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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1999
REGISTRATION NO. 333-79511
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
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 5110 76-0302048
VIRGINIA 2699 54-0193683
DELAWARE 4910 76-0328424
DELAWARE 6599 76-0328421
DELAWARE 6599 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)
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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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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
OFFER TO EXCHANGE ALL OUTSTANDING
12 3/8% SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2010,
$100,000,000 AGGREGATE LIQUIDATION PREFERENCE OUTSTANDING, FOR
12 3/8% SERIES B SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2010
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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 before
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.
- Based on the advice of our counsel, we believe 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 the
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.
- If you are a broker-dealer and you acquired outstanding notes or preferred
stock as a result of market-making or other trading activities, you must
acknowledge that you will deliver this prospectus, as it may be amended or
supplemented, in connection with any resale of exchange notes or new
preferred stock that you acquire for your own account in exchange for the
outstanding notes or preferred stock.
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SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION OF MATERIAL 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.
OUR BUSINESS
OVERVIEW
PCA is the sixth largest producer of containerboard in the United States and the
sixth largest manufacturer of corrugated packaging products, based on 1998
production capacity. Our sales were $1.571 billion in 1998 and $806.2 million on
a pro forma basis for the six months ended June 30, 1999.
PRODUCTS
PCA produces corrugated containers as well as the containerboard used to
manufacture corrugated containers. Corrugated containers are the most commonly
used type of paper packaging. According to the Fibre Box Handbook, over 90% of
the goods shipped in most developed countries get to market using corrugated
packaging. Corrugated containers, sometimes referred to as cardboard boxes, are
made by combining multiple layers of heavyweight paper known as containerboard
and fabricating them into finished boxes.
CONTAINERBOARD
The two types of containerboard are linerboard and medium. Linerboard is used
for the two flat outer facings while medium is used to form the fluted inner or
middle layer of the corrugated sheet. Kraft linerboard and semi-chemical medium
are common types of linerboard and medium that are made from a high percentage
of virgin, as opposed to recycled, fiber. Virgin fiber is produced by chemically
processing wood into pulp. By industry definition, kraft linerboard must contain
no less than 80% virgin fiber and semi-chemical medium no less than 75% virgin
fiber. All other containerboard is referred to as recycled. The recycled fiber
used to make recycled containerboard comes primarily from used corrugated
containers as well as other recovered and reprocessed papers.
CORRUGATED CONTAINERS
Converting plants fabricate corrugated sheet and produce corrugated containers.
Converting plants may be either corrugator plants or sheet plants. Corrugator
plants perform both a combining operation and a boxmaking operation. In the
combining operation, corrugated medium is fluted into a wavy sheet and laminated
to linerboard to produce corrugated, or combined sheets. In the boxmaking
operation, the combined sheet is then printed, cut, folded and joined to create
the finished boxes. Sheet plants purchase already combined sheets and form them
into finished boxes.
OPERATIONS
PCA produces kraft linerboard and semi-chemical medium at four mill locations.
In 1998, our mills produced 2.1 million tons of containerboard, which accounted
for 6% of U.S. capacity.
PCA also operates 67 converting facilities in 25 states. Of these facilities, 39
are corrugator plants, 26 are sheet plants and two are small, specialty
operations. These specialty operations include a collating and distribution
packaging center, as well as a machine rebuild facility. Our corrugator plants
convert approximately 75% to 80% of the containerboard we produce into finished
corrugated containers. As a result, we are considered an integrated producer. By
industry standards, integrated producers own their own containerboard mills and
use at least 50% of the containerboard production from those mills in their
converting operations. In 1998, our converting plants shipped approximately 25
billion square feet of corrugated packaging products. This represented 6% of all
corrugated packaging products shipped in the United States.
PCA owns approximately 800,000 acres of timberland and has the rights to cut the
wood from an additional 150,000 acres through long term lease agreements. Over
90% of our wood supply is within 100 miles of our mill
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sites. This close proximity minimizes handling and transportation costs and
ensures us a reliable supply of wood fiber. We are considering the sale of a
significant portion of our timberland. The proceeds from any sale would be used
to pay down debt. The timberland we are likely to sell is located in geographic
areas where we feel we can adequately satisfy our wood requirements by
purchasing wood from third parties or by entering into supply agreements with
the purchasers of our timberland.
COMPETITIVE STRENGTHS AND BUSINESS STRATEGIES
LOW-COST PRODUCER
Because containerboard is a commodity, containerboard producers compete
primarily on price. Therefore, having a low manufacturing cost operation is an
important competitive advantage. PCA's Counce and Tomahawk mills represent
two-thirds of PCA's containerboard production capacity. Based on studies by
Jacobs-Sirrine, an industry consulting firm, these two mills were ranked in the
lowest quartile for cash manufacturing costs in the industry. One of these
studies was a single-client study that we paid Jacobs-Sirrine to perform in
February 1998. The other was a multi-client study issued by Jacobs-Sirrine in
the fourth quarter of 1998 that was available for purchase by the general
public.
INTEGRATED OPERATIONS
The high level of integration between our containerboard and converting
operations helps to provide a stable and predictable demand for our
containerboard mill production. It also helps to dampen earnings fluctuations.
According to Pulp & Paper Week, from 1995 to 1998, industry containerboard
prices declined by 31% and earnings from our containerboard mills were adversely
affected. During the same period, our average corrugated container price fell by
only 11%. We were able to maintain relatively stable margins and earnings in our
converting operations since the costs for the containerboard purchased by our
converting plants was lower, which offset the decline in container prices.
DIVERSIFIED CUSTOMER BASE
PCA's corrugated container customer base is broadly diversified across
industries and geographic locations. During the past year, we sold corrugated
products to over 9,000 customers, which required us to ship to over 15,000
separate customer locations. This broad customer base reduces our dependence on
any single customer or market. No customer represents more than 6% of our total
sales and our top 10 customers represent only about 20% of our total sales.
FOCUS ON VALUE-ADDED PRODUCTS AND SERVICES
Through acquisitions and capital investments, we have broadened our ability to
provide specialized printing and package design, product features and superior
customer service. As a result, our corrugated container selling price per
thousand square feet has consistently exceeded the industry average since 1995.
EQUITY SPONSOR
Madison Dearborn Partners, LLC, a private equity investment firm, was the
financial sponsor for the transactions by which PCA acquired its current
operations. Madison Dearborn, 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. Madison
Dearborn'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, Madison Dearborn'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. PCA is Madison
Dearborn's largest equity investment to date.
THE TRANSACTIONS
On April 12, 1999, Tenneco Packaging Inc., currently a wholly owned subsidiary
of Tenneco Inc., sold its containerboard and corrugated packaging products
business to PCA, an entity formed by Madison Dearborn in
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January 1999, for $2.2 billion, consisting of $246.5 million in cash, the
assumption of $1.76 billion of debt incurred by TPI immediately prior to the
contribution, and a 45% common equity interest in PCA valued at $193.5 million.
PCA Holdings LLC, an entity organized and controlled by Madison Dearborn,
acquired the remaining 55% common equity interest in PCA for $236.5 million in
cash, which was used to finance in part the transactions.
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 PCA
Holdings and (4) an equity investment by TPI valued at $193.5 million.
The senior credit facility was entered into to finance in part the transactions
and to pay related fees and expenses and to provide future borrowings to PCA for
general corporate purposes, including working capital. The senior credit
facility consists of three term loan facilities in an original aggregate
principal amount of $1.21 billion and a revolving credit facility with up to
$250 million in availability. PCA's total borrowings under the senior credit
facility as of June 30, 1999 consisted of $1.135 billion of term loans. No
amounts were outstanding under the revolving credit facility as of that date.
The following sets forth the ownership of PCA, after giving effect to purchases
of common stock by management that occurred in June 1999:
[LOGO]
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(1) The other investors in PCA Holdings are Sixty Wall Street Fund, L.P., J. P.
Morgan Capital Corporation, BT Capital Investors, L.P. and other investors,
none of whom own more than 0.5% of the equity interests of PCA Holdings.
(2) PCA has also issued options to management to purchase common stock, which,
if exercised, would result in management owning in the aggregate
approximately 9.6% of the common equity of PCA.
(3) On July 15, 1999, Tenneco announced its intention to spin-off TPI to its
stockholders in the fall of 1999. Upon completion of the spin-off, TPI will
no longer be controlled by Tenneco.
(4) On July 15, 1999, TPI announced its intention to sell its equity interest in
PCA, which it expects to complete prior to its spin-off from Tenneco. We
expect that when this sale is completed, TPI will no longer be entitled to
the benefits of the stockholders agreement and PCA will therefore be
controlled by PCA Holdings, which is controlled by Madison Dearborn.
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THE EXCHANGE OFFER
The exchange offer relates to the exchange of all of our outstanding 9 5/8%
Senior Subordinated Notes due 2009 for an equal aggregate principal amount of
our new 9 5/8% Series B Senior Subordinated Notes due 2009. The exchange notes
will be obligations of PCA entitled to the benefits of the notes indenture,
which is the legal document governing the outstanding notes.
The exchange offer also relates to the exchange of all of our outstanding
12 3/8% Senior Exchangeable Preferred Stock due 2010 for an equal amount of our
new 12 3/8% Series B Senior Exchangeable Preferred Stock due 2010. The new
preferred stock will be an obligation of PCA entitled to the benefits of the
certificate of designations governing the outstanding preferred stock.
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THE EXCHANGE NOTES
NOTES REGISTRATION RIGHTS
AGREEMENT....................... You have the right to exchange your outstanding notes
for registered notes with terms that are identical in
all material respects. This exchange offer is intended
to satisfy this right. 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
exchange notes, which have been registered under the
Securities Act, for each $1,000 principal amount of
outstanding notes. Your outstanding notes must be
properly tendered and accepted 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 registered exchange notes 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........................... We will not complete this exchange offer if it violates
applicable law or staff interpretations of the
Securities and Exchange Commission. This exchange offer
is not conditioned upon any minimum principal amount of
our outstanding notes being tendered.
RESALE OF THE EXCHANGE NOTES...... We believe that the exchange 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. See SHEARMAN &
STERLING (available July 2, 1993); MORGAN STANLEY & CO.
INCORPORATED (available June 5, 1991); and EXXON CAPITAL
HOLDINGS CORPORATION (available May 13, 1989). 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;
- you must not be a broker-dealer who purchased your
outstanding notes directly from us for resale under 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 you do not meet the above conditions, you may incur
liability under the Securities Act if you transfer any
exchange note without delivering this prospectus. We do
not assume or indemnify you against this liability.
If you are a broker-dealer and you acquired outstanding
notes as a result of market-making or other trading
activities, you must acknowledge that you will deliver
this prospectus, as it may be amended or supplemented,
in connection with any resale of exchange notes that you
acquire for your own account in exchange for the
outstanding notes.
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
broker-dealers for use in connection with resales.
We are not offering to exchange with you, and will not
accept surrenders for exchange from you, in any
jurisdiction in which this exchange offer or its
acceptance would not comply with the securities or blue
sky laws of that jurisdiction. Furthermore, if you
acquire the exchange notes, you are responsible for
compliance with 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
those notes through, but not including, the issuance
date of the exchange notes. This 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.
Consequently, if you exchange your outstanding notes for
exchange notes, you 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, that you would have received if you
had not accepted this exchange offer.
PROCEDURES FOR TENDERING NOTES.... If you wish to tender your notes for exchange in this
exchange offer, you must transmit to the notes exchange
agent on or before the expiration date either:
- an original or a facsimile of a properly completed and
duly executed copy of the letter of transmittal, which
accompanies this prospectus, together with your
outstanding notes and any other documentation required
by the letter of transmittal, at the address provided
on the cover page of the letter of transmittal; or
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- if the notes you own are held of record by The
Depository Trust Company in book-entry form and you are
making 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. As part of the book-entry
transfer, The Depository Trust Company will facilitate
the exchange of your notes and update your account to
reflect the issuance of the exchange notes to you. The
Automated Tender Offer Program allows you to
electronically transmit your acceptance of the
exchange offer to The Depository Trust Company instead
of physically completing and delivering a letter of
transmittal to the notes exchange agent.
In addition, you must deliver to the notes exchange
agent on or before 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; or
- if necessary, the documents required for compliance
with the guaranteed delivery procedures.
By executing and delivering the 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 in this
exchange offer, whether or not that person is the
holder, is receiving them in the ordinary course of
business;
- neither you nor any other person receiving your
exchange notes in the exchange offer has an arrangement
or understanding with any person to participate in the
distribution of the exchange notes and that you are
not engaged in, and do not intend to engage in, a
distribution of the exchange notes; and
- neither you nor any other person receiving your
exchange notes in the exchange offer 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 outstanding notes that
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you
wish to tender the notes in this exchange offer, you
should promptly contact the registered holder and
instruct that person to tender on your behalf. If you
wish to tender on your own behalf you must, before
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 registered ownership may take considerable
time.
GUARANTEED DELIVERY PROCEDURES.... If you wish to tender your outstanding notes and:
- time will not permit your notes or other required
documents to reach the notes exchange agent by the
expiration date; or
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- the procedure for book-entry transfer cannot be
completed on time;
you may tender your notes by completing a notice of
guaranteed delivery and complying with the guaranteed
delivery procedures.
SHELF REGISTRATION STATEMENT...... We have agreed to register the notes on a shelf
registration statement and use our best efforts to cause
the shelf registration statement to be declared
effective by the Securities and Exchange Commission 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
- any holder of outstanding notes, other than a holder
that is our "affiliate" within the meaning of the Rule
405 under the Securities Act, is not eligible under
applicable securities laws to participate in the
exchange offer, and the holder has satisfied
conditions relating to the provision of information to
us.
We have agreed to maintain the effectiveness of the
shelf registration statement for, in some circumstances,
at least two years from the date of the original
issuance of the outstanding notes to cover resales of
notes held by the holders.
WITHDRAWAL RIGHTS................. You may withdraw the tender of your outstanding notes at
any time before 5:00 p.m., New York City time, on the
expiration date.
ACCEPTANCE OF OUTSTANDING NOTES
AND DELIVERY OF EXCHANGE
NOTES........................... So long as this exchange offer does not violate
applicable law or staff interpretations of the
Securities and Exchange Commission, we will accept for
exchange any and all outstanding notes which are
properly tendered and not validly withdrawn before 5:00
p.m., New York City time, on the expiration date. The
exchange notes issued in this exchange offer will be
delivered promptly following the expiration date.
UNITED STATES FEDERAL TAX
CONSEQUENCES.................... Based on the advice of our counsel, we believe the
exchange of your outstanding notes for the exchange
notes will not be a taxable exchange for United States
federal income tax purposes.
NOTES EXCHANGE AGENT.............. United States Trust Company of New York is serving as
the notes exchange agent in connection with the exchange
offer. The notes exchange agent will assist PCA in the
exchange offer by performing various administrative
functions on its behalf.
THE NEW PREFERRED STOCK
PREFERRED STOCK REGISTRATION
RIGHTS AGREEMENT................ You have the right 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 this right. 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 new preferred stock which has been registered under
the Securities Act for each $100 liquidation preference
of outstanding preferred stock.
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Your outstanding preferred stock must be properly
tendered and accepted 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 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........................... We will not complete this exchange offer if it violates
applicable law or staff interpretations of the
Securities and Exchange Commission. This exchange offer
is not conditioned upon any minimum principal amount of
our outstanding preferred stock being tendered.
RESALE OF THE NEW PREFERRED
STOCK........................... We believe that the new 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. See SHEARMAN &
STERLING (available July 2, 1993); MORGAN STANLEY & CO.
INCORPORATED (available June 5, 1991); and EXXON CAPITAL
HOLDINGS CORPORATION (available May 13, 1989). 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;
- 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 in this exchange offer;
- you must not be a broker-dealer who purchased your
outstanding preferred stock directly from us for resale
under 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 you do not meet the above conditions, you may incur
liability under the Securities Act if you transfer any
new preferred stock without delivering this prospectus.
We do not assume or indemnify you against this
liability.
If you are a broker-dealer and you acquired outstanding
preferred stock as a result of market-making or other
trading activities, you must acknowledge that you will
deliver this prospectus, as it may be amended or
supplemented, in connection with any resale of new
preferred stock that you acquire for your own account in
exchange for the outstanding preferred stock.
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
broker-dealers for use in connection with resales.
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We are not offering to exchange with you, and will not
accept surrenders for exchange from you, in any
jurisdiction in which this exchange offer or its
acceptance would not comply with the securities or blue
sky laws of that jurisdiction. Furthermore, if you
acquire the new preferred stock, you are responsible for
compliance with 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
that preferred stock through, but not including, the
issuance date of the new preferred stock. These
dividends will be 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, if you exchange your outstanding preferred
stock for new preferred stock, you 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
in this exchange offer, that you would have received if
you had not accepted this exchange offer.
PROCEDURES FOR TENDERING PREFERRED
STOCK........................... If you wish to tender your preferred stock for exchange
in this exchange offer, you must transmit to the
preferred stock exchange agent on or before the
expiration date either:
- an original or a facsimile of a properly completed and
duly executed copy of the letter of transmittal, which
accompanies this prospectus, together with your
outstanding preferred stock and any other
documentation required by the letter of transmittal,
at the address provided on the cover page of the
letter of transmittal; or
- if the notes you own are held of record by The
Depository Trust Company in book-entry form and 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 before 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; or
- if necessary, the documents required for compliance
with the guaranteed delivery procedures described in
this prospectus.
</TABLE>
9
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<TABLE>
<S> <C>
By executing and delivering the 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 in this
exchange offer, whether or not that person is the
holder, is receiving them in the ordinary course of
business;
- neither you nor any other person receiving your
preferred stock in this exchange offer has an
arrangement or understanding with any person to
participate in the distribution of the new preferred
stock and that you are not engaged in, and do not
intend to engage in, a distribution of the new
preferred stock; and
- neither you nor any other person receiving your
preferred stock in this exchange offer 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 outstanding preferred
stock that is registered in the name of a broker,
dealer, commercial bank, trust company or other nominee
and you wish to tender the preferred stock in this
exchange offer, you should promptly contact the
registered holder and instruct that person to tender on
your behalf. If you wish to tender on your own behalf
you must, before 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 stock power from the
registered holder. The transfer of registered ownership
may take considerable time.
GUARANTEED DELIVERY PROCEDURES.... If you wish to tender your outstanding preferred stock
and:
- time will not permit your preferred stock certificates
or other required documents to reach the preferred stock
exchange agent by the expiration date; or
- the procedure for book-entry transfer cannot be
completed on time;
you may tender your preferred stock by completing a
notice of guaranteed delivery and complying with the
guaranteed delivery procedures.
SHELF REGISTRATION STATEMENT...... We have agreed to register the preferred stock on a
shelf registration statement and use our best efforts to
cause the shelf registration statement to be declared
effective by the Securities and Exchange Commission 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
- any holder of outstanding preferred stock, other than
a holder that is our "affiliate" within the meaning of
Rule 405 under the Securities Act, is not eligible
under applicable securities laws to participate in the
exchange offer, and the holder has satisfied
conditions relating to the provision of information to
us.
</TABLE>
10
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<S> <C>
We have agreed to maintain the effectiveness of the
shelf registration statement for, in some circumstances,
at least two years from the date of the original
issuance of the outstanding preferred stock to cover
resales of preferred stock held by the holders.
WITHDRAWAL RIGHTS................. You may withdraw the tender of your outstanding
preferred stock at any time before 5:00 p.m., New York
City time, on the expiration date.
ACCEPTANCE OF OUTSTANDING
PREFERRED STOCK AND DELIVERY OF
NEW PREFERRED STOCK............. So long as this exchange offer does not violate
applicable law or staff interpretations of the
Securities and Exchange Commission, we will accept for
exchange any and all outstanding preferred stock which
is properly tendered and not validly withdrawn before
5:00 p.m., New York City time, on the expiration date.
The new preferred stock issued in this exchange offer
will be delivered promptly following the expiration
date.
UNITED STATES FEDERAL TAX
CONSEQUENCES.................... Based on the advice of our counsel, we believe 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.
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. The preferred stock exchange agent
will assist PCA in the exchange offer by performing
various administrative functions on its behalf.
USE OF PROCEEDS
USE OF PROCEEDS................... We will not receive any proceeds from the issuance of
the exchange notes or the new preferred stock. We will
pay all of our and our subsidiary guarantors' expenses
relating to this exchange offer.
</TABLE>
11
<PAGE>
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 to
differentiate them from the outstanding notes;
- the exchange notes have been registered under the
Securities Act and, therefore, will 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 existing subsidiaries and all of our 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. The guarantees of our
subsidiaries will be full and unconditional and joint
and several obligations of each of our subsidiaries. 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 guarantees of the exchange
notes by PCA's subsidiaries, which we refer to as
subsidiary guarantees, will be senior subordinated
debts. They will rank behind all current and future
indebtedness of PCA and the guarantor subsidiaries,
except for trade payables, which are debts owed to PCA's
vendors and suppliers, and indebtedness that expressly
provides that it is not senior to the exchange notes and
the subsidiary guarantees. The exchange notes and the
subsidiary guarantees will also effectively rank behind
all current and future liabilities, including trade
payables, of our future foreign subsidiaries, if any. As
of June 30, 1999, the exchange notes and the subsidiary
guarantees would have been subordinated to $1.135
billion of senior debt and would have ranked equally
with no other senior subordinated debt. In addition,
$250 million would have been available for borrowings
under the senior credit facility.
OPTIONAL REDEMPTION............... We may redeem all or any portion of the exchange notes
at any time after April 1, 2004, at the following
redemption prices, expressed as percentages of the
principal amount, plus accrued and unpaid interest and
liquidated damages, if any:
</TABLE>
12
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<S> <C>
YEAR PERCENTAGE
2004.......................................... 104.8125%
2005.......................................... 103.2083%
2006.......................................... 101.6042%
2007 and after................................ 100.0000%
Notwithstanding the general restriction on our ability
to redeem the exchange notes on or before April 1, 2004,
before April 1, 2002, we may redeem up to 35% of the
exchange notes with the proceeds of one or more public
or private offerings of our equity or equity of our
parent or the net proceeds of timberland sales in excess
of $500 million at 109.625% of their principal amount,
plus accrued and unpaid interest and liquidated damages,
if any.
In addition, before April 1, 2004, if we undergo a
change of control, we may also redeem all, but not part,
of the exchange notes at 100% of their principal amount
plus a premium, accrued and unpaid interest and
liquidated damages, if any.
MANDATORY OFFER TO REPURCHASE..... If, at any time, the aggregate amount of excess proceeds
from asset sales is more than $25 million, you may
require us to repurchase your exchange notes at 100% of
their principal amount, plus accrued and unpaid interest
and liquidated damages, if any. If, at any time, we
undergo a change of control, you may require us to
repurchase your exchange notes at 101% of their
principal amount, plus accrued and unpaid interest and
liquidated damages, if any.
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 imposes
restrictions upon our ability and the ability of all of
our current subsidiaries to:
- borrow money;
- pay dividends on or purchase stock;
- make investments;
- use assets as security in other transactions; and
- sell assets or merge with or into other companies.
These and other covenants are subject to important
exceptions and qualifications which are described in
"Description of Exchange Notes" under the heading
"Covenants." The senior credit facility imposes a number
of similar restrictions on us, including restrictions
upon our ability and the ability of our subsidiaries to:
- borrow money;
- pay dividends on or purchase stock;
- make investments;
- use assets as security in other transactions;
- sell assets or merge with or into other companies; or
- make capital expenditures.
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
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 to differentiate it from the outstanding
preferred stock;
-the new preferred stock has been registered under the
Securities Act and, therefore, will 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.
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. Under the terms of the
senior credit facility, we are prohibited from paying
cash dividends on the new preferred stock before that
date.
MANDATORY REDEMPTION.............. On April 1, 2010, we must redeem all of the new
preferred stock outstanding.
OPTIONAL REDEMPTION............... We may redeem all or any portion of the new preferred
stock at any time after April 1, 2004, at the following
redemption prices, expressed as percentages of the
liquidation preference, plus accrued and unpaid
dividends and liquidated damages, if any:
YEAR PERCENTAGE
2004.......................................... 106.1875%
2005.......................................... 104.6406%
2006.......................................... 103.0938%
2007.......................................... 101.5469%
2008 and after................................ 100.0000%
Notwithstanding the general restriction on our ability
to redeem the new preferred stock on or before April 1,
2004, 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 one or more public or private offerings
of our equity or equity of our parent or the net
proceeds of timberland sales in excess of $500 million
at 112.375% of its liquidated preference, plus accrued
and unpaid dividends and liquidated damages, if any.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
In addition, before April 1, 2004, if we undergo a
change of control, we may also redeem all, but not part,
of the new preferred stock at 100% of its liquidation
preference plus a premium, accrued and unpaid interest
and liquidated damages, if any.
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 it 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 our senior debt, the exchange
notes and our trade payables. As of June 30, 1999, the
new preferred stock would have been subordinated to
$1.135 billion of senior debt, $550 million of notes and
$183 million of trade payables.
