
book-entry transfer.
In addition, you must deliver to the notes exchange
agent on or prior to the expiration date:
- if you are effecting delivery by book-entry transfer,
a timely confirmation of book-entry transfer of your
outstanding notes into the account of the notes
exchange agent at The Depository Trust Company
pursuant to the procedures for book-entry transfers
described in this prospectus under the heading "The
Exchange Offer-Procedures for Tendering;" or
- if necessary, the documents required for compliance
with the guaranteed delivery procedures described in
this prospectus under the heading "The Exchange
Offer-Guaranteed Delivery Procedures."
By executing and delivering the accompanying letter of
transmittal or effecting delivery by book-entry
transfer, you are representing to us that, among other
things:
- the person receiving the exchange notes pursuant to
this exchange offer, whether or not such person is the
holder, is receiving them in the ordinary course of
business;
- neither the holder nor any such other person has an
arrangement or understanding with any person to
participate in the distribution of such exchange notes
and that such holder is not engaged in, and does not
intend to engage in, a distribution of the exchange
notes; and
- neither the holder nor any such other person is an
"affiliate" of ours within the meaning of Rule 405 under
the Securities Act.
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SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS.......................... If you are a beneficial owner of the notes and your name
does not appear on a security position listing of The
Depository Trust Company as the holder of such notes or
if you are a beneficial owner of notes that are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to
tender such notes in this exchange offer, you should
promptly contact the person in whose name your notes are
registered and instruct such person to tender on your
behalf. If you, as a beneficial holder, wish to tender
on your own behalf you must, prior to completing and
executing the letter of transmittal and delivering your
outstanding notes, either make appropriate arrangements
to register ownership of the outstanding notes in your
name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may
take considerable time.
GUARANTEED DELIVERY PROCEDURES.... If you wish to tender your outstanding notes and time
will not permit the letter of transmittal or any of the
documents required by the letter of transmittal to reach
the notes exchange agent by the expiration date, or the
procedure for book-entry transfer cannot be completed on
time or certificates for your notes cannot be delivered
on time, you may tender your notes pursuant to the
guaranteed delivery procedures described in this
prospectus under the heading "The Exchange
Offer-Guaranteed Delivery Procedures."
SHELF REGISTRATION STATEMENT...... If any changes in law or of the applicable
interpretation of the staff of the Securities and
Exchange Commission do not permit us to effect this
exchange offer or upon the request of any holder of our
outstanding notes under certain circumstances, we have
agreed to register the notes on a shelf registration
statement and use our best efforts to cause such shelf
registration statement to be declared effective by the
Securities and Exchange Commission. We have agreed to
maintain the effectiveness of the shelf registration
statement for, under certain circumstances, at least two
years from the date of the original issuance of the
outstanding notes to cover resales of such notes held by
such holders.
WITHDRAWAL RIGHTS................. You may withdraw the tender of your outstanding notes at
any time prior to 5:00 p.m., New York City time, on the
expiration date.
ACCEPTANCE OF OUTSTANDING NOTES
AND DELIVERY OF EXCHANGE
NOTES........................... Subject to certain conditions, we will accept for
exchange any and all outstanding notes which are
properly tendered and not validly withdrawn prior to
5:00 p.m., New York City time, on the expiration date.
The exchange notes issued pursuant to this exchange
offer will be delivered promptly following the
expiration date.
CERTAIN U.S. FEDERAL INCOME TAX
CONSEQUENCES.................... The exchange of your outstanding notes for the exchange
notes will not be a taxable exchange for United States
federal income tax purposes. See "Certain United States
Federal Tax Considerations."
NOTES EXCHANGE AGENT.............. United States Trust Company of New York is serving as
the notes exchange agent in connection with the exchange
offer.
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THE NEW PREFERRED STOCK
PREFERRED STOCK REGISTRATION
RIGHTS AGREEMENT................ You are entitled to exchange your outstanding preferred
stock for registered preferred stock with terms that are
identical in all material respects. This exchange offer
is intended to satisfy these rights. After this exchange
offer is complete, you will no longer be entitled to the
benefits of the exchange or registration rights granted
under the preferred stock registration rights agreement
which we entered into as part of the offering of the
preferred stock.
THE EXCHANGE OFFER................ We are offering to exchange $100 liquidation preference
of 12 3/8% Series B Senior Exchangeable Preferred Stock
due 2010 which has been registered under the Securities
Act for each $100 liquidation preference of our
outstanding 12 3/8% Senior Exchangeable Preferred Stock
due 2010 which was issued on April 12, 1999 in a
transaction exempt from registration under the
Securities Act in accordance with Rule 144A. Your
outstanding preferred stock must be properly tendered
and accepted in order to be exchanged. All outstanding
preferred stock that is validly tendered and not validly
withdrawn will be exchanged.
$100,000,000 in aggregate liquidation preference of our
preferred stock is currently outstanding.
We will issue the new preferred stock, which has been
registered under the Securities Act, on or promptly
after the expiration of this exchange offer.
EXPIRATION DATE................... This exchange offer will expire at 5:00 p.m., New York
City time, on , 1999, unless we decide to extend
the expiration date.
CONDITIONS TO THE EXCHANGE
OFFER........................... This exchange offer is subject to the condition that it
does not violate applicable law or staff interpretations
of the Securities and Exchange Commission. If we
determine that this exchange offer is not permitted by
applicable federal law, we may terminate the exchange
offer. This exchange offer is not conditioned upon any
minimum principal amount of our outstanding preferred
stock being tendered. The holders of our outstanding
preferred stock have certain rights against us under the
preferred stock registration rights agreement should we
fail to consummate this exchange offer.
RESALE OF THE NEW PREFERRED
STOCK........................... We believe that the new preferred stock issued pursuant
to this exchange offer in exchange for our outstanding
preferred stock may be offered for resale, resold and
otherwise transferred by you without compliance with the
registration and prospectus delivery provisions of the
Securities Act. We have based this belief on letters
issued in connection with past offerings of this kind in
which the staff of the Securities and Exchange
Commission has interpreted the laws and regulations
relating to the resale of preferred stock to the public
without the requirement of further registration under
the Securities Act. In order for the new preferred stock
to be offered for resale, resold or otherwise
transferred:
- you must acquire the new preferred stock in the
ordinary course of your business;
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- you must not intend to participate, and have no
arrangement or understanding with any person to
participate, in the distribution of the new preferred
stock issued to you pursuant to this exchange offer;
- you must not be a broker-dealer who purchased your
outstanding preferred stock directly from us for resale
pursuant to Rule 144A or any other available exemption
under the Securities Act; and
- you must not be an "affiliate" of ours within the
meaning of Rule 405 under the Securities Act.
If our belief is inaccurate and you transfer new
preferred stock issued to you in pursuant to this
exchange offer in violation of the prospectus delivery
provisions of the Securities Act or without an exemption
from registration thereunder, you may incur liability
under the Securities Act. We do not assume or indemnify
you against any such liability.
Each broker-dealer that is issued new preferred stock
pursuant to this exchange offer for its own account in
exchange for outstanding preferred stock which was
acquired by such broker-dealer as a result of
market-making or other trading activities must
acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection
with any resale of such new preferred stock. The letter
of transmittal relating to the new preferred stock
states that a broker-dealer who makes this
acknowledgment and delivers such a prospectus will not
be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. A broker-dealer may
use this prospectus for an offer to resell, resale or
other transfer of the new preferred stock issued to it
pursuant to this exchange offer. We have agreed that,
for a period of 180 days after the date this exchange
offer is completed, we will make this prospectus and any
amendment or supplement to this prospectus available to
any such broker-dealer for use in connection with any
such resales. We believe that no registered holder of
the outstanding preferred stock is an affiliate of PCA
within the meaning of Rule 405 under Securities Act.
This exchange offer is not being made to, nor will we
accept surrenders for exchange from, holders of
outstanding preferred stock in any jurisdiction in which
this exchange offer or its acceptance would not comply
with the securities or blue sky laws of such
jurisdiction. Furthermore, persons who acquire the new
preferred stock are responsible for compliance with
these securities or blue sky laws regarding resales. We
assume no responsibility for compliance with these
requirements.
ACCRUED DIVIDENDS ON THE NEW
PREFERRED STOCK AND THE
OUTSTANDING PREFERRED STOCK..... New preferred stock will bear dividends from its
issuance date. The holders of preferred stock that is
accepted for exchange will receive accrued dividends on
such preferred stock to, but not including, the issuance
date of the new preferred stock. Such dividends will be
</TABLE>
10
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paid with the first dividend payment on the new
preferred stock. Dividends on the preferred stock
accepted for exchange will cease to accrue upon issuance
of the new preferred stock.
Consequently, those holders who exchange their
outstanding preferred stock for new preferred stock will
receive the same dividend payment on October 1, 1999,
which is the first dividend payment date with respect to
the outstanding preferred stock and the new preferred
stock to be issued pursuant to this exchange offer, that
they would have received had they not accepted this
exchange offer.
PROCEDURES FOR TENDERING PREFERRED
STOCK........................... If you wish to tender your preferred stock for exchange
pursuant to this exchange offer, you must transmit to
United States Trust Company of New York, as preferred
stock exchange agent, on or prior to the expiration date
either:
- a properly completed and duly executed copy of the
letter of transmittal accompanying this prospectus, or a
facsimile of such letter of transmittal, together with
your outstanding preferred stock and any other
documentation required by such letter of transmittal,
at the address set forth on the cover page of the
letter of transmittal; or
- if you are effecting delivery by book-entry transfer,
a computer-generated message transmitted by means of the
Automated Tender Offer Program System of The
Depository Trust Company in which you acknowledge and
agree to be bound by the terms of the letter of
transmittal and which, when received by the preferred
stock exchange agent, forms a part of a confirmation
of book-entry transfer.
In addition, you must deliver to the preferred stock
exchange agent on or prior to the expiration date:
- if you are effecting delivery by book-entry transfer,
a timely confirmation of book-entry transfer of your
outstanding preferred stock into the account of the
preferred stock exchange agent at The Depository Trust
Company pursuant to the procedures for book-entry
transfers described in this prospectus under the
heading "The Exchange Offer-Procedures for Tendering;"
or
- if necessary, the documents required for compliance
with the guaranteed delivery procedures described in
this prospectus under the heading "The Exchange
Offer-Guaranteed Delivery Procedures."
By executing and delivering the accompanying letter of
transmittal or effecting delivery by book-entry
transfer, you are representing to us that, among other
things:
- the person receiving the new preferred stock pursuant
to this exchange offer, whether or not such person is
the holder, is receiving them in the ordinary course
of business;
</TABLE>
11
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- neither the holder nor any such other person has an
arrangement or understanding with any person to
participate in the distribution of such new preferred
stock and that such holder is not engaged in, and does
not intend to engage in, a distribution of the new
preferred stock; and
- neither the holder nor any such other person is an
"affiliate" of ours within the meaning of Rule 405 under
the Securities Act.
SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS.......................... If you are a beneficial owner of the preferred stock and
your name does not appear on a security position listing
of The Depository Trust Company as the holder of such
preferred stock or if you are a beneficial owner of
preferred stock that is registered in the name of a
broker, dealer, commercial bank, trust company or other
nominee and you wish to tender such preferred stock in
this exchange offer, you should promptly contact the
person in whose name your preferred stock is registered
and instruct such person to tender on your behalf. If
you, as a beneficial holder, wish to tender on your own
behalf you must, prior to completing and executing the
letter of transmittal and delivering your outstanding
preferred stock, either make appropriate arrangements to
register ownership of the outstanding preferred stock in
your name or obtain a properly completed bond power from
the registered holder. The transfer of record ownership
may take considerable time.
GUARANTEED DELIVERY PROCEDURES.... If you wish to tender your outstanding preferred stock
and time will not permit the letter of transmittal or
any of the documents required by the letter of
transmittal to reach the preferred stock exchange agent
by the expiration date, or the procedure for book-entry
transfer cannot be completed on time or certificates for
your preferred stock cannot be delivered on time, you
may tender your preferred stock pursuant to the
guaranteed delivery procedures described in this
prospectus under the heading "The Exchange
Offer-Guaranteed Delivery Procedures."
SHELF REGISTRATION STATEMENT...... If any changes in law or of the applicable
interpretation of the staff of the Securities and
Exchange Commission do not permit us to effect this
exchange offer or upon the request of any holder of our
outstanding preferred stock under certain circumstances,
we have agreed to register the preferred stock on a
shelf registration statement and use our best efforts to
cause such shelf registration statement to be declared
effective by the Securities and Exchange Commission. We
have agreed to maintain the effectiveness of the shelf
registration statement for, under certain circumstances,
at least two years from the date of the original
issuance of the outstanding preferred stock to cover
resales of such preferred stock held by such holders.
WITHDRAWAL RIGHTS................. You may withdraw the tender of your outstanding
preferred stock at any time prior to 5:00 p.m., New York
City time, on the expiration date.
</TABLE>
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ACCEPTANCE OF OUTSTANDING
PREFERRED STOCK AND DELIVERY OF
NEW PREFERRED STOCK............. Subject to certain conditions, we will accept for
exchange any and all outstanding preferred stock which
is properly tendered and not validly withdrawn prior to
5:00 p.m., New York City time, on the expiration date.
The new preferred stock issued pursuant to this exchange
offer will be delivered promptly following the
expiration date.
CERTAIN U.S. FEDERAL INCOME TAX
CONSEQUENCES.................... The exchange of your outstanding preferred stock for the
new preferred stock will not be a taxable exchange for
United States federal income tax purposes. See "Certain
United States Federal Tax Considerations."
PREFERRED STOCK EXCHANGE AGENT.... United States Trust Company of New York is serving as
the preferred stock exchange agent in connection with
the exchange offer.
USE OF PROCEEDS
USE OF PROCEEDS................... We will not receive any proceeds from the issuance of
the exchange notes or the new preferred stock pursuant
to this exchange offer. We will pay all of our and our
subsidiary guarantors' expenses relating to this
exchange offer.
</TABLE>
13
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THE EXCHANGE NOTES AND THE NEW PREFERRED STOCK
<TABLE>
<S> <C>
ISSUER............................ Packaging Corporation of America.
THE EXCHANGE NOTES
GENERAL........................... The form and terms of the exchange notes are identical
in all material respects to the form and terms of the
outstanding notes except that:
- the exchange notes will bear a Series B designation;
- the exchange notes have been registered under the
Securities Act and, therefore, will generally not bear
legends restricting their transfer; and
- the holders of exchange notes will not be entitled to
rights under the notes registration rights agreement.
The exchange notes will evidence the same debt as the
outstanding notes and will be entitled to the benefits
of the indenture under which the notes were issued.
TOTAL AMOUNT OF EXCHANGE NOTES
OFFERED......................... $550 million in aggregate principal amount of 9 5/8%
Series B Senior Subordinated Notes due 2009.
MATURITY.......................... April 1, 2009.
INTEREST.......................... Annual fixed rate of 9 5/8%, payable every six months,
beginning October 1, 1999.
SUBSIDIARY GUARANTORS............. Each of our current and future domestic subsidiaries
(other than any receivables subsidiaries) will be a
guarantor of the exchange notes. If we create any
foreign subsidiaries, they will not be guarantors of the
exchange notes. If we cannot make payments on the
exchange notes when they are due, the guarantor
subsidiaries must make them instead.
RANKING........................... The exchange notes and the subsidiary guarantees will be
senior subordinated debts. They will rank behind all
current and future indebtedness (other than trade
payables) of PCA and the guarantor subsidiaries, except
indebtedness that expressly provides that it is not
senior to the exchange notes and the subsidiary
guarantees. They will also effectively rank behind all
current and future liabilities (including trade
payables) of our future foreign subsidiaries, if any. As
of May 1, 1999, the exchange notes and the subsidiary
guarantees would have been subordinated to $1,219
million of senior debt (and $250 million would have been
available for borrowings under the senior credit
facility), and would have ranked equally with no other
senior subordinated debt.
OPTIONAL REDEMPTION............... We may redeem some or all of the exchange notes at any
time after April 1, 2004, at the redemption prices
listed in "Description of Exchange Notes" under the
heading "Optional Redemption."
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Before April 1, 2002, we may redeem up to 35% of the
exchange notes with the proceeds of certain offerings of
our equity or equity of our parent or certain timberland
sales at the price listed in "Description of Exchange
Notes" under the heading "Optional Redemption."
In addition, before April 1, 2004, if we undergo
specific kinds of changes in control, we may also redeem
all, but not part, of the exchange notes at the price
described in "Description of Exchange Notes" under the
heading "Optional Redemption."
MANDATORY OFFER TO REPURCHASE..... If we sell certain assets or undergo specific kinds of
changes of control, we must offer to repurchase the
exchange notes at the prices listed in "Description of
Exchange Notes."
BASIC COVENANTS OF INDENTURE...... We will issue the exchange notes under an indenture
among us, our subsidiary guarantors and United States
Trust Company of New York. The notes indenture, among
other things, imposes certain specified restrictions
upon our ability and the ability of certain of our
subsidiaries to:
- borrow money;
- pay dividends on or purchase stock;
- make investments;
- use assets as security in other transactions; and
- sell certain assets or merge with or into other
companies.
These covenants are subject to important exceptions and
qualifications which are described in "Description of
Exchange Notes" under the heading "Certain Covenants."
THE NEW PREFERRED STOCK
GENERAL........................... The form and terms of the new preferred stock are
identical in all material respects to the form and terms
of the outstanding preferred stock except that:
-the new preferred stock will bear a Series B
designation;
-the new preferred stock has been registered under the
Securities Act and, therefore, will generally not bear
legends restricting its transfer; and
-the holders of new preferred stock will not be entitled
to rights under the preferred stock registration rights
agreement.
The new preferred stock will evidence the same equity as
the outstanding preferred stock and will be entitled to
the benefits of the certificate of designation under
which the preferred stock was issued.
TOTAL AMOUNT OF NEW PREFERRED
STOCK OFFERED................... $100 million of 12 3/8% Series B Senior Exchangeable
Preferred Stock due 2010.
LIQUIDATION PREFERENCE............ $100 per share plus accrued and unpaid dividends.
DIVIDENDS......................... Cumulative from the date of issuance.
</TABLE>
15
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Annual fixed rate of 12 3/8%, payable every six months,
beginning October 1, 1999.
Through April 1, 2004, payable in cash or additional
shares of new preferred stock at our option. After April
1, 2004, payable only in cash.
MANDATORY REDEMPTION.............. On April 1, 2010, we must redeem all of the new
preferred stock outstanding.
OPTIONAL REDEMPTION............... We may redeem some or all of the new preferred stock at
any time after April 1, 2004, at the redemption prices
listed in "Description of New Preferred Stock" under the
heading "New Preferred Stock-Optional Redemption."
Before April 1, 2002, we may redeem all, or if less than
all, up to 35% of the new preferred stock with the
proceeds of certain offerings of our equity or equity of
our parent or certain timberland sales at the price
listed in "Description of New Preferred Stock" under the
heading "New Preferred Stock-Optional Redemption."
In addition, before April 1, 2004, if we undergo
specific kinds of changes in control, we may also redeem
all, but not part, of the new preferred stock at the
price described in "Description of New Preferred Stock"
under the heading "New Preferred Stock-Optional
Redemption."
RANKING........................... The new preferred stock will rank senior to all other
classes of our capital stock that do not expressly
provide that they rank on a parity with the new
preferred stock as to dividends and distributions upon
our liquidation, winding up and dissolution. It will
rank on a parity with any of our future capital stock
which expressly provides that such class or series will
rank on a parity with the new preferred stock as to
dividends and distributions upon our liquidation,
winding up and dissolution. The new preferred stock will
be subordinated to all of our current and future
liabilities (including trade payables), including the
exchange notes.
MANDATORY OFFER TO REDEEM......... If we sell certain assets or undergo specific kinds of
changes of control, we must offer to redeem the new
preferred stock at the prices listed in "Description of
New Preferred Stock."
BASIC COVENANTS OF CERTIFICATE OF
DESIGNATION..................... We will issue the new preferred stock under a
certificate of designation that is part of our
certificate of incorporation. The certificate of
designation, among other things, imposes certain
specified restrictions upon our ability and the ability
of certain of our subsidiaries to:
- borrow money;
- pay dividends on stock or purchase stock;
- make investments; and
- sell certain assets or merge with or into other
companies.
</TABLE>
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<S> <C>
These covenants are subject to important exceptions and
qualifications which are described in "Description of
New Preferred Stock" under the heading "New Preferred
Stock-Certain Covenants."
VOTING RIGHTS..................... The new preferred stock will have no voting rights
except as required by law and as specified in the
certificate of designation. If we fail to pay dividends
or meet our obligations under the covenants contained in
the certificate of designation, the holders of the new
preferred stock will be entitled to elect two additional
members to our board of directors.
EXCHANGE FEATURE.................. We may exchange all but not less than all of the shares
of the new preferred stock for subordinated exchange
debentures on any date on which dividends are scheduled
to be paid.
THE SUBORDINATED EXCHANGE DEBENTURES
THE SUBORDINATED EXCHANGE
DEBENTURES...................... 12 3/8% Subordinated Exchange Debentures due 2010.
MATURITY.......................... April 1, 2010.
INTEREST.......................... Annual fixed rate of 12 3/8%, payable every six months,
beginning the first April 1 or October 1 after the
exchange date.
Through April 1, 2004, payable in cash or additional
subordinated exchange debentures at our option. After
April 1, 2004 payable only in cash.
RANKING........................... The subordinated exchange debentures will be
subordinated debts. They will rank behind all of our
current and future indebtedness (other than trade
payables), including the exchange notes, except
indebtedness that expressly provides that it is not
senior to the subordinated exchange debentures. They
will not be guaranteed by any of our subsidiaries. As a
result, they will also effectively rank behind all
current and future liabilities (including trade
payables) of our subsidiaries.
OPTIONAL REDEMPTION............... We may redeem some or all of the subordinated exchange
debentures at any time after April 1, 2004 at the
redemption prices listed in "Description of New
Preferred Stock" under the heading "Subordinated
Exchange Debentures-Optional Redemption."
Before April 1, 2002, we may redeem all, or if less than
all, up to 35% of the subordinated exchange debentures
with the proceeds of certain offerings of our equity or
equity of our parent or certain timberland sales at the
price listed in "Description of New Preferred Stock"
under the heading "Subordinated Exchange
Debentures-Optional Redemption."
In addition, before April 1, 2004, if we undergo
specific kinds of changes in control, we may also redeem
all, but not part, of the subordinated exchange
debentures at the price described in "Description of New
Preferred Stock" under the heading "Subordinated
Exchange Debentures-Optional Redemption."
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MANDATORY OFFER TO REPURCHASE..... If we sell certain assets or experience specific kinds
of changes of control, we must offer to repurchase the
subordinated exchange debentures at the prices listed in
"Description of New Preferred Stock."
BASIC COVENANTS OF INDENTURE...... The subordinated exchange debentures indenture contains
covenants substantially identical to those contained in
the certificate of designation for the new preferred
stock.
</TABLE>
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 1900 West Field Court, Lake
Forest, Illinois 60045 and our telephone number is (847) 482-2000.
18
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
Set forth below are the summary historical and pro forma financial data of PCA.
The historical financial data as of and for the years ended December 31, 1996,
1997 and 1998 has been derived from the audited combined financial statements of
the Group and the related notes thereto included elsewhere in this prospectus.
The historical financial data as of and for the years ended December 31, 1994
and 1995 has been derived from the unaudited financial statements of the Group.
The historical financial data as of and for the quarters ended March 31, 1998
and 1999 has been derived from the unaudited condensed combined financial
statements of the Group included elsewhere in this prospectus. The unaudited pro
forma financial data as of and for the three months ended March 31, 1999 and as
of and for the year ended December 31, 1998 was derived from the unaudited pro
forma financial information included elsewhere in this prospectus. The
information in the following table should be read in conjunction with "The
Transactions," "Unaudited Pro Forma Financial Information," "Selected Financial
and Other Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the historical combined financial statements of
the Group and the related notes contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
THREE MONTHS ENDED
PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED MARCH 31,
---------------------------------------------------------- DECEMBER 31, --------------------
1994 1995 1996 1997 1998 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DOLLARS IN THOUSANDS
STATEMENT OF INCOME DATA:
Net sales................... $1,441,673 $1,844,708 $1,582,222 $1,411,405 $1,571,019 $ 1,571,019 $ 432,901 $ 391,279
Cost of sales............... (1,202,996) (1,328,838) (1,337,410) (1,242,014) (1,289,644) (1,270,184) (354,855) (332,117)
---------- ---------- ---------- ---------- ---------- ------------- --------- ---------
Gross profit.............. 238,677 515,870 244,812 169,391 281,375 300,835 78,046 59,162
Selling and administrative
expenses.................. (71,312) (87,644) (95,283) (102,891) (108,944) (102,568) (26,841) (28,759)
Corporate overhead
allocation (1)............ (34,678) (38,597) (50,461) (61,338) (63,114) (63,114) (14,326) (13,283)
Restructuring/impairment
charge (2)................ - - - - (14,385) (14,385) -- (230,112)
Other income (expense)...... (4,701) (16,915) 56,243 44,681 26,818 41,592 (2,742) (1,377)
---------- ---------- ---------- ---------- ---------- ------------- --------- ---------
Income (loss) before
interest, income taxes
and extraordinary item... 127,986 372,714 155,311 49,843 121,750 162,360 34,137 (214,369)
Interest expense, net....... (740) (1,485) (5,129) (3,739) (2,782) (159,851) (741) (221)
---------- ---------- ---------- ---------- ---------- ------------- --------- ---------
Income (loss) before income
taxes and extraordinary
item...................... 127,246 371,229 150,182 46,104 118,968 2,509 33,396 (214,590)
Income tax expense.......... (50,759) (147,108) (59,816) (18,714) (47,529) (366) (13,315) 88,362
---------- ---------- ---------- ---------- ---------- ------------- --------- ---------
Income (loss) before
extraordinary item....... 76,487 224,121 90,366 27,390 71,439 2,143 20,081 (126,228)
Extraordinary loss.......... - - - - - - - (6,327)
---------- ---------- ---------- ---------- ---------- ------------- --------- ---------
Net Income (loss)......... $ 76,487 $ 224,121 $ 90,366 $ 27,390 $ 71,439 $ 2,143 $ 20,081 $(132,555)
---------- ---------- ---------- ---------- ---------- ------------- --------- ---------
---------- ---------- ---------- ---------- ---------- ------------- --------- ---------
OTHER DATA:
EBITDA (3).................. $ 276,449 $ 547,435 $ 272,498 $ 166,814 $ 264,832 $ 269,309 $ 79,569 $(168,962)
Adjusted pro forma EBITDA
(4)....................... - - - - - 327,448 - -
Cash interest expense (5)... - - - - - 151,515 - -
Ratio of adjusted pro forma
EBITDA to cash interest
expense................... - - - - - 2.2x - -
Ratio of debt to adjusted
pro forma EBITDA.......... - - - - - 5.4x - -
Ratio of earnings to fixed
charges (6)............... 4.3x 10.3x 4.4x 2.3x 4.4x 1.0x 5.0x N/A
Ratio of earnings to
combined fixed charges and
preferred stock dividends
(6)....................... 4.3x 10.3x 4.4x 2.3x 4.4x N/A 5.0x N/A
Capital expenditures........ $ 110,853 $ 252,745 $ 168,642 $ 110,186 $ 103,429 $ 103,429 $ 16,339 $ 19,460
BALANCE SHEET DATA:
Working capital (7)......... $(163,204)
Total assets................ 1,372,523
Total long-term obligations
(8)....................... 466
Total stockholders'
equity.................... 666,438
<CAPTION>
PRO FORMA
THREE MONTHS
ENDED
MARCH 31,
1999
-------------
<S> <C>
DOLLARS IN THOUSANDS
STATEMENT OF INCOME DATA:
Net sales................... $ 391,279
Cost of sales............... (329,282)
-------------
Gross profit.............. 61,997
Selling and administrative
expenses.................. (27,574)
Corporate overhead
allocation (1)............ (13,283)
Restructuring/impairment
charge (2)................ -
Other income (expense)...... 992
-------------
Income (loss) before
interest, income taxes
and extraordinary item... 22,132
Interest expense, net....... (39,486)
-------------
Income (loss) before income
taxes and extraordinary
item...................... (17,354)
Income tax expense.......... 9,599
-------------
Income (loss) before
extraordinary item....... (7,755)
Extraordinary loss.......... (6,327)
-------------
Net Income (loss)......... $ (14,082)
-------------
-------------
OTHER DATA:
EBITDA (3).................. $ 62,006
Adjusted pro forma EBITDA
(4)....................... -
Cash interest expense (5)... -
Ratio of adjusted pro forma
EBITDA to cash interest
expense................... -
Ratio of debt to adjusted
pro forma EBITDA.......... -
Ratio of earnings to fixed
charges (6)............... N/A
Ratio of earnings to
combined fixed charges and
preferred stock dividends
(6)....................... N/A
Capital expenditures........ $ 19,460
BALANCE SHEET DATA:
Working capital (7)......... $ 229,376
Total assets................ 2,387,863
Total long-term obligations
(8)....................... 1,869,000
Total stockholders'
equity.................... 294,452
</TABLE>
19
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NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
1) The corporate overhead allocation represents the amounts charged by Tenneco
and TPI to the Group for its share of Tenneco's and TPI's corporate
expenses. On a stand-alone basis, management estimates that PCA's overhead
expense will be $30,160 for the first twelve months following the
Acquisition.
2) This line item consists of non-recurring charges recorded in the fourth
quarter of 1998 and the first quarter of 1999 pertaining to a restructuring
charge and an impairment charge, respectively. For further information about
these charges, refer to Notes 7 and 14 to the Group's combined financial
statements.
3) "EBITDA" represents income before interest and income taxes plus (a)
depreciation, depletion and amortization and (b) lease expense relating to
the operating leases for which the related assets were purchased in
connection with the Transactions; and plus or minus (c) other income
(expense), which is excluded because it is not reflective of recurring
earnings. PCA's EBITDA is included in this prospectus because it is a basis
upon which PCA assesses its financial performance and debt service
capabilities, and because certain covenants in PCA's borrowing arrangements
are tied to similar measures. However, EBITDA should not be considered in
isolation or viewed as a substitute for cash flow from operations, net
income or other measures of performance as defined by generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. PCA understands that while EBITDA is frequently used by
securities analysts, lenders and others in their evaluation of companies,
EBITDA as used herein is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in the
method of calculation.
4) Adjusted pro forma EBITDA for 1998 represents EBITDA plus adjustments to
eliminate the effect of non-recurring items and to adjust for certain other
stand-alone considerations, as follows:
<TABLE>
<S> <C>
Pro forma EBITDA for 1998......................................... $269,309
Adjustments:
Non-recurring restructuring charge.............................. 14,385
Reduction in corporate overhead................................. 32,954
Cost savings from restructuring................................. 10,800
---------
Adjusted pro forma EBITDA for 1998................................ $327,448
---------
---------
</TABLE>
5) Cash interest expense is defined as interest expense excluding amortization
of (a) debt issuance costs and (b) the settlement payment on the interest
rate protection agreement related to the outstanding notes.
6) The ratio of earnings to fixed charges has been calculated by dividing (a)
income before income taxes plus fixed charges by (b) fixed charges. Fixed
charges are equal to interest expense (including amortization of deferred
financing costs) plus the portion of rent expense estimated to represent
interest. The ratio of earnings to combined fixed charges and preferred
stock dividends has been calculated by dividing (a) income before income
taxes plus fixed charges by (b) fixed charges and preferred stock dividends
(grossed-up to obtain a "pre-tax" equivalent).
On an actual basis for the three months ended March 31, 1999, earnings were
insufficient to cover fixed charges by $214,590. On a pro forma basis for
the three months ended March 31, 1999, earnings were insufficient to cover
(i) fixed charges by $17,354 and (ii) fixed charges and preferred stock
dividends by $20,448. On a pro forma basis for the year ended December 31,
1998, earnings were insufficient to cover fixed charges and preferred stock
dividends by $18,116.
7) Working capital represents (a) total current assets excluding cash and cash
equivalents less (b) total current liabilities excluding the current
maturities of long-term debt.
8) Total long-term obligations includes long-term debt, the current maturities
of long-term debt, and redeemable preferred stock. The amount excludes
amounts due to TPI or other Tenneco affiliates as part of the Group's
interdivision account.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THE OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO MAKE AN
INVESTMENT IN THE EXCHANGE NOTES OR THE NEW PREFERRED STOCK.
LEVERAGE-OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL
HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE EXCHANGE NOTES
AND THE NEW PREFERRED STOCK OR, IF ISSUED, THE SUBORDINATED EXCHANGE DEBENTURES.
To finance the Transactions, we have incurred a significant amount of
indebtedness. The following chart shows certain important credit statistics and
is presented assuming we had completed the Transactions as of the date or at the
beginning of the period specified below and applied the proceeds as intended:
<TABLE>
<CAPTION>
--------------
AT MARCH 31,
1999
--------------
<S> <C>
DOLLARS IN MILLIONS
Total indebtedness....................................................... $1,769.0
Preferred stock.......................................................... $100.0
Stockholders' equity..................................................... $294.5
</TABLE>
For the three months ended March 31, 1999 on a pro forma basis, earnings were
insufficient to cover fixed charges by $17.4 million, and earnings were
insufficient to cover combined fixed charges and preferred stock dividends by
$20.4 million.
From the date of issuance until April 1, 2004, we will be permitted to pay
dividends on the new preferred stock in cash or in kind. Thereafter, we will be
required to pay dividends on the new preferred stock in cash. After giving
effect to the payment-in-kind dividends permitted through April 1, 2004, and
assuming that all dividends are paid in kind, the new preferred stock
outstanding upon which we would be required to pay cash dividends would equal
$182.3 million. Furthermore, subject to certain conditions, the new preferred
stock will be exchangeable, at our option, for subordinated exchange debentures.
Our substantial indebtedness and our future cash dividend obligations could have
important consequences to you. For example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the exchange notes or the new preferred stock or, if issued, the
subordinated exchange debentures;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital expenditures,
research and development costs and other general corporate requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness and preferred stock, thereby
reducing the availability of our cash flow to fund working capital,
capital expenditures, research and development efforts and other general
corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- limit our ability to make strategic acquisitions or take other corporate
action;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit, along with the financial and other restrictive covenants contained
in the agreements governing our indebtedness and preferred stock, our
ability to borrow additional funds and increase the cost of any such
borrowings. Our failure to comply with such covenants could result in an
event of default which, if not cured or waived, could have a material
adverse effect on us.
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See "Description of Exchange Notes," "Description of New Preferred Stock" and
"Description of Senior Credit Facility."
ADDITIONAL BORROWINGS AVAILABLE-DESPITE OUR CURRENT LEVELS OF INDEBTEDNESS, WE
AND OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS
COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional indebtedness
in the future. The terms of the notes indenture and the certificate of
designation and, if the subordinated exchange debentures are issued, the
subordinated exchange debentures indenture, do not fully prohibit us or our
subsidiaries from doing so. The senior credit facility permits additional
borrowings of up to $250.0 million, and all of those borrowings would be senior
to the exchange notes, the subsidiary guarantees of the exchange notes, the new
preferred stock and, if issued, the subordinated exchange debentures. If new
debt is added to our and our subsidiaries' current debt levels, the related
risks that we and they now face could intensify.
See "Capitalization," "Selected Financial and Other Data," "Description of
Exchange Notes," "Description of New Preferred Stock" and "Description of Senior
Credit Facility."
ABILITY TO SERVICE DEBT AND NEW PREFERRED STOCK-TO MAKE PAYMENTS ON THE EXCHANGE
NOTES, SERVICE OUR OTHER INDEBTEDNESS AND MAKE CASH PAYMENTS ON THE NEW
PREFERRED STOCK AND, IF ISSUED, THE SUBORDINATED EXCHANGE DEBENTURES, WE WILL
REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON
MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on the exchange notes and the new preferred stock
and, if issued, the subordinated exchange debentures, to refinance our
indebtedness, including the exchange notes and, if issued, the subordinated
exchange debentures, and to fund planned capital expenditures and research and
development efforts will depend on our ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available cash
and available borrowings under the senior credit facility will be adequate to
meet our future liquidity needs for at least the next few years.
We cannot assure you, however, that our business will generate sufficient cash
flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or at all or that future borrowings
will be available to us under the senior credit facility in amounts sufficient
to enable us to pay our indebtedness, including the exchange notes and, if
issued, the subordinated exchange debentures, pay dividends on the new preferred
stock, redeem the new preferred stock or to fund our other liquidity needs. We
may need to refinance all or a portion of our indebtedness, including the
exchange notes and if issued, the subordinated exchange debentures, and redeem
the new preferred stock on or before maturity. We cannot assure you that we will
be able to redeem the new preferred stock or refinance any of our indebtedness,
including the senior credit facility, the exchange notes, and, if issued, the
subordinated exchange debentures, on commercially reasonable terms or at all.
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SUBORDINATION-YOUR RIGHT TO RECEIVE CASH PAYMENTS ON THE EXCHANGE NOTES, THE NEW
PREFERRED STOCK AND, IF ISSUED, THE SUBORDINATED EXCHANGE DEBENTURES IS JUNIOR
TO OUR EXISTING INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER,
THE SUBSIDIARY GUARANTEES OF THE EXCHANGE NOTES ARE JUNIOR TO ALL OUR SUBSIDIARY
GUARANTORS' EXISTING INDEBTEDNESS AND POSSIBLY TO ALL THEIR FUTURE BORROWINGS.
The exchange notes and the subsidiary guarantees rank behind all of our and our
subsidiary guarantors' existing indebtedness (other than trade payables) and all
of our and their future borrowings (other than trade payables), except any
future indebtedness (such as the subordinated exchange debentures) that
expressly provides that it ranks equal with, or subordinated in right of payment
to, the exchange notes and the subsidiary guarantees. The new preferred stock
ranks junior in right of payment to all of our existing and future liabilities
or obligations (including trade payables), other than our common stock and any
preferred stock which by its terms is on parity with or junior to the new
preferred stock. The subordinated exchange debentures, if issued, will rank
behind all of our existing and future indebtedness that is senior to the
subordinated exchange debentures, including the exchange notes. As a result,
upon any distribution to our creditors or, in the case of the subsidiary
guarantees, the creditors of our subsidiary guarantors, in a bankruptcy,
liquidation or reorganization or similar proceeding relating to us or our
subsidiary guarantors or our or their property:
- the holders of our and our subsidiary guarantors' debt senior to the
exchange notes will be entitled to be paid in full in cash before any
payment may be made with respect to the exchange notes or the subsidiary
guarantees; and
- payments may be made with respect to the new preferred stock only after
our assets have been used to satisfy all of our obligations to our
creditors, including holders of the exchange notes, or if the subordinated
exchange debentures have been issued, only after all of the debt that is
senior to the subordinated exchange debentures, including the exchange
notes, has been paid in full.
In addition, all payments on the exchange notes and the subsidiary guarantees
will be blocked in the event of a payment default on designated senior debt and
may be blocked for up to 179 of 360 consecutive days in the event of certain
non-payment defaults on senior debt. Furthermore, all payments on the
subordinated exchange debentures will be blocked in the event of a payment
default on any designated debt that is senior to the subordinated exchange
debentures and may be blocked for up to 179 of 360 consecutive days in the event
of certain non-payment defaults on debt that is senior to the subordinated
exchange debentures.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or, in the case of the subsidiary guarantees, our
subsidiary guarantors:
- holders of the exchange notes will participate with trade creditors and
all other holders of subordinated indebtedness of us and our subsidiary
guarantors that is deemed to be of the same class as the exchange notes in
the assets remaining after we and our subsidiary guarantors have paid all
of the debt senior to the exchange notes;
- holders of the subordinated exchange debentures, if issued, will
participate with all holders of subordinated indebtedness of us that is
deemed to be of the same class as the subordinated exchange debentures,
and potentially with all other general creditors of PCA, in our remaining
assets; and
- holders of the new preferred stock will receive assets only after we have
paid all other indebtedness.
However, because the notes indenture and the subordinated exchange debentures
indenture require that amounts otherwise payable to holders of the exchange
notes, in the case of the notes indenture or holders of the subordinated
exchange debentures, in the case of the subordinated exchange debentures
indenture, in a bankruptcy or similar proceeding be paid to holders of debt
senior to such security instead, holders of the exchange notes and holders of
the subordinated exchange debentures may receive less, ratably, than holders of
trade payables in any such proceeding. In any of these cases, we and, in the
case of the exchange notes, our
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subsidiary guarantors may not have sufficient funds to pay all of our creditors
and holders of exchange notes and holders of subordinated exchange debentures
may receive less, ratably, than the holders of debt senior to such security.
Assuming we had completed the Transactions on March 31, 1999:
- the exchange notes and the subsidiary guarantees would have been
subordinated to $1.219 billion of debt senior to the exchange notes, and
$241 million would have been available for borrowing as additional senior
debt under the senior credit facility;
- the new preferred stock would have been subordinated to all $1.77 billion
of our outstanding debt, including the exchange notes; and
- the subordinated exchange debentures, if issued, would have been
subordinated to all $1.77 billion of our outstanding debt, including the
exchange notes.
We are and will continue to be permitted to borrow substantial additional
indebtedness, including senior debt, in the future under the terms of the notes
indenture, the certificate of designation and the subordinated exchange
debentures indenture.
DIVIDEND RESTRICTIONS-OUR ABILITY TO PAY CASH DIVIDENDS ON THE NEW PREFERRED
STOCK OR REDEEM THE NEW PREFERRED STOCK OR, IF ISSUED, REPURCHASE THE
SUBORDINATED EXCHANGE DEBENTURES FOR CASH, IS LIMITED IN MANY WAYS.
The senior credit facility generally prohibits the payment of cash dividends on
the new preferred stock and the redemption, repurchase or other acquisition of
any new preferred stock or subordinated exchange debentures by us for cash.
In addition, the notes indenture generally restricts our ability to pay cash
dividends on the new preferred stock, and redeem, repurchase or otherwise
acquire the new preferred stock or, if issued, subordinated exchange debentures
for cash. Moreover, under Delaware law, we may only pay a dividend on the new
preferred stock out of our surplus or net profits for the fiscal year in which
the dividend is declared and/or the preceding year. In addition, our board of
directors must approve the payment of any such dividend.
There can be no assurances that we will be able to generate a surplus or net
profits after making our payments under the senior credit facility or the
exchange notes, to other creditors or for any other reason. As a result, we do
not expect to be able to pay cash dividends on the new preferred stock or
redeem, purchase or otherwise acquire any new preferred stock or, if issued,
subordinated exchange debentures for cash in the foreseeable future.
RESTRICTIONS IMPOSED BY THE SENIOR CREDIT FACILITY, THE NOTES INDENTURE AND THE
CERTIFICATE OF DESIGNATION-THE SENIOR CREDIT FACILITY, THE NOTES INDENTURE AND
THE CERTIFICATE OF DESIGNATION LIMIT US IN CERTAIN SIGNIFICANT RESPECTS.
Our senior credit facility and the notes indenture impose certain restrictions
on our ability, among other things, to:
- incur additional indebtedness;
- pay dividends and make distributions;
- issue stock of subsidiaries;
- make certain investments;
- repurchase stock; and
- create liens;
- enter into transactions with affiliates;
- enter into sale and leaseback transactions;
- merge or consolidate our company;
- transfer and sell assets.
The certificate of designation governing the new preferred stock and the
subordinated exchange debentures indenture, if the subordinated exchange
debentures are issued, contain similar restrictions.
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In addition, we must maintain minimum debt service, minimum net worth and
maximum leverage ratios under the senior credit facility. A failure to comply
with the restrictions contained in the senior credit facility could lead to an
event of default, which could result in an acceleration of such indebtedness.
Such an acceleration would also constitute an event of default under the notes
indenture or the subordinated exchange debentures indenture, if the subordinated
exchange debentures are issued, and could cause a voting rights triggering event
under the certificate of designation. See "Description of Senior Credit
Facility."
INDUSTRY AND CYCLICAL FACTORS-THE CYCLICALITY OF OUR INDUSTRY, WHICH IS IMPACTED
BY BOTH THE SUPPLY AND DEMAND FOR CONTAINERBOARD, COULD ADVERSELY IMPACT OUR
FINANCIAL RESULTS.
The market for containerboard is highly cyclical. Historically, prices for
containerboard have generally reflected changes in supply, which is primarily
determined by additions and reductions to industry capacity and inventory
levels, and, to a lesser extent, changes in demand.
Containerboard demand is dependent upon both the demand for corrugated packaging
products, which closely tracks industrial production, and export activity.
Domestic demand for corrugated packaging products is more stable, and generally
corresponds to changes in the rate of growth in the U.S. economy.
During the period from 1994 to 1996, capacity additions outpaced domestic and
export demand, leading to lower industry operating rates and generally declining
prices from late-1995 until mid-1997. Although prices generally improved from
mid-1997 through mid-1998, the containerboard markets were adversely affected by
weaker containerboard exports, particularly to Asia in the second half of 1998.
These factors contributed to higher inventories, lower operating rates and lower
prices during this period.
Although industry fundamentals have improved in recent months, industry
conditions may deteriorate in the future. Any deterioration in industry
conditions is likely to substantially reduce our cash flow and could have a
material adverse effect on our financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPETITION-WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY AGAINST A NUMBER OF
LARGE, VERTICALLY INTEGRATED COMPANIES.
The containerboard and corrugated packaging products industries are highly
competitive. Containerboard is largely a commodity, resulting in substantial
price competition. Our competitors include large, vertically integrated
containerboard and corrugated packaging products companies and numerous smaller
companies. Although no company enjoys a dominant position in the industry, some
of our competitors are less leveraged and have greater financial and other
resources than we do and are able to better withstand the cyclicality within our
industry.
We may also face increased competition from new or existing producers of
containerboard. Although containerboard mills generally require approximately
two years to construct and require substantial capital investment, we believe
that some of our competitors have idle machines that could potentially be
restarted and used in containerboard production in a shorter period and with
less significant capital investment.
Competition in the corrugated packaging industry is based on innovation, price,
design, quality and service, to varying degrees depending on the product line.
We cannot assure you that we will be able to compete successfully with respect
to any of these factors. We compete with national, regional and local corrugated
products manufacturers, as well as manufacturers of other types of packaging
products in each of our geographic and product markets. Our failure to compete
successfully could have a material adverse effect on our business, financial
position and results of operations.
COST OF RAW MATERIALS-AN UNEXPECTED INCREASE IN THE COST OF FIBER OR LACK OF
CONTINUED ACCESS TO VIRGIN FIBER MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.
The average cost of virgin fiber has been increasing due to greater demand for
wood chips from timberland located in the Southern United States. It is possible
that virgin fiber costs will increase further in the future. We
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are considering the possible sale of a significant portion of our timberland. A
sale of timberland could increase our susceptibility to volatile fiber costs. We
cannot assure you that we will have continued access to sufficient quantities of
virgin fiber, the largest component we use in producing containerboard. The loss
of a stable supply of virgin fiber could have a material adverse effect on us.
See "Business-Raw Materials."
DEPENDENCE UPON KEY PERSONNEL-A LOSS OF KEY PERSONNEL COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
Our success is largely dependent on the skills, experience and efforts of our
senior management. The loss of services of one or more members of our senior
management could have a material adverse effect on our company. In addition, as
our business develops and expands, we believe that our future success will
depend on our continued ability to attract and retain highly skilled and
qualified personnel. We cannot assure you that we will be able to continue to
employ key personnel or that we will be able to attract and retain qualified
personnel in the future. Failure to retain or attract such key personnel could
have a material adverse effect on our business, financial condition and results
of operations.
LACK OF OPERATING HISTORY AS A STAND-ALONE ENTITY--THE ABILITY OF OUR MANAGEMENT
TO EFFECT THE TRANSITION FROM OPERATING AS A DIVISION OF A LARGE, INVESTMENT
GRADE COMPANY TO OPERATING AS A HIGHLY-LEVERAGED STAND-ALONE BUSINESS IS KEY TO
OUR SUCCESS.
Prior to consummation of the Transactions, PCA operated as a division of TPI,
which is currently a subsidiary of Tenneco. As such, PCA was not responsible for
financing its operations and complying with the related financial covenants and
other debt agreement restrictions. In addition, PCA participated in Tenneco's
extensive business and support service network, which afforded PCA leverage with
respect to purchasing goods and services and leasing office facilities and
eliminated the need for its management to focus on such matters. We have entered
into various agreements with TPI to assist us with this transition, but these
agreements are of a limited duration. See "Certain Transactions-Transition
Agreements" and "-Purchase/Supply Agreements." There can be no assurance that we
will be able to complete the transition on a cost-effective basis or at all,
particularly after the termination of the transition agreements.
In addition, TPI and certain of its affiliates have entered into purchase/supply
agreements whereby they have agreed to purchase containerboard and corrugated
packaging products from us for a period of five years from the closing of the
Transactions at prices based on market rates with no volume discount. As a
result of these agreements, TPI and its affiliates are our largest customer and
second largest customer of corrugated products. There can be no assurance that
these agreements will be extended beyond five years, and the loss of TPI and its
affiliates as customers could have a material impact on our operations.
CONTROLLING STOCKHOLDERS; POTENTIAL CONFLICTS-THE INTERESTS OF OUR CONTROLLING
STOCKHOLDERS COULD CONFLICT WITH THOSE OF THE HOLDERS OF THE EXCHANGE NOTES, THE
NEW PREFERRED STOCK AND, IF ISSUED, THE SUBORDINATED EXCHANGE DEBENTURES.
As of May 1, 1999, PCA Holdings and TPI beneficially owned 55% and 45%,
respectively, of the outstanding common stock of PCA on a fully diluted basis
and have entered into a stockholders agreement governing the composition of our
board of directors and restricting their ability to transfer their shares to
third parties. As a result, PCA Holdings and TPI have the ability to elect all
of the members of our board of directors, appoint new management and approve any
action requiring the approval of our stockholders. The directors have the
authority to make decisions affecting our capital structure, including the
issuance of additional indebtedness and the declaration of dividends. There can
be no assurance that the interests of PCA Holdings and TPI do not and will not
conflict with the interests of the holders of the exchange notes or the new
preferred stock or, if issued, the subordinated exchange debentures. See
"Security Ownership" and "Certain Transactions-Stockholders Agreement."
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ENVIRONMENTAL MATTERS-ENVIRONMENTAL LAWS WILL REQUIRE US TO INCUR SIGNIFICANT
COSTS TO MAINTAIN COMPLIANCE AND COULD IMPOSE LIABILITY TO REMEDY THE EFFECTS OF
HAZARDOUS SUBSTANCE CONTAMINATION.
Compliance with environmental requirements is a significant factor in our
company's operations, and we must occasionally commit substantial resources to
maintaining environmental compliance and managing environmental risk. We are
subject to, and must comply with, a variety of federal, state and local
environmental laws, particularly those relating to air and water quality, waste
disposal and the cleanup of contaminated soil and groundwater. Because
environmental regulations are constantly evolving, we have incurred, and will
continue to incur, significant costs to maintain compliance with those laws.
The United States Environmental Protection Agency recently adopted a set of
comprehensive rules, often referred to as the Cluster Rules, governing all pulp
and paper mill operations, including those at our mills. Over the next several
years, the Cluster Rules will affect our allowable discharges of air and water
pollutants, and require us and our competitors to spend money to ensure
compliance with these new rules. We currently project future costs for
compliance with the Cluster Rules at our four mills at approximately $63.6
million for all of our mill operations. We expect to incur these costs from 1999
through 2005. (From 1997 through 1998, we spent approximately $3 million on
Cluster Rule compliance.) However, actual costs of such compliance may exceed
this amount, in part because it is inherently difficult to predict future
environmental expenditures and in part because not all of the regulations
relating to the Cluster Rules have been finalized.
We have, in the past, incurred costs associated with the remediation of soil or
groundwater contamination and expect that, from time to time, we will incur
similar remedial obligations in the future. Cleanup requirements arise with
respect to properties we currently own or operate, former facilities and
off-site properties where we have disposed of hazardous substances. While we
maintain reserves for environmental remediation liability, and we currently
believe those reserves are adequate, we could, in light of the retroactive
nature of the environmental laws, incur unanticipated environmental liabilities
in the future and those liabilities could be material.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Environmental Matters" and "Business-Environmental Matters."
YEAR 2000 ISSUE-OUR FAILURE, OR THE FAILURE OF OUR THIRD PARTY SUPPLIERS OR
RETAILER CUSTOMERS, TO ADDRESS INFORMATION TECHNOLOGY ISSUES RELATED TO THE YEAR
2000 COULD ADVERSELY AFFECT OUR OPERATIONS.
Year 2000 issues are the result of computer programs that were written using
two-digits rather than four to define the applicable year. Any of our computer
programs that use two digits rather than four digits to specify the year will be
unable to interpret dates belonging to the year 2000. PCA has substantially
completed an inventory of its systems to identify and assess Year 2000 issues
and is in the process of installing a comprehensive Year 2000 compliant,
upgraded customer and management system. This system includes remediation,
replacement and alternative procedures for non-compliant Year 2000 issues,
including upgrades to the mill system as well as compliance and remediation
measures with respect to the order entry, corrugator scheduling, converting
scheduling, shop floor manufacturing, shipping, inventory management and
invoicing systems at our converting plants. Installation of our Year 2000
compliant system was completed at certain locations in 1998. We expect to
complete the installation of this system at all of our locations prior to the
end of the third quarter of 1999 although we cannot be assured of such
completion. In addition, we are in the process of identifying those customers,
suppliers and others with whom we conduct business to determine whether such
persons will be able to resolve in a timely manner any Year 2000 problems that
may affect PCA. Our failure or failure of our suppliers or customers to achieve
Year 2000 compliance could materially and adversely affect our business and
results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
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CERTAIN TAX CONSIDERATIONS-HOLDERS OF NEW PREFERRED STOCK SHOULD BE AWARE OF
CERTAIN TAX CONSEQUENCES THAT MAY APPLY TO THEM AS A RESULT OF THEIR OWNING THE
NEW PREFERRED STOCK.
If we make distributions on the new preferred stock out of current or
accumulated earnings and profits, as determined under U.S. federal income tax
principles, such distributions will be taxable as ordinary income whether paid
in cash or in additional shares of new preferred stock. In addition, to the
extent that there is more than a de minimis redemption premium, representing the
difference between the redemption price and issue price of the new preferred
stock, holders may be required to treat the difference as constructive
distributions that are includable in income on an economic accrual basis. If
shares of new preferred stock (including additional shares of new preferred
stock distributed by us in lieu of cash dividend payments) bear a redemption
premium, such shares generally will have different tax characteristics than
other shares of preferred stock not having such premium and might trade
separately, which might adversely affect the liquidity of such shares. See
"Certain United States Federal Tax Considerations-Tax Consequences to United
States Holders-New Preferred Stock-Redemption Premium."
Holders should also note that if shares of new preferred stock are exchanged for
subordinated exchange debentures with a stated redemption price at maturity that
exceeds their issue price by more than a de minimis amount, the subordinated
exchange debentures will be treated as having original issue discount equal to
the entire amount of such excess. Subordinated exchange debentures issued on or
before April 1, 2004, the date through which we have the option to pay interest
on the subordinated exchange debentures in additional subordinated exchange
debentures, will have original issue discount and subordinated exchange
debentures issued thereafter may have original issue discount. Each holder of
subordinated exchange debentures with original issue discount will be required
to include in gross income an amount equal to the sum of the daily portions of
the original issue discount for all days during the taxable year in which such
holder holds the subordinated exchange debentures, regardless of the holder's
regular method of accounting and regardless of whether interest is paid by us in
cash or in additional subordinated exchange debentures. See "Certain United
States Federal Tax Considerations-Tax Consequences to United States
Holders-Subordinated Exchange Debentures-Original Issue Discount."
FINANCING CHANGE OF CONTROL OFFER-WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS
NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE NOTES
INDENTURE, THE CERTIFICATE OF DESIGNATION AND THE SUBORDINATED EXCHANGE
DEBENTURES INDENTURE.
Upon the occurrence of certain specific kinds of change of control events, we
will be required to offer to repurchase all outstanding exchange notes and
redeem the new preferred stock, or, if issued, repurchase the subordinated
exchange debentures. However, it is possible that we will not have sufficient
funds at the time of the change of control to make the required repurchase of
exchange notes and redemption of new preferred stock, or, if issued, repurchase
of the subordinated exchange debentures, or that restrictions in the senior
credit facility will not allow such repurchases and redemptions. In addition,
certain important corporate events, such as leveraged recapitalizations that
would increase the level of our indebtedness, would not constitute a "Change of
Control" under the notes indenture, the certificate of designation or the
subordinated exchange debentures indenture. See "Description of Exchange
Notes-Repurchase at the Option of Holders," "Description of New Preferred
Stock-New Preferred Stock-Repurchase at the Option of Holders" and
"-Subordinated Exchange Debentures-Repurchase at the Option of Holders."
FRAUDULENT CONVEYANCE MATTERS-FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER
SPECIFIC CIRCUMSTANCES, TO VOID THE EXCHANGE NOTES AND THE SUBSIDIARY GUARANTEES
AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM US OR OUR SUBSIDIARY
GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, the exchange notes and the subsidiary guarantees could be voided,
or claims in respect of the exchange notes or the subsidiary
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guarantees could be subordinated to all other debts of PCA or any subsidiary
guarantor if, among other things, PCA or such subsidiary guarantor, at the time
it incurred the indebtedness evidenced by the exchange notes or its subsidiary
guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such indebtedness; and
- was insolvent or rendered insolvent by reason of such incurrence; or
- was engaged in a business or transaction for which PCA's or such
subsidiary guarantor's remaining assets constituted unreasonably small
capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by us or such subsidiary guarantor pursuant to the
exchange notes or a subsidiary guarantee could be voided and required to be
returned to us or such subsidiary guarantor, or to a fund for the benefit of the
creditors of us or such subsidiary guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws will
vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, PCA or a subsidiary
guarantor would be considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets, or
- if the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature, or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history and
other factors, neither PCA nor any of our subsidiary guarantors believes that,
after giving effect to the issuance of the exchange notes, the subsidiary
guarantees and the new preferred stock, it will be insolvent, will have
unreasonably small capital for the business in which it is engaged or will have
incurred debts beyond its ability to pay such debts as they mature. There can be
no assurance, however, as to what standard a court would apply in making such
determinations or that a court would agree with our or our subsidiary
guarantors' conclusions in this regard.
NO PRIOR MARKET FOR THE EXCHANGE NOTES, THE NEW PREFERRED STOCK OR THE
SUBORDINATED EXCHANGE DEBENTURES-YOU CANNOT BE SURE THAT AN ACTIVE TRADING
MARKET WILL DEVELOP.
The exchange notes and the new preferred stock are each a new issue of
securities for which no market currently exists. J.P. Morgan Securities Inc. and
BT Alex. Brown Incorporated, the initial purchasers of the outstanding notes and
preferred stock, have informed us that they intend to make a market in the
exchange notes and new preferred stock. However, they are not obligated to do so
and the initial purchasers may cease their market-making at any time without
notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the exchange notes or the new preferred stock. The
exchange notes and the new preferred stock are expected to be eligible for
trading by qualified buyers in the PORTAL market. We do not intend to apply for
listing of the exchange notes or the new preferred stock on any securities
exchange or for quotation through The Nasdaq National Market. In addition, the
liquidity of the trading market in the exchange notes and the new preferred
stock, and the market price quoted for the exchange notes and the new preferred
stock, may be adversely affected by changes in the overall market for high yield
securities and by changes in our financial performance or prospects or in the
prospects for companies in our industry generally. As a result, you cannot be
sure that an active trading market will develop for the exchange notes, the new
preferred stock or the subordinated exchange debentures, if issued.
29
<PAGE>
FAILURE TO EXCHANGE OUTSTANDING NOTES AND PREFERRED STOCK--YOUR ABILITY TO
RESELL YOUR NOTES AND PREFERRED STOCK WILL REMAIN RESTRICTED IF YOU FAIL TO
EXCHANGE THEM IN THE EXCHANGE OFFER.
Untendered outstanding notes and preferred stock that are not exchanged for the
registered exchange notes and new preferred stock pursuant to the exchange offer
will remain restricted securities, subject to the following restrictions on
transfer:
- the notes and the preferred stock may be resold only if registered
pursuant to the Securities Act or if an exemption from registration is
available;
- the notes and the preferred stock will bear a legend restricting transfer
in the absence of registration or an exemption; and
- a holder of the notes or the preferred stock who wants to sell or
otherwise dispose of all or any part of its notes or preferred stock under
an exemption from registration under the Securities Act, if requested by
us, must deliver to us an opinion of independent counsel experienced in
Securities Act matters, reasonably satisfactory in form and substance to
us, stating that such exemption is available.
30
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements regarding, among other
things, our financial condition and business strategy. We have based these
forward-looking statements on our current expectations and projections about
future events. While we believe these expectations and projections are
reasonable, such forward-looking statements are inherently subject to risks,
uncertainties and assumptions about us, including, among other things, those
risks identified under the caption "Risk Factors."
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
31
<PAGE>
THE TRANSACTIONS
On January 25, 1999, TPI entered into a definitive agreement (the "Contribution
Agreement") to sell its containerboard and corrugated packaging products
business to PCA for $2.2 billion (the "Acquisition"). Under the terms of the
Contribution Agreement, PCA Holdings, an entity organized and controlled by MDP
and its coinvestors, acquired a 55% common equity interest in PCA, and TPI
contributed the containerboard business to PCA in exchange for cash, the
assumption of debt and a 45% common equity interest in PCA (in each case before
giving effect to issuances of common equity to management).
The financing of the Transactions consisted of (1) borrowings under the senior
credit facility, (2) the offering of the notes, (3) the offering of the
preferred stock, (4) a cash equity investment of $236.5 million by PCA Holdings
(the "PCA Holdings Equity Investment") and (5) a rollover equity investment by
TPI valued at $193.5 million (the "TPI Equity Investment").
The transactions and financings described above are collectively referred to
herein as the "Transactions." The PCA Holdings Equity Investment and the TPI
Equity Investment are collectively referred to herein as the "Equity
Investments."
The following table sets forth the estimated sources and uses of funds for the
Transactions.
<TABLE>
<S> <C>
DOLLARS IN THOUSANDS
---------
---------
SOURCES OF FUNDS:
Senior Credit Facility
Revolving Credit Facility (a)............................... $ 9,000
Tranche A Term Loan......................................... 460,000
Tranche B Term Loan......................................... 375,000
Tranche C Term Loan......................................... 375,000
Notes......................................................... 550,000
Preferred stock............................................... 100,000
PCA Holdings Equity Investment................................ 236,500
TPI Equity Investment......................................... 193,500
---------
Total....................................................... $2,299,000
---------
---------
USES OF FUNDS:
Acquisition consideration (b)................................. $2,200,000
Estimated fees, expenses and working capital (c).............. 99,000
---------
Total....................................................... $2,299,000
---------
---------
</TABLE>
- --------------
(a) Immediately subsequent to the closing of the Transactions, we had $241
million in additional availability under our new revolving credit facility.
See "Description of Senior Credit Facility." As of May 1, 1999, we had $250
million in availability under the revolving credit facility.
(b) The Acquisition consideration is subject to adjustment based on changes to
the net working capital of the containerboard business since September 30,
1998. The amount of the adjustment, if any, has not yet been determined.
(c) Includes a fee paid to Madison Dearborn at the closing of the Transactions
of $15 million plus out-of-pocket expenses incurred in connection with the
Transactions. See "Certain Transactions-The Transactions."
In June 1999, PCA offered and sold to certain members of management of PCA 3.5%
of the common stock of PCA at the same price per share paid by PCA Holdings in
the PCA Holdings Equity Investment. PCA also issued to management options to
purchase shares representing 5.5% of the common stock of PCA. PCA has reserved
for future issuance to management options to purchase additional shares
representing 1.0% of the common stock of PCA. On a fully diluted basis,
management will be entitled to purchase up to 9.8% of PCA's common stock.
Prior to the closing of the Transactions, TPI agreed under the terms of the
Contribution Agreement to purchase certain timberland that was leased by TPI for
use by the containerboard business and buy-out all remaining mill operating
leases (collectively, the "Lease Buy-out"). As a result of the Lease Buy-out,
PCA owns approximately 805,000 acres of timberland and continues to control
145,000 acres under lease or long-term cutting rights arrangements, and owns all
of its mills.
32
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the exchange notes and the
new preferred stock in the exchange offer.
We received net proceeds of $530.9 million from the sale of the outstanding
notes and net proceeds of $95.1 million from the sale of the outstanding
preferred stock. We used the net proceeds from the sale of the notes and the
preferred stock, the PCA Holdings Equity Investment, the TPI Equity Investment
and borrowings under the senior credit facility to finance the Acquisition and
to pay related fees and expenses of the Transactions. See "The Transactions."
33
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of PCA as of March 31, 1999,
and as adjusted on a pro forma basis to give effect to the Transactions,
including the offerings of the notes and the preferred stock, as if they had
occurred on that date. The information in this table should be read in
conjunction with "Unaudited Pro Forma Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited combined financial statements, including the notes thereto, which
appear elsewhere in this prospectus.
<TABLE>
<CAPTION>
------------------------------------------
MARCH 31, 1999 MARCH 31, 1999
(ACTUAL) (PRO FORMA)
-------------------- --------------------
<S> <C> <C>
DOLLARS IN THOUSANDS
Cash................................................................. $ 1 $4,820
-------------------- --------------------
-------------------- --------------------
Debt:
Senior Credit Facility
Revolving Credit Facility (a).................................... - 9,000
Tranche A Term Loan.............................................. - 460,000
Tranche B Term Loan.............................................. - 375,000
Tranche C Term Loan.............................................. - 375,000
Notes.............................................................. - 550,000
Other.............................................................. 466 -
-------------------- --------------------
Total debt....................................................... 466 1,769,000
Preferred stock...................................................... - 100,000
Stockholders' equity (b)............................................. 666,438 294,452
-------------------- --------------------
Total capitalization............................................. $666,904 $2,163,452
-------------------- --------------------
-------------------- --------------------
</TABLE>
- --------------
(a) As of March 31, 1999 on a pro forma basis, we had $241 million in additional
availability under our new revolving credit facility. See "Description of
Senior Credit Facility."
(b) Stockholders' equity includes 100 shares of junior preferred stock, having a
liquidation preference of $1.00 per share. Any references to "preferred
stock" contained in this prospectus do not include the 100 shares of junior
preferred stock unless otherwise indicated. PCA Holdings and TPI
collectively hold all of the shares of the junior preferred stock. Holders
of the junior preferred stock are not entitled to receive any dividends or
distributions thereon. Holders of junior preferred stock have the right to
elect one director to PCA's board of directors. Pursuant to the stockholders
agreement, such holders have agreed to elect the individual serving as PCA's
chief executive officer to fill such vacancy. Shares of junior preferred
stock may not be reissued after being reacquired in any manner by PCA.
34
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information has been derived by the
application of pro forma adjustments, which give effect to the Transactions, to
the historical combined financial statements of the Group included elsewhere in
this prospectus. The Transactions include the following related events:
- Borrowings under the senior credit facility;
- The Lease Buy-out;
- TPI's contribution of the containerboard and corrugated packaging products
business to PCA in exchange for the TPI Equity Investment and cash;
- Issuance of PCA common stock to PCA Holdings in exchange for cash; and
- PCA's issuance of the outstanding notes and preferred stock in the
offerings.
The unaudited pro forma balance sheet gives effect to the Transactions as if the
Transactions had occurred on March 31, 1999. The unaudited pro forma statements
of income for the year ended December 31, 1998 and the three months ended March
31, 1999 give effect to the Transactions as if the Transactions had been
consummated on January 1, 1998. The pro forma adjustments exclude the impacts,
if any, on cash, debt and stockholders' equity resulting from (a) a post-closing
adjustment based on working capital, (b) a sale of stock to PCA management and
(c) the potential effect of interest rate hedges on the senior credit facility.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Market Risk and Risk Management Policies."