MANDATORY OFFER TO REDEEM......... If, at any time, the aggregate amount of excess proceeds
from asset sales is more than $25 million, you may
require us to redeem your new preferred stock at 100% of
its liquidation preference, plus accrued and unpaid
dividends and liquidated damages, if any. If, at any
time, we undergo a change of control, you may require us
to redeem your new preferred stock at 101% of its
liquidation preference, plus accrued and unpaid
dividends and liquidated damages, if any.
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 imposes restrictions upon our ability and
the ability of all of our current subsidiaries to:
- borrow money;
- pay dividends on stock or purchase stock;
- make investments; and
- sell assets or merge with or into other companies.
There are important exceptions and qualifications to
these and other covenants which are described in
"Description of New Preferred Stock" under the heading
"New Preferred Stock-Covenants." The senior credit
facility imposes a number of similar restrictions on us,
including restrictions upon our ability and the ability
of our subsidiaries to:
- borrow money;
- pay dividends on or purchase stock;
- make investments;
- use assets as security in other transactions;
- sell assets or merge with or into other companies; or
- make capital expenditures.
VOTING RIGHTS..................... The new preferred stock will have no voting rights
except as required by law and as specified in the
certificate of designation. Under Delaware law, holders
of new preferred stock will be entitled to vote as a
separate class upon any proposed amendment to PCA's
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
certificate of incorporation if the amendment would
increase or decrease the par value of the new preferred
stock, increase or decrease the aggregate number of
authorized shares of new preferred stock, or alter the
powers, preferences or special rights of the new
preferred so as to affect it adversely. Under the
certificate of designation, holders of new preferred
stock will be entitled to vote on any amendment or
waiver that would:
-alter the voting rights with respect to the new
preferred stock;
-reduce the liquidation preference of or change the
mandatory redemption date of the new preferred stock or,
except in some cases, alter the provisions with respect
to the redemption of the new preferred stock;
-reduce the rate of or change the time for payment of
dividends on the new preferred stock;
-waive a default in the payment of liquidation
preference of, or dividends or premium or liquidated
damages, if any, on the new preferred stock;
-make any new preferred stock payable in any form or
money other than that stated in the certificate of
designation;
-except in some cases, waive a redemption payment with
respect to the new preferred stock; or
-make any change to the provisions of the certificate of
designation relating to these provisions.
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.................. Under the terms of the certificate of designation we may
exchange all but not less than all of the shares of the
new preferred stock for the subordinated exchange
debentures described below on any date on which
dividends are scheduled to be paid. We have not made any
decision to exchange the preferred stock or new
preferred stock into subordinated exchange debentures at
this time. We are currently prohibited from doing so
under the terms of the senior credit facility and the
indenture governing the notes.
THE SUBORDINATED EXCHANGE DEBENTURES
THE SUBORDINATED EXCHANGE
DEBENTURES...................... 12 3/8% Subordinated Exchange Debentures due 2010. The
debentures will be general unsecured debt obligations of
PCA.
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 including the exchange
notes, except for trade payables and indebtedness that
expressly provides that it is not senior to the
</TABLE>
16
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<TABLE>
<S> <C>
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 all or any portion of the subordinated
exchange debentures at any time after April 1, 2004 at
the following redemption prices, expressed as
percentages of the principal amount, plus accrued and
unpaid interest and liquidated damages, if any:
YEAR PERCENTAGE
2004.......................................... 106.1875%
2005.......................................... 104.6406%
2006.......................................... 103.0938%
2007.......................................... 101.5469%
2008 and after................................ 100.0000%
Notwithstanding the general restriction on our ability
to redeem the subordinated exchange debentures on or
before April 1, 2004, 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
one or more public or private offerings of our equity or
equity of our parent or the net proceeds of timberland
sales in excess of $500 million at 112.375% of their
principal amount, plus accrued and unpaid interest and
liquidated damages, if any.
In addition, before April 1, 2004, if we undergo a
change of control, we may also redeem all, but not part,
of the subordinated exchange debentures at 100% of their
principal amount plus a premium, accrued and unpaid
interest and liquidated damages, if any.
MANDATORY OFFER TO REPURCHASE..... If we sell assets or undergo a change of control, we
must offer to repurchase your subordinated exchange
debentures on the terms under the indenture which
governs the subordinated exchange debentures. These
terms are substantially identical to those contained in
the certificate of designation for the new preferred
stock.
BASIC COVENANTS OF INDENTURE...... The indenture which governs the subordinated exchange
debentures 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.
17
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
Set forth below are the summary historical and pro forma financial data of PCA
and The Containerboard Group of TPI, which we refer to in this prospectus as the
Group. 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, which was acquired by PCA in the transactions, 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 for the six months ended June 30, 1998 and the period from
January 1, 1999 to April 11, 1999 has been derived from the unaudited condensed
combined financial statements of the Group included elsewhere in this
prospectus. The historical financial data as of June 30, 1999 and for the period
from April 12, 1999 to June 30, 1999 has been derived from the unaudited
consolidated financial statements of PCA included elsewhere in this prospectus.
The unaudited pro forma financial data for the six months ended June 30, 1999
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," the historical combined financial statements of the
Group and the related notes, and the historical consolidated financial
statements of PCA and the related notes contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROUP
GROUP PCA ----------------------
--------------------------------------------------------------- ----------- SIX JAN. 1,
PRO FORMA MONTHS 1999
YEAR ENDED DECEMBER 31, YEAR ENDED ENDED THROUGH
--------------------------------------------------------------- DEC. 31, JUNE 30, APRIL 11,
1994 1995 1996 1997 1998 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- --------- -----------
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 $ 777,042 $ 433,182
Cost of sales........... (1,202,996) (1,328,838) (1,337,410) (1,242,014) (1,289,644) (1,270,184) (629,281) (367,483)
----------- ----------- ----------- ----------- ----------- ----------- --------- -----------
Gross profit.......... 238,677 515,870 244,812 169,391 281,375 300,835 147,761 65,699
Selling and
administrative
expenses.............. (71,312) (87,644) (95,283) (102,891) (108,944) (102,568) (52,432) (30,584)
Corporate overhead
allocation (3)........ (34,678) (38,597) (50,461) (61,338) (63,114) (63,114) (32,373) (14,890)
Restructuring/impairment
charge (4)............ - - - - (14,385) (14,385) - (230,112)
Other income
(expense)............. (4,701) (16,915) 56,243 44,681 26,818 41,592 16,015 (2,207)
----------- ----------- ----------- ----------- ----------- ----------- --------- -----------
Income (loss) before
interest, income
taxes and
extraordinary item... 127,986 372,714 155,311 49,843 121,750 162,360 78,971 (212,094)
Interest expense, net... (740) (1,485) (5,129) (3,739) (2,782) (159,476) (1,681) (221)
----------- ----------- ----------- ----------- ----------- ----------- --------- -----------
Income (loss) before
income taxes and
extraordinary item.... 127,246 371,229 150,182 46,104 118,968 2,884 77,290 (212,315)
Income tax expense...... (50,759) (147,108) (59,816) (18,714) (47,529) (516) (30,822) 83,716
----------- ----------- ----------- ----------- ----------- ----------- --------- -----------
Income (loss) before
extraordinary item... 76,487 224,121 90,366 27,390 71,439 2,368 46,468 (128,599)
Extraordinary item...... - - - - - - - (6,327)
----------- ----------- ----------- ----------- ----------- ----------- --------- -----------
Net income (loss)..... $ 76,487 $ 224,121 $ 90,366 $ 27,390 $ 71,439 $ 2,368 $ 46,468 $ (134,926)
----------- ----------- ----------- ----------- ----------- ----------- --------- -----------
----------- ----------- ----------- ----------- ----------- ----------- --------- -----------
<CAPTION>
<S> <C> <C>
PCA(2)
----------------------
APRIL 12, PRO FORMA
1999 SIX MONTHS
THROUGH ENDED
JUNE 30, JUNE 30,
1999 1999
--------- -----------
DOLLARS IN THOUSANDS
STATEMENT OF INCOME
DATA:
Net sales............... $ 373,035 $ 806,217
Cost of sales........... (297,055) (660,410)
--------- -----------
Gross profit.......... 75,980 145,807
Selling and
administrative
expenses.............. (25,136) (54,316)
Corporate overhead
allocation (3)........ (5,188) (20,078)
Restructuring/impairment
charge (4)............ - -
Other income
(expense)............. (266) (104)
--------- -----------
Income (loss) before
interest, income
taxes and
extraordinary item... 45,390 71,309
Interest expense, net... (34,079) (78,195)
--------- -----------
Income (loss) before
income taxes and
extraordinary item.... 11,311 (6,886)
Income tax expense...... (4,545) 2,541
--------- -----------
Income (loss) before
extraordinary item... 6,766 (4,345)
Extraordinary item...... - -
--------- -----------
Net income (loss)..... $ 6,766 $ (4,345)
--------- -----------
--------- -----------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
GROUP
GROUP PCA ----------------------
--------------------------------------------------------------- ----------- SIX JAN. 1,
PRO FORMA MONTHS 1999
YEAR ENDED DECEMBER 31, YEAR ENDED ENDED THROUGH
--------------------------------------------------------------- DEC. 31, JUNE 30, APRIL 11,
1994 1995 1996 1997 1998 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (1).............. $ 178,148 $ 435,620 $ 234,041 $ 137,595 $ 218,700 $ 310,901 $ 126,356 $ (181,189)
Rent expense on
operating leases
bought out as part of
the transactions
(1)................... 93,600 94,900 94,700 73,900 72,500 -- 35,946 17,746
Net cash provided by
operating
activities............ 107,642 336,599 55,857 107,213 195,401 170,581 103,803 153,649
Net cash used for
investing
activities............ (113,119) (371,068) (74,232) (111,885) (177,733) (93,535) (51,841) (1,121,145)
Net cash (used for)
provided by financing
activities............ 6,112 36,454 16,767 3,646 (17,668) (22,030) (51,962) 967,496
Cash interest expense
(5)................... - - - - - 151,515 - -
Ratio of earnings to
fixed charges (6)..... 4.3x 10.3x 4.4x 2.3x 4.4x 1.0x 5.3x 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 5.3x N/A
Capital expenditures.... $ 110,853 $ 252,745 $ 168,642 $ 110,186 $ 103,429 $ 103,429 $ 46,557 $ 1,128,255
<CAPTION>
PCA(2)
----------------------
APRIL 12, PRO FORMA
1999 SIX MONTHS
THROUGH ENDED
JUNE 30, JUNE 30,
1999 1999
--------- -----------
<S> <C> <C>
OTHER DATA:
EBITDA (1).............. $ 79,042 $ 149,117
Rent expense on
operating leases
bought out as part of
the transactions
(1)................... -- --
Net cash provided by
operating
activities............ 147,630 154,627
Net cash used for
investing
activities............ (26,053) (45,794)
Net cash (used for)
provided by financing
activities............ (74,723) (83,365)
Cash interest expense
(5)................... - -
Ratio of earnings to
fixed charges (6)..... 1.3x N/A
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (6)......... 1.3x N/A
Capital expenditures.... $ 23,419 $ 46,141
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (7).........................................................................................................
Total assets................................................................................................................
Total long-term obligations (8).............................................................................................
Total stockholders' equity..................................................................................................
<CAPTION>
JUNE 30,
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (7)........................
$ 152,646
Total assets...............................
2,428,619
Total long-term obligations (8)............
1,781,968
Total stockholders' equity.................
341,762
</TABLE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
1) PCA calculates "EBITDA" as income before interest, income taxes and
extraordinary items, as reported, plus depreciation, depletion and
amortization as reported in the statement of cash flows, as presented in the
following table:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PCA(2)
-----------------
PCA GROUP PRO
-------- ---------------- APRIL FORMA
GROUP PRO SIX JAN. 1, 12, SIX
------------------------------------------------ FORMA MONTHS 1999 1999 MONTHS
YEAR ENDED THROUGH THROUGH ENDED
YEAR ENDED DECEMBER 31, ENDED JUNE APRIL JUNE JUNE
------------------------------------------------ DEC. 31, 30, 11, 30, 30,
1994 1995 1996 1997 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- ------- ------- ------- -------
DOLLARS IN THOUSANDS
Income (loss) before
interest, income taxes
and extraordinary
item................... $127,986 $372,714 $155,311 $ 49,843 $121,750 $162,360 $78,971 $(212,094) $45,390 $71,309
Add: Depreciation,
depletion and
amortization....... 50,162 62,906 78,730 87,752 96,950 148,541 47,385 30,905 33,652 77,808
-------- -------- -------- -------- -------- -------- ------- ------- ------- -------
EBITDA................... $178,148 $435,620 $234,041 $137,595 $218,700 $310,901 $126,356 $(181,189) $79,042 $149,117
-------- -------- -------- -------- -------- -------- ------- ------- ------- -------
-------- -------- -------- -------- -------- -------- ------- ------- ------- -------
</TABLE>
For the historical periods, income (loss) before interest, income taxes and
extraordinary item, includes charges for rent expense on operating leases
bought out as part of the transactions. As a result of the lease buy out,
PCA will no longer incur this rent expense, but will record non-cash charges
for depreciation and
19
<PAGE>
depletion related to these assets, which are now owned rather than leased.
This depreciation/depletion expense will be similar, but not identical, to
the amount of rent expense. On a pro forma basis for 1998, the incremental
depreciation/depletion was $7,200 less than the historical rent expense,
resulting in a net increase of $4,284 to pro forma 1998 net income. To
better understand historical EBITDA in relation to pro forma EBITDA for the
periods presented, we believe it may be useful to add back this rent expense
to reported EBITDA for the historical periods.
PCA's EBITDA is included in this prospectus because it is a financial
measure used by PCA's management to assess PCA's operating results and
liquidity, and because several of the indebtedness covenants in PCA's senior
credit facility and in the notes indenture are based upon a calculation that
utilizes EBITDA.
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 overall profitability or liquidity. In addition, EBITDA does not
represent the cash available to investors because capital expenditures, debt
service and income taxes are not deducted when calculating EBITDA.
PCA understands that 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.
In analyzing 1998 pro forma EBITDA for liquidity purposes, PCA also believes
that the following additional adjustments should be considered by investors:
<TABLE>
<S> <C>
Pro forma EBITDA for 1998........................................................... $ 310,901
Adjustments:
Other income (a).................................................................. (41,592)
Non-recurring restructuring charge (b)............................................ 14,385
Reduction in corporate overhead (c)............................................... 32,954
Cost savings from restructuring (d)............................................... 10,800
---------
Adjusted pro forma EBITDA for 1998.................................................. $ 327,448
---------
---------
</TABLE>
a) Other income for 1998 consists substantially of nonrecurring items, such
as gains on the sale of non-strategic woodlands and a recycling joint
venture investment, that PCA believes are not relevant in analyzing
recurring EBITDA.
b) During the fourth quarter of 1998, the Group adopted a restructuring
plan to eliminate approximately 100 personnel and close down four
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.
c) As part of Tenneco, the Group was allocated $63,114 of Tenneco 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
following the closing of the transactions. 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 corporate
functions such as in information technology, human resources, finance and
legal, and (2) non-payroll costs incurred by these departments. Where
applicable, the estimates consider the terms of transition service
arrangements between PCA and TPI.
d) The restructuring referred to in Note (b) 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.
20
<PAGE>
2) There was no activity for PCA from January 25, 1999, its date of inception,
through April 11, 1999.
3) 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.
4) 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 audited combined
financial statements and Note 5 to PCA's unaudited consolidated financial
statements.
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 term loans.
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 period from January 1, 1999 to April 11, 1999,
earnings were insufficient to cover fixed charges by $212,315. On a pro
forma basis for the six months ended June 30, 1999, earnings were
insufficient to cover (a) fixed charges by $6,886 and (b) fixed charges and
preferred stock dividends by $13,073. On a pro forma basis for the year
ended December 31, 1998, earnings were insufficient to cover fixed charges
and preferred stock dividends by $17,741.
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.
21
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO MAKE AN
INVESTMENT IN THE EXCHANGE NOTES OR THE NEW PREFERRED STOCK.
INDUSTRY RISKS
INDUSTRY EARNINGS CYCLICALITY-PERIODIC IMBALANCES OF SUPPLY AND DEMAND AFFECT
THE PRICE AT WHICH WE CAN SELL CONTAINERBOARD AND OUR EARNINGS.
The price at which we can sell containerboard could fall if industry oversupply
conditions return or economic conditions deteriorate. This could significantly
reduce our cash flow and could have a material adverse effect on our results of
operations and our financial condition.
Historically, prices for containerboard have reflected changes in containerboard
supply and demand. Changes in containerboard supply result from capacity
additions or reductions, as well as changes in inventory levels. Containerboard
demand is dependent upon both domestic demand for corrugated packaging products
and the demand for linerboard exports, which represent about 20% of total U.S.
containerboard shipments, according to the Pulp & Paper 1999 North American Fact
Book. Domestic demand for corrugated packaging is the more stable factor. It
generally corresponds to changes in the rate of growth in the U.S. economy.
From 1994 to 1996, capacity additions outpaced both domestic and export demand
for containerboard. This excess supply led to lower industry operating rates and
declining prices from late-1995 until mid-1997. Although prices generally
improved from mid-1997 through mid-1998, the containerboard market was still
adversely affected by weaker containerboard exports. This weakness was most
apparent in shipments to Asia during the second half of 1998.
The supply/demand balance has improved in recent months and the average price of
linerboard has risen approximately 25% since January 1999. However, industry
oversupply conditions could return or economic conditions could deteriorate in
the future.
PCA produced approximately 2.1 million tons of containerboard in 1998. If the
price per ton of containerboard sold by PCA decreased by $10 per ton, PCA's
operating income would have decreased by about $21 million.
COMPETITION-THE INTENSITY OF COMPETITION IN OUR INDUSTRY COMBINED WITH THE
COMMODITY NATURE OF CONTAINERBOARD COULD RESULT IN DOWNWARD PRESSURE ON PRICING,
WHICH COULD HAVE AN ADVERSE EFFECT ON OUR OPERATING RESULTS.
PCA operates in an industry that is highly competitive, with no single
containerboard producer having a dominant position. In addition, containerboard
is generally considered a commodity product. Both of these factors increase
competition, which can lead to lower prices.
PCA produced approximately 2.1 million tons of containerboard in 1998. If the
price per ton of containerboard sold by PCA decreased by $10 per ton, PCA's
operating income would have decreased by about $21 million.
We can not assure you that containerboard pricing will not decline in the
future.
CLUSTER RULE COMPLIANCE--PCA WILL INCUR INCREASED CAPITAL COSTS TO MEET CLUSTER
RULE REQUIREMENTS.
We currently expect to spend approximately $60 million between 1999 and 2005 to
achieve compliance with new Cluster Rule requirements. Our costs to achieve
Cluster Rule compliance could be significantly higher than our estimate.
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 limit our
allowable discharges of air and water pollutants. As a result, we and our
competitors are required to
22
<PAGE>
incur costs to ensure compliance with these new rules During 1997 and 1998, we
spent approximately $3 million on Cluster rule compliance. We currently estimate
that total capital costs for Cluster Rule compliance will be $13 million for
1999 and $18 million for 2000.
COMPANY RISKS
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 incurred a significant amount of indebtedness,
and we have the right to incur additional indebtedness. The following chart
shows important credit statistics as of April 12, 1999:
<TABLE>
<CAPTION>
------------
AT APRIL 12,
1999
------------
<S> <C>
DOLLARS IN MILLIONS
Total indebtedness.............................................................. $ 1,769.0
Preferred stock................................................................. $ 100.0
Stockholders' equity............................................................ $ 325.8
</TABLE>
For the period from January 1, 1999 to April 11, 1999, earnings were
insufficient to cover fixed charges and combined fixed charges and preferred
stock dividends by $212.3 million.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- prevent us from satisfying 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 by limiting our flexibility in planning for and reacting to
changes in our business and industry;
- 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 ability to make strategic acquisitions or take other corporate
action;
- place us at a competitive disadvantage compared to our competitors that
have proportionately less debt; and
- limit our ability to borrow additional funds and increase the cost of
funds that we can borrow.
ADDITIONAL BORROWINGS AVAILABLE-WE AND OUR SUBSIDIARIES MAY BE ABLE TO INCUR
SUBSTANTIALLY MORE DEBT, WHICH COULD INCREASE THE RISKS CREATED BY OUR
SUBSTANTIAL INDEBTEDNESS.
We and our subsidiaries may be able to incur substantial additional indebtedness
in the future. For example, 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 or our subsidiaries' current debt levels, the related risks
that we and they now face could intensify.
ABILITY TO SERVICE DEBT AND NEW PREFERRED STOCK-WE MAY NOT BE ABLE TO GENERATE
ENOUGH CASH 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.
Our ability to make payments on the exchange notes and the new preferred stock
and, if issued, the subordinated exchange debentures will depend on our ability
to generate cash in the future. This is dependent in part on general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.
23
<PAGE>
We cannot assure you that our business will generate sufficient cash flow from
operations or other sources in amounts sufficient to enable us to pay our
indebtedness, pay dividends on the new preferred stock or redeem the new
preferred stock. If we are unable to generate sufficient cash flow, we may need
to refinance all or a portion of our indebtedness and redeem the new preferred
stock on or before maturity. However, we cannot assure you that we will be able
to redeem the new preferred stock or refinance any of our indebtedness on
commercially reasonable terms or at all.
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 SIGNIFICANT RESPECTS.
Our senior credit facility, notes indenture and the certificate of designation
impose restrictions on us that could increase our vulnerability to general
adverse economic and industry conditions by limiting our flexibility in planning
for and reacting to changes in our business and industry. Specifically, these
restrictions limit our ability, among other things, to:
- incur additional indebtedness;
- pay dividends and make distributions;
- issue stock of subsidiaries;
- make investments;
- repurchase stock;
- create liens;
- enter into transactions with affiliates;
- enter into sale and leaseback transactions;
- make capital expenditures;
- merge or consolidate our company; and
- transfer and sell assets.
COST OF RAW MATERIALS-AN UNEXPECTED INCREASE IN THE COST OF WOOD FIBER COULD
HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
We may not have continued access to sufficient quantities of wood fiber at
current prices. Wood fiber is the largest component we use in producing
containerboard. We presently satisfy about 20% of our fiber needs with wood cut
from company-owned or leased timberland. We purchase wood fiber from others to
meet about 60% of our fiber requirements. The remaining 20% of our fiber needs
are met with recycled fiber. We are more dependent on purchased wood fiber than
some of our competitors. As a result, we may be more vulnerable than some
competitors to increases in the market price for wood fiber.
In addition, we are considering the possible sale of a significant portion of
our timberland. If we cannot negotiate a wood fiber purchase agreement with the
potential buyer or locate other sources of wood fiber at costs comparable to our
current levels, our vulnerability to market price increases will increase. PCA
spends approximately $150 million annually for purchased wood fiber. If the
price of all wood fiber purchased increased by 10%, our annual fiber cost would
increase by about $15 million.
DEPENDENCE UPON KEY PERSONNEL-A LOSS OF KEY PERSONNEL COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
Our success is highly dependent on the skills, experience and efforts of Paul T.
Stecko, our Chairman of the Board and Chief Executive Officer, William J.
Sweeney, our Executive Vice President-Corrugated Products and Mark W. Kowlzan,
our Vice President-Containerboard/Wood Products. These executives are not bound
by employment contracts. The loss of services of one or more of these
individuals 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
24
<PAGE>
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 key
personnel could have a material adverse effect on our business, financial
condition and results of operations.
ENVIRONMENTAL MATTERS-PCA MAY INCUR SIGNIFICANT ENVIRONMENTAL REMEDIATION COSTS
WITH RESPECT TO BOTH PAST AND FUTURE OPERATIONS.
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. Although we
have established reserves to provide for future environmental liability, these
reserves may not be adequate.
Because liability for remediation costs under environmental laws is strict,
meaning that liability is imposed without fault, joint and several, meaning that
liability is imposed on each party without regard to contribution, and
retroactive, we could receive notifications of cleanup liability in the future
and this liability could be material. From January 1994 through June 1999,
remediation costs at our mills and converting plants totaled about $2.3 million.
As of June 30, 1999, we maintained a reserve of $83,000 for environmental
remediation liability as well as a general overall environmental reserve of
$3,369,000, which includes funds relating to onsite landfills and surface
impoundments as well as on-going and anticipated remedial projects. We currently
estimate that total capital costs for environmental matters, including Cluster
Rule compliance, will be $16 million for 1999 and $22 million for 2000.
We could also incur environmental liabilities as a result of claims by third
parties for civil damages, including liability for personal injury or property
damage, arising from releases of hazardous substances or contamination on
properties on which we now conduct or formerly conducted operations.
TECHNOLOGY, FINANCIAL AND ADMINISTRATIVE REQUIREMENTS-WE MAY INCUR INCREASED
COSTS TO OBTAIN NECESSARY TECHNOLOGICAL, FINANCIAL AND ADMINISTRATIVE SERVICES
AFTER OUR TRANSITION AGREEMENT WITH TPI EXPIRES.