The unaudited pro forma financial information is for comparative purposes only
and does not purport to represent what PCA's financial position or results of
operations would actually have been had the Transactions in fact occurred on the
assumed dates or to project PCA's financial position or results of operations
for any future date or future period. The unaudited pro forma financial
information should be read in conjunction with the Group's historical combined
financial statements and related notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and other financial information
included elsewhere in this prospectus.
The Transactions represented a series of related transactions that fall within
the scope of EITF Issue No. 88-16 ("EITF 88-16"), BASIS IN LEVERAGED BUY-OUT
TRANSACTIONS. However, in accordance with the guidance in EITF 88-16, because a
change in control was deemed not to have occurred due to the existence of
certain participating veto rights held by PCA directors designated by TPI, the
Transactions are considered a recapitalization-restructuring for which a change
in accounting basis is not appropriate. Accordingly, PCA has recorded the Group
net assets contributed by TPI at their historical values.
The pro forma and other adjustments, as described in the accompanying notes to
the unaudited pro forma balance sheet and statement of income, are based on
available information and certain assumptions that management believes are
reasonable.
35
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
---------------------------------------------------
GROUP PRO FORMA PCA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------ ------------
<S> <C> <C> <C> <C>
DOLLARS IN THOUSANDS
ASSETS
Current assets:
$ (1) (a)
3,700 (c)
Cash and cash equivalents.................................... $ 1 1,120 (l) $ 4,820
(27,122) (a)
Accounts and notes receivable................................ 74,661 150,987 (b) 198,526
Inventories.................................................. 151,583 151,583
Deferred income taxes........................................ 13,362 (13,362) (a) --
Prepaids and other current assets............................ 14,816 14,816
------------ ------------ ------------
Total current assets....................................... 254,423 115,322 369,745
1,100,000 (d)
Property, plant and equipment, net............................. 998,178 (183,906) (e) 1,914,272
(46,206) (e)
(38,231) (a)
Other assets, net.............................................. 119,922 68,361 (f) 103,846
------------ ------------ ------------
Total assets................................................... $ 1,372,523 $ 1,015,340 $ 2,387,863
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
$ (216) (a)
Current portion of debt...................................... $ 216 40,625 (g) $ 40,625
Accounts payable............................................. 118,956 (39,779) (a) 79,177
Loss reserve................................................. 230,112 (230,112) (e) --
1,120 (l)
Other current liabilities.................................... 68,558 (13,306) (a) 56,372
------------ ------------ ------------
Total current liabilities.................................. 417,842 (241,668) 176,174
(250) (a)
(40,625) (g)
Long-term debt................................................. 250 1,769,000 (h) 1,728,375
(263,936) (a)
Deferred income taxes.......................................... 263,936 76,400 (i) 76,400
Other non-current liabilities.................................. 24,057 (11,595) (a) 12,462
------------ ------------ ------------
Total liabilities.......................................... 706,085 1,287,326 1,993,411
Redeemable preferred stock..................................... -- 100,000 (j) 100,000
Stockholders' equity........................................... 666,438 (371,986) (k) 294,452
------------ ------------ ------------
Total liabilities and stockholders' equity..................... $ 1,372,523 $ 1,015,340 $ 2,387,863
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) To reflect the elimination of the following Group assets not acquired and
Group liabilities not assumed by PCA in connection with the Transactions:
<TABLE>
<S> <C> <C>
Cash..................................................... $ 1
Notes receivable-Caraustar sale.......................... 27,122
Current deferred income tax asset........................ 13,362
Other assets:
Prepaid pension asset....................... 34,727
Lease prepayments and deferred financing
costs...................................... 3,504
---------
38,231
Accounts Payable:
Non-trade payables to TPI or affiliates..... 13,085
Outstanding Checks and Disbursements........ 26,694
---------
39,779
Other current liabilities:
Employee Deductions--Insurance and Taxes.... 8,904
Severance accruals.......................... 2,942
OPEB liability-current portion.............. 1,460
---------
13,306
Current portion of debt.................................. 216
Long-term debt, less current portion..................... 250
Non-current deferred tax liability....................... 263,936
Other non-current liabilities:
OPEB liability, less current portion........ 7,589
Environmental reserves...................... 4,006
---------
11,595
---------
$ 250,366(included
in item
Net increase to equity.................... k)
---------
---------
</TABLE>
(b) To record $150,987 of uncollected Group trade accounts receivable generally
sold without recourse to Tenneco financing affiliates. Because they have
been sold, those factored receivables are not included in the Group's
historical balance sheet. However, as part of the Transactions, uncollected
factored receivables are part of TPI's contribution to PCA.
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS)
(c) To reflect the net effect on cash of the Transactions, as follows:
<TABLE>
<S> <C> <C>
Proceeds from borrowings under the
Senior Credit Facility................ $1,219,000
Proceeds from the Notes................. 550,000
Proceeds from the Preferred Stock....... 100,000
Proceeds from the issuance of common
stock................................. 236,500
----------
$2,105,500
Acquisition Consideration to TPI........ (2,200,000)
Less Equity Rollover Component........ 193,500
----------
(2,006,500)*
Estimated transaction fees and
expenses.............................. (95,300)
----------
Net effect on cash.............................. $ 3,700
----------
----------
</TABLE>
------------------
* TPI received total consideration of $2,200,000, which includes
approximately $1,100,000 used for the Lease Buy-out after March 31, 1999,
a roll-over common equity investment in PCA valued at $193,500, and net
cash of $906,500. Net cash to TPI consists of $246,500 received for its
contribution of the containerboard and corrugated packaging products
business to PCA, and $660,000 of term debt proceeds retained by TPI
($1,760,000) in excess of the Lease Buy-out cost paid after March 31,
1999 ($1,100,000). This adjustment does not reflect any adjustment to the
Acquisition consideration based on changes to the net working capital of
the containerboard business since September 30, 1998. The amount of that
adjustment, if any, has not yet been determined.
(d) Represents approximately $1,100,000 paid by TPI after March 31, 1999 to
buy-out certain timber and mill asset operating leases in the Lease Buy-out.
(e) As a result of the contributed net assets having a carrying value greater
than their fair value (as determined by the value of the acquisition
consideration), an asset impairment was recorded by TPI in connection with
the Transactions relating to the Group's fixed and intangible assets. The
pre-tax impairment charge, which has been excluded from the pro forma
statement of income due to its non-recurring impact, was reflected in the
Group's separate financial statements in the first quarter of 1999 and
consists of the following components:
<TABLE>
<S> <C> <C>
Write-off remaining goodwill $ 46,206
Reduction in property, plant and equipment 183,906
---------
$ 230,112
---------
---------
</TABLE>
The $230,112 is recorded as a loss reserve liability on the Group's
historical March 31, 1999 balance sheet because the allocation to specific
assets is still being finalized. For pro forma purposes, the components to
the impaired asset categories have been reclassified.
(f) To record the component of the transaction costs that represents (1) the
estimated $60,000 of capitalizable debt issuance costs and (2) the $8,361
paid by PCA in settlement of the interest rate protection agreement related
to the outstanding notes. For purposes of the pro forma balance sheet, the
$68,361 total is shown as part of other assets. For purposes of the pro
forma statement of income, the $60,000 is amortized over the weighted
average life of the debt issued under the senior credit facility and the
outstanding notes
38
<PAGE>
(approximately 8 years), and the $8,361 interest rate protection settlement
payment is amortized over the 10 year term of the outstanding notes, both of
which are materially consistent with using the effective interest method.
The remaining $26,939 of transaction costs has been recorded as a charge to
equity (i.e., a reduction to the new capital investment). See (k) below.
(g) To reclassify the principal of the term loan borrowings due within the first
year ($31,625) and the balance outstanding under the revolver ($9,000) as
current portion of debt.
(h) To record the new debt resulting from the Transactions, as follows:
<TABLE>
<S> <C> <C>
Senior Credit Facility:
Revolving Credit Facility ($250,000 limit).... $ 9,000
Tranche A Term Loan........................... 460,000
Tranche B Term Loan........................... 375,000
Tranche C Term Loan........................... 375,000
---------
</TABLE>
<TABLE>
<S> <C> <C>
1,219,000
Senior Subordinated Notes.................................... 550,000
---------
Total new debt....................................... $1,769,000
---------
---------
</TABLE>
(i) To record the estimated deferred taxes resulting from the Transactions.
(j) To record the issuance of the outstanding preferred stock as part of the
Transactions. The outstanding preferred stock has a fixed redemption date
and, therefore, is classified outside of stockholders' equity.
(k) To record the impact on stockholders' equity of the Transactions, as
follows:
<TABLE>
<S> <C> <C>
Net impact of Group net liabilities not assumed (see
a)................................................... $ 250,366
Sold receivables included in TPI contribution (see
b)................................................... 150,987
Issuance of common stock to PCA Holdings for cash (see
c)................................................... 236,500
Net cash payments to TPI (see c)....................... (906,500)*
Transaction costs (see f)................... $ (95,300)
Less portion capitalized as financing
costs.................................... 68,361
---------
(26,939)
Deferred income taxes recorded for PCA (see i)......... (76,400)
---------
Pro forma adjustment................................... $(371,986)
---------
---------
</TABLE>
------------------
* There is no other equity adjustment with respect to TPI's contributed
equity because such amount is recorded at TPI's historical cost. TPI will
receive total consideration of $2,200,000, which includes the $1,100,000
used for the Lease Buy-out after March 31, 1999, a roll-over common
equity investment in PCA valued at $193,500, and net cash of $906,500.
Net cash to TPI consists of $246,500 received for its contribution of the
containerboard and corrugated packaging products business to PCA, and
$660,000 of term debt proceeds retained by TPI ($1,760,000) in excess of
the Lease Buy-out cost paid after March 31, 1999 ($1,100,000).
(l) To record funding by TPI of $1,120 in deferred compensation liabilities
transferred to PCA as required under the Transactions.
39
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
----------------------------------------------------
GROUP PRO FORMA
HISTORICAL ADJUSTMENTS PCA PRO FORMA
------------- ----------- -------------
<S> <C> <C> <C> <C>
DOLLARS IN THOUSANDS
Net sales..................................................... $ 1,571,019 $ $ 1,571,019
7,200 (a)
Cost of sales................................................. (1,289,644) 12,260 (b) (1,270,184)
------------- ----------- -------------
Gross profit................................................ 281,375 19,460 300,835
1,449 (b)
(1,973) (c)
2,500 (d)
Selling and administrative expenses........................... (108,944) 4,400 (e) (102,568)
Corporate overhead allocation................................. (63,114) (63,114)
Non-recurring restructuring charge............................ (14,385) (14,385)
Other income.................................................. 26,818 14,774 (f) 41,592
------------- ----------- -------------
Income before interest and income taxes..................... 121,750 40,610 162,360
Interest expense, net......................................... (2,782) (157,069) (g) (159,851)
------------- ----------- -------------
Income before income taxes.................................. 118,968 (116,459) 2,509
Income tax (expense) benefit.................................. (47,529) 47,163 (h) (366)
------------- ----------- -------------
Net income.................................................... $ 71,439 $ (69,296) $ 2,143
------------- ----------- -------------
------------- ----------- -------------
OTHER DATA:
Income before interest and income taxes....................... $ 121,750 $ 40,610 $ 162,360
Deduct other income (i)....................................... (26,818) (14,774) (f) (41,592)
(13,709) (b)
Add:Depreciation, depletion, and amortization................. 96,950 65,300 (a) 148,541
Lease expense (i)......................................... 72,500 (72,500) (a) --
------------- ----------- -------------
169,450 (20,909) 148,541
------------- ----------- -------------
EBITDA (i).................................................... $ 264,382 $ 4,927 $ 269,309(j)
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
40
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
----------------------------------------------------
GROUP PRO FORMA
HISTORICAL ADJUSTMENTS PCA PRO FORMA
------------- ----------- -------------
<S> <C> <C> <C> <C>
DOLLARS IN THOUSANDS
Net sales..................................................... $ 391,279 $ -- $ 391,279
(230) (a)
Cost of sales................................................. (332,117) 3,065 (b) (329,282)
------------- ----------- -------------
Gross profit................................................ 59,162 2,835 61,997
329 (b)
(493) (c)
625 (d)
Selling and administrative expenses........................... (28,759) 724 (e) (27,574)
Corporate overhead allocation................................. (13,283) -- (13,283)
Non-recurring impairment charge............................... (230,112) 230,112 --
Other income.................................................. (1,377) 2,369 (f) 992
------------- ----------- -------------
Income (loss) before interest, income taxes and
extraordinary item......................................... (214,369) 236,501 22,132
Interest expense, net......................................... (221) (39,265) (g) (39,486)
------------- ----------- -------------
Loss before income taxes.................................... (214,590) 197,236 (17,354)
Income tax benefit............................................ 88,362 (78,763) (h) 9,599
------------- ----------- -------------
Loss before extraordinary item................................ $ (126,228) $ 118,473 $ (7,755)
------------- ----------- -------------
------------- ----------- -------------
OTHER DATA:
Income (Loss) before interest, income taxes and extraordinary
item........................................................ $ (214,369) $ 236,501 $ 22,132
Deduct other income (i)....................................... 1,377 (2,369) (f) (992)
(3,394) (b)
Add: Depreciation, depletion, and amortization................ 28,360 15,900 (a) 40,866
Lease expense (i)......................................... 15,670 (15,670) --
------------- ----------- -------------
44,030 (3,164) 40,866
------------- ----------- -------------
EBITDA (i).................................................... $ (168,962) $ 230,968 $ 62,006
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(a) To record the estimated depletion/depreciation on the timber and mill assets
acquired in the Lease Buy-out, and to remove the operating lease expense
related to those leases, resulting in a net decrease to cost of sales as
follows:
<TABLE>
<CAPTION>
----------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
------------------- -------------------
<S> <C> <C>
New depreciation/depletion....................... $ 65,300 15,900
Eliminate lease expense.......................... (72,500) (15,670)
-------- --------
(7,200) 230
-------- --------
-------- --------
</TABLE>
(b) The following adjustment reflects reduced depreciation and amortization
resulting from the impairment charge recorded by the Group in connection
with the Transactions as follows. See note (e) to pro forma balance sheet.
<TABLE>
<CAPTION>
----------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
------------------- -------------------
<S> <C> <C>
Goodwill amortization............................. $ 1,449 $ 329
Property, plant and equipment depreciation........ 12,260 3,065
------- ------
$ 13,709 3,394
------- ------
------- ------
</TABLE>
In addition, because the impairment loss is directly related to the
transaction, it is excluded from the pro forma statement of income.
(c) To eliminate the deferred gain amortization related to the Meridian lease
that is part of the Lease Buy-out.
(d) To reduce OPEB expense relating to the portion of the Group post-retirement
health care benefit obligations being retained by TPI as part of the
Transactions and not assumed by PCA.
(e) To eliminate specialty rebates provided by the Group on boxes sold to
Tenneco affiliates. As part of the Transactions, TPI has agreed that PCA
will no longer provide such rebates.
(f) To eliminate the discount expense recognized on the sale of factored
receivables because such receivables will be acquired by PCA in connection
with the Transactions.
42
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME (CONTINUED)
(DOLLARS IN THOUSANDS)
(g) To record interest expense and amortization of deferred financing costs on
<TABLE>
<CAPTION>
the debt incurred to finance the Transactions, calculated as follows:
----------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
------------------- -------------------
<S> <C> <C>
Revolving Credit Facility
($9,000 @7.75%)................................. $ 698 $ 174
Tranche A Term Loan
($460,000 @ 7.75%).............................. 35,185 8,409
Tranche B Term Loan
($375,000 @ 8.25%).............................. 30,879 7,676
Tranche C Term Loan
($375,000 @ 8.50%).............................. 31,815 7,909
Senior Subordinated Notes
($550,000 @ 9.625%)............................. 52,938 13,234
-------- -------
151,515 37,402
-------- -------
Eliminate interest on debt not assumed............ (2,782) (221)
Amortization of deferred financing costs.......... 7,500 1,875
Amortization of settlement payment on interest
rate protection agreement related to the
Notes........................................... 836 209
-------- -------
Pro forma interest adjustment................. $ 157,069 39,265
-------- -------
-------- -------
</TABLE>
The above interest amounts on the Revolver and Term Loans assume a
Eurodollar rate (equivalent to LIBOR) of 5% and give effect to the principal
payments required on the Term Loans during the first 15 months. The effect
on interest expense pertaining to the variable rate Revolver and Term Loans
of a 1/8(th) of one percent variance in interest rates would be $1,515 and
$371 for the year ended December 31, 1998 and the three months ended March
31, 1999, respectively.
(h) To record the 40% effective income tax effect on all of the above pro forma
adjustments, except for the non-deductible goodwill amortization adjustment.
(i) "EBITDA" represents income before interest and income taxes plus (a)
depreciation, depletion and amortization and (b) lease expense relating to
the operating leases for which the related assets were purchased in the
Lease Buy-out; and minus (c) other income, which is excluded because it is
not reflective of recurring earnings. PCA's EBITDA is included in this
prospectus because it is a basis upon which PCA assesses its financial
performance and debt service capabilities, and because certain covenants in
PCA's borrowing arrangements are tied to similar measures. However, EBITDA
should not be considered in isolation or viewed as a substitute for cash
flow from operations, net income, or other measures of performance as
defined by generally accepted accounting principles or as a measure of a
company's profitability or liquidity. PCA understands that while EBITDA is
frequently used by securities analysts, lenders, and others in their
evaluation of companies, EBITDA as used herein is not necessarily comparable
to other similarly titled captions of other companies due to potential
inconsistencies in the method of calculation.
43
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME (CONTINUED)
(DOLLARS IN THOUSANDS)
(j) The following other adjustments to 1998 EBITDA do not qualify as pro forma
adjustments under the SEC's and its staff's published rules (principally
Article 11 of Regulation S-X), but are included to eliminate the effect of
non-recurring items and to adjust for certain other stand-alone
considerations:
<TABLE>
<S> <C>
Pro forma EBITDA for 1998..................................... $ 269,309
Adjustments:
Non-recurring restructuring charge (1)...................... 14,385
Reduction in corporate overhead (2)......................... 32,954
Cost savings from restructuring (3)......................... 10,800
---------
Adjusted pro forma EBITDA for 1998............................ $ 327,448
---------
---------
</TABLE>
------------------
(1) During 1998, TPI adopted a restructuring plan to eliminate certain
personnel and close down certain facilities associated with the Group's
business. As of December 31, 1998, substantially all actions specified in
the plan had been completed. A charge of $14,385 was recorded for
severance benefits, exit costs, and asset impairments, and is reflected
in the Group's 1998 operating profit. PCA believes that this
non-recurring charge is not relevant in analyzing recurring EBITDA.
(2) As part of Tenneco, the Group was allocated $63,114 of corporate and TPI
overhead expenses based on a variety of allocation methods. In analyzing
the Group business on a stand-alone basis, PCA estimates that these costs
will be approximately $30,160 for the first twelve months following the
Acquisition. The determination of that estimate is based on detailed
analyses that consider (a) compensation and benefits for TPI and new
employees who are employed by PCA in the corporate functions (e.g.,
information technology, human resources, finance and legal) and (b)
non-payroll costs incurred by these departments. Where applicable, the
estimates consider the terms of transition service arrangements between
PCA and Tenneco.
(3) The restructuring referred to in footnote 1 above will result in reduced
cost of sales and selling and administrative expenses. This adjustment
represents the Group's estimate of the cost savings that would have been
achieved in 1998 if the restructuring had been in effect for all of 1998.
44
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following table sets forth the selected historical financial and other data
of PCA as of and for the five years ended December 31, 1998, and certain pro
forma financial and other data as of and for the year ended December 31, 1998.
The selected historical financial and other data as of and for the years ended
December 31, 1996, 1997 and 1998 was derived from the audited combined financial
statements of the Group and the related notes thereto included elsewhere in this
prospectus. The selected historical financial and other data as of and for the
years ended December 31, 1994 and 1995 was derived from the unaudited combined
financial statements of the Group not contained herein. The historical financial
data as of and for the three months ended March 31, 1998 and 1999 was derived
from the unaudited condensed combined financial statements of the Group included
elsewhere in this prospectus. The pro forma financial and other data as of and
for the three months ended March 31, 1999 and for the year ended December 31,
1998 was derived from the unaudited pro forma financial information included
elsewhere in this prospectus. The pro forma financial data does not purport to
represent what PCA's financial position or results of operations would actually
have been had the Transactions in fact occurred on the assumed dates or to
project PCA's financial position or results of operations for any future date or
period. The information contained in the following table also should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Financial Information," and the
historical combined financial statements of the Group including the notes
thereto, contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
THREE
MONTHS
PRO FORMA ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED MARCH 31,
---------------------------------------------------------- DECEMBER 31, ---------
1994 1995 1996 1997 1998 1998 1998
---------- ---------- ---------- ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
DOLLARS IN THOUSANDS
STATEMENT OF INCOME DATA:
Net sales................................. $1,441,673 $1,844,708 $1,582,222 $1,411,405 $1,571,019 $ 1,571,019 $ 432,901
Cost of sales............................. (1,202,996) (1,328,838) (1,337,410) (1,242,014) (1,289,644) (1,270,184) (354,855)
---------- ---------- ---------- ---------- ---------- ------------- ---------
Gross profit............................ 238,677 515,870 244,812 169,391 281,375 300,835 78,046
Selling and administrative expenses....... (71,312) (87,644) (95,283) (102,891) (108,944) (102,568) (26,841)
Corporate overhead allocation (1)......... (34,678) (38,597) (50,461) (61,338) (63,114) (63,114) (14,326)
Restructuring/impairment charge (2)....... - - - - (14,385) (14,385) -
Other income (expense) (3)................ (4,701) (16,915) 56,243 44,681 26,818 41,592 (2,742)
---------- ---------- ---------- ---------- ---------- ------------- ---------
Income (loss) before interest, income
taxes and extraordinary item........... 127,986 372,714 155,311 49,843 121,750 162,360 34,137
Interest expense, net..................... (740) (1,485) (5,129) (3,739) (2,782) (159,851) (741)
---------- ---------- ---------- ---------- ---------- ------------- ---------
Income (loss) before income taxes and
extraordinary item..................... 127,246 371,229 150,182 46,104 118,968 2,509 33,396
Income tax expense........................ (50,759) (147,108) (59,816) (18,714) (47,529) (366) (13,315)
---------- ---------- ---------- ---------- ---------- ------------- ---------
Income (loss) before extraordinary
item................................... 76,487 224,121 90,366 27,390 71,439 2,143 20,081
Extraordinary Loss...................... - - - - - - -
---------- ---------- ---------- ---------- ---------- ------------- ---------
Net income (loss)....................... $ 76,487 $ 224,121 $ 90,366 $ 27,390 $ 71,439 $ 2,143 $ (20,081)
---------- ---------- ---------- ---------- ---------- ------------- ---------
---------- ---------- ---------- ---------- ---------- ------------- ---------
OTHER DATA:
EBITDA (4)................................ $ 276,449 $ 547,435 $ 272,498 $ 166,814 $ 264,382 $ 269,309 $ 79,736
Adjusted pro forma EBITDA (5)............. - - - - - 327,448 -
Depreciation, depletion, amortization, and
lease expense (6)....................... 143,762 157,806 173,430 161,652 169,450 148,541 42,690
Capital expenditures...................... 110,853 252,745 168,642 110,186 103,429 103,429 16,339
Cash interest expense (7)................. - - - - - 151,515 -
Ratio of adjusted pro forma EBITDA to cash
interest expense........................ - - - - - 2.2x -
Ratio of debt to adjusted pro forma
EBITDA.................................. - - - - - 5.4x -
BALANCE SHEET DATA:
Working capital (deficit) (8)............. $ (101,281) $ (150,429) $ (102,278) $ 34,314 $ 80,027 $ - $ 54,689
Total assets.............................. 863,568 1,202,536 1,261,051 1,317,263 1,367,403 - 1,314,275
Total long-term obligations (9)........... 20,267 21,739 20,316 27,864 17,552 - 27,767
Total stockholders' equity (10)........... 389,981 640,483 784,422 854,060 908,392 - 843,060
<CAPTION>
PRO FORMA
THREE MONTHS
ENDED
1999 MARCH 31, 1999
--------- ---------------
<S> <C> <C>
DOLLARS IN THOUSANDS
STATEMENT OF INCOME DATA:
Net sales................................. $ 391,279 $ 391,279
Cost of sales............................. (332,117) (329,282)
--------- ---------------
Gross profit............................ 59,162 61,997
Selling and administrative expenses....... (28,759) (27,574)
Corporate overhead allocation (1)......... (13,283) (13,283)
Restructuring/impairment charge (2)....... (230,112)
Other income (expense) (3)................ (1,377) 992
--------- ---------------
Income (loss) before interest, income
taxes and extraordinary item........... (214,369) 22,132
Interest expense, net..................... (221) (39,486)
--------- ---------------
Income (loss) before income taxes and
extraordinary item..................... (214,590) (17,354)
Income tax expense........................ 88,362 9,599
--------- ---------------
Income (loss) before extraordinary
item................................... (126,228) (7,755)
Extraordinary Loss...................... (6,327) (6,327)
--------- ---------------
Net income (loss)....................... $ 132,555 $ (14,082)
--------- ---------------
--------- ---------------
OTHER DATA:
EBITDA (4)................................ $(168,962) $ 62,006
Adjusted pro forma EBITDA (5)............. - -
Depreciation, depletion, amortization, and
lease expense (6)....................... 44,030 40,866
Capital expenditures...................... 19,460 19,460
Cash interest expense (7)................. - -
Ratio of adjusted pro forma EBITDA to cash
interest expense........................ - -
Ratio of debt to adjusted pro forma
EBITDA.................................. - -
BALANCE SHEET DATA:
Working capital (deficit) (8)............. $(163,204) $ 229,376
Total assets.............................. 1,372,523 2,387,863
Total long-term obligations (9)........... 466 1,869,000
Total stockholders' equity (10)........... 666,438 294,452
</TABLE>
45
<PAGE>
NOTES TO SELECTED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
1) The corporate overhead allocation represents the amounts charged by
Tenneco and TPI to the Group for its share of Tenneco's and TPI's
corporate expenses. On a stand-alone basis, management estimates that
PCA's overhead expense will be $30,160 for the first twelve months
following the Acquisition.
2) This line item consists of non-recurring charges recorded in the fourth
quarter of 1998 and first quarter of 1999 pertaining to a restructuring
charge and an impairment charge, respectively. For further information
about these charges, refer to Notes 7 and 14 to the Group's combined
financial statements.
3) Other income, net consists of nonrecurring items, the largest components
of which are as follows:
<TABLE>
<C> <S>
Fiscal year 1994 No individually significant items that are
considered non- recurring.
Fiscal year 1995 No individually significant items that are
considered non-recurring.
Fiscal year 1996 A $50,000 gain on the sale of recycled mills.
Fiscal year 1997 A $37,730 gain on the refinancing of operating
leases.
Fiscal year 1998 A $16,944 gain on the sale of non-strategic
woodlands and a $15,060 gain on the sale of the
Caraustar recycling joint venture interest.
Fiscal quarter No individually significant items that are
1998 considered non-recurring.
Fiscal quarter No individually significant items that are
1999 considered non-recurring.
</TABLE>
4) "EBITDA" represents income before interest and income taxes plus (a)
depreciation, depletion and amortization and (b) lease expense relating
to the operating leases for which the related assets were purchased in
the Lease Buy-out; and plus or minus (c) other income (expense), which is
excluded because it is not reflective of recurring earnings. PCA's EBITDA
is included in this prospectus because it is a basis upon which PCA
assesses its financial performance and debt service capabilities, and
because certain covenants in PCA's borrowing arrangements are tied to
similar measures. However, EBITDA should not be considered in isolation
or viewed as a substitute for cash flow from operations, net income, or
other measures of performance as defined by generally accepted accounting
principles or as a measure of a company's profitability or liquidity. PCA
understands that while EBITDA is frequently used by securities analysts,
lenders, and others in their evaluation of companies, EBITDA as used
herein is not necessarily comparable to other similarly titled captions
of other companies due to potential inconsistencies in the method of
calculation.
5) Adjusted pro forma EBITDA for 1998 represents EBITDA plus adjustments to
eliminate the effect of non-recurring items and to adjust for certain
other stand-alone considerations, as follows:
<TABLE>
<S> <C>
Pro forma EBITDA for 1998................................. $ 269,309
Adjustments:
Non-recurring restructuring charge (a).................. 14,385
Reduction in corporate overhead (b)..................... 32,954
Cost savings from restructuring (c)..................... 10,800
---------
Adjusted pro forma EBITDA for 1998........................ $ 327,448
---------
---------
</TABLE>
(a) During 1998, TPI adopted a restructuring plan to eliminate certain
personnel and close down certain facilities associated with the Group
business. As of December 31, 1998, substantially all
46
<PAGE>
NOTES TO SELECTED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
actions specified in the plan had been completed. A charge of $14,385
was recorded for severance benefits, exit costs and asset
impairments, and is reflected in the Group's 1998 operating profit.
PCA believes that this non-recurring charge is not relevant in
analyzing recurring EBITDA.
(b) As part of Tenneco, the Group was allocated $63,114 of corporate and
TPI overhead expenses based on a variety of allocation methods. In
analyzing the carved-out business on a stand-alone basis, PCA
estimates that these costs will be approximately $30,160 for the
first year. The determination of that estimate is based on detailed
analyses that consider (1) compensation and benefits for TPI and new
employees who are employed by PCA in the corporate functions (e.g.,
information technology, human resources, finance, legal, etc.) and
(2) non-payroll costs incurred by these departments. Where
applicable, the estimates consider the terms of transition service
arrangements between PCA and Tenneco.
(c) The restructuring referred to in footnote 4(a) above will result in
reduced cost of sales and selling and administrative expenses. This
adjustment represents the Group's estimate of the cost savings that
would have been achieved in 1998 if the restructuring had been in
effect for all of 1998.
6) The lease expense included with depreciation, depletion and amortization
relates to certain timber and mill operating leases that were bought-out
in connection with the Transactions in the Lease Buy-out (with the
previously leased property being acquired). Accordingly, the relevant
operating lease expense has been treated like depreciation and depletion
expense for purposes of the EBITDA calculation, and consists of the
following amounts for the periods indicated:
<TABLE>
<S> <C>
Fiscal year 1994 $ 93,600
Fiscal year 1995 94,900
Fiscal year 1996 94,700
Fiscal year 1997 73,900
Fiscal year 1998 72,500
First quarter
1998 17,958
First quarter
1999 15,670
</TABLE>
7) Cash interest expense is defined as interest expense excluding
amortization of (a) debt issuance costs and (b) the settlement payment on
the interest rate protection agreement related to the outstanding notes.
8) Working capital represents (a) total current assets excluding cash and
cash equivalents less (b) total current liabilities excluding the current
maturities of long-term debt.
9) Total long-term obligations includes long-term debt, the current
maturities of long-term debt, and redeemable preferred stock. The amount
excludes amounts due to TPI or other Tenneco affiliates as part of the
containerboard business' interdivision account or other financing
arrangement.
10) Represents the Group's interdivision account with TPI for the historical
period.
47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of historical results of operations and financial
condition should be read in conjunction with the audited combined financial
statements and the notes thereto which appear elsewhere in this prospectus.
OVERVIEW
In connection with the Acquisition, PCA acquired substantially all of the assets
and operations of The Containerboard Group of TPI (as described in the notes to
audited financial statements included elsewhere in this prospectus, the
"Group"). See "The Transactions." Since its formation in January 1999 and
through the closing of the Acquisition on April 12, 1999, PCA did not have any
significant operations. Accordingly, the historical financial results described
below are those of the Group.
The Group has historically operated as a division of TPI, and has not
historically operated as a separate, stand-alone entity. As a result, the
historical financial information included in this prospectus does not
necessarily reflect what the Group's financial position and results of
operations would have been had the Group been operated as a separate,
stand-alone entity during the periods presented.
As a division of TPI, the Group was allocated corporate overhead expenses in the
amounts of $50.5 million, $61.3 million and $63.1 million for the years ended
December 31, 1996, 1997 and 1998, respectively. PCA estimates that these
expenses will be approximately $30.2 million on a stand-alone basis for the
first twelve months following the Acquisition, based on detailed analyses of
compensation benefits for employees who are now employed by PCA as a result of
the Acquisition and related non-payroll costs incurred after the Acquisition. In
addition, future operating results are expected to be affected by changes in
depreciation and amortization expense related to impaired assets, elimination of
certain lease financing costs and intercompany transactions with affiliates of
Tenneco, and other items resulting from the Transactions. See "Unaudited Pro
Forma Financial Information" included elsewhere in this prospectus. We cannot
assure you that we will be able to realize all of the benefits we expect as a
stand-alone entity.
The Acquisition was accounted for using historical values for the contributed
assets. Complete or partial new basis accounting (I.E., purchase accounting) was
not applied because, under the applicable accounting guidance, a change of
control was deemed not to have occurred as a result of the participating veto
rights held by TPI after the closing of the Transactions under the terms of the
stockholders agreement. See "Certain Transactions-Stockholders Agreement."
GENERAL
The market for containerboard is highly cyclical. Historically, prices for
containerboard have generally reflected changes in supply, which is primarily
determined by additions and reductions to industry capacity and inventory
levels, and, to a lesser extent, changes in demand.
Containerboard demand is dependent upon both the demand for corrugated packaging
products, which closely tracks industrial production, and export activity.
Domestic demand for corrugated packaging products is more stable, and generally
corresponds to changes in the rate of growth in the U.S. economy.
During the period from 1994 to 1996, capacity additions outpaced domestic and
export demand, leading to lower industry operating rates and generally declining
prices from late-1995 until mid-1997. Although prices generally improved from
mid-1997 through mid-1998, the containerboard markets were adversely affected by
weaker containerboard exports, particularly to Asia in the second half of 1998.
Those factors contributed to higher inventories, lower operating rates and lower
prices during this period.
48
<PAGE>
In recent months, several major containerboard manufacturers have announced
production curtailments and mill shutdowns, and only minimal capacity additions
have been publicly announced through 2001 according to the American Forest &
Paper Association.
Industry-wide containerboard price declines during the second half of 1998
adversely affected the Group's financial performance in the first three months
of 1999 in comparison to the comparable period in 1998. For the three months
ended March 31, 1999, the Group's sales prices of corrugated products and
containerboard shipped to third parties fell 7% and 14%, respectively. These
price declines were partially offset by increases in the Group's shipments of
corrugated products and containerboard to third parties, which increased 12% and
3%, respectively, for the period. The net impact of these factors was a 10%
decrease in net sales and a decrease in earnings before interest expense and
taxes from approximately $34.1 million for the three months ended March 31, 1998
to approximately $15.7 million for the three months ended March 31, 1999 before
accounting for extraordinary items and the non-recurring impairment charge.
Pulp & Paper Week, an industry publication, reported in March 1999 that major
containerboard manufacturers had implemented price increases for kraft
linerboard and corrugating medium of $50 and $60 per ton, respectively.
According to Pulp & Paper Week, after giving effect to the price increase,
average industry list prices in 1999 for linerboard and corrugating medium were
1% and 3%, respectively, lower than the list prices in March 1998. Both
integrated and independent box producers announced price increases for
corrugated products of 10% to 13% in February 1999.
RESULTS OF OPERATIONS
The historical results of operations of the Group are set forth below:
<TABLE>
<CAPTION>
-----------------------------------------------------
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
DOLLARS IN MILLIONS
Net Sales............................ $ 1,582.2 $ 1,411.4 $ 1,571.0 432.9 391.3
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Operating Income..................... $ 155.3 $ 49.8 $ 121.7 34.1 (214.4)
Interest Expense..................... 5.1 3.7 2.8 .7 .2
Income Before Taxes.................. 150.2 46.1 118.9 33.4 (214.6)
Provision for Income Taxes........... 59.8 18.7 47.5 13.3 (88.4)
--------- --------- --------- --------- ---------
Income Before Extraordinary Loss..... $ 90.4 $ 27.4 $ 71.4 20.1 (126.2)
--------- --------- --------- --------- ---------
Extraordinary Loss................... -- -- -- -- 6.3
--------- --------- --------- --------- ---------
Net Income........................... 90.4 27.4 71.4 20.1 (132.6)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
49
<PAGE>
Operating income included several significant unusual or non-recurring items for
each of the periods presented. Excluding these items, operating income would
have been as follows (dollars in millions):
<TABLE>
<CAPTION>
-----------------------------------------------------
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31,
MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
DOLLARS IN MILLIONS
Operating Income as Reported.................. $ 155.3 $ 49.8 $ 121.7 34.1 (214.4)
Recycled Paperboard Mills Divestiture
Divestiture Gain (1)........................ (50.0) - (15.1) - -
Earnings.................................... (4.0) - - - -
Joint Venture Income (1).................... (0.6) (1.7) (0.3) (0.3) -
Non-Strategic Woodlands Divestitures (1)...... - (4.4) (16.9) - -
Mill Lease Refinancing (1).................... - (37.7) - - -
Restructuring Charge.......................... - - 14.4 - -
Impairment Charge............................. - - - - 230.1
--------- --------- --------- --------- ---------
Adjusted Operating Income..................... $ 100.7 $ 6.0 $ 103.8 33.8 15.7
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- --------------
(1) Included in other income as part of the audited financial statements.
RECYCLED PAPERBOARD MILLS DIVESTITURE
In 1996, the Group sold two recycled paperboard mills (located in Rittman, Ohio
and Tama, Iowa) and a recycling center and brokerage operation to a joint
venture with Caraustar Industries. The Group received cash and a 20 percent
interest in the joint venture as a result of the transaction and recognized a
gain of $50.0 million in the second quarter as a result of the transaction.
In 1998, the Group divested its 20 percent interest in the joint venture with
Caraustar and recognized a $15.1 million gain in the second quarter on the
divestiture.
Operating income for the recycling business reported in 1996 prior to the
formation of the joint venture was approximately $4.0 million.
The Group's share of operating income from the joint venture was $0.6 million,
$1.7 million and $0.3 million, respectively, for the years ended December 31,
1996, 1997 and 1998.
NON-STRATEGIC WOODLANDS DIVESTITURES
In the third quarter of 1998, the Group recognized a $16.9 million gain on the
sale of approximately 18,500 acres of woodlands used as a fiber source for the
Counce mill, which were not considered as a strategic fiber source for the
Counce operation.
In the third quarter of 1997, the Group recognized a $4.4 million gain on the
sale of non-strategic woodlands located near the Tomahawk mill (known as the
Willow Flowage property).
MILL LEASE REFINANCING
On January 31, 1997, TPI entered into an operating lease agreement with Credit
Suisse Leasing 92A, L.P., as Lessor, and a group of financial institutions led
by Citibank, N.A., as Agent. The agreement refinanced previous operating leases
between General Electric Credit Corporation ("GECC") and TPI, which were entered
into at the same time as GECC's purchase of certain assets from Georgia-Pacific
Corporation in January 1991. Through this
50
<PAGE>
refinancing, several capital lease obligations were extinguished as the assets
were incorporated into the new operating lease. In connection with this
refinancing, certain fixed assets and deferred credits were eliminated,
resulting in a net gain recognized in the first quarter of 1997 of approximately
$37.7 million.
RESTRUCTURING CHARGE
In the fourth quarter of 1998, the Group recorded a pre-tax restructuring charge
of $14.4 million. This charge was recorded following the approval by Tenneco's
board of directors of a comprehensive restructuring plan for all of Tenneco's
operations, including those of the Group. In connection with this restructuring
plan, the Group has or will eliminate a total of 109 positions, including the
closing of four converting facilities. The following table reflects the
components of this charge:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
1999
RESTRUCTURING FOURTH QUARTER DECEMBER 31, 1998 FIRST QUARTER MARCH 31, 1999
CHARGE ACTIVITY BALANCE ACTIVITY BALANCE
-------------- --------------- -------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
DOLLARS IN MILLIONS
Cash Charges:
Severance............ $ 5.1 $(0.8) $4.3 (1.4) 2.9
Facility Exit Costs
and Other........... 3.8 (0.4) 3.4 (0.9) 2.5
-------------- --------------- -------------------- --------------- ---------------
Total Cash Charges... 8.9 (1.2) 7.7 (2.3) 5.4
Non-cash Charges:
Asset Impairments.... 5.5 (3.9) 1.6 (.9) 0.7
-------------- --------------- -------------------- --------------- ---------------
$14.4 $(5.1) $9.3 (3.2) 6.1
-------------- --------------- -------------------- --------------- ---------------
-------------- --------------- -------------------- --------------- ---------------
</TABLE>
The fixed assets at the closed facilities were written down to their estimated
fair value. No significant cash proceeds are expected from the ultimate disposal
of these assets. Of the $7.7 million remaining cash charges at December 31,
1998, approximately $7.3 million is expected to be spent in 1999.
IMPAIRMENT CHARGE
As a result of the Transactions, the Group recorded a non-cash impairment charge
of $230.1 million in the first quarter of 1999. Refer to Note 14 of the Group's
combined financial statements.
EXTRAORDINARY LOSS
In the first quarter of 1999, the Group incurred a loss of $6.3 million (net of
tax) in extinguishing certain debt. See Note 15 to the Group's combined
financial statements.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
NET SALES
Net sales decreased by $41.6 million, or 9.6%, for the three months ended March
31, 1999 from the comparable period in 1998. The decrease was primarily the
result of decreases in prices of corrugated products and containerboard shipped
to third parties.
Average prices for corrugated products decreased by 6.6% for the three months
ended March 31, 1999 from the comparable period in 1998, while corrugated volume
increased by 12.1%, from 5.9 billion square feet in 1998 to 6.7 billion square
feet in 1999.
Average containerboard prices for third party sales decreased by 13.6% for the
three months ended March 31, 1999 from the comparable period in 1998, while
volume to external domestic and export customers increased 3.1%, to 131,839 tons
in 1999 from 127,938 tons in 1998.
51
<PAGE>
According to Pulp & Paper Week, an industry publication, average linerboard and
semi-chemical medium prices for 42 lb. Liner-East and 26 lb. Medium-East (which
are representative benchmark grades) were $368 and $305, respectively, per ton
in the first quarter of 1999. This compares to $390 and $340, respectively, per
ton in the first quarter of 1998. According to the Fibre Box Association,
average sales prices for corrugated products decreased by 4.5% in the first
quarter of 1999 from the first quarter of 1998.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES (OPERATING INCOME)
Adjusted operating income decreased by $18.1 million for the three months ended
March 31, 1999 from the comparable period in 1998 as a result of both lower
sales prices and partially offset by increased sales volume.
Gross margins decreased $18.9 million for the three months ended March 31, 1999
from the comparable period in 1998. Gross margins declined from 18.0% of sales
in the first quarter of 1998 to 15.1% of sales in the first quarter of 1999,
primarily due to the price decrease described above.
Selling and administrative expenses increased by $1.9 million, or 7.2%, for the
three months ended March 31, 1999 from the comparable period in 1998 primarily
as a result of salary increases and fringe benefit costs related to the timing
of 1998 incentive payments which were paid in the first quarter of 1999.
Corporate allocations for the three months ended March 31, 1999 decreased by
$1.0 million, or 7.3%, primarily due to a change in allocation rates from the
prior year.
INTEREST EXPENSE AND INCOME TAXES
Interest expense decreased by $0.5 million for the three months ended March 31,
1999 from the comparable period in 1998, primarily due to the repayment of debt.
The Group's effective tax rate was 41.2% for the three months ended March 31,
1999 and 39.9% for the comparable period in 1998. The tax rate was higher than
the federal statutory rate of 35% due to state income taxes.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET SALES
Net sales increased by $159.6 million, or 11.3%, from 1997 to 1998. The increase
was primarily the result of increases in prices for both corrugated products and
containerboard and, to a lesser extent, increases in shipments of corrugated
products.
Average prices for corrugated products increased by 7.3% in 1998 from 1997,
while corrugated volume increased by 4.6% in 1998, from 23.9 billion square feet
in 1997 to 25.0 billion square feet in 1998.
Average containerboard prices for external third party sales increased by 11.7%
in 1998 from 1997, while volume to external domestic and export customers
decreased 8.4%, to 527,000 tons in 1998 from 575,000 tons in 1997.
According to Pulp & Paper Week, an industry publication, average linerboard and
semi-chemical medium prices for 42 lb. Liner-East and 26 lb. Medium-East (which
are representative benchmark grades) were $373 and $315, respectively, per ton
in 1998. This compares to $333 and $268, respectively, per ton in 1997.
According to the Fibre Box Association, average sale prices for corrugated
products increased by 4.5% in 1998 from 1997.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES (OPERATING INCOME)
Adjusted operating income increased by $97.8 million, from 1997 to 1998 as a
result of both higher sales prices and sales volumes, which primarily
contributed to the gross margin improvement of $112.0 million.
52
<PAGE>
Gross margins improved from 12.0% of sales in 1997 to 17.9% of sales in 1998,
primarily due to the price increases described above. These price increases were
partially offset by a higher level of depreciation attributable to the Group's
capital expenditure program and to higher costs incurred as a result of changes
in product mix.
Selling and administrative expenses increased by $6.1 million, or 5.9%, from
1997 to 1998, primarily as a result of costs incurred to support the increased
focus on graphics design and other value added product services in corrugated
products.
Corporate allocations increased by $1.8 million, or 2.9%, primarily as a result
of the Group's increased use of the Tenneco shared services center located in
The Woodlands, Texas.
INTEREST EXPENSE AND INCOME TAXES
The Group's interest expense for 1998 and 1997 primarily related to the interest
cost of debt incurred to finance a boiler at the Counce mill. The interest
expense declined by approximately $1.0 million in 1998, as a portion of this
debt was retired during the year.
The Group's effective tax rate was 40.0% in 1998 and 40.6% in 1997. The tax rate
is higher than the federal statutory rate of 35% due to state income taxes.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES
Net sales decreased by $170.8 million, or 10.8%, from 1996 to 1997.
Approximately $48.3 million of the decrease was the result of the divestiture in
June 1996 of two recycled paperboard mills. The balance of the decrease was
primarily the result of decreases in prices for both corrugated products and
containerboard, partially offset by increases in shipments of corrugated
products and containerboard to external third parties.
Average prices for corrugated products decreased by 8.4% in 1997 from 1996,
while corrugated volume increased by 1.3% in 1998 from 23.6 billion square feet
in 1996 to 23.9 billion square feet in 1997.
Average containerboard prices for external third party sales decreased by 10.2%
in 1997 from 1996, while volume to external domestic and export customers
increased 30.4% to 575,000 tons in 1997 from 441,000 tons in 1996.
According to Pulp & Paper Week, average linerboard and semi-chemical medium
prices for 42 lb. Liner-East and 26 lb. Medium-East (which are representative
benchmark grades) were $333 and $268, respectively, per ton in 1997. This
compares to $382 and $315, respectively, per ton in 1996. According to the Fibre
Box Association, average sale prices for corrugated products decreased by 10.3%
in 1997 from 1996.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES (OPERATING INCOME)
Excluding one-time transactions and the reported income from recycled mill
operations in 1996, adjusted operating income declined $94.7 million from 1996
to 1997. This decline was primarily the result of the lower pricing described
above, partially offset by variable cost reductions at the mills resulting in a
net decline in gross profit of $75.4 million.
These factors, combined with the impact of the 1996 divestiture of the recycled
mills, contributed to a decline in gross margins from 15.5% in 1996 to 12.0% in
1997.
Selling and administrative expenses increased by $7.6 million, or 8.0%, from
1996 to 1997. This increase was primarily the result of greater expenses
incurred to increase the number of sales and design personnel for the corrugated
products business.
Corporate allocations increased by $10.9 million, or 21.6%, from 1996 to 1997.
The increase was the result of an overall increase in TPI's overhead, and
consequently higher allocations to the Group.
53
<PAGE>
INTEREST EXPENSE AND INCOME TAXES
The Group's interest expense declined by $1.4 million from 1996 to 1997,
primarily as a result of the termination of capital leases that were
extinguished when the new mill operating lease agreement was entered into in
January 1997.
The Group's effective tax was 40.6% in 1997 and 39.8% in 1996. The tax rate was
higher than the federal statutory rate of 35% due to state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL
As a division of TPI, the Group did not maintain separate cash accounts other
than for petty cash. The Group's disbursements for payroll, capital projects,
operating supplies and expenses were processed and funded by TPI through
centrally managed accounts. In addition, cash receipts from the collection of
accounts receivable and the sales of assets were remitted directly to bank
accounts controlled by TPI.
Because of TPI's centrally managed cash system, in which the cash receipts and
disbursements of TPI's various divisions were commingled, it was not feasible to
segregate cash received from TPI (E.G., as financing for the business) from cash
transmitted to TPI (E.G., as a distribution). Accordingly, the net effect of
these cash transactions with TPI is represented as a single line item within the
financing section of the statement of cash flows. Similarly, the activity of the
interdivision account presents the net transfer of funds and charges between TPI
and the Group as a single line item.
The following table sets forth the Group's cash flows for the periods shown:
<TABLE>
<CAPTION>
-----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
DOLLARS IN MILLIONS
CASH PROVIDED (USED) BY:
Operating Activities...................... $ 55.8 $ 107.2 $ 195.4 34.7 145.3
Investing Activities...................... (74.2) (111.9) (177.7) (21.1) (15.4)
Financing Activities...................... 16.8 3.7 (17.7) (13.5) (129.9)
--------- --------- --------- --------- ---------
Net Cash Change........................... $ (1.6) $ (1.0) $ - - -
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
OPERATING ACTIVITIES
Cash flow provided by operating activities increased $110.6 million for the
three months ended March 31, 1999 from the comparable period in 1998. The
increase was primarily attributable to the tax asset related to the impairment,
which was effectively distributed to TPI (see financing activities).
Cash flow provided by operating activities increased by $88.2 million from 1997
to 1998. The increase was due primarily to higher net income of $44.0 million,
collection of a higher level of receivables and increased non-cash charges for
restructuring and depreciation.
Cash provided by operating activities increased by $51.4 million from 1996 to
1997. The lower net income of $63.0 million resulting from lower pricing was
more than offset by a deferred tax increase of $76.8 million resulting from
accelerated depreciation on tax owned assets and higher depreciation, depletion
and amortization.
INVESTING ACTIVITIES
Net cash used for investing activities decreased $5.7 million for the three
months ended March 31, 1999 from the comparable period in 1998.
54
<PAGE>
Cash used for investing activities increased by $65.8 million from 1997 to 1998.
The increase was primarily attributable to a prepaid lease payment made in
late-December 1998 of $84.2 million to acquire timberland as part of the Lease
Buy-out. Proceeds from assets sales were $15.8 million higher in 1998, due to
the 1998 timberland sale transaction previously described. During 1997 and 1998,
additions to plant, property and equipment totaled $110.2 million and $103.4
million, respectively.
Net cash used for investing activities increased by $37.7 million from 1996 to
1997. During 1996 and 1997, additions to property, plant and equipment totaled
$168.6 million and $110.2 million, respectively. The higher level of capital
expenditures in 1996 was attributable to the rebuild of a machine at the Counce
mill, for which a total of $78.4 million in capital expenditures was spent, with
the majority of the spending occurring in 1996. Included in the 1996 investing
activities are $122.7 million of proceeds from disposals (primarily the sale of
the 80% interest in the recycled paperboard assets to Caraustar Industries)
compared to $10.5 million in 1997. Cash expended for other long-term assets
decreased $16.5 million, primarily due to lower cash funding of pension assets.
FINANCING ACTIVITIES
Cash used for financing activities increased $116.4 million for the three months
ended March 31, 1999 from the comparable period in 1998. The increase was
primarily attributable to the tax asset related to the impairment, which was
effectively distributed to TPI (see operating activities) and the repayment of
the debt related to the boiler at the Counce mill.
Cash provided by financing activities decreased by $21.4 million from 1997 to
1998, primarily reflecting the change in the net transfer of funds between the
Group and TPI. The Group also retired $10.3 million of debt during 1998, which
related to the financing of a boiler at the Counce mill.
Cash provided by financing activities decreased by $13.1 million from 1996 to
1997, primarily due to changes in the net transfer of funds between the Group
and TPI.
AFTER THE TRANSACTIONS
Following the Transactions, PCA's primary sources of liquidity are cash flow
from operations and borrowings under PCA's new revolving credit facility. PCA's
primary uses of cash are for debt service and capital expenditures, which PCA
expects to be able to fund from these sources.
PCA incurred substantial indebtedness in connection with the Transactions. On a
pro forma basis, after giving effect to the Transactions as if they had occurred
on March 31, 1999, PCA would have had approximately $1,769.0 million of
indebtedness outstanding as compared to historical indebtedness outstanding of
approximately $0.5 million. PCA's significant debt service obligations following
the Transactions could, under certain circumstances, have material consequences
to PCA's securityholders, including holders of the exchange notes and the new
preferred stock. See "Risk Factors."
Concurrently with the Transactions, PCA issued the outstanding notes and
preferred stock and entered into the senior credit facility. The senior credit
facility provides for three tranches of term loans in an aggregate amount of
$1,210.0 million and a revolving credit facility with up to $250.0 million in
availability. Upon the closing of the Acquisition, PCA borrowed the full amount
available under the term loans and $9.0 million under the revolving credit
facility. The borrowings under the revolving credit facility are available to
fund PCA's working capital requirements, capital expenditures and other general
corporate purposes. The Tranche A Term Loan will mature in quarterly
installments from September 1999 through 2005. The Tranche B Term Loan will
mature in quarterly installments from September 1999 through 2007. The Tranche C
Term Loan will mature in quarterly installments from September 1999 through
2008. The revolving credit facility will terminate in 2005. See "Description of
Senior Credit Facility."
On May 18, 1999, PCA prepaid $75.0 million on the term loans using excess cash.
In addition, the $9.0 million drawn on the revolver as of the closing of the
Acquisition, has been repaid using excess cash.
55
<PAGE>
The instruments governing PCA's indebtedness and the new preferred stock,
including the senior credit facility, the notes indenture and the certificate of
designation governing the new preferred stock, contain financial and other
covenants that restrict, among other things, the ability of PCA and its
subsidiaries to incur additional indebtedness, pay dividends or make certain
other restricted payments, consummate certain asset sales, incur liens, enter
into certain transactions with affiliates, or merge or consolidate with any
other person or sell or otherwise dispose of all or substantially all of the
assets of PCA. These limitations, together with the highly leveraged nature of
PCA, could limit corporate and operating activities. See "Risk
Factors-Leverage."
PCA estimates that it will make approximately $118 million in capital
expenditures in 1999. These expenditures will be used primarily for cost
reduction, business growth, maintenance and environmental and other regulatory
compliance.
PCA is currently contemplating the possible sale of a significant portion of its
timberland. The net proceeds of these sales, if any, would be used to reduce
borrowings under the senior credit facility. PCA is permitted under the terms of
the senior credit facility, the notes indenture and the certificate of
designation, subject to certain limitations, to use net proceeds in excess of
$500.0 million, if any, to redeem up to $100.0 million of the exchange notes, to
repurchase or redeem up to $100.0 million of the new preferred stock or the
subordinated exchange debentures, or to pay a dividend on or repurchase its
equity interests. See "Description of Senior Credit Facility," "Description of
Exchange Notes" and "Description of New Preferred Stock."
PCA believes that cash generated from operations and amounts available under the
revolving credit facility will be adequate to meet its anticipated debt service
requirements, capital expenditures and working capital needs for the foreseeable
future. There can be no assurance, however, that PCA's business will generate
sufficient cash flow from operations or that future borrowings will be available
under the senior credit facility or otherwise to enable it to service its
indebtedness, including the senior credit facility, the exchange notes and, if
issued, the subordinated exchange debentures, to pay cash dividends on the new
preferred stock beginning in 2004, to retire or redeem the exchange notes or the
new preferred stock or, if issued, the subordinated exchange debentures when
required or to make anticipated capital expenditures. PCA's future operating
performance and its ability to service or refinance the exchange notes and, if
issued, the subordinated exchange debentures, to service, extend or refinance
the senior credit facility and to pay cash dividends, redeem or refinance the
new preferred stock will be subject to future economic conditions and to
financial, business and other factors, many of which are beyond PCA's control.
See "Risk Factors."
ENVIRONMENTAL MATTERS
We are subject to, and must comply with, a variety of federal, state and local
environmental laws, particularly those relating to air and water quality, waste
disposal and the cleanup of contaminated soil and groundwater. Because
environmental regulations are constantly evolving, we have incurred, and will
continue to incur, costs to maintain compliance with those laws. In particular,
the United States Environmental Protection Agency recently finalized the Cluster
Rules which govern pulp and paper mill operations, including those at the
Counce, Filer City, Valdosta and Tomahawk mills. Over the next several years,
the Cluster Rules will affect our allowable discharges of air and water
pollutants, and require us to spend money to ensure compliance with those new
rules. See "Business-Environmental Matters."
As is the case with any industrial operation, we have, in the past, incurred
costs associated with the remediation of soil or groundwater contamination, as
required by the federal Comprehensive Environmental Response, Compensation and
Liability Act (the federal "Superfund" law) and analogous state laws. Cleanup
requirements arise with respect to properties we currently own or operate,
former facilities and off-site facilities where we have disposed of hazardous
substances. However, because liability under such laws is retroactive (imposing
future liability for past conduct), we could receive notifications of cleanup
liability in the future and such liability could be material. Under the terms of
the Contribution Agreement, TPI has agreed to retain all liability for all
former facilities and all sites associated with pre-closing off-site waste
disposal, and TPI has retained certain environmentally impaired real property in
Filer City, Michigan unrelated to current mill operations. See
"Business-Environmental Matters."
56
<PAGE>
YEAR 2000 ISSUE
Many of our computer software systems, as well as certain hardware and equipment
utilizing date-sensitive data, were structured to use a two-digit data field,
meaning that these systems will not be able to properly recognize dates in the
Year 2000. PCA has substantially completed an inventory of its systems to
identify and assess Year 2000 issues and is in the process of installing a
comprehensive Year 2000 compliant, upgraded customer and management system. This
system includes remediation, replacement and alternative procedures for non-
compliant Year 2000 issues, including upgrades to the mill system as well as
compliance and remediation measures with respect to the order entry, corrugator
scheduling, converting scheduling, shop floor manufacturing, shipping, inventory
management and invoicing systems at our converting plants. Installation of our
Year 2000 compliant system was completed at certain locations in 1998. We expect
to complete the installation of this system at all of our locations prior to the
end of the third quarter of 1999 although we cannot be assured of such
completion. In addition, we are in the process of identifying those customers,
suppliers and others with whom we conduct business to determine whether such
persons will be able to resolve in a timely manner any Year 2000 problems that
may affect PCA. Our failure or the failure of our suppliers or customers to
achieve Year 2000 compliance could materially and adversely affect our business
and results of operations.
Based on current estimates, PCA believes it will incur costs that may range from
approximately $5 million to $7 million to address Year 2000 issues, of which
approximately $2 million has been incurred as of March 31, 1999. Approximately
20% to 30% of the remaining costs will be reimbursed by TPI under the Transition
Services Agreement. See "Certain Transactions-Transition Agreements." These
costs are being expensed as they are incurred, except that in certain instances
PCA may determine that replacing existing computer systems or equipment may be
more effective and efficient, particularly where additional functionality is
available.
In the event PCA is unable to complete the remediation, replacement or
alternative procedures for critical systems and equipment in a timely manner or
if those with whom PCA conducts business are unsuccessful in implementing timely
solutions, Year 2000 issues could have a material adverse effect on PCA's
results of operations. At this time, the potential effect in the event PCA
and/or third parties are unable to timely resolve Year 2000 problems is not
determinable; however, PCA believes it will be able to resolve its own Year 2000
issues.
IMPACT OF INFLATION
PCA does not believe that inflation has had a material impact on its financial
position or results of operations during the past three years.
MARKET RISK AND RISK MANAGEMENT POLICIES
Historically, PCA has not had any material market risk due to the fact that its
debt financing and risk management activities were conducted by TPI or Tenneco.
Under the terms of the senior credit facility, PCA is required to maintain for
at least two years after the closing of the Transactions interest rate
protection agreements establishing a fixed maximum interest rate with respect to
at least 50% of the outstanding term loans under the senior credit facility.
On March 5, 1999, PCA entered into an interest rate protection agreement with
J.P. Morgan Securities Inc. to lock in then current interest rates on 10-year
U.S. Treasury notes. PCA entered into this agreement to protect it against
increases in the 10-year U.S. Treasury note rate, which served as a reference in
determining the interest rate applicable to the notes, which have a comparable
term. The agreement has a notional amount of $450.0 million and a 10-year U.S.
Treasury note reference rate of 5.41%. As a result of a decrease in the interest
rate on 10-year U.S. Treasury notes, PCA was obligated to make a single payment
of approximately $8.4 million to the counterparty upon settlement of the
agreement which was made on the date of the closing of the notes offering.
NEW ACCOUNTING STANDARDS
For a description of changes in accounting principles affecting PCA, see Note 2
to the audited financial statements included elsewhere in this prospectus.
57
<PAGE>
BUSINESS
GENERAL
PCA is a leading integrated producer of containerboard and corrugated packaging
products in North America. We manufacture a broad range of linerboard and
corrugating medium in our four mills, each of which is located near its primary
fiber supply. In 1998, our mills produced 2.1 million tons of containerboard,
ranking us as the sixth largest containerboard producer in North America.
Through our nationwide network of 67 converting plants, consisting of 39
corrugator plants and 28 sheet/specialty and other plants, we convert
approximately 75% to 80% of the containerboard produced at our mills into
corrugated packaging products for sale to both local and national customers. In
1998, our converting plants shipped approximately 25 billion square feet of
corrugated packaging products, including shipping boxes, point-of-sale packages,
point-of-purchase displays and other advertising and promotional products,
ranking us as one of the top six integrated producers of corrugated packaging
products in North America.
Based on two cost studies performed by Jacobs-Sirrine, an industry consultant,
in 1998, we have one of the lowest cash cost containerboard mill systems in the
industry, with from 70% to 85% of our production capacity ranked in the
lowest-cost quartile of the industry. The Jacobs-Sirrine study ranked our two
largest mills, Counce and Tomahawk, among the lowest cash cost kraft linerboard
and corrugating medium mills, respectively, in North America. As a result of our
low cost operations and the implementation of our differentiated business
strategy, we have historically been able to generate EBITDA margins that are
relatively more stable and higher than industry averages. For the fiscal year
ended December 31, 1998, PCA's revenues and adjusted EBITDA (as defined below)
were $1,571.0 million and $327.4 million, respectively, on a pro forma basis.
For the three months ended March 31, 1999, PCA's revenues and EBITDA were $391.3
million and $62.0 million respectively, on a pro forma basis.
In addition to our mills and converting plants, we own or control approximately
950,000 acres of timberland located in close proximity to our mills, providing
favorable access to our primary fiber requirements. We also own three sawmills,
three recycling facilities, a 50% interest in a wood chipping venture and an
air-dry yard operation.
INDUSTRY OVERVIEW
Corrugated containers are a safe and economical means of transporting industrial
and consumer goods and products. More goods and products are shipped in
corrugated containers than in any other type of packaging. Since 1975, the
demand for corrugated containers has grown at a compound annual rate of 3.1%,
with demand for corrugated containers increasing in all but four years during
this 23-year period. At no time during this period did demand for corrugated
containers decrease in consecutive years.
The primary end-use markets for corrugated containers are food, beverage and
agricultural products; paper and fiber products; petroleum, petrochemical
resins, plastics and rubber products; glass and metal containers; electronic
appliances; and electrical and other machinery. National customer accounts seek
suppliers with wide geographic coverage that can service most of their locations
with long-run, low-cost products. Local customer accounts tend to place a
greater emphasis on a reliable source of supply on a timely and, in some cases,
just-in-time basis. Both types of consumers focus on price and quality and place
a strong emphasis on access to steady supplies.
Containerboard is manufactured from softwood and hardwood fibers and, in some
cases, recycled fibers, such as old corrugated containers and clippings from
converting operations. Virgin fiber is obtained in the form of wood chips or
pulp wood from company-owned timberland or acquired through open market
purchases. These chips are chemically treated to form softwood and hardwood
pulp, which are then blended (together, in some cases, with recycled fibers).
The pulp is then processed through paper machines, which consist of a
paper-forming section, a press section (where water is removed by pressing the
wet containerboard between rolls), and a drying section. The containerboard is
then wound into rolls, which are then shipped to company-owned converting box
plants or to outside converters.
58
<PAGE>
Containerboard, consisting of linerboard and corrugating medium, is the
principal raw material used to manufacture corrugated containers. Linerboard is
used as the inner and outer facing (liner) of a corrugated container.
Corrugating medium is fluted and laminated to linerboard in corrugator plants to
produce corrugated sheets. The sheets are subsequently printed, cut, folded and
glued in corrugator plants or sheet plants to produce corrugated containers.
Generally, corrugated containers are delivered by truck due to the large number
of customers and demand for timely service. The dispersion of customers and the
high bulk, low density and low value of corrugated containers make shipping
costs a relatively high percentage of total costs. As a result, corrugator
plants tend to be located in proximity to customers to minimize freight costs.
Most corrugator plants serve markets within a 150-mile radius of the plant and
employ a local sales force to service the market area.
There are primarily two types of converting plants: corrugator plants (612 in
the United States) which have a corrugator on site and manufacture and convert
corrugated sheets into corrugated containers and sheet plants (860 in the United
States) which purchase corrugated sheets from corrugator plants and convert them
into finished corrugated containers. According to the Fibre Box Association,
corrugator plants account for 84% of the industry's corrugated container
shipments, while sheet plants contribute the remaining 16%.
Most major North American containerboard manufacturers maintain a high degree of
integration with converting plants. Approximately 75% of containerboard produced
in the United States (excluding exports) is consumed by converters owned or
otherwise controlled by containerboard producers.
To reduce the cost of shipping containerboard from mills to widely dispersed
corrugator plants, vertically integrated containerboard manufacturers routinely
enter into agreements with other containerboard manufacturers to exchange
containerboard from mills in one location for containerboard having a similar
value from mills located elsewhere in the United States, thus reducing freight
costs. Producers also exchange containerboard to take advantage of manufacturing
efficiencies resulting from operating paper machines in their most efficient
basis weight ranges and trim widths and to obtain paper grades they do not
produce.
The United States is the largest kraft linerboard producer in the world.
Unbleached kraft linerboard is produced at large, integrated facilities
utilizing primarily virgin fiber sources. Unbleached kraft linerboard is
produced primarily from softwood fibers which are longer than hardwood fibers
and give the sheet superior strength characteristics. The abundant supply of
softwood in North America provides U.S. companies a distinct advantage in
linerboard production.
Most linerboard produced in the U.S. is unbleached, but grades with a solid
white or mottled white printing surface are growing in importance. White
linerboard, produced in mottled, white top and solid bleached grades, has
experienced significant growth due to increased demand for improved graphic
quality boxes. White linerboard sells at a premium relative to unbleached
linerboard.
Corrugating medium is made from semi-chemical pulp using hardwood and recycled
fiber. Approximately 60% of the corrugating medium produced in the United States
is made primarily from semi-chemical pulp supplemented with a growing percentage
of recycled fiber. Approximately 40% of corrugating medium is now produced
entirely from recycled fiber. Recycled corrugating medium mills are typically
located near major urban areas and are generally located near recovered paper
suppliers and box converters, thus reducing their transportation costs.
Recycled linerboard production has grown rapidly in recent years due to
favorable economics, customer demand for recycled packaging, producer efforts to
cut fiber costs and new technology that has made recycled materials more
comparable in quality to virgin linerboard. Recycled linerboard accounted for
approximately 18% of total U.S. linerboard production in 1998. A recycled
linerboard mill is typically smaller, less capital intensive and located near
major East and Midwest urban areas where the supply of recycled materials is
abundant and a customer base is within a short shipping distance.
U.S. linerboard producers export almost 20% of their production. The top three
markets are Europe, Asia and Latin America, which, together, consumed 85% of the
United States linerboard exports during the first half of 1998. Linerboard
exports have grown at an average of 6.3% a year during the last 15 years,
reaching a record
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4.5 million tons in 1997. Due to the strong U.S. dollar and weak Asian markets,
exports were significantly lower in 1998. The export market is considerably
smaller for corrugating medium than linerboard, with only about 4% of
corrugating medium produced in the United States sold as exports.
The market for containerboard is highly cyclical. Historically, prices for
containerboard have generally reflected changes in supply, which is primarily
determined by additions and reductions to industry capacity and inventory levels
and, to a lesser extent, changes in demand. Containerboard demand is dependent
upon both the demand for corrugated packaging products, which closely tracks
industrial production, and export activity. Domestic demand for corrugated
packaging products is more stable than export demand and generally corresponds
to changes in the rate of growth in the U.S. economy. During the period from
1994 to 1996, capacity additions outpaced domestic and export demand, leading to
lower industry operating rates and generally declining prices from late-1995
until mid-1997. Although prices generally improved from mid-1997 through
mid-1998, the containerboard markets were adversely affected by weaker
containerboard exports, particularly to Asia in the second half of 1998. These
factors contributed to higher inventories, lower operating rates and lower
prices during this period.
In recent months, several major containerboard manufacturers have announced
production curtailments and mill shut downs, and only minimal capacity additions
have been publicly announced through 2001 according to the American Forest &
Paper Association.
Current inventory levels further support the positive industry dynamics.
According to the Fibre Box Association, total containerboard inventories at
mills and converting plants declined by 122,000 tons to 2.6 million tons or 4.6
weeks of supply by the end of December 1998, the lowest level in 13 months, and
the lowest inventory for the month of December since 1994. This is the first
time in 25 years of monthly inventory data that inventories have declined in the
month of December.
COMPETITIVE STRENGTHS AND BUSINESS STRATEGY
The key elements of our competitive strengths and business strategy are the
following:
- LOW-COST PRODUCER. We are a leading low-cost producer of containerboard
and corrugated packaging products in North America. According to two cost
studies performed by Jacobs-Sirrine, our mills are among the lowest cash
cost integrated containerboard mills in the industry, with from
approximately 70% to 85% of our production capacity ranked in the
lowest-cost quartile of the industry. The Jacobs-Sirrine study ranked our
two largest mills, Counce and Tomahawk, among the lowest cash cost kraft
linerboard and corrugating medium mills, respectively, in North America.
Management attributes our low-cost status to (1) our productivity
enhancement programs, which resulted in more than $80 million in annual
mill cost savings from late-1996 through 1998, (2) strategic capital
investments over the past five years designed to enhance mill efficiency
and improve our manufacturing processes, and (3) substantial reductions in
our fiber cost (the single largest cost in containerboard production)
since 1996 (up to $15 per ton) by increasing the amount of low-cost
hardwood and recycled fiber in our fiber mix and achieving greater yield
from softwood in our production of linerboard.
- INTEGRATED OPERATIONS. We are a highly integrated producer of
containerboard and corrugated packaging products. The relative earnings
stability of our converting plants acts to partially offset the more
cyclical earnings of our mills. Because each of our converting plants
seeks to maximize its own profitability by selecting the appropriate
customers, product mix and production levels for its operations, our
converting plants have been able to generate strong and consistent cash
flow despite fluctuations in containerboard prices. Rather than using our
converting plants as captive outlets for our mill production, we pursue a
"demand pull" strategy by which our converting plants generally purchase
from our mills only the amount of containerboard which they believe is
necessary to support their respective customers' requirements and to
maximize plant profitability. Since the price of corrugated containers
tends to fluctuate in direct proportion to containerboard prices, our
converting plants generally are able to earn a relatively stable spread
over the price of containerboard.
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- FOCUS ON VALUE-ADDED PRODUCTS AND SERVICES. We have pursued a strategy of
providing our customers with value-added products such as custom die cut
and specialty boxes, point-of-sale packaging and point-of-purchase
displays and superior customer service through shorter production runs,
faster turnaround times and enhanced graphics capabilities. Since 1995, we
have acquired four graphics plants and five sheet/specialty plants to
augment our existing graphics and manufacturing capabilities. We have also
created a nationwide network of five graphic design centers to meet
sophisticated customer needs. Through our nationwide network of 67
converting facilities, including our large number of sheet/specialty
plants, we are able to offer coast-to-coast "local" coverage and provide
additional services and converting capabilities. As a result, our selling
price per thousand square feet ("MSF") has consistently exceeded the
industry average since 1995.
- DIVERSIFIED CUSTOMER BASE. With over 8,000 active customers and over
13,000 shipping locations, our customer base is broadly diversified across
industries and geographic locations, reducing our dependence on any single
customer or market. No customer represents more than 5% of our total sales
and our top ten customers represent less than 20% of our total sales. We
have focused our sales efforts on smaller, local accounts, which usually
demand more customized products and services than higher volume national
accounts. Approximately 75% of our current revenues are derived from local
accounts.
- PROVEN AND EXPERIENCED MANAGEMENT. We have an experienced management team
with an average of 23 years of industry experience, including an average
of 15 years of service with PCA. Upon the closing of the Transactions,
Paul T. Stecko resigned from his post as President and Chief Operating
Officer of Tenneco in order to become our Chairman and Chief Executive
Officer. In addition, William J. Sweeney, formerly Executive Vice
President of TPI, now serves as our Executive Vice President. Mr. Sweeney
has over 30 years of experience in the paperboard packaging industry.
Since 1993, TPI has recruited a number of seasoned, technically-skilled
industry veterans to PCA's management.
OPERATIONS AND PRODUCTS
MILLS
Our mills manufacture a broad range of linerboard (26 lb. to 96 lb.) grades
including high-performance and lightweight grades at our two linerboard mills
and corrugating medium (21 lb. to 47 lb.) grades including high-performance and
lightweight grades at our two corrugating medium mills. All four of our mills
are ISO 9002 certified.
We have focused on improving our premium grade capabilities, including the
production of mottled white, wet strength, high rings, tare weights,
lightweights and super heavyweights. In comparison to non-premium grades, these
grades typically maintain better pricing over a cycle due to their more limited
availability and greater manufacturing complexity. From 1994 to 1998, premium
grades increased from 31% to 45% based on total tons produced.
COUNCE. Our Counce mill, located in Tennessee, is one of the largest linerboard
mills in the world, with production capacity of approximately 937,000 tons per
year. In 1998, we produced approximately 880,600 tons of kraft linerboard on two
paper machines at our Counce mill, which produce a broad range of basis weights
from 26 lb. to 96 lb. Our Counce mill machines also produce a variety of
performance and specialty grades of linerboard including, among other things,
high-ring crush, full and half wet strength, high mullen, high porosity, tare
weight, recycled content (up to 30%) and super heavyweight. In 1998, we
developed the capability to produce linerboard grades with a mottled white
printing surface. Mottled white (which has a marble-like coloration) is
typically priced from $130 to $175 per ton higher than kraft linerboard, but is
more expensive to produce. We have the capacity to produce up to 75,000 tons of
mottled white linerboard grades per year.
VALDOSTA. Our Valdosta mill, located in southern Georgia, is a kraft linerboard
mill and has a production capacity of approximately 450,000 tons per year. In
1998, our single paper machine at our Valdosta mill
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produced approximately 424,500 tons of linerboard, which included a broad range
of 41 linerboard grades and 20 basis weights. Our Valdosta mill machine
primarily produces medium weight linerboard ranging from 42 lb. to 56 lb., and
heavyweight linerboard ranging from 57 lb. to 96 lb.
TOMAHAWK. Our Tomahawk mill, located in north-central Wisconsin, is the second
largest corrugating medium mill in the world, with a production capacity of
533,000 tons per year. In 1998, we produced approximately 503,900 tons of
semi-chemical medium at Tomahawk using three paper machines, one of which is the
third largest corrugating medium machine in the world. These machines produce a
broad range of basis weights (from 23 lb. to 47 lb.), and also produce a variety
of performance and specialty grades of corrugating medium including, among other
things, high-ring crush, wet strength, tare weight and super heavyweight.
FILER CITY. Our Filer City mill, located in west central Michigan, is the
fourth largest corrugating medium mill in the United States, with a production
capacity of 355,000 tons per year. In 1998, we produced approximately 295,500
tons of heavyweight and lightweight semi-chemical medium using three paper
machines at our Filer City mill. One of the three machines at Filer City was
shut down on July 1, 1998, but can be restarted if we require additional
capacity. Our Filer City mill produces lightweight corrugating medium grades (21
lb. to 23 lb.) as well as 100% recycled linerboard in basis weights from 21 lb.
to 38 lb. We also have the capability to manufacture 100% recycled corrugating
medium and to produce a variety of specialty corrugating medium grades
including, among other things, high-ring crush, wet strength and tare weight.
CORRUGATED PRODUCTS
We operate 39 corrugator plants, 28 sheet/specialty and other plants (which do
not have corrugators on-site) and five major design centers. Our 67 converting
facilities are located in 26 states, enabling us to offer coast-to-coast "local"
coverage. Of these facilities, our 28 sheet/specialty and other plants are
generally located in close proximity to our larger corrugating facilities,
enabling us to offer additional services and converting capabilities. Currently,
we consume, directly or through exchange arrangements with other containerboard
producers, approximately 75% to 80% of the linerboard and corrugating medium
produced at our mills. Our corrugated converting plants combine the linerboard
and corrugating medium into corrugated sheets that are converted into corrugated
shipping containers, point-of-sale graphics packaging, point-of-purchase
displays and other specialized packaging such as wax coated boxes for the
agriculture and meat industries. Each of our corrugator plants operates as a
profit center with its own general manager and sales force, whose compensation
is tied to profitability rather than volume. We currently operate our corrugator
plants at approximately 65% to 70% of their available manufacturing capacity.
Each corrugator plant serves a market radius that typically averages 100 miles.
Over 90% of our corrugator plants are ISO 9000 certified.
TIMBERLAND
We own, lease, manage or have cutting rights with respect to approximately
950,000 acres of timberland located near our Counce, Valdosta and Tomahawk
mills. Our timberland is generally located within 100 miles of our mills,
resulting in lower wood transportation costs and favorable access to our virgin
fiber requirements. In 1998, wood supplied from timberland under our control
accounted for approximately 25% of our total virgin fiber requirements. The
timberland under our control consists of approximately 54% softwood, which is
primarily pine, and 46% hardwood. Our Filer City mill is located in a "wood
basket" where timber growth exceeds harvest rates, thus providing a stable
source of wood without the need to own or control acreage. From time to time, we
may acquire or dispose of timberland in the ordinary course of business.
In addition to the timberland under our control, our Forest Management
Assistance Program ("FMAP") provides management assistance to nearby private
landowners (who own over 228,000 acres of timberland) in return for a right of
first refusal over timber sales from those lands. These private lands are
expected to generate approximately 165,000 cords of pulpwood per year under
FMAP.
We also participate in the Sustainable Forestry Initiative ("SFI"), which is
aimed at ensuring the long-term health and conservation of the forestry
resources. SFI-related activities include limiting tree harvest sizes,
replanting harvested acreage, preserving biodiversity, participating in flora
and fauna research and protecting water streams.
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SOLID WOOD AND RECYCLING FACILITIES
We own sawmills in Ackerman, Mississippi; Selmer, Tennessee; and Fulton,
Mississippi, a recycling facility in Jackson, Tennessee and two recycling
facilities in Nashville, Tennessee. We also have a 50% interest in a wood
chipping joint venture in Fulton, Mississippi and own an air-dry yard operation
in Burnsville, Mississippi.
PERSONNEL
Each of our mills is managed by an individual mill manager. In addition to the
papermaking and timberland operations personnel, each of our mills has
operational support groups that include: scheduling and shipping; technical
services and process control; maintenance and reliability; and engineering and
technology. Our administrative support groups include accounting, information
systems, payroll and human resources. All of the groups mentioned above report
to each respective mill manager. Our corporate support includes a containerboard
sales and production scheduling group which processes customer orders and a
14-member corporate mill engineering staff that provides engineering,
procurement, construction and start-up services for capital and defined
maintenance projects.
Each of our converting plants is serviced by a management team which usually
includes a general manager, a sales manager, a production manager, a controller
and a customer service manager. Our converting plants are collectively serviced
by a 14-member technical support group, comprised of packaging engineers and
technicians, that provides services to our operating locations including
testing, engineering, manufacturing and technical support. Our technical support
group also administers technical support, joint improvement teams and performs
process analysis at our customers' sites to assure that our customers' quality
and performance standards are consistently met. Our converting plants are
grouped into seven geographic areas, each reporting to an area general manager.
SALES AND MARKETING
Our containerboard sales group provides all of the sales-related services for
domestic and export sales of linerboard and corrugating medium, as well as order
processing for all integrated shipments of containerboard from our mills to our
converting plants. These personnel also coordinate and execute all
containerboard trade agreements.
We maintain a direct sales and marketing organization of approximately 350 sales
personnel for our corrugated products, serving both local and national accounts.
The sales organization consists primarily of sales representatives and a sales
manager at each manufacturing facility serving local and regional accounts, a
dedicated graphics sales force at our design centers and corporate account
managers who serve large national accounts at multiple customer locations. We
maintain general marketing support at our corporate headquarters.
As a part of our direct sales and marketing organization, we have established a
nationwide network of new product development and creative packaging design
centers to develop and manufacture product packaging and product display
solutions to meet more sophisticated, complex customer needs. This network
includes five graphic design centers, 11 primary and 11 secondary graphics
facilities, and almost 100 additional support personnel, including new product
development engineers and product graphics and design specialists. These centers
offer state-of-the-art computers and equipment that are capable of 24-hour
design turnaround and reduced product delivery times.
DISTRIBUTION
Finished goods produced in our mills are usually shipped by rail or truck. Our
individual mills do not own or maintain outside warehousing facilities, although
we use several third-party warehouses for short-term storage, which is generally
30 days or less, for cross docking or for customer convenience purposes.
In general, each of our converting plants has a dedicated carrier which
transports 60% to 90% of its shipments. Our corrugated containers are usually
delivered by truck due to our large number of customers and their demand for
timely service. The dispersion of our customers and the high bulk and low value
of corrugated containers
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make shipping costs a relatively high percentage of our total costs. As a
result, we have generally positioned our converting plants in proximity to our
customers to minimize our freight costs. Most of our converting plants serve
customers within a 100-mile radius.
CUSTOMERS
Our converting plants, either directly or through exchange agreements with
trading partners, consume approximately 75% to 80% of our mills' containerboard
production. These agreements, which are common in the industry, enable a company
to achieve two key objectives: (1) supply company-owned corrugator plants from
mills that are geographically closer, thus reducing freight costs; and (2)
enhance each mill's grade mix by trading for grades which the mill can run more
profitably and efficiently. To the extent our mill production is not consumed by
our converting plants or traded pursuant to exchange arrangements with other
containerboard producers, our mill containerboard production is sold primarily
to independent domestic and export box converters, as well as to customers who
manufacture fiber drums, air bags, protective packaging and other specialty
products. In 1998, 9% of our containerboard shipments were to the export market
and 16% were to independent domestic converters.
We have over 8,000 active customers for our corrugated products and ship to over
13,000 locations. Our customer base consists primarily of smaller, local
accounts and is broadly diversified across a number of industries and geographic
locations. Based on an internal customer survey conducted in 1998, we estimate
that nearly 40% of our customers have purchased corrugated packaging products
from us for over five years. Our top ten corrugated products customers generated
approximately 18% of our total 1998 gross revenues. No single unaffiliated
customer represented over 5% of our gross revenues.
In connection with the Transactions, TPI and its affiliates, Tenneco Automotive
Inc. and Tenneco Packaging Speciality and Consumer Products Inc., which account
for approximately 6% of our sales, each entered into five-year purchase/supply
agreements with us under which TPI and its affiliates agreed to purchase from us
a substantial percentage of their requirements for linerboard, corrugating
medium and other containerboard products and various types of corrugated
products used in TPI's business as conducted as of the closing of the
Transactions. See "Certain Transactions-Purchase/Supply Agreements."
RAW MATERIALS
FIBER SUPPLY. Fiber is the single largest cost in the manufacture of
containerboard. As of December 31, 1998, we owned, leased, managed or had
cutting rights with respect to approximately 950,000 acres of timberland in
Alabama, Florida, Georgia, Mississippi, Tennessee and Wisconsin. In 1996, 1997
and 1998, approximately 37%, 35% and 36%, respectively, of the virgin fiber used
in our mill operations or sold to the open market was harvested from timberland
that we owned or controlled. We currently satisfy our remaining fiber
requirements through purchases from open market wood sellers. The average cost
of wood chips has been increasing due to greater demand for wood chips from
timberland located in the Southern United States, and it is possible that wood
chip costs will continue to increase.
To reduce our fiber costs, we have invested in processes and equipment to ensure
a high degree of fiber flexibility. Our mills have the capability to shift a
portion of their fiber consumption between softwood, hardwood and recycled
sources in order to optimize fiber costs and, with the exception of our Valdosta
mill, all of our mills can utilize recycled fiber in their containerboard
production. Our ability to use various types of virgin fiber and recycled fiber
in our containerboard production mitigates the impact on our operations of
changes in the price of fiber.
ENERGY SUPPLY. We receive energy from both internal and external sources. A
significant portion of our mills' energy requirements is generated from internal
sources, including recovered fuel materials and bark from processed wood. In
addition, each of our mills has boilers which produce steam to generate
electricity. Purchased sources include coal, natural gas, oil supplied by
contract, bark, black liquor, tire-derived fuel and electricity.
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Our two kraft linerboard mills at Counce and Valdosta use internal fuel sources
such as bark and black liquor for approximately 70% and 60%, respectively, of
their fuel requirements. Electricity produced internally accounted for 55% of
our total electricity consumption in 1998.
COMPETITION
The containerboard and corrugated packaging products industries are highly
competitive. Containerboard is largely a commodity, resulting in substantial
price competition. To the extent that we sell linerboard and corrugating medium
not used by our own converting plants, we compete directly with a number of
large, diversified paper companies, including Georgia-Pacific Corporation,
International Paper Company, MacMillan Bloedel Limited, Smurfit-Stone Container
Corporation, Temple-Inland Inc., Union Camp Corporation, Weyerhaeuser Company
and Willamette Industries, Inc., as well as other regional manufacturers. Many
of our competitors are less leveraged and have greater financial and other
resources than we do and may therefore be better able to withstand the
cyclicality within our industry.
We may also face increased competition from new or existing producers of
containerboard. Although containerboard mills generally require approximately
two years to construct and require substantial capital investment, some of our
competitors have idle machines that could potentially be restarted and used in
containerboard production in a shorter period and with less significant capital
investment.
Competition in the corrugated products industry is based on innovation, price,
design, quality and service, to varying degrees depending on the product line.
We compete with national, regional and local corrugated products manufacturers,
as well as with manufacturers of other types of packaging products in each of
our geographic and product markets. On a national level, our competitors include
Four M Corporation, Gaylord Container Corporation, Georgia-Pacific Corporation,
International Paper Company, Smurfit-Stone Container Corporation, Temple-Inland
Inc., Union Camp Corporation, Weyerhaeuser Company and Willamette Industries,
Inc. However, due to our focus on smaller, regional accounts, we believe we more
frequently compete with regional or local independent converters rather than
with national, integrated producers.
EMPLOYEES
As of March 31, 1999, we had approximately 7,500 employees, of which
approximately 2,100 were salaried and approximately 5,400 were hourly employees.
Approximately 76% of our hourly employees are represented by unions. Our
unionized employees are represented primarily by the United Paperworkers
International Union, the Graphic Communications International Union and the
United Steel Workers of America. Our union contracts for our unionized mill
employees expire between October 2000 and September 2003. Our union contracts
for unionized converting plant employees expire between May 1999 and March 2005.
We are currently in negotiations to renew or extend any union contracts expiring
in the near future. None of our material union contracts expire prior to October
2000. Although we anticipate renewing or extending our union contracts prior to
the expiration of the respective contract, there can be no assurance that this
will occur. We have not experienced any labor problems resulting in a
significant work stoppage, and we believe we have satisfactory relations with
our employees.
ENVIRONMENTAL MATTERS
Compliance with environmental requirements is a significant factor in our
business operations, and we commit substantial resources to maintaining
environmental compliance and managing environmental risk. We are subject to, and
must comply with, a variety of federal, state and local environmental laws,
particularly those relating to air and water quality, waste disposal and the
cleanup of contaminated soil and groundwater. We believe that we are currently
in material compliance with all applicable environmental rules and regulations.
Because environmental regulations are constantly evolving, we have incurred, and
will continue to incur, costs to maintain compliance with those laws. We work
diligently to anticipate and budget for the impact of applicable environmental
regulations and do not currently expect that future environmental compliance
obligations will materially affect our business or financial condition.
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In April 1998, the United States Environmental Protection Agency finalized the
Cluster Rules which govern all pulp and paper mill operations, including those
at our mills. Over the next several years, the Cluster Rules will affect our
allowable discharges of air and water pollutants, and require us and our
competitors to spend money to ensure compliance with these new rules. We
currently project future costs for compliance with the Cluster Rules at our four
mills at approximately $63.6 million. We expect to incur these costs from 1999
through 2005. (From 1997 through 1998, we spent approximately $3 million on
Cluster Rule compliance.) We currently estimate total capital costs for
environmental matters (including Cluster Rule compliance) at $16 million for the
1999 fiscal year and $22 million for the 2000 fiscal year.
As is the case with any industrial operation, we have, in the past, incurred
costs associated with the remediation of soil or groundwater contamination. We
are currently addressing such conditions at several sites and expect that, from
time to time, we will incur similar remedial obligations in the future. Cleanup
requirements arise with respect to properties we currently own or operate,
former facilities and off-site properties where we have disposed of hazardous
substances. We do not believe that any ongoing remedial projects are material in
nature. We maintain reserves for environmental remediation liability and
currently believe those reserves are adequate. Under the terms of the
Contribution Agreement, TPI agreed to retain all liability for all former
facilities and all sites associated with pre-closing off-site waste disposal,
and TPI retained certain environmentally impaired real property in Filer City,
Michigan unrelated to current mill operations.
PROPERTIES
The table below provides a summary of the location of our mills, their general
use and the principal products produced. All of our mills are owned.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
LOCATION FUNCTION CAPACITY (TONS)
- ------------------------------- -------------------------------- -------------------------------
<S> <C> <C>
Counce, TN Kraft Linerboard Mill 937,000
Filer City, MI Semi-chemical Medium Mill 355,000
Tomahawk, WI Semi-chemical Medium Mill 533,000
Valdosta, GA Kraft Linerboard Mill 450,000
</TABLE>
OTHER FACILITIES. In addition to our mills, we own or lease 39 corrugator
plants, 28 sheet/specialty and other plants and five major design centers. We
also own three sawmills, an air-drying yard and three recycling facilities.
TIMBERLAND. We own or control approximately 950,000 acres of timberland. We own
or control approximately 400,000 acres of timberland in Tennessee, Alabama and
Mississippi in proximity to our Counce mill, approximately 160,000 acres of
timberland in Wisconsin in proximity to our Tomahawk mill, and approximately
390,000 acres of timberland in Georgia and Florida in proximity to our Valdosta
mill.
HEADQUARTERS. We currently lease and will continue to lease our executive and
general and administrative offices in Lake Forest, Illinois for a period of up
to four years under the terms of a facilities use agreement that was entered
into with TPI as of the closing of the Transactions. See "Certain
Transactions--Transition Agreements."
We currently believe that our facilities and properties are sufficient to meet
our operating requirements for the foreseeable future.
LEGAL PROCEEDINGS
We are party to various legal actions arising in the ordinary course of our
business. These legal actions cover a broad variety of claims spanning our
entire business. We believe that the resolution of these legal actions will not,
individually or in the aggregate, have a material adverse effect on our
financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the persons who are the directors and executive
officers of PCA are set forth below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
NAME AGE POSITION
- -------------------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Paul T. Stecko 54 Chairman of the Board and Chief Executive Officer
William J. Sweeney 58 Executive Vice President-Paperboard Packaging
Richard B. West 46 Chief Financial Officer, Secretary and Treasurer
Mark W. Kowlzan 44 Vice President-Containerboard/Wood Products
Andrea L. Davey 42 Vice President-Human Resources, Paperboard Packaging
Dana G. Mead 63 Director
Theodore R. Tetzlaff 55 Director
Samuel M. Mencoff 42 Director and Vice President
Justin S. Huscher 45 Director and Assistant Secretary
Thomas S. Souleles 30 Director and Assistant Secretary
</TABLE>
PAUL T. STECKO has served as Chief Executive Officer of PCA since January 1999
and Chairman of the Board of PCA since March 1999. From November 1998 to April
1999, Mr. Stecko served as President and Chief Operating Officer of Tenneco.
From January 1997 to that time, Mr. Stecko served as Chief Operating Officer of
Tenneco. From December 1993 through January 1997, Mr. Stecko served as President
and Chief Executive Officer of TPI. Prior to joining Tenneco, Mr. Stecko spent
16 years with International Paper Company. Mr. Stecko currently serves on the
board of directors of Tenneco.
WILLIAM J. SWEENEY has served as Executive Vice President-Paperboard Packaging
of PCA since April 1999. From May 1997 to April 1999, Mr. Sweeney served as
Executive Vice President-Paperboard Packaging of TPI. From May 1990 to May 1997,
Mr. Sweeney served as Senior Vice President and General Manager- Containerboard
Products of TPI. From 1983 to that time, Mr. Sweeney served as General Manager
and Vice President of Stone Container Corporation. From 1978 to 1983, Mr.
Sweeney served as Sales Manager, Operations Manager and Division Vice President
at Continental Group and from 1967 to that time, as Sales Manager and General
Manager of Boise Cascade Corporation.
RICHARD B. WEST has served as Chief Financial Officer and Treasurer of PCA since
March 1999 and as Chief Financial Officer, Secretary and Treasurer since April
1999. Mr. West served as Vice President of Finance of TPI's containerboard group
from 1995 to April 1999. Prior to joining Tenneco, Mr. West spent 20 years with
International Paper where he served as an Internal Auditor, Internal Audit
Manager and Manufacturing Controller for the Printing Papers Group.
MARK W. KOWLZAN has served as Vice President-Containerboard/Wood Products of PCA
since April 1999. From 1998 to April 1999, Tenneco employed Mr. Kowlzan as Vice
President and General Manager-Containerboard/ Wood Products and from May 1996 to
1998, as Operations Manager and Mill Manager of the Counce mill. Prior to
joining Tenneco, Mr. Kowlzan spent 15 years at International Paper, where he
held a series of operational positions within its mill organization.
ANDREA L. DAVEY has served as Vice President-Human Resources, Paperboard
Packaging of PCA since April 1999. From 1994 to April 1999 Ms. Davey was
employed principally by Tenneco where she held the positions of Director of
Field Employee Relations, Director of Training and Development, Director of
Compensation and Benefits, and Project Manager of HRIS project and also served
in the capacity of Vice President-Human Resources, Paperboard Packaging from May
1997 to April 1999. From 1992 to joining Tenneco in 1994, Ms. Davey served as
Director of Human Resources for the Bakery division of Sara Lee Corporation.
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From 1989 to that time, she served as Human Resource Manager for the Converting
Group of International Paper. Prior to that time, Ms. Davey spent five years
with ITT Corporation, where she served as Human Resources Manager.
DANA G. MEAD has served as a director of PCA since March 1999. Mr. Mead is also
Chairman and Chief Executive Officer of Tenneco and has served as a director and
an executive officer of Tenneco since April 1992, when he joined Tenneco as
Chief Operating Officer. Prior to joining Tenneco, Mr. Mead served as an
Executive Vice President of International Paper Company, a manufacturer of
paper, pulp and wood products, from 1988, and served as Senior Vice President of
that company from 1981. He is also a director of Textron, Inc., Zurich Allied AG
and Pfizer Inc.
THEODORE R. TETZLAFF has served as a director of PCA since March 1999. Mr.
Tetzlaff has been a Partner in the law firm of Jenner & Block, Chicago, since
1976 and Chairman of its Executive Committee and Operations & Finance Committee
since July 1997. Mr. Tetzlaff is also General Counsel of Tenneco, serving in
that capacity since June 1992. Mr. Tetzlaff has served as a director of Case
Corp. since 1994. He was formerly Vice President, Legal and External Affairs, of
Cummins Engine Company, Inc. from 1980 to 1982. Mr. Tetzlaff is also a director
of Continental Materials Corp. and a Commissioner of the Public Building
Commission of Chicago.
SAMUEL M. MENCOFF has served as a director and Vice President of PCA since
January 1999. Mr. Mencoff has been employed principally by Madison Dearborn
Partners, Inc. since 1993 and currently serves as a Managing Director. From 1987
until 1993, Mr. Mencoff served as Vice President of First Chicago Venture
Capital. Mr. Mencoff is a member of the operating committee of the general
partner of Golden Oak Mining Company, L.P. and a member of the board of
directors of Bay State Paper Holding Company, Buckeye Technologies, Inc.,
Huntway Refining Company and Riverwood Holding, Inc.
JUSTIN S. HUSCHER has served as a director of PCA since March 1999 and also as
an Assistant Secretary of PCA since April 1999. Mr. Huscher has been employed
principally by Madison Dearborn Partners, Inc. since 1993 and currently serves
as a Managing Director. From 1990 until 1993, Mr. Huscher served as Senior
Investment Manager of First Chicago Venture Capital. Mr. Huscher is a member of
the operating committee of the general partner of Golden Oak Mining Company,
L.P. and a member of the board of directors of Bay State Paper Holding Company
and Huntway Refining Company.
THOMAS S. SOULELES has served as a director of PCA since March 1999 and also as
an Assistant Secretary of PCA since April 1999. From January 1999 to April 1999,
Mr. Souleles served as a Vice President and Secretary of PCA. Mr. Souleles has
been employed principally by Madison Dearborn Partners, Inc. since 1995 and
currently serves as a Director. Prior to joining Madison Dearborn Partners,
Inc., Mr. Souleles attended Harvard Law School and Harvard Graduate School of
Business Administration where he received a J.D. and an M.B.A. Mr. Souleles is a
member of the board of directors of Bay State Paper Holding Company.
Each director of PCA listed above was elected pursuant to the terms of a
stockholders agreement among TPI, PCA and PCA Holdings that was entered into in
connection with the Transactions. See "Certain Transactions-- Stockholders
Agreement."
COMPENSATION OF EXECUTIVE OFFICERS
None of the executive officers of PCA received compensation from PCA prior to
the closing of the Transactions. Prior to the closing of the Transactions, each
of PCA's executive officers (other than those affiliated with Madison Dearborn)
was employed by, and received compensation from, Tenneco Inc. or its affiliates.
Each of the executive officers is currently receiving substantially the same
base salary and annual perquisite allowance, and is entitled to the same annual
cash bonus target from PCA, as they were receiving from Tenneco or its
affiliates prior to the closing of the Transactions. For fiscal year 1999, the
annual base salaries of Mr. Sweeney, Mr. West, Mr. Kowlzan and Ms. Davey
(together with Mr. Stecko, the "Named Executive Officers") are $350,575,
$198,018, $194,800
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and $150,496, respectively; the corresponding annual bonus targets are $175,000,
$80,000, $115,000 and $65,000, respectively, and the annual perquisite
allowances are $30,000, $12,000, $20,000, and $12,000, respectively.
Pursuant to letter agreements entered into with Mr. Stecko on January 25, 1999
and on May 19, 1999, PCA pays Mr. Stecko a base salary of $600,000 per annum,
subject to increases approved by the Board, and has agreed to pay Mr. Stecko an
annual bonus of not less than $500,000 with respect to each of the fiscal years
1999, 2000 and 2001, and an annual perquisite allowance of not less than $60,000
payable in cash. In addition, upon commencement of Mr. Stecko's employment with
us, we paid Mr. Stecko a signing bonus payment of $1 million, the net proceeds
of which, pursuant to the letter agreement, will be invested in common stock of
PCA. If Mr. Stecko leaves PCA before the earlier of (1) two years from the date
he purchases PCA common stock or (2) an initial public offering or sale of the
company, he will be required to return the $1 million signing bonus. If PCA
terminates Mr. Stecko without cause, he is entitled to receive an amount equal
to three times the sum of his base salary plus the amount of the highest annual
bonus paid to him during the previous three year period.
COMPENSATION OF DIRECTORS
PCA does not currently compensate directors for serving as a director or on
committees of the board of directors or pay directors any fees for attendance at
meetings of the board, although PCA may elect to compensate directors in the
future. All directors will be reimbursed for reasonable out-of-pocket expenses
incurred in connection with their attendance at board and committee meetings.
MANAGEMENT EQUITY SALE
PCA entered into option and stock purchase agreements in June 1999, which we
refer to as management equity agreements, with certain of its management-level
employees, including the Named Executive Officers, pursuant to which 15,050
shares of PCA's common stock were sold to such employees at $1,000 per share,
the same price per share at which PCA Holdings purchased equity in connection
with the Transactions. PCA guaranteed bank financing in the amount of $5,000,000
in the aggregate to enable certain members of PCA's management to purchase
equity under their respective management equity agreements. The amount of such
bank financing guaranteed by PCA with respect to any such employee did not
exceed 50% of the purchase price paid by such employee under his or her
management equity agreement. The capital stock purchased under the management
equity agreements is subject to vesting and is subject to repurchase upon a
termination of employment by PCA. The management equity agreements also provide
for the grant of options to purchase up to an aggregate of approximately 29,240
shares of PCA's common stock, which options will vest over time.
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CERTAIN TRANSACTIONS
THE TRANSACTIONS
As a result of the Transactions, PCA Holdings owns approximately 55% of the
common stock outstanding of PCA (without giving effect to contemplated issuances
to management). PCA Holdings is controlled by Madison Dearborn. Pursuant to the
terms of the Contribution Agreement, PCA paid to Madison Dearborn at closing a
transaction fee in the amount of $15.0 million plus reimbursement of
out-of-pocket expenses. TPI owns approximately 45% of the common stock
outstanding of PCA (without giving effect to issuances to management). Pursuant
to the terms of the Contribution Agreement, PCA paid $2.0 million of the legal
and accounting fees and expenses of TPI incurred in connection with the
Transactions.
TPI has agreed to indemnify PCA, PCA Holdings and their respective affiliates
for any breaches of certain representations, warranties and covenants it has
made in the Contribution Agreement relating to, among other things, the
condition of the business as of the closing of the Transactions, and for
liabilities of the containerboard and corrugated packaging products business
which it has agreed to retain. TPI's indemnification obligation in respect of
breaches of its representations and warranties generally will survive for 18
months following the closing, and will be subject to a $12.5 million deductible
and a $150.0 million cap. PCA has agreed to assume certain liabilities of TPI's
containerboard and corrugated packaging products business in connection with the
Transactions and will indemnify TPI and its affiliates in respect of such
assumed liabilities.
TPI has agreed in the Contribution Agreement, subject to certain exceptions, (i)
not to engage in the business conducted by PCA's containerboard and corrugating
packaging products business as of the closing anywhere in the United States and
(ii) not to induce any customer of PCA to terminate its relationship with PCA,
in each case, for a period of five years from the closing of the Transactions.
PURCHASE/SUPPLY AGREEMENTS
Each of TPI and its affiliates, Tenneco Automotive Inc. and Tenneco Packaging
Speciality and Consumer Products Inc., have entered into five year
purchase/supply agreements with PCA under which each such entity agreed to
purchase a substantial percentage of its requirements for containerboard and
corrugated packaging products used in TPI's business as of the closing, at the
prices charged by PCA to TPI and these affiliates as of the closing (which are
expected to fluctuate to accommodate changes in market prices). As a result of
these agreements, TPI and its affiliates are PCA's largest customer and PCA's
second largest customer of corrugated products. Net sales to TPI and its
subsidiaries for the year ended December 31, 1998 and for the three months ended
March 31, 1999, were approximately $76.9 million and $19.2 million,
respectively. Net sales to other Tenneco entities for the year ended December
31, 1998 and for the three months ended March 31, 1999, were approximately $14.2
million and $3.0 million, respectively.
TRANSITION AGREEMENTS
TPI has entered into a facilities use agreement which provides for PCA's use of
a designated portion of TPI's headquarters located in Lake Forest, Illinois for
a period of four years. Under the facilities use agreement, PCA is required to
pay TPI base rent (calculated based on PCA's proportionate square footage usage
of the property) plus additional rent and charges for building and business
services provided by TPI and other items.
TPI has also entered into a transition services agreement with PCA which
provides for the performance of certain transitional services by TPI and its
affiliates which are currently required by PCA to operate the containerboard and
corrugated packaging products business. Generally, TPI is charging PCA an amount
equal to the actual cost of the services provided by TPI thereunder, determined
on a fully-loaded basis without allocation of corporate overhead ("Actual
Cost"). The charge to PCA will be the lesser of (1) TPI's Actual Cost and (2)
105% of the cost as forecasted by TPI with respect to services within the
following categories of services to be provided under the transition services
agreement: payroll, general accounting, tax support, treasury/cash management,
insurance/risk management, procurement and T&E card administration, human
resources and telecommunication and information services. The initial term of
the transition services agreement is one year, but may be extended by PCA for
additional one year terms for an upcharge of 15% per year, and PCA may terminate
any service on
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90 days notice to TPI. In addition, TPI has agreed in the transition services
agreement, to reimburse PCA for up to $10.0 million in expenditures by PCA
relating to Year 2000 compliance. Under the transition services agreement, PCA
has agreed to provide TPI certain administrative and transitional services to
its folding carton business.
TPI, Tenneco and PCA have entered into a human resources agreement pursuant to
which TPI transferred the employment of all of its active employees engaged in
the containerboard and corrugated packaging products business to PCA as of the
closing at the same rate of pay. Under the human resources agreement, such
employees are entitled to continue their participation in certain TPI and
Tenneco welfare and pension plans until the fifth anniversary of the closing of
the Transactions. PCA has agreed to reimburse Tenneco for associated costs. In
addition, PCA has agreed to pay Tenneco an annualized fee of $5.2 million for
such participation (subject to upward adjustment in certain circumstances). PCA
adopted certain compensation and benefit plans and assumed all of the collective
bargaining agreements existing with respect to containerboard business employees
as of the closing.
STOCKHOLDERS AGREEMENT
PCA, PCA Holdings and TPI are parties to a stockholders agreement which provides
for, among other things, certain restrictions on the transfer of the common
stock held by each of them, the right of PCA to sell or cause to be sold all or
a portion of the common stock held by them in connection with a sale of PCA and
certain preemptive rights upon future issuances of common stock. Pursuant to the
stockholders agreement, the PCA board of directors consists of six
individuals-three directors designated by PCA Holdings (Messrs. Mencoff, Huscher
and Souleles), two directors designated by TPI (Messrs. Mead and Tetzlaff) and
the Chief Executive Officer of PCA (Mr. Stecko), who was designated as a
director by the holders of the junior preferred stock. Each of TPI and PCA
Holdings has agreed to vote their shares in future elections to maintain this
board composition. The stockholders agreement also identifies certain company
actions which TPI and PCA Holdings have agreed shall be subject to approval by
at least four of the five directors designated by TPI and PCA Holdings as
described above, including, among other things, (1) the approval of the adoption
of, or any material change to, PCA's annual business plan, (2) the purchase or
sale of assets having a fair market value in excess of $32.5 million (other than
in the ordinary course of business or in connection with a sale of timberland),
(3) the acquisition of another business or participation in any joint venture
involving consideration in excess of $32.5 million, and (4) the taking of
certain actions that would have a disproportionate impact on TPI or would
otherwise be outside of the ordinary course of business.
REGISTRATION RIGHTS AGREEMENT
PCA, PCA Holdings and TPI are parties to a registration rights agreement which
provides TPI and PCA Holdings and their respective affiliates and transferees
with certain "demand" registration rights, entitling them to cause PCA to
register all or part of the common stock and or other securities of PCA held by
them under the Securities Act, as well as certain "piggyback" registration
rights. TPI and its affiliates, on the one hand, and PCA Holdings and its
affiliates, on the other hand, are each entitled to demand (1) three "long form"
registrations in which PCA will pay the registration expenses (other than
underwriting discounts and commissions), (2) an unlimited number of "short form"
registrations in which PCA will pay the registration expenses (other than
underwriting discounts and commissions) and (3) an unlimited number of "long
form" registrations in which the requesting holders will pay the registration
expenses. The registration rights agreement further provides that TPI and its
affiliates have first priority to participate in any registration of PCA's
securities during the 14-month period following the closing of the Transactions
and, thereafter, PCA Holdings and TPI and their respective affiliates have equal
priority before all other holders of PCA's securities in any such registration.
SERVICES AGREEMENTS
PCA has entered into a holding company support agreement with PCA Holdings
pursuant to which PCA has agreed to reimburse PCA Holdings for all fees, costs
and expenses up to in the aggregate $250,000 per annum arising out of or related
to PCA Holdings' investment in PCA.
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SECURITY OWNERSHIP
The following table sets forth certain information as of May 1, 1999 regarding
the beneficial ownership of the common stock of PCA by each person who
beneficially owns more than 5% of such common stock, by the directors and Named
Executive Officers of PCA and by all directors and executive officers as a
group.
<TABLE>
<CAPTION>
----------------------------
BENEFICIAL OWNERSHIP (1)
----------------------------
NUMBER OF PERCENT OF
SHARES CLASS
------------- -------------
<S> <C> <C>
FIVE PERCENT OR MORE SECURITY HOLDERS
PCA Holdings LLC (2)................................................................. 236,500 55.0%
c/o Madison Dearborn Partners, LLC
Three First National Plaza
Chicago, IL 60602
Tenneco Packaging Inc................................................................ 193,500 45.0%
1900 West Field Court
Lake Forest, IL 60045
DIRECTORS AND EXECUTIVE OFFICERS
Paul T. Stecko....................................................................... -- --
William J. Sweeney................................................................... -- --
Richard B. West...................................................................... -- --
Mark W. Kowlzan...................................................................... -- --
Andrea L. Davey...................................................................... -- --
Dana G. Mead......................................................................... -- --
Theodore R. Tetzlaff................................................................. -- --
Samuel M. Mencoff (3)................................................................ 208,277.5 48.4%
Justin S. Huscher (4)................................................................ 208,277.5 48.4%
Thomas S. Souleles (5)............................................................... 208,277.5 48.4%
All directors and executive officers as a group (10 persons)......................... 208,277.5 48.4%
</TABLE>
- --------------
(1) "Beneficial ownership" generally means any person who, directly or
indirectly, has or shares voting or investment power with respect to a
security. PCA, PCA Holdings and TPI are parties to a stockholders agreement
which provides for, among other things, certain agreements of PCA Holdings
and TPI as to the composition of PCA's board of directors. The number of
shares indicated in the table by each party does not include shares of
common stock held by the other party to the stockholders agreement. See
"Certain Transactions-Stockholders Agreement."
(2) The members of PCA Holdings are Madison Dearborn Capital Partners III, L.P.
("MDCP III"), together with its coinvestors, J.P. Morgan Capital Corporation
("JP Morgan") and BT Capital Investors, L.P. ("BT"). MDCP III may be deemed
to have beneficial ownership of 208,277.5 shares of common stock of PCA held
by PCA Holdings, JP Morgan may be deemed to have beneficial ownership of
22,222.5 shares of common stock of PCA and BT may be deemed to have
beneficial ownership of 4,000 shares of common stock of PCA. Shares
beneficially owned by MDCP III may be deemed to be beneficially owned by
Madison Dearborn Partners III, L.P., its general partner ("MDP III"), and by
Madison Dearborn, the general partner of MDP III.
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(3) Mr. Mencoff is a Managing Director of Madison Dearborn and may therefore be
deemed to share beneficial ownership of the shares beneficially owned by
Madison Dearborn. Mr. Mencoff expressly disclaims beneficial ownership of
such shares.
(4) Mr. Huscher is a Managing Director of Madison Dearborn and may therefore be
deemed to share beneficial ownership of the shares beneficially owned by
Madison Dearborn. Mr. Huscher expressly disclaims beneficial ownership of
such shares.
(5) Mr. Souleles is a Director of Madison Dearborn and may therefore be deemed
to share beneficial ownership of the shares beneficially owned by Madison
Dearborn. Mr. Souleles expressly disclaims beneficial ownership of such
shares.
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DESCRIPTION OF SENIOR CREDIT FACILITY
In connection with the Transactions, PCA entered into a senior credit facility
on April 12, 1999 with various banks and financial institutions, including J.P.
Morgan Securities Inc. and BT Alex. Brown Incorporated as co-lead arrangers,
Bankers Trust Company, an affiliate of BT Alex. Brown Incorporated, as
syndication agent and Morgan Guaranty Trust Company of New York, an affiliate of
J.P. Morgan Securities Inc., as administrative agent for the lenders' syndicate
thereto. The senior credit facility consists of (1) the Tranche A facility of
$460.0 million in term loans, (2) the Tranche B facility of $375.0 million in
term loans, (3) the Tranche C facility of $375.0 million in term loans, and (4)
the revolving credit facility of up to $250.0 million in revolving credit loans
and letters of credit. On May 18, 1999, PCA permanently reduced its borrowings
under the term loans by $75.0 million by making a voluntary prepayment using
excess cash.
The proceeds of the loans made under the senior credit facility (1) were used to
finance a portion of the Acquisition and related transaction expenses and to
refinance certain outstanding indebtedness and other liabilities and (2) have
been and will be used for general corporate purposes including working capital.
The senior credit facility is (1) jointly and severally guaranteed by each of
PCA's domestic subsidiaries and (2) secured by a first priority lien on certain
real property and substantially all of the tangible and intangible personal
property of PCA and its domestic subsidiaries and by a pledge of all of the
capital stock of PCA's domestic subsidiaries and will be secured by a pledge of
65% of the capital stock of its first tier foreign subsidiaries (if any). PCA's
future domestic subsidiaries will guarantee the senior credit facility and
secure that guarantee with certain of their real property and substantially all
of their tangible and intangible personal property.
The senior credit facility requires PCA to meet certain financial tests,
including maximum leverage ratio, minimum interest coverage and minimum net
worth tests. In addition, the senior credit facility contains certain negative
covenants limiting, among other things, additional liens, indebtedness, capital
expenditures, transactions with affiliates, mergers and consolidations,
liquidations and dissolutions, sales of assets, dividends, investments, loans
and advances, prepayments and modifications of debt instruments, lines of
business, creation of new subsidiaries, restrictions on the ability of
subsidiaries to pay dividends, make loans or transfer assets to PCA or other
subsidiaries and other matters customarily restricted in such agreements. The
senior credit facility contains customary events of default, including payment
defaults, breaches of representations and warranties, covenant defaults,
cross-default and cross-acceleration to certain other indebtedness, certain
events of bankruptcy and insolvency, certain events under the Employee
Retirement Income Security Act of 1974, as amended, material judgments, actual
or asserted failure of any guaranty or security document supporting the senior
credit facility to be in full force and effect and change of control of PCA.
The Tranche A Term Loan will mature in quarterly installments from September
1999 through 2005. The Tranche B Term Loan will mature in quarterly installments
from September 1999 through 2007. The Tranche C Term Loan will mature in
quarterly installments from September 1999 through 2008. The revolving credit
facility will terminate in 2005.
The borrowings under the senior credit facility bear interest at a floating rate
and may be maintained as base rate loans or as Eurodollar loans. Base rate loans
bear interest at the base rate (defined as the higher of (1) the applicable
prime lending rate of the administrative agent or (2) the Federal Reserve
reported overnight funds rate plus 1/2 of 1%), plus the applicable margin (as
defined in the senior credit facility). Eurodollar loans bear interest at the
Eurodollar rate (as described in the senior credit facility) plus the applicable
margin.
The applicable margin with respect to the revolving credit facility and the
Tranche A Term Loan varies from time to time in accordance with the terms
thereof and an agreed upon pricing grid based on PCA's leverage ratio. The
initial applicable margin with respect to the revolving credit facility and the
Tranche A Term Loan is (1) 1.75%, in the case of base rate loans and (2) 2.75%
in the case of Eurodollar loans. The applicable margin with respect
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to the Tranche B Term Loan is (1) 2.25% in the case of base rate loans and (2)
3.25% in the case of Eurodollar loans. The applicable margin with respect to the
Tranche C Term Loan is (1) 2.50% in the case of base rate loans and (2) 3.50% in
the case of Eurodollar loans.
With respect to letters of credit (which are to be issued as a part of the
revolving loan commitment) the revolver lenders will receive a commission equal
to the applicable margin which applies from time to time to Eurodollar loans
under the revolving credit facility. In addition, the issuing banks will receive
a fronting fee of 0.25% per annum plus its other standard and customary
processing charges. These commission and fronting fees will be payable quarterly
in arrears based on the aggregate undrawn amount of each letter of credit issued
from time to time under the revolver.
An initial commitment fee of 0.50% applies to the unused portion of the
revolving loan commitments. This commitment fee is subject to decrease and will
vary from time to time in accordance with an agreed upon pricing grid based upon
PCA's leverage ratio.
The senior credit facility provides that certain amounts must be used to prepay
the term loan facilities and reduce commitments under the revolving credit
facility, including (1) 100% of the net proceeds of any issuance of indebtedness
after the closing date by PCA and its subsidiaries, subject to certain
exceptions for permitted debt, (2) 50% of the net proceeds of any issuance of
equity by PCA and its subsidiaries, subject to certain exceptions, (3) 100% of
the net proceeds of any sale or other disposition by PCA and its subsidiaries of
any assets, subject to certain exceptions, unless (with certain exceptions and
subject to certain agreed dollar limitations) such proceeds are reinvested in
"eligible assets" (as defined in the senior credit facility), (4) 75% (50% upon
satisfaction of certain financial ratios) of excess cash flow (as defined in the
senior credit facility) and (5) 100% of the net proceeds of casualty insurance,
condemnation awards or other recoveries, to the extent such proceeds are not
applied to the repair, restoration or replacement of the affected assets or
reinvested in other "eligible assets" and subject to certain other negotiated
exceptions. Voluntary prepayments of the senior credit facility are permitted at
any time, subject to certain notice requirements and to the payment of certain
losses and expenses suffered by the lenders as a result of the prepayment of
Eurodollar loans prior to the end of the applicable interest period.
In general, the mandatory prepayments described above will be applied first, to
prepay the term loan facilities and second, to reduce commitments under the
revolving credit facility (and if the amount of revolving loans then outstanding
exceeds the commitments as so reduced, then that excess amount must be prepaid).
Prepayments of the term loan facilities, optional or mandatory, will be applied
pro rata to the Tranche A Term Loan, the Tranche B Term Loan and the Tranche C
Term Loan, and ratably to the respective installments thereof (subject to the
right of PCA to apply prepayments in direct order of maturity to the remaining
scheduled repayments due on each tranche within the 24 months following the
optional or mandatory prepayment and to the right in certain circumstances of
the lenders of the Tranche B Term Loan and the Tranche C Term Loan to waive
mandatory prepayments to which they would otherwise be entitled, in which case
the amount waived will be applied to the Tranche A Term Loan).
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DESCRIPTION OF EXCHANGE NOTES
You can find the definitions of certain terms used in this description under the
subheading "Certain Definitions." In this description, the word "PCA" refers
only to Packaging Corporation of America and not to any of its Subsidiaries.
PCA will issue the exchange notes under a notes indenture among itself, the
Guarantors and United States Trust Company of New York, as trustee. The terms of
the exchange notes include those stated in the notes indenture and those made
part of the notes indenture by reference to the Trust Indenture Act of 1939.
The form and terms of the exchange notes are identical in all material respects
to the form and terms of the outstanding notes except that:
- the exchange notes will bear a Series B designation;
- the exchange notes have been registered under the Securities Act and,
therefore, will generally not bear legends restricting their transfer; and
- the holders of the exchange notes will not be entitled to certain rights
under the notes registration rights agreement, including the provision
providing for liquidated damages in certain circumstances relating to the
timing of this exchange offer.
The exchange notes will evidence the same debt as the outstanding notes and will
be entitled to the benefits of the notes indenture. The exchange notes will be
PARI PASSU with the outstanding notes if all of such outstanding notes are not
exchanged pursuant to this exchange offer.
The following description is a summary of the material provisions of the notes
indenture, which is filed as an exhibit to the registration statement of which
this prospectus forms a part. The description does not restate the notes
indenture in its entirety. We urge you to read the notes indenture because it,
and not this description, defines your rights as holders of the exchange notes.
Copies of the notes indenture are available as set forth below under
"-Additional Information." Certain defined terms used in this description but
not defined below under "-Certain Definitions" have the meanings assigned to
them in the notes indenture.
BRIEF DESCRIPTION OF THE EXCHANGE NOTES AND THE GUARANTEES
THE EXCHANGE NOTES
The exchange notes:
- are general unsecured obligations of PCA;
- are subordinated in right of payment to all existing and future Senior
Debt of PCA;
- are senior to the subordinated exchange debentures;
- are PARI PASSU in right of payment with any future senior subordinated
Indebtedness of PCA; and
- are unconditionally guaranteed by the Guarantors.
THE GUARANTEES
The exchange notes are guaranteed by all of the Domestic Subsidiaries of PCA
(other than any Receivables Subsidiaries).
Each Guarantee of the exchange notes:
- is a general unsecured obligation of the Guarantor;
- is subordinated in right of payment to all existing and future Senior Debt
of the Guarantor; and
- is PARI PASSU in right of payment with any future senior subordinated
Indebtedness of the Guarantor.
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As of the date of the notes indenture, all of our subsidiaries were "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "-Certain Covenants-Designation of Restricted and Unrestricted
Subsidiaries," we are permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will not be subject
to many of the restrictive covenants in the notes indenture. Our Unrestricted
Subsidiaries will not guarantee the exchange notes.
PRINCIPAL, MATURITY AND INTEREST
The notes indenture provides for the issuance by PCA of exchange notes with a
maximum aggregate principal amount of $750.0 million, of which $550.0 million
are expected to be issued in this exchange offer. PCA may issue additional
exchange notes from time to time after this exchange offer. Any offering of
additional exchange notes is subject to the covenant described below under the
caption "-Certain Covenants-Incurrence of Indebtedness and Issuance of Preferred
Stock." The exchange notes and any additional exchange notes subsequently issued
under the notes indenture would be treated as a single class for all purposes
under the notes indenture, including, without limitation, waivers, amendments,
redemptions and offers to purchase. PCA will issue exchange notes in
denominations of $1,000 and integral multiples of $1,000. The exchange notes
will mature on April 1, 2009.
Interest on the exchange notes will accrue at the rate of 9 5/8% per annum and
will be payable semi-annually in arrears on April 1 and October 1, commencing on
October 1, 1999. PCA will make each interest payment to the Holders of record on
the immediately preceding March 15 and September 15.
Interest on the exchange notes will accrue from the date of original issuance
or, if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE EXCHANGE NOTES
If a Holder of at least $1.0 million in aggregate principal amount of the
exchange notes has given wire transfer instructions to PCA, PCA will pay all
principal, interest and premium and Liquidated Damages, if any, on that Holder's
exchange notes in accordance with those instructions. All other payments on
exchange notes will be made at the office or agency of the paying agent and
registrar within the City and State of New York unless PCA elects to make
interest payments by check mailed to the Holders at their addresses set forth in
the register of Holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. PCA may change the
paying agent or registrar without prior notice to the Holders, and PCA or any of
its Subsidiaries may act as paying agent or registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange exchange notes in accordance with the notes
indenture. The registrar and the trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and PCA may
require a Holder to pay any taxes and fees required by law or permitted by the
notes indenture. PCA is not required to transfer or exchange any exchange note
selected for redemption. Also, PCA is not required to transfer or exchange any
exchange note for a period of 15 days before a selection of exchange notes to be
redeemed.
The registered Holder of an exchange note will be treated as the owner of it for
all purposes.
SUBSIDIARY GUARANTEES
The Guarantors will jointly and severally guarantee on a senior subordinated
basis PCA's obligations under the exchange notes. Each Subsidiary Guarantee will
be subordinated to the prior payment in full in cash and Cash
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Equivalents (other than Cash Equivalents of the type referred to in clauses (3)
and (4) of the definition thereof) of all Senior Debt of that Guarantor. The
subordination provisions applicable to the Subsidiary Guarantees are the same as
the subordination provisions applicable to the exchange notes as set forth below
under "-Subordination." The obligations of each Guarantor under its Subsidiary
Guarantee are limited as necessary to prevent that Subsidiary Guarantee from
constituting a fraudulent conveyance under applicable law. See "Risk
Factors-Fraudulent Conveyance Matters."
A Guarantor may not sell or otherwise dispose of all or substantially all of its
assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than PCA or another
Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or Event
of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger
assumes all the obligations of that Guarantor under the notes
indenture, its Subsidiary Guarantee and the note registration rights
agreement pursuant to a supplemental notes indenture satisfactory to
the trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the "Asset Sale" provisions of the notes indenture.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that Guarantor (including by way of merger or
consolidation) to a Person that is not (either before or after giving
effect to such transaction) a Subsidiary of PCA, if the Guarantor
applies the Net Proceeds of that sale or other disposition in accordance
with the "Asset Sale" provisions of the notes indenture;
(2) in connection with any sale of all of the Capital Stock of a Guarantor
to a Person that is not (either before or after giving effect to such
transaction) a Subsidiary of PCA, if PCA applies the Net Proceeds of
that sale in accordance with the "Asset Sale" provisions of the notes
indenture; or
(3) if PCA properly designates any Restricted Subsidiary that is a Guarantor
as an Unrestricted Subsidiary.
See "-Repurchase at the Option of Holders-Asset Sales."
SUBORDINATION
The payment of principal, interest and premium and Liquidated Damages, if any,
and any other Obligations on, or relating to the exchange notes will be
subordinated to the prior payment in full in cash or Cash Equivalents (other
than Cash Equivalents of the type referred to in clauses (3) and (4) of the
definition thereof) of all Senior Debt of PCA.
The holders of Senior Debt will be entitled to receive payment in full in cash
or Cash Equivalents (other than Cash Equivalents of the type referred to in
clauses (3) and (4) of the definition thereof) of all Obligations due in respect
of Senior Debt (including interest after the commencement of any bankruptcy
proceeding at the rate specified in the applicable Senior Debt, whether or not
such interest is an allowable claim) before the Holders of exchange notes will
be entitled to receive any payment or distribution of any kind or character with
respect to any Obligations on, or relating to, the exchange notes (except that
Holders of exchange notes may receive and retain Permitted Junior Securities and
payments made from the trust described under "-Legal Defeasance and Covenant
Defeasance" so long as the trust was created in accordance with all relevant
conditions specified in the notes indenture at the time it was created), in the
event of any distribution to creditors of PCA:
(1) in a liquidation or dissolution of PCA;
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(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to PCA or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of PCA's assets and liabilities.
PCA also may not make any payment or distribution of any kind or character with
respect to any Obligations on, or with respect to, the exchange notes or acquire
any exchange notes for cash or property or otherwise (except in Permitted Junior
Securities or from the trust described under "-Legal Defeasance and Covenant
Defeasance" so long as the trust was created in accordance with all relevant
conditions specified in the notes indenture at the time it was created) if:
(1) a payment default on Designated Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on any Designated Senior Debt
that permits holders of that Designated Senior Debt to accelerate its
maturity and the trustee receives a notice of such default (a "Payment
Blockage Notice") from the Representative of that Designated Senior
Debt.
Payments on and distributions with respect to any Obligations on, or with
respect to, the exchange notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which the default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of (a) the date on which
all nonpayment defaults are cured or waived, (b) 179 days after the date
of delivery of the applicable Payment Blockage Notice or (c) the trustee
receives notice from the Representative for such Designated Senior Debt
rescinding the Payment Blockage Notice, unless the maturity of any
Designated Senior Debt has been accelerated.
No new Payment Blockage Notice will be effective unless and until at least 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice.
No nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall have been cured or
waived for a period of not less than 90 consecutive days.
If the trustee or any Holder of the exchange notes receives any payment or
distribution of assets of any kind or character, whether in cash, properties or
securities, in respect of any Obligations with respect to the exchange notes
(except in Permitted Junior Securities or from the trust described under "-Legal
Defeasance and Covenant Defeasance" so long as the trust was created in
accordance with all relevant conditions specified in the notes indenture at the
time it was created) at a time when such payment is prohibited by these
subordination provisions, the trustee or the Holder, as the case may be, shall
hold the payment in trust for the benefit of the holders of Senior Debt. Upon
the proper written request of the holders of Senior Debt, the trustee or the
Holder, as the case may be, shall forthwith deliver the amounts in trust to the
holders of Senior Debt (on a pro rata basis based on the aggregate principal
amount of the Senior Debt) or their proper Representative.
PCA must promptly notify holders of Senior Debt if payment of the exchange notes
is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of a
bankruptcy, liquidation or reorganization of PCA, Holders of exchange notes may
recover less ratably than creditors of PCA who are holders of Senior Debt. See
"Risk Factors-Subordination."
OPTIONAL REDEMPTION
At any time prior to April 1, 2002, PCA may on any one or more occasions redeem
up to 35% of the aggregate principal amount of exchange notes issued under the
notes indenture at a redemption price of 109.625% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption
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date, with the net cash proceeds of one or more offerings of common stock of PCA
or a capital contribution to PCA's common equity made with the net cash proceeds
of an offering of common stock of PCA's direct or indirect parent or with
Timberlands Net Proceeds (which amount shall be reduced on a dollar for dollar
basis by the amount of Timberlands Net Proceeds used to make a Timberlands
Repurchase in accordance with the fifth paragraph described under the caption
"-Repurchase at the Option of Holders-Asset Sales"); PROVIDED that:
(1) at least 65% of the aggregate principal amount of exchange notes issued
under the notes indenture remains outstanding immediately after the
occurrence of such redemption (excluding exchange notes held by PCA and
its Subsidiaries); and
(2) the redemption must occur within 60 days of the date of the closing of
such offering, the making of such capital contribution or the
consummation of a Timberlands Sale.
Prior to April 1, 2004, PCA may also redeem the exchange notes, as a whole but
not in part, upon the occurrence of a Change of Control, upon not less than 30
nor more than 60 days' prior written notice, at a redemption price equal to 100%
of the principal amount thereof plus the Applicable Premium as of, and accrued
and unpaid interest and Liquidated Damages, if any, thereon, to, the date of
redemption.
Except pursuant to the preceding paragraphs, the exchange notes will not be
redeemable at PCA's option prior to April 1, 2004. Nothing in the notes
indenture prohibits PCA from acquiring the exchange notes by means other than a
redemption, whether pursuant to an issuer tender offer or otherwise, assuming
such acquisition does not otherwise violate the terms of the notes indenture.
After April 1, 2004, PCA may redeem all or a part of the exchange notes upon not
less than 30 nor more than 60 days' notice, at the redemption prices (expressed
as percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon, to the applicable redemption
date, if redeemed during the twelve-month period beginning on April 1 of the
years indicated below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
YEAR PERCENTAGE
- -------------------------------------------------------------------------------- ------------
<S> <C>
2004............................................................................ 104.8125%
2005............................................................................ 103.2083%
2006............................................................................ 101.6042%
2007 and thereafter............................................................. 100.0000%
</TABLE>
MANDATORY REDEMPTION
PCA is not required to make mandatory redemption or sinking fund payments with
respect to the exchange notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of exchange notes will have the right
to require PCA to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of that Holder's exchange notes pursuant to a Change of
Control Offer on the terms set forth in the notes indenture. In the Change of
Control Offer, PCA will offer a Change of Control Payment in cash equal to 101%
of the aggregate principal amount of exchange notes repurchased plus accrued and
unpaid interest and Liquidated Damages, if any, thereon, to the date of
purchase. Within 30 days following any Change of Control, PCA will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase exchange notes on the Change of
Control Payment Date specified in such notice, which date shall be no earlier
than 30 days and no later than 60 days from the date such notice is mailed,
pursuant to the procedures required by the notes indenture and described in such
notice. PCA will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
exchange notes as a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with the Change of
Control provisions of
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the notes indenture, PCA will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Change of Control provisions of the notes indenture by virtue of such conflict.
On the Change of Control Payment Date, PCA will, to the extent lawful:
(1) accept for payment all exchange notes or portions thereof properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all exchange notes or portions thereof so
tendered; and
(3) deliver or cause to be delivered to the trustee the exchange notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of exchange notes or portions thereof being purchased
by PCA.
The paying agent will promptly mail to each Holder of exchange notes so tendered
the Change of Control Payment for such exchange notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new exchange note equal in principal amount to any unpurchased
portion of the exchange notes surrendered, if any; PROVIDED that each such new
exchange note will be in a principal amount of $1,000 or an integral multiple
thereof.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, PCA
will either repay all outstanding Senior Debt or obtain the requisite consents,
if any, under all agreements governing outstanding Senior Debt to permit the
repurchase of exchange notes required by this covenant. PCA will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
PCA shall first comply with the covenant in the first sentence in the
immediately preceding paragraph before it shall be required to repurchase
exchange notes pursuant to the provisions described above. PCA's failure to
comply with the covenant described in the immediately preceding sentence may
(with notice and lapse of time) constitute an Event of Default described in
clause (3) but shall not constitute an Event of Default described under clause
(2) under the caption "-Events of Defaults and Remedies."
The provisions described above that require PCA to make a Change of Control
Offer following a Change of Control will be applicable regardless of whether any
other provisions of the notes indenture are applicable. Except as described
above with respect to a Change of Control, the notes indenture does not contain
provisions that permit the Holders of the exchange notes to require that PCA
repurchase or redeem the exchange notes in the event of a takeover,
recapitalization or similar transaction.
PCA will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the notes
indenture applicable to a Change of Control Offer made by PCA and purchases all
exchange notes validly tendered and not withdrawn under such Change of Control
Offer.
The definition of Change of Control includes a phrase relating to the direct or
indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of PCA and its Restricted
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of exchange notes to require PCA to repurchase such exchange notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of PCA and its Restricted Subsidiaries taken as a whole to
another Person or group may be uncertain.
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ASSET SALES
PCA will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) PCA (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale which, taken as a whole, is
at least equal to the fair market value of the assets or Equity
Interests issued or sold or otherwise disposed of;
(2) such fair market value is determined by PCA's Board of Directors and
evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the trustee; and
(3) at least 75% of the consideration therefor received by PCA or such
Restricted Subsidiary is in the form of cash or Cash Equivalents or
Marketable Securities. For purposes of this provision, each of the
following shall be deemed to be cash:
(a) any liabilities (as shown on PCA's or such Restricted Subsidiary's
most recent balance sheet), of PCA or any Restricted Subsidiary
(other than contingent liabilities and liabilities that are by their
terms subordinated to the exchange notes or any Subsidiary Guarantee)
that are assumed by the transferee of any such assets;
(b) any securities, notes or other obligations received by PCA or any
such Restricted Subsidiary from such transferee that are converted,
sold or exchanged by PCA or such Restricted Subsidiary into cash
within 30 days of the related Asset Sale (to the extent of the cash
received in that conversion); and
(c) any Designated Noncash Consideration received by PCA or any of its
Restricted Subsidiaries in such Asset Sale having an aggregate fair
market value, taken together with all other Designated Noncash
Consideration received since the date of the Indenture pursuant to
this clause (c) that is at that time outstanding, not to exceed 10%
of Total Assets at the time of the receipt of such Designated Noncash
Consideration (with the fair market value of each item of Designated
Noncash Consideration being measured at the time received and without
giving effect to subsequent changes in value).
Within 365 days after the receipt of any Net Proceeds from an Asset Sale, PCA
may apply such Net Proceeds at its option:
(1) to repay Senior Debt and, if the Senior Debt repaid is revolving credit
Indebtedness, to correspondingly reduce commitments with respect
thereto;
(2) to invest in or to acquire other properties or assets to replace the
properties or assets that were the subject of the Asset Sale or that
will be used in businesses of PCA or its Restricted Subsidiaries, as the
case may be, existing at the time such assets are sold;
(3) to make a capital expenditure or commit, or cause such Restricted
Subsidiary to commit, to make a capital expenditure (such commitments to
include amounts anticipated to be expended pursuant to PCA's capital
investment plan as adopted by the Board of Directors of PCA) within 24
months of such Asset Sale;
(4) to make a Timberlands Repurchase in accordance with the first paragraph
described under the caption "-Optional Redemption."