Before the transactions, the Group operated as a division of TPI, which is a
subsidiary of Tenneco. Tenneco provided the Group with treasury, tax and
selected administrative, financial reporting and information system services. As
part of the sale of the Group, we negotiated a Technology, Financial and
Administrative Transition Services Agreement with TPI for TPI and its affiliates
to provide these services to PCA for a period of twelve months. PCA has an
option to extend this agreement for an additional six months.
To continue to operate, we will need to extend the agreement with TPI, locate
another service provider or develop the capability to provide these services
internally. We may not be able to obtain these services at comparable costs
after expiration of the existing agreement.
This agreement covers storage and maintenance services for management and
operating data, telecommunications and data communications support services,
technical computer assistance for personal and mainframe computer users, and
disaster planning and recovery services, payroll and related functions, periodic
financial reporting, bank account reconciliation, fixed asset accounting, and
treasury and cash management administration. This agreement establishes fixed
hourly rates for providing these services. The rates charged reflect TPI's
actual costs, including TPI's overhead, for providing these services, but do not
reflect any Tenneco corporate overhead. There is a cost cap to ensure that TPI
uses its resources efficiently and we have the right to cancel any services with
90-days notification.
Under the existing agreement, we will pay TPI up to $13.0 million annually. If
our cost to obtain these services increases by 10%, our annual costs for these
services would increase by $1.3 million.
25
<PAGE>
UNCERTAINTY OF FUTURE BUSINESS WITH TPI AND ITS AFFILIATE, TENNECO AUTOMOTIVE-IF
WE ARE UNABLE TO RENEW OUR PURCHASE/SUPPLY AGREEMENTS WITH TPI AND TENNECO
AUTOMOTIVE THERE MAY BE AN ADVERSE EFFECT ON OUR EARNINGS.
We have agreed to supply TPI and Tenneco Automotive, Inc. with their
containerboard and corrugated packaging requirements for five years, through
April 11, 2004. The agreements cover all containerboard and corrugated products
that were purchased by TPI and its affiliates during the 12 months before April
12, 1999. We may not be able to extend these agreements beyond five years, and
the loss of TPI and Tenneco Automotive as customers could have an adverse impact
on our earnings if we are unable to replace that business at comparable profit
levels.
As a result of these agreements, TPI and its affiliates are our largest customer
for all products, which includes both linerboard and corrugated products, and
our largest customer for corrugated products only. For the six months ended June
30, 1999, TPI and its affiliates accounted for $43.7 million, or 5.4%, of our
sales of all products and $37.8 million, or 5.6%, of our sales of corrugated
products.
Prices under these agreements were established based on prices charged to these
customers before the closing of the transactions and will be adjusted if the
published market price for containerboard changes. In addition, we may change
prices annually for changes in the actual cost of items other than
containerboard. We believe that the pricing, terms and conditions for these
agreements are competitive by market standards for customers with comparable
volume and product specifications.
If PCA had to replace all of its business with TPI and its affiliates with new
business which was only 75% as profitable, PCA's annual operating income would
decrease by approximately $2 million.
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 June 30, 1999, PCA Holdings and TPI beneficially owned 53.2% and 43.5%,
respectively, of the outstanding common stock of PCA. PCA Holdings and TPI have
entered into a stockholders agreement governing the composition of our board of
directors. PCA Holdings has the right to designate three directors, TPI has the
right to designate two directors and the holders of PCA's junior preferred
stock, a majority of which is held by PCA Holdings, have the right to designate
one director. 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. We cannot
assure you 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.
YEAR 2000 ISSUE-OUR FAILURE, OR THE FAILURE OF OUR SUPPLIERS OR CUSTOMERS, TO
ADDRESS INFORMATION TECHNOLOGY ISSUES RELATED TO THE YEAR 2000 COULD ADVERSELY
AFFECT OUR OPERATIONS.
PCA has substantially completed an inventory of its information technology and
non-information technology systems to identify and assess Year 2000 issues and
is in the process of remediating or replacing any non-compliant systems. As of
June 30, 1999, 75% of our information technology systems and 100% of our
non-information technology systems were Year 2000 compliant. We have sent Year
2000 compliance surveys to our significant suppliers and other vendors to
determine whether they will be able to resolve in a timely manner any Year 2000
problems that may affect PCA. As a result of our initial survey, we identified
13 suppliers who did not satisfy our Year 2000 compliance guidelines. We have
identified alternative sources of supply and alternative manufacturing locations
as contingency plans to address any failure of supply associated with these
suppliers. We have not attempted to evaluate the Year 2000 compliance of our
customers because we do not think it is practicable to do so.
26
<PAGE>
The potential effect if we or third parties with whom we do business are unable
to timely resolve Year 2000 issues is not determinable but we believe that our
most reasonably likely Year 2000 worst case scenario would involve:
- short-term down time for some of our equipment as a result of process
control device malfunctions at our mills and corrugated products plants;
- temporary disruption of deliveries of supplies and products due to truck
shortages;
- a lack of supplies from the 13 vendors we have identified as not being
sufficiently prepared for the Year 2000; and
- possible errors and delays, as well as increased labor costs, associated
with manually taking orders, scheduling, production reporting and
processing billing and shipping information if our customers experience
system failures.
Based on current estimates, we expect to incur costs of approximately $5 million
to address Year 2000 issues. As of June 30, 1999, we had paid $3.5 million of
those costs.
INVESTMENT RISKS
SUBORDINATION OF EXCHANGE NOTES-YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE
NOTES IS JUNIOR TO ALL OUR EXISTING AND FUTURE SENIOR INDEBTEDNESS AND ALL OF
THE SUBSIDIARY GUARANTORS' SENIOR INDEBTEDNESS SO IT IS POSSIBLE THAT YOU MAY
RECEIVE NO COMPENSATION OF ANY KIND WITH RESPECT TO THE EXCHANGE NOTES IF THERE
IS A BANKRUPTCY, LIQUIDATION OR SIMILAR PROCEEDING AFFECTING PCA.
We may not have sufficient funds to satisfy our obligations with respect to the
exchange notes. The exchange notes and the subsidiary guarantees rank behind all
of our and our subsidiary guarantors' existing indebtedness and future
borrowings, other than trade payables and any future indebtedness that expressly
provides otherwise. Consequently, in a bankruptcy, liquidation or similar
proceeding, we will have to pay the holders of debt senior to the exchange notes
in full before we can make any payment to you with respect to the exchange
notes. Consequently, you may receive ratably less than holders of senior debt.
As of June 30, 1999, we had $1.14 billion of indebtedness that ranked senior to
the exchange notes.
As a holder of the exchange notes, you will typically have equal rights to your
ratable share, along with all of PCA's suppliers and vendors to which PCA owes
money, commonly referred to as trade creditors, and other holders of debt of the
same class as the exchange notes, of any assets remaining after we have paid off
all of the debt senior to the exchange notes. However, the notes indenture
requires that amounts otherwise payable to holders of exchange notes in a
bankruptcy, liquidation or similar proceeding be paid to holders of debt senior
to the exchange notes instead. Consequently, holders of the exchange notes may
receive less, ratably, than holders of trade payables or other debt of the same
class in any such proceeding.
SUBORDINATION OF PREFERRED STOCK-IF WE ARE INVOLVED IN A BANKRUPTCY, LIQUIDATION
OR SIMILAR PROCEEDING, YOU WILL NOT RECEIVE ANY PAYMENT WITH RESPECT TO THE
PREFERRED STOCK UNTIL ALL OF OUR OBLIGATIONS THAT RANK SENIOR TO THE PREFERRED
STOCK ARE PAID IN FULL.
We may not have sufficient funds to satisfy our obligations with respect to the
new preferred stock. 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 class of preferred stock which by
its term is on parity with or junior to the new preferred stock. Consequently,
in a bankruptcy, liquidation or similar proceeding, we will have to pay the
holders of our debt, including the exchange notes, and all of our other
obligations, including trade payables, senior to the preferred stock, in full
before we can make any payment to you with respect to the new preferred stock.
As of June 30, 1999, we had $1.69 billion of indebtedness that ranked senior to
the preferred stock.
27
<PAGE>
SUBORDINATION OF SUBORDINATED EXCHANGE DEBENTURES-IF WE ISSUE THE SUBORDINATED
EXCHANGE DEBENTURES AND WE ARE INVOLVED IN A BANKRUPTCY, LIQUIDATION OR SIMILAR
PROCEEDING, YOU WILL NOT RECEIVE ANY PAYMENT WITH RESPECT TO THE SUBORDINATED
EXCHANGE DEBENTURES UNTIL ALL OF THE DEBT THAT RANKS SENIOR TO THE SUBORDINATED
EXCHANGE DEBENTURES IS PAID IN FULL.
If we issue the subordinated exchange debentures, we may not have sufficient
funds to satisfy our obligations with respect to them. If we issue the
subordinated exchange debentures they will rank behind all of our existing and
future indebtedness that is senior to the subordinated exchange debentures,
including the exchange notes. Consequently, in a bankruptcy or similar
proceeding, we will have to pay the holders of all debt senior to the
subordinated exchange debentures, including holders of the exchange notes, in
full before we can make any payment to you with respect to the subordinated
exchange debentures. As of June 30, 1999, we had $1.69 billion of indebtedness
that would have ranked senior to the subordinated exchange debentures if they
had been issued as of that date.
As a holder of the subordinated exchange debentures, you will typically have
equal rights to your ratable share, along with all other holders of debt of the
same class as the subordinated exchange debentures, of any assets remaining
after we have paid off all of the debt senior to the subordinated exchange
debentures. However, the notes indenture requires that amounts otherwise payable
to holders of subordinated exchange debentures in a bankruptcy or similar
proceeding be paid to holders of debt senior to the subordinated exchange
debentures instead. Consequently, holders of the subordinated exchange
debentures may receive less, ratably, than holders of other debt of the same
class in any such proceeding.
DIVIDEND, REDEMPTION AND REPURCHASE RESTRICTIONS-WE DO NOT PRESENTLY HAVE THE
ABILITY TO PAY CASH DIVIDENDS ON OR REDEEM THE NEW PREFERRED STOCK AND, IF
ISSUED, WE WOULD NOT PRESENTLY HAVE THE ABILITY TO REPURCHASE THE SUBORDINATED
EXCHANGE DEBENTURES FOR CASH.
The senior credit facility prohibits the payment of cash dividends on the new
preferred stock until April 12, 2004. After April 12, 2004, the senior credit
facility permits us to pay cash dividends on the new preferred stock only if:
- there is not then, and after paying the cash dividend there will not be, a
default or event of default under the senior credit facility, and
- at the time of the proposed dividend, and after giving effect to the
proposed dividend, our pro forma consolidated interest coverage ratio for
the twelve months ending on the last day of the fiscal quarter in which
the dividend is to be paid is not less than:
- 2.25 to 1.0, if the proposed dividend is to be paid in the fiscal
quarter ended June 30, 2004, September 30, 2004 or December 31, 2004,
or
- 2.5 to 1.0, if the proposed dividend is to be paid in any subsequent
fiscal quarter.
Our consolidated interest coverage ratio for any period is the ratio of our
consolidated EBITDA to our consolidated interest expense, including cash
dividends on preferred stock, for that period. The senior credit facility also
currently prohibits us from redeeming, repurchasing or otherwise acquiring any
new preferred stock or subordinated exchange debentures for cash.
In addition, the notes indenture restricts our ability to pay cash dividends on
the new preferred stock, and to 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 dividend.
28
<PAGE>
We may not be able to generate a surplus or net profits after making required
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.
DEFAULT ON SENIOR CREDIT FACILITY-IF WE ARE UNABLE TO SATISFY OUR OBLIGATIONS
UNDER THE SENIOR CREDIT FACILITY, WE MAY NOT BE ABLE TO SATISFY OUR OBLIGATIONS
WITH RESPECT TO THE EXCHANGE NOTES, THE NEW PREFERRED STOCK OR, IF ISSUED, THE
SUBORDINATED EXCHANGE DEBENTURES.
The senior credit facility requires us to maintain minimum interest coverage,
minimum net worth and maximum leverage ratios. 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 the outstanding indebtedness
under the senior credit facility. An acceleration would also constitute an event
of default under the notes indenture and 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.
If there is an event of default and we are unable to refinance the senior credit
facility or obtain alternative financing, we may not be able to fulfill our
obligations with respect to the exchange notes, the new preferred stock or the
subordinated exchange debentures.
For example, under the notes indenture and the senior subordinated notes
indenture all payments on the exchange notes and the subordinated exchange
debentures (1) will be prohibited, or blocked, if there is a payment default on
senior debt and (2) may be prohibited for up to 179 of 360 consecutive days if
there are non-payment defaults on senior debt. During any period when payments
on the exchange notes are prohibited, interest will accrue on the prohibited
payment.
FINANCING CHANGE OF CONTROL OFFER-WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS
NECESSARY TO FINANCE THE REPURCHASE AND REDEMPTION OFFERS REQUIRED BY THE NOTES
INDENTURE, THE CERTIFICATE OF DESIGNATION AND THE SUBORDINATED EXCHANGE
DEBENTURES INDENTURE.
If, at any time after we complete the exchange offer, we undergo a change of
control, we will be required to offer to repurchase all outstanding exchange
notes and to redeem the new preferred stock or to repurchase all outstanding
subordinated exchange debentures. However, it is possible that (1) we will not
have sufficient funds at the time of a change of control to make the required
repurchases and redemption, or (2) restrictions in the senior credit facility
will not allow the repurchases and redemption. A change of control under the
indentures and the certificate of designation will generally take place if:
- PCA and its subsidiaries sell all or substantially all of their properties
and assets,
- there is a liquidation or dissolution of PCA, other than a sale or
liquidation of timberland,
- any person, other than Madison Dearborn and certain of its related parties
or TPI and its affiliates, becomes a beneficial owner of more than 50% of
the voting stock of PCA, measured by voting power rather than number of
shares, or
- PCA's board of directors no longer consists of a majority of directors who
were either (1) directors of PCA as of the closing date of the
transactions, or (2) elected or appointed in accordance with the terms of
the stockholders agreement or by a majority of the directors who were
directors of PCA as of the closing date of the transactions.
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
29
<PAGE>
guarantees could be subordinated to all other debts of PCA or any subsidiary
guarantor if, among other things, PCA or the 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 the indebtedness; and
- was insolvent or rendered insolvent by reason of the incurrence; or
- was engaged in a business or transaction for which PCA's or the 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 the debts as they mature.
In addition, any payment by us or a subsidiary guarantor with respect to the
exchange notes or a subsidiary guarantee could be voided and required to be
returned to us or the subsidiary guarantor, or to a fund for the benefit of the
creditors of us or the 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
- 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 the 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 MAY NOT BE ABLE TO RESELL YOUR EXCHANGE
NOTES, PREFERRED STOCK OR SUBORDINATED EXCHANGE DEBENTURES, OR MAY HAVE TO SELL
THEM AT A DISCOUNT IF AN ACTIVE TRADING MARKET DOES NOT 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, a liquid market for the exchange notes or the new preferred
stock may not develop or be maintained. As a result, you may not be able to
resell your exchange notes, preferred stock or subordinated exchange debentures,
or may have to sell them at a discount.
The exchange notes and the new preferred stock are expected to be eligible for
trading by qualified buyers in the PORTAL market. The PORTAL market acts as a
facilitator of SEC Rule 144A and provides regulatory oversight for the clearance
and settlement of domestic and foreign debt and equity securities through
designated clearing and depository organizations. 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
30
<PAGE>
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.
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.
Outstanding notes and preferred stock that are not exchanged for the registered
exchange notes and new preferred stock in 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 under
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 the exemption is available.
31
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements about us that are subject to
risks and uncertainties. Forward-looking statements include information
concerning our future financial condition and business strategy. Statements that
contain words such as "believes," "expects," "anticipates," "intends,"
"estimated" or similar expressions are forward-looking statements. 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, 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."
32
<PAGE>
THE TRANSACTIONS
In July 1998, Tenneco announced its intent to pursue strategic alternatives
which could result in the separation of Tenneco's automotive, specialty
packaging and containerboard and corrugated packaging products businesses.
Tenneco analyzed various alternatives for the separation of TPI's containerboard
and corrugated packaging products business, which we often refer to in this
prospectus as the Group, including a sale, merger, spin-off or initial public
offering. TPI entered into negotiations with Madison Dearborn for the sale of
the Group in January 1999. Madison Dearborn, a private equity investment firm
that invests in this sector, believed that the Group represented an attractive
investment opportunity.
On January 25, 1999, TPI entered into a contribution agreement to sell the Group
to PCA, an entity formed by Madison Dearborn in January 1999, for $2.2 billion,
consisting of $246.5 million in cash, the assumption of $1.76 billion of debt
incurred by TPI immediately prior to the contribution, and a 45% common equity
interest in PCA valued at $193.5 million. Under the terms of the contribution
agreement, PCA Holdings, an entity organized and controlled by Madison Dearborn,
acquired the remaining 55% common equity interest in PCA for $236.5 million in
cash, which was used to finance in part the transactions.
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
and (5) an equity investment by TPI valued at $193.5 million.
The senior credit facility was entered into to finance in part the transactions
and to pay related fees and expenses and to provide future borrowings to PCA for
general corporate purposes, including working capital. The senior credit
facility consists of three term loan facilities in an original aggregate
principal amount of $1.21 billion and a revolving credit facility with up to
$250 million in availability. PCA's total borrowings under the senior credit
facility as of June 30, 1999 consisted of $1.135 billion of term loans. No
amounts were outstanding under the revolving credit facility as of that date.
The following table sets forth the 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
Term Loan A................................................. 460,000
Term Loan B................................................. 375,000
Term Loan C................................................. 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 after the closing of the transactions, we had $241 million in
additional availability under our new revolving credit facility. As of June
30, 1999, we had $250 million in availability and no borrowings outstanding
under the revolving credit facility. If we had, the interest rate would have
been 7.75% per annum on any amounts borrowed.
(b) The acquisition consideration does not include the impact of a post-closing
price adjustment based on changes to the net working capital of the
containerboard business from September 30, 1998 through the closing. On
August 25, 1999, PCA Holdings and TPI agreed that the acquisition
consideration should be reduced as a result of this adjustment by an amount
equal to $20 million plus interest through the date of
33
<PAGE>
payment by TPI. PCA recorded $11.9 million of this amount on the June 30,
1999 balance sheet, representing the amount that was previously agreed to,
and intends to record the remaining amount in August 1999.
(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.
Before the closing of the transactions in April 1999, it was agreed that after
the closing, members of PCA's management would have the right to acquire PCA
common stock at the same price per share being paid by PCA Holdings in the
transactions, and receive options with an exercise price equal to the amount
being paid by PCA Holdings for common stock in the transactions. After the
closing of the transactions, PCA offered to 125 members of management of PCA
shares of common stock of PCA at the same price per share paid by PCA Holdings.
These employees included five executive officers, 11 senior managers and 109
facility and key managers. Of these employees, 113 elected to purchase common
stock in the offering. PCA sold a total of 14,240 shares of common stock in the
management offering. The proceeds were used to redeem 7,832 shares from PCA
Holdings and 6,408 shares from TPI. PCA also issued to management options to
purchase shares representing 6.5% of the common stock of PCA which, if
exercised, would result in management owning in the aggregate approximately 9.6%
of PCA's common stock.
Before 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 800,000 acres of timberland, has lease or harvest rights
to 150,000 acres of timberland and owns all of its mills.
34
<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 $96.5 million from the sale of the outstanding
preferred stock. We used the net proceeds from the sale of the notes and the
preferred stock, PCA Holdings' equity investment, TPI's 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."
35
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of PCA as of June 30, 1999.
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>
JUNE 30, 1999
--------------
<S> <C>
DOLLARS IN THOUSANDS
Cash.............................................................................................. $ 46,855
--------------
--------------
Debt:
Senior credit facility
Revolving credit facility (a)................................................................. -
Term Loan A................................................................................... 431,488
Term Loan B................................................................................... 351,756
Term Loan C................................................................................... 351,756
Notes........................................................................................... 550,000
Other........................................................................................... 468
--------------
Total debt.................................................................................... 1,685,468
Senior exchangeable preferred stock, liquidation preference $100 per share; 3,000,000 shares
authorized, 1,000,000 shares issued and outstanding............................................. 96,500
Stockholders' equity:
Junior preferred stock, liquidation preference $1.00 per share; 100 shares authorized, issued
and outstanding (b)............................................................................ -
Common stock, par value $.01 per share, authorized 1,000,000 shares authorized, 430,000 shares
issued and outstanding......................................................................... 4
Additional paid-in capital...................................................................... 337,741
Retained earnings............................................................................... 4,017
--------------
Total stockholders' equity...................................................................... 341,762
--------------
Total capitalization.......................................................................... $2,123,730
--------------
--------------
</TABLE>
- --------------
(a) As of June 30, 1999, we had $250 million in additional availability and no
borrowings outstanding under our new revolving credit facility. If we had,
the interest rate would have been 7.75% per annum on any amounts borrowed.
(b) 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. Holders of junior preferred stock
have the right to elect one director to PCA's board of directors. Under the
terms of the stockholders agreement, the holders of junior preferred stock
have agreed to elect the individual serving as PCA's chief executive officer
to fill this director position. Shares of junior preferred stock may not be
reissued after being reacquired in any manner by PCA.
36
<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, which was acquired by
PCA in the transactions, and of PCA, both of which are 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's 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 statements of income for the year ended December 31,
1998 and the six months ended June 30, 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, resulting from:
(1) the sale of stock to PCA management in June 1999; and
(2) the potential effect of interest rate hedges on the senior credit
facility.
See "The Transactions" for more information about the sale of equity to PCA
management. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Market Risk and Risk Management Policies" for more
information about the interest rate hedges on the senior credit facility. No pro
forma balance sheet information is presented because PCA's historical balance
sheet as of June 30, 1999 includes the effect of the transactions.
The unaudited pro forma financial information is for comparative purposes only
and does not purport to represent what PCA's results of operations would
actually have been had the transactions in fact occurred on the assumed dates or
to project PCA's results of operations for any future period. The unaudited pro
forma financial information should be read in conjunction with the Group's
historical combined financial statements and related notes, PCA's historical
consolidated 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, 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 statement of income, are based on available information and
assumptions that management believes are reasonable.
37
<PAGE>
PACKAGING CORPORATION OF AMERICA
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
----------------------------------------------------
GROUP PRO FORMA PCA PRO
HISTORICAL ADJUSTMENTS FORMA(L)
------------- ----------- -------------
<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) (156,694) (g) (159,476)
------------- ----------- -------------
Income before income taxes.................................. 118,968 (116,084) 2,884
Income tax (expense) benefit.................................. (47,529) 47,013 (i) (516)
------------- ----------- -------------
Net income.................................................... 71,439 (69,071) 2,368
Preferred dividends and accretion of preferred stock issuance
costs....................................................... -- (12,693) (j) (12,693)
------------- ----------- -------------
Net income (loss) available to common stockholders............ $ 71,439 $ (81,764) $ (10,325)
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
38
<PAGE>
PACKAGING CORPORATION OF AMERICA
UNAUDITED PRO FORMA STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------
GROUP
JANUARY 1, PCA
1999 APRIL 12, 1999
THROUGH THROUGH PRO FORMA PCA PRO
APRIL 11, 1999 JUNE 30, 1999(M) ADJUSTMENTS FORMA
-------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
DOLLARS IN THOUSANDS
Net sales........................................... $ 433,182 $ 373,035 $ -- $ 806,217
688(a)
Cost of sales....................................... (367,483) (297,055) 3,440(b) (660,410)
-------------- ----------------- ----------- -----------
Gross profit...................................... 65,699 75,980 4,128 145,807
367(b)
(493)(c)
701(d)
Selling and administrative expenses................. (30,584) (25,136) 829(e) (54,316)
Corporate overhead allocation....................... (14,890) (5,188) -- (20,078)
Non-recurring impairment charge..................... (230,112) -- 230,112(h) --
Other income (expense), net......................... (2,207) (266) 2,369(f) (104)
-------------- ----------------- ----------- -----------
Income (loss) before interest, income taxes and
extraordinary item............................... (212,094) 45,390 238,013 71,309
Interest expense, net............................... (221) (34,079) (43,895)(g) (78,195)
-------------- ----------------- ----------- -----------
Income (loss) before income taxes................. (212,315) 11,311 194,118 (6,886)
Income tax benefit.................................. 83,716 (4,545) (76,630)(i) 2,541
-------------- ----------------- ----------- -----------
Income (loss) before extraordinary item............. (128,599) 6,766 117,488 (4,345)
-------------- ----------------- ----------- -----------
Extraordinary item.................................. (6,327) -- 6,327(k) --
-------------- ----------------- ----------- -----------
Net income (loss)................................... (134,926) 6,766 123,815 (4,345)
Preferred dividends and accretion of preferred stock
issuance costs.................................... -- (2,749) (3,598)(j) (6,347)
-------------- ----------------- ----------- -----------
Net income (loss) available to common
stockholders...................................... $ (134,926) $ 4,017 $ 120,217 $ (10,692)
-------------- ----------------- ----------- -----------
-------------- ----------------- ----------- -----------
</TABLE>
39
<PAGE>
PACKAGING CORPORATION OF AMERICA
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>
------------------------------------
JANUARY 1, 1999
YEAR ENDED THROUGH
DECEMBER 31, 1998 APRIL 11, 1999
------------------- ---------------
<S> <C> <C>
New depreciation/depletion........................... $ 65,300 $ 17,058
Eliminate lease expense.............................. (72,500) (17,746)
-------- ---------------
$ (7,200) $ (688)
-------- ---------------
-------- ---------------
</TABLE>
(b) Because the contributed net assets have 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 was reflected in the Group's separate financial statements in the
first quarter of 1999 and consisted 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 following adjustment reflects reduced depreciation and amortization
resulting from this impairment charge:
<TABLE>
<CAPTION>
--------------------------------------
JANUARY 1, 1999
YEAR ENDED THROUGH
DECEMBER 31, 1998 APRIL 11, 1999
------------------- -----------------
<S> <C> <C>
Goodwill amortization................................. $ 1,449 $ 367
Property, plant and equipment depreciation............ 12,260 3,440
------- ------
$ 13,709 $ 3,807
------- ------
------- ------
</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 these rebates.