Pending the final application of any such Net Proceeds, PCA may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the notes indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the preceding two paragraphs will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $25.0 million, PCA will make an
Asset Sale Offer to all Holders of exchange notes and all holders of other
Indebtedness that is PARI PASSU with the exchange notes containing provisions
similar to those set forth in the notes indenture with respect
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to offers to purchase or redeem with the proceeds of sales of assets to purchase
the maximum principal amount of exchange notes and such other PARI PASSU
Indebtedness that may be purchased out of the Excess Proceeds. The offer price
in any Asset Sale Offer will be equal to 100% of principal amount plus accrued
and unpaid interest and Liquidated Damages, if any, to the date of purchase, and
will be payable in cash. If any Excess Proceeds remain after consummation of an
Asset Sale Offer, PCA may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of exchange notes
and such other PARI PASSU Indebtedness tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the trustee shall select the exchange
notes and such other PARI PASSU Indebtedness to be purchased on a pro rata basis
based on the principal amount of exchange notes and such other PARI PASSU
Indebtedness tendered. Upon completion of each Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero.
Notwithstanding the four preceding paragraphs, PCA will be permitted to apply
Timberlands Net Proceeds (which amount shall be reduced on a dollar for dollar
basis by the amount of Timberlands Net Proceeds used to make a Timberlands
Repurchase in accordance with the first paragraph described under the caption
"-Optional Redemption") to repurchase or redeem, or pay a dividend on, or a
return of capital with respect to, any Equity Interests of PCA, or repurchase or
redeem subordinated exchange debentures, if:
(1) the repurchase, redemption, dividend or return of capital is consummated
within 90 days of the final sale of such Timberlands Sale;
(2) PCA's Debt to Cash Flow Ratio at the time of such Timberlands
Repurchase, after giving pro forma effect to (a) such repurchase,
redemption, dividend or return of capital, (b) the Timberlands Sale and
the application of the net proceeds therefrom and (c) any increase or
decrease in fiber, stumpage or similar costs as a result of the
Timberlands Sale, as if the same had occurred at the beginning of the
most recently ended four full fiscal quarter period of PCA for which
internal financial statements are available, would have been no greater
than 4.5 to 1; and
(3) in the case of a repurchase or redemption of all of the then outstanding
preferred stock, new preferred stock or subordinated exchange
debentures, no Timberlands Net Proceeds have previously been applied to
redeem exchange notes or repurchase or redeem, or pay a dividend on, or
a return of capital with respect to, any other Equity Interests of PCA.
PCA will comply with the requirements of Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with each repurchase of exchange notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sales provisions of the
notes indenture, PCA will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Asset Sale provisions of the notes indenture by virtue of such conflict.
The agreements governing PCA's outstanding Senior Debt currently prohibit PCA
from purchasing any exchange notes, and also provides that certain change of
control or asset sale events with respect to PCA would constitute a default
under these agreements. Any future credit agreements or other agreements
relating to Senior Debt to which PCA becomes a party may contain similar
restrictions and provisions. In the event a Change of Control or Asset Sale
occurs at a time when PCA is prohibited from purchasing exchange notes, PCA
could seek the consent of its senior lenders to the purchase of exchange notes
or could attempt to refinance the borrowings that contain such prohibition. If
PCA does not obtain such a consent or repay such borrowings, PCA will remain
prohibited from purchasing exchange notes. In such case, PCA's failure to
purchase tendered exchange notes would constitute an Event of Default under the
notes indenture which would, in turn, constitute a default under such Senior
Debt. In such circumstances, the subordination provisions in the notes indenture
would likely restrict payments to the Holders of exchange notes.
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SELECTION AND NOTICE
If less than all of the exchange notes are to be redeemed at any time, the
trustee will select exchange notes for redemption as follows:
(1) if the exchange notes are listed, in compliance with the requirements of
the principal national securities exchange on which the exchange notes
are listed; or
(2) if the exchange notes are not so listed, on a pro rata basis, by lot or
by such method as the trustee shall deem fair and appropriate.
No exchange notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of exchange notes to be redeemed
at its registered address. Notices of redemption may not be conditional.
If any exchange note is to be redeemed in part only, the notice of redemption
that relates to that exchange note shall state the portion of the principal
amount thereof to be redeemed. A new exchange note in principal amount equal to
the unredeemed portion of the original exchange note will be issued in the name
of the Holder thereof upon cancellation of the original exchange note. Exchange
notes called for redemption become due on the date fixed for redemption. On and
after the redemption date, interest ceases to accrue on exchange notes or
portions of them called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
PCA will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of PCA's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in connection with any
merger or consolidation involving PCA or any of its Restricted
Subsidiaries) or to the direct or indirect holders of PCA's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable (a) in Equity Interests
(other than Disqualified Stock) of PCA or (b) to PCA or a Restricted
Subsidiary of PCA);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving PCA) any Equity Interests of PCA or any direct or indirect
parent of PCA;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is by its
terms expressly subordinated to the exchange notes or the Subsidiary
Guarantees, except a payment of interest or principal at the Stated
Maturity thereof; or
(4) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to as
"Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(2) PCA would, at the time of such Restricted Payment and after giving pro
forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "-Incurrence of Indebtedness
and Issuance of Preferred Stock;" and
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(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by PCA and its Restricted Subsidiaries after
the date of the notes indenture (excluding Restricted Payments permitted
by clauses (2), (3), (4) and (5) of the next succeeding paragraph), is
less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of PCA for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the notes indenture to the end of PCA's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or,
if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), PLUS
(b) 100% of the aggregate net cash proceeds received by PCA since the
date of the notes indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of PCA (other
than Disqualified Stock) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of PCA that have been converted into or exchanged for such
Equity Interests (other than Equity Interests (or Disqualified Stock
or debt securities) sold to a Subsidiary of PCA), together with the
net proceeds received by PCA upon such conversion or exchange, if
any, PLUS
(c) to the extent that any Restricted Investment that was made after the
date of the notes indenture is sold for cash or otherwise liquidated
or repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition,
if any) and (ii) the initial amount of such Restricted Investment.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied
with the provisions of the notes indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness of PCA or any Guarantor or of any
Equity Interests of PCA in exchange for, or out of the net cash proceeds
of the substantially concurrent sale (other than to a Restricted
Subsidiary of PCA) of, Equity Interests of PCA (other than Disqualified
Stock); PROVIDED that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (3)(b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of PCA or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) so long as no Default has occurred and is continuing or would be caused
thereby, any Timberlands Repurchase pursuant to and in accordance with
the fifth paragraph described under the caption "-Repurchase at the
Option of Holders--Asset Sales;"
(5) the payment of any dividend by a Restricted Subsidiary of PCA to the
holders of its common Equity Interests on a pro rata basis;
(6) so long as no Default has occurred and is continuing or would be caused
thereby, the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of PCA or any Restricted Subsidiary of
PCA held by any current or former officers, directors or employees of
PCA (or any of its Restricted Subsidiaries') pursuant to any management
equity subscription agreement, stock option agreement or stock plan
entered into in the ordinary course of business; PROVIDED that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $5.0 million in any calendar
year;
(7) repurchases of Equity Interests of PCA deemed to occur upon exercise of
stock options to the extent Equity Interests represent a portion of the
exercise price of such options;
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(8) cash payments, advances, loans or expense reimbursements made to PCA
Holdings to permit PCA Holdings to pay its general operating expenses
(other than management, consulting or similar fees payable to Affiliates
of PCA), franchise tax obligations, accounting, legal, corporate
reporting and administrative expenses incurred in the ordinary course of
its business in an amount not to exceed $1.0 million in the aggregate in
any fiscal year; and
(9) so long as no Default has occurred and is continuing or would be caused
thereby, other Restricted Payments in an aggregate amount not to exceed
$25.0 million since the date of the notes indenture.
The amount of all Restricted Payments (other than cash) shall be the fair market
value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by PCA or such Restricted Subsidiary,
as the case may be, pursuant to the Restricted Payment. The fair market value of
any assets or securities that are required to be valued by this covenant shall
be determined by the Board of Directors whose resolution with respect thereto
shall be conclusive. The Board of Directors' determination must be based upon an
opinion or appraisal issued by an accounting, appraisal or investment banking
firm of national standing if the fair market value exceeds $25.0 million.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
PCA will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and PCA will
not issue any Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER, that PCA
may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock,
and the Guarantors may incur Indebtedness or issue preferred stock, if the Fixed
Charge Coverage Ratio for PCA's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified
Stock or preferred stock is issued would have been at least 2.0 to 1 or, if a
Timberlands Repurchase has occurred pursuant to and in accordance with the fifth
paragraph described under the caption "-Repurchase at the Option of
Holders-Asset Sales," 2.25 to 1, in either case determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred or the preferred stock or Disqualified
Stock had been issued, as the case may be, at the beginning of such four-quarter
period.
The first paragraph of this covenant will not prohibit the incurrence of any of
the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by PCA and any Guarantor of additional Indebtedness under
Credit Facilities and letters of credit under Credit Facilities in an
aggregate principal amount at any one time outstanding under this clause
(1) (with letters of credit being deemed to have a principal amount
equal to the face amount) not to exceed $1.51 billion LESS the aggregate
amount of all Net Proceeds of Asset Sales that have been applied by PCA
or any of its Restricted Subsidiaries since the date of the notes
indenture to permanently repay Indebtedness under a Credit Facility
pursuant to the covenant described above under the caption "-Repurchase
at the Option of Holders-Asset Sales" and LESS the amount of
Indebtedness outstanding under clause (18) below; PROVIDED that the
amount of Indebtedness permitted to be incurred pursuant to Credit
Facilities in accordance with this clause (1) shall be in addition to
any Indebtedness permitted to be incurred pursuant to Credit Facilities,
in reliance on, and in accordance with, clauses (4) and (19) below or in
the first paragraph of this covenant;
(2) the incurrence by PCA and its Restricted Subsidiaries of the Existing
Indebtedness;
(3) the incurrence by PCA and the Guarantors of Indebtedness represented by
the outstanding notes and the related Subsidiary Guarantees issued on
the date of the notes indenture, these exchange notes issued in exchange
for such outstanding notes and the related Subsidiary Guarantees
thereof;
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(4) the incurrence by PCA or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of PCA or such Restricted Subsidiary, in an aggregate principal
amount (which amount may, but need not be, incurred in whole or in part
under Credit Facilities), including all Permitted Refinancing
Indebtedness incurred to refund, refinance, replace, amend, restate,
modify or renew, in whole or in part, any Indebtedness incurred pursuant
to this clause (4), not to exceed the greater of 7.5% of Total Assets as
of the date of incurrence and $50.0 million at any time outstanding;
(5) the incurrence by PCA or any of its Restricted Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance, replace, amend, restate, modify or renew,
in whole or in part, Indebtedness (other than intercompany Indebtedness)
that was permitted by the notes indenture to be incurred under the first
paragraph of this covenant or clauses (2), (3), (4), (15) or (19) of
this paragraph;
(6) the incurrence by PCA or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among PCA and any of its Restricted
Subsidiaries; PROVIDED, HOWEVER, that each of the following shall be
deemed, in each case, to constitute an incurrence of such Indebtedness
by PCA or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6):
(a) any subsequent issuance or transfer of Equity Interests that results
in any such Indebtedness being held by a Person other than PCA or a
Restricted Subsidiary thereof; and
(b) any sale or other transfer of any such Indebtedness to a Person that
is not either PCA or a Restricted Subsidiary thereof;
(7) the incurrence by PCA or any of the Guarantors of Hedging Obligations
that are incurred for the purpose of fixing or hedging interest rate
risk with respect to any floating or fixed rate Indebtedness that is
permitted by the terms of the notes indenture to be outstanding and the
incurrence of Indebtedness under Other Hedging Agreements providing
protection against fluctuations in currency values or in the price of
energy, commodities and raw materials in connection with PCA's or any of
its Restricted Subsidiaries' operations so long as management of PCA or
such Restricted Subsidiary, as the case may be, has determined that the
entering into of such Other Hedging Agreements are bona fide hedging
activities;
(8) the guarantee by PCA or any of the Guarantors of Indebtedness of PCA or
a Restricted Subsidiary of PCA that was permitted to be incurred by
another provision of this covenant;
(9) the incurrence by PCA's Unrestricted Subsidiaries of Non-Recourse Debt,
PROVIDED, HOWEVER, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of PCA that was not permitted by this clause (9);
(10) the accrual of interest, the accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Stock in the form of additional shares of the
same class of Disqualified Stock will not be deemed to be an incurrence
of Indebtedness or an issuance of Disqualified Stock for purposes of
this covenant; PROVIDED, in each such case, that the amount thereof is
included in Fixed Charges and Consolidated Indebtedness of PCA as
accrued;
(11) the incurrence by PCA of Indebtedness and the issuance by PCA of
preferred stock, in each case, that is deemed to be incurred or issued,
as the case may be, in connection with the Contribution;
(12) the incurrence by PCA or any Guarantor of obligations pursuant to
foreign currency agreements entered into in the ordinary course of
business and not for speculative purposes;
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(13) Indebtedness arising from agreements of PCA or a Restricted Subsidiary
providing for indemnification, adjustment of purchase price or similar
obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; PROVIDED, HOWEVER, that (a) such
Indebtedness is not reflected on the balance sheet of PCA or any
Restricted Subsidiary (contingent obligations referred to in a footnote
to financial statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for purposes of
this clause (a)) and (b) the maximum assumable liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds
including noncash proceeds (the fair market value of such noncash
proceeds being measured at the time received and without giving effect
to any subsequent changes in value) actually received by PCA and its
Restricted Subsidiaries in connection with such disposition;
(14) the incurrence of obligations in respect of performance and surety bonds
and completion guarantees provided by PCA or any of its Restricted
Subsidiaries in the ordinary course of business;
(15) the incurrence of Indebtedness by any Restricted Subsidiary in
connection with the acquisition of assets or a new Restricted Subsidiary
in an aggregate principal amount, including all Permitted Refinancing
Indebtedness incurred to refund, refinance, replace, amend, restate,
modify or renew, in whole or in part, any Indebtedness incurred pursuant
to this clause (15), not to exceed $25.0 million at any one time
outstanding; PROVIDED that such Indebtedness was incurred by the prior
owner of such asset or such Restricted Subsidiary prior to such
acquisition by the Restricted Subsidiary and was not incurred in
connection with, or in contemplation of, such acquisition by the
Restricted Subsidiary;
(16) the incurrence of Indebtedness consisting of guarantees of loans made to
management for the purpose of permitting management to purchase Equity
Interests of PCA, in an amount not to exceed $7.5 million at any one
time outstanding;
(17) Indebtedness of PCA that may be deemed to exist under the Contribution
Agreement as a result of PCA's obligation to pay purchase price
adjustments; PROVIDED that the incurrence of Indebtedness to pay the
purchase price adjustment shall be deemed to constitute an incurrence of
Indebtedness that was not permitted by this clause (17);
(18) the incurrence of Indebtedness by a Receivables Subsidiary in a
Qualified Receivables Transaction that is not recourse to PCA or any of
its Subsidiaries (except for Standard Securitization Undertakings);
PROVIDED that the aggregate principal amount of Indebtedness outstanding
under this clause (18) and clause (1) above does not exceed $1.51
billion LESS the aggregate amount of all Net Proceeds of Asset Sales
that have been applied by PCA or any of its Restricted Subsidiaries
since the date of the notes indenture to permanently repay Indebtedness
under a Credit Facility pursuant to the covenant described above under
the caption "--Repurchase at the Option of Holders--Asset Sales;" and
(19) the incurrence by PCA of additional Indebtedness in an aggregate
principal amount (or accreted value, as applicable) (which amount may,
but need not be, incurred in whole or in part under the Credit
Facilities) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance, replace, amend, restate,
modify or renew, in whole or in part, any Indebtedness incurred pursuant
to this clause (19), not to exceed $75.0 million.
For purposes of determining compliance with this "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant, in the event that an item of proposed
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (19) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, PCA will be permitted to
classify or later reclassify such item of Indebtedness in any manner that
complies with this covenant. Indebtedness under Credit Facilities outstanding on
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the date on which exchange notes are first issued and authenticated under the
notes indenture shall be deemed to have been incurred on such date in reliance
on the exception provided by clause (1) of the definition of Permitted Debt.
NO SENIOR SUBORDINATED DEBT
PCA will not incur, create, issue, assume, guarantee or otherwise become liable
for any Indebtedness that is subordinate or junior in right of payment to any
Senior Debt of PCA and senior in any respect in right of payment to the exchange
notes. No Guarantor will incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to the Senior Debt of such Guarantor and senior in any respect in right
of payment to such Guarantor's Subsidiary Guarantee.
LIENS
PCA will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind on any asset now owned or hereafter acquired securing Indebtedness,
Attributable Debt or trade payables, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
PCA will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
PCA or any of its Restricted Subsidiaries, or with respect to any other
interest or participation in, or measured by, its profits, or pay any
indebtedness owed to PCA or any of its Restricted Subsidiaries;
(2) make loans or advances to PCA or any of its Restricted Subsidiaries; or
(3) transfer any of its properties or assets to PCA or any of its Restricted
Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the notes indenture;
(2) the notes indenture, the exchange notes and the Subsidiary Guarantees;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by PCA or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition),
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, PROVIDED that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of
the notes indenture to be incurred;
(5) non-assignment provisions in leases, licenses or similar agreements
entered into in the ordinary course of business and consistent with past
practices;
(6) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions on the property so acquired of the
nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
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(8) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(9) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements, assets sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary
course of business;
(10) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business;
(11) the Credit Agreement as in effect on the date of the notes indenture;
(12) restrictions on the transfer of assets subject to any Lien permitted
under the Indenture imposed by the holder of such Lien;
(13) any Purchase Money Note or other Indebtedness or other contractual
requirements of a Receivables Subsidiary in connection with a Qualified
Receivables Transaction; PROVIDED that such restrictions apply only to
such Receivables Subsidiary;
(14) encumbrances or restrictions existing under or arising pursuant to
Credit Facilities entered into in accordance with the notes indenture;
PROVIDED that the encumbrances or restrictions in such Credit Facilities
are not materially more restrictive than those contained in the Credit
Agreement as in effect on the date hereof; and
(15) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments
or obligations referred to in clauses (1) through (14) above; PROVIDED,
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are, in the good
faith judgment of the Board of Directors of PCA, not materially more
restrictive with respect to such dividend and other payment restrictions
than those contained in the dividends or other payment restrictions
prior to such amendment, modification, restatement, renewal, increase,
supplement, refunding, replacement or refinancing.
MERGER, CONSOLIDATION OR SALE OF ASSETS
PCA may not, directly or indirectly: (1) consolidate or merge with or into
another Person (whether or not PCA is the surviving corporation); or (2) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of PCA and its Restricted Subsidiaries taken as a whole, in
one or more related transactions, to another Person; unless:
(1) either: (a) PCA is the surviving corporation; or (b) the Person formed
by or surviving any such consolidation or merger (if other than PCA) or
to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District
of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than PCA) or the Person to which such sale, assignment, transfer,
conveyance or other disposition shall have been made assumes all the
obligations of PCA under the exchange notes, the notes indenture and the
note registration rights agreement pursuant to agreements reasonably
satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) PCA or the Person formed by or surviving any such consolidation or
merger (if other than PCA), or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made will, on the date
of such transaction after giving pro forma effect thereto and any
related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be permitted to
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incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "-Incurrence of Indebtedness
and Issuance of Preferred Stock."
In addition, PCA may not, directly or indirectly, lease all or substantially all
of the properties or assets of PCA and its Restricted Subsidiaries, taken as a
whole, in one or more related transactions, to any other Person. This "Merger,
Consolidation or Sale of Assets" covenant will not apply to a sale, assignment,
transfer, conveyance or other disposition of assets between or among PCA and any
of its Wholly Owned Restricted Subsidiaries.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by PCA and its Restricted
Subsidiaries in the Subsidiary so designated will be deemed to be an Investment
made as of the time of such designation and will either reduce the amount
available for Restricted Payments under the first paragraph of the covenant
described above under the caption "-Restricted Payments" or reduce the amount
available for future Investments under one or more clauses of the definition of
Permitted Investments, as PCA shall determine. That designation will only be
permitted if such Investment would be permitted at that time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
TRANSACTIONS WITH AFFILIATES
PCA will not, and will not permit any of its Restricted Subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms taken as a whole that are no less
favorable to PCA or the relevant Restricted Subsidiary than those that
could have been obtained in a comparable transaction by PCA or such
Restricted Subsidiary with an unrelated Person; and
(2) PCA delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$25.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal, investment banking or advisory firm of
national standing; PROVIDED that this clause (b) shall not apply to
transactions with TPI and its subsidiaries in the ordinary course of
business at a time when Madison Dearborn Partners, LLC and its
Affiliates are entitled, directly or indirectly, to elect a majority
of the Board of Directors of PCA.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the first paragraph of this
covenant:
(1) any employment agreement entered into by PCA or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the
past practice of PCA or such Restricted Subsidiary;
(2) transactions between or among PCA and/or its Restricted Subsidiaries;
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(3) transactions with a Person that is an Affiliate of PCA solely because
PCA owns an Equity Interest in such Person;
(4) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of PCA;
(5) sales of Equity Interests (other than Disqualified Stock) to Affiliates
of PCA;
(6) the payment of transaction, management, consulting and advisory fees and
related expenses to Madison Dearborn Partners, LLC and its Affiliates;
PROVIDED that such fees shall not, in the aggregate, exceed $15.0
million (plus out-of-pocket expenses) in connection with the
Contribution or $2.0 million in any twelve-month period commencing after
the date of the Contribution;
(7) the payment of fees and expenses related to the Contribution other than
fees and expenses paid to Madison Dearborn Partners, LLC and its
Affiliates;
(8) Restricted Payments that are permitted by the provisions of the notes
indenture described above under the caption "-Restricted Payments;"
(9) transactions described in clause (11) of the definition of Permitted
Investments;
(10) reasonable fees and expenses and compensation paid to, and indemnity
provided on behalf of, officers, directors or employees of PCA or any
Subsidiary as determined in good faith by the Board of Directors of PCA
or senior management;
(11) payments made to PCA Holdings for the purpose of allowing PCA Holdings
to pay its general operating expenses, franchise tax obligations,
accounting, legal, corporate reporting and administrative expenses
incurred in the ordinary course of its business in an amount not to
exceed $1.0 million in the aggregate in any fiscal year;
(12) transactions contemplated by the Contribution Agreement and the
Transaction Agreements as the same are in effect on the date of the
notes indenture;
(13) transactions in connection with a Qualified Receivables Transaction; and
(14) transactions with either of the Initial Purchasers or any of their
respective Affiliates.
ADDITIONAL SUBSIDIARY GUARANTEES
If PCA or any of its Restricted Subsidiaries acquires or creates another
Domestic Subsidiary or if any Restricted Subsidiary becomes a Domestic
Subsidiary of PCA after the date of the notes indenture, then that newly
acquired or created Domestic Subsidiary (other than a Receivables Subsidiary)
must become a Guarantor and execute a supplemental notes indenture and deliver
an Opinion of Counsel to the trustee within 10 Business Days of the date on
which it was acquired or created.
SALE AND LEASEBACK TRANSACTIONS
PCA will not, and will not permit any of its Restricted Subsidiaries to, enter
into any sale and leaseback transaction; PROVIDED that PCA or any Restricted
Subsidiary may enter into a sale and leaseback transaction if:
(1) either (a) PCA or that Restricted Subsidiary, as applicable, could have
incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Fixed Charge
Coverage Ratio test in the first paragraph of the covenant described
above under the caption "-Incurrence of Indebtedness and Issuance of
Preferred Stock" or (b) the Net Proceeds of such sale and leaseback
transaction are applied to repay outstanding Senior Debt; and
(2) the transfer of assets in that sale and leaseback transaction is
permitted by, and PCA applies the net proceeds of such transaction in
compliance with, the covenant described above under the caption
"-Repurchase at the Option of Holders-Asset Sales."
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BUSINESS ACTIVITIES
PCA will not, and will not permit any Restricted Subsidiary to, engage in any
business other than Permitted Businesses, except to such extent as would not be
material to PCA and its Restricted Subsidiaries taken as a whole.
REPORTS
Whether or not required by the Commission, so long as any exchange notes are
outstanding, PCA will furnish to the Holders of exchange notes, within the time
periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if
PCA were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
on the annual financial statements by PCA's certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if PCA were required to file such reports.
In addition, whether or not required by the Commission, PCA will file a copy of
all of the information and reports referred to in clauses (1) and (2) above with
the Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, PCA and the Subsidiary
Guarantors have agreed that, for so long as any exchange notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
If PCA has designated any of its Subsidiaries as Unrestricted Subsidiaries, then
the quarterly and annual financial information required by the preceding
paragraph shall include a reasonably detailed presentation, either on the face
of the financial statements or in the footnotes thereto, and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, of the
financial condition and results of operations of PCA and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of PCA.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the exchange notes, whether or not
prohibited by the subordination provisions of the notes indenture;
(2) default in payment when due of the principal of, or premium, if any, on
the exchange notes, whether or not prohibited by the subordination
provisions of the notes indenture;
(3) failure by PCA or any of its Restricted Subsidiaries to comply with the
provisions described under the captions "-Repurchase at the Option of
Holders-Asset Sales" or "-Certain Covenants-Merger, Consolidation or
Sale of Assets;"
(4) failure by PCA or any of its Restricted Subsidiaries for 30 days after
notice by the trustee or by the Holders of at least 25% in principal
amount of the exchange notes to comply with any of the other agreements
in the notes indenture;
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(5) default under any mortgage, indenture or instrument under which there is
issued and outstanding any Indebtedness for money borrowed by PCA or any
of its Restricted Subsidiaries (or the payment of which is guaranteed by
PCA or any of its Restricted Subsidiaries), if that default:
(a) is caused by a failure to pay principal at the final stated maturity
of such Indebtedness (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its express
maturity,
and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$25.0 million or more;
(6) failure by PCA or any of its Restricted Subsidiaries to pay final
nonappealable judgments aggregating in excess of $25.0 million, which
judgments are not paid, discharged or stayed for a period of 90 days;
(7) except as permitted by the notes indenture, any Subsidiary Guarantee by
a Guarantor that is a Significant Subsidiary shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for
any reason to be in full force and effect or any Guarantor that is a
Significant Subsidiary, or any Person acting on behalf of any Guarantor
that is a Significant Subsidiary, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to PCA or any of
its Significant Subsidiaries.
In the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to PCA, all outstanding exchange notes will become due
and payable immediately without further action or notice. If any other Event of
Default occurs and is continuing, the trustee (upon request of Holders of at
least 25% in principal amount of the exchange notes then outstanding) or the
Holders of at least 25% in principal amount of the then outstanding exchange
notes may declare all the exchange notes to be due and payable by notice in
writing to PCA and the trustee specifying the respective Event of Default and
that such notice is a "notice of acceleration" (the "Acceleration Notice"), and
the same (1) shall become immediately due and payable or (2) if there are any
amounts outstanding under the Credit Agreement, shall become immediately due and
payable upon the first to occur of an acceleration under the Credit Agreement or
five Business Days after receipt by PCA and the Representative under the Credit
Agreement of such Acceleration Notice but only if such Event of Default is then
continuing.
Holders of the exchange notes may not enforce the notes indenture or the
exchange notes except as provided in the notes indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
exchange notes may direct the trustee in its exercise of any trust or power. The
trustee may withhold from Holders of the exchange notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest or Liquidated Damages) if it determines
that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the exchange notes
then outstanding by notice to the trustee may on behalf of the Holders of all of
the exchange notes waive any existing Default or Event of Default and its
consequences under the notes indenture except a continuing Default or Event of
Default in the payment of interest or Liquidated Damages on, or the principal
of, the exchange notes.
In the case of any Event of Default occurring by reason of any willful action or
inaction taken or not taken by or on behalf of PCA in bad faith with the
intention of avoiding payment of the premium that PCA would have had to pay if
PCA then had elected to redeem the exchange notes pursuant to the optional
redemption provisions of the notes indenture, an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the exchange notes. If an Event of Default occurs prior to
April 1, 2004, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of PCA in bad faith with
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the intention of avoiding the prohibition on redemption of the exchange notes
prior to April 1, 2004, then the premium specified in the notes indenture shall
also become immediately due and payable to the extent permitted by law upon the
acceleration of the exchange notes.
PCA is required to deliver to the trustee annually a statement regarding
compliance with the notes indenture. Upon becoming aware of any Default or Event
of Default, PCA is required to deliver to the trustee a statement specifying
such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of PCA or any
Guarantor, as such, shall have any liability for any obligations of PCA or the
Guarantors under the exchange notes, the notes indenture, the Subsidiary
Guarantees, or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of exchange notes by accepting an
exchange note waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the exchange notes. The waiver may not
be effective to waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
PCA may, at its option and at any time, elect to have all of its obligations
discharged with respect to the outstanding exchange notes and all obligations of
the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding exchange notes to receive payments
in respect of the principal of, or interest or premium and Liquidated
Damages, if any, on such exchange notes when such payments are due from
the trust referred to below;
(2) PCA's obligations with respect to the exchange notes concerning issuing
temporary exchange notes, registration of exchange notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
PCA's and the Guarantor's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the notes indenture.
In addition, PCA may, at its option and at any time, elect to have the
obligations of PCA and the Guarantors released with respect to certain covenants
that are described in the notes indenture ("Covenant Defeasance") and thereafter
any omission to comply with those covenants shall not constitute a Default or
Event of Default with respect to the exchange notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
exchange notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) PCA must irrevocably deposit with the trustee, in trust, for the benefit
of the Holders of the exchange notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or interest and
premium and Liquidated Damages, if any, on the outstanding exchange
notes on the stated maturity or on the applicable redemption date, as
the case may be, and PCA must specify whether the exchange notes are
being defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, PCA shall have delivered to the trustee
an Opinion of Counsel reasonably acceptable to the trustee confirming
that (a) PCA has received from, or there has been published by, the
Internal Revenue Service a ruling or (b) since the date of the notes
indenture, there
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has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the outstanding exchange notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, PCA shall have delivered to the
trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that the Holders of the outstanding exchange notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event
of Default resulting from the borrowing of funds to be applied to such
deposit); or (b) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under any material agreement or
instrument (other than the notes indenture but in any event including
the Credit Agreement) to which PCA or any of its Subsidiaries is a party
or by which PCA or any of its Subsidiaries is bound;
(6) PCA must have delivered to the trustee an Opinion of Counsel to the
effect that, assuming no intervening bankruptcy of PCA or any Guarantor
between the date of deposit and the 91st day following the deposit and
assuming that no Holder is an "insider" of PCA under applicable
bankruptcy law, after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) PCA must deliver to the trustee an Officers' Certificate stating that
the deposit was not made by PCA with the intent of preferring the
Holders of exchange notes over the other creditors of PCA with the
intent of defeating, hindering, delaying or defrauding creditors of PCA
or others; and
(8) PCA must deliver to the trustee an Officers' Certificate and an Opinion
of Counsel, each stating that all conditions precedent relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the notes indenture
or the exchange notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the exchange notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, exchange notes), and any
existing default or compliance with any provision of the notes indenture or the
exchange notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding exchange notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, exchange notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any exchange notes held by a non-consenting Holder):
(1) reduce the principal amount of exchange notes whose Holders must consent
to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any exchange
note or alter the provisions with respect to the redemption of the
exchange notes (other than provisions relating to the covenants
described above under the caption "-Repurchase at the Option of
Holders");
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(3) reduce the rate of or change the time for payment of interest on any
exchange note;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium, or Liquidated Damages, if any, on the exchange
notes (except a rescission of acceleration of the exchange notes by the
Holders of at least a majority in aggregate principal amount of the
exchange notes and a waiver of the payment default that resulted from
such acceleration);
(5) make any exchange note payable in money other than that stated in the
exchange notes;
(6) make any change in the provisions of the notes indenture relating to
waivers of past Defaults or the rights of Holders of exchange notes to
receive payments of principal of, or interest or premium or Liquidated
Damages, if any, on the exchange notes;
(7) waive a redemption payment with respect to any exchange note (other than
a payment required by one of the covenants described above under the
caption "-Repurchase at the Option of Holders");
(8) release any Guarantor from any of its obligations under its Subsidiary
Guarantee or the notes indenture, except in accordance with the terms of
the notes indenture; or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the notes
indenture relating to subordination that adversely affects the rights of the
Holders of the exchange notes will require the consent of the Holders of at
least 75% in aggregate principal amount of exchange notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of exchange
notes, PCA, the Guarantors and the trustee may amend or supplement the notes
indenture or the exchange notes:
(1) to cure any ambiguity, defect, error or inconsistency;
(2) to provide for uncertificated exchange notes in addition to or in place
of certificated exchange notes;
(3) to provide for the assumption of PCA's or any Guarantor's obligations to
Holders of exchange notes in the case of a merger or consolidation or
sale of all or substantially all of PCA's or any Guarantor's assets;
(4) to make any change that would provide any additional rights or benefits
to the Holders of exchange notes or that does not adversely affect the
legal rights under the notes indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the notes indenture under the Trust
Indenture Act.
SATISFACTION AND DISCHARGE
The notes indenture will be discharged and will cease to be of further effect as
to all exchange notes issued thereunder, when:
(1) either:
(a) all exchange notes that have been authenticated (except lost, stolen
or destroyed exchange notes that have been replaced or paid and
exchange notes for whose payment money has theretofore been deposited
in trust and thereafter repaid to PCA) have been delivered to the
trustee for cancellation; or
(b) all exchange notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as
will be sufficient without consideration of any reinvestment of
interest, to pay and discharge the entire
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indebtedness on the exchange notes not delivered to the trustee for
cancellation for principal, premium and Liquidated Damages, if any,
and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or shall occur as a result of such deposit and
such deposit will not result in a breach or violation of, or constitute
a default under, any other instrument to which PCA or any Guarantor is a
party or by which PCA or any Guarantor is bound;
(3) PCA or any Guarantor has paid or caused to be paid all sums payable by
it under the notes indenture; and
(4) PCA has delivered irrevocable instructions to the trustee under the
notes indenture to apply the deposited money toward the payment of the
exchange notes at maturity or the redemption date, as the case may be.
In addition, PCA must deliver an Officers' Certificate and an Opinion of Counsel
to the trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of PCA or any Guarantor, the notes indenture
limits its right to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or otherwise.
The trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding exchange
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The notes indenture provides that in case an Event of
Default shall occur and be continuing, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his or her own affairs. Subject to such provisions, the trustee will
be under no obligation to exercise any of its rights or powers under the notes
indenture at the request of any Holder of exchange notes, unless such Holder
shall have offered to the trustee security and indemnity satisfactory to it
against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the notes indenture
without charge by writing to Packaging Corporation of America, 1900 West Field
Court, Lake Forest, Illinois 60045, Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the exchange notes will be issued in fully
registered form, without coupons. Except as described below, the exchange notes
will be deposited with, or on behalf of, The Depository Trust Company ("DTC"),
in New York, New York, and registered in the name of DTC or its nominee in the
form of one or more global certificates (the "Global Notes") or will remain in
the custody of the trustee pursuant to a FAST Balance Certificate Agreement
between DTC and the trustee.
Except as set forth below, the Global Notes may be transferred, in whole and not
in part, only to DTC or another nominee of DTC or to a successor of DTC or its
nominee. Except in the limited circumstances described below, owners of
beneficial interests in the Global Notes will not be entitled to receive
physical delivery of Certificated Notes (as defined below). See "--Exchange
Notes of Global Notes for Certificated Notes." In addition, transfers
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of beneficial interests in the Global Notes will be subject to the applicable
rules and procedures of DTC and its direct or indirect participants, including,
if applicable, those of Euroclear and Cedel, which rules and procedures may
change from time to time.
Initially, the trustee will act as paying agent and registrar. The exchange
notes may be presented for registration of transfer and exchange at the offices
of the registrar.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear and
Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them. PCA takes no responsibility for these
operations and procedures and urges investors to contact the system or their
participants directly to discuss these matters.
DTC has advised PCA that DTC is a limited-purpose trust company created to hold
securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers (including the Initial Purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised PCA that, pursuant to procedures established by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC, with respect to the Participants, or by the
Participants and the Indirect Participants, with respect to other owners
of beneficial interest in the Global Notes.
All interests in a Global Note may be subject to the procedures and requirements
of DTC. The laws of some states require that certain Persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Note to such Persons will
be limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants, the ability of a Person
having beneficial interests in a Global Note to pledge such interests to Persons
that do not participate in the DTC system, or otherwise take actions in respect
of such interests, may be affected by the lack of a physical certificate
evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL NOT HAVE
EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED
OWNERS OR "HOLDERS" THEREOF UNDER THE NOTES INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and interest and premium and Liquidated
Damages, if any, on a Global Note registered in the name of DTC or its nominee
will be payable to DTC in its capacity as the registered Holder under the notes
indenture. Under the terms of the notes indenture, PCA and the trustee will
treat the
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Persons in whose names the exchange notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving payments and for
all other purposes. Consequently, neither PCA, the trustee nor any agent of PCA
or the trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants.
DTC has advised PCA that its current practice, upon receipt of any payment in
respect of securities such as the exchange notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of exchange
notes will be governed by standing instructions and customary practices and will
be the responsibility of the Participants or the Indirect Participants and will
not be the responsibility of DTC, the trustee or PCA. Neither PCA nor the
trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the exchange notes, and PCA and the trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee for all purposes.
DTC has advised PCA that it will take any action permitted to be taken by a
Holder of exchange notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the exchange notes
as to which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the exchange notes, DTC reserves
the right to exchange the Global Notes for legended exchange notes in
certificated form, and to distribute such exchange notes to its Participants.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive exchange notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies PCA that it is unwilling or unable to continue as
depositary for the Global Notes and PCA fails to appoint a successor
depositary or (b) has ceased to be a clearing agency registered under
the Exchange Act;
(2) PCA, at its option, notifies the trustee in writing that it elects to
cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the exchange notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the notes indenture. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests in
Global Notes will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the DTC, in accordance with its
customary procedures.
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SAME DAY SETTLEMENT AND PAYMENT
PCA will make payments in respect of the exchange notes represented by the
Global Notes, including principal, premium, if any, interest and Liquidated
Damages, if any, by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. PCA will make all payments of principal,
interest and premium and Liquidated Damages, if any, with respect to
Certificated Notes by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified,
by mailing a check to each such Holder's registered address. The exchange notes
represented by the Global Notes are expected to be eligible to trade in the
PORTAL market and to trade in DTC's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in such exchange notes will,
therefore, be required by DTC to be settled in immediately available funds. PCA
expects that secondary trading in any Certificated Notes will also be settled in
immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the notes indenture. Reference
is made to the notes indenture for a full disclosure of all such terms, as well
as any other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"APPLICABLE PREMIUM" means, with respect to any Note on any redemption date, the
greater of:
(1) 1.0% of the principal amount of the Note; or
(2) the excess of:
(a) the present value at such redemption date of (i) the redemption price
of the Note at April 1, 2004 (such redemption price being set forth
in the table appearing above under the caption "-Optional
Redemption") plus (ii) all required interest payments due on the Note
through April 1, 2004 (excluding accrued but unpaid interest),
computed using a discount rate equal to the Treasury Rate as of such
Redemption Date plus 50 basis points; over
(b) the principal amount of the Note, if greater.
"ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of
business; PROVIDED that the sale, conveyance or other disposition of all
or substantially all of the assets of PCA and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "-Repurchase at the Option
of
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Holders-Change of Control" and/or the provisions described above under
the caption "-Certain Covenants-Merger, Consolidation or Sale of Assets"
and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of PCA's Restricted Subsidiaries
or the sale of Equity Interests in any of PCA's Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $10.0 million;
(2) a transfer of assets between or among PCA and its Wholly Owned
Restricted Subsidiaries,
(3) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary
to PCA or to another Wholly Owned Restricted Subsidiary;
(4) the sale, license or lease of equipment, inventory, accounts receivable
or other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents or Marketable
Securities;
(6) the transfer or disposition of assets and the sale of Equity Interests
pursuant to the Contribution;
(7) sales of accounts receivables and related assets of the type specified
in the definition of "Qualified Receivables Transaction" to a
Receivables Subsidiary for the fair market value thereof including cash
or Cash Equivalents or Marketable Securities in an amount at least equal
to 75% of the fair market value thereof as determined in accordance with
GAAP; and
(8) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "-Certain
Covenants-Restricted Payments."
"ATTRIBUTABLE Debt" in respect of a sale and leaseback transaction means, at the
time of determination, the present value of the obligation of the lessee for net
rental payments during the remaining term of the lease included in such sale and
leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"BOARD OF DIRECTORS" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person
serving a similar function.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
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(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
(PROVIDED that the full faith and credit of the United States is pledged
in support thereof) having maturities of not more than six months from
the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding twelve months and overnight bank deposits,
in each case, with any lender party to the Credit Agreement or with any
domestic commercial bank having capital and surplus in excess of $500.0
million and a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within twelve months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger, consolidation or transfer of PCA Voting
Stock), in one or a series of related transactions, of all or
substantially all of the properties or assets of PCA and its Restricted
Subsidiaries taken as a whole to any "person" (as that term is used in
Section 13(d)(3) of the Exchange Act) other than to a Principal or a
Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of PCA
(other than a plan relating to the sale or other disposition of
timberlands);
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties or a
Permitted Group, becomes the Beneficial Owner, directly or indirectly,
of more than 50% of the Voting Stock of PCA, measured by voting power
rather than number of shares; or
(4) the first day on which a majority of the members of the Board of
Directors of PCA are not Continuing Directors.
"CONSOLIDATED CASH FLOW" means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period PLUS:
(1) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; PLUS
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(2) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated
Net Income; PLUS
(3) depletion, depreciation, amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid
cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that it
represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Restricted Subsidiaries for such
period to the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Consolidated Net
Income; PLUS
(4) all one-time charges incurred in 1999 in connection with the
Contribution (including the impairment charge described in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Overview") to the extent such charges were deducted in
computing such Consolidated Net Income; PLUS
(5) all restructuring charges incurred prior to the date of the Indenture
(including the restructuring charge that was added to pro forma EBITDA
to calculate adjusted pro forma EBITDA as set forth in footnote 4 under
"Selected Combined Financial and Other Data"); MINUS
(6) non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business, in
each case, on a consolidated basis and determined in accordance with
GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash expenses
of, a Restricted Subsidiary of PCA shall be added to Consolidated Net Income to
compute Consolidated Cash Flow of PCA only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to PCA
by such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Restricted
Subsidiary or its stockholders.
"CONSOLIDATED INDEBTEDNESS" means, with respect to any Person as of any date of
determination, the sum, without duplication, of:
(1) the total amount of Indebtedness of such Person and its Restricted
Subsidiaries; PLUS
(2) the total amount of Indebtedness of any other Person, to the extent that
such Indebtedness has been Guaranteed by the referent Person or one or
more of its Restricted Subsidiaries; PLUS
(3) the aggregate liquidation value of all Disqualified Stock of such Person
and all preferred stock of Restricted Subsidiaries of such Person, in
each case, determined on a consolidated basis in accordance with GAAP.
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"CONSOLIDATED NET INCOME" means, with respect to any specified Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; PROVIDED that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Wholly Owned
Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall
be excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded; and
(5) for purposes of calculating Consolidated Cash Flow to determine the Debt
to Cash Flow Ratio or the Fixed Charge Coverage Ratio, the Net Income
(but not loss) of any Unrestricted Subsidiary shall be excluded, whether
or not distributed to the specified Person or one of its Subsidiaries.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of the
Board of Directors of PCA who:
(1) was a member of such Board of Directors on the date of the Indenture; or
(2) was nominated for election or elected to such Board of Directors either
(a) with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election or (b)
pursuant to and in accordance with the terms of the Stockholders
Agreement as in effect on the date of the Indenture.
"CONTRIBUTION" means the Contribution contemplated by the Contribution
Agreement.
"CONTRIBUTION AGREEMENT" means that certain Contribution Agreement dated as of
January 25, 1999 among TPI, PCA Holdings and PCA as the same is in effect on the
date of the Indenture.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of the date
hereof by and among PCA and Morgan Guaranty Trust Company of New York, as
administrative agent, and the other lenders party thereto, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder or adding Subsidiaries
of PCA as additional borrowers or guarantors thereunder) all or any portion of
the Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.
"CREDIT FACILITIES" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables), working capital loans, swing lines, advances or
letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced, restructured or refinanced in whole or in part from time to
time.
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"DEBT TO CASH FLOW RATIO" means, as of any date of determination, the ratio of
(1) the Consolidated Indebtedness of PCA as of such date to (2) the Consolidated
Cash Flow of PCA for the four most recent full fiscal quarters ending
immediately prior to such date for which internal financial statements are
available, determined on a pro forma basis after giving effect to all
acquisitions or dispositions of assets made by PCA and its Restricted
Subsidiaries from the beginning of such four-quarter period through and
including such date of determination (including any related financing
transactions) as if such acquisitions and dispositions had occurred at the
beginning of such four-quarter period. In addition, for purposes of making the
computation referred to above:
(1) acquisitions that have been made by PCA or any of its Restricted
Subsidiaries, including through mergers or consolidations and including
any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the
date of determination shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated on
a pro forma basis in accordance with Regulation S-X under the Securities
Act and including those cost savings that management reasonably expects
to realize within six months of the consummation of the acquisition, but
without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the date of determination, shall be excluded;
(3) for any four-quarter reference period that includes any period of time
prior to the consummation of the Contribution, pro forma effect shall be
given for such period to the Transactions described in this prospectus
and the related corporate overhead savings and cost savings that were
added to pro forma EBITDA to calculate Adjusted pro forma EBITDA as set
forth in footnote 4 under "Selected Combined Financial and Other Data,"
all as calculated in good faith by a responsible financial or accounting
officer of PCA, as if they had occurred on the first day of such
four-quarter reference period; and
(4) the impact of the Treasury Lock shall be excluded.
"DEFAULT" means any event that is, or with the passage of time or the giving of
notice or both would be, an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means any non-cash consideration received by
PCA or one of its Restricted Subsidiaries in connection with an Asset Sale that
is designated as Designated Noncash Consideration pursuant to an Officers'
Certificate executed by the principal executive officer and the principal
financial officer of PCA or such Restricted Subsidiary. Such Officers'
Certificate shall state the basis of such valuation, which shall be a report of
a nationally recognized investment banking firm with respect to the receipt in
one or a series of related transactions of Designated Noncash Consideration with
a fair market value in excess of $10.0 million. A particular item of Designated
Noncash Consideration shall no longer be considered to be outstanding when it
has been sold for cash or redeemed or paid in full in the case of non-cash
consideration in the form of promissory notes or equity.
"DESIGNATED SENIOR DEBT" means:
(1) any Indebtedness under or in respect of the Credit Agreement; and
(2) any other Senior Debt permitted under the Indenture the principal amount
of which is $25.0 million or more and that has been designated by PCA in
the instrument or agreement relating to the same as "Designated Senior
Debt."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms
of any security into which it is convertible, or for which it is exchangeable,
in each case at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature. Notwithstanding the preceding sentence, any Capital
Stock that would
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constitute Disqualified Stock solely because the holders thereof have the right
to require PCA to repurchase such Capital Stock upon the occurrence of a change
of control or an asset sale shall not constitute Disqualified Stock if the terms
of such Capital Stock provide that PCA may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the caption "-Certain
Covenants-Restricted Payments." The Senior Exchangeable Preferred Stock as in
effect on the date of the Indenture will not constitute Disqualified Stock for
purposes of the Indenture.
"DOMESTIC SUBSIDIARY" means any Restricted Subsidiary that was formed under the
laws of the United States or any state thereof or the District of Columbia or
that guarantees or otherwise provides direct credit support for any Indebtedness
of PCA.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means Indebtedness of PCA and its Subsidiaries (other
than Indebtedness under the Credit Agreement) in existence on the date of the
Indenture, until such amounts are repaid.
"FIXED CHARGES" means, with respect to any specified Person for any period, the
sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including,
without limitation, original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, excluding amortization of debt
issuance costs and net of the effect of all payments made or received
pursuant to Hedging Obligations; PLUS
(2) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period; PLUS
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon; PLUS
(4) the product of (a) all dividends, whether paid or accrued and whether or
not in cash, on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, other than dividends on Equity Interests
payable solely in Equity Interests of PCA (other than Disqualified
Stock) or to PCA or a Restricted Subsidiary of PCA, times (b) a
fraction, the numerator of which is one and the denominator of which is
one minus PCA's then current effective combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any specified Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the specified
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees,
repays, repurchases or redeems any Indebtedness (other than ordinary working
capital borrowings) or issues, repurchases or redeems preferred stock subsequent
to the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated and on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee, repayment, repurchase or redemption
of Indebtedness, or such issuance, repurchase or redemption of preferred stock,
and the use of the proceeds therefrom as if the same had occurred at the
beginning of the applicable four-quarter reference period.
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In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior
to the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated on
a pro forma basis in accordance with Regulation S-X under the Securities
Act and including those cost savings that management reasonably expects
to realize within six months of the consummation of the acquisition, but
without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior
to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted
Subsidiaries following the Calculation Date;
(4) for any four-quarter reference period that includes any period of time
prior to the consummation of the Contribution, pro forma effect shall be
given for such period to the Transactions described in this prospectus
and the related corporate overhead savings and cost savings that were
added to pro forma EBITDA to calculate Adjusted pro forma EBITDA as set
forth in footnote 4 under "Selected Combined Financial and Other Data,"
all as calculated in good faith by a responsible financial or accounting
officer of PCA, as if they had occurred on the first day of such
four-quarter reference period; and
(5) the impact of the Treasury Lock shall be excluded.
"FOREIGN SUBSIDIARY WORKING CAPITAL INDEBTEDNESS" means Indebtedness of a
Restricted Subsidiary that is organized outside of the United States under lines
of credit extended after the date of the Indenture to any such Restricted
Subsidiary by Persons other than PCA or any of its Restricted Subsidiaries, the
proceeds of which are used for such Restricted Subsidiary's working capital
purposes.
"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"GUARANTEE" means a guarantee of all or any part of any Indebtedness (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), including, without limitation, by way of a pledge of assets or
through letters of credit or reimbursement agreements in respect thereof.
"GUARANTORS" means:
(1) each Restricted Subsidiary that is or becomes a Domestic Subsidiary of
PCA (other than a Receivables Subsidiary); and
(2) any other subsidiary that executes a Subsidiary Guarantee in accordance
with the provisions of the Indenture;
and their respective successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
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"INDEBTEDNESS" means, with respect to any specified Person, any indebtedness of
such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the deferred balance of the purchase price of any property outside of
the ordinary course of business which remains unpaid, except any such
balance that constitutes an operating lease payment, accrued expense,
trade payable or similar current liability; or
(6) any Hedging Obligations or Other Hedging Agreements,
if and to the extent any of the preceding items (other than letters of credit,
Hedging Obligations and Other Hedging Agreements) would appear as a liability
upon a balance sheet of the specified Person prepared in accordance with GAAP.
In addition, the term "Indebtedness" includes all Indebtedness of others secured
by a Lien on any asset of the specified Person (whether or not such Indebtedness
is assumed by the specified Person) and, to the extent not otherwise included,
the Guarantee by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof in the case of any other Indebtedness.
"INITIAL PURCHASERS" means J.P. Morgan Securities Inc. and BT Alex.Brown
Incorporated.
"INVESTMENTS" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If PCA or any
Subsidiary of PCA sells or otherwise disposes of any Equity Interests of any
direct or indirect Subsidiary of PCA such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of PCA, PCA shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the caption "-Certain Covenants-Restricted
Payments." The acquisition by PCA or any Subsidiary of PCA of a Person that
holds an Investment in a third Person shall be deemed to be an Investment by PCA
or such Subsidiary in such third Person in an amount equal to the fair market
value of the Investment held by the acquired Person in such third Person in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "-Certain Covenants-Restricted Payments."
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement.
"MARKETABLE SECURITIES" means publicly traded debt or equity securities that are
listed for trading on a national securities exchange and that were issued by a
corporation whose debt securities are rated in one of the three highest rating
categories by either Standard & Poor's Rating Services or Moody's Investors
Service, Inc.
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"NET INCOME" means, with respect to any specified Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(1) any gain (or loss), together with any related provision for taxes on
such gain (or loss), realized in connection with: (a) any Asset Sale; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (or loss), together with any related provision
for taxes on such extraordinary gain (or loss).
"NET PROCEEDS" means the aggregate cash proceeds received by PCA or any of its
Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including, without limitation, legal, accounting and investment
banking fees, sales commissions, any relocation expenses incurred as a result
thereof, all taxes of any kind paid or payable as a result thereof and
reasonable reserves established to cover any indemnity obligations incurred in
connection therewith, in each case, after taking into account any available tax
credits or deductions and any tax sharing arrangements, and amounts required to
be applied to the repayment of Indebtedness, other than Indebtedness under a
Credit Facility, secured by a Lien on the asset or assets that were the subject
of such Asset Sale and any reserve for adjustment in respect of the sale price
of such asset or assets established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither PCA nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder
of any other Indebtedness (other than the Notes) of PCA or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness
or cause the payment thereof to be accelerated or payable prior to its
stated maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of PCA or any of its Restricted
Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications,
expenses, reimbursements, damages and other liabilities payable under the
documentation governing any Indebtedness.
"OTHER HEDGING AGREEMENTS" means any foreign exchange contracts, currency swap
agreements, commodity agreements or other similar agreements or arrangements
designed to protect against the fluctuations in currency or commodity values.
"PCA HOLDINGS" means PCA Holdings LLC, a Delaware limited liability company.
"PERMITTED BUSINESS" means the containerboard, paperboard and packaging products
business and any business in which PCA and its Restricted Subsidiaries are
engaged on the date of the Indenture or any business reasonably related,
incidental or ancillary to any of the foregoing.
"PERMITTED GROUP" means any group of investors that is deemed to be a "person"
(as that term is used in Section 13(d)(3) of the Exchange Act) at any time prior
to PCA's initial public offering of common stock, by virtue of the Stockholders
Agreement, as the same may be amended, modified or supplemented from time to
time, PROVIDED that no single Person (other than the Principals and their
Related Parties) Beneficially Owns (together with its Affiliates) more of the
Voting Stock of PCA that is Beneficially Owned by such group of investors than
is then collectively Beneficially Owned by the Principals and their Related
Parties in the aggregate.
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"PERMITTED INVESTMENTS" means:
(1) any Investment in PCA or in a Restricted Subsidiary of PCA;
(2) any Investment in Cash Equivalents;
(3) any Investment by PCA or any Restricted Subsidiary of PCA in a Person,
if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of PCA; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, PCA or a Restricted Subsidiary of PCA;
(4) any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "-Repurchase at the Option of
Holders-Asset Sales;"
(5) any acquisition of assets to the extent acquired in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of PCA;
(6) Hedging Obligations and Other Hedging Agreements;
(7) any Investment existing on the date of the Indenture;
(8) loans and advances to employees and officers of PCA and its Restricted
Subsidiaries in the ordinary course of business;
(9) any Investment in securities of trade creditors or customers received in
compromise of obligations of such persons incurred in the ordinary
course of business, including pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade
creditors or customers;
(10) negotiable instruments held for deposit or collection in the ordinary
course of business;
(11) loans, guarantees of loans and advances to officers, directors,
employees or consultants of PCA or a Restricted Subsidiary of PCA not to
exceed $7.5 million in the aggregate outstanding at any time;
(12) any Investment by PCA or any of its Restricted Subsidiaries in a
Receivables Subsidiary or any Investment by a Receivables Subsidiary in
any other Person in connection with a Qualified Receivables Transaction;
PROVIDED that each such Investment is in the form of a Purchase Money
Note, an equity interest or interests in accounts receivables generated
by PCA or any of its Restricted Subsidiaries; and
(13) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (13) that are at the time
outstanding not to exceed the greater of $50.0 million or 5% of Total
Assets.
"PERMITTED JUNIOR SECURITIES" means debt or equity securities of PCA or any
successor corporation issued pursuant to a plan of reorganization or
readjustment of PCA that are subordinated to the payment of all then outstanding
Senior Debt of PCA at least to the same extent that the Notes are subordinated
to the payment of all Senior Debt of PCA on the date of the Indenture, so long
as:
(1) the effect of the use of this defined term in the subordination
provisions contained in the Indenture is not to cause the Notes to be
treated as part of:
(a) the same class of claims as the Senior Debt of PCA; or
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(b) any class of claims PARI PASSU with, or senior to, the Senior Debt of
PCA for any payment or distribution in any case or proceeding or
similar event relating to the liquidation, insolvency, bankruptcy,
dissolution, winding up or reorganization of PCA; and
(2) to the extent that any Senior Debt of PCA outstanding on the date of
consummation of any such plan of reorganization or readjustment is not
paid in full in cash or Cash Equivalents (other than Cash Equivalents of
the type referred to in clauses (3) and (4) of the definition thereof)
on such date, either:
(a) the holders of any such Senior Debt not so paid in full in cash or
Cash Equivalents (other than Cash Equivalents of the type referred to
in clauses (3) and (4) of the definition thereof) have consented to
the terms of such plan of reorganization or readjustment; or
(b) such holders receive securities which constitute Senior Debt of PCA
(which are guaranteed pursuant to guarantees constituting Senior Debt
of each Guarantor) and which have been determined by the relevant
court to constitute satisfaction in full in money or money's worth of
any Senior Debt of PCA (and any related Senior Debt of the
Guarantors) not paid in full in cash or Cash Equivalents (other than
Cash Equivalents of the type referred to in clauses (3) and (4) of
the definition thereof).
"PERMITTED LIENS" means:
(1) Liens of PCA and any Guarantor securing Senior Debt that was permitted
by the terms of the Indenture to be incurred;
(2) Liens in favor of PCA or the Guarantors;
(3) Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with PCA or any Subsidiary of PCA; PROVIDED
that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with PCA or the Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by PCA or
any Subsidiary of PCA, PROVIDED that such Liens were in existence prior
to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"-Certain Covenants-Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such Indebtedness;
(7) Liens existing on the date of the Indenture together with any Liens
securing Permitted Refinancing Indebtedness incurred under clause (5) of
the second paragraph under the caption "-Certain Covenants-Incurrence of
Indebtedness and Issuance of Preferred Stock" in order to refinance the
Indebtedness secured by Liens existing on the date of the Indenture;
PROVIDED that the Liens securing the Permitted Refinancing Indebtedness
shall not extend to property other than that pledged under the Liens
securing the Indebtedness being refinanced;
(8) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries;
(9) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
PROVIDED that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
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(10) Liens to secure Foreign Subsidiary Working Capital Indebtedness
permitted by the Indenture to be incurred so long as any such Lien
attached only to the assets of the Restricted Subsidiary which is the
obligor under such Indebtedness;
(11) Liens securing Attributable Debt;
(12) Liens on assets of a Receivables Subsidiary incurred in connection with
a Qualified Receivables Transaction; and
(13) Liens incurred in the ordinary course of business of PCA or any
Subsidiary of PCA with respect to obligations that do not exceed $15.0
million at any one time outstanding.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of PCA or any of its
Restricted Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of PCA or any of its Restricted Subsidiaries (other than intercompany
Indebtedness); PROVIDED that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus all accrued
interest thereon and the amount of all expenses and premiums incurred in
connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by PCA or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"PRINCIPALS" means:
(1) Madison Dearborn Partners, LLC and its Affiliates; and
(2) TPI and its Affiliates.
"PURCHASE MONEY NOTE" means a promissory note evidencing a line of credit, which
may be irrevocable, from, or evidencing other Indebtedness owed to, PCA or any
of its Restricted Subsidiaries in connection with a Qualified Receivables
Transaction, which note shall be repaid from cash available to the maker of such
note, other than amounts required to be established as reserves pursuant to
agreements, amounts paid to investors in respect of interest, principal and
other amounts owing to such investors and amounts paid in connection with the
purchase of newly generated receivables.
"QUALIFIED RECEIVABLES TRANSACTION" means any transaction or series of
transactions that may be entered into by PCA or any of its Restricted
Subsidiaries pursuant to which PCA or any of its Restricted Subsidiaries may
sell, convey or otherwise transfer to:
(1) a Receivables Subsidiary (in the case of a transfer by PCA or any of its
Restricted Subsidiaries); and
(2) any other Person (in the case of a transfer by a Receivables
Subsidiary),
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or may grant a security interest in, any accounts receivable (whether now
existing or arising in the future) of PCA or any of its Restricted Subsidiaries,
and any assets related thereto including, without limitation, all collateral
securing such accounts receivable, all contracts and all guarantees or other
obligations in respect of such accounts receivable, proceeds of such accounts
receivable and other assets that are customarily transferred, or in respect of
which security interests are customarily granted, in connection with asset
securitization transactions involving accounts receivable.
"RECEIVABLES SUBSIDIARY" means a Wholly Owned Subsidiary of PCA that engages in
no activities other than in connection with the financing of accounts receivable
and that is designated by the Board of Directors of PCA (as provided below) as a
Receivables Subsidiary and:
(1) has no Indebtedness or other Obligations (contingent or otherwise) that:
(a) are guaranteed by PCA or any of its Restricted Subsidiaries, other
than contingent liabilities pursuant to Standard Securitization
Undertakings;
(b) are recourse to or obligate PCA or any of its Restricted Subsidiaries
in any way other than pursuant to Standard Securitization
Undertakings; or
(c) subjects any property or assets of PCA or any of its Restricted
Subsidiaries, directly or indirectly, contingently or otherwise, to
the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings;
(2) has no contract, agreement, arrangement or undertaking (except in
connection with a Purchase Money Note or Qualified Receivables
Transaction) with PCA or any of its Restricted Subsidiaries than on
terms no less favorable to PCA or such Restricted Subsidiaries than
those that might be obtained at the time from Persons that are not
Affiliates of PCA, other than fees payable in the ordinary course of
business in connection with servicing accounts receivable; and
(3) neither PCA nor any of its Restricted Subsidiaries has any obligation to
maintain or preserve the Receivables Subsidiary's financial condition or
cause the Receivables Subsidiary to achieve certain levels of operating
results.
Any such designation by the Board of Directors of PCA shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of PCA giving effect to such designation and an Officers'
Certificate certifying, to the best of such officer's knowledge and belief after
consulting with counsel, that such designation complied with the foregoing
conditions.
"RELATED PARTY" means:
(1) any controlling stockholder, 80% (or more) owned Subsidiary, or
immediate family member (in the case of an individual) of any Principal;
or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or
more controlling interest of which consist of any one or more Principals
and/or such other Persons referred to in the immediately preceding
clause (1).
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; PROVIDED that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent Person
that is not an Unrestricted Subsidiary.
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"SENIOR DEBT" means:
(1) all Indebtedness outstanding under all Credit Facilities, all Hedging
Obligations and all Other Hedging Agreements (including guarantees
thereof) with respect thereto of PCA and the Guarantors, whether
outstanding on the date of the Indenture or thereafter incurred;
(2) any other Indebtedness incurred by PCA and the Guarantors, unless the
instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
Notes or the Subsidiary Guarantees, as the case may be; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2) (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law).
Notwithstanding anything to the contrary in the preceding, Senior Debt will not
include:
(1) any liability for federal, state, local or other taxes owed or owing by
PCA or the Guarantors;
(2) any Indebtedness of PCA or any Guarantor to any of its Subsidiaries;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of the
Indenture (but only to the extent so incurred).
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by PCA or any of its Restricted
Subsidiaries that are reasonably customary in an accounts receivable
transaction.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"STOCKHOLDERS AGREEMENT" means that certain Stockholders Agreement dated as of
April 12, 1999 by and among PCA Holdings LLC, TPI and PCA, as in effect on the
date of the Indenture.
"SUBSIDIARY" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"TPI" means Tenneco Packaging Inc., a Delaware corporation.
"TIMBERLANDS NET PROCEEDS" means the Net Proceeds from Timberlands Sales in
excess of $500.0 million, up to a maximum of $100.0 million (or such larger
amount as may be necessary to repurchase or redeem all outstanding
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Preferred Stock or Subordinated Exchange Debentures in the event of a repurchase
or redemption of all outstanding Preferred Stock or Subordinated Exchange
Debentures), as long as at least $500.0 million of Net Proceeds have been
applied to repay Indebtedness under the Credit Agreement.
"TIMBERLANDS REPURCHASE" means the repurchase or redemption of, payment of a
dividend on, or return of capital with respect to any Equity Interests of PCA,
the repurchase or redemption of Subordinated Exchange Debentures or the
redemption of Notes with Timberlands Net Proceeds in accordance with the terms
of the Indenture.
"TIMBERLANDS SALE" means a sale or series of sales by PCA or a Restricted
Subsidiary of PCA of timberlands.
"TOTAL ASSETS" means the total consolidated assets of PCA and its Restricted
Subsidiaries, as set forth on PCA's most recent consolidated balance sheet.
"TRANSACTION AGREEMENTS" means:
(1) those certain Purchase/Supply Agreements between PCA and each of TPI,
Tenneco Automotive, Inc. and Tenneco Packaging Specialty and Consumer
Products, Inc., each dated the date of the Indenture;
(2) that certain Facilities Use Agreement between PCA and TPI, dated the
date of the Indenture;
(3) that certain Human Resources Agreement among PCA, TPI and Tenneco Inc.,
dated the date of the Indenture;
(4) that certain Transition Services Agreement among PCA and TPI, dated the
date of the Indenture;
(5) that certain Holding Company Support Agreement among PCA and PCA
Holdings, dated the date of the Indenture;
(6) that certain Registration Rights Agreement among PCA, PCA Holdings and
TPI, dated the date of the Indenture; and
(7) the Stockholders Agreement.
"TREASURY LOCK" means the interest rate protection agreement dated as of March
5, 1999 between PCA and J.P. Morgan Securities Inc.
"TREASURY RATE" means, as of any redemption date, the yield to maturity as of
such Redemption Date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
business days prior to the redemption date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the redemption date to April 1, 2004; PROVIDED,
HOWEVER, that if the period from the redemption date to April 1, 2004 is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of PCA that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution,
but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with PCA or any Restricted Subsidiary of PCA unless the terms of any
such agreement, contract, arrangement or understanding are no less
favorable to PCA or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of PCA;
(3) is a Person with respect to which neither PCA nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified
levels of operating results; and
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(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of PCA or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of PCA as an Unrestricted Subsidiary shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the preceding conditions and was
permitted by the covenant described above under the caption "-Certain
Covenants-Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the preceding requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of PCA as of such date and, if such Indebtedness is
not permitted to be incurred as of such date under the covenant described under
the caption "-Certain Covenants-Incurrence of Indebtedness and Issuance of
Preferred Stock," PCA shall be in default of such covenant. The Board of
Directors of PCA may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of PCA of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under the covenant described
under the caption "-Certain Covenants-Incurrence of Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period; and (2) no
Default or Event of Default would be in existence following such designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any specified Person means any Wholly
Owned Subsidiary of such Person which at the time of determination is a
Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any specified Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person and/or by one or more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF NEW PREFERRED STOCK
This description of the securities being offered has five parts:
- New Preferred Stock;
- Subordinated Exchange Debentures;
- Book-Entry, Delivery and Form; and
- Certain Definitions.
You should read all four parts of this Description of New Preferred Stock for a
description of the provisions of the instruments governing the securities, the
form in which the securities are expected to be issued and certain mechanics for
trading of the securities. Although this description is provided for your
reference, you are strongly encouraged to read the certificate of designation
governing the new preferred stock and the exchange indenture governing the
subordinated exchange debentures for the complete terms and provisions of the
securities being offered. In addition, you should be aware that the General
Corporation Law of the State of Delaware also governs the new preferred stock
and the ability of PCA to pay dividends on the preferred stock. See "Description
of Capital Stock" and "Risk Factors-Dividend Restrictions."
You can find the definitions of certain terms used in this description under the
subheading "-Certain Definitions." In this description, the words "we," "us,"
the "company" or "PCA" refer only to Packaging Corporation of America and not to
any of its subsidiaries.