(f) To eliminate the discount expense recognized on the sale of factored
receivables because the receivables were acquired by PCA in connection with
the transactions.
40
<PAGE>
PACKAGING CORPORATION OF AMERICA
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:
------------------------------------
JANUARY 1, 1999
YEAR ENDED THROUGH
DECEMBER 31, 1998 APRIL 11, 1999
------------------- ---------------
<S> <C> <C>
Revolving Credit Facility
($9,000 @7.75%)..................................... $ 698 $ 195
Term Loan A
($460,000 @ 7.75%).................................. 35,185 9,399
Term Loan B
($375,000 @ 8.25%).................................. 30,879 8,599
Term Loan C
($375,000 @ 8.50%).................................. 31,815 8,860
Senior Subordinated Notes
($550,000 @ 9.625%)................................. 52,938 14,829
-------- -------
151,515 41,882
-------- -------
Eliminate interest on debt not assumed................ (2,782) (221)
Amortization of deferred financing costs.............. 7,125 1,999
Amortization of settlement payment on interest rate
protection agreement related to the notes........... 836 235
-------- -------
Pro forma interest adjustment..................... $ 156,694 $ 43,895
-------- -------
-------- -------
</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
$726 for the year ended December 31, 1998 and the six months ended June 30,
1999, respectively.
(h) The impairment charge recorded by the Group in the six months ended June 30,
1999 is eliminated with a pro forma adjustment because it is directly
related to the transactions and is non-recurring.
(i) To record the income tax effect on all pro forma adjustments, at an
effective tax rate of 40.5% for December 31, 1998, and 39.5% for June 30,
1999. The tax rate is higher than the federal statutory rate of 35% due to
state income taxes.
(j) To record dividends on the preferred stock and accretion of the preferred
stock issuance costs as follows:
<TABLE>
<CAPTION>
------------------------------------
JANUARY 1, 1999
YEAR ENDED THROUGH
DECEMBER 31, 1998 APRIL 11, 1999
------------------- ---------------
<S> <C> <C>
Preferred stock dividend.............................. $ 12,375 $ 3,439
Accretion of preferred stock issuance costs........... 318 159
-------- -------
$ 12,693 $ 3,598
-------- -------
-------- -------
</TABLE>
(k) To eliminate the extraordinary loss, net of taxes, on the early
extinguishment of debt as part of the transactions.
(l) There are no historical financial statements for PCA for 1998 because PCA
was not incorporated until January 25, 1999.
(m) There was no activity for PCA from January 25, 1999, its date of inception,
through April 11, 1999.
41
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following table sets forth the selected historical financial and other data
of PCA and the Group as of and for the five years ended December 31, 1998, and
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 for the six months ended June 30, 1998 and for the
period from January 1, 1999 to April 11, 1999 has been derived from the
unaudited condensed combined financial statements of the Group included
elsewhere in this prospectus. The historical financial data as of June 30, 1999
and for the period from April 12, 1999 to June 30, 1999 has been derived from
the unaudited consolidated financial statements of PCA included elsewhere in
this prospectus. The pro forma financial and other data as of and for the six
months ended June 30, 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," the historical
combined financial statements of the Group including the notes thereto and the
historical consolidated financial statements of PCA including the notes thereto,
contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
GROUP
GROUP PCA --------------------
---------------------------------------------------------- ----------- SIX JAN. 1,
PRO FORMA MONTHS 1999
YEAR ENDED DECEMBER 31, YEAR ENDED ENDED THROUGH
---------------------------------------------------------- DEC. 31, JUNE 30, APRIL 11,
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 $ 777,042 $ 433,182
Cost of sales................ (1,202,996) (1,328,838) (1,337,410) (1,242,014) (1,289,644) (1,270,184) (629,281) (367,483)
---------- ---------- ---------- ---------- ---------- ----------- --------- ---------
Gross profit............... 238,677 515,870 244,812 169,391 281,375 300,835 147,761 65,699
Selling and administrative
expenses................... (71,312) (87,644) (95,283) (102,891) (108,944) (102,568) (52,432) (30,584)
Corporate overhead allocation
(3)........................ (34,678) (38,597) (50,461) (61,338) (63,114) (63,114) (32,373) (14,890)
Restructuring/impairment
charge (4)................. - - - - (14,385) (14,385) -- (230,112)
Other income (expense) (5)... (4,701) (16,915) 56,243 44,681 26,818 41,592 16,015 (2,207)
---------- ---------- ---------- ---------- ---------- ----------- --------- ---------
Income (loss) before
interest, income taxes and
extraordinary item........ 127,986 372,714 155,311 49,843 121,750 162,360 78,971 (212,094)
Interest expense, net........ (740) (1,485) (5,129) (3,739) (2,782) (159,476) (1,681) (221)
---------- ---------- ---------- ---------- ---------- ----------- --------- ---------
Income (loss) before income
taxes and extraordinary
item...................... 127,246 371,229 150,182 46,104 118,968 2,884 77,290 (212,315)
Income tax expense........... (50,759) (147,108) (59,816) (18,714) (47,529) (516) (30,822) 83,716
---------- ---------- ---------- ---------- ---------- ----------- --------- ---------
Income (loss) before
extraordinary item........ 76,487 224,121 90,366 27,390 71,439 2,368 46,468 (128,599)
Extraordinary item......... - - - - - - -- (6,327)
---------- ---------- ---------- ---------- ---------- ----------- --------- ---------
Net income (loss).......... $ 76,487 $ 224,121 $ 90,366 $ 27,390 $ 71,439 $ 2,368 $ 46,468 $(134,926)
---------- ---------- ---------- ---------- ---------- ----------- --------- ---------
---------- ---------- ---------- ---------- ---------- ----------- --------- ---------
OTHER DATA:
EBITDA (1)................... $ 178,148 $ 435,620 $ 234,041 $ 137,595 $ 218,700 $ 310,901 $ 126,356 $(181,189)
Rent expense on operating
leases bought out as part
of the transactions (1).... 93,600 94,900 94,700 73,900 72,500 - 35,946 17,746
Net cash provided by
operating activities....... 107,642 336,599 55,857 107,213 195,401 170,581 103,803 153,649
Net cash used for investing
activities................. (113,119) (371,068) (74,232) (111,885) (177,733) (93,535) (51,841) (1,121,145)
Net cash (used for) provided
by financing activities.... 6,112 36,454 16,767 3,646 (17,668) (22,030) (51,962) 967,496
Depreciation, depletion,
amortization............... 50,162 62,906 78,730 87,752 96,950 148,541 47,385 30,905
Capital expenditures......... 110,853 252,745 168,642 110,186 103,429 103,429 46,557 1,128,255
Cash interest expense (6).... -- -- -- -- -- 151,515 -- --
BALANCE SHEET DATA:
Working capital (deficit)
(7)........................ $ (101,281) $ (150,429) $ (102,278) $ 34,314 $ 80,027 $ - $ 64,887 $
Total assets................. 863,568 1,202,536 1,261,051 1,317,263 1,367,403 - 1,341,300
Total long-term obligations
(8)........................ 20,267 21,739 20,316 27,864 17,552 - 16,621
Total stockholders' equity
(9)........................ 389,981 640,483 784,422 854,060 908,392 - 851,487
<CAPTION>
PCA(2)
----------------------
APRIL 12, PRO FORMA
1999 SIX MONTHS
THROUGH ENDED
JUNE 30, JUNE 30,
1999 1999
--------- -----------
<S> <C> <C>
DOLLARS IN THOUSANDS
STATEMENT OF INCOME DATA:
Net sales.................... $ 373,035 $ 806,217
Cost of sales................ (297,055) (660,410)
--------- -----------
Gross profit............... 75,980 145,807
Selling and administrative
expenses................... (25,136) (54,316)
Corporate overhead allocation
(3)........................ (5,188) (20,078)
Restructuring/impairment
charge (4)................. -- --
Other income (expense) (5)... (266) (104)
--------- -----------
Income (loss) before
interest, income taxes and
extraordinary item........ 45,390 71,309
Interest expense, net........ (34,079) (78,195)
--------- -----------
Income (loss) before income
taxes and extraordinary
item...................... 11,311 (6,886)
Income tax expense........... (4,545) 2,541
--------- -----------
Income (loss) before
extraordinary item........ 6,766 (4,345)
Extraordinary item......... -- --
--------- -----------
Net income (loss).......... $ 6,766 $ (4,345)
--------- -----------
--------- -----------
OTHER DATA:
EBITDA (1)................... $ 79,042 $ 149,117
Rent expense on operating
leases bought out as part
of the transactions (1).... -- --
Net cash provided by
operating activities....... 147,630 154,627
Net cash used for investing
activities................. (26,053) (45,794)
Net cash (used for) provided
by financing activities.... (74,723) (83,365)
Depreciation, depletion,
amortization............... 33,652 77,808
Capital expenditures......... 23,419 46,141
Cash interest expense (6).... -- --
BALANCE SHEET DATA:
Working capital (deficit)
(7)........................ $ 152,646 $
Total assets................. 2,428,619
Total long-term obligations
(8)........................ 1,781,968
Total stockholders' equity
(9)........................ 341,762
</TABLE>
42
<PAGE>
NOTES TO SELECTED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
1) PCA calculates "EBITDA" as income before interest, income taxes and
extraordinary items, as reported, plus depreciation, depletion and
amortization as reported in the statement of cash flows, as presented in
the following table:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
GROUP
GROUP PCA ------------------------
----------------------------------------------------- ----------- JAN. 1,
PRO FORMA 1999
YEAR ENDED DECEMBER 31, YEAR ENDED SIX MONTHS THROUGH
----------------------------------------------------- DEC. 31, ENDED JUNE APRIL 11,
1994 1995 1996 1997 1998 1998 30, 1998 1999
--------- --------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before interest,
income taxes and extraordinary
item............................. $ 127,986 $ 372,714 $ 155,311 $ 49,843 $ 121,750 $ 162,360 $ 78,971 $(212,094)
Add: Depreciation, depletion and
amortization..................... 50,162 62,906 78,730 87,752 96,950 148,541 47,385 30,905
--------- --------- --------- --------- --------- ----------- ----------- -----------
EBITDA............................. $ 178,148 $ 435,620 $ 234,041 $ 137,595 $ 218,700 $ 310,901 $ 126,356 $(181,189)
--------- --------- --------- --------- --------- ----------- ----------- -----------
--------- --------- --------- --------- --------- ----------- ----------- -----------
<CAPTION>
PCA(2)
------------------------
APRIL 12, PRO FORMA
1999 SIX MONTHS
THROUGH ENDED
JUNE 30, JUNE 30,
1999 1999
----------- -----------
<S> <C> <C>
Income (loss) before interest,
income taxes and extraordinary
item............................. $ 45,390 $ 71,309
Add: Depreciation, depletion and
amortization..................... 33,652 77,808
----------- -----------
EBITDA............................. $ 79,042 $ 149,117
----------- -----------
----------- -----------
</TABLE>
For the historical periods, income (loss) before interest, income taxes and
extraordinary item includes charges for rent expense on operating leases
bought out as part of the transactions. As a result of the Lease Buy-out,
PCA will no longer incur this rent expense, but will record non-cash charges
for depreciation and depletion related to these assets, which are now owned
rather than leased. This depreciation/depletion expense will be similar, but
not identical, to the amount of rent expense. On a pro forma basis for 1998,
the incremental depreciation/depletion was $7,200 less than the historical
rent expense, resulting in a net increase of $4,284 to pro forma 1998 net
income. To better understand historical EBITDA in relation to pro forma
EBITDA for the periods presented, we believe it may be useful to add back
this rent expense to reported EBITDA for the historical periods.
PCA's EBITDA is included in this prospectus because it is a financial
measure used by PCA's management to assess the company's operating results
and liquidity, and because several of the indebtedness covenants in PCA's
senior credit facility and in the notes indenture are based upon a
calculation that utilizes EBITDA.
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 overall profitability or liquidity. In addition, EBITDA does not
represent the cash available to investors because capital expenditures, debt
service and income taxes are not deducted when calculating EBITDA.
PCA understands that 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.
In analyzing 1998 pro forma EBITDA for liquidity purposes, PCA also believes
that the following additional adjustments should be considered by investors:
<TABLE>
<S> <C>
Pro forma EBITDA for 1998................................................. $ 310,901
Adjustments:
Other income (a)........................................................ (41,592)
Non-recurring restructuring charge (b).................................. 14,385
Reduction in corporate overhead (c)..................................... 32,954
Cost savings from restructuring (d)..................................... 10,800
---------
Adjusted pro forma EBITDA for 1998........................................ $ 327,448
---------
---------
</TABLE>
43
<PAGE>
NOTES TO SELECTED FINANCIAL AND OTHER DATA (CONTINUED)
(DOLLARS IN THOUSANDS)
(a) Other income for 1998 consists substantially of nonrecurring items,
such as gains on the sale of non-strategic woodlands and a recycling
joint venture investment, that PCA believes are not relevant in
analyzing recurring EBITDA.
(b) During 1998, TPI adopted a restructuring plan to eliminate
approximately 100 personnel and close down four facilities associated
with the Group 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.
(c) As part of Tenneco, the Group was allocated $63,114 of Tenneco
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 following the closing of the transactions. 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 corporate functions such as in information
technology, human resources, finance and legal, and (2) non-payroll
costs incurred by these departments. Where applicable, the estimates
consider the terms of transition service arrangements between PCA and
TPI.
(d) The restructuring referred to in Note (b) 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.
2) There was no activity for PCA from January 25, 1999, its date of
inception, through April 11, 1999.
3) 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.
4) 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 audited
combined financial statements and Note 5 to PCA's unaudited consolidated
financial statements.
5) 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.
Six months ended $15,060 gain on the sale of the Caraustar recycling
June 30, 1998 joint venture interest.
Six months ended No individually significant items that are
June 30, 1999 considered non- recurring.
</TABLE>
6) 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 term loans.
44
<PAGE>
NOTES TO SELECTED FINANCIAL AND OTHER DATA (CONTINUED)
(DOLLARS IN THOUSANDS)
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 include 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 or other financing arrangement.
9) Represents the Group's interdivision account with TPI for the historical
period.
45
<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 The Containerboard Group of
TPI, which consisted of its containerboard and corrugated packaging products
business and which we refer to in this prospectus as the Group. 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. These expenses were allocated to
the Group based upon the relative level of effort and time spent on Group
activities by the Tenneco affiliates. This was generally measured using a
formula based upon the Group's percentage of Tenneco's total fixed assets,
revenues and payroll. 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 acquisition. 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. 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.
GENERAL
The market for containerboard is highly cyclical. Historically, prices for
containerboard have reflected changes in containerboard supply that result from
capacity additions and reductions, as well as changes in inventory levels.
Containerboard demand is dependent upon both domestic demand for corrugated
packaging products and linerboard export activity. Domestic demand for
corrugated packaging products is the more stable factor. It generally
corresponds to changes in the rate of growth in the U.S. economy. Exports
represent about 20% of total containerboard shipments.
From 1994 to 1996, capacity additions outpaced both domestic and export demand
for containerboard. This excess supply led to lower industry operating rates and
declining prices from late-1995 until mid-1997. Although prices generally
improved from mid-1997 through mid-1998, the containerboard market was adversely
affected by weaker containerboard exports. This weakness was most apparent in
shipments to Asia in the second half of 1998, which resulted in lower prices.
46
<PAGE>
While export shipments for the first six months of 1999 continued to be lower
than the first six months of 1998, the supply/demand balance has improved in
recent months, and the average price of linerboard has risen approximately 25%
since January 1999. However, industry oversupply conditions could return or
economic conditions could deteriorate in the future.
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.
Pulp & Paper Week, an industry publication, reported in its July 1999 update
that major containerboard producers had implemented average price increases for
kraft linerboard and corrugating medium of $38 and $50 per ton, respectively.
According to Pulp & Paper Week, after giving effect to the price increase,
average prices in July 1999 for linerboard and corrugating medium were 13% and
25% higher, respectively, than July 1998 prices. Pulp & Paper Week also reported
in its July 1999 update that almost all integrated and independent box
converters have announced price increases for corrugated products of 10% to 13%
beginning in August 1999.
RESULTS OF OPERATIONS
The historical results of operations of the Group and PCA are set forth below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
GROUP PCA
------------------------------------------------------------------- --------------------------------
FOR THE FOR THE FOR THE
FOR THE YEAR ENDED FOR THE PERIOD FROM PERIOD FROM PRO FORMA
DECEMBER 31, SIX MONTHS JANUARY 1, 1999 APRIL 12, 1999 SIX MONTHS
------------------------------- ENDED THROUGH THROUGH ENDED
1996 1997 1998 JUNE 30, 1998 APRIL 11, 1999 JUNE 30, 1999 JUNE 30, 1999
--------- --------- --------- --------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
DOLLARS IN MILLIONS
Net Sales............... $ 1,582.2 $ 1,411.4 $ 1,571.0 $ 777.0 $ 433.2 $ 373.0 $ 806.2
--------- --------- --------- ------ ------- ------ ------
--------- --------- --------- ------ ------- ------ ------
Operating Income
(Loss)................ $ 155.3 $ 49.8 $ 121.7 $ 79.0 $ (212.1) $ 45.4 $ 71.3
Interest Expense........ (5.1) (3.7) (2.8) (1.7) (0.2) (34.1) (78.2)
Income (Loss) Before
Taxes and
Extraordinary Item.... 150.2 46.1 118.9 77.3 (212.3) 11.3 (6.9)
Provision for Income
Taxes................. (59.8) (18.7) (47.5) (30.8) 83.7 (4.5) 2.5
--------- --------- --------- ------ ------- ------ ------
Income (Loss) Before
Extraordinary Item.... $ 90.4 $ 27.4 $ 71.4 $ 46.5 $ (128.6) $ 6.8 $ (4.3)
--------- --------- --------- ------ ------- ------ ------
Extraordinary Item...... -- -- -- -- (6.3) -- --
--------- --------- --------- ------ ------- ------ ------
Net Income (Loss)....... $ 90.4 $ 27.4 $ 71.4 $ 46.5 $ (134.9) $ 6.8 $ (4.3)
--------- --------- --------- ------ ------- ------ ------
--------- --------- --------- ------ ------- ------ ------
</TABLE>
47
<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:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
GROUP PCA
------------------------------------------------------------------- ------------------------------------
FOR THE FOR THE FOR THE
FOR THE YEAR ENDED FOR THE PERIOD FROM PERIOD FROM PRO FORMA
DECEMBER 31, SIX MONTHS JANUARY 1, 1999 APRIL 12, 1999 SIX MONTHS
------------------------------- ENDED THROUGH THROUGH ENDED
1996 1997 1998 JUNE 30, 1998 APRIL 11, 1999 JUNE 30, 1999 JUNE 30, 1999
--------- --------- --------- --------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
DOLLARS IN MILLIONS
Operating Income (Loss)
as Reported............ $ 155.3 $ 49.8 $ 121.7 $ 79.0 $ (212.1) $ 45.4 $ 71.3
Recycled Paperboard Mills
Divestiture
Divestiture Gain (1)... (50.0) - (15.1) (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 $ 63.6 $ 18.0 $ 45.4 $ 71.3
--------- --------- --------- ------ ------- ----- -----
--------- --------- --------- ------ ------- ----- -----
</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 and recognized a gain of $50.0 million in the
second quarter as a result of the transaction.
Operating income for the recycling business reported in 1996 before the
formation of the joint venture was approximately $4.0 million.
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.
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. These woodlands were not considered 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 known as the Willow Flowage property located
near the Tomahawk mill.
48
<PAGE>
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 and TPI, which were entered into at
the same time as General Electric Credit's purchase of certain assets from
Georgia-Pacific Corporation in January 1991. Through this 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>
--------------------------------------------------------------------------------------------------
FIRST AND
SECOND TPI
RESTRUCTURING FOURTH QUARTER DECEMBER 31, 1998 QUARTER 1999 BALANCE JUNE 30, 1999
CHARGE 1998 ACTIVITY BALANCE ACTIVITY(1) RETAINED PCA BALANCE
--------------- -------------- ------------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
DOLLARS IN MILLIONS
Cash Charges:
Severance.......... $ 5.1 $(0.8) $4.3 (2.0) (1.9) 0.4
Facility Exit Costs
and Other......... 3.1 (0.4) 2.6 (0.6) - 2.0
----- -------------- ------------------- --------------- ----------- --------------
Total Cash
Charges........... 8.2 (1.2) 6.9 (2.6) (1.9) 2.4
Non-cash Charges:
Asset
Impairments....... 6.2 (3.9) 2.4 (1.7) - 0.7
----- -------------- ------------------- --------------- ----------- --------------
$ 14.4 $(5.1) $9.3 (4.3 ) (1.9 ) 3.1
----- -------------- ------------------- --------------- ----------- --------------
----- -------------- ------------------- --------------- ----------- --------------
</TABLE>
- ----------------
(1) Includes activity for both the Group (January 1, 1999 through April 11,
1999) and PCA (April 12, 1999 through June 30, 1999).
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 $2.4 million remaining cash charges at June 30, 1999,
approximately $1.4 million is expected to be spent in the second half of 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, which is described in Note 14 of
the Group's audited combined financial statements and Note 5 of PCA's unaudited
consolidated financial statements.
EXTRAORDINARY LOSS
During the first quarter of 1999, the Group extinguished $16.6 million of debt
incurred to finance a boiler at the Counce mill. In connection with that
extinguishment, an extraordinary loss of $10.5 million was recorded, which was
$6.3 million net of the related tax effect.
49
<PAGE>
PRO FORMA SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO REPORTED SIX MONTHS ENDED
JUNE 30, 1998
NET SALES
Net sales increased by $29.2 million, or 3.8%, for the pro forma six months
ended June 30, 1999 from the comparable period in 1998. The increase was the
result of increased sales volume of both corrugated products and containerboard,
partially offset by lower prices for both corrugated products and
containerboard.
Average prices for corrugated products decreased by 3.6% for the pro forma six
months ended June 30, 1999 from the comparable period in 1998, while corrugated
products volume increased by 9.6%, from 12.1 billion square feet in 1998 to 13.3
billion square feet in 1999.
Average containerboard prices for third party sales decreased by 6.7% for the
pro forma six months ended June 30, 1999 from the comparable period in 1998,
while volume to external domestic and export customers increased 7.5%, to
264,030 tons in 1999 from 245,657 tons in 1998.
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 $378 and $322, respectively, per ton
in the first six months of 1999. This compares to $388 and $337, respectively,
per ton in the first six months of 1998. According to the Fibre Box Association,
average sales prices for corrugated products decreased by 3.2% in the first six
months of 1999 from the first six months of 1998.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES AND EXTRAORDINARY ITEM
(OPERATING INCOME)
Adjusted operating income increased by $7.7 million, or 12.1%, for the pro forma
six months ended June 30, 1999 from the comparable period in 1998.
Gross profit decreased $2.0 million, or 1.3%, for the pro forma six months ended
June 30, 1999 from the comparable period in 1998. Gross profit as a percentage
of sales declined from 19.0% of sales in the first six months of 1998 to 18.1%
of sales in the pro forma first six months of 1999, primarily due to the price
decreases for corrugated products and containerboard described above.
Selling and administrative expenses increased by $1.9 million, or 3.6%, for the
pro forma six months ended June 30, 1999 from the comparable period in 1998,
primarily as a result of increased sales commissions and Year 2000 remediation
expenses.
Corporate overhead for the pro forma six months ended June 30, 1999 decreased by
$12.3 million, or 38.0%, primarily reflecting a full six months of TPI overhead
allocations in 1998 compared to approximately three and one-half months of TPI
overhead allocations in 1999.
INTEREST EXPENSE AND INCOME TAXES
Interest expense increased by $76.5 million, or 4,551.7%, for the pro forma six
months ended June 30, 1999 from the comparable period in 1998, primarily due to
interest expense related to the senior credit facility term loans and senior
subordinated notes utilized to finance the transactions.
The Group's effective tax rate was 36.9% for the pro forma six months ended June
30, 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.