NEW PREFERRED STOCK
PCA will issue the new preferred stock under a Certificate of Designations,
Preferences and Relative, Participating, Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and Restrictions Thereof, which
we refer to as the certificate of designation.
The following description is a summary of the material provisions of the
certificate of designation and does not restate that document in its entirety.
We urge you to read the certificate of designation because it, and not this
description, defines your rights as holders of the new preferred stock. Copies
of the certificate of designation are available as set forth below under the
subheading "Additional Information." This description is qualified in its
entirety by reference to PCA's Amended and Restated Certificate of
Incorporation, which will include the certificate of designation and the
definitions therein of the defined terms used below.
The certificate of designation authorizes PCA to issue 3,000,000 shares of
senior exchangeable preferred stock with a liquidation preference of $100 per
share (the "Liquidation Preference") of which 1,900,000 shares are designated as
Series B senior exchangeable preferred stock, or new preferred stock. When
issued, the new preferred stock will be fully paid and nonassessable and Holders
of new preferred stock will have no preemptive rights.
On any dividend payment date, PCA may, under certain conditions, exchange all
and not less than all of the shares of new preferred stock for PCA's
subordinated exchange debentures. For a discussion of certain federal income tax
considerations relevant to the payment of dividends on the new preferred stock,
see "Certain United States Federal Tax Considerations-Senior Exchangeable
Preferred Stock-Dividends."
At or after the time of issuance, the new preferred stock will not necessarily
trade at a price equal to its Liquidation Preference. The market price of the
new preferred stock may fluctuate with changes in the financial markets and
economic conditions, the financial condition and prospects of PCA and other
factors that generally influence the market prices of securities. See "Risk
Factors."
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Currently, all of our subsidiaries are "Restricted Subsidiaries." However, under
the circumstances described below under the subheading "-Certain
Covenants-Designation of Restricted and Unrestricted Subsidiaries," we are
permitted to designate certain of our subsidiaries as "Unrestricted
Subsidiaries." Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the certificate of designation.
TRANSFER AGENT
The transfer agent for the new preferred stock will be United States Trust
Company of New York unless and until a successor is selected by PCA. The offices
of the transfer agent are located at 114 West 47th Street, New York, NY, 10036.
RANKING
The new preferred stock will rank senior in right of payment to all classes or
series of PCA's capital stock as to dividends and upon liquidation, dissolution
or winding up of PCA.
Without the consent of the Holders of at least a majority in aggregate
Liquidation Preference of the then outstanding new preferred stock, PCA may not
authorize, create (by way of reclassification or otherwise) or issue:
(1) any class or series of capital stock of PCA ranking on a parity with the
new preferred stock ("Parity Securities");
(2) any obligation or security convertible or exchangeable into or
evidencing a right to purchase, any Parity Securities;
(3) any class or series of capital stock of PCA ranking senior to the new
preferred stock ("Senior Securities"); or
(4) any obligation or security convertible or exchangeable into or
evidencing a right to purchase, any Senior Securities.
DIVIDENDS
When PCA's Board of Directors declares dividends out of legally available funds,
the Holders of record of the new preferred stock as of each March 15 and
September 15 will be entitled to receive cumulative preferential dividends at
the rate per share of 12 3/8% per annum on the following dividend payment date.
Dividends on the new preferred stock will be payable semiannually in arrears on
April 1 and October 1 of each year, commencing on October 1, 1999.
On or prior to April 1, 2004, PCA may, at its option, pay dividends in cash or
in additional fully-paid and non-assessable shares of new preferred stock
(including fractional stock) having an aggregate Liquidation Preference equal to
the amount of such dividends. After April 1, 2004, PCA will pay dividends in
cash only. PCA does not expect to pay any dividends in cash before April 1,
2004. Dividends payable on the new preferred stock will be computed on the basis
of a 360-day year comprised of twelve 30-day months; and will accrue on a daily
basis.
Dividends on the new preferred stock will accrue whether or not:
(1) PCA has earnings or profits;
(2) there are funds legally available for the payment of such dividends; or
(3) dividends are declared.
Dividends will accumulate to the extent they are not paid on the dividend
payment date for the semiannual period to which they relate. Accumulated unpaid
dividends will accrue dividends at the rate of 12 3/8% per annum. PCA must take
all actions required or permitted under Delaware law to permit the payment of
dividends on the new preferred stock.
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Unless PCA has declared and paid full cumulative dividends upon, or declared and
set apart a sufficient sum for the payment of full cumulative dividends on, all
outstanding new preferred stock due for all past dividend periods, then:
(1) no dividend (other than a dividend payable solely in shares of any class
or series of capital stock ranking junior to the new preferred stock as
to the payment of dividends and as to rights in liquidation, dissolution
and winding up of the affairs of PCA (any such stock, "Junior
Securities")) shall be declared or paid upon, or any sum set apart for
the payment of dividends upon, any Junior Securities;
(2) no other distribution shall be declared or made upon, or any sum set
apart for the payment of any distribution upon, any Junior Securities;
(3) no Junior Securities shall be purchased, redeemed or otherwise acquired
or retired for value (excluding an exchange for other Junior Securities)
by PCA or any of its Restricted Subsidiaries; and
(4) no monies shall be paid into or set apart or made available for a
sinking or other like fund for the purchase, redemption or other
acquisition or retirement for value of any Junior Securities by PCA or
any of its Restricted Subsidiaries.
Holders of the new preferred stock will not be entitled to any dividends,
whether payable in cash, property or stock, in excess of the full cumulative
dividends described above.
In addition, the Credit Agreement and the notes indenture contain restrictions
on the ability of PCA to pay cash dividends on the new preferred stock. Any
future credit agreements or other agreements relating to Indebtedness to which
PCA becomes a party may contain similar restrictions and provisions. See "Risk
Factors--Dividend Restrictions."
VOTING RIGHTS
Holders of the new preferred stock will have no voting rights, except as
required by law and as provided in the certificate of designation. Under the
certificate of designation, the number of members of PCA's Board of Directors
will immediately and automatically increase by two, and the Holders of a
majority in Liquidation Preference of the outstanding new preferred stock,
voting as a separate class, may elect two members to the Board of Directors of
PCA, upon:
(1) the accumulation of accrued and unpaid dividends on the outstanding new
preferred stock in an amount equal to three or more full semiannual
dividends (whether or not consecutive);
(2) failure by PCA or any of its Restricted Subsidiaries to comply with any
mandatory redemption obligation with respect to the new preferred stock,
the failure to make a Change of Control Offer or an Asset Sale Offer in
accordance with the provisions of the certificate of designation or the
failure to repurchase new preferred stock pursuant to such offers;
(3) failure by PCA or any of its Restricted Subsidiaries to comply with any
of the other covenants or agreements set forth in the certificate of
designation and the continuance of such failure for 30 consecutive days
or more after notice from the Holders of at least 25% in aggregate
Liquidation Preference of the new preferred stock then outstanding;
(4) default under any mortgage, indenture or instrument under which there is
issued and outstanding any Indebtedness for money borrowed by PCA or any
of its Restricted Subsidiaries (or the payment of which is guaranteed by
PCA or any of its Restricted Subsidiaries), if that default:
(a) is caused by a failure to pay principal at the final stated maturity
of such Indebtedness (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its express
maturity,
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and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $25.0 million or more; or
(5) certain events of bankruptcy or insolvency with respect to PCA or any of
its Significant Subsidiaries (each of the events described in clauses
(1) through (5) being referred to as a "Voting Rights Triggering
Event").
Voting rights arising as a result of a Voting Rights Triggering Event will
continue until all dividends in arrears on the new preferred stock are paid in
full and all other Voting Rights Triggering Events have been cured or waived.
In addition, as provided above under "-Ranking," PCA may not authorize, create
(by way of reclassification or otherwise) or issue any Senior Securities or
Parity Securities, or any obligation or security convertible into or evidencing
a right to purchase any Senior Securities or Parity Securities, without the
affirmative vote or consent of the Holders of a majority in Liquidation
Preference of the then outstanding shares of new preferred stock.
EXCHANGE FEATURE
On any dividend payment date, PCA may exchange all and not less than all of the
shares of then outstanding new preferred stock for subordinated exchange
debentures if:
(1) on the date of the exchange, there are no accumulated and unpaid
dividends on the new preferred stock (including the dividend payable on
that date) or other contractual impediments to the exchange;
(2) the exchange does not immediately cause:
(a) a Default or Event of Default (each as defined in the subordinated
exchange debentures indenture) under the subordinated exchange
debentures indenture;
(b) a default or event of default under any Credit Facility or the notes
indenture; and
(c) a default or event of default under any material instrument governing
Indebtedness of PCA or any of its Restricted Subsidiaries that is
outstanding at the time;
(3) the subordinated exchange debentures indenture has been duly authorized,
executed and delivered by PCA and U.S. Trust Company of Texas, N.A. the
exchange trustee, and is a legal, valid and binding agreement of PCA;
(4) the subordinated exchange debentures indenture has been qualified under
the Trust Indenture Act, if qualification is required at the time of
exchange; and
(5) PCA has delivered a written opinion to the exchange trustee stating that
all conditions to the exchange have been satisfied and as to such other
matters as the exchange trustee shall reasonably request.
The Credit Agreement currently prohibits and the notes indenture currently
restricts the exchange of the new preferred stock. Agreements governing other
Indebtedness of PCA and its Subsidiaries may restrict PCA's ability to exchange
the new preferred stock in the future. See "Description of Senior Credit
Facility" and "Description of Exchange Notes."
Upon any exchange pursuant to the preceding paragraph, Holders of outstanding
new preferred stock will be entitled to receive:
(1) a principal amount of subordinated exchange debentures equal to the
aggregate Liquidation Preference of the new preferred stock held by such
Holder; PLUS
(2) without duplication, any accrued and unpaid dividends on such shares.
The subordinated exchange debentures will be:
(1) issued in registered form, without coupons; and
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(2) issued in principal amounts of $1,000 and integral multiples thereof to
the extent possible and any other principal amount to the extent
necessary, PROVIDED that PCA may pay cash in lieu of issuing
subordinated exchange debenture having a principal amount that is less
than $1,000.
For a description of the subordinated exchange debentures, see "-Description of
Subordinated Exchange Debentures."
PCA will send notice of its intention to exchange, by first class mail, postage
prepaid, to each Holder of new preferred stock at its registered address not
more than 60 days nor less than 30 days prior to the Exchange Date. In addition
to any information required by law or by the applicable rules of any exchange
upon which new preferred stock may be listed or admitted to trading, the notice
will state:
(1) the Exchange Date;
(2) the place or places where certificates for such stock are to be
surrendered for exchange, including any procedures applicable to
exchanges to be accomplished through book-entry transfers; and
(3) that dividends on the new preferred stock to be exchanged will cease to
accrue on the Exchange Date.
If notice of any exchange has been properly given, and if on or before the
Exchange Date the subordinated exchange debentures have been duly executed and
authenticated and an amount in cash or additional new preferred stock (as
applicable) equal to all accrued and unpaid dividends, if any, thereon to the
Exchange Date has been deposited with the transfer agent, then on and after the
close of business on the Exchange Date:
(1) the new preferred stock to be exchanged will no longer be considered
outstanding and may subsequently be issued in the same manner as the
other authorized but unissued preferred stock, but not as new preferred
stock; and
(2) all rights of the Holders as stockholders of PCA will cease, except
their right to receive upon surrender of their certificates the
subordinated exchange debentures and all accrued and unpaid dividends,
if any, thereon to the Exchange Date.
MANDATORY REDEMPTION
On April 1, 2010 (the "Mandatory Redemption Date"), PCA will be required to
redeem (subject to it having sufficient legally available funds and subject to
compliance with the Credit Agreement, the notes indenture, the subordinated
exchange debentures indenture and any Credit Facility entered into by PCA and
its Restricted Subsidiaries after the Issue Date) all outstanding new preferred
stock at a price in cash equal to the Liquidation Preference, plus accrued and
unpaid dividends and Liquidated Damages, if any, to the date of redemption. PCA
will not be required to make sinking fund payments with respect to the new
preferred stock.
The Credit Agreement and the notes indenture currently restrict the redemption
of the new preferred stock and agreements governing additional indebtedness may
restrict PCA's ability to redeem the new preferred stock in the future. See
"Description of Senior Credit Facility" and "Description of Exchange Notes."
OPTIONAL REDEMPTION
At any time prior to April 1, 2002, PCA may on any one occasion redeem all, or
on any one or more occasions redeem up to 35% of the then outstanding aggregate
Liquidation Preference of new preferred stock at a redemption price of 112.375%
of the Liquidation Preference thereof, plus accrued and unpaid dividends and
Liquidated Damages, if any, to the redemption date, with the net cash proceeds
of one or more offerings of common stock of PCA or a capital contribution to
PCA's common equity made with the net cash proceeds of an offering of common
stock of PCA's direct or indirect parent or with Timberlands Net Proceeds (which
amount
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shall be reduced on a dollar for dollar basis by the amount of Timberlands Net
Proceeds used to make a Timberlands Repurchase in accordance with the fifth
paragraph described under the caption "-Repurchase at the Option of
Holders-Asset Sales"); PROVIDED that
(1) except in the case of a redemption of all of the then outstanding new
preferred stock, at least 65% of the aggregate Liquidation Preference of
the new preferred stock issued under the certificate of designation
remains outstanding immediately after the occurrence of such redemption
(excluding new preferred stock held by PCA and its Subsidiaries); and
(2) the redemption must occur within 60 days of the date of the closing of
such offering or the making of such capital contribution or the
consummation of a Timberlands Sale.
Prior to April 1, 2004, PCA may also redeem the new preferred stock, as a whole
but not in part, upon the occurrence of a Change of Control, upon not less than
30 nor more than 60 days' prior written notice, at a redemption price equal to
100% of the Liquidation Preference thereof plus the Applicable Premium as of,
and accrued and unpaid interest and Liquidated Damages, if any, thereon, to the
date of redemption.
Except pursuant to the preceding paragraphs, the new preferred stock will not be
redeemable at PCA's option prior to April 1, 2004. Nothing in the certificate of
designation prohibits PCA from acquiring the new preferred stock by means other
than a redemption, whether pursuant to an issuer tender offer or otherwise,
assuming such acquisition does not otherwise violate the terms of the
certificate of designation.
After April 1, 2004, PCA may redeem all or a part of the new preferred stock
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of the Liquidation Preference) set forth below plus
accrued and unpaid dividends and Liquidated Damages, if any, thereon, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on April 1 of the years indicated below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
YEAR PERCENTAGE
- ---------------------------------------------------------------- ----------
<S> <C>
2004............................................................ 106.1875%
2005............................................................ 104.6406%
2006............................................................ 103.0938%
2007............................................................ 101.5469%
2008 and thereafter............................................. 100.0000%
</TABLE>
The Credit Agreement and the notes indenture currently restrict the redemption
of the new preferred stock and the agreements governing additional indebtedness
may restrict PCA's ability to redeem the new preferred stock in the future. See
"Description of Senior Credit Facility" and "Description of Exchange Notes."
LIQUIDATION RIGHTS
Each Holder of the new preferred stock will be entitled to payment, out of the
assets of PCA available for distribution (after giving effect to the prior
payment of all Indebtedness and other claims), of an amount equal to the
Liquidation Preference of the new preferred stock held by such Holder, plus
accrued and unpaid dividends and Liquidated Damages, if any, to the date fixed
for liquidation, dissolution, winding up or reduction or decrease in capital
stock, before any distribution is made on any Junior Securities, including,
without limitation, common stock of PCA, upon any:
(1) voluntary or involuntary liquidation, dissolution or winding up of the
affairs of PCA; or
(2) reduction or decrease in PCA's capital stock resulting in a distribution
of assets to the holders of any class or series of PCA's capital stock
(a "reduction or decrease in capital stock").
After payment in full of the Liquidation Preference and all accrued and unpaid
dividends and Liquidated Damages, if any, to which Holders of new preferred
stock are entitled, such Holders may not further participate in any distribution
of assets of PCA. However, neither the voluntary sale, conveyance, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of PCA
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nor the consolidation or merger of PCA with or into one or more Persons will be
a voluntary or involuntary liquidation, dissolution or winding up of PCA or
reduction or decrease in capital stock, unless such sale, conveyance, exchange
or transfer is in connection with a liquidation, dissolution or winding up of
the business of PCA or reduction or decrease in capital stock.
The certificate of designation does not contain any provision requiring funds to
be set aside to protect the Liquidation Preference of the new preferred stock,
although such Liquidation Preference will be substantially in excess of the par
value of the new preferred stock.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of new preferred stock will have the
right to require PCA to repurchase all or any part (but not any fractional
shares) of that Holder's new preferred stock pursuant to a Change of Control
Offer on the terms set forth in the certificate of designation. In the Change of
Control Offer, PCA will offer a Change of Control Payment in cash equal to 101%
of the aggregate Liquidation Preference of new preferred stock repurchased plus
accrued and unpaid dividends and Liquidated Damages, if any, thereon, to the
date of purchase. Within 30 days following any Change of Control, PCA will mail
a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase new preferred stock
on the Change of Control Payment Date specified in such notice, which date shall
be no earlier than 30 days and no later than 60 days from the date such notice
is mailed, pursuant to the procedures required by the certificate of designation
and described in such notice. PCA will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the new preferred stock as a result of a Change of
Control. To the extent that the provisions of any securities laws or regulations
conflict with the Change of Control provisions of the certificate of
designation, PCA will comply with the applicable securities laws and regulations
and will not be deemed to have breached its obligations under the Change of
Control provisions of the certificate of designation by virtue of such conflict.
On the Change of Control Payment Date, PCA will, to the extent lawful:
(1) accept for payment all new preferred stock or portions thereof properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all new preferred stock or portions thereof so
tendered; and
(3) deliver or cause to be delivered to the transfer agent the new preferred
stock so accepted together with an Officers' Certificate stating the
Liquidation Preference of new preferred stock or portions thereof being
purchased by PCA.
The paying agent will promptly mail to each Holder of new preferred stock so
tendered the Change of Control Payment for such new preferred stock, and the
transfer agent will promptly authenticate and mail (or cause to be transferred
by book-entry) to each Holder a new certificate representing the new preferred
stock equal in Liquidation Preference to any unpurchased portion of the new
preferred stock surrendered, if any.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, PCA
will either repay all outstanding Exchange Debenture Senior Debt or obtain the
requisite consents, if any, under all agreements governing outstanding Exchange
Debenture Senior Debt to permit the repurchase of new preferred stock required
by this covenant. PCA will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
PCA shall first comply with the covenant in the first sentence in the
immediately preceding paragraph before it shall be required to repurchase new
preferred stock pursuant to the provisions described above. PCA's failure to
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comply with the covenant described in the immediately preceding sentence may
(with notice and lapse of time) constitute a Voting Rights Triggering Event
described in clause (3) but shall not constitute a Voting Rights Triggering
Event described under clause (2) under the caption "-Voting Rights."
The provisions described above that require PCA to make a Change of Control
Offer following a Change of Control will be applicable regardless of whether any
other provisions of the Certificate of Designation are applicable. Except as
described above with respect to a Change of Control, the certificate of
designation does not contain provisions that permit the Holders of new preferred
stock to require that PCA repurchase or redeem new preferred stock in the event
of a takeover, recapitalization or similar transaction.
PCA will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
certificate of designation applicable to a Change of Control Offer made by PCA
and purchases all new preferred stock validly tendered and not withdrawn under
such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct or
indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of PCA and its Restricted
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of new preferred stock to require PCA to repurchase such new preferred
stock as a result of a sale, lease, transfer, conveyance or other disposition of
less than all of the assets of PCA and its Restricted Subsidiaries taken as a
whole to another Person or group may be uncertain.
ASSET SALES
PCA will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) PCA (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale which, taken as a whole, is
at least equal to the fair market value of the assets or Equity
Interests issued or sold or otherwise disposed of;
(2) such fair market value is determined by PCA's Board of Directors and
evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the transfer agent; and
(3) at least 75% of the consideration therefor received by PCA or such
Restricted Subsidiary is in the form of cash or Cash Equivalents or
Marketable Securities. For purposes of this provision, each of the
following shall be deemed to be cash:
(a) any liabilities (as shown on PCA's or such Restricted Subsidiary's
most recent balance sheet) of PCA or any Restricted Subsidiary (other
than contingent liabilities) that are assumed by the transferee of
any such assets;
(b) any securities, notes or other obligations received by PCA or any
such Restricted Subsidiary from such transferee that are converted,
sold or exchanged by PCA or such Restricted Subsidiary into cash
within 30 days of the related Asset Sale (to the extent of the cash
received in that conversion); and
(c) any Designated Noncash Consideration received by PCA or any of its
Restricted Subsidiaries in such Asset Sale having an aggregate fair
market value, taken together with all other Designated Noncash
Consideration received since the Issue Date pursuant to this clause
(c) that is at that time outstanding, not to exceed 10% of Total
Assets at the time of the receipt of such Designated Noncash
Consideration (with the fair market value of each item of Designated
Noncash Consideration being measured at the time received and without
giving effect to subsequent changes in value).
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Within 365 days after the receipt of any Net Proceeds from an Asset Sale, PCA
may apply such Net Proceeds at its option:
(1) to repay Exchange Debenture Senior Debt and, if the Exchange Debenture
Senior Debt repaid is revolving credit Indebtedness, to correspondingly
reduce commitments with respect thereto;
(2) to invest in or to acquire other properties or assets to replace the
properties or assets that were the subject of the Asset Sale or that
will be used in businesses of PCA or its Restricted Subsidiaries, as the
case may be, existing at the time such assets are sold;
(3) to make a capital expenditure or commit, or cause such Restricted
Subsidiary to commit, to make a capital expenditure (such commitments to
include amounts anticipated to be expended pursuant to PCA's capital
investment plan as adopted by the Board of Directors of PCA) within 24
months of such Asset Sale; or
(4) to make a Timberlands Repurchase in accordance with the first paragraph
described under the caption "-Optional Redemption."
Pending the final application of any such Net Proceeds, PCA may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the certificate of designation.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the two preceding paragraphs will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $25.0 million, PCA will make an
Asset Sale Offer to all Holders of new preferred stock and all holders of Parity
Securities containing provisions similar to those set forth in the certificate
of designation with respect to offers to purchase or redeem with the proceeds of
sales of assets to purchase the maximum amount of new preferred stock and such
other Parity Securities that may be purchased out of the Excess Proceeds. The
offer price in any Asset Sale Offer will be equal to 100% of the Liquidation
Preference plus accrued and unpaid dividends and Liquidated Damages, if any, to
the date of purchase, and will be payable in cash. If any Excess Proceeds remain
after consummation of an Asset Sale Offer, PCA may use such Excess Proceeds for
any purpose not otherwise prohibited by the certificate of designation. If the
aggregate Liquidation Preference of new preferred stock and such other Parity
Securities tendered into such Asset Sale Offer exceeds the amount of Excess
Proceeds, the transfer agent shall select the new preferred stock and such other
Parity Securities to be purchased on a pro rata basis based on the Liquidation
Preference of new preferred stock and such other Parity Securities tendered.
Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Notwithstanding the four preceding paragraphs, PCA will be permitted to apply
Timberlands Net Proceeds (which amount shall be reduced on a dollar for dollar
basis by the amount of Timberlands Net Proceeds used to make a Timberlands
Repurchase in accordance with the first paragraph described under the caption
"-Optional Redemption") to repurchase or redeem, or pay a dividend on, or a
return of capital with respect to, any Equity Interests of PCA, or repurchase or
redeem subordinated exchange debentures if:
(1) the repurchase, redemption, dividend or return of capital is consummated
within 90 days of the final sale of such Timberlands Sale;
(2) PCA's Debt and new preferred stock to Cash Flow Ratio at the time of
such Timberlands Repurchase, after giving pro forma effect to (a) such
repurchase, redemption, dividend or return of capital, (b) the
Timberlands Sale and the application of the net proceeds therefrom and
(c) any increase or decrease in fiber, stumpage or similar costs as a
result of the Timberlands Sale as if the same had occurred at the
beginning of the most recently ended four full fiscal quarter period of
PCA for which internal financial statements are available, would have
been no greater than 5.0 to 1; and
(3) in the case of a repurchase or redemption of all of the then outstanding
new preferred stock or subordinated exchange debentures, no Timberlands
Net Proceeds have been previously applied to repurchase or redeem, or
pay a dividend on, or return of capital with respect to, any other
Equity Interests of PCA.
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PCA will comply with the requirements of Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with each repurchase of new preferred
stock pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sales provisions of the
certificate of designation, PCA will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations under
the Asset Sale provisions of the certificate of designation by virtue of such
conflict.
The agreements governing PCA's outstanding Exchange Debenture Senior Debt
currently prohibit PCA from purchasing any new preferred stock, and also
provides that certain change of control or asset sale events with respect to PCA
would constitute a default under these agreements. Any future credit agreements
or other agreements relating to Exchange Debenture Senior Debt to which PCA
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control or Asset Sale occurs at a time when PCA is prohibited from
purchasing new preferred stock, PCA could seek the consent of its senior lenders
to the purchase of new preferred stock or could attempt to refinance the
borrowings that contain such prohibition. If PCA does not obtain such a consent
or repay such borrowings, PCA will remain prohibited from purchasing new
preferred stock. In such case, PCA's failure to purchase tendered new preferred
stock would constitute a Voting Rights Triggering Event under the certificate of
designation and the Holders of a majority of the outstanding new preferred
stock, voting as a separate class, would be entitled to elect two members to the
Board of Directors of PCA.
SELECTION AND NOTICE
If less than all of the new preferred stock is to be redeemed at any time, the
transfer agent will select new preferred stock for redemption as follows:
(1) if the new preferred stock is listed, in compliance with the
requirements of the principal national securities exchange on which the
new preferred stock is listed; or
(2) if the new preferred stock is not so listed, on a pro rata basis, by lot
or by such method as the transfer agent shall deem fair and appropriate.
No shares of new preferred stock shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of new preferred stock to be
redeemed at its registered address. Notices of redemption may not be
conditional.
If any new preferred stock is to be redeemed in part only, the notice of
redemption that relates to that new preferred stock shall state the portion of
the Liquidation Preference thereof to be redeemed. A new certificate with an
aggregate Liquidation Preference equal to the unredeemed portion of the original
certificate evidencing new preferred stock presented for redemption will be
issued in the name of the Holder thereof upon cancellation of the certificate.
New preferred stock called for redemption become due on the date fixed for
redemption. On and after the redemption date, dividends cease to accrue on new
preferred stock or portions thereof called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
PCA will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of PCA's or any of its Restricted Subsidiaries' Equity Interests
(other than the new preferred stock) including, without limitation, any
payment in connection with any merger or consolidation involving PCA or
any of its Restricted Subsidiaries or to the direct or indirect holders
of PCA's or any of its Restricted Subsidiaries' Equity Interests (other
than the new preferred stock in their capacity as such) other than
dividends or distributions payable (a) in Equity Interests (other than
Disqualified Stock) of PCA or (b) to PCA or a Restricted Subsidiary of
PCA;
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(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving PCA) any Equity Interests of PCA or any direct or indirect
parent of PCA other than new preferred stock; or
(3) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (3) above being collectively referred to as
"Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Voting Rights Triggering Event shall have occurred and be continuing
or would occur as a consequence thereof; and
(2) PCA would, at the time of such Restricted Payment and after giving pro
forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "-Incurrence of Indebtedness
and Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by PCA and its Restricted Subsidiaries after
the Issue Date (excluding Restricted Payments permitted by clauses (2),
(3) and (4) of the next succeeding paragraph), is less than the sum,
without duplication, of:
(a) 50% of the Consolidated Net Income of PCA for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of PCA's most recently
ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of
such deficit), PLUS
(b) 100% of the aggregate net cash proceeds received by PCA since the
Issue Date as a contribution to its common equity capital or from the
issue or sale of Equity Interests of PCA (other than Disqualified
Stock) or from the issue or sale of convertible or exchangeable
Disqualified Stock or convertible or exchangeable debt securities of
PCA that have been converted into or exchanged for such Equity
Interests (other than Equity Interests (or Disqualified Stock or debt
securities) sold to a Subsidiary of PCA), together with the net
proceeds received by PCA upon such conversion or exchange, if any,
PLUS
(c) to the extent that any Restricted Investment that was made after the
Issue Date is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (i) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and
(ii) the initial amount of such Restricted Investment.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied
with the provisions of the certificate of designation;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any Equity Interests of PCA in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of PCA) of, Equity Interests of PCA (other than
Disqualified Stock); PROVIDED that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from
clause (3) (b) of the preceding paragraph;
(3) so long as no Voting Rights Triggering Event has occurred and is
continuing or would be caused thereby, any Timberlands Repurchase
pursuant to and in accordance with the fifth paragraph described under
the caption "--Repurchase at the Option of Holders--Asset Sales;"
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(4) the payment of any dividend by a Restricted Subsidiary of PCA to the
holders of its common Equity Interests on a pro rata basis;
(5) so long as no Voting Rights Triggering Event has occurred and is
continuing or would be caused thereby, the repurchase, redemption or
other acquisition or retirement for value of any Equity Interests of PCA
or any Restricted Subsidiary of PCA held by any current or former
officers, directors or employees of PCA (or any of its Restricted
Subsidiaries') pursuant to any management equity subscription agreement,
stock option agreement or stock plan entered into in the ordinary course
of business; PROVIDED that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $5.0 million in any calendar year;
(6) repurchases of Equity Interests of PCA deemed to occur upon exercise of
stock options to the extent Equity Interests represent a portion of the
exercise price of such options;
(7) cash payments, advances, loans or expense reimbursements made to PCA
Holdings to permit PCA Holdings to pay its general operating expenses
(other than management, consulting or similar fees payable to Affiliates
of PCA), franchise tax obligations, accounting, legal, corporate
reporting and administrative expenses incurred in the ordinary course of
its business in an amount not to exceed $1.0 million in the aggregate in
any fiscal year; and
(8) so long as no Voting Rights Triggering Event has occurred and is
continuing or would be caused thereby, other Restricted Payments in an
aggregate amount not to exceed $25.0 million since the Issue Date.
The amount of all Restricted Payments (other than cash) shall be the fair market
value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by PCA or such Restricted Subsidiary,
as the case may be, pursuant to the Restricted Payment. The fair market value of
any assets or securities that are required to be valued by this covenant shall
be determined by the Board of Directors whose resolution with respect thereto
shall be conclusive. The Board of Directors' determination must be based upon an
opinion or appraisal issued by an accounting, appraisal or investment banking
firm of national standing if the fair market value exceeds $25.0 million.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
PCA will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and PCA will
not issue any Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER, that PCA
may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock,
and the Restricted Subsidiaries of PCA may incur Indebtedness or issue preferred
stock, if the Fixed Charge Coverage Ratio for PCA's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock or preferred stock is issued would have been at least
2.0 to 1 or, if a Timberlands Repurchase has occurred, 2.25 to 1, in either case
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred or the
preferred stock or Disqualified Stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any of
the following items of Indebtedness, which we refer to as the certificate of
designation permitted debt:
(1) the incurrence by PCA and its Restricted Subsidiaries of additional
Indebtedness under Credit Facilities and letters of credit under Credit
Facilities in an aggregate principal amount at any one time outstanding
under this clause (1) (with letters of credit being deemed to have a
principal amount equal to the face amount) not to exceed $1.51 billion
LESS the aggregate amount of all Net Proceeds of Asset Sales that have
been applied by PCA or any of its Restricted Subsidiaries since the
Issue Date to
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permanently repay Indebtedness under a Credit Facility pursuant to the
covenant described above under the caption "-Repurchase at the Option of
Holders-Asset Sales" and LESS the amount of Indebtedness outstanding
under clause (18) below; PROVIDED that the amount of Indebtedness
permitted to be incurred pursuant to Credit Facilities in accordance
with this clause (1) shall be in addition to any Indebtedness permitted
to be incurred pursuant to Credit Facilities, in reliance on, and in
accordance with, clauses (4) and (19) below or in the first paragraph of
this covenant;
(2) the incurrence by PCA and its Restricted Subsidiaries of the Existing
Indebtedness;
(3) the incurrence by PCA and its Restricted Subsidiaries of Indebtedness
represented by the exchange notes and the related subsidiary guarantees;
(4) the incurrence by PCA or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of PCA or such Restricted Subsidiary, in an aggregate principal
amount (which amount may, but need not be, incurred in whole or in part
under Credit Facilities), including all Permitted Refinancing
Indebtedness incurred to refund, refinance, replace, amend, restate,
modify or renew, in whole or in part, any Indebtedness incurred pursuant
to this clause (4), not to exceed the greater of 7.5% of Total Assets as
of the date of incurrence and $50.0 million at any time outstanding;
(5) the incurrence by PCA or any of its Restricted Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance, replace, amend, restate, modify or renew,
in whole or in part, Indebtedness (other than intercompany Indebtedness)
that was permitted by the Certificate of Designation to be incurred
under the first paragraph of this covenant or clauses (2), (3), (4),
(15) or (19) of this paragraph;
(6) the incurrence by PCA or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among PCA and any of its Restricted
Subsidiaries; PROVIDED, HOWEVER, that each of the following shall be
deemed, in each case, to constitute an incurrence of such Indebtedness
by PCA or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6):
(a) any subsequent issuance or transfer of Equity Interests that results
in any such Indebtedness being held by a Person other than PCA or a
Restricted Subsidiary thereof; and
(b) any sale or other transfer of any such Indebtedness to a Person that
is not either PCA or a Restricted Subsidiary thereof;
(7) the incurrence by PCA or any of its Restricted Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating or fixed rate
Indebtedness that is permitted by the terms of the certificate of
designation to be outstanding and the incurrence of Indebtedness under
Other Hedging Agreements providing protection against fluctuations in
currency values or in the price of energy, commodities and raw materials
in connection with PCA's or any of its Restricted Subsidiaries'
operations so long as management of PCA or such Restricted Subsidiary,
as the case may be, has determined that the entering into of such Other
Hedging Agreements are bona fide hedging activities;
(8) the guarantee by PCA or any of its Restricted Subsidiaries of
Indebtedness of PCA or a Restricted Subsidiary of PCA that was permitted
to be incurred by another provision of this covenant;
(9) the incurrence by PCA's Unrestricted Subsidiaries of Non-Recourse Debt,
PROVIDED, HOWEVER, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of PCA that was not permitted by this clause (9);
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(10) the accrual of interest, the accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Stock in the form of additional shares of the
same class of Disqualified Stock will not be deemed to be an incurrence
of Indebtedness or an issuance of Disqualified Stock for purposes of
this covenant; PROVIDED, in each such case, that the amount thereof is
included in Fixed Charges and Consolidated Indebtedness of PCA as
accrued;
(11) the incurrence by PCA of Indebtedness and the issuance by PCA of
preferred stock, in each case, that is deemed to be incurred or issued,
as the case may be, in connection with the Contribution;
(12) the incurrence by PCA or any of its Restricted Subsidiaries of
obligations pursuant to foreign currency agreements entered into in the
ordinary course of business and not for speculative purposes;
(13) Indebtedness arising from agreements of PCA or a Restricted Subsidiary
providing for indemnification, adjustment of purchase price or similar
obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; PROVIDED, HOWEVER, that (a) such
Indebtedness is not reflected on the balance sheet of PCA or any
Restricted Subsidiary (contingent obligations referred to in a footnote
to financial statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for purposes of
this clause (a)) and (b) the maximum assumable liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds
including noncash proceeds (the fair market value of such noncash
proceeds being measured at the time received and without giving effect
to any subsequent changes in value) actually received by PCA and its
Restricted Subsidiaries in connection with such disposition;
(14) the incurrence of obligations in respect of performance and surety bonds
and completion guarantees provided by PCA or any of its Restricted
Subsidiaries in the ordinary course of business;
(15) the incurrence of Indebtedness by any Restricted Subsidiary that is
organized outside of the United States in connection with the
acquisition of assets or a new Restricted Subsidiary in an aggregate
principal amount, including all Permitted Refinancing Indebtedness
incurred to refund, refinance, replace, amend, restate, modify or renew,
in whole or in part, any Indebtedness incurred pursuant to this clause
(15), not to exceed $25.0 million at any one time outstanding; PROVIDED
that such Indebtedness was incurred by the prior owner of such asset or
such Restricted Subsidiary prior to such acquisition by the Restricted
Subsidiary and was not incurred in connection with, or in contemplation
of, such acquisition by the Restricted Subsidiary;
(16) the incurrence of Indebtedness consisting of guarantees of loans made to
management for the purpose of permitting management to purchase Equity
Interests of PCA, in an amount not to exceed $7.5 million at any one
time outstanding;
(17) Indebtedness of PCA that may be deemed to exist under the Contribution
Agreement as a result of PCA's obligation to pay purchase price
adjustments; PROVIDED that the incurrence of Indebtedness to pay the
purchase price adjustment shall be deemed to constitute an incurrence of
Indebtedness that was not permitted by this clause (17);
(18) the incurrence of Indebtedness by a Receivables Subsidiary in a
Qualified Receivables Transaction that is not recourse to PCA or any of
its Subsidiaries (except for Standard Securitization Undertakings);
PROVIDED that the aggregate principal amount of Indebtedness outstanding
under this clause (18) and clause (1) above does not exceed $1.51
billion LESS the aggregate amount of all Net Proceeds of Asset Sales
that have been applied by PCA or any of its Restricted Subsidiaries
since the Issue Date to permanently repay Indebtedness under a Credit
Facility pursuant to the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales;" and
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(19) the incurrence by PCA of additional Indebtedness in an aggregate
principal amount (or accreted value, as applicable) (which amount may,
but need not be, incurred in whole or in part under the Credit
Facilities) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance, replace, amend, restate,
modify or renew, in whole or in part, any Indebtedness incurred pursuant
to this clause (19), not to exceed $75.0 million.
For purposes of determining compliance with this "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant, in the event that an item of proposed
Indebtedness meets the criteria of more than one of the categories of
certificate of designation permitted debt described in clauses (1) through (19)
above, or is entitled to be incurred pursuant to the first paragraph of this
covenant, PCA will be permitted to classify or later reclassify such item of
Indebtedness in any manner that complies with this covenant. Indebtedness under
Credit Facilities outstanding on the Issue Date shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (1) of the
definition of certificate of designation permitted debt.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
PCA will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
PCA or any of its Restricted Subsidiaries, or with respect to any other
interest or participation in, or measured by, its profits, or pay any
indebtedness owed to PCA or any of its Restricted Subsidiaries;
(2) make loans or advances to PCA or any of its Restricted Subsidiaries; or
(3) transfer any of its properties or assets to PCA or any of its Restricted
Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the Issue Date;
(2) the notes indenture, the exchange notes and the subsidiary guarantees of
the exchange notes;
(3) the certificate of designation;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by PCA or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition),
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, PROVIDED that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of
the certificate of designation to be incurred;
(6) non-assignment provisions in leases, licenses or similar agreements
entered into in the ordinary course of business and consistent with past
practices;
(7) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions on the property so acquired of the
nature described in clause (3) of the preceding paragraph;
(8) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(9) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements, assets sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary
course of business;
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(11) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business;
(12) the Credit Agreement as in effect on the Issue Date;
(13) restrictions on the transfer of assets subject to any Lien permitted
under the certificate of designation imposed by the holder of such Lien;
(14) any Purchase Money Note or other Indebtedness or other contractual
requirements of a Receivables Subsidiary in connection with a Qualified
Receivables Transaction; PROVIDED that such restrictions apply only to
such Receivables Subsidiary;
(15) encumbrances or restrictions existing under or arising pursuant to
Credit Facilities entered into in accordance with the certificate of
designation or the subordinated exchange debentures indenture, as
applicable; PROVIDED that the encumbrances or restrictions in such
Credit Facilities are not materially more restrictive than those
contained in the Credit Agreement as in effect on the Issue Date; and
(16) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments
or obligations referred to in clauses (1) through (15) above; PROVIDED,
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are, in the good
faith judgment of the Board of Directors of PCA, not materially more
restrictive with respect to such dividend and other payment restrictions
than those contained in the dividends or other payment restrictions
prior to such amendment, modification, restatement, renewal, increase,
supplement, refunding, replacement or refinancing.
MERGER, CONSOLIDATION OR SALE OF ASSETS
PCA may not, directly or indirectly: (1) consolidate or merge with or into
another Person (whether or not PCA is the surviving corporation); or (2) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of PCA and its Restricted Subsidiaries taken as a whole, in
one or more related transactions, to another Person; unless:
(1) either: (a) PCA is the surviving corporation; or (b) the Person formed
by or surviving any such consolidation or merger (if other than PCA) or
to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District
of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than PCA) or the Person to which such sale, assignment, transfer,
conveyance or other disposition shall have been made assumes all the
obligations of PCA under the new preferred stock, the certificate of
designation and the preferred stock registration rights agreement
pursuant to agreements reasonably satisfactory to the transfer agent;
(3) immediately after such transaction no Voting Rights Triggering Event
exists; and
(4) PCA or the Person formed by or surviving any such consolidation or
merger (if other than PCA), or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made will, on the date
of such transaction after giving pro forma effect thereto and any
related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption "-Incurrence of Indebtedness and
Issuance of Preferred Stock."
In addition, PCA may not, directly or indirectly, lease all or substantially all
of the properties or assets of PCA and its Restricted Subsidiaries, taken as a
whole, in one or more related transactions, to any other Person. This "Merger,
Consolidation or Sale of Assets" covenant will not apply to a sale, assignment,
transfer, conveyance or other disposition of assets between or among PCA and any
of its Wholly Owned Restricted Subsidiaries.
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DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Voting Rights
Triggering Event. If a Restricted Subsidiary is designated as an Unrestricted
Subsidiary, the aggregate fair market value of all outstanding Investments owned
by PCA and its Restricted Subsidiaries in the Subsidiary so designated will be
deemed to be an Investment made as of the time of such designation and will
either reduce the amount available for Restricted Payments under the first
paragraph of the covenant described above under the caption "-Restricted
Payments" or reduce the amount available for future Investments under one or
more clauses of the definition of Permitted Investments, as PCA shall determine.
That designation will only be permitted if such Investment would be permitted at
that time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted
Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a
Voting Rights Triggering Event.
TRANSACTIONS WITH AFFILIATES
PCA will not, and will not permit any of its Restricted Subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms taken as a whole that are no less
favorable to PCA or the relevant Restricted Subsidiary than those that
could have been obtained in a comparable transaction by PCA or such
Restricted Subsidiary with an unrelated Person; and
(2) PCA delivers to the transfer agent:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$25.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal, investment banking or advisory firm of
national standing; PROVIDED that this clause (b) shall not apply to
transactions with TPI and its subsidiaries in the ordinary course of
business at a time when Madison Dearborn Partners, LLC and its
Affiliates are entitled, directly or indirectly, to elect a majority
of the Board of Directors of PCA.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the first paragraph of this
covenant:
(1) any employment agreement entered into by PCA or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the
past practice of PCA or such Restricted Subsidiary;
(2) transactions between or among PCA and/or its Restricted Subsidiaries;
(3) transactions with a Person that is an Affiliate of PCA solely because
PCA owns an Equity Interest in such Person;
(4) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of PCA;
(5) sales of Equity Interests (other than Disqualified Stock) to Affiliates
of PCA;
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(6) the payment of transaction, management, consulting and advisory fees and
related expenses to Madison Dearborn Partners, LLC and its Affiliates;
PROVIDED that such fees shall not, in the aggregate, exceed $15.0
million (plus out-of-pocket expenses) in connection with the
Contribution or $2.0 million in any twelve-month period commencing after
the date of the Contribution;
(7) the payment of fees and expenses related to the Contribution other than
fees and expenses paid to Madison Dearborn Partners, LLC and its
Affiliates;
(8) Restricted Payments that are permitted by the provisions of the
certificate of designation described above under the caption
"-Restricted Payments;"
(9) transactions described in clause (11) of the definition of Permitted
Investments;
(10) reasonable fees and expenses and compensation paid to, and indemnity
provided on behalf of, officers, directors or employees of PCA or any
Subsidiary as determined in good faith by the Board of Directors of PCA
or senior management;
(11) payments made to PCA Holdings for the purpose of allowing PCA Holdings
to pay its general operating expenses, franchise tax obligations,
accounting, legal, corporate reporting and administrative expenses
incurred in the ordinary course of its business in an amount not to
exceed $1.0 million in the aggregate in any fiscal year;
(12) transactions contemplated by the Contribution Agreement and the
Transaction Agreements as the same were in effect on the Issue Date;
(13) transactions in connection with a Qualified Receivables Transaction; and
(14) transactions with either of the Initial Purchasers or any of their
respective Affiliates.
SALE AND LEASEBACK TRANSACTIONS
PCA will not, and will not permit any of its Restricted Subsidiaries to, enter
into any sale and leaseback transaction; PROVIDED that PCA or any Restricted
Subsidiary may enter into a sale and leaseback transaction if:
(1) either (a) PCA or that Restricted Subsidiary, as applicable, could have
incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Fixed Charge
Coverage Ratio test in the first paragraph of the covenant described
above under the caption "-Incurrence of Indebtedness and Issuance of
Preferred Stock" or (b) the Net Proceeds of such sale and leaseback
transaction are applied to repay outstanding Exchange Debenture Senior
Debt; and
(2) the transfer of assets in that sale and leaseback transaction is
permitted by, and PCA applies the net proceeds of such transaction in
compliance with, the covenant described above under the caption
"-Repurchase at the Option of Holders-Asset Sales."
BUSINESS ACTIVITIES
PCA will not, and will not permit any Restricted Subsidiary to, engage in any
business other than Permitted Businesses, except to such extent as would not be
material to PCA and its Restricted Subsidiaries taken as a whole.
REPORTS
Whether or not required by the Commission, so long as any new preferred stock is
outstanding, PCA will furnish to the Holders of new preferred stock, within the
time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if
PCA were required to file such Forms, including a
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"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and, with respect to the annual information only, a
report on the annual financial statements by PCA's certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if PCA were required to file such reports.
If PCA has designated any of its Subsidiaries as Unrestricted Subsidiaries, then
the quarterly and annual financial information required by the preceding
paragraph shall include a reasonably detailed presentation, either on the face
of the financial statements or in the footnotes thereto, and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, of the
financial condition and results of operations of PCA and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of PCA.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange new preferred stock in accordance with the
certificate of designation if the requirements of the transfer agent for such
transfer or exchange are met. The transfer agent may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and PCA
may require a Holder to pay any taxes and fees required by law or permitted by
the certificate of designation.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the certificate of
designation or the new preferred stock may be amended or supplemented with the
consent of the Holders of at least a majority in aggregate Liquidation
Preference of the new preferred stock then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, new preferred stock), and any existing default or
compliance with any provision of the certificate of designation or the new
preferred stock may be waived with the consent of the Holders of a majority in
aggregate Liquidation Preference of the then outstanding new preferred stock
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, new preferred stock).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any new preferred stock held by a non-consenting Holder):
(1) alter the voting rights with respect to the new preferred stock or
reduce the number of shares of new preferred stock whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the Liquidation Preference of or change the Mandatory Redemption
Date of any new preferred stock or alter the provisions with respect to
the redemption of the new preferred stock (other than provisions
relating to the covenants described above under the caption "-Repurchase
at the Option of Holders");
(3) reduce the rate of or change the time for payment of dividends on any
new preferred stock;
(4) waive a default in the payment of Liquidation Preference of, or
dividends or premium or Liquidated Damages, if any, on the new preferred
stock;
(5) make any new preferred stock payable in any form or money other than
that stated in the certificate of designation;
(6) waive a redemption payment with respect to any new preferred stock
(other than a payment required by one of the covenants described above
under the caption "-Repurchase at the Option of Holders"); or
(7) make any change in the preceding amendment and waiver provisions.
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Notwithstanding the preceding, without the consent of any Holder of new
preferred stock, PCA may (to the extent permitted by Delaware law) amend or
supplement the certificate of designation:
(1) to cure any ambiguity, defect, error or inconsistency;
(2) to provide for uncertificated new preferred stock in addition to or in
place of certificated new preferred stock;
(3) to provide for the assumption of PCA's obligations to Holders of new
preferred stock in the case of a merger or consolidation or sale of all
or substantially all of PCA's assets; or
(4) to make any change that would provide any additional rights or benefits
to the Holders of new preferred stock or that does not adversely affect
the legal rights under the certificate of designation of any such
Holder.
REISSUANCE
New preferred stock redeemed or otherwise acquired or retired by PCA will assume
the status of authorized but unissued preferred stock and may thereafter be
reissued in the same manner as the other authorized but unissued preferred
stock, but not as new preferred stock.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the certificate of
designation and subordinated exchange debentures indenture without charge by
writing to Packaging Corporation of America, 1900 West Field Court, Lake Forest,
Illinois 60045, Attention: Chief Financial Officer.
SUBORDINATED EXCHANGE DEBENTURES
The subordinated exchange debentures:
- will be general unsecured obligations of PCA; and
- will be subordinated in right of payment to all existing and future
Exchange Debenture Senior Debt of PCA.
The subordinated exchange debentures will not be guaranteed by any of PCA's
subsidiaries.
PCA will issue the subordinated exchange debentures under a subordinated
exchange debentures indenture between itself and the exchange trustee. The terms
of the subordinated exchange debentures include those stated in the subordinated
exchange debentures indenture and those made part of the subordinated exchange
debentures indenture by reference to the Trust Indenture Act.
The following description is a summary of the material provisions of the
subordinated exchange debentures indenture. It does not restate that agreement
in its entirety. We urge you to read the subordinated exchange debentures
indenture because it, and not this description, defines your rights as holders
of the subordinated exchange debentures. Copies of the subordinated exchange
debentures indenture are available as set forth below under "-Additional
Information." Certain defined terms used in this description but not defined
below under "-Certain Definitions" have the meanings assigned to them in the
subordinated exchange debentures indenture.
PRINCIPAL, MATURITY AND INTEREST
The subordinated exchange debentures indenture provides for the issuance by PCA
of subordinated exchange debentures only in exchange for new preferred stock and
to pay interest on outstanding subordinated exchange debentures as described
below. The subordinated exchange debentures will mature on April 1, 2010.
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Interest on the subordinated exchange debentures will accrue at the rate of
12 3/8% per annum and will be payable semi-annually in arrears on April 1 and
October 1, commencing on April 1, 1999. PCA will make each interest payment to
the Holders of record on the immediately preceding March 15 and September 15.
On or prior to April 1, 2004, PCA may, at its option, make interest payments:
(1) in cash; or
(2) in additional subordinated exchange debentures having an aggregate
principal amount equal to the amount of such interest.
After April 1, 2004, PCA will pay interest in cash only. PCA does not expect to
pay any interest in cash before April 1, 2004.
Interest on the subordinated exchange debentures will accrue from the date of
original issuance or, if interest has already been paid, from the date it was
most recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE SUBORDINATED EXCHANGE DEBENTURES
If a Holder of at least $1.0 million in aggregate principal amount of the
subordinated exchange debentures has given wire transfer instructions to PCA,
PCA will pay all principal, interest and premium and Liquidated Damages, if any,
on that Holder's subordinated exchange debentures in accordance with those
instructions. All other payments on subordinated exchange debentures will be
made at the office or agency of the paying agent and registrar within the City
and State of New York unless PCA elects to make interest payments by check
mailed to the Holders at their addresses set forth in the register of Holders.
PAYING AGENT AND REGISTRAR FOR THE SUBORDINATED EXCHANGE DEBENTURES
The exchange trustee will initially act as paying agent and registrar. PCA may
change the paying agent or registrar without prior notice to the Holders, and
PCA or any of its Subsidiaries may act as paying agent or registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange subordinated exchange debentures in accordance
with the subordinated exchange debentures indenture. The registrar and the
exchange trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and PCA may require a Holder to
pay any taxes and fees required by law or permitted by the subordinated exchange
debentures indenture. PCA is not required to transfer or exchange any
subordinated exchange debenture selected for redemption. Also, PCA is not
required to transfer or exchange any subordinated exchange debenture for a
period of 15 days before a selection of subordinated exchange debentures to be
redeemed.
The registered Holder of a subordinated exchange debenture will be treated as
the owner of it for all purposes.
SUBORDINATION
The payment of principal, interest and premium and Liquidated Damages, if any,
and any other Obligations on, or relating to the subordinated exchange
debentures will be subordinated to the prior payment in full in cash or Cash
Equivalents (other than Cash Equivalents of the type referred to in clauses (3)
and (4) of the definition thereof) of all Exchange Debenture Senior Debt of PCA,
including Exchange Debenture Senior Debt incurred after the Issue Date.
The holders of Exchange Debenture Senior Debt will be entitled to receive
payment in full in cash or Cash Equivalents (other than Cash Equivalents of the
type referred to in clauses (3) and (4) of the definition thereof) of all
Obligations due in respect of Exchange Debenture Senior Debt (including interest
after the commencement
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of any bankruptcy proceeding at the rate specified in the applicable Exchange
Debenture Senior Debt, whether or not such interest is an allowable claim)
before the Holders of subordinated exchange debentures will be entitled to
receive any payment or distribution of any kind or character with respect to any
Obligations on, or relating to, the subordinated exchange debentures (except
that Holders of subordinated exchange debentures may receive and retain
Permitted Junior Securities and payments made from the trust described under
"-Legal Defeasance and Covenant Defeasance" so long as the trust was created in
accordance with all relevant conditions specified in the subordinated exchange
debentures indenture at the time it was created), in the event of any
distribution to creditors of PCA:
(1) in a liquidation or dissolution of PCA;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to PCA or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of PCA's assets and liabilities.
PCA also may not make any payment or distribution of any kind or character with
respect to any Obligations on, or with respect to, the subordinated exchange
debentures or acquire any subordinated exchange debentures for cash or property
or otherwise (except in Permitted Junior Securities or from the trust described
under "-Legal Defeasance and Covenant Defeasance" so long as the trust was
created in accordance with all relevant conditions specified in the subordinated
exchange debentures indenture at the time it was created) if:
(1) a payment default on Designated Exchange Debenture Senior Debt occurs
and is continuing; or
(2) any other default occurs and is continuing on any Designated Exchange
Debenture Senior Debt that permits holders of that Designated Exchange
Debenture Senior Debt to accelerate its maturity and the exchange
trustee receives a notice of such default (an "Exchange Debenture
Payment Blockage Notice") from the Representative of that Designated
Exchange Debenture Senior Debt.
Payments on and distributions with respect to any Obligations on, or with
respect to, the subordinated exchange debentures may and shall be resumed:
(1) in the case of a payment default, upon the date on which the default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of (a) the date on which
all nonpayment defaults are cured or waived, (b) 179 days after the date
of delivery of the applicable Payment Blockage Notice or (c) the
exchange trustee receives notice from the Representative for such
Designated Exchange Debenture Senior Debt rescinding the Payment
Blockage Notice, unless the maturity of any Designated Exchange
Debenture Senior Debt has been accelerated.
No new Exchange Debenture Payment Blockage Notice will be effective unless and
until at least 360 days have elapsed since the effectiveness of the immediately
prior Exchange Debenture Payment Blockage Notice.
No nonpayment default that existed or was continuing on the date of delivery of
any Exchange Debenture Payment Blockage Notice to the exchange trustee shall be,
or be made, the basis for a subsequent Exchange Debenture Payment Blockage
Notice unless such default shall have been cured or waived for a period of not
less than 90 consecutive days.
If the exchange trustee or any Holder of the subordinated exchange debentures
receives any payment or distribution of assets of any kind or character, whether
in cash, properties or securities, in respect of any Obligations with respect to
the subordinated exchange debentures (except in Permitted Junior Securities or
from the trust described under "-Legal Defeasance and Covenant Defeasance" so
long as the trust was created in accordance with all relevant conditions
specified in the subordinated exchange debentures indenture at the time it was
created) at a time when such payment is prohibited by these subordination
provisions, the exchange trustee or the Holder, as the case may be, shall hold
the payment in trust for the benefit of the holders of
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Exchange Debenture Senior Debt. Upon the proper written request of the holders
of Exchange Debenture Senior Debt, the exchange trustee or the Holder, as the
case may be, shall forthwith deliver the amounts in trust to the holders of
Exchange Debenture Senior Debt (on a pro rata basis based on the aggregate
principal amount of Exchange Debenture Senior Debt) or their proper
Representative.
PCA must promptly notify holders of Exchange Debenture Senior Debt if payment of
the subordinated exchange debentures is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of a
bankruptcy, liquidation or reorganization of PCA, Holders of subordinated
exchange debentures may recover less ratably than creditors of PCA who are
holders of Exchange Debenture Senior Debt. See "Risk Factors-Subordination."
OPTIONAL REDEMPTION
At any time prior to April 1, 2002, PCA may on any one occasion redeem all, or
on any one or more occasions redeem up to 35%, of the then outstanding aggregate
principal amount of subordinated exchange debentures issued under the
subordinated exchange debentures indenture at a redemption price of 112.375% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, with the net cash proceeds of one or
more offerings of common stock of PCA or a capital contribution to PCA's common
equity made with the net cash proceeds of an offering of common stock of PCA's
direct or indirect parent or with Timberlands Net Proceeds (which amount shall
be reduced on a dollar for dollar basis by the amount of Timberlands Net
Proceeds used to make a Timberlands Repurchase in accordance with the fifth
paragraph described under the caption "-Repurchase at Option of Holders-Asset
Sales"); PROVIDED that
(1) except in the case of a redemption of the then outstanding subordinated
exchange debentures, at least 65% of the aggregate principal amount of
subordinated exchange debentures issued under the subordinated exchange
debentures indenture remains outstanding immediately after the
occurrence of such redemption (excluding subordinated exchange
debentures held by PCA and its Subsidiaries); and
(2) the redemption must occur within 60 days of the date of the closing of
such offering, the making of such capital contribution or the
consummation of a Timberlands Sale.
Prior to April 1, 2004, PCA may also redeem the subordinated exchange
debentures, as a whole but not in part, upon the occurrence of a Change of
Control, upon not less than 30 nor more than 60 days' prior written notice, at a
redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium as of, and accrued and unpaid interest and Liquidated
Damages, if any, thereon, to the date of redemption.
Except pursuant to the preceding paragraphs, the subordinated exchange
debentures will not be redeemable at PCA's option prior to April 1, 2004.
Nothing in the subordinated exchange debentures indenture prohibits PCA from
acquiring the subordinated exchange debentures by means other than a redemption,
whether pursuant to an issuer tender offer or otherwise, assuming such
acquisition does not otherwise violate the terms of the subordinated exchange
debentures indenture.
After April 1, 2004, PCA may redeem all or a part of the subordinated exchange
debentures upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on April 1 of the years indicated below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
YEAR PERCENTAGE
- ---------------------------------------------------------------- ----------
<S> <C>
2004............................................................ 106.1875%
2005............................................................ 104.6406%
2006............................................................ 103.0938%
2007............................................................ 101.5469%
2008 and thereafter............................................. 100.0000%
</TABLE>
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MANDATORY REDEMPTION
PCA is not required to make mandatory redemption or sinking fund payments with
respect to the subordinated exchange debentures.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of subordinated exchange debentures
will have the right to require PCA to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of that Holder's subordinated exchange
debentures pursuant to a Change of Control Offer on the terms set forth in the
subordinated exchange debentures indenture, which terms are substantially
identical to those contained in the certificate of designation.
ASSET SALES
PCA will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale except in accordance with an Asset Sale covenant that
is substantially identical to the Asset Sale covenant contained in the
certificate of designation.
SELECTION AND NOTICE
If less than all of the subordinated exchange debentures are to be redeemed at
any time, the exchange trustee will select subordinated exchange debentures for
redemption as follows:
(1) if the subordinated exchange debentures are listed, in compliance with
the requirements of the principal national securities exchange on which
the subordinated exchange debentures are listed; or
(2) if the subordinated exchange debentures are not so listed, on a pro rata
basis, by lot or by such method as the exchange trustee shall deem fair
and appropriate.
No subordinated exchange debentures of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder of subordinated
exchange debentures to be redeemed at its registered address. Notices of
redemption may not be conditional.
If any subordinated exchange debenture is to be redeemed in part only, the
notice of redemption that relates to that subordinated exchange debenture shall
state the portion of the principal amount thereof to be redeemed. A new
subordinated exchange debenture in principal amount equal to the unredeemed
portion of the original subordinated exchange debenture will be issued in the
name of the Holder thereof upon cancellation of the original subordinated
exchange debenture. Subordinated exchange debentures called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on subordinated exchange debentures or portions of
them called for redemption.
CERTAIN COVENANTS
The subordinated exchange debentures indenture will contain covenants
substantially identical to those contained in the certificate of designation.
EVENTS OF DEFAULT AND REMEDIES
Each of the following will be an Event of Default under the subordinated
exchange debentures indenture:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the subordinated exchange
debentures, whether or not prohibited by the subordination provisions of
the subordinated exchange debentures indenture;
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(2) default in payment when due of the principal of, or premium, if any, on
the subordinated exchange debentures, whether or not prohibited by the
subordination provisions of the subordinated exchange debentures
indenture;
(3) failure by PCA or any of its Restricted Subsidiaries to comply with the
provisions described under the captions "-Repurchase at the Option of
Holders-Change of Control," "-Repurchase at the Option of Holders-Asset
Sales" or "-Certain Covenants-Merger, Consolidation or Sale of Assets;"
(4) failure by PCA or any of its Restricted Subsidiaries for 30 days after
notice by the exchange trustee or by the Holders of at least 25% in
principal amount of the subordinated exchange debentures to comply with
any of the other agreements in the subordinated exchange debentures
indenture;
(5) default under any mortgage, indenture or instrument under which there is
issued and outstanding any Indebtedness for money borrowed by PCA or any
of its Restricted Subsidiaries (or the payment of which is guaranteed by
PCA or any of its Restricted Subsidiaries), if that default:
(a) is caused by a failure to pay principal at the final stated maturity
of such Indebtedness (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its express
maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $25.0 million or more;
(6) failure by PCA or any of its Restricted Subsidiaries to pay final
nonappealable judgments aggregating in excess of $25.0 million, which
judgments are not paid, discharged or stayed for a period of 90 days;
and
(7) certain events of bankruptcy or insolvency with respect to PCA or any of
its Significant Subsidiaries.
In the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to PCA, all outstanding subordinated exchange debentures
will become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the exchange trustee (upon
request of Holders of at least 25% in principal amount of the subordinated
exchange debentures then outstanding) or the Holders of at least 25% in
principal amount of the then outstanding subordinated exchange debentures may
declare all the subordinated exchange debentures to be due and payable by notice
in writing to PCA and the trustee specifying the respective Event of Default and
that such notice is a "notice of acceleration" (the "Acceleration Notice"), and
the same (1) shall become immediately due and payable or (2) if there are any
amounts outstanding under the Credit Agreement, shall become immediately due and
payable upon the first to occur of an acceleration under the Credit Agreement or
five Business Days after receipt by PCA and the Representative under the Credit
Agreement of such Acceleration Notice but only if such Event of Default is then
continuing.
Holders of the subordinated exchange debentures may not enforce the subordinated
exchange debentures indenture or the subordinated exchange debentures except as
provided in the subordinated exchange debentures indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
subordinated exchange debentures may direct the exchange trustee in its exercise
of any trust or power. The exchange trustee may withhold from Holders of the
subordinated exchange debentures notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest or Liquidated Damages) if it determines that withholding
notice is in their interest.
The Holders of a majority in aggregate principal amount of the subordinated
exchange debentures then outstanding by notice to the exchange trustee may on
behalf of the Holders of all of the subordinated exchange
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debentures waive any existing Default or Event of Default and its consequences
under the subordinated exchange debentures indenture except a continuing Default
or Event of Default in the payment of interest or Liquidated Damages on, or the
principal of, the subordinated exchange debentures.
In the case of any Event of Default occurring by reason of any willful action or
inaction taken or not taken by or on behalf of PCA in bad faith with the
intention of avoiding payment of the premium that PCA would have had to pay if
PCA then had elected to redeem the subordinated exchange debentures pursuant to
the optional redemption provisions of the subordinated exchange debentures
indenture, an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law upon the acceleration of the subordinated
exchange debentures. If an Event of Default occurs prior to April 1, 2004, by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of PCA in bad faith with the intention of avoiding the prohibition on redemption
of the subordinated exchange debentures prior to April 1, 2004 then the premium
specified in the subordinated exchange debentures indenture shall also become
immediately due and payable to the extent permitted by law upon the acceleration
of the subordinated exchange debentures.
PCA is required to deliver to the exchange trustee annually a statement
regarding compliance with the subordinated exchange debentures indenture. Upon
becoming aware of any Default or Event of Default, PCA is required to deliver to
the exchange trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of PCA, as such,
shall have any liability for any obligations of PCA under the subordinated
exchange debentures, the subordinated exchange debentures indenture, or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of subordinated exchange debentures by accepting a
subordinated exchange debenture waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the
subordinated exchange debentures. The waiver may not be effective to waive
liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
PCA may, at its option and at any time, elect to have all of its obligations
discharged with respect to the outstanding subordinated exchange debentures
("Legal Defeasance") except for:
(1) the rights of Holders of outstanding subordinated exchange debentures to
receive payments in respect of the principal of, or interest or premium
and Liquidated Damages, if any, on such subordinated exchange debentures
when such payments are due from the trust referred to below;
(2) PCA's obligations with respect to the subordinated exchange debentures
concerning issuing temporary subordinated exchange debentures,
registration of subordinated exchange debentures, mutilated, destroyed,
lost or stolen subordinated exchange debentures and the maintenance of
an office or agency for payment and money for security payments held in
trust;
(3) the rights, powers, trusts, duties and immunities of the exchange
trustee, and PCA's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the subordinated exchange debentures
indenture.
In addition, PCA may, at its option and at any time, elect to have the
obligations of PCA released with respect to certain covenants that are described
in the subordinated exchange debentures indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants shall not constitute a
Default or Event of Default with respect to the subordinated exchange
debentures. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the subordinated exchange debentures.
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In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) PCA must irrevocably deposit with the exchange trustee, in trust, for
the benefit of the Holders of the subordinated exchange debentures, cash
in U.S. dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, or interest and premium and Liquidated Damages, if any, on
the outstanding subordinated exchange debentures on the stated maturity
or on the applicable redemption date, as the case may be, and PCA must
specify whether the subordinated exchange debentures are being defeased
to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, PCA shall have delivered to the
exchange trustee an Opinion of Counsel reasonably acceptable to the
exchange trustee confirming that (a) PCA has received from, or there has
been published by, the Internal Revenue Service a ruling or (b) since
the Issue Date, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, the Holders of the outstanding
subordinated exchange debentures will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, PCA shall have delivered to the
exchange trustee an Opinion of Counsel reasonably acceptable to the
exchange trustee confirming that the Holders of the outstanding
subordinated exchange debentures will not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event
of Default resulting from the borrowing of funds to be applied to such
deposit); or (b) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under any material agreement or
instrument (other than the subordinated exchange debentures indenture
but in any event including the Credit Agreement) to which PCA or any of
its Subsidiaries is a party or by which PCA or any of its Subsidiaries
is bound;
(6) PCA must have delivered to the exchange trustee an Opinion of Counsel to
the effect that, assuming no intervening bankruptcy of PCA between the
date of deposit and the 91st day following the deposit and assuming that
no Holder is an "insider" of PCA under applicable bankruptcy law, after
the 91st day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally;
(7) PCA must deliver to the exchange trustee an Officers' Certificate
stating that the deposit was not made by PCA with the intent of
preferring the Holders of subordinated exchange debentures over the
other creditors of PCA with the intent of defeating, hindering, delaying
or defrauding creditors of PCA or others; and
(8) PCA must deliver to the exchange trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied
with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the subordinated
exchange debentures indenture or the subordinated exchange debentures may be
amended or supplemented with the consent of the Holders of at
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least a majority in principal amount of the subordinated exchange debentures
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, subordinated exchange
debentures), or, if no subordinated exchange debentures are outstanding, the
holders of a majority in Liquidation Preference of new preferred stock then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, new preferred stock), and
any existing default or compliance with any provision of the subordinated
exchange debentures indenture or the subordinated exchange debentures may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding subordinated exchange debentures (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, subordinated exchange debentures) or, if no subordinated
exchange debentures are outstanding, the holders of a majority in Liquidation
Preference of new preferred stock then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, new preferred stock).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any subordinated exchange debentures (a) held by a
non-consenting Holder or, (b) if no subordinated exchange debentures are
outstanding, to be received by a Holder of new preferred stock):
(1) reduce the principal amount of subordinated exchange debentures whose
Holders must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any subordinated
exchange debenture or alter the provisions with respect to the
redemption of the subordinated exchange debentures (other than
provisions relating to the covenants described above under the caption
"-Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
subordinated exchange debenture;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium, or Liquidated Damages, if any, on the subordinated
exchange debentures (except a rescission of acceleration of the
subordinated exchange debentures by the Holders of at least a majority
in aggregate principal amount of the subordinated exchange debentures
and a waiver of the payment default that resulted from such
acceleration);
(5) make any subordinated exchange debenture payable in money other than
that stated in the subordinated exchange debentures;
(6) make any change in the provisions of the subordinated exchange
debentures indenture relating to waivers of past Defaults or the rights
of Holders of subordinated exchange debentures to receive payments of
principal of, or interest or premium or Liquidated Damages, if any, on
the subordinated exchange debentures;
(7) waive a redemption payment with respect to any subordinated exchange
debenture (other than a payment required by one of the covenants
described above under the caption "-Repurchase at the Option of
Holders"); or
(8) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the subordinated
exchange debentures indenture relating to subordination that adversely affects
the rights of the Holders of the subordinated exchange debentures will require
the consent of the Holders of at least 75% in aggregate principal amount of
subordinated exchange debentures then outstanding.
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Notwithstanding the preceding, without the consent of any Holder of subordinated
exchange debentures, PCA and the exchange trustee may amend or supplement the
subordinated exchange debentures indenture or the subordinated exchange
debentures (or, if no subordinated exchange debentures are outstanding, the
Holders of at least 75% in Liquidation Preference of new preferred stock then
outstanding):
(1) to cure any ambiguity, defect, error or inconsistency;
(2) to provide for uncertificated subordinated exchange debentures in
addition to or in place of certificated subordinated exchange
debentures;
(3) to provide for the assumption of PCA's obligations to Holders of
subordinated exchange debentures in the case of a merger or
consolidation or sale of all or substantially all of PCA's assets;
(4) to make any change that would provide any additional rights or benefits
to the Holders of subordinated exchange debentures or that does not
adversely affect the legal rights under the subordinated exchange
debentures indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the subordinated exchange debentures
indenture under the Trust Indenture Act.
SATISFACTION AND DISCHARGE
The subordinated exchange debentures indenture will be discharged and will cease
to be of further effect as to all subordinated exchange debentures issued
thereunder, when:
(1) either:
(a) all subordinated exchange debentures that have been authenticated
(except lost, stolen or destroyed subordinated exchange debentures
that have been replaced or paid and subordinated exchange debentures
for whose payment money has theretofore been deposited in trust and
thereafter repaid to PCA) have been delivered to the exchange trustee
for cancellation; or
(b) all subordinated exchange debentures that have not been delivered to
the exchange trustee for cancellation have become due and payable by
reason of the making of a notice of redemption or otherwise, cash in
U.S. dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient without consideration
of any reinvestment of interest, to pay and discharge the entire
indebtedness on the subordinated exchange debentures not delivered to
the exchange trustee for cancellation for principal, premium and
Liquidated Damages, if any, and accrued interest to the date of
maturity or redemption;
(2) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or shall occur as a result of such deposit and
such deposit will not result in a breach or violation of, or constitute
a default under, any other instrument to which PCA is a party or by
which PCA is bound;
(3) PCA has paid or caused to be paid all sums payable by it under the
subordinated exchange debentures indenture; and
(4) PCA has delivered irrevocable instructions to the exchange trustee under
the subordinated exchange debentures indenture to apply the deposited
money toward the payment of the subordinated exchange debentures at
maturity or the redemption date, as the case may be.
In addition, PCA must deliver an Officers' Certificate and an Opinion of Counsel
to the exchange trustee stating that all conditions precedent to satisfaction
and discharge have been satisfied.
CONCERNING THE EXCHANGE TRUSTEE
If the exchange trustee becomes a creditor of PCA, the subordinated exchange
debentures indenture limits its right to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any
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such claim as security or otherwise. The exchange trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
subordinated exchange debentures will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the exchange trustee, subject to certain exceptions. The subordinated exchange
debentures indenture provides that in case an Event of Default shall occur and
be continuing, the exchange trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in the conduct of his or
her own affairs. Subject to such provisions, the exchange trustee will be under
no obligation to exercise any of its rights or powers under the subordinated
exchange debentures indenture at the request of any Holder of subordinated
exchange debentures, unless such Holder shall have offered to the exchange
trustee security and indemnity satisfactory to it against any loss, liability or
expense.
BOOK-ENTRY, DELIVERY AND FORM
For purposes of the following description of the book-entry, delivery and form
provisions of the new preferred stock and underlying subordinated exchange
debentures, references to "Certificates" shall mean certificates representing
the new preferred stock on and prior to the Exchange Date and the subordinated
exchange debentures after the Exchange Date.
Certificates initially will be represented by one or more shares of new
preferred stock in registered, global form (collectively, the "Global
Certificates"). The Global Certificates will be deposited upon issuance with the
transfer agent or exchange trustee as custodian for The Depository Trust Company
("DTC"), in New York, New York, and registered in the name of DTC or its
nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, the Global Certificates may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Certificates may not be exchanged
for securities in certificated form except in the limited circumstances
described below. See "-Exchange of Global Certificates for Certificated
Securities."
Except in the limited circumstances described below, owners of beneficial
interests in the Global Certificates will not be entitled to receive physical
delivery of securities in certificated form. In addition, transfers of
beneficial interests in the Global Certificates will be subject to the
applicable rules and procedures of DTC and its direct or indirect participants,
which may change from time to time.
The new preferred stock or the subordinated exchange debentures, as applicable,
may be presented for registration of transfer and exchange at the offices of the
transfer agent or exchange trustee, as applicable.
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DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC is provided
solely as a matter of convenience. These operations and procedures are solely
within the control of DTC and are subject to changes by it. PCA takes no
responsibility for these operations and procedures and urges investors to
contact DTC or its participants directly to discuss these matters.
DTC has advised PCA that it is a limited-purpose trust company created to hold
securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers (including the Initial Purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised PCA that pursuant to procedures established by it:
(1) upon deposit of the Global Certificates, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Certificates; and
(2) ownership of these interests in the Global Certificates will be shown
on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners
of beneficial interest in the Global Certificates).
The laws of some states require that certain Persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Certificate to such Persons will be
limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants, the ability of a Person
having beneficial interests in a Global Certificate to pledge such interests to
Persons that do not participate in the DTC system, or otherwise take actions in
respect of such interests, may be affected by the lack of a physical certificate
evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL CERTIFICATES WILL
NOT HAVE NEW PREFERRED STOCK OR SUBORDINATED EXCHANGE DEBENTURES, AS APPLICABLE,
REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NEW PREFERRED
STOCK OR SUBORDINATED EXCHANGE DEBENTURES, AS APPLICABLE, IN CERTIFICATED FORM
AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE
CERTIFICATE OF DESIGNATION OR THE SUBORDINATED EXCHANGE DEBENTURES INDENTURE, AS
APPLICABLE, FOR ANY PURPOSE.
Payments in respect of Liquidation Preference, dividends, principal, interest,
premium, if any, and Liquidated Damages, if any, on a Global Certificate
registered in the name of DTC or its nominee will be payable to DTC in its
capacity as the registered Holder under the certificate of designation or the
subordinated exchange debentures indenture, as applicable. Under the terms of
the certificate of designation and the subordinated exchange debentures
indenture, PCA and the transfer agent or exchange trustee, as applicable, will
treat the Persons in whose names the new preferred stock or subordinated
exchange debentures, as applicable, including the Global
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Certificates, are registered as the owners thereof for the purpose of receiving
payments and for all other purposes. Consequently, neither PCA, the transfer
agent nor the exchange trustee nor any of their respective agents has or will
have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Certificates, or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Certificates; or
(2) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants.
DTC has advised PCA that its current practice, upon receipt of any payment in
respect of securities such as the new preferred stock (including dividends) or
the subordinated exchange debentures (including principal and interest), as
applicable, is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date.
Each relevant Participant is credited with an amount proportionate to its
beneficial ownership of an interest in the principal amount of the relevant
security as shown on the records of DTC. Payments by the Participants and the
Indirect Participants to the beneficial owners of new preferred stock or
subordinated exchange debentures, as applicable, will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the transfer agent, the exchange trustee or PCA. Neither PCA, the transfer
agent nor the exchange trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the new preferred stock or
subordinated exchange debentures, as applicable, and PCA, the transfer agent and
the exchange trustee may conclusively rely on and will be protected in relying
on instructions from DTC or its nominee for all purposes.
DTC has advised PCA that it will take any action permitted to be taken by a
Holder of new preferred stock or subordinated exchange debentures, as
applicable, only at the direction of one or more Participants to whose account
DTC has credited the interests in the Global Certificates and only in respect of
such portion of the Liquidation Preference of the new preferred stock or the
aggregate principal amount of the subordinated exchange debentures, as
applicable, as to which such Participant or Participants has or have given such
direction. However, if there is (a) a Voting Rights Triggering Event under the
new preferred stock or (b) an Event of Default under the subordinated exchange
debentures, DTC reserves the right to exchange the Global Certificates for
legended securities in certificated form, and to distribute such Certificates to
its Participants.
EXCHANGE OF GLOBAL CERTIFICATES FOR CERTIFICATED SECURITIES
A Global Certificate is exchangeable for definitive Certificates in registered
certificated form ("Certificated Securities") if:
(1) DTC:
(a) notifies PCA that it is unwilling or unable to continue as depositary
for the Global Certificate and PCA fails to appoint a successor
depositary; or
(b) has ceased to be a clearing agency registered under the Exchange Act;
(2) PCA, at its option, notifies the transfer agent or the exchange trustee,
as applicable, in writing that it elects to cause the issuance of the
new preferred stock or subordinated exchange debentures, as applicable,
in certificate form; or
(3) there shall have occurred and be continuing (a) a Voting Rights
Triggering Event with respect to the new preferred stock or (b) a
Default or Event of Default with respect to the subordinated exchange
debentures.
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In addition, beneficial interests in a Global Certificate may be exchanged for
Certificated Securities upon prior written notice given to the transfer agent or
the exchange trustee, as applicable, by or on behalf of DTC in accordance with
the certificate of designation or the subordinated exchange debentures
indenture, as applicable. In all cases, Certificated Securities delivered in
exchange for any Global Certificates or beneficial interests in Global
Certificates will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary, in accordance with
its customary procedures.
SAME DAY SETTLEMENT AND PAYMENT
PCA will make all payments of Liquidation Preference, dividends, principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. The Certificates represented by the Global Certificates are
expected to be eligible to trade in the PORTAL market and to trade in DTC's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Certificates will, therefore, be required by DTC to be settled
in immediately available funds. PCA expects that secondary trading in any
Certificated Securities will also be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the certificate of designation
and the subordinated exchange debentures indenture. You should refer to the
certificate of designation and the subordinated exchange debentures indenture
for a full disclosure of all such terms, as well as any other capitalized terms
used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such s pecified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"APPLICABLE PREMIUM" means, with respect to any Preferred Stock or Subordinated
Exchange Debenture, as applicable, on any redemption date, the greater of:
(1) 1.0% of the Liquidation Preference of the Preferred Stock or 1.0% of the
principal amount of the Subordinated Exchange Debenture, as applicable;
or
(2) the excess of:
(a) the present value at such redemption date of (i) the redemption price
of the Preferred Stock or Subordinated Exchange Debentures, as
applicable, at April 1, 2004 (such redemption price being set forth
in the table appearing above under the caption "-Optional Redemption"
in the section "--Preferred Stock" or "--Subordinated Exchange
Debentures," as applicable) plus (ii) all required dividend payments
due on the Preferred Stock or interest payments due on the
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Subordinated Exchange Debenture, as applicable, through April 1, 2004
(excluding accrued but unpaid dividends or interest, as applicable),
computed using a discount rate equal to the Treasury Rate as of such
Redemption Date plus 50 basis points; over
(b) the Liquidation Preference of the Preferred Stock or the principal
amount of the Subordinated Exchange Debenture, as applicable, if
greater.
"ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of
business; PROVIDED that the sale, conveyance or other disposition of all
or substantially all of the assets of PCA and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Certificate of Designation or Exchange Indenture, as applicable,
described above under the caption "-Repurchase at the Option of
Holders-Change of Control" in the section "-Preferred Stock" or
"-Subordinated Exchange Debentures," as applicable, and/or the
provisions described above under the caption "-Certain Covenants-Merger,
Consolidation or Sale of Assets" in the section "-Preferred Stock" or
"-Subordinated Exchange Debentures," as applicable, and not by the
provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of PCA's Restricted Subsidiaries
or the sale of Equity Interests in any of PCA's Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $10.0 million;
(2) a transfer of assets between or among PCA and its Wholly Owned
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary
to PCA or to another Wholly Owned Restricted Subsidiary;
(4) the sale, license or lease of equipment, inventory, accounts receivable
or other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents or Marketable
Securities;
(6) the transfer or disposition of assets and the sale of Equity Interests
pursuant to the Contribution;
(7) sales of accounts receivables and related assets of the type specified
in the definition of "Qualified Receivables Transaction" to a
Receivables Subsidiary for the fair market value thereof including cash
or Cash Equivalents or Marketable Securities in an amount at least equal
to 75% of the fair market value thereof as determined in accordance with
GAAP; and
(8) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "-Certain
Covenants-Restricted Payments" in the section "-Preferred Stock" or
"-Subordinated Exchange Debentures," as applicable.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at the
time of determination, the present value of the obligation of the lessee for net
rental payments during the remaining term of the lease included in such sale and
leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
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"BOARD OF DIRECTORS" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person
serving a similar function.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
(PROVIDED that the full faith and credit of the United States is pledged
in support thereof) having maturities of not more than six months from
the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding twelve months and overnight bank deposits,
in each case, with any lender party to the Credit Agreement or with any
domestic commercial bank having capital and surplus in excess of $500.0
million and a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within twelve months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger, consolidation or transfer of PCA Voting
Stock), in one or a series of related transactions, of all or
substantially all of the properties or assets of PCA and its Restricted
Subsidiaries taken as a whole to any "person" (as that term is used in
Section 13(d)(3) of the Exchange Act) other than to a Principal or a
Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of PCA
(other than a plan relating to the sale or other disposition of
timberlands);
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(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties or a
Permitted Group, becomes the Beneficial Owner, directly or indirectly,
of more than 50% of the Voting Stock of PCA, measured by voting power
rather than number of shares; or
(4) the first day on which a majority of the members of the Board of
Directors of PCA are not Continuing Directors.
"CONSOLIDATED CASH FLOW" means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period PLUS:
(1) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; PLUS
(2) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated
Net Income; PLUS
(3) depletion, depreciation, amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid
cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that it
represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Restricted Subsidiaries for such
period to the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Consolidated Net
Income; PLUS
(4) all one-time charges incurred in 1999 in connection with the
Contribution (including the impairment charge described in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Overview") to the extent such charges were deducted in
computing such Consolidated Net Income; PLUS
(5) all restructuring charges incurred prior to the Issue Date (including
the restructuring charge that was added to pro forma EBITDA to calculate
Adjusted pro forma EBITDA as set forth in footnote 4 under "Selected
Combined Financial and Other Data"); MINUS
(6) non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business, in
each case, on a consolidated basis and determined in accordance with
GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash expenses
of, a Restricted Subsidiary of PCA shall be added to Consolidated Net Income to
compute Consolidated Cash Flow of PCA only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to PCA
by such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Restricted
Subsidiary or its stockholders.
"CONSOLIDATED INDEBTEDNESS" means, with respect to any Person as of any date of
determination, the sum, without duplication, of:
(1) the total amount of Indebtedness of such Person and its Restricted
Subsidiaries; PLUS
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(2) the total amount of Indebtedness of any other Person, to the extent that
such Indebtedness has been Guaranteed by the referent Person or one or
more of its Restricted Subsidiaries; PLUS
(3) the aggregate liquidation value of all Disqualified Stock of such Person
and all preferred stock of Restricted Subsidiaries of such Person, in
each case, determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any specified Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; PROVIDED that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Wholly Owned
Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall
be excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded; and
(5) for purposes of calculating Consolidated Cash Flow to determine the Debt
to Cash Flow Ratio or the Fixed Charge Coverage Ratio, the Net Income
(but not loss) of any Unrestricted Subsidiary shall be excluded, whether
or not distributed to the specified Person or one of its Subsidiaries.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of the
Board of Directors of PCA who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of Directors either
(a) with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election or (b)
pursuant to and in accordance with the terms of the Stockholders
Agreement as in effect on the Issue Date.
"CONTRIBUTION" means the Contribution contemplated by the Contribution
Agreement.
"CONTRIBUTION AGREEMENT" means that certain Contribution Agreement dated as of
January 25, 1999 among TPI, PCA Holdings and PCA as the same is in effect on the
Issue Date.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of the date
hereof by and among PCA and Morgan Guaranty Trust Company of New York, as
administrative agent, and the other lenders party thereto, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder or adding Subsidiaries
of PCA as additional borrowers or guarantors thereunder) all or any portion of
the Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.
"CREDIT FACILITIES" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special
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purpose entities formed to borrow from such lenders against such receivables),
working capital loans, swing lines, advances or letters of credit, in each case,
as amended, restated, modified, renewed, refunded, replaced, restructured or
refinanced in whole or in part from time to time.
"DEBT AND PREFERRED STOCK TO CASH FLOW RATIO" means, as of any date of
determination, the ratio of (1) the Consolidated Indebtedness and Preferred
Stock of PCA as of such date to (2) the Consolidated Cash Flow of PCA for the
four most recent full fiscal quarters ending immediately prior to such date for
which internal financial statements are available, determined on a pro forma
basis after giving effect to all acquisitions or dispositions of assets made by
PCA and its Restricted Subsidiaries from the beginning of such four-quarter
period through and including such date of determination (including any related
financing transactions) as if such acquisitions and dispositions had occurred at
the beginning of such four-quarter period. In addition, for purposes of making
the computation referred to above:
(1) acquisitions that have been made by PCA or any of its Restricted
Subsidiaries, including through mergers or consolidations and including
any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the
date of determination shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated on
a pro forma basis in accordance with Regulation S-X under the Securities
Act and including those cost savings that management reasonably expects
to realize within six months of the consummation of the acquisition, but
without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the date of determination, shall be excluded;
(3) for any four-quarter reference period that includes any period of time
prior to the consummation of the Contribution, pro forma effect shall be
given for such period to the Transactions described in this prospectus
and the related corporate overhead savings and cost savings that were
added to pro forma EBITDA to calculate Adjusted pro forma EBITDA as set
forth in footnote 4 under "Selected Combined Financial and Other Data,"
all as calculated in good faith by a responsible financial or accounting
officer of PCA, as if they had occurred on the first day of such
four-quarter reference period; and
(4) the impact of the Treasury Lock shall be excluded.
"DEFAULT" means any event that is, or with the passage of time or the giving of
notice or both would be, an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means any non-cash consideration received by
PCA or one of its Restricted Subsidiaries in connection with an Asset Sale that
is designated as Designated Noncash Consideration pursuant to an Officers'
Certificate executed by the principal executive officer and the principal
financial officer of PCA or such Restricted Subsidiary. Such Officers'
Certificate shall state the basis of such valuation, which shall be a report of
a nationally recognized investment banking firm with respect to the receipt in
one or a series of related transactions of Designated Noncash Consideration with
a fair market value in excess of $10.0 million. A particular item of Designated
Noncash Consideration shall no longer be considered to be outstanding when it
has been sold for cash or redeemed or paid in full in the case of non-cash
consideration in the form of promissory notes or equity.
"DESIGNATED EXCHANGE DEBENTURE SENIOR DEBT" means:
(1) any Indebtedness under or in respect of the Credit Agreement and the
Indenture; and
(2) any other Exchange Debenture Senior Debt permitted under the Exchange
Indenture the principal amount of which is $25.0 million or more and
that has been designated by PCA in the instrument or agreement relating
to the same as "Exchange Debenture Designated Senior Debt;"
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PROVIDED that for purposes of clause (2) of the third paragraph under the
caption "--Subordinated Exchange Debentures--Subordination," the Indenture shall
not be deemed to be Designated Exchange Debenture Senior Debt so long as the
Credit Agreement is still in effect.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms
of any security into which it is convertible, or for which it is exchangeable,
in each case at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Preferred Stock or the Subordinated Exchange Debentures mature, as
applicable. Notwithstanding the preceding sentence, any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require PCA to repurchase such Capital Stock upon the occurrence of a change
of control or an asset sale shall not constitute Disqualified Stock if the terms
of such Capital Stock provide that PCA may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the caption "-Certain
Covenants-Restricted Payments" in the section "-Preferred Stock" or
"-Subordinated Exchange Debentures," as applicable. The Preferred Stock as in
effect on the Issue Date will not constitute Disqualified Stock for purposes of
the Certificate of Designation and the Exchange Indenture.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for, Capital Stock).
"EXCHANGE DEBENTURE SENIOR DEBT" means:
(1) all Indebtedness outstanding under all Credit Facilities, all Hedging
Obligations and all Other Hedging Agreements (including guarantees
thereof) with respect thereto of PCA and its Restricted Subsidiaries,
whether outstanding on the Issue Date or thereafter incurred;
(2) all Indebtedness of PCA and its Restricted Subsidiaries outstanding
under the Notes or the guarantees of the Notes;
(3) any other Indebtedness incurred by PCA and its Restricted Subsidiaries
under the terms of the Exchange Indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Subordinated
Exchange Debentures; and
(4) all Obligations with respect to the items listed in the preceding
clauses (1), (2) and (3) (including any interest accruing subsequent to
the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law).
Notwithstanding anything to the contrary in the preceding, Exchange Debenture
Senior Debt will not include:
(1) any liability for federal, state, local or other taxes owed or owing by
PCA or its Restricted Subsidiaries;
(2) any Indebtedness of PCA or any of its Restricted Subsidiaries to any of
its Subsidiaries;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of the
Exchange Indenture (but only to the extent so incurred).
"EXISTING INDEBTEDNESS" means Indebtedness of PCA and its Subsidiaries (other
than Indebtedness under the Credit Agreement) in existence on the Issue Date,
until such amounts are repaid.
"FIXED CHARGES" means, with respect to any specified Person for any period, the
sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including,
without limitation, original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt,
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commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, excluding
amortization of debt issuance costs and net of the effect of all
payments made or received pursuant to Hedging Obligations; PLUS
(2) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period; PLUS
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon; PLUS
(4) the product of (a) all dividends, whether paid or accrued in cash, times
(b) a fraction, the numerator of which is one and the denominator of
which is one minus PCA's then current effective combined federal, state
and local tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any specified Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the specified
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees,
repays, repurchases or redeems any Indebtedness (other than ordinary working
capital borrowings) or issues, repurchases or redeems preferred stock subsequent
to the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated and on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee, repayment, repurchase or redemption
of Indebtedness, or such issuance, repurchase or redemption of preferred stock,
and the use of the proceeds therefrom as if the same had occurred at the
beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior
to the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated on
a pro forma basis in accordance with Regulation S-X under the Securities
Act and including those cost savings that management reasonably expects
to realize within six months of the consummation of the acquisition, but
without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior
to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted
Subsidiaries following the Calculation Date;
(4) for any four-quarter reference period that includes any period of time
prior to the consummation of the Contribution, pro forma effect shall be
given for such period to the Transactions described in this prospectus
and the related corporate overhead savings and cost savings that were
added to pro forma EBITDA to calculate Adjusted pro forma EBITDA as set
forth in footnote 4 under "Selected Combined Financial and Other Data,"
all as calculated in good faith by a responsible financial or accounting
officer of PCA, as if they had occurred on the first day of such
four-quarter reference period; and
(5) the impact of the Treasury Lock shall be excluded.
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"FOREIGN SUBSIDIARY WORKING CAPITAL INDEBTEDNESS" means Indebtedness of a
Restricted Subsidiary that is organized outside of the United States under lines
of credit extended after the Issue Date to any such Restricted Subsidiary by
Persons other than PCA or any of its Restricted Subsidiaries, the proceeds of
which are used for such Restricted Subsidiary's working capital purposes.
"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"GUARANTEE" means a guarantee of all or any part of any Indebtedness (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), including, without limitation, by way of a pledge of assets or
through letters of credit or reimbursement agreements in respect thereof.
"HEDGING OBLIGATIONS" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"INDEBTEDNESS" means, with respect to any specified Person, any indebtedness of
such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the deferred balance of the purchase price of any property outside of
the ordinary course of business which remains unpaid, except any such
balance that constitutes an operating lease payment, accrued expense,
trade payable or similar current liability; or
(6) any Hedging Obligations or Other Hedging Agreements,
if and to the extent any of the preceding items (other than letters of credit,
Hedging Obligations and Other Hedging Agreements) would appear as a liability
upon a balance sheet of the specified Person prepared in accordance with GAAP.
In addition, the term "Indebtedness" includes all Indebtedness of others secured
by a Lien on any asset of the specified Person (whether or not such Indebtedness
is assumed by the specified Person) and, to the extent not otherwise included,
the Guarantee by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof in the case of any other Indebtedness.
"INITIAL PURCHASERS" means J.P. Morgan Securities Inc. and BT Alex.Brown
Incorporated.
"INVESTMENTS" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet
prepared in accordance with GAAP. If PCA or any Subsidiary of PCA sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
of PCA such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of PCA, PCA shall be deemed to have made an
Investment on the date of
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any such sale or disposition equal to the fair market value of the Equity
Interests of such Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "-Certain Covenants-Restricted Payments" in the section "-Preferred
Stock" or "-Subordinated Exchange Debentures," as applicable. The acquisition by
PCA or any Subsidiary of PCA of a Person that holds an Investment in a third
Person shall be deemed to be an Investment by PCA or such Subsidiary in such
third Person in an amount equal to the fair market value of the Investment held
by the acquired Person in such third Person in an amount determined as provided
in the final paragraph of the covenant described above under the caption
"-Certain Covenants-Restricted Payments" in the section "-Preferred Stock" or
"-Subordinated Exchange Debentures," as applicable.
"ISSUE DATE" means the closing date for sale and original issuance of the
Preferred Stock.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement.
"MARKETABLE SECURITIES" means publicly traded debt or equity securities that are
listed for trading on a national securities exchange and that were issued by a
corporation whose debt securities are rated in one of the three highest rating
categories by either Standard & Poor's Rating Services or Moody's Investors
Service, Inc.
"NET INCOME" means, with respect to any specified Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(1) any gain (or loss), together with any related provision for taxes on
such gain (or loss), realized in connection with: (a) any Asset Sale; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (or loss), together with any related provision
for taxes on such extraordinary gain (or loss).
"NET PROCEEDS" means the aggregate cash proceeds received by PCA or any of its
Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including, without limitation, legal, accounting and investment
banking fees, sales commissions, any relocation expenses incurred as a result
thereof, all taxes of any kind paid or payable as a result thereof and
reasonable reserves established to cover any indemnity obligations incurred in
connection therewith, in each case, after taking into account any available tax
credits or deductions and any tax sharing arrangements, and amounts required to
be applied to the repayment of Indebtedness, other than Indebtedness under a
Credit Facility, secured by a Lien on the asset or assets that were the subject
of such Asset Sale and any reserve for adjustment in respect of the sale price
of such asset or assets established in accordance with GAAP.
"NEW EXCHANGE DEBENTURES" means PCA's 12 3/8% Subordinated Exchange Debentures
due 2010 issued pursuant to the Exchange Indenture (i) in the Preferred Stock
Exchange Offer or (ii) in connection with a resale of Subordinated Exchange
Debentures in reliance on a shelf registration statement.
"NEW PREFERRED STOCK" means PCA's 12 3/8% Senior Exchangeable Preferred Stock
due 2010 issued pursuant to the Certificate of Designation (i) in the Preferred
Stock Exchange Offer or (ii) in connection with a resale of Preferred Stock in
reliance on a shelf registration statement.
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither PCA nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
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(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder
of any other Indebtedness (other than the Subordinated Exchange
Debentures) of PCA or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of PCA or any of its Restricted
Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications,
expenses, reimbursements, damages and other liabilities payable under the
documentation governing any Indebtedness.
"OTHER HEDGING AGREEMENTS" means any foreign exchange contracts, currency swap
agreements, commodity agreements or other similar agreements or arrangements
designed to protect against the fluctuations in currency or commodity values.
"PCA HOLDINGS" means PCA Holdings LLC, a Delaware limited liability company.
"PERMITTED BUSINESS" means the containerboard, paperboard and packaging products
business and any business in which PCA and its Restricted Subsidiaries are
engaged on the Issue Date or any business reasonably related, incidental or
ancillary to any of the foregoing.
"PERMITTED GROUP" means any group of investors that is deemed to be a "person"
(as that term is used in Section 13(d)(3) of the Exchange Act) at any time prior
to PCA's initial public offering of common stock, by virtue of the Stockholders
Agreement, as the same may be amended, modified or supplemented from time to
time, PROVIDED that no single Person (other than the Principals and their
Related Parties) Beneficially Owns (together with its Affiliates) more of the
Voting Stock of PCA that is Beneficially Owned by such group of investors than
is then collectively Beneficially Owned by the Principals and their Related
Parties in the aggregate.
"PERMITTED INVESTMENTS" means:
(1) any Investment in PCA or in a Restricted Subsidiary of PCA;
(2) any Investment in Cash Equivalents;
(3) any Investment by PCA or any Restricted Subsidiary of PCA in a Person,
if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of PCA; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, PCA or a Restricted Subsidiary of PCA;
(4) any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "-Repurchase at the Option of
Holders-Asset Sales" in the section "-Preferred Stock" or "-Subordinated
Exchange Debentures," as applicable;
(5) any acquisition of assets to the extent acquired in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of PCA;
(6) Hedging Obligations and Other Hedging Agreements;
(7) any Investment existing on the Issue Date;
(8) loans and advances to employees and officers of PCA and its Restricted
Subsidiaries in the ordinary course of business;
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(9) any Investment in securities of trade creditors or customers received in
compromise of obligations of such persons incurred in the ordinary
course of business, including pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade
creditors or customers;
(10) negotiable instruments held for deposit or collection in the ordinary
course of business;
(11) loans, guarantees of loans and advances to officers, directors,
employees or consultants of PCA or a Restricted Subsidiary of PCA not to
exceed $7.5 million in the aggregate outstanding at any time;
(12) any Investment by PCA or any of its Restricted Subsidiaries in a
Receivables Subsidiary or any Investment by a Receivables Subsidiary in
any other Person in connection with a Qualified Receivables Transaction;
PROVIDED that each such Investment is in the form of a Purchase Money
Note, an equity interest or interests in accounts receivables generated
by PCA or any of its Restricted Subsidiaries; and
(13) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (13) that are at the time
outstanding not to exceed the greater of $50.0 million or 5% of Total
Assets.
"PERMITTED JUNIOR SECURITIES" means debt or equity securities of PCA or any
successor corporation issued pursuant to a plan of reorganization or
readjustment of PCA that are subordinated to the payment of all then outstanding
Exchange Debenture Senior Debt of PCA at least to the same extent that the
Subordinated Exchange Debentures are subordinated to the payment of all Exchange
Debenture Senior Debt of PCA on the Issue Date, so long as:
(1) the effect of the use of this defined term in the subordination
provisions contained in the Exchange Indenture is not to cause the
Subordinated Exchange Debentures to be treated as part of:
(a) the same class of claims as the Exchange Debenture Senior Debt of
PCA; or
(b) any class of claims PARI PASSU with, or senior to, the Exchange
Debenture Senior Debt of PCA for any payment or distribution in any
case or proceeding or similar event relating to the liquidation,
insolvency, bankruptcy, dissolution, winding up or reorganization of
PCA; and
(2) to the extent that any Exchange Debenture Senior Debt of PCA outstanding
on the date of consummation of any such plan of reorganization or
readjustment is not paid in full in cash or Cash Equivalents (other than
Cash Equivalents of the type referred to in clauses (3) and (4) of the
definition thereof) on such date, either:
(a) the holders of any such Exchange Debenture Senior Debt not so paid in
full in cash or Cash Equivalents (other than Cash Equivalents of the
type referred to in clauses (3) and (4) of the definition thereof)
have consented to the terms of such plan of reorganization or
readjustment; or
(b) such holders receive securities which constitute Exchange Debenture
Senior Debt of PCA and which have been determined by the relevant
court to constitute satisfaction in full in money or money's worth of
any Exchange Debenture Senior Debt of PCA not paid in full in cash or
Cash Equivalents (other than Cash Equivalents of the type referred to
in clauses (3) and (4) of the definition thereof).
"PERMITTED LIENS" means:
(1) Liens of PCA and its Restricted Subsidiaries securing Exchange Debenture
Senior Debt that was permitted by the terms of the Certificate of
Designation or the Exchange Indenture, as applicable, to be incurred;
(2) Liens in favor of PCA or its Restricted Subsidiaries;
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(3) Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with PCA or any Subsidiary of PCA; PROVIDED
that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with PCA or the Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by PCA or
any Subsidiary of PCA, PROVIDED that such Liens were in existence prior
to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"-Certain Covenants-Incurrence of Indebtedness and Issuance of Preferred
Stock" in the section "-Preferred Stock" or "-Subordinated Exchange
Debentures," as applicable, covering only the assets acquired with such
Indebtedness;
(7) Liens existing on the Issue Date together with any Liens securing
Permitted Refinancing Indebtedness incurred under clause (5) of the
second paragraph under the caption "-Certain Covenants-Incurrence of
Indebtedness and Issuance of Preferred Stock" in the section "-Preferred
Stock" or "-Subordinated Exchange Debentures," as applicable, in order
to refinance the Indebtedness secured by Liens existing on the Issue
Date; PROVIDED that the Liens securing the Permitted Refinancing
Indebtedness shall not extend to property other than that pledged under
the Liens securing the Indebtedness being refinanced;
(8) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries;
(9) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
PROVIDED that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(10) Liens to secure Foreign Subsidiary Working Capital Indebtedness
permitted by the Certificate of Designation or the Exchange Indenture,
as applicable, to be incurred so long as any such Lien attached only to
the assets of the Restricted Subsidiary which is the obligor under such
Indebtedness;
(11) Liens securing Attributable Debt;
(12) Liens on assets of a Receivables Subsidiary incurred in connection with
a Qualified Receivables Transaction; and
(13) Liens incurred in the ordinary course of business of PCA or any
Subsidiary of PCA with respect to obligations that do not exceed $15.0
million at any one time outstanding.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of PCA or any of its
Restricted Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of PCA or any of its Restricted Subsidiaries (other than intercompany
Indebtedness); PROVIDED that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus all accrued
interest thereon and the amount of all expenses and premiums incurred in
connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
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(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the
Subordinated Exchange Debentures, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity
date of, and is subordinated in right of payment to, the Subordinated
Exchange Debentures on terms at least as favorable to the Holders of
Subordinated Exchange Debentures as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by PCA or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"PRINCIPALS" means:
(1) Madison Dearborn Partners, LLC and its Affiliates; and
(2) TPI and its Affiliates.
"PURCHASE MONEY NOTE" means a promissory note evidencing a line of credit, which
may be irrevocable, from, or evidencing other Indebtedness owed to, PCA or any
of its Restricted Subsidiaries in connection with a Qualified Receivables
Transaction, which note shall be repaid from cash available to the maker of such
note, other than amounts required to be established as reserves pursuant to
agreements, amounts paid to investors in respect of interest, principal and
other amounts owing to such investors and amounts paid in connection with the
purchase of newly generated receivables.
"QUALIFIED RECEIVABLES TRANSACTION" means any transaction or series of
transactions that may be entered into by PCA or any of its Restricted
Subsidiaries pursuant to which PCA or any of its Restricted Subsidiaries may
sell, convey or otherwise transfer to:
(1) a Receivables Subsidiary (in the case of a transfer by PCA or any of its
Restricted Subsidiaries); and
(2) any other Person (in the case of a transfer by a Receivables
Subsidiary),
or may grant a security interest in, any accounts receivable (whether now
existing or arising in the future) of PCA or any of its Restricted Subsidiaries,
and any assets related thereto including, without limitation, all collateral
securing such accounts receivable, all contracts and all guarantees or other
obligations in respect of such accounts receivable, proceeds of such accounts
receivable and other assets that are customarily transferred, or in respect of
which security interests are customarily granted, in connection with asset
securitization transactions involving accounts receivable.
"RECEIVABLES SUBSIDIARY" means a Wholly Owned Subsidiary of PCA that engages in
no activities other than in connection with the financing of accounts receivable
and that is designated by the Board of Directors of PCA (as provided below) as a
Receivables Subsidiary and:
(1) has no Indebtedness or other Obligations (contingent or otherwise) that:
(a) are guaranteed by PCA or any of its Restricted Subsidiaries, other
than contingent liabilities pursuant to Standard Securitization
Undertakings;
(b) are recourse to or obligate PCA or any of its Restricted Subsidiaries
in any way other than pursuant to Standard Securitization
Undertakings; or
(c) subjects any property or assets of PCA or any of its Restricted
Subsidiaries, directly or indirectly, contingently or otherwise, to
the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings;
(2) has no contract, agreement, arrangement or undertaking (except in
connection with a Purchase Money Note or Qualified Receivables
Transaction) with PCA or any of its Restricted Subsidiaries than on
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terms no less favorable to PCA or such Restricted Subsidiaries than
those that might be obtained at the time from Persons that are not
Affiliates of PCA, other than fees payable in the ordinary course of
business in connection with servicing accounts receivable; and
(3) neither PCA nor any of its Restricted Subsidiaries has any obligation to
maintain or preserve the Receivables Subsidiary's financial condition or
cause the Receivables Subsidiary to achieve certain levels of operating
results.
Any such designation by the Board of Directors of PCA shall be evidenced to the
Transfer Agent or Exchange Trustee, as applicable, by filing with the Transfer
Agent or Exchange Trustee, as applicable, a certified copy of the resolution of
the Board of Directors of PCA giving effect to such designation and an Officers'
Certificate certifying, to the best of such officer's knowledge and belief after
consulting with counsel, that such designation complied with the foregoing
conditions.
"RELATED PARTY" means:
(1) any controlling stockholder, 80% (or more) owned Subsidiary, or
immediate family member (in the case of an individual) of any Principal;
or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or
more controlling interest of which consist of any one or more Principals
and/or such other Persons referred to in the immediately preceding
clause (1).
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Exchange Debenture Senior Debt;
PROVIDED that if, and for so long as, any Designated Exchange Debenture Senior
Debt lacks such a representative, then the Representative for such Designated
Exchange Debenture Senior Debt shall at all times constitute the holders of a
majority in outstanding principal amount of such Designated Exchange Debenture
Senior Debt in respect of any Designated Exchange Debenture Senior Debt.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent Person
that is not an Unrestricted Subsidiary.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by PCA or any of its Restricted
Subsidiaries that are reasonably customary in an accounts receivable
transaction.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"STOCKHOLDERS AGREEMENT" means that certain Stockholders Agreement dated as of
April 12, 1999 by and among PCA Holdings LLC, TPI and PCA, as in effect on the
Issue Date.
"SUBSIDIARY" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of that Person (or a combination thereof); and
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(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"TPI" means Tenneco Packaging Inc., a Delaware corporation.
"TIMBERLANDS NET PROCEEDS" means the Net Proceeds from Timberlands Sales in
excess of $500.0 million, up to a maximum of $100.0 million (or such larger
amount as may be necessary to repurchase or redeem all outstanding Preferred
Stock or Subordinated Exchange Debentures in the event of a repurchase or
redemption of all outstanding Preferred Stock or Subordinated Exchange
Debentures), as long as at least $500.0 million of Net Proceeds have been
applied to repay Indebtedness under the Credit Agreement.
"TIMBERLANDS REPURCHASE" means the repurchase or redemption of, payment of a
dividend on, or return of capital with respect to any Equity Interests of PCA,
or the repurchase or redemption of Subordinated Exchange Debentures with
Timberlands Net Proceeds in accordance with the terms of the Certificate of
Designation and the Exchange Indenture.
"TIMBERLANDS SALE" means a sale or series of sales by PCA or a Restricted
Subsidiary of PCA of timberlands.
"TOTAL ASSETS" means the total consolidated assets of PCA and its Restricted
Subsidiaries, as set forth on PCA's most recent consolidated balance sheet.
"TRANSACTION AGREEMENTS" means:
(1) those certain Purchase/Supply Agreements between PCA and TPI, Tenneco
Automotive, Inc. and Tenneco Packaging Specialty and Consumer Products,
Inc., each dated the Issue Date;
(2) that certain Facilities Use Agreement between PCA and TPI, dated the
Issue Date;
(3) that certain Human Resources Agreement among PCA, TPI and Tenneco Inc.,
dated the Issue Date;
(4) that certain Transition Services Agreement among PCA and TPI, dated the
Issue Date;
(5) that certain Holding Company Support Agreement among PCA and PCA
Holdings, dated the Issue Date;
(6) that certain Registration Rights Agreement among PCA, PCA Holdings and
TPI, dated the Issue Date; and
(7) the Stockholders Agreement.
"TREASURY LOCK" means the interest rate protection agreement dated as of March
5, 1999 between PCA and J.P. Morgan Securities Inc.
"TREASURY RATE" means, as of any redemption date, the yield to maturity as of
such Redemption Date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
business days prior to the redemption date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the redemption date to April 1, 2004; PROVIDED,
HOWEVER, that if the period from the redemption date to April 1, 2004 is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of PCA that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution,
but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with PCA or any Restricted Subsidiary of PCA unless the terms of any
such agreement, contract, arrangement or understanding are no less
favorable to PCA or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of PCA;
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(3) is a Person with respect to which neither PCA nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified
levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of PCA or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of PCA as an Unrestricted Subsidiary shall be
evidenced to the Transfer Agent or Exchange Trustee, as applicable, by filing
with the Transfer Agent or Exchange Trustee, as applicable, a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"-Certain Covenants-Restricted Payments" in the section "-Preferred Stock" or
"-Subordinated Exchange Debentures," as applicable. If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Certificate of Designation or Exchange Indenture,
as applicable, and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of PCA as of such date and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "-Certain Covenants-Incurrence of Indebtedness and
Issuance of Preferred Stock" in the section "-Preferred Stock" or "-Subordinated
Exchange Debentures," as applicable, PCA shall be in default of such covenant.
The Board of Directors of PCA may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of PCA
of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (1) such Indebtedness is permitted under
the covenant described under the caption "-Certain Covenants-Incurrence of
Indebtedness and Issuance of Preferred Stock" in the section "-Preferred Stock"
or "-Subordinated Exchange Debentures," as applicable, calculated on a pro forma
basis as if such designation had occurred at the beginning of the four-quarter
reference period; and (2) no Default or Event of Default would be in existence
following such designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any specified Person means any Wholly
Owned Subsidiary of such Person which at the time of determination is a
Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any specified Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person and/or by one or more Wholly Owned Subsidiaries of such Person.
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THE EXCHANGE OFFER
THE EXCHANGE NOTES
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
PCA originally sold the notes to J.P. Morgan Securities Inc. and BT Alex. Brown
Incorporated, the initial purchasers, pursuant to a Purchase Agreement dated
March 30, 1999. The initial purchasers subsequently resold the notes to
qualified institutional buyers in reliance on Rule 144A and Regulation S under
the Securities Act. As a condition to the Purchase Agreement, PCA, the guarantor
subsidiaries and the initial purchasers entered into a notes registration rights
agreement in which PCA and the guarantor subsidiaries agreed to:
(1) use all commercially reasonable efforts to file a registration statement
registering the exchange notes with the Securities and Exchange
Commission within 60 days after the original issuance of the outstanding
notes;
(2) use all commercially reasonable efforts to have the registration
statement relating to the exchange notes declared effective by the
Securities and Exchange Commission within 150 days after the original
issuance of the outstanding notes;
(3) unless the exchange offer would not be permitted by applicable law or
Securities and Exchange Commission policy, use all commercially
reasonable efforts to commence the exchange offer and use all
commercially reasonable efforts to issue within 30 business days, or
longer, if required by the federal securities laws, after the date on
which the registration statement relating to the exchange notes was
declared effective by the Securities and Exchange Commission, exchange
notes in exchange for all outstanding notes tendered prior to the
expiration date; and
(4) if obligated to file a shelf registration statement, use all
commercially reasonable efforts to file the shelf registration statement
with the Securities and Exchange Commission within 60 days after such
filing obligation arises, to cause the shelf registration statement to be
declared effective by the Securities and Exchange Commission within 120
days after such obligation arises and to use commercially reasonable
efforts to keep effective the shelf registration statement for at least
two years after the original issuance of the notes or such shorter period
that will terminate when all securities covered by the shelf registration
statement have been sold pursuant to the shelf registration statement.
We have agreed to keep the exchange offer open for not less than 20 business
days, or longer if required by applicable law, after the date on which notice of
the exchange offer is mailed to the holders of the notes. The notes registration
rights agreement also requires us to include in the prospectus for the exchange
offer information necessary to allow broker-dealers who hold notes, other than
notes purchased directly from us or one of our affiliates, to exchange such
notes pursuant to the exchange offer and to satisfy the prospectus delivery
requirements in connection with resales of the exchange notes received by such
broker-dealers in the exchange offer.
This prospectus covers the offer and sale of the exchange notes pursuant to the
exchange offer and the resale of exchange notes received in the exchange offer
by any broker-dealer who held notes other than notes purchased directly from us
or one of our affiliates.
For each note surrendered to us pursuant to the exchange offer, the holder of
such note will receive an exchange note having a principal amount equal to that
of the surrendered note. Interest on each exchange note will accrue from the
date of issuance of such exchange note. The holders of notes that are accepted
for exchange will receive, in cash, accrued interest on such notes up to, but
not including, the issuance date of the exchange notes. Such interest will be
paid with the first interest payment on the exchange notes. Interest on the
outstanding notes accepted for exchange will cease to accrue upon issuance of
the exchange notes.
Under existing interpretations of the staff of the Securities and Exchange
Commission contained in several no-action letters to third parties, we believe
the exchange notes would in general be freely tradeable after the
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exchange offer without further registration under the Securities Act. Any
purchaser of the notes, however, who is either an "affiliate" of PCA, a
broker-dealer who purchased notes directly from us or one of our affiliates for
resale, or who intends to participate in the exchange offer for the purpose of
distributing the exchange notes:
(1) will not be able to rely on the interpretation of the staff of the
Securities and Exchange Commission;
(2) will not be able to tender its notes in the exchange offer; and
(3) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the
notes, unless such sale or transfer is made pursuant to an exemption from
such requirements.
We have agreed to file with the Securities and Exchange Commission a shelf
registration statement to cover resales of the notes by holders who satisfy
certain conditions relating to the provision of information in connection with
the shelf registration statement if:
(1) we are not required to file the registration statement for the exchange
offer or permitted to consummate the exchange offer because it is not
permitted by applicable law or Securities and Exchange Commission policy;
or
(2) any holder of Transfer Restricted Securities notifies us prior to the
20th day following consummation of the exchange offer that:
(a) it is prohibited by law or Securities and Exchange Commission policy
from participating in the exchange offer;
(b) that it may not resell the exchange notes acquired by it in the
exchange offer to the public without delivering a prospectus and the
prospectus contained in the registration statement relating to the
exchange offer is not appropriate or available for such resales; or
(c) that it is a broker-dealer that purchased notes directly from us or
one of our affiliates for resale.
For purposes of the foregoing, "Transfer Restricted Securities" means each
outstanding note until the earliest to occur of:
(1) the date on which such note has been exchanged by a person other than a
broker-dealer for an exchange note;
(2) following the exchange by a broker-dealer in the exchange offer of a
note for an exchange note, the date on which such exchange note is sold
to a purchaser who receives from such broker-dealer before the date of
such sale a copy of the prospectus contained in the registration
statement relating to the exchange offer;
(3) the date on which such note has been effectively registered under the
Securities Act and disposed of in accordance with the shelf registration
statement; or
(4) the date on which such note is distributed to the public pursuant to
Rule 144 under the Securities Act.
We will pay liquidated damages to each holder of notes if:
(1) we fail to file any of the registration statements on or before the date
specified for such filing;
(2) any of such registration statements is not declared effective by the
Securities and Exchange Commission before the date specified for such
effectiveness (the "Effectiveness Target Date");
(3) we fail to consummate the exchange offer within 30 business days of the
Effectiveness Target Date with respect to the registration statement
relating to the exchange offer;
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(4) the shelf registration statement or the registration statement relating
to the exchange offer is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the notes registration rights
agreement (each such event referred to in clauses (1) through (4) above,
a "Registration Default").
The amount of liquidated damages will be equal to a per annum rate of 0.25% on
the principal amount of notes held by each holder, with respect to the first
90-day period immediately following the occurrence of the first Registration
Default. Liquidated damages will increase by an additional per annum rate of
0.25% with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of liquidated damages for all
Registration Defaults of 1.00% per annum on the principal amount of notes. We
will pay all accrued liquidated damages on each interest payment date in the
manner provided for the payment of interest in the notes indenture. Following
the cure of all Registration Defaults, the accrual of liquidated damages will
cease.
Each holder of notes, other than certain specified holders, who wishes to
exchange notes for exchange notes in the exchange offer will be required to make
certain representations, including that:
(1) it is not an affiliate of PCA;
(2) any exchange notes to be received by it were acquired in the ordinary
course of its business; and
(3) it has no arrangement with any person to participate in the distribution
of the exchange notes.
If the holder is a broker-dealer that will receive exchange notes for its own
account in exchange for notes that were acquired as a result of market-making
activities or other trading activities, it will be required to acknowledge that
it will deliver a prospectus in connection with any resale of such exchange
notes.
The Securities and Exchange Commission has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements with respect
to the exchange notes, other than a resale of an unsold allotment from the
original sale of the notes, with a prospectus contained in the registration
statement relating to the exchange offer. Under the notes registration rights
agreement, we are required to allow broker-dealers to use the prospectus
contained in the registration statement relating to the exchange offer in
connection with the resale of such exchange notes.
We will, in the event of the filing of a shelf registration statement, provide
to each holder of notes eligible to participate in such shelf registration
statement copies of the prospectus which is a part of the shelf registration
statement, notify each such holder when the shelf registration statement for the
notes has become effective and take certain other actions as are required to
permit resales of the outstanding notes. A holder of notes that sells such notes
pursuant to the shelf registration statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the notes registration rights agreement which are
applicable to such a holder, including certain indemnification obligations. In
addition, each such holder will be required to deliver information to be used in
connection with the shelf registration statement and to provide comments on the
shelf registration statement within the time periods set forth in the notes
registration rights agreement in order to have their notes included in the shelf
registration statement and to benefit from the provisions regarding liquidated
damages.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus and
the accompanying letter of transmittal relating to the exchange notes, we will
accept all outstanding notes validly tendered prior to 5:00 p.m., New York City
time, on the expiration date. We will issue $1,000 principal amount of exchange
notes in exchange for each $1,000 principal amount of outstanding notes accepted
in the exchange offer. Holders may tender some or all of their notes pursuant to
the exchange offer in integral multiples of $1,000.
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The form and terms of the exchange notes are identical to the notes except for
the following:
(1) the exchange notes bear a Series B designation and a different CUSIP
number from the notes;
(2) the exchange notes have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer; and
(3) the holders of the exchange notes will not be entitled to certain rights
under the notes registration rights agreement, including the provisions
providing for an increase in the interest rate on the notes in certain
circumstances relating to the timing of the exchange offer, all of which
rights will terminate when the exchange offer is terminated.
The exchange notes will evidence the same debt as the notes and will be entitled
to the benefits of the notes indenture under which the notes were issued. As of
the date of this prospectus, $550 million in aggregate principal amount of the
notes is outstanding. Solely for reasons of administration and no other reason,
we have fixed the close of business on , 1999 as the record date for
the exchange offer for purposes of determining the persons to whom this
prospectus and the letter of transmittal will be mailed initially. Only a
registered holder of notes, or such holder's legal representative or
attorney-in-fact, as reflected on the records of the trustee under the notes
indenture, may participate in the exchange offer. There will be no fixed record
date, however, for determining registered holders of the notes entitled to
participate in the exchange offer.
The holders of notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the notes indenture in connection with
the exchange offer. We intend to conduct the exchange offer in accordance with
the applicable requirements of the Exchange Act and the rules and regulations of
the Securities and Exchange Commission promulgated under the Exchange Act.
We shall be deemed to have accepted validly tendered notes when, as and if we
have given oral or written notice thereof to the notes exchange agent. The notes
exchange agent will act as agent for the tendering holders for the purpose of
receiving the exchange notes from us.
If any tendered notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth in this prospectus or
otherwise, the certificates for any such unaccepted notes will be returned,
without expense, to the tendering holder as promptly as practicable after the
expiration date.
Those holders who tender notes in the exchange offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of notes. We will pay
all charges and expenses, other than certain applicable taxes, in connection
with the exchange offer. See "-Fees and Expenses."
EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean 5:00 p.m., New York City time, on
, 1999 unless we, in our sole discretion, extend the exchange offer,
in which case the term "expiration date" shall mean the latest date to which the
exchange offer is extended. Notwithstanding the foregoing, we will not extend
the expiration date beyond , 1999.
We have no current plans to extend the exchange offer. In order to extend the
expiration date, we will notify the notes exchange agent of any extension by
oral or written notice and will make a public announcement of such extension, in
each case prior to 9:00 a.m., New York City time, on the next business day after
the previously scheduled expiration date.
We reserve the right, in our sole discretion, to:
(1) delay accepting any notes;
(2) extend the exchange offer; or
(3) terminate the exchange offer,
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if any of the conditions set forth below under "-Conditions of the Exchange
Offer" shall not have been satisfied, in each case by giving oral or written
notice of such delay, extension or termination to the notes exchange agent, and
to amend the terms of the exchange offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement of such matter. If the exchange offer is
amended in a manner determined by us to constitute a material change, we will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders of the notes and the exchange offer
will be extended for a period of five to ten business days, as required by law,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, assuming the exchange offer would otherwise expire
during such five to ten business day period.
Without limiting the manner in which we may choose to make a public announcement
of any delay, extension, termination or amendment of the exchange offer, we
shall not have an obligation to publish, advertise or otherwise communicate any
such public announcement other than by making a timely release of such
announcement to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from their date of issuance. Interest is
payable semiannually on April 1 and October 1 of each year commencing on October
1, 1999, at the rate of 9 5/8% per annum. The holders of notes that are accepted
for exchange will receive, in cash, accrued interest on such notes up to, but
not including, the issuance date of the exchange notes. Such interest will be
paid with the first interest payment on the exchange notes. Consequently,
holders who exchange their notes for exchange notes will receive the same
interest payment on October 1, 1999, which is the first interest payment date
with respect to the notes and the exchange notes, that they would have received
had they not accepted the exchange offer. Interest on the notes accepted for
exchange will cease to accrue upon issuance of the exchange notes.
PROCEDURES FOR TENDERING
Only a registered holder of notes may tender their notes in the exchange offer.
To effectively tender in the exchange offer, a holder must complete, sign and
date the letter of transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the letter of transmittal, and mail or
otherwise deliver such letter of transmittal or such facsimile, together with
the notes and any other required documents, to the notes exchange agent at the
address set forth below under "-Exchange Agent" for receipt prior to 5:00 p.m.,
New York City time, on the expiration date. Delivery of the notes also may be
made by book-entry transfer in accordance with the procedures described below.
If you are effecting delivery by book-entry transfer, then:
(1) confirmation of such book-entry transfer must be received by the notes
exchange agent prior to the expiration date; and
(2) you must also transmit to the notes exchange agent on or prior to the
expiration date, a computer-generated message transmitted by means of the
Automated Tender Offer Program System of The Depository Trust Company in
which you acknowledge and agree to be bound by the terms of the letter of
transmittal and which, when received by the notes exchange agent, forms a
part of the confirmation of book-entry transfer.
By executing the letter of transmittal or effecting delivery by book-entry
transfer, each holder is making to us those representations set forth under the
heading "-Resale of the Exchange Notes."
The tender by a holder of notes will constitute an agreement between such holder
and us in accordance with the terms and subject to the conditions set forth in
this prospectus and in the letter of transmittal.
The method of delivery of outstanding notes and the letter of transmittal and
all other required documents to the notes exchange agent is at the election and
sole risk of the holder. As an alternative to delivery by mail, holders may wish
to consider overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure
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delivery to the notes exchange agent before the expiration date. No letter of
transmittal or notes should be sent to PCA. Holders may request that their
respective brokers, dealers, commercial banks, trust companies or nominees
effect the above transactions for such holders.
Only a registered holder of notes may tender their notes in connection with the
exchange offer. The term "holder" with respect to the exchange offer means any
person in whose name notes are registered on the books of PCA, any other person
who has obtained a properly completed bond power from the registered holder, or
any person whose notes are held of record by DTC who desires to deliver their
notes by book-entry transfer at DTC.
Any beneficial owner whose notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender should
promptly contact the person in whose name your notes are registered and instruct
such registered holder to tender on your behalf. If, as a beneficial owner, you
wish to tender on your own behalf, you must, prior to completing and executing
the letter of transmittal and delivering your notes, either make appropriate
arrangements to register ownership of the notes in your name or obtain a
properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an Eligible Institution (defined below) unless the notes tendered
are tendered (1) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal or (2) for the account of an Eligible Institution. In the
event that signatures on a letter of transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, the guarantee must be by a
participant in a recognized signature guarantee medallion program within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the letter of transmittal is signed by a person other than the registered
holder of any notes listed therein, such notes must be endorsed or accompanied
by properly completed bond powers, signed by such registered holder as such
registered holder's name appears on such notes with the signature on such bond
powers guaranteed by an Eligible Institution.
If the letter of transmittal or any notes or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and submit with the letter of
transmittal evidence satisfactory to us of their authority to so act.
We understand that the notes exchange agent will make a request, promptly after
the date of this prospectus, to establish accounts with respect to the notes at
the book-entry transfer facility of DTC for the purpose of facilitating this
exchange offer, and subject to the establishment of these accounts, any
financial institution that is a participant in the book-entry transfer facility
system may make book-entry delivery of notes by causing the transfer of such
notes into the notes exchange agent's account with respect to the notes in
accordance with DTC's procedures for such transfer. Although delivery of the
notes may be effected through book-entry transfer into the notes exchange
agent's account at the book-entry transfer facility, unless the holder complies
with the procedures described in the following paragraph, an appropriate letter
of transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the notes exchange agent at its address set forth
below before the expiration date, or the guaranteed delivery procedures
described below must be complied with. The delivery of documents to the
book-entry transfer facility does not constitute delivery to the notes exchange
agent.
The notes exchange agent and DTC have confirmed that the exchange offer is
eligible for the Automated Tender Offer Program ("ATOP") of DTC. Accordingly,
DTC participants may electronically transmit their acceptance of the exchange
offer by causing DTC to transfer notes to the notes exchange agent in accordance
with the procedures for transfer established under ATOP. DTC will then send an
Agent's Message to the notes exchange agent. The term "Agent's Message" means a
message transmitted by DTC, which when received by the notes exchange agent
forms part of the confirmation of a book-entry transfer, and which states that
DTC has received an
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express acknowledgment from the participant in DTC tendering notes which are the
subject of such book-entry confirmation that such participant has received and
agrees to be bound by the terms of the letter of transmittal and that PCA may
enforce such agreement against such participant. In the case of an Agent's
Message relating to guaranteed delivery, the term means a message transmitted by
DTC and received by the notes exchange agent which states that DTC has received
an express acknowledgment from the participant in DTC tendering notes that such
participant has received and agrees to be bound by the notice of guaranteed
delivery.
All questions as to the validity, form, eligibility, including time of receipt,
acceptance and withdrawal of the tendered notes will be determined by us in our
sole discretion, which determinations will be final and binding. We reserve the
absolute right to reject any and all notes not validly tendered or any notes the
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the absolute right to waive any defects, irregularities or conditions of
tender as to particular notes. Our interpretation of the terms and conditions of
the exchange offer, including the instructions in the letter of transmittal,
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of notes must be cured within such
time as we shall determine. Although we intend to notify holders of defects or
irregularities with respect to the tenders of notes, neither we, the notes
exchange agent nor any other person shall incur any liability for failure to
give such notification. Tenders of notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any notes
received by the notes exchange agent that are not validly tendered and as to
which the defects or irregularities have not been cured or waived, or if notes
are submitted in a principal amount greater than the principal amount of notes
being tendered by such tendering holder, such unaccepted or non-exchanged notes
will be returned by the notes exchange agent to the tendering holders (or, in
the case of notes tendered by book-entry transfer into the notes exchange
agent's account at the book-entry transfer facility pursuant to the book-entry
transfer procedures described above, such unaccepted or non-exchanged notes will
be credited to an account maintained with such book-entry transfer facility),
unless otherwise provided in the letter of transmittal designated for such
notes, as soon as practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES
Those holders who wish to tender their notes and:
(1) whose notes are not immediately available; or
(2) who cannot deliver their notes, the letter of transmittal or any other
required documents to the notes exchange agent before the expiration
date; or
(3) who cannot complete the procedures for book-entry transfer before the
expiration date,
may effect a tender if:
(1) the tender is made through an Eligible Institution;
(2) before the expiration date, the notes exchange agent receives from such
Eligible Institution a properly completed and duly executed notice of
guaranteed delivery, by facsimile transmission, mail or hand delivery,
setting forth the name and address of the holder, the certificate number
or numbers of such notes and the principal amount of notes tendered,
stating that the tender is being made thereby, and guaranteeing that,
within five business days after the expiration date, either (a) the
letter of transmittal, or facsimile thereof, together with the
certificate(s) representing the notes and any other documents required by
the letter of transmittal, will be deposited by the Eligible Institution
with the notes exchange agent or (b) that a confirmation of book-entry
transfer of such notes into the notes exchange agent's account at DTC,
will be delivered to the notes exchange agent; and
(3) either (a) such properly completed and executed letter of transmittal,
or facsimile thereof, together with the certificate(s) representing all
tendered notes in proper form for transfer and all other documents
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required by the letter of transmittal or (b) if applicable, confirmation
of a book-entry transfer into the notes exchange agent's account at DTC,
are actually received by the notes exchange agent within five business
days after the expiration date.
Upon request to the notes exchange agent, a notice of guaranteed delivery will
be sent to holders who wish to tender their notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the expiration date.
To effectively withdraw a tender of notes in the exchange offer, the notes
exchange agent must receive a telegram, telex, letter or facsimile transmission
notice of withdrawal at its address set forth herein prior to 5:00 p.m., New
York City time, on the expiration date. Any such notice of withdrawal must:
(1) specify the name of the person having deposited the notes to be
withdrawn;
(2) identify the notes to be withdrawn, including the certificate number or
numbers and the aggregate principal amount of such notes or, in the case
of notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited;
(3) be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfers sufficient to permit the trustee with respect to the notes to
register the transfer of such notes into the name of the person
withdrawing the tender; and
(4) specify the name in which any such notes are to be registered, if
different from that of the person depositing the notes.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us, and our determination shall
be final and binding on all parties. Any notes so withdrawn will be deemed not
to have been validly tendered for purposes of the exchange offer and no exchange
notes will be issued with respect thereto unless the notes so withdrawn are
validly retendered. Any notes which have been tendered but which are not
accepted for exchange due to the rejection of the tender due to uncured defects
or the prior termination of the exchange offer, or which have been validly
withdrawn, will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn notes may be retendered by following one of
the procedures described above under "-Procedures for Tendering" at any time
prior to the expiration date.
CONDITIONS OF THE EXCHANGE OFFER
The exchange offer is subject to the condition that the exchange offer, or the
making of any exchange by a holder, does not violate applicable law or any
applicable interpretation of the staff of the Securities and Exchange
Commission. If there has been a change in policy of the Securities and Exchange
Commission such that in the reasonable opinion of our counsel there is a
substantial question whether the exchange offer is permitted by applicable
federal law, we have agreed to seek a no-action letter or other favorable
decision from the Securities and Exchange Commission allowing us to consummate
the exchange offer.
If we determine that the exchange offer is not permitted by applicable federal
law, we may terminate the exchange offer. In connection such termination we may:
(1) refuse to accept any notes and return any notes that have been tendered
by the holders thereof;
(2) extend the exchange offer and retain all notes tendered prior to the
expiration date, subject to the rights of such holders of tendered notes
to withdraw their tendered notes; or
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(3) waive such termination event with respect to the exchange offer and
accept all properly tendered notes that have not been properly withdrawn.
If such waiver constitutes a material change in the exchange offer, we will
disclose such change by means of a supplement to this prospectus that will be
distributed to each registered holder of notes, and we will extend the exchange
offer for a period of five to ten business days, depending upon the significance
of the waiver, if the exchange offer would otherwise expire during such period.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as notes exchange
agent for the exchange offer. Questions and requests for assistance, requests
for additional copies of this prospectus or the letter of transmittal and
requests for the notice of guaranteed delivery should be directed to the notes
exchange agent addressed as follows:
<TABLE>
<S> <C>
BY OVERNIGHT COURIER & BY HAND AFTER
4:30 P.M. ON THE EXPIRATION DATE ONLY: BY HAND UP TO 4:30 P.M.:
United States Trust Company of New York United States Trust Company of New York
770 Broadway, 13(th) Floor 111 Broadway, Lower Level
New York, NY 10003 New York, NY 10006
Attn: Corporate Trust Services Attn: Corporate Trust Services
BY REGISTERED OR CERTIFIED MAIL: FACSIMILE TRANSMISSION: 212-420-6211
United States Trust Company of New York Confirm by Telephone: 800-548-6565
P.O. Box 844, Cooper Station Attn: Corporate Trust Services
New York, NY 10276-0844
Attn: Corporate Trust Services
</TABLE>
Any requests or deliveries to an address or facsimile number other than as set
forth above will not constitute a valid delivery.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation for
tenders is being made by mail. Additional solicitations, however, may be made by
our officers and regular employees and those of our affiliates in person, by
telegraph or telephone.
We have not retained any dealer-manager in connection with the exchange offer
and will not make any payments to brokers, dealers or other persons soliciting
acceptances of the exchange offer. We will pay the notes exchange agent,
however, reasonable and customary fees for its services and will reimburse the
notes exchange agent for its reasonable out-of-pocket expenses in connection
with the exchange offer.
We will pay the cash expenses to be incurred in connection with the exchange
offer. Such expenses include fees and expenses of the notes exchange agent and
the trustee, accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of the notes
pursuant to the exchange offer. If, however, a transfer tax is imposed for any
reason other than the exchange of the notes pursuant to the exchange offer, then
the amount of any such transfer taxes, whether imposed on the registered holder
or any other persons, will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the letter of transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
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ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the notes,
which is face value as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. The expenses of the exchange offer will be amortized over the term of
the exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The notes that are not exchanged for exchange notes pursuant to the exchange
offer will remain Transfer Restricted Securities. Accordingly, such notes may be
resold only as follows:
(1) to us, upon redemption thereof or otherwise;
(2) (a) so long as the notes are eligible for resale pursuant to Rule 144A,
to a person inside the United States whom the seller reasonably believes
is a qualified institutional buyer within the meaning of Rule 144A under
the Securities Act in a transaction meeting the requirements of Rule
144A, (b) in accordance with Rule 144 under the Securities Act, or (c)
pursuant to another exemption from the registration requirements of the
Securities Act and based upon an opinion of counsel reasonably acceptable
to us;
(3) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act; or
(4) pursuant to an effective registration statement under the Securities
Act.