50
<PAGE>
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 7.0% 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 4.0% in 1998 from 1997.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES (OPERATING INCOME)
Adjusted operating income increased by $97.8 million, or 1,630.0%, 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, or 66.1%.
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, or 25.6%, 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 7.8% in 1997 from 1996,
while corrugated volume increased by 1.3% in 1997 from 23.6 billion square feet
in 1996 to 23.9 billion square feet in 1997.
51
<PAGE>
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 a one-time $50.0 million gain and $4.6 million of income from recycled
mill operations in 1996, adjusted operating income declined $94.7 million, or
94.0% 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, or 30.8%.
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.
INTEREST EXPENSE AND INCOME TAXES
The Group's interest expense declined by $1.4 million, or 27.1%, 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, such as financing for the business, from cash
transmitted to TPI, such 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.
Effective April 12, 1999 PCA maintains its own cash accounts.
52
<PAGE>
The following table sets forth the Group's cash flows for the periods shown:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
GROUP PCA
----------------------------------------------------------------- --------------------------------
FOR THE
FOR THE YEAR ENDED FOR THE FOR THE PERIOD FOR THE PERIOD PRO FORMA
DECEMBER 31, SIX MONTHS JANUARY 1, 1999 APRIL 12, 1999 SIX MONTHS
------------------------------- ENDED THROUGH THROUGH ENDED
1996 1997 1998 JUNE 30, 1998 APRIL 11, 1999 JUNE 30, 1999 JUNE 30, 1999
--------- --------- --------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
DOLLARS IN
MILLIONS
CASH PROVIDED
(USED) BY:
Operating
Activities..... $ 55.8 $ 107.2 $ 195.4 $ 103.8 $ 153.6 $ 147.6 $ 154.6
Investing
Activities..... (74.2) (111.9) (177.7) (51.8) (1,121.1) (26.0) (45.8)
Financing
Activities..... 16.8 3.7 (17.7) (52.0) 967.5 (74.7) (83.4)
--------- --------- --------- ------ --------------- ------ ------
Net Cash
Change......... $ (1.6) $ (1.0) $ - $ - $ - $ 46.9 $ 25.4
--------- --------- --------- ------ --------------- ------ ------
--------- --------- --------- ------ --------------- ------ ------
</TABLE>
OPERATING ACTIVITIES
Cash flow provided by operating activities increased $50.8 million, or 48.9%,
for the six months ended June 30, 1999 from the comparable period in 1998. The
increase was primarily due to increases in depreciation, depletion and
amortization and reduced working capital.
Cash flow provided by operating activities increased by $88.2 million, or 82.3%,
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, or 91.9%, 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 $6.0 million, or 11.7%, for the
pro forma six months ended June 30, 1999 from the comparable period in 1998,
primarily as a result of lower capital expenditures.
Cash used for investing activities increased by $65.8 million, or 58.9%, 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 property, plant and equipment totaled $110.2 million and
$103.4 million, respectively.
Net cash used for investing activities increased by $37.7 million, or 50.7%,
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 compared to $10.5 million in 1997. The proceeds from disposals were
primarily related to the sale of the 80% interest in the recycled paperboard
assets to Caraustar Industries. Cash expended for other long-term assets
decreased $16.5 million, primarily due to lower cash funding of pension assets.
53
<PAGE>
As of June 30, 1999, PCA had commitments for capital expenditures of $62.4
million. PCA believes operating cash flow from continuing operations will be
sufficient to fund these commitments.
FINANCING ACTIVITIES
Cash used for financing activities increased $31.4 million, or 60.4%, for the
pro forma six months ended June 30, 1999 from the comparable period in 1998. The
increase was primarily attributable to the transactions.
Cash provided by financing activities decreased by $21.4 million, or 584.6%,
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, or 78.3%, 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. PCA expects
to be able to fund its debt service and capital expenditures from these sources.
PCA incurred substantial indebtedness in connection with the transactions. On
April 12, 1999, PCA had approximately $1.769 billion of indebtedness outstanding
as compared to historical indebtedness outstanding of approximately $0.5
million. PCA's significant debt service obligations following the transactions
could 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 term loans in an aggregate amount of $1.21 billion
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 following
table provides the interest rate as of June 30, 1999 for each of the term loans
and the revolving credit facility:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
BORROWING ARRANGEMENT INTEREST RATE
- ---------------------------------------------------------------------------------- ---------------
<S> <C>
Term Loan A....................................................................... 7.75%
Term Loan B....................................................................... 8.25%
Term Loan C....................................................................... 8.50%
Revolver
Revolver--Eurodollar............................................................ 7.75%
Revolver--Base Rate............................................................. 9.50%
</TABLE>
The borrowings under the revolving credit facility are available to fund PCA's
working capital requirements, capital expenditures and other general corporate
purposes. The Term Loan A must be repaid in quarterly installments from
September 1999 through 2005. The Term Loan B must be repaid in quarterly
installments from September 1999 through 2007. The Term Loan C must be repaid 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, PCA repaid the $9.0 million drawn on the revolver using excess
cash. On July 15, 1999, PCA prepaid an additional $10.0 million on the term
loans using excess cash.
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:
54
<PAGE>
- 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.
As previously announced, PCA plans to sell a significant portion of its 800,000
acres of owned timberland. In August 1999, PCA signed definitive purchase and
sales agreements with various buyers to sell approximately 400,000 acres of
timberland. PCA expects to close these transactions by the end of the third
quarter of 1999. 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, 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, if
issued, or to pay a dividend on or repurchase its equity interests. Any
redemption of the exchange notes or the new preferred stock must be made in
accordance with the redemption procedures described under the captions
"Description of Exchange Notes" and "Description of New Preferred Stock." PCA
may use the net proceeds of a timberland sale to:
- redeem not more than 35% of the aggregate principal amount of exchange
notes issued and outstanding under the notes indenture, excluding exchange
notes held by PCA and its subsidiaries, or
- redeem all or, if less than all, not more than 35% of the aggregate
principal amount of new preferred stock issued and outstanding.
In each case, PCA must make the redemption within 60 days of the timberland
sale. In the case of the exchange notes, PCA must pay a redemption price equal
to 109.625% of the principal amount of exchange notes to be redeemed plus
accrued and unpaid interest and liquidated damages, if any, to the date of
redemption. In the case of the new preferred stock, PCA must pay a redemption
price equal to 112.375% of the liquidation preference of the new preferred stock
to be redeemed plus accrued and unpaid dividends and liquidated damages, if any,
to the date of redemption.
PCA may only use the net proceeds of a timberland sale to redeem the new
preferred or the subordinated exchange debentures, if issued, or to pay a
dividend or repurchase its equity interests, if PCA's debt to cash flow ratio at
the time of redemption, repayment or repurchase, after giving effect to the
redemption, repayment or repurchase, the application of the proceeds of the
timberland sale, and any increase in fiber, stumpage or similar costs as a
result of the timberland sale, would be no greater than 4.5 to 1 and PCA's debt
and new preferred stock to cash flow ratio no greater than 5.0 to 1. The senior
credit facility imposes similar restrictions on the ability of PCA to use the
net proceeds of a timberland sale to make these redemptions, repayments or
repurchases. See "Description of Exchange Notes" and "Description of New
Preferred Stock."
PCA believes that cash generated from operations will be adequate to meet its
anticipated debt service requirements, capital expenditures and working capital
needs for the next 12 months, and that cash generated from operations and
amounts available under the revolving credit facility will be adequate to meet
its anticipated
55
<PAGE>
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.
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, commonly known as 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. Because liability under these laws is strict, meaning
that liability is imposed without fault, joint and several, meaning that
liability is imposed on each party without regard to contribution, and
retroactive, we could receive notifications of cleanup liability in the future
and this 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. TPI has also
retained environmentally impaired real property in Filer City, Michigan
unrelated to current mill operations.
YEAR 2000 ISSUE
YEAR 2000 ISSUE. Year 2000 issues address the ability of electronic processing
equipment to process date sensitive information and recognize the last two
digits of a date as occurring in or after the year 2000. Many of our computer
software and hardware systems, and some of our non-information technology
infrastructure and manufacturing equipment, that utilize date-sensitive data,
were structured to use a two-digit data field. As a result, these IT and non-IT
systems will not be able to properly recognize dates in or after the Year 2000.
If we are unable to complete the remediation or replacement of critical IT and
non-IT systems in a timely manner, or if those with whom we conduct business are
unsuccessful in implementing timely solutions, Year 2000 issues could have a
material adverse effect on our results of operations.
YEAR 2000 PROGRAM. Our predecessor, TPI created a Year 2000 management team in
June of 1998 to address the Year 2000 issue. The Year 2000 program, started by
TPI and continued by PCA, involves three primary phases:
- identifying and testing all information technology systems and all
non-information technology infrastructure and equipment that have a
potential Year 2000 issue;
- remediating or replacing all non-compliant systems and equipment; and
- testing all remediated or replaced systems and equipment.
56
<PAGE>
In addition, our Year 2000 efforts have involved assessing and monitoring the
Year 2000 readiness of our major suppliers and vendors, responding to customer
inquiries regarding our state of readiness, tracking Year 2000 related
expenditures and developing contingency or continuity plans.
STATE OF READINESS. PCA has completed the initial phase of identifying
non-compliant systems and has substantially completed the final two phases of
its program, namely the remediation or replacement of non-compliant systems and
the testing of those systems. As of June 30, 1999:
- we had completed 95% of programming, remediation, replacement and testing
of non-compliant IT systems;
- all of our corrugated products and mill manufacturing equipment process
control systems had been upgraded, if necessary, and were Year 2000
compliant; and
- all of our corrugated products and mill non-IT infrastructure components,
such as elevators, telephones, security systems, and heating, ventilation
and air conditioning had been remediated, where necessary, and were Year
2000 compliant.
We expect to conclude the programming, remediation, replacement and testing of
the remaining 5% of non-compliant IT systems by the end of 1999.
In addition, we have developed and are testing a standard purchasing, accounts
payable and maintenance tracking system for our mills. We have installed this
system in two mills and expect to have it installed in all remaining mills. It
is anticipated that all mills will be Year 2000 compliant by the end of 1999. In
conjunction with our Year 2000 project we have also implemented a new order
entry, corrugator scheduling, converting scheduling, shop floor manufacturing,
shipping, inventory management and invoicing systems as part of an overall
modernization project for our corrugated products plants.
We have hired an external consultant to validate the results of our assessment
of our Year 2000 readiness. As of June 30, 1999, the consultant had conducted a
Year 2000 compliance audit of all of our mills and 90% of our corrugated
packaging plants. We expect the consultant to review the remaining corrugated
packaging plants in the third quarter of 1999. The consultant has not identified
any Year 2000 non-compliance issues.
In August 1998, we began identifying and surveying all of our major suppliers.
We completed an initial evaluation of all suppliers in June 1999 and identified
13 suppliers that did not satisfy our Year 2000 compliance guidelines. As a
contingency plan we have identified alternative supply sources of alternative
manufacturing locations to minimize the potential impact on our plants. We have
not attempted to evaluate the Year 2000 compliance of our customers because we
do not think it is practical to do so.
YEAR 2000 COSTS. Based on current estimates, we expect to incur costs of
approximately $5 million to address Year 2000 issues, of which $3.5 million had
been paid as of June 30, 1999. Approximately 20% to 30% of the remaining costs
will be reimbursed by TPI under the Transition Services Agreement. We are
expensing these costs as they are incurred, except in instances where we
determine that replacing existing computer systems or equipment is more
effective and efficient, particularly where additional functionality is
available.
YEAR 2000 RISKS. At this time, we believe we will be able to resolve our own
Year 2000 issues. However, it is possible that there will be unanticipated
problems with systems that we have renovated and tested. Further, although we
are monitoring the Year 2000 readiness of our major suppliers we cannot control
the outcome of their compliance efforts. The potential effect if we or third
parties with whom we do business are unable to timely resolve Year 2000 issues
is not determinable but we believe that our most reasonably likely Year 2000
worst case scenario would involve:
- short-term down time for some of our equipment as a result of process
control device malfunctions at our mills and corrugated products plants;
- temporary disruption of deliveries of supplies and products due to truck
shortages;
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- a lack of supplies from the 13 vendors we have identified as not being
sufficiently prepared for the Year 2000; and
- possible errors and delays, as well as increased labor costs, associated
with manually taking orders, scheduling, production reporting and
processing billing and shipping information if our customers experience
system failures.
CONTINGENCY PLANNING. We have developed contingency plans to minimize the
impact of any Year 2000 problems. Each of our mills and corrugated packaging
plants has developed its own business continuity plan. Where practicable, we
have identified alternative methods to perform mission critical functions such
as order processing, shipping finished goods, production scheduling and ship
floor data control. We have also identified alternative suppliers and
alternative manufacturing sites to address potential supply problems. We are
creating an event management team, made up of individuals with various areas of
technological expertise. This team will be dedicated to identifying and
resolving any Year 2000 issues that arise between mid-December 1999 and mid-
January 2000.
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.
As a result of the transactions, PCA is exposed to the impact of interest rate
changes and changes in the market value of its financial instruments. PCA
periodically enters into derivatives in order to minimize these risks, but not
for trading purposes.
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.
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.
As a result, PCA has entered into three interest rate collar agreements which
protect against rising interest rates and simultaneously guarantee a minimum
interest rate. The notional amount of these collars is $720 million. The
weighted average floor of the interest rate collar agreements is 4.97% and the
weighted average ceiling of the interest rate collar agreements is 6.75%. The
interest rate on approximately 60% of PCA's term loan obligations at June 30,
1999 are capped. PCA receives payments under the collar agreements if the LIBOR
rate exceeds the ceiling. Correspondingly, PCA makes payments under the collar
agreements if the LIBOR rate goes below the floor. In both cases, the amount
received or paid is based on the notional amount and the difference between the
actual LIBOR rate and the ceiling or floor rate. The weighted average duration
of the interest rate collar agreements is approximately four years.
PCA's earnings are affected by changes in short-term interest rates as a result
of borrowings under the term loans. If LIBOR interest rates for these borrowings
increase one percent, PCA's interest expense would increase, and income before
income taxes would decrease, by approximately $11.4 million annually until the
LIBOR rate exceeds the ceiling rate. At that point, only 40% of the debt would
result in additional interest rate expense. As
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of June 30, 1999, the interest rate on the term loans was based on a LIBOR rate
of 5.0%, which was adjusted to 5.3% on July 12, 1999. The effect of the interest
rate change to the fair market value of the outstanding debt is insignificant.
This analysis does not consider any other impacts on fair value that could exist
in such an interest rate environment. In the event of a change in interest
rates, management could take actions to further mitigate its exposure to the
change. However, due to the uncertainty of the specific actions that would be
taken and their possible effects, the sensitivity analysis assumes no changes in
PCA's financial structure.
NEW ACCOUNTING STANDARDS
For a description of changes in accounting principles affecting PCA, see Note 2
to the Group's audited financial statements included elsewhere in this
prospectus. None of the new accounting standards required to be adopted on
January 1, 1999 had any material impact on the Group's or PCA's results of
operations. In addition, management does not expect that new accounting
standards currently pending will materially impact PCA's operating results.
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BUSINESS
GENERAL
PCA is the sixth largest producer of containerboard and corrugated products in
the United States, based on production capacity as reported in the Pulp & Paper
1999 North American Fact Book. With 1998 net sales of $1.6 billion, PCA produced
2.1 million tons of containerboard and shipped about 25 billion square feet of
corrugated products.
In 1998, we produced over 1.3 million tons of kraft linerboard at our mills
located in Counce, TN and Valdosta, GA. We also produced 800,000 tons of
semi-chemical medium at our mills located in Tomahawk, WI and Filer City, MI.
About 20% of our total fiber requirements were met with wood from our 950,000
acres of owned or leased timberland, which are generally located within 100
miles of our mills.
Our converting operations produce a wide variety of corrugated packaging
products, including conventional shipping containers used to protect and
transport manufactured goods. We also produce multi-color boxes and displays
with strong visual appeal that help to merchandise the packaged product in
retail locations. Finally, we are a large producer of meat boxes and wax-coated
boxes for the agricultural industry.
INDUSTRY OVERVIEW
CORRUGATED CONTAINERS
According to the Fibre Box Association, the value of industry shipments of
corrugated containers was over $20 billion in 1998. According to this source,
corrugated container volume has grown at a compound annual rate of 3.1% since
1975. Demand for corrugated containers has increased 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.
Most converting plants are either CORRUGATOR PLANTS or SHEET PLANTS. There are
approximately 612 corrugator plants in the United States. Corrugater plants have
equipment on-site that flutes the medium and combines it with linerboard to
create corrugated sheets. These sheets are then converted into corrugated
containers on-site.
There are approximately 860 sheet plants in the United States. Sheet plants
purchase corrugated sheets from corrugator plants and convert these sheets 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%.
The primary end-use markets for corrugated containers are shown below:
<TABLE>
<S> <C>
Food, beverages and agricultural products............................. 39.2%
Paper and fiber products.............................................. 22.6%
Petroleum, plastic, synthetic and rubber products..................... 10.3%
Glass, pottery, fabricated metal and metal containers................. 6.8%
Electrical and electronic machinery and appliances.................... 3.7%
</TABLE>
High-volume, national account customers typically seek suppliers with multiple
plant locations that can provide broad geographic coverage, an array of
manufacturing capabilities and flexibility to provide product in critical
situations. Local accounts tend to place a greater emphasis on local sales and
customer service support, quick order turnaround and specialized services. All
types of customers value price, quality and dependability.
Corrugated containers are generally delivered by truck. Compared to many other
products, the amount of corrugated containers that can fit into a truckload
weighs much less. This, coupled with the relatively low price per ton of
corrugated containers, make shipping costs account for a relatively high portion
of total costs. As a result, converting plants tend to be located in close
proximity to customers to minimize freight costs. Most converters serve markets
within a 150-mile radius of their plants and employ a locally based sales force
to solicit accounts in that market area.
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The corrugated products industry is highly fragmented, with an estimated 715
companies in the United States. The top five U.S. integrated corrugated
manufacturers produce approximately 60% of total U.S. industry production.
Integrated producers accounted for approximately three-quarters of total
corrugated container shipments.
CONTAINERBOARD
Containerboard, which includes both linerboard and corrugating medium, is the
principal raw material used to manufacture corrugated containers. Linerboard is
used as the inner and outer facings, or liners, 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.
Containerboard may be manufactured from both softwood and hardwood fibers, as
well as from recycled fibers from used corrugated containers and waste clippings
from corrugated converting operations. Kraft linerboard is made predominantly
from softwoods like pine. Semi-chemical medium is made from hardwoods such as
oak. Wood may be brought to the mill as logs to be chipped, or as
already-chipped wood. The chips are chemically treated and cooked to form virgin
fiber, also known as wood pulp. This pulp can be processed alone or blended with
some percentage of recycled fiber on paper machines. The pulp is mixed with
water and flows onto a moving wire screen, which allows the water to drain and
concentrates the fibers. What remains is a paper mat that is compressed by a
series of presses and then dried. The paper is wound into large rolls, which are
slit to size as required by converters, and shipped to them.
Linerboard is made in a range of grades or basis weights. 42 lb. linerboard is
the most common weight, but linerboard is produced in weights that vary from
under 26 lb. to over 90 lb. The number represents the weight in pounds per
thousand square feet of that linerboard. Producers also market linerboard by
performance characteristics, appearance and color. The following table describes
different product weight, performance and color characteristics:
<TABLE>
<CAPTION>
CATEGORY PRODUCTS DESCRIPTION
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Weights (lb./1,000 sq. ft.)......... 26 - 38 lb. Lightweights
41 - 56 Middleweights
61 - 90 Heavyweights
>90 Super heavyweights
Performance......................... High ring crush stacking or compression strength
Tare weight minimal variations in basis weight
Wet strength strength while wet
Color............................... Mottled white bleached pulp applied to unbleached
sheet; mottled appearance
White top even, white surface appearance
Full bleached solid white throughout
</TABLE>
The market demand for high performance grades, lightweights and white linerboard
continue to grow at a faster rate because customers are seeking better strength
characteristics at a lower cost as well as improved appearance.
Recycled linerboard production has also grown rapidly in recent years due to
favorable economics, customer demand for recycled packaging, and improved
quality and performance characteristics. Recycled linerboard accounted for
approximately 18% of total U.S. linerboard production in 1998. A recycled
linerboard mill is typically smaller and less capital-intensive than kraft
mills. These mills are likely to be located near a major urban area where the
supply of recycled material is abundant and converter operations are more
geographically concentrated.
U.S. linerboard producers export nearly 20% of their production. The top three
markets are Europe, Asia and Latin America, which together consumed about 90% of
the U.S. linerboard exports during 1998. Linerboard
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exports have grown at an average rate of 6% a year during the last 15 years,
reaching a record 4.6 million tons in 1997. Due to the strong U.S. dollar and
weak Asian markets, exports of linerboard were significantly lower in 1998 at
3.7 million tons. The market for exported medium is considerably smaller than
for linerboard. About 2.5% of the corrugating medium produced in the United
States is exported.
Despite recent consolidation activity, the containerboard industry remains
relatively fragmented, with the top five producers accounting for 53% of
production capacity and the top ten accounting for 72%.
Containerboard is a commodity-like product whose price tends to be highly
cyclical. Historically, pricing for containerboard has reflected changes in
containerboard supply that resulted from capacity additions and reductions, as
well as changes in inventory levels and demand. The supply/demand balance has
improved in recent months and the average price of linerboard has risen about
25% since January. In 1999, several major containerboard manufacturers announced
production curtailments and mill shutdowns. These reductions represent nearly 2
million tons or 5% of North American capacity. Only minimal capacity additions
have been publicly announced through 2001 according to the American Forest &
Paper Association.
BUSINESS STRATEGY
Our on-going operating strategy focuses on three elements:
- Building upon our low cost mill status and continue to reduce
manufacturing costs in our containerboard mills;
- Focusing our sales and marketing efforts for corrugated containers on
value-added, higher margin products and customers; and
- Emphasizing investment and growth in our corrugated container operations
to further increase our level of integration.
COMPETITIVE STRENGTHS
- LOW-COST PRODUCER. Based on two studies performed in 1998 by
Jacobs-Sirrine, an industry consulting firm, PCA's two largest
containerboard mills were ranked in the lowest quartile for cash
manufacturing costs in the industry. One of these studies was a
single-client study that we paid Jacobs-Sirrine to perform in February
1998. The other was a multi-client study issued by Jacobs-Sirrine in the
fourth quarter of 1998 that was available for purchase by the general
public. The Counce and Tomahawk mills represent two-thirds of PCA's
production capacity. Counce produces linerboard and Tomahawk makes
semi-chemical medium. The industry uses cash manufacturing cost per ton as
a measure of operating cost effectiveness for containerboard mill
production. Cash manufacturing costs are the out-of-pocket costs
associated with producing containerboard, which include costs for fiber,
chemicals, energy, other materials and consumables, hourly labor and
salaried supervision.
Valdosta, our second kraft linerboard mill, uses only virgin fiber. In
February 1998, Jacobs-Sirrine also ranked it as a low cost, or first
quartile, mill. In the fourth quarter 1998 study, Valdosta's ranking fell
to below average cost, or third quartile. This was due primarily to a
decline in recycled fiber prices. This decline improved the relative cost
position of recycled mills. Recycled fiber costs have increased recently
to nearly the same level as February 1998. This recycled fiber cost
increase has improved Valdosta's cost position, returning it to the lowest
cost quartile.
Filer City, our smallest mill, produces semi-chemical medium. Filer City
ranks as an average cost mill in both of the Jacobs-Sirrine studies.
Fiber represents the single largest cost element in manufacturing
containerboard. Our mills are located near abundant supplies of wood
fiber. Additionally, our ability to vary the percentage of softwood,
hardwood and recycled fiber enables us to react to changes in fiber prices
and minimize fiber costs. Overall, our fiber costs are among the lowest in
the industry.
In recent years, we have also made significant productivity and efficiency
gains. These include labor savings, higher machine speeds, reduced waste
and lower chemical and energy costs.
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- INTEGRATED OPERATIONS. Our level of containerboard integration with our
converting facilities is approximately 75% to 80%. This high level of
integration provides a stable and predictable demand for our
containerboard mill production. The remaining 20% to 25% of production is
sold externally, with about two-thirds going to domestic corrugated
converters and one-third to the export market. According to Pulp & Paper
Week, during the period of 1995 to 1998, industry containerboard prices
declined by 31% while our average corrugated box price fell by only 11%.
The relative earnings stability of our converting plants acts to somewhat
offset the more cyclical earnings of our mills. Containerboard pricing
behaves much as a commodity and is highly dependent on the relative
balance of containerboard supply and demand. Corrugated container demand
has been fairly stable over the past 20 years and tracks general economic
growth as measured by Gross Domestic Product and industrial production.
- DIVERSIFIED CUSTOMER BASE. Our broad customer base enables us to minimize
our dependence on any one industry, geography or individual customer. 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.