RESALE OF THE EXCHANGE NOTES
Based on no-action letters issued by the staff of the Securities and Exchange
Commission to third parties, we believe the exchange notes issued pursuant to
the exchange offer in exchange for the notes may be offered for resale, resold
and otherwise transferred by any holder (other than (1) a broker-dealer who
purchased such notes directly from us for resale pursuant to Rule 144A or any
other available exemption under the Securities Act or (2) a person that is an
"affiliate" of ours within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided, however, that the holder is acquiring the exchange
notes in its ordinary course of business and is not participating, and has no
arrangement or understanding with any person to participate, in the distribution
of the exchange notes. In the event that our belief is inaccurate, holders of
exchange notes who transfer exchange notes in violation of the prospectus
delivery provisions of the Securities Act and without an exemption from
registration thereunder may incur liability under the Securities Act. We do not
assume or indemnify holders against such liability.
If, however, any holder acquires exchange notes in the exchange offer for the
purpose of distributing or participating in a distribution of the exchange
notes, such holder cannot rely on the position of the staff of the Securities
and Exchange Commission enunciated in the referenced no-action letters or any
similar interpretive letters, and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, unless an exemption from registration is otherwise
available. Further, each participating broker-dealer that receives exchange
notes for its own account in exchange for notes, where such notes were acquired
by such participating broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. Although a broker-dealer may
be an "underwriter" within the meaning of the Securities Act, the letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for notes.
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As contemplated by these no-action letters and the notes registration rights
agreement, each holder tendering notes in the exchange offer is required to
represent to us in the letter of transmittal, that, among things:
(1) the person receiving the exchange notes pursuant to the exchange offer,
whether or not such person is the holder, is receiving them in the
ordinary course of business;
(2) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
exchange notes and that such holder is not engaged in, and does not
intend to engage in, a distribution of exchange notes;
(3) neither the holder nor any such other person is an "affiliate" of ours
within the meaning of Rule 405 under the Securities Act;
(4) the holder acknowledges and agrees that:
(a) any person participating in the exchange offer for the purpose of
distributing the exchange notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection
with a secondary resale transaction with respect to the exchange
notes acquired by such person and cannot rely on the position of the
staff of the Securities and Exchange Commission set forth in
no-action letters that are discussed above and under the heading
"-Purpose and Effect of the Exchange Offer;" and
(b) any broker-dealer that receives exchange notes for its own account in
exchange for notes pursuant to the exchange offer must deliver a
prospectus in connection with any resale of such exchange notes, but
by so acknowledging, the holder shall not be deemed to admit that, by
delivering a prospectus, it is an "underwriter" within the meaning of
the Securities Act; and
(5) the holder understands that a secondary resale transaction described in
clause (4)(a) above should be covered by an effective registration
statement containing the selling securityholder information required by
Item 507 of Regulation S-K of the Securities and Exchange Commission.
The exchange offer is not being made to, and we will not accept surrenders for
exchange from, holders of the notes in any jurisdiction in which the exchange
offer or its acceptance would not comply with the securities or blue sky laws of
such jurisdiction.
All resales must be made in compliance with state securities or "blue sky" laws.
Such compliance may require that the exchange notes be registered or qualified
in a state or that the resales be made by or through a licensed broker-dealer,
unless exemptions from these requirements are available. We assume no
responsibility with regard to compliance with these requirements.
THE NEW PREFERRED STOCK
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
PCA originally sold the preferred stock to J.P. Morgan Securities Inc. and BT
Alex. Brown Incorporated, the initial purchasers, pursuant to the Purchase
Agreement. The initial purchasers subsequently resold the preferred stock to
qualified institutional buyers in reliance on Rule 144A under the Securities
Act. As a condition to the Purchase Agreement, PCA, the guarantor subsidiaries
and the initial purchasers entered into a preferred stock registration rights
agreement in which PCA and the guarantor subsidiaries agreed to:
(1) use all commercially reasonable efforts to file a registration statement
registering the new preferred stock with the Securities and Exchange
Commission within 60 days after the original issuance of the outstanding
preferred stock;
(2) use all commercially reasonable efforts to have the registration
statement relating to the new preferred stock declared effective by the
Securities and Exchange Commission within 150 days after the original
issuance of the outstanding preferred stock;
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(3) unless the exchange offer would not be permitted by applicable law or
Securities and Exchange Commission policy, use all commercially
reasonable efforts to commence the exchange offer and use all
commercially reasonable efforts to issue within 30 business days, or
longer, if required by the federal securities laws, after the date on
which the registration statement relating to the new preferred stock was
declared effective by the Securities and Exchange Commission, new
preferred stock in exchange for all outstanding preferred stock tendered
prior to the expiration date; and
(4) if obligated to file a shelf registration statement, use all
commercially reasonable efforts to file the shelf registration statement
with the Securities and Exchange Commission within 60 days after such
filing obligation arises, to cause the shelf registration statement to be
declared effective by the Securities and Exchange Commission within 120
days after such obligation arises and to use commercially reasonable
efforts to keep effective the shelf registration statement for at least
two years after the original issuance of the preferred stock or such
shorter period that will terminate when all securities covered by the
shelf registration statement have been sold pursuant to the shelf
registration statement.
We have agreed to keep the exchange offer open for not less than 20 business
days, or longer if required by applicable law, after the date on which notice of
the exchange offer is mailed to the holders of the preferred stock. The
preferred stock registration rights agreement also requires us to include in the
prospectus for the exchange offer information necessary to allow broker-dealers
who hold preferred stock, other than preferred stock purchased directly from us
or one of our affiliates, to exchange such preferred stock pursuant to the
exchange offer and to satisfy the prospectus delivery requirements in connection
with resales of the new preferred stock received by such broker-dealers in the
exchange offer.
This prospectus covers the exchange offer and sale of the new preferred stock
pursuant to the exchange offer and the resale of new preferred stock received in
the exchange offer by any broker-dealer who held preferred stock other than
preferred stock purchased directly from us or one of our affiliates.
For each share of preferred stock surrendered to us pursuant to the exchange
offer, the holder of such share of preferred stock will receive a share of new
preferred stock having a liquidation preference equal to that of the surrendered
share of preferred stock. Dividends on each share of preferred stock will accrue
from the date of issuance of such share of preferred stock. The holders of
preferred stock that is accepted for exchange will receive accrued dividends on
such preferred stock up to, but not including, the issuance date of the new
preferred stock. Such dividends will be paid with the first dividend payment on
the new preferred stock. Dividends on the outstanding preferred stock accepted
for exchange will cease to accrue upon issuance of the new preferred stock.
Under existing interpretations of the staff of the Securities and Exchange
Commission contained in several no-action letters to third parties, we believe
the new preferred stock would in general be freely tradeable after the exchange
offer without further registration under the Securities Act. Any purchaser of
the preferred stock, however, who is either an "affiliate" of PCA, a
broker-dealer who purchased preferred stock directly from us or one of our
affiliates for resale, or who intends to participate in the exchange offer for
the purpose of distributing the new preferred stock:
(1) will not be able to rely on the interpretation of the staff of the
Securities and Exchange Commission;
(2) will not be able to tender its preferred stock in the exchange offer;
and
(3) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the
preferred stock, unless such sale or transfer is made pursuant to an
exemption from such requirements.
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We have agreed to file with the Securities and Exchange Commission a shelf
registration statement to cover resales of the preferred stock by holders who
satisfy certain conditions relating to the provision of information in
connection with the shelf registration statement if:
(1) we are not required to file the registration statement for the exchange
offer or permitted to consummate the exchange offer because it is not
permitted by applicable law or Securities and Exchange Commission policy;
or
(2) any holder of Transfer Restricted Securities notifies us prior to the
20th day following consummation of the exchange offer that:
(a) it is prohibited by law or Securities and Exchange Commission policy
from participating in the exchange offer;
(b) that it may not resell the new preferred stock acquired by it in the
exchange offer to the public without delivering a prospectus and the
prospectus contained in the registration statement relating to the
exchange offer is not appropriate or available for such resales; or
(c) that it is a broker-dealer that purchased preferred stock directly
from us or one of our affiliates for resale.
For purposes of the foregoing, "Transfer Restricted Securities" means each
outstanding share of preferred stock until the earliest to occur of:
(1) the date on which such share of preferred stock has been exchanged by a
person other than a broker-dealer for a share of new preferred stock;
(2) following the exchange by a broker-dealer in the exchange offer of a
share of preferred stock for a share of new preferred stock, the date on
which such share of new preferred stock is sold to a purchaser who
receives from such broker-dealer before the date of such sale a copy of
the prospectus contained in the registration statement relating to the
exchange offer;
(3) the date on which such shares of new preferred stock has been
effectively registered under the Securities Act and disposed of in
accordance with the shelf registration statement; or
(4) the date on which such share of preferred stock is distributed to the
public pursuant to Rule 144 under the Securities Act.
We will pay liquidated damages to each holder of preferred stock if:
(1) we fail to file any of the registration statements on or before the date
specified for such filing;
(2) any of such registration statements is not declared effective by the
Securities and Exchange Commission before the date specified for such
effectiveness (the "Effectiveness Target Date");
(3) we fail to consummate the exchange offer within 30 business days of the
Effectiveness Target Date with respect to the registration statement
relating to the exchange offer;
(4) the shelf registration statement or the registration statement relating
to the exchange offer is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the preferred stock
registration rights agreement (each such event referred to in clauses (1)
through (4) above, a "Registration Default").
The amount of liquidated damages will be equal to a per annum rate of 0.25% on
the liquidation preference on new preferred stock held by each holder, with
respect to the first 90-day period immediately following the occurrence of the
first Registration Default. Liquidated damages will increase by an additional
per annum rate of 0.25% with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of liquidated
damages for all Registration Defaults of 1.00% per annum on the liquidation
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preference on new preferred stock. We will pay all accrued liquidated damages on
each dividend payment date in the manner provided for the payment of dividends
in the certificate of designation. Following the cure of all Registration
Defaults, the accrual of liquidated damages will cease.
Each holder of preferred stock, other than certain specified holders, who wishes
to exchange preferred stock for new preferred stock in the exchange offer will
be required to make certain representations, including that:
(1) it is not an affiliate of PCA;
(2) any new preferred stock to be received by it were acquired in the
ordinary course of its business; and
(3) it has no arrangement with any person to participate in the distribution
of the new preferred stock.
If the holder is a broker-dealer that will receive new preferred stock for its
own account in exchange for preferred stock that was acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such new preferred stock.
The Securities and Exchange Commission has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements with respect
to the new preferred stock, other than a resale of an unsold allotment from the
original sale of the preferred stock, with a prospectus contained in the
registration statement relating to the exchange offer. Under the preferred stock
registration rights agreement, we are required to allow broker-dealers to use
the prospectus contained in the registration statement relating to the exchange
offer in connection with the resale of such new preferred stock.
We will, in the event of the filing of a shelf registration statement, provide
to each holder of preferred stock eligible to participate in such shelf
registration statement copies of the prospectus which is a part of the shelf
registration statement, notify each such holder when the shelf registration
statement for the preferred stock has become effective and take certain other
actions as are required to permit resales of the outstanding preferred stock. A
holder of preferred stock that sells such preferred stock pursuant to the shelf
registration statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the preferred stock registration rights agreement which are
applicable to such a holder, including certain indemnification obligations. In
addition, each such holder will be required to deliver information to be used in
connection with the shelf registration statement and to provide comments on the
shelf registration statement within the time periods set forth in the preferred
stock registration rights agreement in order to have their preferred stock
included in the shelf registration statement and to benefit from the provisions
regarding liquidated damages.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus and
the accompanying letter of transmittal relating to the new preferred stock, we
will accept all outstanding preferred stock validly tendered prior to 5:00 p.m.,
New York City time, on the expiration date. We will issue $100 liquidation
preference per share of new preferred stock in exchange for each $100
liquidation preference per share of outstanding preferred stock accepted in the
exchange offer.
The form and terms of the new preferred stock are identical to the preferred
stock except for the following:
(1) the new preferred stock bears a Series B designation and a different
CUSIP number from the preferred stock;
(2) the new preferred stock has been registered under the Securities Act
and, therefore, will not bear legends restricting its transfer; and
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(3) the holders of the new preferred stock will not be entitled to certain
rights under the preferred stock registration rights agreement, including
the provisions providing for an increase in the dividend rate on the
preferred stock in certain circumstances relating to the timing of the
exchange offer, all of which rights will terminate when the exchange
offer is terminated.
The new preferred stock will evidence the same debt as the preferred stock and
will be entitled to the benefits of the certificate of designation under which
the preferred stock were issued. As of the date of this prospectus, $100 million
in aggregate liquidation preference of the preferred stock is outstanding.
Solely for reasons of administration and no other reason, we have fixed the
close of business on , 1999 as the record date for the exchange
offer for purposes of determining the persons to whom this prospectus and the
letter of transmittal will be mailed initially. Only a registered holder of
preferred stock, or such holder's legal representative or attorney-in-fact, as
reflected on the records of the transfer agent under the certificate of
designation may participate in the exchange offer. There will be no fixed record
date, however, for determining registered holders of the preferred stock
entitled to participate in the exchange offer.
The holders of preferred stock do not have any appraisal or dissenters' rights
under the General Corporation Law of Delaware or the certificate of designation
in connection with the exchange offer. We intend to conduct the exchange offer
in accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Securities and Exchange Commission promulgated under the
Exchange Act.
We shall be deemed to have accepted validly tendered shares of preferred stock
when, as and if we have given oral or written notice thereof to the preferred
stock exchange agent. The preferred stock exchange agent will act as agent for
the tendering holders for the purpose of receiving the new preferred stock from
us.
If any tendered preferred stock is not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth in this
prospectus or otherwise, the certificates for any such unaccepted shares of
preferred stock will be returned, without expense, to the tendering holder as
promptly as practicable after the expiration date.
Those holders who tender preferred stock in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
preferred stock. We will pay all charges and expenses, other than certain
applicable taxes, in connection with the exchange offer. See "-Fees and
Expenses."
EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean 5:00 p.m., New York City time, on
, 1999 unless we, in our sole discretion, extend the exchange offer,
in which case the term "expiration date" shall mean the latest date to which the
exchange offer is extended. Notwithstanding the foregoing, we will not extend
the expiration date beyond , 1999.
We have no current plans to extend the exchange offer. In order to extend the
expiration date, we will notify the preferred stock exchange agent of any
extension by oral or written notice and will make a public announcement of such
extension, in each case prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion, to:
(1) delay accepting any preferred stock;
(2) extend the exchange offer; or
(3) terminate the exchange offer,
if any of the conditions set forth below under "-Conditions of the Exchange
Offer" shall not have been satisfied, in each case by giving oral or written
notice of such delay, extension or termination to the preferred stock exchange
agent, and to amend the terms of the exchange offer in any manner. Any such
delay in acceptance,
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extension, termination or amendment will be followed as promptly as practicable
by a public announcement of such matter. If the exchange offer is amended in a
manner determined by us to constitute a material change, we will promptly
disclose such amendment by means of a prospectus supplement that will be
distributed to the registered holders of the preferred stock and the exchange
offer will be extended for a period of five to ten business days, as required by
law, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, assuming the exchange offer would
otherwise expire during such five to ten business day period.
Without limiting the manner in which we may choose to make a public announcement
of any delay, extension, termination or amendment of the exchange offer, we
shall not have an obligation to publish, advertise, or otherwise communicate any
such public announcement other than by making a timely release of such
announcement to the Dow Jones News Service.
DIVIDENDS ON THE NEW PREFERRED STOCK
The new preferred stock will accrue dividends from its date of issuance.
Dividends are payable semiannually on April 1 and October 1 of each year
commencing on October 1, 1999, at the rate of 12d% per annum. The holders of
preferred stock that is accepted for exchange will receive accrued dividends on
such preferred stock up to, but not including, the issuance date of the new
preferred stock. Such dividends will be paid with the first dividend payment on
the new preferred stock. Consequently, holders who exchange their preferred
stock for new preferred stock will receive the same dividend payment on October
1, 1999, which is the first dividend payment date with respect to the preferred
stock and the new preferred stock, that they would have received had they not
accepted the exchange offer. Dividends on the preferred stock accepted for
exchange will cease to accrue upon issuance of the new preferred stock.
PROCEDURES FOR TENDERING
Only a registered holder of preferred stock may tender such preferred stock in
the exchange offer. To effectively tender in the exchange offer, a holder must
complete, sign and date the letter of transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the letter of transmittal, and
mail or otherwise deliver such letter of transmittal or such facsimile, together
with the preferred stock and any other required documents, to the preferred
stock exchange agent at the address set forth below under "-Exchange Agent" for
receipt prior to 5:00 p.m., New York City time, on the expiration date. Delivery
of the preferred stock also may be made by book-entry transfer in accordance
with the procedures described below. If you are effecting delivery by book-entry
transfer, then:
(1) confirmation of such book-entry transfer must be received by the
preferred stock exchange agent prior to the expiration date; and
(2) you must also transmit to the preferred stock exchange agent on or prior
to the expiration date, a computer-generated message transmitted by means
of the Automated Tender Offer Program System of The Depository Trust
Company in which you acknowledge and agree to be bound by the terms of
the letter of transmittal and which, when received by the preferred stock
exchange agent, forms a part of the confirmation of book-entry transfer.
By executing the letter of transmittal or effecting delivery by book-entry
transfer, each holder is making to us those representations set forth under the
heading "-Resale of the New Preferred Stock."
The tender by a holder of preferred stock will constitute an agreement between
such holder and us in accordance with the terms and subject to the conditions
set forth in this prospectus and in the letter of transmittal.
The method of delivery of outstanding preferred stock and the letter of
transmittal and all other required documents to the preferred stock exchange
agent is at the election and sole risk of the holder. As an alternative to
delivery by mail, holders may wish to consider overnight or hand delivery
service. In all cases, sufficient time
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should be allowed to assure delivery to the preferred stock exchange agent
before the expiration date. No letter of transmittal or preferred stock should
be sent to PCA. Holders may request that their respective brokers, dealers,
commercial banks, trust companies or nominees effect the above transactions for
such holders.
Only a registered holder of preferred stock may tender such preferred stock in
connection with the exchange offer. The term "holder" with respect to the
exchange offer means any person in whose name preferred stock are registered on
the books of PCA, any other person who has obtained a properly completed bond
power from the registered holder, or any person whose preferred stock are held
of record by DTC who desires to deliver such preferred stock by book-entry
transfer at DTC.
Any beneficial owner whose preferred stock are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should promptly contact the person in whose name your preferred stock
are registered and instruct such registered holder to tender on your behalf. If,
as a beneficial owner, you wish to tender on your own behalf, you must, prior to
completing and executing the letter of transmittal and delivering your preferred
stock, either make appropriate arrangements to register ownership of the
preferred stock in your name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an Eligible Institution (defined below) unless the preferred stock
tendered is tendered (1) by a registered holder who has not completed the box
entitled "Special Registration Instructions" or "Special Delivery Instructions"
on the letter of transmittal or (2) for the account of an Eligible Institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a participant in a recognized signature guarantee medallion program
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution").
If the letter of transmittal is signed by a person other than the registered
holder of any preferred stock listed therein, such preferred stock must be
endorsed or accompanied by properly completed bond powers, signed by such
registered holder as such registered holder's name appears on such preferred
stock with the signature on such bond powers guaranteed by an Eligible
Institution.
If the letter of transmittal or any preferred stock or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and submit with the letter of
transmittal evidence satisfactory to us of their authority to so act.
We understand that the preferred stock exchange agent will make a request,
promptly after the date of this prospectus, to establish accounts with respect
to the preferred stock at the book-entry transfer facility of DTC for the
purpose of facilitating this exchange offer, and subject to the establishment of
these accounts, any financial institution that is a participant in the
book-entry transfer facility system may make book-entry delivery of preferred
stock by causing the transfer of such preferred stock into the preferred stock
exchange agent's account with respect to the preferred stock in accordance with
DTC's procedures for such transfer. Although delivery of the preferred stock may
be effected through book-entry transfer into the preferred stock exchange
agent's account at the book-entry transfer facility, unless the holder complies
with the procedures described in the following paragraph, an appropriate letter
of transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the preferred stock exchange agent at its address
set forth below before the expiration date, or the guaranteed delivery
procedures described below must be complied with. The delivery of documents to
the book-entry transfer facility does not constitute delivery to the preferred
stock exchange agent.
The preferred stock exchange agent and DTC have confirmed that the exchange
offer is eligible for the Automated Tender Offer Program ("ATOP") of DTC.
Accordingly, DTC participants may electronically transmit their acceptance of
the exchange offer by causing DTC to transfer preferred stock to the preferred
stock exchange agent in accordance with the procedures for transfer established
under ATOP. DTC will then send an Agent's
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Message to the preferred stock exchange agent. The term "Agent's Message" means
a message transmitted by DTC, which when received by the preferred stock
exchange agent forms part of the confirmation of a book-entry transfer, and
which states that DTC has received an express acknowledgment from the
participant in DTC tendering preferred stock which is the subject of such
book-entry confirmation that such participant has received and agrees to be
bound by the terms of the letter of transmittal and that PCA may enforce such
agreement against such participant. In the case of an Agent's Message relating
to guaranteed delivery, the term means a message transmitted by DTC and received
by the preferred stock exchange agent which states that DTC has received an
express acknowledgment from the participant in DTC tendering preferred stock
that such participant has received and agrees to be bound by the notice of
guaranteed delivery.
All questions as to the validity, form, eligibility, including time of receipt,
acceptance and withdrawal of the tendered preferred stock will be determined by
us in our sole discretion, which determinations will be final and binding. We
reserve the absolute right to reject any and all preferred stock not validly
tendered or any preferred stock the acceptance of which would, in the opinion of
our counsel, be unlawful. We also reserve the absolute right to waive any
defects, irregularities or conditions of tender as to particular shares of
preferred stock. Our interpretation of the terms and conditions of the exchange
offer, including the instructions in the letter of transmittal, will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of preferred stock must be cured within such time as we
shall determine. Although we intend to notify holders of defects or
irregularities with respect to the tenders of preferred stock, neither we, the
preferred stock exchange agent nor any other person shall incur any liability
for failure to give such notification. Tenders of preferred stock will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any preferred stock received by the preferred stock exchange agent that
is not validly tendered and as to which the defects or irregularities have not
been cured or waived, or if preferred stock is submitted in an aggregate
liquidation preference greater than the liquidation preference of preferred
stock being tendered by such tendering holder, such unaccepted or non-exchanged
preferred stock will be returned by the preferred stock exchange agent to the
tendering holders (or, in the case of preferred stock tendered by book-entry
transfer into the preferred stock exchange agent's account at the book-entry
transfer facility pursuant to the book-entry transfer procedures described
above, such unaccepted or non-exchanged preferred stock will be credited to an
account maintained with such book-entry transfer facility), unless otherwise
provided in the letter of transmittal designated for such preferred stock, as
soon as practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES
Those holders who wish to tender their preferred stock and:
(1) whose preferred stock are not immediately available; or
(2) who cannot deliver their preferred stock, the letter of transmittal or
any other required documents to the preferred stock exchange agent before
the expiration date; or
(3) who cannot complete the procedures for book-entry transfer before the
expiration date,
may effect a tender if:
(1) the tender is made through an Eligible Institution;
(2) before the expiration date, the preferred stock exchange agent receives
from such Eligible Institution a properly completed and duly executed
notice of guaranteed delivery, by facsimile transmission, mail or hand
delivery, setting forth the name and address of the holder, the
certificate number or numbers of such preferred stock and the liquidation
preference of preferred stock tendered, stating that the tender is being
made thereby, and guaranteeing that, within five business days after the
expiration date, either (a) the letter of transmittal, or facsimile
thereof, together with the certificate(s) representing the preferred
stock and any other documents required by the letter of transmittal, will
be deposited by the
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Eligible Institution with the preferred stock exchange agent or (b) that
a confirmation of book-entry transfer of such preferred stock into the
preferred stock exchange agent's account at DTC, will be delivered to the
preferred stock exchange agent; and
(3) either (a) such properly completed and executed letter of transmittal,
or facsimile thereof, together with the certificate(s) representing all
tendered preferred stock in proper form for transfer and all other
documents required by the letter of transmittal or (b) if applicable,
confirmation of a book-entry transfer into the preferred stock exchange
agent's account at DTC, are actually received by the preferred stock
exchange agent within five business days after the expiration date.
Upon request to the preferred stock exchange agent, a notice of guaranteed
delivery will be sent to holders who wish to tender their preferred stock
according to the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of preferred stock may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the expiration date.
To effectively withdraw a tender of preferred stock in the exchange offer, the
preferred stock exchange agent must receive a telegram, telex, letter or
facsimile transmission notice of withdrawal at its address set forth herein
prior to 5:00 p.m., New York City time, on the expiration date. Any such notice
of withdrawal must:
(1) specify the name of the person having deposited the preferred stock to
be withdrawn;
(2) identify the shares of preferred stock to be withdrawn, including the
certificate number or numbers and the aggregate liquidation preference of
such preferred stock or, in the case of preferred stock transferred by
book-entry transfer, the name and number of the account at DTC to be
credited;
(3) be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such preferred stock were tendered,
including any required signature guarantees, or be accompanied by
documents of transfers sufficient to permit the transfer agent with
respect to the preferred stock to register the transfer of such preferred
stock into the name of the person withdrawing the tender; and
(4) specify the name in which any such preferred stock are to be registered,
if different from that of the person depositing the preferred stock.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us, and our determination shall
be final and binding on all parties. Any preferred stock so withdrawn will be
deemed not to have been validly tendered for purposes of the exchange offer and
no new preferred stock will be issued with respect thereto unless the preferred
stock so withdrawn is validly retendered. Any preferred stock which have been
tendered but which are not accepted for exchange due to the rejection of the
tender due to uncured defects or the prior termination of the exchange offer, or
which have been validly withdrawn, will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn preferred
stock may be retendered by following one of the procedures described above under
"-Procedures for Tendering" at any time prior to the expiration date.
CONDITIONS OF THE EXCHANGE OFFER
The exchange offer is subject to the condition that the exchange offer, or the
making of any exchange by a holder, does not violate applicable law or any
applicable interpretation of the staff of the Securities and Exchange
Commission. If there has been a change in policy of the Securities and Exchange
Commission such that in the reasonable opinion of our counsel there is a
substantial question whether the exchange offer is permitted by applicable
federal law, we have agreed to seek a no-action letter or other favorable
decision from the Securities and Exchange Commission allowing us to consummate
the exchange offer.
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If we determine that the exchange offer is not permitted by applicable federal
law, we may terminate the exchange offer. In connection such termination we may:
(1) refuse to accept any preferred stock and return any preferred stock that
have been tendered by the holders thereof;
(2) extend the exchange offer and retain all preferred stock tendered prior
to the expiration date, subject to the rights of such holders of tendered
preferred stock to withdraw their tendered preferred stock; or
(3) waive such termination event with respect to the exchange offer and
accept all properly tendered preferred stock that have not been properly
withdrawn.
If such waiver constitutes a material change in the exchange offer, we will
disclose such change by means of a supplement to this prospectus that will be
distributed to each registered holder of preferred stock, and we will extend the
exchange offer for a period of five to ten business days, depending upon the
significance of the waiver, if the exchange offer would otherwise expire during
such period.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as preferred stock
exchange agent for the exchange offer. Questions and requests for assistance,
requests for additional copies of this prospectus or the letter of transmittal
and requests for the notice of guaranteed delivery should be directed to the
preferred stock exchange agent addressed as follows:
<TABLE>
<S> <C>
BY OVERNIGHT COURIER & BY HAND AFTER
4:30 P.M. ON THE EXPIRATION DATE ONLY: BY HAND UP TO 4:30 P.M.:
United States Trust Company of New York United States Trust Company of New York
770 Broadway, 13(th) Floor 111 Broadway, Lower Level
New York, NY 10003 New York, NY 10006
Attn: Corporate Trust Services Attn: Corporate Trust Services
BY REGISTERED OR CERTIFIED MAIL: FACSIMILE TRANSMISSION: 212-420-6211
United States Trust Company of New York Confirm by Telephone: 800-548-6565
P.O. Box 844, Cooper Station Attn: Corporate Trust Services
New York, NY 10276-0844
Attn: Corporate Trust Services
</TABLE>
Any requests or deliveries to an address or facsimile number other than as set
forth above will not constitute a valid delivery.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation for
tenders is being made by mail. Additional solicitations, however, may be made by
our officers and regular employees and those of our affiliates in person, by
telegraph or telephone.
We have not retained any dealer-manager in connection with the exchange offer
and will not make any payments to brokers, dealers or other persons soliciting
acceptances of the exchange offer. We will pay the preferred stock exchange
agent, however, reasonable and customary fees for its services and will
reimburse the preferred stock exchange agent for its reasonable out-of-pocket
expenses in connection with the exchange offer.
We will pay the cash expenses to be incurred in connection with the exchange
offer. Such expenses include fees and expenses of the preferred stock exchange
agent and the transfer agent, accounting and legal fees and printing costs,
among others.
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We will pay all transfer taxes, if any, applicable to the exchange of the
preferred stock pursuant to the exchange offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the preferred stock pursuant
to the exchange offer, then the amount of any such transfer taxes, whether
imposed on the registered holder or any other persons, will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The new preferred stock will be recorded at the same carrying value as the
preferred stock, which is face value as reflected in our accounting records on
the date of exchange. Accordingly, we will not recognize any gain or loss for
accounting purposes. The expenses of the exchange offer will be charged to
paid-in-capital.
CONSEQUENCES OF FAILURE TO EXCHANGE
The preferred stock that is not exchanged for new preferred stock pursuant to
the exchange offer will remain Transfer Restricted Securities. Accordingly, such
preferred stock may be resold only as follows:
(1) to us, upon redemption thereof or otherwise;
(2) (a) so long as the preferred stock is eligible for resale pursuant to
Rule 144A, to a person inside the United States whom the seller
reasonably believes is a qualified institutional buyer within the meaning
of Rule 144A under the Securities Act in a transaction meeting the
requirements of Rule 144A, (b) in accordance with Rule 144 under the
Securities Act, or (c) pursuant to another exemption from the
registration requirements of the Securities Act and based upon an opinion
of counsel reasonably acceptable to us;
(3) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act; or
(4) pursuant to an effective registration statement under the Securities
Act.
RESALE OF THE NEW PREFERRED STOCK
Based on no-action letters issued by the staff of the Securities and Exchange
Commission to third parties, we believe the new preferred stock issued pursuant
to the exchange offer in exchange for the preferred stock may be offered for
resale, resold and otherwise transferred by any holder (other than (1) a
broker-dealer who purchased such preferred stock directly from us for resale
pursuant to Rule 144A or any other available exemption under the Securities Act
or (2) a person that is an "affiliate" of ours within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided, however, that
the holder is acquiring the new preferred stock in its ordinary course of
business and is not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the new preferred stock. In
the event that our belief is inaccurate, holders of new preferred stock who
transfer new preferred stock in violation of the prospectus delivery provisions
of the Securities Act and without an exemption from registration thereunder may
incur liability under the Securities Act. We do not assume or indemnify holders
against such liability.
If, however, any holder acquires new preferred stock in the exchange offer for
the purpose of distributing or participating in a distribution of the new
preferred stock, such holder cannot rely on the position of the staff of the
Securities and Exchange Commission enunciated in the referenced no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each participating broker-dealer that receives new
preferred stock for its own account in exchange for preferred stock, where such
preferred stock was acquired by such participating broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any
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resale of the new preferred stock. Although a broker-dealer may be an
"underwriter" within the meaning of the Securities Act, the letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new preferred stock received in exchange for preferred stock.
As contemplated by these no-action letters and the preferred stock registration
rights agreement, each holder tendering preferred stock in the exchange offer is
required to represent to us in the letter of transmittal, that, among things:
(1) the person receiving the new preferred stock pursuant to the exchange
offer, whether or not such person is the holder, is receiving it in the
ordinary course of business;
(2) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
new preferred stock and that such holder is not engaged in, and does not
intend to engage in, a distribution of new preferred stock;
(3) neither the holder nor any such other person is an "affiliate" of ours
within the meaning of Rule 405 under the Securities Act;
(4) the holder acknowledges and agrees that:
(a) any person participating in the exchange offer for the purpose of
distributing the new preferred stock must comply with the
registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction with respect to
the new preferred stock acquired by such person and cannot rely on
the position of the staff of the Securities and Exchange Commission
set forth in no-action letters that are discussed above and under the
heading "-Purpose and Effect of the Exchange Offer;" and
(b) any broker-dealer that receives new preferred stock for its own
account in exchange for preferred stock pursuant to the exchange
offer must deliver a prospectus in connection with any resale of such
new preferred stock, but by so acknowledging, the holder shall not be
deemed to admit that, by delivering a prospectus, it is an
"underwriter" within the meaning of the Securities Act; and
(5) the holder understands that a secondary resale transaction described in
clause (4)(a) above should be covered by an effective registration
statement containing the selling securityholder information required by
Item 507 of Regulation S-K of the Securities and Exchange Commission.
The exchange offer is not being made to, and we will not accept surrenders for
exchange from, holders of the preferred stock in any jurisdiction in which the
exchange offer or its acceptance would not comply with the securities or blue
sky laws of such jurisdiction.
All resales must be made in compliance with state securities or "blue sky" laws.
Such compliance may require that the new preferred stock be registered or
qualified in a state or that the resales be made by or through a licensed
broker-dealer, unless exemptions from these requirements are available. We
assume no responsibility with regard to compliance with these requirements.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a general discussion of certain United States federal income
tax consequences as of the date hereof of the acquisition, ownership and
disposition of the exchange notes and new preferred stock issued pursuant to
this exchange offer and the subordinated exchange debentures that may be issued
from time to time after this exchange offer in exchange for the new preferred
stock. This discussion applies only if you are a U.S. Holder (as defined below)
and acquire such exchange notes and/or new preferred stock in exchange for notes
and/or preferred stock acquired on original issuance and for the original
offering price. The following discussion is based on current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Regulations, judicial authority and current administrative rulings and
pronouncements of the Internal Revenue Service (the "IRS"). No assurance can be
given that the IRS will not take a contrary view, and no ruling from the IRS has
been or will be sought. Legislative, judicial, or administrative changes or
interpretations may be forthcoming that could alter or modify the propriety of
the statements and conclusions set forth herein. Moreover, any such changes or
interpretations may or may not be retroactive. Accordingly, any such changes or
interpretations could affect the tax consequences to holders of the exchange
notes, new preferred stock and subordinated exchange debentures.
We assume in our discussion below that the exchange notes, new preferred stock
and subordinated exchange debentures are held as capital assets. This discussion
is for general information only, and does not address all of the tax
consequences that may be relevant to particular acquirers in light of their
personal circumstances. For instance, special rules may apply to and may affect
the federal income tax consequences for certain types of acquirers such as:
- banks and other financial institutions,
- real estate investment trusts,
- regulated investment companies,
- insurance companies,
- tax-exempt organizations,
- S corporations,
- dealers in securities, or
- persons whose functional currency is not the U.S. Dollar.
In addition, special rules may apply if the exchange notes, new preferred stock
or subordinated exchange debentures are held in connection with integrated
transactions such as certain hedging transactions, conversion transactions or
"straddle" transactions. Finally, this discussion does not include any
description of the tax laws of any state, local or non-U.S. government that may
be applicable to a particular acquirer.
When we use the term "U.S. Holder" we generally mean a holder of exchange notes,
new preferred stock or subordinated exchange debentures who (for U.S. federal
income tax purposes):
- is an individual who is a citizen or resident of the United States (as
determined under U.S. federal income tax laws);
- is a corporation or partnership created or organized in or under the laws
of the United States or any political subdivision thereof (except to the
extent in the case of a partnership, as provided by Treasury Regulations
which may be issued in the future);
- is an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or
- is a trust if (1) a court within the United States is able to exercise
primary supervision over the administration of the trust and (2) at least
one U.S. person has authority to control all substantial decisions of the
trust.
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When we use the term "Non-U.S. Holder," we mean a holder that is not a U.S.
Holder.
WE ADVISE YOU TO CONSULT WITH YOUR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES TO YOU OF THE ACQUISITION, OWNERSHIP AND SALE OF THE EXCHANGE
NOTES, THE NEW PREFERRED STOCK AND THE SUBORDINATED EXCHANGE DEBENTURES,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
ACQUISITION, OWNERSHIP AND SALE AND REGARDING CHANGES OR POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
EXCHANGE NOTES
ACQUISITION OF THE EXCHANGE NOTES The exchange notes are being issued pursuant
to this exchange offer and the notes registration rights agreement in exchange
for unregistered notes previously issued in connection with the notes offering.
A U.S. Holder will not recognize any taxable gain or loss on the exchange of
notes for registered exchange notes and a U.S. Holder's tax basis will be the
same in the exchange notes as in the notes exchanged therefor.
STATED INTEREST. You must generally pay federal income tax on the interest on
the exchange notes:
- when it accrues, if you use the accrual method of accounting for United
States federal income tax purposes; or
- when you receive it, if you use the cash method of accounting for United
States federal income tax purposes.
DISPOSITION OF THE EXCHANGE NOTES. Generally you must recognize taxable gain or
loss on the sale, exchange, redemption, retirement or other taxable disposition
of an exchange note. The amount of your gain or loss equals the difference
between the amount you receive for the exchange note (in cash or other property,
valued at fair market value), minus the amount attributable to accrued interest
on the exchange note, minus your adjusted tax basis in the exchange note. Your
initial tax basis in an exchange note equals the price you paid for the original
note.
Your gain or loss will generally be a long-term capital gain or loss if you have
held the exchange note for more than one year from the date the originally
issued note was acquired. Otherwise, such gain or loss will be short-term
capital gain or loss. Payments at disposition attributable to accrued interest
and not yet included in income will be taxed as ordinary interest income.
NEW PREFERRED STOCK
CLASSIFICATION OF NEW PREFERRED STOCK. For the purposes of this discussion, we
are assuming that the outstanding preferred stock and new preferred stock will
be treated as equity (and not debt) for United States federal income tax
purposes. We have not obtained any opinion on this issue.
DIVIDENDS. Distributions on the new preferred stock will constitute dividends
to the extent paid from our current or accumulated earnings and profits (as
determined under United States federal income tax principles). Dividends "paid
in kind" through the issuance of additional new preferred stock will be treated
as distributions in an amount equal to the fair market value of such additional
new preferred stock as of the date of distribution. Such amount will also be the
issue price and initial tax basis of such newly distributed new preferred stock
for United States federal income tax purposes. The amount of our earnings and
profits at any time will depend upon our future actions and financial
performance. At the time the outstanding preferred stock was issued, PCA was a
newly formed corporation, and it is our belief that it did not have any current
or accumulated earnings and profits. Consequently, unless we generate earnings
and profits following that date, distributions with respect to the new preferred
stock may not qualify as dividends for federal income tax purposes. To the
extent that the amount of a distribution on the new preferred stock exceeds our
current and accumulated earnings and profits, such distributions will be treated
as a nontaxable return of capital and will be applied against and reduce the
adjusted tax basis of the new preferred stock in the hands of each U.S. Holder
(but not below zero), thus increasing the
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amount of any gain (or reducing the amount of any loss) that would otherwise be
realized by such U.S. Holder upon the sale or other taxable disposition of such
new preferred stock. The amount of any such distribution that exceeds the
adjusted tax basis of the new preferred stock in the hands of the U.S. Holder
will be treated as capital gain.
DIVIDENDS RECEIVED DEDUCTION. Under Section 243 of the Code, corporate U.S.
Holders may be able to deduct 70% of the amount of any distribution qualifying
as a dividend. There are, however, many exceptions and restrictions relating to
the availability of such dividends received deduction.
Section 246(c) of the Code requires that, in order to be eligible for the
dividends received deduction, a corporate U.S. Holder must generally hold the
shares of the new preferred stock for a minimum of 46 days (91 days in the case
of certain preferred stock) during the 90 day period beginning on the date which
is 45 days before the date on which such dividend is declared payable on such
shares (or during the 180 day period beginning 90 days before such dividend is
declared payable on such preferred shares). A U.S. Holder's holding period for
these purposes is suspended during any period in which it has certain options or
contractual obligations with respect to substantially identical stock or holds
one or more other positions with respect to substantially similar or related
property that diminishes the risk of loss from holding the new preferred stock.
Section 246A of the Code reduces the dividends received deduction allowed to a
corporate U.S. Holder that has incurred indebtedness "directly attributable" to
its investment in new preferred stock held as "portfolio stock".
Under Section 1059 of the Code, a corporate U.S. Holder is required to reduce
its tax basis (but not below zero) in the new preferred stock by the nontaxed
portion of any "extraordinary dividend" if such stock has not been held for more
than two years before the earliest of the date such dividend is declared,
announced, or agreed to. Generally, the nontaxed portion of an extraordinary
dividend is the amount excluded from income by operation of the dividends
received deduction provisions of Section 243 of the Code. An extraordinary
dividend on the new preferred stock generally would be a dividend that:
- equals or exceeds 5% of the corporate U.S. Holder's adjusted tax basis in
the new preferred stock, treating all dividends declared payable on such
shares within an 85 day period as one dividend; or
- exceeds 20% of the corporate U.S. Holder's adjusted tax basis in the new
preferred stock, treating all dividends declared payable on such shares
within a 365 day period as one dividend.
In determining whether a dividend paid on the new preferred stock is an
extraordinary dividend, a corporate U.S. Holder may elect to substitute the fair
market value of the stock for such U.S. Holder's tax basis for purposes of
applying these tests, provided such fair market value is established to the
satisfaction of the Secretary of the Treasury as of the day before the date on
which the dividend is declared payable. An extraordinary dividend also includes
any amount treated as a dividend in the case of a redemption that is either non
pro rata as to all stockholders or in partial liquidation of PCA, regardless of
the stockholder's holding period and regardless of the size of the dividend. If
any part of the nontaxed portion of an extraordinary dividend is not applied to
reduce the U.S. Holder's tax basis as a result of the limitation on reducing
such basis below zero, such part will be treated as capital gain and will be
recognized in the taxable year in which the extraordinary dividend is received.
Special Section 1059 rules exist with respect to "qualified preferred
dividends." A qualified preferred dividend is any fixed dividend payable with
respect to any share of stock which:
- provides for fixed preferred dividends payable not less frequently than
annually; and
- was not in arrears as to dividends at the time the U.S. Holder acquired
such stock.
A qualified preferred dividend does not include any dividend payable with
respect to any share of stock if the actual rate of return of such stock exceeds
15%. Section 1059 does not apply to qualified preferred dividends if the
corporate U.S. Holder holds such stock for more than five years. If the U.S.
Holder disposes of such stock before it has been held for more than five years,
the amount subject to extraordinary dividend treatment with respect to qualified
preferred dividends is limited to the excess of the actual rate of return over
the stated rate of
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return. Actual or stated rates of return are the actual or stated dividends
expressed as a percentage of the lesser of (1) the U.S. Holder's tax basis in
such stock or (2) the liquidation preference of such stock. WE ADVISE CORPORATE
U.S. HOLDERS TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE POSSIBLE
APPLICATION OF SECTION 1059 TO THEIR NEW PREFERRED STOCK.
REDEMPTION PREMIUM. Under Section 305(c) of the Code and the applicable
regulations thereunder, if there is a redemption premium, which is the amount
(more than a DE MINIMIS amount), by which the redemption price of the new
preferred stock exceeds its issue price, such redemption premium will be taxable
as a constructive distribution to the U.S. Holder under a constant interest rate
method similar to that described below for accruing original issue discount
("OID") (see "Subordinated Exchange Debentures--Original Issue Discount").
Because the new preferred stock provides for optional rights of redemption by us
at prices in excess of the issue price, stockholders could be required to
recognize such redemption premium if, based on all of the facts and
circumstances, the optional redemptions are more likely than not to occur.
However, even if such optional redemptions are more likely than not to occur,
constructive distribution treatment would not result if the redemption premium
were solely in the nature of a penalty for premature redemption. For this
purpose, a penalty for premature redemption is a premium paid as a result of
changes in economic or market conditions over which neither PCA nor the U.S.
Holder has control, such as changes in prevailing dividend rates. The
regulations under Section 305(c) of the Code provide a safe harbor pursuant to
which constructive distribution treatment will not result from an issuer call
right if the issuer and the holder are unrelated, there are no arrangements that
effectively require the issuer to redeem the stock, and exercise of the option
to redeem would not reduce the yield of the stock. We intend to take the
position that the existence of our optional redemption rights does not result in
a constructive distribution to the U.S. Holders.
Any additional shares of new preferred stock distributed by us in lieu of cash
dividend payments on the new preferred stock and received by Holders of the new
preferred stock may bear a redemption premium depending upon the issue price of
such shares (i.e., the fair market value of such shares on the date of
issuance). If such shares bear a redemption premium, which is more than a DE
MINIMIS amount, a U.S. Holder may be required to include such redemption premium
in income as a constructive distribution of additional new preferred stock under
a constant interest rate method similar to that described below for accruing
OID. Thus, such shares generally will have different tax characteristics than
other shares of new preferred stock and might trade separately, which might
adversely affect the liquidity of such shares.
DISPOSITION OF NEW PREFERRED STOCK. A U.S. Holder's adjusted tax basis in the
new preferred stock will, in general, be the U.S. Holder's initial tax basis of
such Holder's preferred stock purchased in the initial preferred stock offering,
increased by the portion of any redemption premium previously included in income
by the U.S. Holder. A corporate U.S. Holder's tax basis may be further adjusted
by the extraordinary dividend provision discussed above. Upon the sale or other
disposition of new preferred stock (other than by redemption) a U.S. Holder will
generally recognize capital gain or loss equal to the difference between the
amount realized upon the disposition and the adjusted tax basis of the new
preferred stock. Such gain or loss will be capital gain or loss and will be long
term capital gain or loss if at the time of sale, exchange, redemption or other
disposition the new preferred stock has been held for more than one year from
the date the outstanding preferred stock was acquired.
A redemption of the new preferred stock by us would be treated, under Section
302 of the Code, either as a sale or exchange giving rise to capital gain or
loss as described in the preceding paragraph or as a dividend. In the case of a
redemption of new preferred stock for subordinated exchange debentures, the
amount realized on the exchange would be equal to the "issue price" of the
subordinated exchange debenture plus any cash received on the exchange. The
"issue price" of a subordinated exchange debenture would be equal to:
- its fair market value as of the exchange date if the subordinated exchange
debentures are traded on an established securities market on or at any
time during a specified period; or
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- the fair market value at the exchange date of the new preferred stock if
such new preferred stock is traded on an established securities market
during a specified period but the subordinated exchange debentures are
not.
If neither the new preferred stock nor the subordinated exchange debentures are
so traded, the issue price of the subordinated exchange debentures would be
determined under Section 1274 of the Code, in which case the issue price would
be the stated principal amount of the subordinated exchange debentures provided
that the yield on the subordinated exchange debentures is equal to or greater
than the "applicable federal rate" in effect at the time the subordinated
exchange debentures are issued. If the yield on the subordinated exchange
debentures is less than such applicable federal rate, its issue price under
section 1274 of the Code would be equal to the present value as of the issue
date of all payments to be made on the subordinated exchange debentures,
discounted at the applicable federal rate. It cannot be determined at the
present time whether the new preferred stock or the subordinated exchange
debentures will be, at the relevant time, traded on an established securities
market within the meaning of the Treasury Regulations or whether the yield on
the subordinated exchange debentures will equal or exceed the applicable federal
rate, as discussed above.
If a redemption of shares of the new preferred stock for cash or an exchange of
the new preferred stock for subordinated exchange debentures is treated as a
dividend with respect to a particular exchanging U.S. Holder under Section 302
of the Code, such U.S. Holder:
- will not recognize any loss on the exchange; and
- will recognize dividend income (rather than capital gain) in an amount
equal to the cash or the fair market value of the subordinated exchange
debentures received without regard to the U.S. Holder's basis in the
shares of new preferred stock surrendered in the exchange, to the extent
of its proportionate share of our current or accumulated earnings and
profits.
In such case, unrecovered tax basis may, in some circumstances, be added to the
tax basis of other PCA stock held by the U.S. Holder or in some cases may simply
be lost.
In the case of an exchange for the subordinated exchange debentures, the holding
period for the subordinated exchange debentures will begin on the day after the
day on which the subordinated exchange debentures are acquired by the exchanging
U.S. Holder.
Pursuant to Section 302 of the Code, the redemption or exchange will not be
treated as a dividend if, after giving effect to the constructive ownership
rules of Section 318 of the Code, the redemption or exchange:
- represents a "complete termination" of the exchanging U.S. Holder's stock
interest in PCA;
- is "substantially disproportionate" with respect to the exchanging U.S.
Holder; or
- is "not essentially equivalent to a dividend" with respect to the
exchanging U.S. Holder, all within the meaning of Section 302(b) of the
Code.
An exchange will be "not essentially equivalent to a dividend" as to a
particular U.S. Holder if it results in a "meaningful reduction" in such U.S.
Holder's interest in PCA (after application of the constructive ownership rules
of Section 318 of the Code). In general, there are no fixed rules for
determining whether a "meaningful reduction" has occurred.
Depending upon a U.S. Holder's particular circumstances, the tax consequences of
holding subordinated exchange debentures may be less advantageous than the tax
consequences of holding new preferred stock because, for example, payments of
interest on the subordinated exchange debentures will not be eligible for any
dividends received deduction that may be available to corporate U.S. Holders or
because the U.S. Holder may be required to accrue into income OID on the
subordinated exchange debentures.
WE ADVISE EACH U.S. HOLDER TO CONSULT ITS OWN TAX ADVISOR AS TO ITS ABILITY IN
LIGHT OF ITS OWN PARTICULAR CIRCUMSTANCES TO SATISFY ANY OF THE FOREGOING TESTS.
ADDITIONALLY, WE ADVISE CORPORATE U.S. HOLDERS TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE AVAILABILITY OF THE CORPORATE DIVIDENDS RECEIVED
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DEDUCTION AND THE POSSIBLE APPLICATION OF THE EXTRAORDINARY DIVIDEND RULES OF
SECTION 1059 OF THE CODE TO A REDEMPTION OR AN EXCHANGE BY A CORPORATE HOLDER
FOR WHOM SUCH REDEMPTION OR EXCHANGE IS TAXABLE AS A DIVIDEND.
SUBORDINATED EXCHANGE DEBENTURES
ORIGINAL ISSUE DISCOUNT. A subordinated exchange debenture may be issued with
original issue discount ("OID") equal to the excess of its "stated redemption
price at maturity" over its "issue price." If so, U.S. Holders of subordinated
exchange debentures may be subject to special tax accounting rules, pursuant to
which they generally must include OID in gross income for United States federal
income tax purposes on an annual basis under a constant yield method, in advance
of the receipt of cash attributable to that income. We will provide on a timely
basis to U.S. Holders of any subordinated exchange debentures with reportable
OID, the amount of OID and interest income based on our understanding of
applicable law.
The "stated redemption price at maturity" of a debt instrument is the sum of its
principal amount plus all other payments required thereunder, other than
payments of "qualified stated interest." For this purpose "qualified stated
interest" means stated interest that is unconditionally payable in cash or in
property (other than the debt instruments of the issuer), at least annually at a
single fixed rate during the entire term of the debt instrument and that
appropriately takes into account the length of the intervals between payments.
If the subordinated exchange debentures are issued at a time when we have the
option to pay interest on the subordinated exchange debentures by issuing
additional subordinated exchange debentures instead of cash, none of the stated
interest on such subordinated exchange debentures will be treated as qualified
stated interest. On the other hand, if the subordinated exchange debentures are
issued at a time when we do not have such an option, the stated interest will be
treated as qualified stated interest, and, accordingly, will be includible in
income as interest in accordance with your regular method of accounting. The
"issue price" of a subordinated exchange debenture will be determined as
described under "-Disposition of New Preferred Stock."
The amount of OID includible in income by the initial U.S. Holder of a
subordinated exchange debenture is the sum of the "daily portions" of OID with
respect to the subordinated exchange debenture for each day during the taxable
year or portion of the taxable year in which such U.S. Holder held such
subordinated exchange debenture ("accrued OID"). The daily portion is determined
by allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. The "accrual period" for a subordinated
exchange debenture may be of any length and may vary in length over the term of
the subordinated exchange debenture, provided that each accrual period is no
longer than one year and each scheduled payment of principal or interest occurs
on the first day or the final day of an accrual period. The amount of OID
allocable to any accrual period is an amount equal to the excess, if any, of:
- the product of the subordinated exchange debenture's adjusted issue price
at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period); over
- the sum of any qualified stated interest allocable to the accrual period.
OID allocable to a final accrual period is the difference between the amount
payable at maturity (other than a payment of qualified stated interest) and the
adjusted issue price at the beginning of the final accrual period. Special rules
will apply for calculating OID for an initial short accrual period. The
"adjusted issue price" of a subordinated exchange debenture at the beginning of
any accrual period is equal to its issue price increased by the accrued OID for
each prior accrual period and reduced by any payments made on such subordinated
exchange debenture (other than qualified stated interest) on or before the first
day of the accrual period. Under these rules, a U.S. Holder will have to include
in income increasingly greater amounts of OID in successive accrual periods.
AMORTIZABLE BOND PREMIUM. If at the time the new preferred stock is exchanged
for the subordinated exchange debentures, the U.S. Holder's tax basis in any
such subordinated exchange debenture exceeds its stated redemption price at
maturity, the subordinated exchange debenture will be considered to have been
issued at a
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premium. A U.S. Holder generally may elect to amortize the premium over the term
of the subordinated exchange debenture on a constant yield method as an offset
to interest otherwise includible in income under the U.S. Holder's regular
accounting method. The election to amortize premium on a constant yield method
once made applies to all debt obligations held or subsequently acquired by the
electing U.S. Holder on or after the first day of the first taxable year to
which the election applies and may not be revoked without the consent of the
IRS.
REDEMPTION, SALE OR EXCHANGE OF SUBORDINATED EXCHANGE DEBENTURES. Upon the
redemption, sale, exchange or retirement of a subordinated exchange debenture, a
U.S. Holder will recognize capital gain or loss equal to the difference between
the amount realized upon the redemption, sale, exchange or retirement (less any
amount attributable to accrued and unpaid interest) and the adjusted tax basis
of the subordinated exchange debenture. The adjusted tax basis of subordinated
exchange debentures to a U.S. Holder who received such subordinated exchange
debentures in exchange for new preferred stock will, in general, be equal to the
initial tax basis of such subordinated exchange debentures, increased by OID
previously included in income by the U.S. Holder and reduced by any amortizable
bond premium deducted by the U.S. Holder and any cash payments on the
subordinated exchange debentures other than qualified stated interest.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS. If the yield to maturity on
subordinated exchange debentures with OID equals or exceeds the sum of (x) the
"applicable federal rate" (as determined under Section 1274(d) of the Code) in
effect for the month in which such debentures are issued (the "AFR") and (y) 5%,
and the OID on such subordinated exchange debentures is "significant," the
subordinated exchange debentures will be considered "applicable high yield
discount obligations" ("AHYDOs") under Section 163(i) of the Code. Consequently,
we would not be allowed to take a deduction for interest (including OID) accrued
on such subordinated exchange debentures for U.S. federal income tax purposes
until such time as we actually pay such interest (including OID) in cash or in
other property (other than our stock or debt or the stock or debt of a person
deemed to be related to us under Section 453(f)(1) of the Code). Because the
amount of OID, if any, attributable to such subordinated exchange debentures
will be determined at such time as such subordinated exchange debentures are
issued, and the AFR at the time such subordinated exchange debentures are issued
in exchange for new preferred stock is not predictable, it is impossible to
determine at the present time whether a subordinated exchange debenture will be
treated as an AHYDO if issued.
Moreover, if the yield to maturity on such a subordinated exchange debenture
exceeds the sum of (x) the AFR and (y) 6% (such excess shall be referred to
hereinafter as the "Disqualified Yield"), the deduction for OID accrued on the
subordinated exchange debenture will be permanently disallowed (regardless of
whether PCA actually pays such interest or OID in cash or in other property) for
U.S. federal income tax purposes to the extent such interest or OID is
attributable to the Disqualified Yield on the subordinated exchange debenture
("Dividend Equivalent Interest"). For purposes of the dividends received
deduction, such Dividend Equivalent Interest will be treated as a dividend to
the extent it is deemed to have been paid out of our current or accumulated
earnings and profits. Accordingly, a corporate U.S. Holder of a subordinated
exchange debenture may be entitled to take a dividends received deduction with
respect to any Dividend Equivalent Interest received by such corporate U.S.
Holder on such a subordinated exchange debenture.
INFORMATION REPORTING AND BACKUP WITHHOLDING
PCA will report to holders of the exchange notes, new preferred stock and
subordinated exchange debentures and the IRS the amount of any "reportable
payments" (including original issue discount accrued on the subordinated
exchange debentures) and any amount withheld with respect to the exchange notes,
new preferred stock and subordinated exchange debentures during the calendar
year.
In general, U.S. Holders may be subject to information reporting requirements
and backup withholding at a rate of 31% with respect to (1) interest (including
OID) paid in respect of the exchange notes and the subordinated
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exchange debentures and dividends paid in respect of the new preferred stock and
(2) proceeds received on the sale, exchange or redemption of the exchange notes,
new preferred stock, or subordinated exchange debentures unless such holder:
- is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or
- provides a correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
A U.S. Holder who does not provide PCA with his or her correct taxpayer
identification number may be subject to penalties imposed by the IRS. In
general, any amount withheld under these rules will be creditable against the
United States federal tax liability of a U.S. Holder, and will be refundable to
the extent that it results in an overpayment of tax.
TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
INTEREST ON THE EXCHANGE NOTES. Under present United States federal income tax
law, and subject to the discussion below concerning backup withholding, the
"portfolio interest" exemption provides that no withholding of United States
federal income tax will be required with respect to the payment by PCA or any
paying agent of principal or interest on an exchange note owned by a Non-U.S.
Holder, provided that:
- the beneficial owner does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of PCA entitled
to vote within the meaning of section 871(h)(3) of the Code and the
regulations thereunder,
- the beneficial owner is not a controlled foreign corporation that is
related to PCA through stock ownership,
- the beneficial owner is not a bank whose receipt of interest on an
exchange note is described in section 881(c)(3)(A) of the Code and
- the beneficial owner satisfies the "statement requirement" (described
generally below) set forth in section 871(h) and section 881(c) of the
Code and the regulations thereunder.
To satisfy the "statement requirement," the beneficial owner of such exchange
note, or a financial institution holding such exchange note on behalf of such
owner, must provide, in accordance with specified procedures, to PCA or its
paying agent a statement to the effect that the beneficial owner is not a U.S.
person. Pursuant to current temporary Treasury regulations, these requirements
will be met if:
- the beneficial owner provides his name and address, and certifies, under
penalties of perjury, that he is not a U.S. person (which certification
may be made on an IRS Form W-8 (or successor form)); or
- a financial institution holding the exchange note on behalf of the
beneficial owner certifies, under penalties of perjury, that such
statement has been received by it and furnishes a paying agent with a copy
thereof.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio interest"
exception described above, payments of interest made to such Non-U.S. Holder
will be subject to a 30% withholding tax unless the beneficial owner of the
exchange note provides PCA or its paying agent, as the case may be, with a
properly executed:
- IRS Form 1001 (or successor form) claiming an exemption from withholding
under the benefit of an applicable tax treaty; or
- IRS Form 4224 (or successor form) stating that interest paid on the
exchange note is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in
the United States.
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If a Non-U.S. Holder is engaged in a trade or business in the United States and
premium, if any, or interest on the exchange note is effectively connected with
the conduct of such trade or business, the Non-U.S. Holder, although exempt from
the withholding tax discussed above, will be subject to United States federal
income tax at applicable graduated individual or corporate rates on such
interest in the same manner as if it were a U.S. Holder. In addition, if such
holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30% of its effectively connected earnings and profits for the taxable year,
subject to adjustments. For this purpose, interest on an exchange note will be
included in such foreign corporation's earnings and profits.
SALE, EXCHANGE, REDEMPTION OR OTHER DISPOSITION OF EXCHANGE NOTES. A Non-U.S.
Holder will generally not be subject to United States federal income tax with
respect to gain recognized on a sale, exchange, redemption or other disposition
of exchange notes, unless:
- the gain is "effectively connected" with a trade or business of the
Non-U.S. Holder in the United States, or, if a tax treaty applies, is
attributable to a United States permanent establishment of the Non-U.S.
Holder; or
- in the case of a Non-U.S. Holder who is an individual, such holder is
present in the United States for 183 or more days in the taxable year of
the sale or other disposition and certain other conditions are met.
If an individual Non-U.S. Holder meets the "effectively connected" requirement
described above, he will be taxed on his net gain derived from the sale or other
disposition under regular graduated United States federal income tax rates. If
an individual Non-U.S. Holder meets the 183 day requirement described above, he
will be subject to a flat 30% tax on the gain derived from the sale or other
disposition, which may generally be offset by United States source capital
losses recognized within the same taxable year as such sale or other disposition
(notwithstanding the fact that he is not considered a resident of the United
States).
If a Non-U.S. Holder that is a foreign corporation meets the "effectively
connected" requirement described above, it will be taxed on its gain under
regular graduated United States federal income tax rates and, in addition, may
be subject to the branch profits tax equal to 30% of its effectively connected
earnings and profits within the meaning of the Code for the taxable year, as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable income tax treaty. For this purpose, such gain will be included in
such foreign corporation's earnings and profits.
FEDERAL ESTATE TAX. Exchange notes beneficially owned by an individual who at
the time of death is a Non-U.S. Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that:
- such individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of PCA entitled to
vote within the meaning of section 871(h)(3) of the Code; and
- the interest payments with respect to such exchange note would not have
been, if received at the time of such individual's death, effectively
connected with the conduct of a United States trade or business by such
individual.
INFORMATION REPORTING AND BACKUP WITHHOLDING. PCA will report to holders of the
exchange notes and the IRS the amount of any "reportable payments" and any
amount withheld with respect to the exchange notes during the calendar year.
No information reporting or backup withholding will be required with respect to
payments made by PCA or any paying agent to Non-U.S. Holders if the "statement
requirement" described under "Tax Consequences to Non-United States
Holders-Interest on the Exchange Notes" has been received and the payor does not
have actual knowledge that the beneficial owner is a United States person.
In addition, backup withholding and information reporting will not apply if
payments of interest on the exchange notes are paid or collected by a foreign
office of a custodian, nominee or other foreign agent on behalf of the
beneficial owner of such exchange notes, or if a foreign office of a broker (as
defined in applicable Treasury
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regulations) pays the proceeds of the sale of the exchange notes to the owner
thereof. If, however, such nominee, custodian, agent or broker is, for United
States federal income tax purposes, a U.S. person, a controlled foreign
corporation or a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States or,
with respect to payments made after December 31, 2000, a foreign partnership, if
at any time during its tax year, one or more of its partners are United States
persons who, in the aggregate, hold more than 50% of the income or capital
interest in the partnership or if, at any time during its tax year, such foreign
partnership is engaged in a United States trade or business, such payments will
not be subject to backup withholding but will be subject to information
reporting, unless:
- such custodian, nominee, agent or broker has documentary evidence in its
records that the beneficial owner is not a U.S. person and certain other
conditions are met, or
- the beneficial owner otherwise establishes an exemption.
Temporary Treasury regulations provide that the Treasury is considering whether
backup withholding will apply with respect to such payments of principal,
interest or the proceeds of a sale that are not subject to backup withholding
under the current regulations.
Payments of principal and interest on exchange notes paid to the beneficial
owner of such exchange notes by a United States office of a custodian, nominee
or agent, or the payment by the United States office of a broker of the proceeds
of sale of exchange notes will be subject to both backup withholding and
information reporting unless the beneficial owner satisfies the "statement
requirement" described above and the payor does not have actual knowledge that
the beneficial owner is a United States person or otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules will generally be
allowed as a refund or a credit against such Non-U.S. Holder's U.S. federal
income tax liability provided the required information is furnished to the IRS.
NEW WITHHOLDING REGULATIONS. New regulations relating to withholding tax on
income paid to foreign persons (the "New Withholding Regulations") will
generally be effective for payments made after December 31, 2000, subject to
certain transition rules. The New Withholding Regulations modify and, in
general, unify the way in which you establish your status as a non-United States
"beneficial owner" eligible for withholding exemptions including the "portfolio
interest" exemption, a reduced treaty rate or an exemption from backup
withholding. For example, the New Withholding Regulations will require new
forms, which you generally will have to provide earlier than you would have had
to provide replacements for expiring existing forms.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes or new preferred stock for its
own account pursuant to the exchange offer in exchange for outstanding notes and
preferred stock which were acquired by such broker-dealer as a result of
market-making or other trading activities must acknowledge that it will deliver
a prospectus in connection with any resale of such exchange notes or new
preferred stock. This prospectus, as it may be amended or supplemented from time
to time, may be used by any such broker-dealer in connection with resales of
exchange notes and new preferred stock received in exchange for outstanding
notes and preferred stock. We have agreed that for a period of 180 days after
the exchange offer is completed, we will make this prospectus, as amended or
supplemented, available to any such broker-dealer for use in connection with any
such resale. All resales must be made in compliance with state securities or
blue sky laws. We assume no responsibility with regard to compliance with these
requirements.
We will not receive any proceeds from any sales of the exchange notes or the new
preferred stock by broker-dealers. The exchange notes and the new preferred
stock received by broker-dealers for their own account pursuant to the exchange
offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the exchange notes or the new preferred stock, or a combination of
such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to the purchaser or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such exchange notes or new
preferred stock. Any broker-dealer that resells the exchange notes or the new
preferred stock that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such exchange notes or new preferred stock may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
exchange notes or new preferred stock and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The letters of transmittal state that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the exchange offer is completed, we will promptly
send additional copies of this prospectus and any amendment or supplement to
this prospectus to any broker-dealer that requests such documents in a letter of
transmittal.
We have been advised by J.P. Morgan Securities Inc. and BT Alex. Brown
Incorporated, the initial purchasers of the outstanding notes and preferred
stock, that following completion of the exchange offer they intend to make a
market in the exchange notes and the new preferred stock. The initial
purchasers, however, are under no obligation to do so and any market activities
with respect to the exchange notes and the new preferred stock may be
discontinued at any time.
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LEGAL MATTERS
Certain legal matters in connection with the issuance of the exchange notes and
the new preferred stock will be passed upon for PCA by Kirkland & Ellis,
Chicago, Illinois. Certain of the partners of Kirkland & Ellis, through an
investment partnership, beneficially own, indirectly through PCA Holdings, an
aggregate of approximately 0.2% of the common stock of PCA (without giving
effect to the issuances of management equity).
EXPERTS
The combined financial statements of The Containerboard Group, a division of
TPI, as of December 31, 1998, 1997 and 1996, and for each of the three years in
the period ended December 31, 1998, included in this prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We and our subsidiary guarantors have filed a registration statement on Form S-4
under the Securities Act with respect to the exchange notes and the new
preferred stock. This prospectus, which forms a part of the registration
statement, does not contain all of the information included in the registration
statement. Certain parts of the registration statement are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to us, our subsidiary guarantors and the exchange notes and the new
preferred stock, we refer you to the registration statement. You should be aware
that statements made in this prospectus as to the contents of any agreement or
other document filed as an exhibit to the registration statement are not
necessarily complete. We refer you to the copy of such documents filed as
exhibits to the registration statement. Each such statement is qualified in all
respects by such reference.
We are not currently subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934. We have agreed that,
whether or not we are required to do so by the rules and regulations of the
Commission, for so long as any of the exchange notes or the new preferred stock
remain outstanding, we will furnish to the holders of the exchange notes and the
new preferred stock and, if permitted, will file with the Commission:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if we
were required to file such forms, including a Management's Discussion and
Analysis of Financial Condition and Results of Operations and, with
respect to the annual information only, a report on such information by
our certified independent accountants; and
(2) all reports that would be required to be filed with the Commission on
Form 8-K if we were required to file such reports, in each case within
the time periods specified in the rules and regulations of the
Commission.
Any reports or documents we file with the Commission, including the registration
statement, may be inspected and copied at the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Regional Offices of the Commission at 7 World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 14th Floor, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such reports or other documents may be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a web site that contains reports and other information that is filed
through the Commission's Electronic Data Gathering Analysis and Retrieval
System. The web site can be accessed at http://www.sec.gov.