- FOCUS ON VALUE-ADDED PRODUCTS AND SERVICES. We have pursued a strategy of
providing our customers with value-added products, enhanced graphics and
superior customer service. Since 1995, we have acquired nine converting
facilities. Four of these acquisitions significantly increased our
graphics capabilities, while five sheet plant acquisitions improved our
ability to provide shorter production runs and faster turnaround times in
those markets. We have also established five geographically dispersed
graphics design centers that use sophisticated computer design software to
create visually appealing customized boxes. Our close proximity to our
customers, our broad geographic coverage and our ability to provide
value-added products and services has consistently resulted in a higher
selling price than the industry average.
OPERATIONS AND PRODUCTS
MILLS
Our two linerboard mills can manufacture a broad range of linerboard grades
ranging from 26 lb. to 96 lb. Our two semi-chemical medium mills can manufacture
grades ranging in weight from 21 lb. to 47 lb. All four of our mills have
completed an extensive independent review process to become ISO 9002 certified.
ISO 9002 is an international quality certification that verifies a facility
maintains and follows stringent procedures for manufacturing, sales and customer
service.
COUNCE. Our Counce, Tennessee mill is one of the five largest linerboard mills
in the United States out of approximately 70 linerboard mills. Its production
capacity is approximately 937,000 tons per year. In 1998, we produced 880,600
tons of kraft linerboard on two paper machines at Counce. We produced a broad
range of basis weights from 31 lb. to 96 lb. Our Counce mill machines also
produce a variety of performance and specialty grades of linerboard including
high-ring crush and wet strength. In 1998 we developed the capability to produce
linerboard grades with a mottled white printing surface. Mottled white has a
marble-like coloration and is typically priced from $130 to $175 per ton higher
than kraft linerboard, but is more expensive to produce.
VALDOSTA. Our Valdosta, Georgia mill is a kraft linerboard mill and has a
production capacity of approximately 450,000 tons per year. In 1998, our single
paper machine at Valdosta produced approximately 424,500 tons of linerboard.
Valdosta primarily produces middleweight linerboard ranging from 42 lb. to 56
lb., and heavyweight/ super heavyweight linerboard ranging from 61 lb. to 96 lb.
TOMAHAWK. Our Tomahawk, Wisconsin mill is the second largest medium mill in the
United States out of 69 medium mills. Its production capacity is 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
corrugated medium machine in the United States. These machines produce a broad
range of basis weights from 23 lb. to 47 lb. Our Tomahawk mill also produces a
variety of performance and specialty grades of semi-chemical medium. This
includes high ring crush, wet strength, tare weight and super heavyweight.
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FILER CITY. Our Filer City, Michigan mill is a semi-chemical medium operation.
In 1998, Filer City produced approximately 295,500 tons of medium on three paper
machines. In July 1998, we shut down one machine at Filer City. Mill production
capacity at Filer City is now 280,000 tons a year. Filer City produces a range
of medium grades in basis weights from 21 lb. to 40 lb.
CORRUGATED PRODUCTS
We operate 39 corrugator plants, 28 sheet/specialty plants and five graphic
design centers. The 39 corrugator plants have a corrugator on site and
manufacture both combined sheets and finished boxes. Twenty-six sheet plants
purchase combined sheets and create finished boxes. Two other small specialty
facilities include a collating and distribution packaging center, as well as a
machine rebuild facility. The five graphic design centers are located in
Westmont, Illinois; Cincinnati, Ohio; Dallas, Texas; North Brunswick, New
Jersey; and Southgate, California.
These graphic design centers were established in response to customers'
increasing need for sophisticated, high impact graphics on their corrugated
boxes. Customers are increasingly using special in-store corrugated displays to
market their products and are requiring more intricate packaging designs. In
response, our graphic design centers offer state-of-the-art computers and
equipment that are capable of 24-hour design turnaround and reduced product
delivery times.
Our converting locations are spread throughout the United States. Each
corrugator plant serves a market radius that typically averages 150 miles. Our
sheet plants are generally located in close proximity to our larger corrugating
facilities which enables us to offer additional services and converting
capabilities such as small volume, quick turnaround items.
We produce a wide variety of products ranging from basic corrugated shipping
containers to specialized packaging such as wax-coated boxes for the agriculture
industry. We also have multi-color printing capabilities to make high-impact
graphics boxes and displays that offer customers more attractive packaging.
TIMBERLAND
We own, lease, manage or have cutting rights to approximately 950,000 acres of
timberland located near our Counce, Valdosta and Tomahawk mills. The acreage we
control includes 800,000 acres of owned land and another 150,000 acres of long
term leases. Virtually all of these leases have terms over 20 years.
Over 90% of our timberland is located within 100 miles of our mills which
results in lower wood transportation costs and a secure source of wood fiber. In
1998, 20% of our total fiber requirements were supplied by wood from timberland
owned or leased by us. This timberland contains approximately 54% softwood,
which is primarily pine. The other 46% is hardwood such as oak.
In addition to the timberland we manage ourselves, we have initiated a Forest
Management Assistance Program. Through this program we provide professional
forestry assistance to private timberland owners to improve harvest yields and
to optimize their harvest schedule. We have managed the regeneration of over
97,000 acres by supplying pine seedlings. In exchange for our expertise, we are
given the right of first refusal over timber sales from those lands. These
private lands include over 200,000 acres of timberland. We expect to harvest
over 150,000 cords of wood from these forests annually.
We also participate in the Sustainable Forestry Initiative, which is organized
by the American Forest and Paper Association. This initiative is aimed at
ensuring the long-term health and conservation of America's forestry resources.
Activities include limiting tree harvest sizes, replanting harvest acreage, and
participating in flora and fauna research and protecting water streams.
We believe that the wood supplies near our Valdosta, Filer City and Tomahawk
mills are very good and will remain so for the foreseeable future. As a result,
we are considering the sale of a large percentage of our timberland in these
regions. We currently believe that we will be able to purchase our wood
requirements at competitive prices. At Counce, where pine is in shorter supply,
we would consider selling a significant portion of our timberland if we could
obtain a competitively priced, long-term supply agreement from the buyer.
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SOLID WOOD AND RECYCLING FACILITIES
We own three sawmills located in Ackerman, Mississippi; Selmer, Tennessee; and
Fulton, Mississippi. These three sawmills produce approximately 150 million
board feet annually of lumber used to make furniture and building products. We
also have an air-dry yard operation in Burnsville, Mississippi that holds newly
cut lumber while it dries. Finally, we have a 50% interest in a wood chipping
joint venture in Fulton, Mississippi that provides us with wood chips for use at
our Counce Mill. The solid wood products group enables us to maximize the value
of our timber through lumber sales, when appropriate, and also provides us with
a supply of wood chips.
We also operate three paper recycling centers, one in Jackson, Tennessee and two
in Nashville, Tennessee. These recycling centers collect old corrugated
containers, newspapers and other paper and provide a source of recycled fiber to
our nearby Counce mill.
PERSONNEL
An on-site mill manager oversees each of our mills. The mill manager's operating
staff includes personnel who support mill operations and woodlands, as well as
support groups for 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. Headquarters corporate support, located in Lake Forest, IL
includes the containerboard sales group and the production scheduling group,
which processes customer orders. We also maintain a 14-member corporate mill
engineering staff that provides engineering, procurement, construction and
start-up services for the four mills.
Each of our converting plants is managed by a team, which usually includes a
general manager, a sales manager, a production manager, a controller and a
customer service manager. We also have a centralized technical support group
comprised of 14 packaging engineers and technicians. This group provides
services to our 67 converting facilities that include testing, engineering,
manufacturing and technical support. Our technical support group also works with
our customers on location to assure that our customers' quality and performance
standards are consistently met. Our converting plants are grouped into seven
geographic areas. Plants in each area report to an area general manager.
SALES AND MARKETING
Our containerboard sales group is responsible for the sale of linerboard and
corrugating medium to our own corrugating plants, to other domestic customers
and to the export market. This group handles order processing for all shipments
of containerboard from our own mills to our own converting plants. These
personnel also coordinate and execute all containerboard trade agreements with
other containerboard manufacturers.
Our corrugated products are sold through a direct sales and marketing
organization of approximately 350 sales personnel. Sales representatives and a
sales manager at each manufacturing facility serve local and regional accounts.
Corporate account managers serve large national accounts at multiple customer
locations. Additionally, our graphic design centers maintain an on-site
dedicated graphics sales force. General marketing support is located at our
corporate headquarters.
In addition to the 350 direct sales and marketing personnel, we have almost 100
support personnel that are new product development engineers and product
graphics and design specialists. These individuals are located at both the
corrugating facilities as well as the graphic design centers.
DISTRIBUTION
Finished goods produced in our mills are shipped by rail or truck. Our
individual mills do not own or maintain outside warehousing facilities. We do
use several third-party warehouses for short-term storage.
Our corrugated containers are usually delivered by truck due to our large number
of customers and their demand for timely service. Shipping costs represent a
relatively high percentage of our total costs due to the high bulk and
relatively low value of corrugated containers. As a result, our converting
plants typically service customers within a 150 miles radius.
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CUSTOMERS
CONTAINERBOARD. Our converting plants, either directly or through exchange
agreements, consume more than three-quarters of our mills' containerboard
production. These exchanges, or trades, allow us to swap containerboard produced
in our mills for containerboard manufactured at other companies' locations.
Trades, which are common in the industry, reduce the distance the rolls of
containerboard have to be shipped, and, in turn, overall freight costs. Trades
also encourage more efficient production for the industry, since companies can
trade for containerboard grades they cannot manufacture as efficiently on their
own equipment.
The containerboard that we do not consume directly or through trades is sold to
independent domestic converters and export customers. We also sell
containerboard to manufacturers of fiber drums, air bags, protective packaging
and other specialty products.
CORRUGATED PACKAGING. About three-quarters of our corrugated packaging
customers are regional and local accounts, and they are broadly diversified
across industries and geographic locations. Based on an internal customer survey
conducted in 1998, we estimate that nearly 40% of our customers have purchased
from us for over five years. Our top ten corrugated products customers accounted
for about 20% of our 1998 gross revenues and no single customer represented over
6% of our gross revenues.
RAW MATERIALS
FIBER SUPPLY. Fiber is the single largest cost in the manufacture of
containerboard. 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. With the exception of our Valdosta mill, all of
our mills can utilize some recycled fiber in their containerboard production.
Our ability to use various types of virgin and recycled fiber helps mitigate the
impact of changes in the prices of various fibers.
ENERGY SUPPLY. Energy at the mills is obtained through purchased electricity or
through various fuels which are then converted to steam or electricity on-site.
Fuel sources include coal, natural gas, oil, bark and byproducts of the
containerboard manufacturing and pulping process. These fuels are burned in
boilers to produce steam. Steam turbine generators are used to produce
electricity.
Our two kraft linerboard mills at Counce and Valdosta generate approximately 60%
to 70% of their energy requirements from their own byproducts. Presently, 50% of
our electricity consumption for the four mills is generated on-site.
COMPETITION
CONTAINERBOARD. Containerboard is generally considered a commodity-type product
and can be purchased from numerous suppliers. While the containerboard industry
has been consolidating over the last two decades, it is still relatively
fragmented compared with other basic manufacturing industries such as steel,
automotive, commodity chemicals and petroleum. Approximately 59 companies
currently produce containerboard and the top five represent 53% of total
industry shipments. As a result, no single company has a dominant position in
the industry. PCA's primary competition for our external sales of containerboard
are a number of large, diversified paper companies, including Georgia-Pacific,
International Paper, Smurfit-Stone Container, Temple-Inland, Weyerhaeuser and
Willamette Industries, as well as other regional manufacturers.
CORRUGATED CONTAINERS. Corrugated Containers are produced by more than 715 U.S.
companies operating nearly 1,500 plants. While the capability to make corrugated
containers are offered by these hundreds of companies, very few boxes are
produced as standard, or stock, items. Most corrugated containers are custom
manufactured to the customer's specifications for that container. Finished
containers are shipped to the customer flat, to be assembled for filling at the
customer's operation. Corrugated producers generally sell within a 150-mile
radius of their plants and compete with other corrugated facilities in their
local market. In fact, the Fiber Box Association tracks industry data by 47
distinct market regions.
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The larger, multi-plant integrated companies may also solicit larger,
multi-plant users of boxes who purchase for all their user facilities on a
consolidated basis. These customers are often referred to as national or
corporate accounts. Typically, prices charged to national accounts reflect the
benefit to the corrugated manufacturer of the volume and scale economies these
large accounts bring.
Corrugated container businesses seek to differentiate themselves through
pricing, quality, service, design and product innovation. We compete for both
local and national account business and we compete against producers of other
types of packaging products. 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., Weyerhaeuser Company and Willamette Industries, Inc. However, with our
strategic focus on local and regional accounts, we believe we compete more often
with the smaller, independent converters rather than the larger, integrated
producers.
EMPLOYEES
As of June 30, 1999 we had approximately 7,700 employees. Approximately 2,100 of
these employees were salaried and approximately 5,600 were hourly. Approximately
75% of our hourly employees are represented by unions. Our unionized employees
are represented primarily by the Paper, Allied Industrial, Chemical, Energy
Workers International Union, the Graphic Communications International Union and
the United Steel Workers of America.
Contracts for our unionized mill employees expire between October 2000 and
September 2003. Contracts for unionized converting plant employees expire
between August 1999 and March 2005. We are currently in negotiations to renew or
extend any union contracts expiring in the near future.
There have been no instances of significant work stoppages in the past 15 years.
We believe we have satisfactory relations with our employees.
ENVIRONMENTAL MATTERS
Compliance with environmental requirements is a significant factor in our
business operations. 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.
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. As a result, PCA and its
competitors are required to incur costs to ensure compliance with these new
rules. Our current spending projections to complete Cluster Rule compliance
implementation at our four mills is about $60 million from 1999 to 2005. During
1997 and 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 1999 and $22 million for 2000.
As is the case with any industrial operation, we have in the past incurred costs
associated with the remediation of soil or groundwater contamination. From
January 1994 through June 1999, remediation costs at our mills and converting
plants totaled about $2.3 million. We do not believe that any on-going remedial
projects are material in nature. As of June 30, 1999, we maintained a reserve of
$83,000 for environmental remediation liability as well as a general overall
environmental reserve of $3,369,000, which includes funds relating to onsite
landfill and surface impoundments as well as on-going and anticipated remedial
projects. We believe these reserves are adequate.
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We could also incur environmental liabilities as a result of claims by third
parties for civil damages, including liability for personal injury or property
damage, arising from releases of hazardous substances or contamination. We are
not aware of any claims of this type currently pending against us.
In the transactions, TPI agreed to retain all liability for all former
facilities and all sites associated with pre-closing waste disposal. TPI also
retained environmental liability for a closed landfill located near the Filer
City mill.
PROPERTIES
MILLS. The table below provides a summary of our containerboard mills, the
principal products produced, each mill's capacity and their capacity
utilization.
<TABLE>
<CAPTION>
LOCATION FUNCTION CAPACITY UTILIZATION (%)*
- --------------------------------- ---------------------------- ---------- -------------------
<S> <C> <C> <C>
Counce, TN....................... Kraft Linerboard mill 937,000 94%
Filer City, MI................... Semi-chemical Medium mill 280,000 93%
Tomahawk, WI..................... Semi-chemical Medium mill 533,000 95%
Valdosta, GA..................... Kraft Linerboard mill 450,000 95%
Total........................ 2,200,000
</TABLE>
*UTILIZATION IS DEFINED AS 1998 TONS PRODUCED DIVIDED BY ANNUAL CAPACITY.
Each of the mills is currently subject to a mortgage held by Morgan Guaranty
Trust Company of New York on behalf of the lenders under the senior credit
facility.
OTHER FACILITIES. In addition to our mills, we own 37 corrugator plants and
seven specialty plants. We also own three sawmills, an air-drying yard, one
recycling facility, one warehouse and miscellaneous other property, which
includes sales offices and woodlands forest management offices. These sales
offices and woodlands forest management offices generally have one to four
employees and serve as administrative offices. We lease two corrugator plants,
21 sheet specialty plants, five regional design centers, two recycling
facilities and numerous other distribution centers, warehouses and facilities.
PCA has no owned or leased properties outside of the continental United States.
All of our owned real property is subject to a first priority mortgage held by
Morgan Guaranty Trust Company of New York on behalf of the lenders under the
senior credit facility.
TIMBERLAND. We own or lease approximately 950,000 acres of timberland as shown
below:
<TABLE>
<CAPTION>
OWN LEASE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Counce, TN................................................... 348,000 56,000 404,000
Tomahawk, WI................................................. 163,000 -- 163,000
Valdosta, GA................................................. 289,000 94,000 383,000
Total Acres................................................ 800,000 150,000 950,000
</TABLE>
All of our owned timberland is subject to a mortgage held by Morgan Guaranty
Trust Company of New York on behalf of the lenders under the senior credit
facility. Lease agreements are generally for 35 to 66 years and offer fiber
harvest rights on the leased properties.
HEADQUARTERS. We currently lease and will continue to lease our executive and
administrative offices in Lake Forest, Illinois from Tenneco Packaging, Inc. for
up to four years.
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 provided 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-Corrugated Products
Richard B. West 47 Chief Financial Officer and Secretary
Mark W. Kowlzan 44 Vice President-Containerboard/Wood Products
Andrea L. Davey 43 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 31 Director and Assistant Secretary
</TABLE>
PAUL T. STECKO has served as Chief Executive Officer of PCA since January 1999
and as 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-Corrugated Products 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 of PCA since March 1999
and as Secretary since April 1999. From March 1999 to June 1999, Mr. West also
served as Treasurer of PCA. 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 and Director/Business Process Redesign.
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.
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.
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<PAGE>
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. 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.
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 under the terms of a stockholders
agreement among TPI, PCA and PCA Holdings that was entered into in connection
with the transactions. See "Certain Relationships and Related
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. Before the closing of the transactions, PCA's
chief executive officer and its four other most highly compensated executive
officers, Mr. Stecko, Mr. Sweeney, Mr. West, Mr. Kowlzan and Ms. Davey, were
employed by, and received compensation from, Tenneco Inc. or its affiliates.
Each of these named 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 are
$355,380, $198,018, $194,800 and $150,496, respectively; the corresponding
annual bonus targets are $175,000, $115,000, $115,000 and $65,000, respectively,
and the annual perquisite allowances are $30,000, $12,000, $20,000, and $12,000,
respectively.
Under the terms of letter agreements entered into with Mr. Stecko on January 25,
1999 and 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,
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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, under the terms
of the letter agreements, 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.
Under the terms of a memorandum from PCA to Mr. Sweeney, dated April 16, 1999,
PCA agreed to pay Mr. Sweeney a bonus in the amount of $500,000 if either PCA
terminates Mr. Sweeney before April 12, 2002 for any reason other than for cause
or he is still employed by PCA on April 12, 2002. If Mr. Sweeney dies before
April 12, 2002, the bonus will be paid to his beneficiaries on a pro rata basis.
Mr. Sweeney agreed to use the after-tax proceeds of this bonus to pay off the
outstanding balance, if any, of the loan he received from PCA to purchase equity
of PCA during the June 1999 management equity issuance.
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 management equity agreements in June 1999, with 113 of its
management-level employees, including the named executive officers. Under these
agreements, PCA sold 14,240 shares of common stock to these employees at $1,000
per share, the same price per share at which PCA Holdings purchased equity in
the transactions. PCA guaranteed bank financing in the amount of $5,000,000 in
the aggregate to enable some of these members of PCA's management to purchase
equity under their respective management equity agreements. The amount of bank
financing guaranteed by PCA with respect to any employee did not exceed 50% of
the purchase price paid by the 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 29,893 shares of PCA's common
stock, which options will vest over time.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONTRIBUTION AGREEMENT
TPI, PCA Holdings and PCA entered into a contribution agreement governing the
sale of the containerboard and corrugated packaging products business to PCA.
PCA Holdings owns approximately 53% of the outstanding common stock of PCA and
TPI owns approximately 44% of the outstanding common stock of PCA. Under the
terms of the contribution agreement, the following occurred:
- PCA paid to Madison Dearborn, the entity that controls PCA Holdings, a
transaction fee of $15.0 million and reimbursed Madison Dearborn for
out-of-pocket expenses.
- PCA paid $2.0 million of the legal and accounting fees and expenses of TPI
incurred in connection with the transactions.
- TPI agreed to indemnify PCA, PCA Holdings and their affiliates for any
breaches of representations, warranties and covenants it made in the
contribution agreement relating to the condition of the business as of the
closing of the transactions and liabilities of the containerboard and
corrugated packaging products business which it agreed to retain. TPI's
indemnification obligation in respect of breaches of its representations
and warranties generally survives for 18 months from the closing and is
subject to a $12.5 million deductible and a $150.0 million cap.
- PCA agreed to indemnify TPI and its affiliates against those liabilities
it agreed to assume. PCA generally agreed to assume all liabilities
relating to the business. PCA did not generally assume, however,
liabilities relating to environmental, tax and employee benefit matters
arising before the closing or with respect to assets not conveyed to PCA.
These liabilities were retained by TPI.
- TPI agreed that, for a period of five years from the closing, it would not
engage in the business conducted by PCA as of the closing anywhere in the
U.S. or induce any customer of PCA to terminate its relationship with PCA.
The contribution agreement is filed as Exhibit 2.1 to the registration statement
of which this prospectus forms a part.
STOCKHOLDERS AGREEMENT
PCA, PCA Holdings and TPI entered into a stockholders agreement under which they
agreed to limit their ability to sell or transfer their common stock and to
provide for preemptive rights upon future issuances of common stock by PCA.
Under the terms of the stockholders agreement, PCA's 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). TPI and PCA
Holdings agreed to vote their shares in future elections to maintain this board
composition. The stockholders agreement also identifies company actions which
TPI and PCA Holdings have agreed shall be subject to the approval of at least
four of the five directors designated by TPI and PCA Holdings as described
above, including:
(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 actions that would have a disproportionate impact on TPI or
would otherwise be outside of the ordinary course of business.
The Stockholders Agreement will terminate if any of the following events occur:
- PCA or its subsidiaries liquidate or dissolve;
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<PAGE>
- PCA conducts an underwritten public offering of its common stock;
- TPI and its affiliates hold less than 17.5% of PCA's outstanding common
stock; or
- all or substantially all of the stock or assets of TPI is acquired by a
person engaged in the containerboard and corrugated packaging products
business with annual revenues from that business in excess of $100
million.
The Stockholders Agreement may also be terminated by the mutual agreement of TPI
and PCA Holdings. The stockholders agreement is filed as Exhibit 10.7 to the
registration statement of which this prospectus forms a part.
REGISTRATION RIGHTS AGREEMENT
PCA, PCA Holdings and TPI entered into a registration rights agreement under
which TPI, PCA Holdings and their affiliates and transferees have "demand"
registration rights, which entitle them to cause PCA to register their
securities of PCA under the Securities Act. In addition, TPI, PCA Holdings and
their affiliates and transferees have "piggyback" registration rights, which
entitle them to cause PCA to include their securities in a registration in which
PCA proposes to register any of its securities under the Securities Act. 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 on Form S-1, or a similar long form, in
which PCA will pay the registration expenses, other than underwriting
discounts and commissions,
(2) an unlimited number of "short form" registrations on Form S-2 or S-3, or a
similar short form, in which PCA will pay the registration expenses, other
than underwriting discounts and commissions, and
(3) an unlimited number of "long form" registrations on Form S-1, or a similar
long form, in which the requesting holders will pay the registration
expenses.
TPI and PCA Holdings also agreed in the registration rights agreement that TPI
and its affiliates will have first priority to participate in any registration
of PCA's securities during the 14-month period following the closing of the
transactions. After that time, PCA Holdings, TPI and their affiliates will have
equal priority, before any other holders of PCA's securities, to participate in
the registrations. The registration rights agreement is filed as Exhibit 10.8 to
the registration statement of which this prospectus forms a part.
SERVICES AGREEMENT
PCA entered into a holding company support agreement with PCA Holdings under
which PCA agreed to reimburse PCA Holdings for all fees, costs and expenses, up
to an aggregate amount of $250,000 per year, related to PCA Holdings' investment
in PCA. These expenses include PCA Holdings' general operating expenses,
franchise tax obligations, accounting, legal, corporate reporting and
administrative expenses, and any other expenses incurred by PCA Holdings as a
result of its investment in PCA. The holding company support agreement is filed
as Exhibit 10.9 to the registration statement of which this prospectus forms a
part.
PURCHASE/SUPPLY AGREEMENTS
PCA entered into separate purchase/supply agreements with the following parties:
TPI; Tenneco Automotive Inc., an affiliate of TPI; and Tenneco Packaging
Speciality and Consumer Products Inc., an affiliate of TPI. Under the
purchase/supply agreements, each TPI entity agreed to purchase a substantial
percentage of its requirements for containerboard and corrugated packaging
products from PCA at the prices charged by PCA to TPI and its affiliates as of
the closing. As a result of these agreements, TPI and its affiliates,
collectively, are PCA's largest customer of its overall business and PCA's
largest customer of its corrugated products business. PCA's net sales to TPI and
its subsidiaries were approximately $76.9 million for the year ended December
31, 1998 and $37.3 million for the six month period ended June 30, 1999. PCA's
net sales to other Tenneco entities were
73
<PAGE>
approximately $14.2 million for the year ended December 31, 1998 and
approximately $6.4 million for the six month period ended June 30, 1999. The
purchase/supply agreements are filed as Exhibits 10.12, 10.13 and 10.14 to the
registration statement of which this prospectus forms a part.
TRANSITION AGREEMENTS
PCA and TPI entered into a facility 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 up to four years following the closing of the transactions.
Under the facility use agreement, PCA is required to pay TPI rent plus
additional charges for the provision of building and business services. The rent
is calculated based on PCA's proportionate square footage usage of the property.
The facility use agreement is filed as Exhibit 10.10 to the registration
statement of which this prospectus forms a part.
PCA also entered into a transition services agreement with TPI which provides
for the performance of transitional services by TPI and its affiliates to PCA
that PCA currently requires to operate the containerboard and corrugated
packaging products business. TPI charges PCA an amount substantially equal to
its actual cost of providing the services, which cost includes TPI's overhead
expenses, but does not include Tenneco's overhead expenses. The exact charge to
PCA is the lesser of (1) TPI's actual cost and (2) 105% of the cost as
forecasted by TPI with respect to providing services within the following
categories: payroll, general accounting, tax support, treasury/cash management,
insurance/risk management, procurement and, human resources and
telecommunication and information services. The initial term of the transition
services agreement is for one year, but may be extended by PCA for additional
one year terms for a cost increase of 15% per year. PCA may terminate any of the
provided services on 90 days notice to TPI. In addition, TPI agreed in the
transition services agreement to reimburse PCA for up to $10.0 million in
expenditures incurred by PCA relating to system enhancement and Year 2000
compliance. PCA agreed to provide administrative and transitional services to
TPI's former folding carton business under the terms of the transition services
agreement. The transition services agreement is filed as Exhibit 10.15 to the
registration statement of which this prospectus forms a part.
PCA, Tenneco and TPI entered into a human resources agreement under 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, the
employees are entitled to continue their participation in TPI and Tenneco
welfare and pension plans for a period of one to five years following the
closing of the transactions depending on the plan. PCA has agreed to reimburse
Tenneco for associated costs. In addition, PCA has agreed to pay Tenneco an
annualized fee of at least $5.2 million for continued participation. PCA assumed
all of the existing collective bargaining agreements with respect to
containerboard business employees as of the closing. PCA intends to adopt
compensation and benefit plans with respect to its employees as contemplated
under the terms of the transactions. The human resources agreement is filed as
Exhibit 10.11 to the registration statement of which this prospectus forms a
part.
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<PAGE>
SECURITY OWNERSHIP
The following table sets forth information as of August 1, 1999 regarding the
beneficial ownership of the common stock of PCA by each person who beneficially
owns more than 5% of PCA's 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)................................................................. 228,668 53.2%
c/o Madison Dearborn Partners, LLC
Three First National Plaza
Chicago, IL 60602
Tenneco Packaging Inc................................................................ 187,092 43.5%
1900 West Field Court
Lake Forest, IL 60045
DIRECTORS AND EXECUTIVE OFFICERS
Paul T. Stecko (3)................................................................... 3,200 *
William J. Sweeney (4)............................................................... 1,279 *
Richard B. West (5).................................................................. 451 *
Mark W. Kowlzan (6).................................................................. 740 *
Andrea L. Davey (7).................................................................. 300 *
Dana G. Mead......................................................................... -- --
Theodore R. Tetzlaff................................................................. -- --
Samuel M. Mencoff (8)................................................................ 200,595.5 46.7%
Justin S. Huscher (9)................................................................ 200,595.5 46.7%
Thomas S. Souleles (10).............................................................. 200,595.5 46.7%
All directors and executive officers as a group (10 persons)......................... 206,565.5 48.0%
</TABLE>
- --------------
* Less than 1%.
(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, agreements between 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
Relationships and Related Transactions-Stockholders Agreement."
(2) The members of PCA Holdings include Madison Dearborn Capital Partners III,
L.P. ("MDCP III"), two funds affiliated with MDCP III, Capital, J.P. Morgan
Capital Corporation ("JP Morgan Capital"), an affiliated fund of JP Morgan
Capital and BT Capital Investors, L.P. ("BT Capital"). MDCP III and its
affiliated funds may be deemed to have beneficial ownership of 200,595.5
shares of common stock of PCA held by PCA Holdings, JP Morgan Capital and
its affiliated fund may be deemed to have beneficial ownership of 22,222.5
shares of common stock of PCA and BT Capital may be deemed to have
beneficial ownership of 4,000 shares of common stock of PCA. Shares
beneficially owned by MDCP III and its affiliated funds may be deemed to be
beneficially owned by Madison Dearborn Partners III, L.P., the general
partner or manager, as applicable, of each fund ("MDP III"), and by Madison
Dearborn, the general partner of MDP III.
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(3) Mr. Stecko owns 600 shares of common stock of PCA and the Paul T. Stecko
1999 Dynastic Trust owns 2,600 shares of common stock of PCA. Mr. Stecko may
be deemed to have beneficial ownership of the shares of common stock of PCA
owned by the Paul T. Stecko 1999 Dynastic Trust. Mr. Stecko also has an
option to acquire 6,300 shares of common stock of PCA, no portion of which
is currently exercisable or will become exercisable within 60 days of August
1, 1999.
(4) Mr. Sweeney may be deemed to have beneficial ownership of the 1,279 shares
of common stock of PCA owned by the William J. Sweeney 1999 Irrevocable
Trust. Mr. Sweeney also has an option to acquire 2,670 shares of common
stock of PCA, no portion of which is currently exercisable or will become
exercisable within 60 days of August 1, 1999.
(5) Mr. West has an option to acquire 980 shares of common stock of PCA, no
portion of which is currently exercisable or will become exercisable within
60 days of August 1, 1999.
(6) Mr. Kowlzan has an option to acquire 1,595 shares of common stock of PCA, no
portion of which is currently exercisable or will become exercisable within
60 days of August 1, 1999.
(7) Ms. Davey may be deemed to have beneficial ownership of the 300 shares of
common stock of PCA owned by the Andrea Lora Davey Trust dated February 19,
1994. Andrea L. Davey also has an option to acquire 639 shares of common
stock of PCA, no portion of which is currently exercisable or will become
exercisable within 60 days of August 1, 1999.
(8) 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
the shares owned by Madison Dearborn.
(9) 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
the shares owned by Madison Dearborn.
(10) 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 the
shares owned by Madison Dearborn.
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DESCRIPTION OF SENIOR CREDIT FACILITY
GENERAL
In connection with the transactions, PCA entered into a credit facility on April
12, 1999 with a syndicate, or group, of more than 80 banks and financial
institutions, including J.P. Morgan Securities Inc. and BT Alex. Brown
Incorporated as co-lead arrangers of the lending syndicate, 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. The credit
facility is referred to as a senior credit facility because borrowings under the
credit facility are unsubordinated obligations of PCA and are secured as
described below under the heading "--Guarantee; Security."
As is customary when a number of financial institutions form a syndicate to make
a loan, the co-lead arrangers were responsible for enlisting other financial
institutions to take part in the loan. The syndication agent and the
administrative agent are authorized to perform mechanical and administrative
functions associated with making and monitoring the loan on behalf of all of the
other lenders who make up the lending syndicate. The senior credit facility
consists of:
- the Term Loan A facility of $460.0 million in term loans,
- the Term Loan B facility of $375.0 million in term loans,
- the Term Loan C facility of $375.0 million in term loans, and
- the revolving credit facility of up to $250.0 million in revolving credit
loans and letters of credit.
The following table provides important information about each of the term loans
and the revolving credit facility as of June 30, 1999:
<TABLE>
<CAPTION>
----------------------------------------------------------------
INTEREST EURODOLLAR
BORROWING ARRANGEMENT LOAN TYPE(a) TOTAL BORROWINGS RATE INTEREST RATE
- ----------------------------------------------- ------------ ---------------- ------------ ------------------
<S> <C> <C> <C> <C>
Term Loan A.................................... Eurodollar 431,487,603 7.75% LIBOR + 2.75%*
Term Loan B.................................... Eurodollar 351,756,198 8.25% LIBOR + 3.25%
Term Loan C.................................... Eurodollar 351,756,198 8.50% LIBOR + 3.50%
Revolver
Revolver-Eurodollar.......................... N/A 0 7.75% LIBOR + 2.75%*
Revolver-Base Rate........................... N/A 0 9.50% N/A
</TABLE>
- --------------
* The margin with respect to the revolving credit facility and Term Loan A
will vary from time to time based on PCA's leverage ratio.
(a) The borrowings under the senior credit facility will bear interest at
floating rates and may, at the election of PCA, be maintained as base rate
loans or Eurodollar loans. Eurodollar loans bear interest for each interest
period at LIBOR as of the beginning of that interest period plus the
applicable margin. Base rate loans bear interest at a rate, determined on a
daily basis, equal to the higher of the prime rate for that date plus the
applicable margin or 0.5% plus the federal funds rate for that date plus the
applicable margin.
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.
REPAYMENT
The revolving credit facility must be repaid on or before April 12, 2005. Prior
to that date, funds may be borrowed, repaid and reborrowed, without premium or
penalty under the terms of the senior credit facility. The
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<PAGE>
term loans mature, and as a result must be repaid, in quarterly installments on
March 31, June 30, September 30 and December 31 of each year, beginning on
September 30, 1999. Term Loan A will mature in quarterly installments from
September 1999 through 2005. Term Loan B will mature in quarterly installments
from September 1999 through 2007. Term Loan C will mature in quarterly
installments from September 1999 through 2008. The revolving credit facility
will terminate in 2005.
The following table provides our annual scheduled payments under each of the
term loans, without taking into account any unscheduled prepayments:
<TABLE>
<CAPTION>
YEAR TERM LOAN A TERM LOAN B TERM LOAN C
- --------- -------------- -------------- --------------
<S> <C> <C> <C>
1999 $ 16,000,000 $ 1,875,000 $ 1,875,000
2000 40,000,000 3,750,000 3,750,000
2001 60,000,000 3,750,000 3,750,000
2002 90,000,000 3,750,000 3,750,000
2003 100,000,000 3,750,000 3,750,000
2004 120,000,000 3,750,000 3,750,000
2005 34,000,000 3,750,000 3,750,000
2006 N/A 263,203,125 3,750,000
2007 N/A N/A 260,390,625
2008 N/A N/A 86,484,375
</TABLE>
On May 18, 1999, PCA made a voluntary prepayment of $75.0 million using excess
cash to permanently reduce its borrowings under the term loans. On July 15,
1999, PCA prepaid an additional $10.0 million on the term loans using excess
cash. As a result of these prepayments, no quarterly installments are due until
June, 2000 for Term Loan A and September, 2001 for Term Loans B and C.
GUARANTEE; SECURITY
The senior credit facility is (1) jointly and severally guaranteed by each of
PCA's existing subsidiaries and (2) secured by a first priority lien covering
substantially all of the owned timberland, mills, plants and other facilities
and substantially all 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. In addition, the senior credit facility will also be
secured by a pledge of 65% of the capital stock of any first tier foreign
subsidiaries that PCA may acquire or form in the future. 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.
COVENANTS
The senior credit facility requires PCA to maintain compliance with the
following financial tests:
- MAXIMUM LEVERAGE RATIO. Restricts the ratio of the consolidated
indebtedness of PCA and its subsidiaries to their consolidated EBITDA for
a given four quarter period;
- MINIMUM NET WORTH. Establishes a minimum consolidated net worth that must
be maintained by PCA and its subsidiaries; and
- MINIMUM INTEREST COVERAGE RATIO. Establishes a minimum ratio of
consolidated EBITDA of PCA and its subsidiaries to their consolidated cash
interest expense for a given four quarter period.
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<PAGE>
The following table provides the applicable threshold for each of the financial
tests for the periods ending on the dates indicated.
<TABLE>
<CAPTION>
CONSOLIDATED
MINIMUM INTEREST
MAXIMUM CONSOLIDATED NET COVERAGE
FISCAL QUARTER ENDED LEVERAGE RATIO WORTH RATIO
- ------------------------------------------------------------- -------------- ---------------- ----------------
<S> <C> <C> <C>
June 30, 1999................................................ N/A $ 315,000,000 N/A
September 30, 1999........................................... 6.75:1.0 325,000,000 1.50:1.0
December 31, 1999............................................ 6.75:1.0 325,000,000 1.50:1.0
March 31, 2000............................................... 6.75:1.0 325,000,000 1.50:1.0
June 30, 2000................................................ 6.50:1.0 325,000,000 1.50:1.0
September 30, 2000........................................... 6.50:1.0 325,000,000 1.60:1.0
December 31, 2000............................................ 6.25:1.0 350,000,000 1.60:1.0
March 31, 2001............................................... 6.25:1.0 350,000,000 1.75:1.0
June 30, 2001................................................ 6.00:1.0 350,000,000 1.75:1.0
September 30, 2001........................................... 5.75:1.0 350,000,000 2.00:1.0
December 31, 2001............................................ 5.75:1.0 400,000,000 2.00:1.0
March 31, 2002............................................... 5.50:1.0 400,000,000 2.00:1.0
June 30, 2002................................................ 5.25:1.0 400,000,000 2.00:1.0
September 30, 2002........................................... 5.25:1.0 400,000,000 2.00:1.0
December 31, 2002............................................ 5.00:1.0 450,000,000 2.25:1.0
March 31, 2003............................................... 5.00:1.0 450,000,000 2.25:1.0
June 30, 2003................................................ 5.00:1.0 450,000,000 2.25:1.0
September 30, 2003........................................... 5.00:1.0 450,000,000 2.25:1.0
December 21, 2003............................................ 4.75:1.0 490,000,000 2.25:1.0
March 31, 2004............................................... 4.75:1.0 490,000,000 2.25:1.0
June 30, 2004................................................ 4.75:1.0 490,000,000 2.25:1.0
September 30, 2004........................................... 4.50:1.0 490,000,000 2.25:1.0
December 31, 2004............................................ 4.50:1.0 540,000,000 2.25:1.0
March 31, 2005............................................... 4.25:1.0 540,000,000 2.50:1.0
June 30, 2005................................................ 4.25:1.0 540,000,000 2.50:1.0
September 30, 2005........................................... 4.25:1.0 540,000,000 2.50:1.0
December 31, 2005............................................ 4.25:1.0 590,000,000 2.50:1.0
March 31, 2006............................................... 4.00:1.0 590,000,000 2.50:1.0
June 30, 2006................................................ 4.00:1.0 590,000,000 2.50:1.0
September 30, 2006........................................... 4.00:1.0 590,000,000 2.50:1.0
December 31, 2006............................................ 4.00:1.0 640,000,000 2.50:1.0
March 31, 2007............................................... 4.00:1.0 640,000,000 2.50:1.0
June 30, 2007................................................ 4.00:1.0 640,000,000 2.50:1.0
September 30, 2007........................................... 4.00:1.0 640,000,000 2.50:1.0
December 31, 2007............................................ 4.00:1.0 690,000,000 2.50:1.0
March 31, 2008............................................... 4.00:1.0 690,000,000 2.50:1.0
</TABLE>
In addition, the senior credit facility contains 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,
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- prepayments and modifications of debt instruments,
- lines of business,
- creation of new subsidiaries, and
- the ability of subsidiaries to pay dividends, make loans or transfer
assets to PCA or other subsidiaries.
EVENTS OF DEFAULT
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,
- events of bankruptcy and insolvency,
- certain events under the Employee Retirement Income Security Act of 1974,
- 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
- a change of control of PCA.
Upon an event of default, the administrative agent may do the following by
written notice to PCA:
- terminate the senior credit facility,
- accelerate the senior credit facility,
- direct PCA to pay an additional amount of cash equal to the aggregate
stated amount of all letters of credit issued and outstanding to be held
as security by the collateral agent, and
- enforce the liens and security interest created by the senior credit
facility.
INTEREST
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, which is 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, in each case, the applicable margin,
as described below. Eurodollar loans bear interest at the Eurodollar rate as
described in the senior credit facility, plus the applicable margin, as
described below.
The applicable margin with respect to the revolving credit facility and Term
Loan A varies from time to time in accordance with an agreed upon pricing grid
based on PCA's leverage ratio. The initial applicable margin with respect to the
revolving credit facility and Term Loan A is (1) 1.75%, in the case of base rate
loans and (2) 2.75% in the case of Eurodollar loans. The applicable margins with
respect to Term Loan B and Term Loan C do not fluctuate. The applicable margin
for Term Loan B 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 Term Loan C is
(1) 2.50% in the case of base rate loans and (2) 3.50% in the case of Eurodollar
loans. The following table indicates the applicable margins at various leverage
ratios for Term Loan A and revolving loans.
<TABLE>
<CAPTION>
APPLICABLE MARGIN FOR APPLICABLE MARGIN FOR
EURODOLLAR TERM LOAN A BASE RATE TERM LOAN A
LEVERAGE RATIO AND REVOLVING LOANS AND REVOLVING LOANS
- ----------------------------------------------------------------- ----------------------- -----------------------
<S> <C> <C>
greater than or equal to 4.50:1.00............................... 2.75% 1.75%
less than 4.50:1.00 but greater than or equal to 4.00:1.00....... 2.50% 1.50%
less than 4.00:1.00 but greater than or equal to 3.50:1.00....... 2.25% 1.25%
less than 3.50:1.00 but greater than or equal to 3.00:1.00....... 2.00% 1.00%
less than 3.00:1.00.............................................. 1.75% 0.75%
</TABLE>
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COMMITMENT AND LETTER OF CREDIT FEES
Lenders that issue letters of credit under the senior credit facility will
receive a commission equal to the applicable margin which applies from time to
time to Eurodollar loans under the revolving credit facility. A letter of credit
is an engagement by a bank made at the request of a customer that the bank will
honor drafts or other demands for payment made by third parties upon compliance
with conditions specified in the credit agreement. In addition, a bank that
issues a letter of credit under the senior credit facility will receive a
fronting fee of 0.25% per annum plus its other standard and customary processing
charges. A fronting fee is a fee paid to a bank that issues a letter of credit
to compensate the bank for making the letter of credit available to the
borrower. These commissions 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.
Lenders under the revolving credit facility will receive 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.
VOLUNTARY PREPAYMENTS
Voluntary prepayments of amounts outstanding under the senior credit facility
are permitted at any time, so long as PCA gives notice as required by the senior
credit facility. However, if a prepayment is being made with respect to a
Eurodollar loan and the prepayment is made on a date other than an interest
payment date, PCA must pay a fee to compensate the lender for losses and
expenses incurred by the lender as a result of the prepayment.
MANDATORY PREPAYMENTS
The senior credit facility requires PCA to prepay the term loan facilities and
reduce commitments under the revolving credit facility with:
- 100% of the net proceeds of any issuance of indebtedness after the closing
date by PCA and its subsidiaries, subject to exceptions for permitted
debt,
- 50% of the net proceeds of any issuance of equity by PCA and its
subsidiaries, subject to certain exceptions,
- 100% of the net proceeds of any sale or other disposition by PCA and its
subsidiaries of any assets, subject to certain exceptions, unless such
proceeds are reinvested in "eligible assets" as defined in the senior
credit facility, with certain exceptions and, subject to agreed dollar
limitations,
- 75% of excess cash flow as defined in the senior credit facility, or 50%
upon satisfaction of certain financial ratios, and
- 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.
If PCA fails to make a mandatory prepayment when due, then an event of default
will exist.
In general, the proceeds of 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. If the amount of revolving
loans then outstanding exceeds the commitments as so reduced, then that excess
amount must also be prepaid. Prepayments of the term loan facilities, optional
or mandatory, will be applied pro rata to Term Loan A, Term Loan B and Term Loan
C, 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 term loan within the 24
months following the optional or mandatory prepayment, and:
- to the right in certain circumstances of the lenders of Term Loan B and
Term Loan C to waive mandatory prepayments to which they would otherwise
be entitled, in which case the amount waived will be applied to Term Loan
A.
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DESCRIPTION OF EXCHANGE NOTES
The defined terms used in this description but not otherwise defined can be
found in the subsection "-Definitions" which begins on page 107. 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 the notes indenture among itself, the
Guarantors and United States Trust Company of New York, as trustee. The notes
indenture is filed as Exhibit 4.1 to the registration statement of which this
prospectus forms a part. 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 not bear legends restricting their transfer; and
- the holders of the exchange notes will not have some of the rights under
the notes registration rights agreement, including the provision providing
for liquidated damages 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 rank
equally with the outstanding notes if all of the outstanding notes are not
exchanged in this exchange offer.
The following description is a summary of the material provisions of the notes
indenture. 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 described below under "-Additional Information." Some
of the defined terms used in this description but not defined below under
"-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;
- rank equally 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 current Subsidiaries of PCA and
will be guaranteed by all future Domestic Subsidiaries of PCA, other than any
Receivables Subsidiaries.
Each Guarantee of the exchange notes:
- is a general unsecured obligation of the Guarantor;
- is a full and unconditional and joint and several obligation of the
Guarantor;
- is subordinated in right of payment to all existing and future Senior Debt
of the Guarantor; and
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- ranks equally in right of payment with any future senior subordinated
Indebtedness of the Guarantor.
As of the date of the notes indenture, all of our subsidiaries were "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "-Covenants-Designation of Restricted and Unrestricted Subsidiaries,"
we are permitted to designate some 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 "-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 you hold at least $1.0 million in aggregate principal amount of the exchange
notes and have given wire transfer instructions to PCA, PCA will pay all
principal, interest and premium and Liquidated Damages, if any, on your exchange
notes as provided by 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 you at the address 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
You may transfer or exchange your exchange notes in accordance with the notes
indenture. The registrar and the trustee may require you, among other things, to
furnish appropriate endorsements and transfer documents and PCA may require you
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 fully and unconditionally and jointly and severally
guarantee on a senior subordinated basis PCA's obligations under the exchange
notes. Each Subsidiary Guarantee, a form of which is included in Exhibits 4.6
and 4.7 to the registration statement of which this prospectus forms a part,
will be subordinated to
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the prior payment in full in cash and 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 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, another Person, whether or
not the Guarantor is the surviving 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 the sale or disposition or the
Person formed by or surviving the consolidation or merger assumes all
the obligations of that Guarantor under the notes indenture, its
Subsidiary Guarantee and the note registration rights agreement by a
supplemental notes indenture satisfactory to the trustee; or
(b) the Net Proceeds of the 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 the 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 a Subsidiary of PCA, either before or after
giving effect to the transaction, 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 that
definition, 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 that definition, 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
the interest is an allowable claim, before you 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 you 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, your exchange notes or
acquire any of your 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 the 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 the
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 the default shall have been cured or
waived for a period of not less than 90 consecutive days.
If you or the trustee 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 the payment is prohibited by these subordination provisions, you or
the trustee, 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, you or the trustee, 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, you may recover less ratably
than creditors of PCA who are holders of Senior Debt. See "Risk
Factors-Subordination of Exchange Notes."
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OPTIONAL REDEMPTION
At any time before 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 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 the 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
the offering, the making of the capital contribution or the consummation
of a Timberlands Sale.
Before 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 under 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
under an issuer tender offer or otherwise, assuming the 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, you will have the right to require PCA to
repurchase all or any part, equal to $1,000 or an integral multiple thereof of
your exchange notes under 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 you 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 the notice,
which date shall be no earlier than 30 days and no later than 60 days from the
date the notice is mailed, under
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the procedures required by the notes indenture and described in the 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 the 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 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 that conflict.
On the Change of Control Payment Date, PCA will, to the extent lawful:
(1) accept for payment all exchange notes or portions of exchange notes
properly tendered under 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 of exchange notes
tendered; and
(3) deliver or cause to be delivered to the trustee the exchange notes
accepted together with an Officers' Certificate stating the aggregate
principal amount of exchange notes or portions of exchange notes being
purchased by PCA.
The paying agent will promptly mail to you, if you tendered exchange notes, the
Change of Control Payment for your exchange notes, and the trustee will promptly
authenticate and mail, or cause to be transferred by book entry, to you a new
exchange note equal in principal amount to any unpurchased portion of the
exchange notes surrendered, if any; PROVIDED that each 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 under 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 you 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 the Change of Control
Offer.