200
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Combined Statements of Assets, Liabilities and Interdivision Account as of December 31, 1998, 1997 and 1996
and March 31, 1999 (unaudited)........................................................................... F-3
Combined Statements of Revenues, Expenses and Interdivision Account for the years ended December 31, 1998,
1997 and 1996 and for the three months ended March 31, 1999 and 1998 (unaudited)......................... F-4
Combined Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 and for the three
months ended March 31, 1999 and 1998 (unaudited)......................................................... F-5
Notes to Combined Financial Statements..................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenneco Inc.:
We have audited the accompanying combined statements of assets, liabilities and
interdivision account of THE CONTAINERBOARD GROUP (a division of Tenneco
Packaging Inc., which is a Delaware corporation and a wholly owned subsidiary of
Tenneco Inc.) as of December 31, 1998, 1997 and 1996, and the related combined
statements of revenues, expenses and interdivision account and cash flows for
the years then ended. These financial statements are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Containerboard
Group as of December 31, 1998, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 26, 1999
F-2
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
COMBINED STATEMENTS OF
ASSETS, LIABILITIES AND INTERDIVISION ACCOUNT
ASSETS
<TABLE>
<CAPTION>
------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31
-------------------------------
MARCH 31, 1999
1998 1997 1996 (UNAUDITED)
--------- --------- --------- ---------------
(In thousands)
Current assets:
Cash $ 1 $ 1 $ 1,027 1
Accounts receivable (net of allowance for doubtful accounts
of $5,220 in 1998, $5,023 in 1997 and $5,010 in 1996) 13,971 27,080 16,982 36,515
Receivables from affiliated companies 10,390 19,057 10,303 10,203
Notes receivable 27,390 573 547 27,943
Inventories:
Raw materials 86,681 100,781 99,459 85,008
Work in process and finished goods 48,212 38,402 36,995 46,725
Materials and supplies 44,310 42,043 35,834 48,800
--------- --------- --------- ---------------
Inventory, gross 179,203 181,226 172,288 180,533
Excess of FIFO over LIFO cost (28,484) (25,445) (28,308) (28,950 )
--------- --------- --------- ---------------
Inventory, net 150,719 155,781 143,980 151,583
--------- --------- --------- ---------------
Prepaid expenses and other current assets 41,092 35,019 35,536 28,178
--------- --------- --------- ---------------
Total current assets 243,563 237,511 208,375 254,423
--------- --------- --------- ---------------
Property, plant and equipment, at cost: 1,754,504
Land, timber, timberlands and buildings 287,510 280,060 269,134
Machinery and equipment 1,289,459 1,175,805 1,082,912
Other, including construction in progress 100,136 130,696 140,522
Less-Accumulated depreciation and depletion (735,749) (656,915) (582,437) (756,326 )
--------- --------- --------- ---------------
Property, plant and equipment, net 941,356 929,646 910,131 998,178
--------- --------- --------- ---------------
Intangibles 50,110 56,470 55,660 49,530
--------- --------- --------- ---------------
Other long-term assets 131,092 77,312 72,076 69,014
--------- --------- --------- ---------------
Investments 1,282 16,324 14,809 1,378
--------- --------- --------- ---------------
Total assets $1,367,403 $1,317,263 $1,261,051 1,372,523
--------- --------- --------- ---------------
--------- --------- --------- ---------------
LIABILITIES AND INTERDIVISION ACCOUNT
Current liabilities:
Accounts payable $ 87,054 $ 124,633 $ 111,588 105,871
Payables to Tenneco affiliates 7,091 6,164 29,402 13,085
Current portion of long-term debt 617 3,923 1,603 216
Current portion of deferred gain - 1,973 1,973 0
Loss Reserve - - - 230,112
Accrued liabilities 69,390 70,426 166,663 68,558
--------- --------- --------- ---------------
Total current liabilities 164,152 207,119 311,229 417,842
--------- --------- --------- ---------------
Long-term liabilities:
Long-term debt 16,935 23,941 18,713 250
Deferred taxes 254,064 174,127 87,165 263,936
Deferred gain - 34,262 36,235 --
Other 23,860 23,754 23,287 24,057
--------- --------- --------- ---------------
Total long-term liabilities 294,859 256,084 165,400 288,243
--------- --------- --------- ---------------
Interdivision account 908,392 854,060 784,422 666,438
--------- --------- --------- ---------------
Total liabilities and interdivision account $1,367,403 $1,317,263 $1,261,051 1,372,523
--------- --------- --------- ---------------
--------- --------- --------- ---------------
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-3
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
COMBINED STATEMENTS OF
REVENUES, EXPENSES AND INTERDIVISION ACCOUNT
<TABLE>
<CAPTION>
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
------------------------------------------- ------------------------
1998 1997 1996 1998
------------- ------------- ------------- -----------
1999
-----------
(UNAUDITED)
(IN THOUSANDS)
Net sales $ 1,571,019 $ 1,411,405 $ 1,582,222 391,279 432,901
Cost of sales (1,289,644) (1,242,014) (1,337,410) (332,117) (354,855)
------------- ------------- ------------- ----------- -----------
Gross profit 281,375 169,391 244,812 59,162 78,046
Selling and administrative expenses (108,944) (102,891) (95,283) (28,759) (26,841)
Restructuring, impairment and other (14,385) - - (230,112) -
Other income, net 26,818 44,681 56,243 (1,377) (2,742)
Corporate allocations (63,114) (61,338) (50,461) (13,283) (14,326)
------------- ------------- ------------- ----------- -----------
Income (loss) before interest, taxes and
extraordinary item 121,750 49,843 155,311 (214,369) 34,137
Interest expense, net (2,782) (3,739) (5,129) (221) (741)
------------- ------------- ------------- ----------- -----------
Income (loss) before taxes and
extraordinary item 118,968 46,104 150,182 (214,590) 33,396
Provision for income taxes (47,529) (18,714) (59,816) 88,362 (13,315)
------------- ------------- ------------- ----------- -----------
Income (loss) before extraordinary item 71,439 27,390 90,366 (126,228) 20,081
Extraordinary Loss - - - (6,327) -
------------- ------------- ------------- ----------- -----------
Net income 71,439 27,390 90,366 (132,555) 20,081
Interdivision account, beginning of period 854,060 784,422 640,483 908,392 854,060
Interdivision account activity, net (17,107) 42,248 53,573 (109,399) 31,081
------------- ------------- ------------- ----------- -----------
Interdivision account, end of period $ 908,392 $ 854,060 $ 784,422 $ 666,438 $ (843,060)
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-4
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
----------------------------------- MARCH 31,
--------------------
1998 1997 1996 1998
----------- ----------- --------- ---------
1999
---------
(UNAUDITED)
(IN THOUSANDS)
Cash flows from operating activities:
Net income $ 71,439 $ 27,390 $ 90,366 (132,555) 20,081
----------- ----------- --------- --------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation, depletion and amortization 96,950 87,752 78,730 28,360 24,732
Extraordinary Loss early debt extinguishment 6,327
Restructuring and other 14,385 - - -
Gain on sale of joint venture interest (15,060) - - -
Gain on sale of timberlands (16,944) - - -
Gain on sale of assets - - (51,268) 230,112
Gain on lease refinancing - (37,730) - -
Gain on Willow Flowage - (4,449) - -
Gain on sale of mineral rights - (1,646) - -
Amortization of deferred gain (1,973) (1,973) (1,973) (493) (493)
Increase (decrease) in deferred income taxes 71,342 85,070 8,318 9,782 30,413
Undistributed earnings of affiliated companies 302 (2,264) (536) (96) 221
Increase (decrease) in other noncurrent reserves 107 467 (27,287) 196 1,694
----------- ----------- --------- --------- ---------
Total charges to net income not involving cash 149,109 125,227 5,984 141,633 76,648
----------- ----------- --------- --------- ---------
Changes in noncash components of working capital-
Working capital transactions, excluding transactions
with Tenneco and working capital from acquired
businesses-
Decrease (increase) in current assets-
Accounts receivable 12,100 (26,092) 38,261 (23,985) 834
Inventories, net 5,062 (10,932) 1,287 (864) (15,623)
Prepaid expenses and other 4,572 782 (8,070) 8,973 (4,000)
(Decrease) increase in current liabilities-
Accounts payable (37,580) 13,045 (47,930) 18,817 (7,805)
Accrued liabilities (9,301) (22,207) (24,041) 679 (15,388)
----------- ----------- --------- --------- ---------
Net decrease in noncash components of working
capital (25,147) (45,404) (40,493) 3,620 (41,982)
----------- ----------- --------- --------- ---------
Net cash provided by operating activities 195,401 107,213 55,857 145,253 34,666
----------- ----------- --------- --------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (103,429) (110,186) (168,642) (19,460) (16,339)
Prepaid Meridian Lease (84,198) - - -
Acquisition of businesses - (5,866) - -
Other long-term assets (10,970) (6,983) (23,478) (354) (2,825)
Proceeds from disposals 26,214 10,460 122,654 668 43
Other transactions, net (5,350) 690 (4,766) 3,773 (2,021)
----------- ----------- --------- --------- ---------
Net cash used for investing activities (177,733) (111,885) (74,232) (15,373) (21,142)
----------- ----------- --------- --------- ---------
</TABLE>
F-5
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------- MARCH 31,
--------------------
1998 1997 1996 1998
--------- --------- --------- ---------
1999
---------
(UNAUDITED)
(IN THOUSANDS)
Cash flows from financing activities:
Proceeds from long-term debt issued $ - $ 1,146 $ 430 - 130
Payments on long-term debt (10,346) (1,618) (1,886) (27,550) (235)
(Decrease) increase in interdivision account (17,109) 19,907 168,074 (109,399) (31,081)
Working capital transactions with Tenneco and
affiliated companies-
Decrease (increase) in receivables from
affiliated companies 8,667 (8,754) (1,781) 187 (1,287)
Decrease (increase) in factored receivables 192 16,204 (25,563) 888 16,908
Increase (decrease) in accounts payable to
affiliated companies 928 (23,239) (8,007) 5,994 2,041
Dividends paid to Tenneco - - (114,500) - -
--------- --------- --------- --------- ---------
Net cash (used for) provided by financing
activities (17,668) 3,646 16,767 (129,880) (13,524)
--------- --------- --------- --------- ---------
Net decrease in cash - (1,026) (1,608) - -
Cash, beginning of period 1 1,027 2,635 1 1
--------- --------- --------- --------- ---------
Cash, end of period $ 1 $ 1 $ 1,027 1 1
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-6
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. BUSINESS DESCRIPTION
The Containerboard Group (the "Group") is a division of Tenneco Packaging
Inc. ("Packaging") which is a wholly owned subsidiary of Tenneco Inc.
("Tenneco"). The Group is comprised of mills and corrugated products
operations.
The Mill operations ("The Mills") consist of two Kraft linerboard mills
located in Counce, Tennessee, and Valdosta, Georgia, and two medium mills
located in Filer City, Michigan, and Tomahawk, Wisconsin. The Mills also
include two recycling centers located in Nashville, Tennessee, and Jackson,
Tennessee. The Mills also control and manage approximately 950,000 acres of
timberlands. The Mills transfer the majority of their output to The
Corrugated Products operations ("Corrugated").
Corrugated operations consist of 39 corrugated combining plants, 28
specialty/sheet and other plants and 5 design centers. All plants are
located in North America. Corrugated combines linerboard and medium
(primarily from The Mills) into sheets that are converted into corrugated
shipping containers, point-of-sale graphics packaging, point-of-purchase
displays and other specialized packaging. Corrugated sells to diverse
customers primarily in North America.
The Group's sales to other Packaging entities and other Tenneco entities are
included in the accompanying combined financial statements. The net sales to
other Packaging entities for the years ended December 31, 1998, 1997 and
1996, were approximately $76,906,000, $69,981,000 and $76,745,000,
respectively. The net sales to other Tenneco entities for the years ended
December 31, 1998, 1997 and 1996, were approximately $14,251,000,
$13,108,000 and $10,376,000, respectively. The profit relating to these
sales are included in the accompanying combined financial statements.
As a result of the Group's relationship with Packaging, the combined
statements of assets, liabilities and interdivision account and the related
combined statements of revenues, expenses and interdivision account are not
necessarily indicative of what actually would have occurred had the Group
been a stand-alone entity. Additionally, these combined financial statements
are not necessarily indicative of the future financial position or results
of operations of the Group.
2. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements include the selected assets,
liabilities, revenues and expenses of the Group. All significant intragroup
accounts and transactions have been eliminated.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The Group's condensed combined financial statements as of March 31, 1999 and
for the three months ended March 31, 1998 and 1999 are unaudited but include
all adjustments (consisting only of normal recurring adjustments) that
management considers necessary for a fair presentation of such financial
statements. These financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with Article 10 of SEC Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Operating results
for the three months ended March 31, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999.
F-7
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Group recognizes revenue as products are shipped to customers.
ACCOUNTS RECEIVABLE
A substantial portion of the Group's trade accounts receivable are sold by
Packaging, generally without recourse, to a financing subsidiary of Tenneco
Inc. Expenses relating to cash discounts, credit losses, pricing adjustments
and other allowances on these factored receivables are accrued and charged
to the Group. The amount of trade accounts receivable sold was approximately
$150,099,000, $149,907,000 and $133,703,000 at December 31, 1998, 1997 and
1996, respectively.
INVENTORIES
Inventories for raw materials and finished goods are valued using the
last-in, first-out ("LIFO") cost method and include material, labor and
manufacturing-related overhead costs. Supplies and materials inventories are
valued using a moving average cost. All inventories are stated at the lower
of cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Interest costs relating
to construction in progress are capitalized based upon the total amount of
interest cost (including interest costs on notes payable to Tenneco)
incurred by Packaging.
The amount of interest capitalized related to construction in progress at
the Group was approximately $576,000, $975,000 and $5,207,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the related assets. The following useful lives are used for
the various categories of assets:
<TABLE>
<S> <C>
Buildings and land improvements 5 to 40 years
Machinery and equipment 3 to 25 years
Trucks and automobiles 3 to 10 years
Furniture and fixtures 3 to 20 years
Computers and software 3 to 7 years
Period of the
Leasehold improvements lease
---------------
---------------
</TABLE>
Timber depletion is provided on the basis of timber cut during the period
related to the estimated quantity of recoverable timber. Assets under
capital leases are depreciated on the straight-line method over the term of
the lease.
Expenditures for repairs and maintenance are expensed as incurred.
F-8
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
DEFERRED GAIN
In 1992, Packaging entered into a sale-leaseback transaction for financial
reporting purposes involving certain of its timberlands. The deferred gain
recognized upon sale is being amortized on a straight-line basis over the
initial lease term.
This deferred gain relates to a lease which was prepaid by the Group in
December, 1998 (Note 12). The 1998 financial statements have reclassed the
current and long-term portions of the deferred gain against the prepaid
payment in Prepaid Expenses and Other Current Assets and Other Long-Term
Assets.
CHANGES IN ACCOUNTING PRINCIPLES
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes new
accounting and reporting standards requiring that all derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. The statement requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item
in the income statement and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. This statement is effective for all fiscal years beginning after
June 15, 1999. The adoption of this new standard is not expected to have a
significant effect on the Group's financial position or results of
operations.
In April, 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs
of Start-Up Activities," which requires costs of start-up activities to be
expensed as incurred. This statement is effective for fiscal years beginning
after December 15, 1998. The statement requires capitalized costs related to
start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Tenneco currently
expects to adopt this new accounting principle in the first quarter of 1999.
The adoption of this new standard is not expected to have a significant
effect on the Group's financial position or results of operations.
In March, 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement will be applied
prospectively and is effective for fiscal years beginning after December 15,
1998. The adoption of this new standard is not expected to have a
significant effect on the Group's financial position or results of
operations.
FREIGHT TRADES
The Group regularly trades containerboard with other manufacturers primarily
to reduce shipping costs. The freight trade transactions are accounted for
primarily as transactions in the inventory accounts; the impact on income is
not material.
F-9
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
ENVIRONMENTAL LIABILITIES
The estimated landfill closure and postclosure maintenance costs expected to
be incurred upon and subsequent to the closing of existing operating
landfill areas are accrued based on the landfill capacity used to date.
Amounts are estimates using current technologies for closure and monitoring
and are not discounted.
The potential costs related to the Group for various environmental matters
are uncertain due to such factors as the unknown magnitude of possible
cleanup costs, the complexity and evolving nature of governmental laws and
regulations and their interpretations, and the timing, varying costs and
effectiveness of alternative cleanup technologies. Liabilities recorded by
the Group for environmental contingencies are estimates of the probable
costs based upon available information and assumptions relating to the
Group. Because of these uncertainties, however, the Group's estimates may
change. The Group believes that any additional costs identified as further
information becomes available would not have a material effect on the
combined statements of assets, liabilities and interdivision account or
revenues, expenses and interdivision account of the Group.
COMBINED STATEMENTS OF CASH FLOWS
As a division of Packaging, the Group does not maintain separate cash
accounts other than for petty cash. The Group's disbursements for payroll,
capital projects, operating supplies and expenses are processed and funded
by Packaging through centrally managed accounts. In addition, cash receipts
from the collection of accounts receivable and the sales of assets are
remitted directly to bank accounts controlled by Packaging. In this type of
centrally managed cash system in which the cash receipts and disbursements
of Packaging's various divisions are commingled, it is not feasible to
segregate cash received from Packaging (e.g., as financing for the business)
from cash transmitted to Packaging (e.g., as a distribution). Accordingly,
the net effect of these cash transactions with Packaging are presented as a
single line item within the financing section of the cash flow statements.
Similarly, the activity of the interdivision account presents the net
transfer of funds and charges between Packaging and the Group as a single
line item.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. The amounts charged
were $3,728,000, $4,345,000 and $4,789,000 in 1998, 1997 and 1996,
respectively.
INTANGIBLE ASSETS
Goodwill and intangibles, net of amortization, by major category are as
follows:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Goodwill $ 48,046 $ 52,958 $ 51,721
Intangibles 2,064 3,512 3,939
--------- --------- ---------
$ 50,110 $ 56,470 $ 55,660
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-10
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Goodwill is being amortized on a straight-line basis over 40 years. Such
amortization amounted to $1,449,000, $1,452,000 and $1,440,000 for 1998,
1997 and 1996, respectively. Goodwill totaling approximately $3,463,000 was
written off in 1998 related to a closed facility (Note 7).
The Group has capitalized certain intangible assets, primarily trademarks
and patents, based on their estimated fair value at the date of acquisition.
Amortization is provided for these intangible assets on a straight-line
basis over periods ranging from 3 to 10 years. Covenants not to compete are
amortized on a straight-line basis over the terms of the respective
agreements. Such amortization amounted to $1,127,000, $1,234,000 and
$1,416,000 in 1998, 1997 and 1996, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
The prior years' financial statements have been reclassified, where
appropriate, to conform to the 1998 presentation.
SEGMENT INFORMATION
The Group adopted SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information," in 1998 and determined that the Group is primarily
engaged in one line of business: the manufacture and sale of packaging
materials, boxes and containers for industrial and consumer markets. No
single customer accounts for more than 10% of total revenues. The Group has
no foreign operations.
3. INVESTMENTS IN JOINT VENTURES
The Group has a 50% U.S. joint venture with American Cellulose Corporation
to manufacture and market hardwood chips. The net investment, which was
accounted for under the equity method, was $1,282,000, $1,310,000 and
$1,519,000 as of December 31, 1998, 1997 and 1996, respectively. In the
second quarter of 1996, Packaging entered into an agreement to form a joint
venture with Caraustar Industries whereby Packaging sold its two recycled
paperboard mills and a fiber recycling operation and brokerage business to
the joint venture in return for approximately $115 million and a 20% equity
interest in the joint venture. In June, 1998, Packaging sold its remaining
20% equity interest in the joint venture to Caraustar Industries. The net
investment, which was accounted for under the equity method, was $0,
$15,014,000 and $13,290,000 as of December 31, 1998, 1997 and 1996,
respectively.
F-11
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
4. LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Capital lease obligations, interest at 8.5% for 1998 and 1997 and a weighted
average interest rate of 8.2% for 1996 due in varying amounts through 2000 $ 18 $ 32 $ 18,658
Non-interest-bearing note, due in annual installments of $70,000 through
July 1, 2004, net of discount imputed at 10.0% of $182,000, $216,000 and
$249,000 in 1998, 1997 and 1996, respectively 308 344 381
Notes payable, interest at an average rate of 13.5%, 13.3% and 8.8% for
1998, 1997 and 1996, respectively, with varying amounts due through 2010 16,553 26,187 680
Other obligations 673 1,301 597
--------- --------- ---------
Total 17,552 27,864 20,316
Less-Current portion 617 3,923 1,603
--------- --------- ---------
Total long-term debt $ 16,935 $ 23,941 $ 18,713
--------- --------- ---------
--------- --------- ---------
</TABLE>
In January, 1997, the General Electric Capital Corporation ("GECC")
operating leases were refinanced. Through this refinancing, several capital
lease obligations were extinguished as the assets were incorporated into the
new operating lease (Note 12).
Annual payments for debt during the next five years and thereafter are:
$617,000 (1999), $214,000 (2000), $3,569,000 (2001), $4,387,000 (2002),
$4,240,000 (2003) and $4,525,000 (2004 and thereafter).
In 1997, Tenneco contributed the Counce Limited Partnership to Packaging
which included notes payable totaling approximately $26,187,000.
In February, 1999, Tenneco Inc. paid off the remaining note payable as it
relates to the Counce Limited Partnership. The payment was $27,220,000,
including a $10,456,000 premium payment for the early extinguishment of
debt.
5. PENSION AND OTHER BENEFIT PLANS
Substantially all of the Group's salaried and hourly employees are covered
by retirement plans sponsored by Packaging and Tenneco. Benefits generally
are based on years of service and, for most salaried employees, on final
average compensation. Packaging's funding policies are to contribute to the
plans, at a minimum, amounts necessary to satisfy the funding requirements
of federal laws and regulations. The assets of the plans consist principally
of listed equity and fixed and variable income securities, including Tenneco
Inc. common stock.
The Group's eligible salaried employees participate in the Tenneco Inc.
Retirement Plan (the "Retirement Plan"), a defined benefit plan, along with
other Tenneco divisions and subsidiaries. The pension expense
F-12
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
5. PENSION AND OTHER BENEFIT PLANS (CONTINUED)
allocated to the Group by Packaging for this plan was approximately
$5,595,000, $3,197,000 and $3,111,000 for the years ended December 31, 1998,
1997 and 1996, respectively. Amounts allocated are principally determined
based on payroll. This plan is overfunded and a portion of the prepaid
pension costs has not been allocated to the Group.
The Group's eligible hourly employees participate in the Packaging
Corporation of America Hourly-Rated Employees Pension Plan, also a defined
benefit plan, along with other Packaging divisions. As stated, due to the
fact that other divisions within Packaging participate in the plan, certain
of the disclosures required by SFAS No. 132, "Employers' Disclosures About
Pension and Other Postretirement Benefits", such as a summary of the change
in benefit obligation and the change in plan assets, are not available. The
net pension (income) cost actuarially allocated to the Group for this plan
was $(466,000), $144,000 and $2,373,000 for the years ended December 31,
1998, 1997 and 1996, respectively. This plan is overfunded, and a portion of
the related pension asset of $35,603,000, $35,137,000 and $34,429,000 for
December 31, 1998, 1997 and 1996, respectively, has been actuarially
allocated to the Group and is included in Other Long-Term Assets.
However, in connection with the pending sale of the Group as described in
Note 14 to these financial statements, the pension asset allocated to the
Group will be excluded from the sale transaction and remain with Tenneco.
Actuarially allocated net pension cost for the Group's defined benefit
plans, excluding the Retirement Plan, consists of the following components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Service cost-benefits earned during the year $ 3,112 $ 3,652 $ 4,021
Interest cost on projected benefit obligations 6,990 6,675 6,174
Expected return on plan assets (11,312) (10,819) (8,389)
Amortization of-
Transition liability (164) (164) (164)
Unrecognized loss - - 10
Prior service cost 908 800 721
--------- --------- ---------
Net pension (income) cost $ (466) $ 144 $ 2,373
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
5. PENSION AND OTHER BENEFIT PLANS (CONTINUED)
The funded status of the Group's allocation of defined benefit plans,
excluding the Retirement Plan, reconciles with amounts recognized in the
statements of assets and liabilities and interdivision account as follows:
<TABLE>
<CAPTION>
-----------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ---------- ----------
(IN THOUSANDS)
Actuarial present value at September 30-
Vested benefit obligation $ (98,512) $ (86,865) $ (79,818)
Accumulated benefit obligation (108,716) (95,711) (87,481)
----------- ---------- ----------
----------- ---------- ----------
Projected benefit obligation $ (108,716) $ (96,118) $ (88,555)
Plan assets at fair value at September 30 146,579 141,961 118,968
Unrecognized transition liability (1,092) (1,256) (1,420)
Unrecognized net gain (14,623) (21,573) (5,111)
Unrecognized prior service cost 13,455 12,123 10,547
----------- ---------- ----------
Prepaid pension cost at December 31 $ 35,603 $ 35,137 $ 34,429
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the benefit obligations was 7.00% for the year ended December 31,
1998, and 7.75% for the years ended December 31, 1997 and 1996. The weighted
average expected long-term rate of return on plan assets was 10% for 1998,
1997 and 1996.
Middle management employees participate in a variety of incentive
compensation plans. These plans provide for incentive payments based on the
achievement of certain targeted operating results and other specific
business goals. The targeted operating results are determined each year by
senior management of Packaging. The amounts charged to expense for these
plans were $5,920,000, $6,407,000 and $6,722,000 in 1998, 1997 and 1996,
respectively.
In June, 1992, Tenneco initiated an Employee Stock Purchase Plan ("ESPP").
The plan allows U.S. and Canadian employees of the Group to purchase Tenneco
Inc. common stock through payroll deductions at a 15% discount. Each year,
an employee in the plan may purchase shares with a discounted value not to
exceed $21,250. The weighted average fair value of the employee purchase
right, which was estimated using the Black-Sholes option pricing model and
the assumptions described below except that the average life of each
purchase right was assumed to be 90 days, was $6.31, $11.09 and $10.77 in
1998, 1997 and 1996, respectively. The ESPP was terminated as of September
30, 1996. Tenneco adopted a new employee stock purchase plan effective April
1, 1997. Under the respective ESPPs, Tenneco sold 133,223 shares, 85,024
shares and 73,140 shares to Group employees in 1998, 1997 and 1996,
respectively.
F-14
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
5. PENSION AND OTHER BENEFIT PLANS (CONTINUED)
In December, 1996, Tenneco adopted the 1996 Stock Ownership Plan, which
permits the granting of a variety of awards, including common stock,
restricted stock, performance units, stock appreciation rights, and stock
options to officers and employees of Tenneco. Tenneco can issue up to
17,000,000 shares of common stock under this plan, which will terminate
December 31, 2001.
The fair value of each stock option issued by Tenneco to the Group during
1998, 1997 and 1996 is estimated on the date of grant using the Black-Sholes
option pricing model using the following weighted average assumptions for
grants in 1998, 1997 and 1996, respectively: (a) risk-free interest rate of
5.7%, 6.7% and 6.0%, (b) expected lives of 10.0 years, 19.7 years and 5.0
years; (c) expected volatility of 25.6%, 27.8% and 24.6%; and (d) dividend
yield of 3.2%, 2.9% and 3.2%. The weighted-average fair value of options
granted during the year is $10.91, $13.99 and $11.51 for 1998, 1997 and
1996, respectively.
The Group applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," to its stock-based compensation plans. The
Group recognized after-tax stock-based compensation expense of approximately
$210,000 in 1998, 1997 and 1996. Had compensation costs for the Group's
stock-based compensation plans been determined in accordance with SFAS 123,
"Accounting for Stock-Based Compensation," based on the fair value at the
grant dates for the awards under those plans, the Group's pro forma net
income for the years ended December 31, 1998, 1997 and 1996, would have been
lower by $7,828,000, $8,205,000 and $1,874,000, respectively.
6. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
In addition to providing pension benefits, the Group provides certain health
care and life insurance benefits for certain retired and terminated
employees. A substantial number of the Group's employees may become eligible
for such benefits if they reach normal retirement age while working for the
Group. The cost of these benefits for salaried employees is allocated to the
Group by Packaging through a payroll charge and the interdivision account.
Amounts allocated are principally determined based on payroll. The net
obligation for these salaried benefits is maintained by Packaging and is not
included in the liabilities section of the accompanying combined statements
of assets, liabilities and interdivision account for the Group's share of
the obligation.
Currently, the Group's postretirement benefit plans are not funded and a
portion of the related postretirement obligation has been actuarially
allocated to the Group. However, due to the fact that other divisions
participate in the plan, certain of the disclosures required by SFAS No.
132, such as a summary of the
F-15
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
6. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
change in benefit obligation, are not available. The obligation of the
plans, related to hourly employees, reconciles with amounts recognized on
the accompanying combined statements of assets, liabilities and
interdivision account at December 31, 1998, 1997 and 1996, as follows:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Actuarial present value at September 30-
Accumulated postretirement benefit obligation-
Retirees and beneficiaries $ (8,401) $ (7,199) $ (8,213)
Fully eligible active plan participants (3,582) (4,081) (4,283)
Other active plan participants (2,950) (2,426) (1,738)
--------- --------- ---------
Total (14,933) (13,706) (14,234)
Plan assets at fair value at September 30 - - -
Funded status (14,933) (13,706) (14,234)
Claims paid during the fourth quarter 473 178 142
Unrecognized prior service cost - (293) (797)
Unrecognized net gain (1,764) (2,861) (2,205)
--------- --------- ---------
Accrued postretirement benefit cost at December 31 $ (16,224) $ (16,682) $ (17,094)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The net periodic postretirement benefit costs as determined by actuaries for
hourly employees for the years 1998, 1997 and 1996 consist of the following
components:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Service cost $ 159 $ 105 $ 144
Interest cost 1,024 1,065 1,012
Amortization of net (gain) loss (138) (80) 55
Amortization of prior service cost (293) (504) (643)
--------- --------- ---------
Net periodic postretirement benefit cost $ 752 $ 586 $ 568
--------- --------- ---------
--------- --------- ---------
</TABLE>
The amounts expensed by the Group may be different because it was allocated
by Packaging.
The weighted average assumed health care cost trend rate used in determining
the 1998 and 1997 accumulated postretirement benefit obligation was 5% in
1997, remaining at that level thereafter.
The weighted average assumed health care cost trend rate used in determining
the 1996 accumulated postretirement benefit obligation was 6.0% in 1996
declining to 5.0% in 1997 and remaining at that level thereafter.
F-16
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
6. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
Increasing the assumed health care cost trend rate by one percentage point
in each year would increase the accumulated postretirement benefit
obligation as of September 30, 1998, 1997 and 1996, by approximately
$1,268,000, $868,000 and $1,103,000, respectively, and would increase the
net postretirement benefit cost for 1998, 1997 and 1996 by approximately
$130,000, $75,000 and $102,000, respectively.
The discount rate (which is based on long-term market rates) used in
determining the accumulated postretirement benefit obligations was 7.00% for
1998 and 7.75% for 1997 and 1996.
7. RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1998, the Group recorded a pretax restructuring
charge of approximately $14 million. This charge was recorded following the
approval by Tenneco's Board of Directors of a comprehensive restructuring
plan for all of Tenneco's operations, including those of the Group. In
connection with this restructuring plan, the Group will close four
corrugated facilities and eliminate 109 positions. The following table
reflects components of this charge:
<TABLE>
<CAPTION>
---------------------------------------------
<S> <C> <C> <C>
DECEMBER 31,
RESTRUCTURING FOURTH-QUARTER 1998
COMPONENT CHARGE ACTIVITY BALANCE
- -------------------------------------------------------------- ------------- --------------- -------------
(IN THOUSANDS)
Cash charges-
Severance $ 5,135 $ 852 $ 4,283
Facility exit costs and other 3,816 369 3,447
------------- ------ ------
Total cash charges 8,951 1,221 7,730
Noncash charges-
Asset impairments 5,434 3,838 1,596
------------- ------ ------
$ 14,385 $ 5,059 $ 9,326
------------- ------ ------
------------- ------ ------
</TABLE>
Asset impairments include goodwill totaling approximately $5,043,000 related
to two of the facilities. The fixed assets at the closed facilities were
written down to their estimated fair value. No significant cash proceeds are
expected from the ultimate disposal of these assets. Of the $7,730,000
remaining cash charges at December 31, 1998, approximately $7,300,000 is
expected to be spent in 1999. The actions contemplated by the restructuring
plan should be completed during the second quarter of 1999.
8. INCOME TAXES
The Group's method of accounting for income taxes requires that a deferred
tax be recorded to reflect the tax expense (benefit) resulting from the
recognition of temporary differences. Temporary differences are differences
between the tax basis of assets and liabilities and their reported amounts
in the financial statements that will result in differences between income
for tax purposes and income for financial statement purposes in future
years.
F-17
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
8. INCOME TAXES (CONTINUED)
As a division, this Group is not a taxable entity. For purposes of these
combined financial statements, income taxes have been allocated to the Group
and represent liabilities to Packaging.
Following is an analysis of the components of combined income tax expense
(benefit):
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Current-
U.S. $ (21,105) $ (58,813) $ 45,641
State and local (2,708) (7,545) 5,855
--------- --------- ---------
(23,813) (66,358) 51,496
--------- --------- ---------
Deferred-
U.S. 63,230 75,399 7,374
State and local 8,112 9,673 946
--------- --------- ---------
71,342 85,072 8,320
--------- --------- ---------
Income tax expense $ 47,529 $ 18,714 $ 59,816
--------- --------- ---------
--------- --------- ---------
</TABLE>
The primary difference between income taxes computed at the statutory U.S.
federal income tax rate and the income tax expense in the combined
statements of revenues, expenses and interdivision account is due to the
effect of state income taxes.
F-18
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
8. INCOME TAXES (CONTINUED)
The components of the deferred tax assets (liabilities) at December 31,
1998, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
-------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS)
Current deferred taxes-
Accrued liabilities $ 10,232 $ 6,374 $ 7,046
Employee benefits and compensation (5,969) (4,946) (929)
Reserve for doubtful accounts 1,275 1,230 1,261
Inventory 707 614 38
Pensions and postretirement benefits (2,994) (4,196) (5,053)
State deferred tax 10,096 5,724 511
Other (76) (123) (89)
----------- ----------- -----------
Total current deferred taxes 13,271 4,677 2,785
----------- ----------- -----------
Noncurrent deferred taxes-
Pension and postretirement benefits 13,898 7,934 8,012
Excess of financial reporting over tax basis in plant and equipment (293,830) (210,797) (121,707)
Accrued liabilities 1,336 1,701 1,947
Capital leases 9,333 7,517 24,672
Other 15,199 19,518 (89)
----------- ----------- -----------
Total noncurrent deferred taxes (254,064) (174,127) (87,165)
----------- ----------- -----------
Net deferred tax liabilities $ (240,793) $ (169,450) $ (84,380)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
9. ASSETS, LIABILITIES AND OTHER INCOME, NET DETAIL
PREPAID EXPENSES AND OTHER CURRENT ASSETS
The components of prepaid expenses and other current assets include:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Prepaid stumpage $ 15,189 $ 19,231 $ 15,595
Prepaid taxes 13,272 7,549 7,044
Current portion-Meridian Lease, net of deferred gain 5,193 - -
Prepaid professional services/leases 2,356 1,918 5,506
Other 5,082 6,321 7,391
--------- --------- ---------
Total $ 41,092 $ 35,019 $ 35,536
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-19
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
9. ASSETS, LIABILITIES AND OTHER INCOME, NET DETAIL (CONTINUED)
OTHER LONG-TERM ASSETS
The components of the other long-term assets include:
<TABLE>
<CAPTION>
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- --------- ---------
(IN THOUSANDS)
Prepaid pension cost $ 35,603 $ 35,137 $ 34,429
Leased timberlands and mills 14,636 11,857 9,510
Long-term portion-Meridian Lease, net of deferred gain 44,743 - -
Deferred software 15,864 11,088 6,047
Timberland rights 10,919 9,775 8,615
Capitalized fees - 474 3,962
Other 9,327 8,981 9,513
---------- --------- ---------
Total $ 131,092 $ 77,312 $ 72,076
---------- --------- ---------
---------- --------- ---------
</TABLE>
ACCRUED LIABILITIES
The components of accrued liabilities include:
<TABLE>
<CAPTION>
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ----------
(IN THOUSANDS)
Accrued payroll, vacation and taxes $ 42,282 $ 48,119 $ 49,162
Accrued insurance 6,012 5,248 4,296
Accrued volume discounts and rebates 5,727 4,428 3,515
Restructuring 9,326 - -
Current portion of accrued postretirement benefit cost 1,460 875 892
Deferred lease credits 1,918 1,014 94,360
Other 2,665 10,742 14,438
--------- --------- ----------
Total $ 69,390 $ 70,426 $ 166,663
--------- --------- ----------
--------- --------- ----------
</TABLE>
As part of the refinancing of the GECC leases in January, 1997 (Note 12),
certain deferred lease credits were eliminated.
F-20
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
9. ASSETS, LIABILITIES AND OTHER INCOME, NET DETAIL (CONTINUED)
OTHER LONG-TERM LIABILITIES
The components of the other long-term liabilities include:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Accrued postretirement benefit cost $ 14,764 $ 15,807 $ 16,202
Environmental liabilities 6,599 5,421 6,673
Other 2,497 2,526 412
--------- --------- ---------
Total $ 23,860 $ 23,754 $ 23,287
--------- --------- ---------
--------- --------- ---------
</TABLE>
OTHER INCOME, NET
The components of other income (expense), net include:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Discount on sale of factored receivables $ (14,774) $ (12,006) $ (12,351)
Gain on sale of timberlands 16,944 - -
Gain on sale of joint venture interest 15,060 - -
Gain on operating lease refinancing - 37,730 -
Gain on Willow Flowage - 4,449 -
Gain on sale of mineral rights - 1,646 -
Capitalization of barter credits - 1,563 -
Sylva Mill rebate income - - 4,500
Gain on sale of recycled mills - - 50,000
Other 9,588 11,299 14,094
--------- --------- ---------
Total $ 26,818 $ 44,681 $ 56,243
--------- --------- ---------
--------- --------- ---------
</TABLE>
10. RELATED-PARTY TRANSACTIONS
FUNDING OF CASH REQUIREMENTS
As discussed in Note 2, Packaging provides centralized treasury functions
and financing for the Group including funding of its cash requirements for
processing of accounts payable and payroll requirements.
CORPORATE ALLOCATIONS
Packaging and Tenneco provide various services to the Group, including
legal, human resources, data processing systems support, training, finance
and treasury, public relations and insurance management.
F-21
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
10. RELATED-PARTY TRANSACTIONS (CONTINUED)
These expenses are allocated based on a combination of factors such as
actual usage of the service provided, revenues, gross salaries and fixed
assets and may not reflect actual costs the Group would incur if it were a
stand-alone entity.
Certain receivables and transactions resulting from the financing
relationship between Packaging and Tenneco are not reflected in the
accompanying financial statements.
INSURANCE AND BENEFITS
The Group is self-insured for medical benefits and workers' compensation.
Expenses related to workers' compensation, health care claims for hourly and
salaried workers and postretirement health care benefits for hourly and
salaried workers are determined by Packaging and are allocated to the Group.
The Group incurred charges of $32,151,000, $34,004,000 and $32,298,000 in
1998, 1997 and 1996, respectively, for health care and $5,109,000,
$9,209,000 and $8,853,000 in 1998, 1997 and 1996, respectively, for workers'
compensation.
In general, all costs and expenses incurred and allocated are based on the
relationship the Group has with Tenneco. If the Group had been a stand-alone
entity, the costs and expenses would differ.
11. COMMITMENTS AND CONTINGENCIES
The Group had authorized capital expenditures of approximately $49,392,000
as of December 31, 1998, in connection with the expansion and replacement of
existing facilities.
The Group is involved in various legal proceedings and litigation arising in
the ordinary course of business. In the opinion of management and in-house
legal counsel, the outcome of such proceedings and litigation will not
materially affect the Group's financial position or results of operations.
12. LEASES
Rental expense included in the combined financial statements was
$96,193,340, $95,284,000 and $118,821,000 for 1998, 1997 and 1996,
respectively. These costs are primarily included in cost of goods sold.
On January 31, 1997, Packaging executed an operating lease agreement with
Credit Suisse Leasing 92A, L.P., and a group of financial institutions led
by Citibank, N.A. The agreement refinanced the previous operating leases
between GECC and Packaging which were entered into at the same time as
GECC's purchase of certain assets from Georgia-Pacific in January, 1991.
Through this refinancing, several capital lease obligations were
extinguished as the assets were incorporated into the new operating lease.
Also with this refinancing, certain fixed assets and deferred credits were
eliminated resulting in a net gain of approximately $38 million in the first
quarter of 1997.
F-22
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
12. LEASES (CONTINUED)
Aggregate minimum rental commitments under noncancelable operating leases
are as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 83,804
2000 81,368
2001 79,428
2002 686,390
2003 26,975
Thereafter 113,154
---------
Total $1,071,119
---------
---------
</TABLE>
Minimum rental commitments under noncancelable operating leases include $68
million for 1999, $68 million for 2000, $68 million for 2001, $676 million
for 2002, $18 million for 2003 and $34 million for years thereafter, payable
to credit Suisse Leasing 92A, L.P. and Citibank, N.A., along with John
Hancock, Metropolitan Life and others (the "Lessors") for certain mill and
timberland assets. The remaining terms of such leases extend over a period
of up to five years.
Following the initial lease period, Packaging may, under the provision of
the lease agreements, extend the leases on terms mutually negotiated with
the Lessors or purchase the leased assets under conditions specified in the
lease agreements. If the purchase options are not exercised or the leases
are not extended, Packaging will make a residual guarantee payment to the
Lessors of approximately $653 million, included in the schedule above, which
will be refunded up to the total amount of the residual guarantee payment
based on the Lessors' subsequent sales price for the leased assets.
Throughout the lease period, Packaging is required to maintain the leased
properties which includes reforestation of the timberlands harvested.
Packaging's various lease agreements require that it comply with certain
covenants and restrictions, including financial ratios that, among other
things, place limitations on incurring additional "funded debt" as defined
by the agreements. Under the provisions of the lease agreements, in order to
incur funded debt, Packaging must maintain a pretax cash flow coverage
ratio, as defined, on a cumulative four quarter basis of a minimum of 2.0,
subsequently modified to 1.75 as of December 31, 1998. Packaging was in
compliance with all of its covenants at December 31, 1998.
In December, 1998, the Group made a payment of $84 million to acquire the
Meridian timberlands utilized by the Group. This transaction was undertaken
in preparation for the separation of the Group's assets from Tenneco.
Subsequent to year end, the Group paid a fee of $50,000 to effect the
conveyance of the Meridian timberlands to the Group.
In connection with the pending sale of the Group described in Note 14 to
these financial statements, Tenneco may purchase the Tomahawk and Valdosta
mills and selected timberland assets currently under lease prior to the
sale.
F-23
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
13. SALE OF ASSETS
In the second quarter of 1996, Packaging entered into an agreement to form a
joint venture with Caraustar Industries whereby Packaging sold its two
recycled paperboard mills and a fiber recycling operation and brokerage
business to the joint venture in return for cash and a 20% equity interest
in the joint venture. Proceeds from the sale were approximately $115 million
and the Group recognized a $50 million pretax gain ($30 million after taxes)
in the second quarter of 1996.
In June, 1998, Packaging sold its remaining 20% equity interest in the joint
venture to Caraustar Industries for cash and a note of $26,000,000. The
Group recognized a $15 million pretax gain on this transaction.
At December 31, 1998, the balance of the note with accrued interest is
$26,756,000.
14. SALE OF COMPANY AND RELATED IMPAIRMENT (UNAUDITED)
On January 26, 1999, Tenneco announced that it had entered into an agreement
to contribute a majority interest in the Group to a new joint venture with
Madison Dearborn Partners, in exchange for cash and debt assumption totaling
approximately $2 billion, and a 45% common equity interest in the joint
venture. The assets to be contributed include the Group's 4 linerboard and
medium mills, 67 plants and 5 design centers and an ownership or controlling
interest in approximately 950,000 acres of timberland. The transaction
closed on April 12, 1999.
In connection with the transaction, Packaging borrowed approximately $1.8
billion, most of which was used to acquire assets used by the Group pursuant
to operating leases and timber cutting rights, with the remainder remitted
to Tenneco for corporate debt reduction.
Tenneco then contributed the Group's assets (subject to the new indebtedness
and the Group's liabilities) to a joint venture, Packaging Corporation of
America ("PCA") in exchange for (a) a 45% common equity interest in PCA
valued at approximately $200 million and (b) approximately $240 million in
cash. As a result of the sale transaction, Tenneco recognized a pretax loss
in the first quarter of 1999 of approximately $293 million. Part of that
loss consisted of an impairment charge relating to the Group's property,
plant and equipment and intangible assets, which was pushed down to the
Group's March 31, 1999 financial statements. The amount of the impairment
charge is approximately $230.1 million. Group management is in the process
of determining how the remaining $230.4 million should be allocated to
specific fixed and intangible assets (including certain assets acquired
subsequent to March 31, 1999 in operating lease buy-outs required as part of
the sale). Accordingly, the charge is reflected as a loss reserve liability
in the Group's March 31, 1999 balance sheet.
15. EXTRAORDINARY LOSS (UNAUDITED)
During the first quarter of 1999 the Group extinguished $16.6 million of
debt related to mill assets. In connection with that extinguishment an
extraordinary loss of $10.5 million was recorded ($6.3 million, net of the
related tax effect).
F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY UPON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF
ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT
RELY ON IT.
WE ARE NOT MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE
THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION
APPEARING IN THIS PROSPECTUS IS ACCURATE AS OF THE DATE ON THE FRONT COVER OF
THIS PROSPECTUS ONLY. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS
AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 21
Forward-Looking Statements................................................ 31
The Transactions.......................................................... 32
Use of Proceeds........................................................... 33
Capitalization............................................................ 34
Unaudited Pro Forma Financial Statements.................................. 35
Selected Financial and Other Data......................................... 45
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 48
Business.................................................................. 58
Management................................................................ 67
Certain Transactions...................................................... 70
Security Ownership........................................................ 72
Description of Senior Credit Facility..................................... 74
Description of Exchange Notes............................................. 76
Description of New Preferred Stock........................................ 118
The Exchange Offer........................................................ 167
Certain United States Federal Tax Considerations.......................... 189
Plan of Distribution...................................................... 199
Legal Matters............................................................. 200
Experts................................................................... 200
Available Information..................................................... 200
Index to Financial Statements............................................. F-1
</TABLE>
PACKAGING CORPORATION
OF AMERICA
[LOGO]
EXCHANGE OFFER
$550,000,000
9 5/8% SERIES B SENIOR
SUBORDINATED NOTES DUE 2009
AND
$100,000,000 12 3/8% SERIES B
SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2010
---------------------
PROSPECTUS
---------------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
RESTATED CERTIFICATE OF INCORPORATION
The Restated Certificate of Incorporation of PCA, as amended, provides that to
the fullest extent permitted from time to time by the General Corporation Law of
the State of Delaware ("DGCL"), a director of PCA shall not be liable to the
company or its stockholders for monetary damages for a breach of fiduciary duty
as a director.
BY-LAWS
The Amended and Restated By-laws of PCA, as amended, provide that PCA shall
indemnify its directors and officers to the maximum extent permitted from time
to time by the DGCL.
The By-laws of Dahlonega Packaging Corporation ("Dahlonega"), Dixie Container
Corporation ("Dixie"), PCA Hydro, Inc. ("PCA Hydro"), PCA Tomahawk Corporation
("PCA Tomahawk") and PCA Valdosta Corporation ("PCA Valdosta") provide that
Dahlonega, Dixie, PCA Hydro, PCA Tomahowk and PCA Valdosta shall indemnify their
directors and officers to the maximum extent permitted from time to time by, in
the case of Dahlonega, PCA Hydro, PCA Tomahawk and PCA Valdosta, the DGCL, and
in the case of Dixie, the Virginia Stock Corporation Act ("VSCA").
DELAWARE GENERAL CORPORATION LAW
Section 145 of the DGCL provides that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. Section 145 further provides that a corporation similarly may
indemnify any such person serving in any such capacity who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor, against expenses actually and reasonably incurred in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the Delaware
Court of Chancery or such other court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided, however, that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
which relates to unlawful payment of dividends and unlawful stock purchases and
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit.
II-1
<PAGE>
VIRGINIA STOCK CORPORATION ACT
Section 13.1-697 of the VSCA provides that a corporation may indemnify a person
made party to a proceeding because he is or was a director against liability
incurred in the proceeding if he conducted himself in good faith and he believed
that his conduct was in, or not opposed to, the corporation's best interests,
and, in the case of a criminal proceeding, he had no reasonable cause to believe
his conduct was unlawful. Section 13.1-697 further provides that a corporation
may not indemnify a director in connection with a proceeding by or in the right
of the corporation in which the director was adjudged liable to the corporation
or in connection with a proceeding charging improper personal benefit to him in
which he was adjudged liable on the basis that personal benefit was improperly
received by him. Indemnification under Section 13.1-697 is limited to reasonable
expenses incurred in connection with the proceeding.
Section 13.1-698 of the VSCA provides that, unless limited by its articles of
incorporation, a corporation shall indemnify a director who entirely prevails in
the defense of any proceeding to which he as a party because he is or was a
director of the corporation against reasonable expenses incurred by him in
connection with the proceeding.
Section 13.1-702 of the VSCA provides that, unless limited by a corporation's
articles of incorporation, an officer of the corporation is entitled to
mandatory indemnification under Section 13.1-698 to the same extent as a
director and further provides that the corporation may indemnify and advance
expenses to an officer, employee or agent of the corporation to the same extent
as to a director.
INSURANCE
The directors and officers of PCA are covered under directors' and officers'
liability insurance policies maintained by PCA with coverage up to $50 million.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Contribution Agreement, dated as of January 25, 1999, among Tenneco Packaging Inc. ("TPI"), PCA
Holdings LLC ("PCA Holdings") and Packaging Corporation of America ("PCA").**
2.2 Letter Agreement Amending the Contribution Agreement, dated as of April 12, 1999, among TPI, PCA
Holdings and PCA.**
3.1 Restated Certificate of Incorporation of PCA.**
3.2 Amended and Restated By-laws of PCA.**
4.1 Indenture, dated as of April 12, 1999, by and among PCA, Dahlonega Packaging Corporation
("Dahlonega"), Dixie Container Corporation ("Dixie"), PCA Hydro, Inc. ("PCA Hydro"), PCA Tomahawk
Corporation ("PCA Tomahawk"), PCA Valdosta Corporation ("PCA Valdosta") and United States Trust
Company of New York.**
4.2 Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special
Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof of 12 3/8% Senior
Exchangeable Preferred Stock due 2010 and 12 3/8% Series B Senior Exchangeable Preferred Stock due
2010 of PCA.**
4.3 Exchange Indenture, dated as of April 12, 1999, by and among PCA and U.S. Trust Company of Texas,
N.A.**
4.4 Notes Registration Rights Agreement, dated as of April 12, 1999, by and among PCA, Dahlonega, Dixie,
PCA Hydro, PCA Tomahawk, PCA Valdosta, J.P. Morgan Securities Inc. ("J.P. Morgan") and BT Alex. Brown
Incorporated ("BT").**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<S> <C>
4.5 Preferred Stock Registration Rights Agreement, dated as of April 12, 1999, by and among PCA, J.P.
Morgan and BT.**
4.6 Form of Rule 144A Global Note and Subsidiary Guarantee.**
4.7 Form of Regulation S Global Note and Subsidiary Guarantee.**
4.8 Form of Rule 144A Global Certificate.**
5.1 Opinion of Kirkland & Ellis.*
10.1 Purchase Agreement, dated as of March 30, 1999, by and among PCA, Dahlonega, Dixie, PCA Hydro, PCA
Tomahawk, PCA Valdosta, J.P. Morgan and BT.**
10.2 Credit Agreement, dated as of April 12, 1999, among TPI, the lenders party thereto from time to time,
J.P. Morgan, BT, Bankers Trust Company and Morgan Guaranty Trust Company of New York ("Morgan
Guaranty").**
10.3 Subsidiaries Guaranty, dated as of April 12, 1999, made by Dahlonega, Dixie, PCA Hydro, PCA Tomahawk,
PCA Valdosta and Morgan Guaranty.**
10.4 Pledge Agreement, dated as of April 12, 1999, among PCA, Dahlonega, Dixie, PCA Hydro, PCA Tomahawk,
PCA Valdosta and Morgan Guaranty.**
10.5 TPI Security Agreement, dated as of April 12, 1999, between TPI and Morgan Guaranty.**
10.6 PCA Security Agreement, dated as of April 12, 1999, among PCA, Dahlonega, Dixie, PCA Hydro, PCA
Tomahawk, PCA Valdosta and Morgan Guaranty.**
10.7 Stockholders Agreement, dated as of April 12, 1999, by and among TPI, PCA Holdings and PCA.**
10.8 Registration Rights Agreement, dated as of April 12, 1999, by and among TPI, PCA Holdings and PCA.**
10.9 Holding Company Support Agreement, dated as of April 12, 1999, by and between PCA Holdings and PCA.**
10.10 Facility Use Agreement, dated as of April 12, 1999, by and between TPI and PCA.**
10.11 Human Resources Agreement, dated as of April 12, 1999, by and among Tenneco Inc., TPI and PCA.**
10.12 Purchase/Supply Agreement, dated as of April 12, 1999, between PCA and Tenneco Packaging Speciality
and Consumer Products Inc.**
10.13 Purchase/Supply Agreement, dated as of April 12, 1999, between PCA and TPI.**
10.14 Purchase/Supply Agreement, dated as of April 12, 1999, between PCA and Tenneco Automotive Inc.**
10.15 Technology, Financial and Administrative Transition Services Agreement, dated as of April 12, 1999,
between TPI and PCA.**
10.16 Letter Agreement Regarding Terms of Employment, dated as of January 25, 1999, between PCA and Paul T.
Stecko.**
10.17 Letter Agreement Regarding Terms of Employment, dated as of May 19, 1999, between Samuel M. Mencoff
and Paul T. Stecko.**
10.18 1999 Management Equity Compensation Plan.*
10.19 Management Equity Agreement, dated as of June 1, 1999, between PCA and Paul T. Stecko.*
10.20 Management Equity Agreement, dated as of June 1, 1999, between PCA and the members of management party
thereto.*
12.1 Statements Regarding Computation of Ratios of Earnings to Fixed Charges.
12.2 Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
21.1 Subsidiaries of the Registrants.**
23.1 Consent of Arthur Andersen LLP.**
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney (included in the signature pages to the registration statement).**
25.1 Statement of Eligibility on Form T-1 of United States Trust Company of New York, as trustee, under the
Indenture.**
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<S> <C>
25.2 Statement of Eligibility on Form T-1 of U.S. Trust Company of Texas, N.A., as exchange trustee, under
the Exchange Indenture.**
27.1 Financial Data Schedule.**
99.1 Form of Letter of Transmittal for the Notes.*
99.2 Form of Letter of Transmittal for the Preferred Stock.*
99.3 Form of Notice of Guaranteed Delivery.*
</TABLE>
- --------------
* To be filed by Amendment.
** Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES.
The following consolidated financial statement schedules of PCA for the three
years ended December 31, 1998 are included in this registration statement.
Schedule II-Packaging Corporation of America-Valuation and Qualifying Accounts.
<TABLE>
<CAPTION>
BALANCE PROVISION ADDITIONS/DEDUCTIONS TRANSLATION BALANCE END
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE BEGINNING OF YEAR (BENEFIT) FROM RESERVES * ADJUSTMENTS OF YEAR
- ------------------------------------------ ------------------- ----------- --------------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
1998...................................... 5,023 2,710 (2,513) - 5,220
1997...................................... 5,010 611 (598) - 5,023
1996...................................... 5,239 1,018 (1,247) - 5,010
</TABLE>
- --------------
* Consists primarily of write-offs and recoveries of bad debts.
We have audited in accordance with generally accepted auditing standards the
financial statements of The Containerboard Group (a division of Tenneco
Packaging Inc., which is a Delaware corporation and a wholly owned subsidiary of
Tenneco Inc.), included in this registration statement and have issued our
report thereon dated February 26, 1999. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed above is the responsibility of the company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 28, 1999
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrants, pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by any such director, officer or controlling person in
connection with the securities being registered, the Registrants will, unless in
the opinion of their counsel the
II-4
<PAGE>
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether or not such indemnification is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The undersigned Registrants hereby undertake:
(1) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(2) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(3) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the exchange offer.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Packaging
Corporation of America has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Lake Forest, State of Illinois, on June 17, 1999.
Packaging Corporation of America
By: /s/ RICHARD B. WEST
--------------------------------------
Name: Richard B. West
Title: Chief Financial Officer,
Secretary and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to the Registration Statement has been signed below by the following persons in
the capacities indicated on June 17, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/s/ PAUL T. STECKO*
-------------------------------------------- Chairman of the Board and Chief Executive Officer
Paul T. Stecko (Principal Executive Officer)
/s/ RICHARD B. WEST
-------------------------------------------- Chief Financial Officer, Secretary and Treasurer
Richard B. West (Principal Financial and Accounting Officer)
/s/ DANA G. MEAD*
-------------------------------------------- Director
Dana G. Mead
/s/ THEODORE R. TETZLAFF*
-------------------------------------------- Director
Theodore R. Tetzlaff
/s/ SAMUEL M. MENCOFF*
-------------------------------------------- Director
Samuel M. Mencoff
/s/ JUSTIN S. HUSCHER*
-------------------------------------------- Director
Justin S. Huscher
/s/ THOMAS S. SOULELES*
-------------------------------------------- Director
Thomas S. Souleles
</TABLE>
- --------------
*By: /s/ RICHARD B. WEST
----------------------------------------
Richard B. West
ATTORNEY-IN-FACT
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Dahlonega Packaging
Corporation has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lake Forest, State of Illinois, on June 17, 1999.
Dahlonega Packaging Corporation
By: /s/ RICHARD B. WEST
--------------------------------------
Name: Richard B. West
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to the Registration Statement has been signed below by the following persons in
the capacities indicated on June 17, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/s/ PAUL T. STECKO*
-------------------------------------------- President and Director
Paul T. Stecko (Principal Executive Officer)
/s/ RICHARD B. WEST
-------------------------------------------- Secretary
Richard B. West (Principal Financial and Accounting Officer)
/s/ DANA G. MEAD*
-------------------------------------------- Director
Dana G. Mead
/s/ THEODORE R. TETZLAFF*
-------------------------------------------- Director
Theodore R. Tetzlaff
/s/ SAMUEL M. MENCOFF*
-------------------------------------------- Director
Samuel M. Mencoff
/s/ JUSTIN S. HUSCHER*
-------------------------------------------- Director
Justin S. Huscher
/s/ THOMAS S. SOULELES*
-------------------------------------------- Director
Thomas S. Souleles
</TABLE>
- --------------
*By: /s/ RICHARD B. WEST
----------------------------------------
Richard B. West
ATTORNEY-IN-FACT
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Dixie Container
Corporation has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lake Forest, State of Illinois, on June 17, 1999.
Dixie Container Corporation
By: /s/ RICHARD B. WEST
--------------------------------------
Name: Richard B. West
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to the Registration Statement has been signed below by the following persons in
the capacities indicated on June 17, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/s/ PAUL T. STECKO*
-------------------------------------------- President and Director
Paul T. Stecko (Principal Executive Officer)
/s/ RICHARD B. WEST
-------------------------------------------- Secretary
Richard B. West (Principal Financial and Accounting Officer)
/s/ DANA G. MEAD*
-------------------------------------------- Director
Dana G. Mead
/s/ THEODORE R. TETZLAFF*
-------------------------------------------- Director
Theodore R. Tetzlaff
/s/ SAMUEL M. MENCOFF*
-------------------------------------------- Director
Samuel M. Mencoff
/s/ JUSTIN S. HUSCHER*
-------------------------------------------- Director
Justin S. Huscher
/s/ THOMAS S. SOULELES*
-------------------------------------------- Director
Thomas S. Souleles
</TABLE>
- --------------
*By: /s/ RICHARD B. WEST
----------------------------------------
Richard B. West
ATTORNEY-IN-FACT
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, PCA Hydro, Inc. has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Lake
Forest, State of Illinois, on June 17, 1999.
PCA Hydro, Inc.
By: /s/ RICHARD B. WEST
--------------------------------------
Name: Richard B. West
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to the Registration Statement has been signed below by the following persons in
the capacities indicated on June 17, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/s/ PAUL T. STECKO*
-------------------------------------------- President and Director
Paul T. Stecko (Principal Executive Officer)
/s/ RICHARD B. WEST
-------------------------------------------- Secretary
Richard B. West (Principal Financial and Accounting Officer)
/s/ DANA G. MEAD*
-------------------------------------------- Director
Dana G. Mead
/s/ THEODORE R. TETZLAFF*
-------------------------------------------- Director
Theodore R. Tetzlaff
/s/ SAMUEL M. MENCOFF*
-------------------------------------------- Director
Samuel M. Mencoff
/s/ JUSTIN S. HUSCHER*
-------------------------------------------- Director
Justin S. Huscher
/s/ THOMAS S. SOULELES*
-------------------------------------------- Director
Thomas S. Souleles
</TABLE>
- --------------
*By: /s/ RICHARD B. WEST
----------------------------------------
Richard B. West
ATTORNEY-IN-FACT
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, PCA Tomahawk
Corporation has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lake Forest, State of Illinois, on June 17, 1999.
PCA Tomahawk Corporation
By: /s/ RICHARD B. WEST
--------------------------------------
Name: Richard B. West
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to the Registration Statement has been signed below by the following persons in
the capacities indicated on June 17, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/s/ PAUL T. STECKO*
-------------------------------------------- President and Director
Paul T. Stecko (Principal Executive Officer)
/s/ RICHARD B. WEST
-------------------------------------------- Secretary
Richard B. West (Principal Financial and Accounting Officer)
/s/ DANA G. MEAD*
-------------------------------------------- Director
Dana G. Mead
/s/ THEODORE R. TETZLAFF*
-------------------------------------------- Director
Theodore R. Tetzlaff
/s/ SAMUEL M. MENCOFF*
-------------------------------------------- Director
Samuel M. Mencoff
/s/ JUSTIN S. HUSCHER*
-------------------------------------------- Director
Justin S. Huscher
/s/ THOMAS S. SOULELES*
-------------------------------------------- Director
Thomas S. Souleles
</TABLE>
- --------------
*By: /s/ RICHARD B. WEST
----------------------------------------
Richard B. West
ATTORNEY-IN-FACT
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, PCA Valdosta
Corporation has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lake Forest, State of Illinois, on June 17, 1999.
PCA Valdosta Corporation
By: /s/ RICHARD B. WEST
--------------------------------------
Name: Richard B. West
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to the Registration Statement has been signed below by the following persons in
the capacities indicated on June 17, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/s/ PAUL T. STECKO*
-------------------------------------------- President and Director
Paul T. Stecko (Principal Executive Officer)
/s/ RICHARD B. WEST
-------------------------------------------- Secretary
Richard B. West (Principal Financial and Accounting Officer)
/s/ DANA G. MEAD*
-------------------------------------------- Director
Dana G. Mead
/s/ THEODORE R. TETZLAFF*
-------------------------------------------- Director
Theodore R. Tetzlaff
/s/ SAMUEL M. MENCOFF*
-------------------------------------------- Director
Samuel M. Mencoff
/s/ JUSTIN S. HUSCHER*
-------------------------------------------- Director
Justin S. Huscher
/s/ THOMAS S. SOULELES*
-------------------------------------------- Director
Thomas S. Souleles
</TABLE>
- --------------
*By: /s/ RICHARD B. WEST
----------------------------------------
Richard B. West
ATTORNEY-IN-FACT
II-11
<PAGE>
EXHIBIT 12.1
PACKAGING CORPORATION OF AMERICA
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
------------------------------------------------------ ----------------------------------
Pro Forma Pro Forma
1994 1995 1996 1997 1998 1998 1998 1999 1999
------- ------- ------- ------- ------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes 127,246 371,229 150,182 46,104 118,968 2,509 33,396 (214,590) (17,354)
Fixed charges 38,876 39,931 44,736 35,500 34,846 167,749 8,258 7,764 41,805
------- ------- ------- ------- ------- --------- -------- ---------- ----------
Earnings (loss) 166,122 411,160 194,918 81,604 153,814 170,258 41,654 (206,826) 24,451
------- ------- ------- ------- ------- --------- -------- ---------- ----------
------- ------- ------- ------- ------- --------- -------- ---------- ----------
Fixed Charges:
Interest expense 740 1,485 5,129 3,739 2,782 159,851 741 221 39,486
Interest portion of rent expense 38,136 38,446 39,607 31,761 32,064 7,898 7,517 7,543 2,319
------- ------- ------- ------- ------- --------- -------- ---------- ----------
Fixed charges 38,876 39,931 44,736 35,500 34,846 167,749 8,258 7,764 41,805
------- ------- ------- ------- ------- --------- -------- ---------- ----------
------- ------- ------- ------- ------- --------- -------- ---------- ----------
Ratio of earnings to fixed charges 4.27 10.30 4.36 2.30 4.41 1.01 5.04 Note 1 Note 1
------- ------- ------- ------- ------- --------- -------- ---------- ----------
------- ------- ------- ------- ------- --------- -------- ---------- ----------
</TABLE>
Note 1: Due to the net loss, earnings were insufficient to cover fixed charges
by $214,590 and $17,354 for the three months ended March 31, 1999,
actual and pro forma, respectively.
<PAGE>
EXHIBIT 12.2
<TABLE>
<CAPTION>
PACKAGING CORPORATION OF AMERICA
COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(DOLLARS IN THOUSANDS)
Year Ended December 31, Three Months Ended March 31,
------------------------------------------------------ --------------------------------
Pro Forma Pro Forma
1994 1995 1996 1997 1998 1998 1998 1999 1999
------- ------- ------- ------- ------- --------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes 127,246 371,229 150,182 46,104 118,968 2,509 33,396 (214,590) (17,354)
Fixed charges 38,876 39,931 44,736 35,500 34,846 167,749 8,258 7,764 41,805
------- ------- ------- ------- ------- --------- ------- ---------- ----------
Earnings (loss) 166,122 411,160 194,918 81,604 153,814 170,258 41,654 (206,826) 24,451
------- ------- ------- ------- ------- --------- ------- ---------- ----------
------- ------- ------- ------- ------- --------- ------- ---------- ----------
Combined fixed charges and
PS dividends:
Interest expense 740 1,485 5,129 3,739 2,782 159,851 741 221 39,486
Preferred stock dividends
(Note 2) 0 0 0 0 0 20,625 0 0 3,094
Interest portion of rent expense 38,136 38,446 39,607 31,761 32,064 7,898 7,517 7,543 2,319
------- ------- ------- ------- ------- --------- ------- ---------- ----------
Combined fixed charges and
preferred stock dividends 38,876 39,931 44,736 35,500 34,846 188,374 8,258 7,764 44,899
------- ------- ------- ------- ------- --------- ------- ---------- ----------
------- ------- ------- ------- ------- --------- ------- ---------- ----------
Ratio of earnings to combined fixed
charges and preferred stock
dividends 4.27 10.30 4.36 2.30 4.41 Note 1 5.04 Note 1 Note 1
------- ------- ------- ------- ------- --------- ------- ---------- ----------
------- ------- ------- ------- ------- --------- ------- ---------- ----------
</TABLE>
Note 1: Due to the net loss, earnings were insufficient to cover fixed charges
and preferred stock dividends by $214,590 and $20,448 for the three
months ended March 31, 1999, actual and pro forma, respectively. In
addition, for the pro forma year ended December 31, 1998, earnings
were insufficient to cover fixed charges and preferred stock
dividends by $18,116.
Note 2: Pro forma preferred stock dividends are grossed-up for a 40% tax effect
for the year ended December 31, 1998, but not for the three months
ended March 31, 1999 because of the net loss.