The definition of Change of Control includes a phrase relating to the direct or
indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of 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, your ability to
require PCA to repurchase the 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 the 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) 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 received by PCA or the 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 the 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 the
Restricted Subsidiary from the transferee that are converted, sold or
exchanged by PCA or the 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 the Asset Sale having an aggregate fair
market value, taken together with all other Designated Noncash
Consideration received since the date of the notes indenture under
this clause (c) that is at that time outstanding, not to exceed 10%
of Total Assets at the time of the receipt of the 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 the 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 the assets are sold;
(3) to make a capital expenditure or commit, or cause the Restricted
Subsidiary to commit, to make a capital expenditure, including amounts
anticipated to be expended under PCA's capital investment plan as
adopted by the Board of Directors of PCA, within 24 months of the 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 of these Net Proceeds, PCA may temporarily
reduce revolving credit borrowings or otherwise invest, these 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 you and all holders of other Indebtedness that ranks equally
with the exchange notes containing provisions similar to those set forth in the
notes indenture with respect to offers to purchase or redeem with the proceeds
of sales of assets to purchase the maximum principal amount of exchange notes
and the other Indebtedness of equal rank that may be purchased out of the Excess
Proceeds. The offer price in any
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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 the Excess Proceeds for any purpose not otherwise
prohibited by the notes indenture. If the aggregate principal amount of exchange
notes and the other Indebtedness of equal rank tendered into the Asset Sale
Offer exceeds the amount of Excess Proceeds, the trustee shall select the
exchange notes and the other Indebtedness of equal rank to be purchased on a pro
rata basis based on the principal amount of exchange notes and the other
Indebtedness of equal rank 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 the Timberlands Sale;
(2) PCA's Debt to Cash Flow Ratio at the time of the Timberlands Repurchase,
after giving pro forma effect to:
(a) the 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 the laws and
regulations are applicable in connection with each repurchase of exchange notes
under 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 the conflict.
The agreements governing PCA's outstanding Senior Debt currently prohibit PCA
from purchasing any exchange notes, and also provide that some of the 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 that prohibition. If
PCA does not obtain the consent or repay the borrowings, PCA will remain
prohibited from purchasing exchange notes. In that 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 the Senior
Debt. In that circumstance, the subordination provisions in the notes indenture
would likely restrict payments to you as a holder 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 listed, on a pro rata basis, by lot or by
any 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 you at your registered address. Notices of
redemption may not be conditional.
If any of your exchange notes are to be redeemed in part only, the notice of
redemption that relates to that exchange note shall state the portion of the
principal amount of the exchange note to be redeemed. A new exchange note in
principal amount equal to the unredeemed portion of the original exchange note
will be issued in your name 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.
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 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 holders, 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 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 of the Indebtedness; or
(4) make any Restricted Investment, which payments and other actions set
forth in clauses (1) through (4) above are collectively referred to as
"Restricted Payments",
unless, at the time of and after giving effect to the Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence of a Restricted Payment; and
(2) PCA would, at the time of the Restricted Payment and after giving pro
forma effect thereto as if the 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 under the Fixed Charge
Coverage Ratio test described 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) the 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 the Restricted Payment or, if
the Consolidated Net Income for that period is a deficit, less 100%
of the 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 the
Equity Interests, other than Equity Interests, Disqualified Stock or
debt securities sold to a Subsidiary of PCA, together with the net
proceeds received by PCA upon the 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 (A) the cash return of capital with
respect to the Restricted Investment, less the cost of disposition,
if any, and (B) the initial amount of the Restricted Investment.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
of the dividend, if at the date of declaration the 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 net cash proceeds that are
utilized for any 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,
any Timberlands Repurchase under the terms of 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,
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, under 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 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 the 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,
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 a Restricted Subsidiary, as
the case may be, under 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 the additional Indebtedness is
incurred or the Disqualified Stock or preferred stock is issued would have
been at least 2.0 to 1; or,
- if a Timberlands Repurchase has occurred 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 the 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
under 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 under Credit Facilities as
described in this clause (1) shall be in addition to any Indebtedness
permitted to be incurred under Credit Facilities, in reliance on, and as
described in, 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;
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(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 the outstanding notes and the related Subsidiary Guarantees thereof;
(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 the 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 under
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 intercompany
Indebtedness by PCA or the 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 intercompany Indebtedness being held by a Person other than
PCA or a Restricted Subsidiary; and
(b) any sale or other transfer of any intercompany Indebtedness to a
Person that is not either PCA or a Restricted Subsidiary;
(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
the Restricted Subsidiary, as the case may be, has determined that the
entering into of the Other Hedging Agreements are legitimate 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 the 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 case, that the amount of the
Indebtedness is included in Fixed Charges and Consolidated Indebtedness
of PCA as accrued;
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(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 under 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 the business, assets or a Subsidiary for the purpose of
financing the acquisition; PROVIDED, HOWEVER, that:
(a) the Indebtedness is not reflected on the balance sheet of PCA or any
Restricted Subsidiary, which does not include contingent obligations
referred to in a footnote to financial statements and not otherwise
reflected on the balance sheet and
(b) the maximum assumable liability in respect of all the Indebtedness
shall at no time exceed the gross proceeds including noncash
proceeds, where the fair market value of the noncash proceeds is
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 under
this clause (15), not to exceed $25.0 million at any one time
outstanding; PROVIDED that the Indebtedness was incurred by the prior
owner of the asset or the Restricted Subsidiary prior to the acquisition
by the Restricted Subsidiary and was not incurred in connection with, or
in contemplation of, the 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 under 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 under
this clause (19), not to exceed $75.0 million.
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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
under the first paragraph of this covenant, PCA will be permitted to classify or
later reclassify the item of Indebtedness in any manner that complies with this
covenant. Indebtedness under Credit Facilities outstanding on the date on which
exchange notes are first issued and authenticated under the notes indenture
shall be deemed to have been incurred on that 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 but 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 the Guarantor but senior in any respect in right
of payment to the 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 the acquisition, except to the extent the Indebtedness was
incurred in connection with or in contemplation of the 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, the 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;
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(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;
(8) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to the 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 notes indenture imposed by the holder of the 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 these restrictions apply only to
the Receivables Subsidiary;
(14) encumbrances or restrictions existing under or arising under Credit
Facilities entered into in accordance with the notes indenture; PROVIDED
that the encumbrances or restrictions in those Credit Facilities are not
materially more restrictive than those contained in the Credit Agreement
as in effect on the date of this prospectus; 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 those 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 dividend and other payment restrictions than
those contained in the dividends or other payment restrictions prior to
the amendment, modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing.
MERGER, CONSOLIDATION OR SALE OF ASSETS
PCA may not, directly or indirectly: consolidate or merge with or into another
Person, whether or not PCA is the surviving corporation; or 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 the consolidation or merger, if other than PCA, or to
which the 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 of the United States or the
District of Columbia;
(2) the Person formed by or surviving the consolidation or merger, if other
than PCA, or the Person to which the 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 under agreements reasonably
satisfactory to the trustee;
(3) immediately after the consolidation or merger, no Default or Event of
Default exists; and
(4) PCA or the Person formed by or surviving the consolidation or merger, if
other than PCA, or to which the sale, assignment, transfer, conveyance
or other disposition shall have been made will, on the date of
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the transaction after giving pro forma effect to the transaction and any
related financing transactions as if they had occurred at the beginning
of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness under the Fixed Charge Coverage Ratio
test described 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 the 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 the Investment would be permitted at that time and if the
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
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) the 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 the
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 the Affiliate Transaction
complies with this covenant and that the 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 you of the 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.
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The following items shall not be deemed to be Affiliate Transactions and 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 the 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 the 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 these 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 following the
date of the closing 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.
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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 the 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 the 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 the 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 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 you, 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 these 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 these 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 the
filing, and make the information available to securities analysts and
prospective investors upon request. In addition, PCA and the Guarantors have
agreed that, for so long as any exchange notes remain outstanding, they will
furnish to you and to securities analysts and prospective investors, upon
request, the information required to be delivered under 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, 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.
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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 "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;
(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 the Indebtedness, which we refer to as a Payment Default; or
(b) results in the acceleration of Indebtedness prior to its express
maturity,
and, in each case, the principal amount of that Indebtedness, together with the
principal amount of any other 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) 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 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 this is a "notice of acceleration" (the "Acceleration Notice"), and
the exchange notes shall become immediately due and payable or, 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 the Acceleration Notice but only if the Event of Default is then
continuing.
You may not enforce the notes indenture or the exchange notes except as provided
in the notes indenture. Subject to the terms of the notes indenture, holders of
a majority in principal amount of the then outstanding exchange
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notes may direct the trustee in its exercise of any trust or power. The trustee
may withhold from you 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
your 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 under 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 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 the
Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No person serving in the role of director, officer, employee, incorporator or
stockholder of PCA or any Guarantor 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, the obligations or their creation. By accepting an exchange note, you waive
and release all these liabilities. 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) your right to receive payments in respect of the principal of, or
interest or premium and Liquidated Damages, if any, on your exchange
notes when the 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 exchange 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 related obligations; 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 some of the
covenants that are described in the notes indenture ("Covenant Defeasance"),
after which 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, the events described under "Events of Default,"
except for non-payment, bankruptcy, receivership, rehabilitation and insolvency
events, will no longer constitute an Event of Default with respect to the
exchange notes.
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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 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 either PCA has received from, or there has been published by, the
Internal Revenue Service a ruling or since the date of the notes
indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and on that basis the Opinion of
Counsel shall confirm that, you will not recognize income, gain or loss
for federal income tax purposes as a result of the 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 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 you will not recognize income, gain or loss for federal
income tax purposes as a result of the 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 the Covenant
Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either:
(a) on the date of the deposit, other than a Default or Event of Default
resulting from the borrowing of funds to be applied to the deposit;
or
(b) 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) the 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 PCA has complied with all conditions
precedent relating to the Legal Defeasance or the Covenant Defeasance.
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
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exchange notes then outstanding, including consents obtained in connection with
a purchase of, or tender offer or exchange offer for, exchange notes. In
addition, 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
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;"
(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
the 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 compliance 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 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.
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SATISFACTION AND DISCHARGE
The notes indenture will be discharged and will cease to be of further effect as
to all exchange notes issued under the ntoes indenture, 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 been deposited in trust
and then 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 of the above, in amounts that
will be sufficient without consideration of any reinvestment of
interest, to pay and discharge the entire 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 deposit or shall occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which 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 some cases, or to realize on
certain property received in respect of any some claims as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate the 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 some
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 these 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 the 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.
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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 under 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 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 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, under 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 some Persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to these 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 the interests to Persons that do
not participate in the DTC system, or otherwise take actions in respect of these
interests, may be affected by the lack of a physical certificate evidencing the
interests.
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EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS 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" OF THE EXCHANGE NOTES 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 Persons in whose names the exchange notes, including the Global Notes,
are registered as the owners 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 the 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 that portion of the aggregate principal amount of the exchange notes
as to which the Participant or Participants has or have given 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 those 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 under the terms of the notes indenture. In all cases,
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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.
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 of Certificated Notes or, if no account is
specified, by mailing a check to the 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 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.
DEFINITIONS
Set forth below are some of the defined terms used in the notes indenture.
Reference is made to the notes indenture for a full disclosure of all the 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 that other Person
is merged with or into or became a Subsidiary of the specified Person,
whether or not the Indebtedness is incurred in connection with, or in
contemplation of, the other Person merging with or into, or becoming a
Subsidiary of, the specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by the
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 the 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 that 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 exchange note on any redemption
date, the greater of:
(1) 1.0% of the principal amount of the exchange note; or
(2) the excess of:
(a) the present value at the redemption date of:
(1) the redemption price, which is set forth in the table under
"-Optional Redemption," of the exchange note at April 1, 2004
plus;
(2) 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 the Redemption
Date plus 50 basis points; over
(b) the principal amount of the exchange 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
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substantially all of the assets of PCA and its Restricted Subsidiaries
taken as a whole will be governed by the provisions of the notes
indenture described above under the caption "-Repurchase at the Option
of Holders-Change of Control" and/or the provisions described above
under the caption "-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
under 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 their fair market value including cash or
Cash Equivalents or Marketable Securities in an amount at least equal to
75% of their fair market value 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 "-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 the sale and
leaseback transaction including any period for which the lease has been extended
or may, at the option of the lessor, be extended. The present value shall be
calculated using a discount rate equal to the rate of interest implicit in the
transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to that 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, that "person" shall be deemed to have beneficial ownership
of all securities that the "person" has the right to acquire by conversion or
exercise of other securities, whether this 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 that Person
serving a similar function.
"CAPITAL LEASE OBLIGATION" means, at the time any determination of liability 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 of its agencies or instrumentalities,
PROVIDED that the full faith and credit of the United States is pledged
in support of the securities, 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
timberland;
(3) the consummation of any transaction, including 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 that Person for the period PLUS:
(1) provision for taxes based on income or profits of the Person and its
Restricted Subsidiaries for the period, to the extent that the provision
for taxes was deducted in computing the Consolidated Net Income; PLUS
(2) consolidated interest expense of the Person and its Restricted
Subsidiaries for the period, whether paid or accrued and whether or not
capitalized, including amortization of debt issuance costs and original
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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 under
Hedging Obligations, to the extent that the expense was deducted in
computing the 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 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 the Person and its Restricted Subsidiaries for the
period to the extent that the depreciation, amortization and other
non-cash expenses were deducted in computing the 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 those charges were deducted in
computing the Consolidated Net Income; PLUS
(5) all restructuring charges incurred prior to the date of the notes
indenture, including the restructuring charge that was added to pro
forma EBITDA to calculate adjusted pro forma EBITDA described in Note 4
under "Selected Combined Financial and Other Data;" MINUS
(6) non-cash items increasing the Consolidated Net Income for the 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 the Restricted Subsidiary without prior governmental approval, that has not
been obtained, and without direct or indirect restriction under 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 that Person and its Restricted
Subsidiaries; PLUS
(2) the total amount of Indebtedness of any other Person, to the extent that
the 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 that Person
and all preferred stock of Restricted Subsidiaries of that 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 that Person and its Restricted
Subsidiaries for that 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 of that Person;
(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
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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 the 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 the Board of Directors on the date of the notes
indenture; or
(2) was nominated for election or elected to the Board of Directors either:
(a) with the approval of a majority of the Continuing Directors who were
members of the Board at the time of the nomination or election; or
(b) under the terms of the Stockholders Agreement as in effect on the
date of the notes indenture.
"CONTRIBUTION" means the Contribution contemplated by the Contribution
Agreement.
"CONTRIBUTION AGREEMENT" means the 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 notes indenture.
"CREDIT AGREEMENT" means the 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 the 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 the 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 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 the lenders
or to special purpose entities formed to borrow from the lenders against the
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 TO CASH FLOW RATIO" means, as of any date of determination, the ratio of
(1) the Consolidated Indebtedness of PCA as of that date to (2) the Consolidated
Cash Flow of PCA for the four most recent full fiscal quarters ending
immediately prior to that 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 the four-quarter period through and including
the date of determination, including any related financing transactions, as if
the acquisitions and dispositions had occurred at the beginning of the
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 the four-quarter 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
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four-quarter reference period and Consolidated Cash Flow for the
four-quarter 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 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 that period to the transactions 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 Note 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 the 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 in an Officers' Certificate
executed by the principal executive officer and the principal financial officer
of PCA or the Restricted Subsidiary. The Officers' Certificate shall state the
basis of the 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 notes 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, or upon the happening of any event,
matures or is mandatorily redeemable, as required by a sinking fund obligation
or otherwise, or redeemable at the option of the holder, in whole or in part, on
or prior to the date that is 91 days after the date on which the exchange notes
mature. 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 the Capital Stock upon the occurrence of a change
of control or an asset sale shall not constitute Disqualified Stock if the terms
of the Capital Stock provide that PCA may not repurchase or redeem the Capital
Stock unless the repurchase or redemption complies with the covenant described
above under the caption "-Covenants-Restricted Payments." The New Preferred
Stock will not constitute Disqualified Stock for purposes of the notes
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.
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"EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights
to acquire Capital Stock, but excludes 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
notes indenture, until the 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 that Person and its Restricted
Subsidiaries for that period, whether paid or accrued, including
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 under Hedging
Obligations; PLUS
(2) the consolidated interest of that Person and its Restricted Subsidiaries
that was capitalized during that period; PLUS
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by that Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of that Person or one of its Restricted
Subsidiaries, whether or not the 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 that 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 that 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 that Person and its
Restricted Subsidiaries for that period to the Fixed Charges of that Person and
its Restricted Subsidiaries for that 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 the incurrence, assumption, Guarantee, repayment, repurchase or redemption of
Indebtedness, or the 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 the 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 the reference period shall be calculated on a
pro forma basis under the terms of Regulation S-X under the Securities
Act and including those cost savings that management reasonably expects
to realize within six months after the acquisition, but without giving
effect to clause (3) of the proviso in the definition of Consolidated
Net Income;
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(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 those 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 closing of the Contribution, pro forma effect shall be
given for the 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 Note 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 the
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 the Restricted Subsidiary
by Persons other than PCA or any of its Restricted Subsidiaries, the proceeds of
which are used for the Restricted Subsidiary's working capital purposes.
"GAAP" means generally accepted accounting principles described 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 other statements by other entities 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, 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 notes indenture;
and their respective successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any specified Person, the
obligations of that 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 that Person against
fluctuations in interest rates.
"INDEBTEDNESS" means, with respect to any specified Person, any indebtedness of
that 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 related reimbursement agreements;
(3) banker's acceptances;
(4) Capital Lease Obligations;
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(5) the deferred balance of the purchase price of any property outside of
the ordinary course of business which remains unpaid, except the 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 the 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) its accreted value, in the case of any Indebtedness issued with original
issue discount; and
(2) its principal amount 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 that 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 the
sale or disposition, that Person is no longer a Subsidiary of PCA, PCA shall be
deemed to have made an Investment on the date of the sale or disposition equal
to the fair market value of the Equity Interests of the Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "-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 the Subsidiary
in the third Person in an amount equal to the fair market value of the
Investment held by the acquired Person in the third Person in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "-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 that 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 or loss
of that 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 the
gain or loss, realized in connection with: (a) any Asset Sale; or (b)
the disposition of any securities by the Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of the Person or
any of its Restricted Subsidiaries; and
(2) any extraordinary gain or loss, together with any related provision for
taxes on the extraordinary gain (or loss).
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"NET PROCEEDS" means the aggregate cash proceeds received by PCA or any of its
Restricted Subsidiaries in respect of any Asset Sale, including 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 the Asset Sale,
including legal, accounting and investment banking fees, sales commissions, any
relocation expenses incurred as a result of the Asset Sales, all taxes of any
kind paid or payable as a result of the Asset Sale 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 the Asset Sale
and any reserve for adjustment in respect of the sale price of the 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
of the Indebtedness may have to take enforcement action against an
Unrestricted Subsidiary, would permit upon notice, lapse of time or both
any holder of any other Indebtedness, other than the exchange notes, of
PCA or any of its Restricted Subsidiaries to declare a default on the
other Indebtedness or cause the payment of the other Indebtedness 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 notes 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 the 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 the Investment:
(a) that Person becomes a Restricted Subsidiary of PCA; or
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(b) that 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 under the terms of 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 notes 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 those persons incurred in the ordinary
course of business, including under any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of the 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 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 Investment was made and without giving effect
to subsequent changes in value, when taken together with all other
Investments made under 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 under 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 exchange notes are subordinated to the
payment of all Senior Debt of PCA on the date of the notes indenture, so long
as:
(1) the effect of the use of this defined term in the subordination
provisions contained in the notes indenture is not to cause the exchange
notes to be treated as part of:
(a) the same class of claims as the Senior Debt of PCA; or
(b) any class of claims ranking equally 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 the 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 that definition, on that
date, either:
(a) the holders of the 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 that definition, have consented to the terms
of the plan of reorganization or readjustment; or
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(b) the holders receive securities which constitute Senior Debt of PCA,
which are guaranteed under 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 that
definition.
"PERMITTED LIENS" means:
(1) Liens of PCA and any Guarantor securing Senior Debt that was permitted
by the terms of the notes indenture to be incurred;
(2) Liens in favor of PCA or the Guarantors;
(3) Liens on property of a Person existing at the time that Person is merged
with or into or consolidated with PCA or any Subsidiary of PCA; PROVIDED
that the Liens were in existence prior to the contemplation of the
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 of the property by
PCA or any Subsidiary of PCA, PROVIDED that the Liens were in existence
prior to the contemplation of the 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
"-Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock"
covering only the assets acquired with the Indebtedness;
(7) Liens existing on the date of the notes indenture together with any
Liens securing Permitted Refinancing Indebtedness incurred under clause
(5) of the second paragraph under the caption "-Covenants-Incurrence of
Indebtedness and Issuance of Preferred Stock" in order to refinance the
Indebtedness secured by Liens existing on the date of the notes
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;
(10) Liens to secure Foreign Subsidiary Working Capital Indebtedness
permitted by the notes indenture to be incurred so long as the Lien
attached only to the assets of the Restricted Subsidiary which is the
obligor under the 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.
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"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 the 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) the 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 exchange
notes, the Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of
payment to, the exchange notes on terms at least as favorable to the
holders of exchange notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(4) the 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 the
note, other than amounts required to be established as reserves under
agreements, amounts paid to investors in respect of interest, principal and
other amounts owing to the 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 under 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 all collateral securing the accounts
receivable, all contracts and all guarantees or other obligations in respect of
the accounts receivable, proceeds of the 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:
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(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 under Standard Securitization
Undertakings;
(b) are recourse to or obligate PCA or any of its Restricted Subsidiaries
in any way other than under 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 the Indebtedness or other Obligations, other than
under 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 the 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 targeted levels of operating
results.
This 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 the designation and an Officers'
Certificate certifying, to the best of the officer's knowledge and belief after
consulting with counsel, that the 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 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 this representative, then the
Representative for the Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of the 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.
"SENIOR DEBT" means:
(1) all Indebtedness outstanding under all Credit Facilities, all Hedging
Obligations and all Other Hedging Agreements, including guarantees of
the obligations, with respect thereto of PCA and the Guarantors, whether
outstanding on the date of the notes indenture or thereafter incurred;
(2) any other Indebtedness incurred by PCA and the Guarantors, unless the
instrument under which the Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
exchange notes or the Subsidiary Guarantees, as the case may be; and
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(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 the 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
notes 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 under the Securities Act, as the 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 the payment of
interest or principal was scheduled to be paid in the original documentation
governing the Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any of the interest or principal prior to the date
originally scheduled for payment.
"STOCKHOLDERS AGREEMENT" means the 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
notes 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 that Person or one or more of
the other Subsidiaries of that Person, or a combination of that Person
and its Subsidiaries; and
(2) any partnership (a) the sole general partner or the managing general
partner of which is that Person or a Subsidiary of that Person or (b)
the only general partners of which are that Person or one or more
Subsidiaries of that Person, or any combination of that Person and its
Subsidiaries.
"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 a larger amount
as may be necessary to repurchase or redeem all outstanding new preferred stock
or subordinated exchange debentures in the event of a repurchase or redemption
of all outstanding new 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 exchange notes with Timberlands Net Proceeds in accordance with
the terms of the notes indenture.
"TIMBERLANDS SALE" means a sale or series of sales by PCA or a Restricted
Subsidiary of PCA of timberland.
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"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) the 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 notes indenture;
(2) the Facilities Use Agreement between PCA and TPI, dated the date of the
notes indenture;
(3) the Human Resources Agreement among PCA, TPI and Tenneco Inc., dated the
date of the notes indenture;
(4) the Transition Services Agreement among PCA and TPI, dated the date of
the notes indenture;
(5) the Holding Company Support Agreement among PCA and PCA Holdings, dated
the date of the notes indenture;
(6) the Registration Rights Agreement among PCA, PCA Holdings and TPI, dated
the date of the notes 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
the 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 the 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 under a Board Resolution, but
only to the extent that the 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 the
agreement, contract, arrangement or understanding are no less favorable
to PCA or the 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 that Person's
financial condition or to cause that 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 Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to the designation and an Officers' Certificate
certifying that the designation complied with the preceding conditions and was
permitted by the covenant described above under the caption
"-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
notes indenture and any Indebtedness of the Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of PCA as of that date and, if the
Indebtedness is not
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permitted to be incurred as of that date under the covenant described under the
caption "-Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock,"
PCA shall be in default of the covenant. The Board of Directors of PCA may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
PROVIDED that the designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of PCA of any outstanding Indebtedness
of the Unrestricted Subsidiary and the designation shall only be permitted if
(1) the Indebtedness is permitted under the covenant described under the caption
"-Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if the 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 the designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of that
Person that is at the time entitled to vote in the election of the Board of
Directors of that Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect of the principal, by (b) the number of years, calculated to the
nearest one-twelfth, that will elapse between that date and the making
of the payment; by
(2) the then outstanding principal amount of the Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any specified Person means any Wholly
Owned Subsidiary of that Person which at the time of determination is a
Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any specified Person means a Subsidiary of that
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
that Person and/or by one or more Wholly Owned Subsidiaries of that 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
- 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 some of the 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. The certificate of designation is filed as Exhibit 4.2
and the exchange indenture is filed as Exhibit 4.3 to the registration statement
of which this prospectus forms a part. 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."
The defined terms used in this description but not otherwise defined can be
found in the subsection "-Definitions" which begins on page 155. 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 described 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 is filed as Exhibit 3.1 to the registration statement of
which this prospectus forms a part, which incorporates 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 the terms of the certificate of
designation, exchange all and not less than all of the shares of new preferred
stock for PCA's subordinated exchange debentures. For a discussion of some of
the federal income tax consequences relevant to the payment of dividends on the
new preferred stock, see "United States Federal Tax Consequences-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 "-Covenants-Designation
of Restricted and Unrestricted Subsidiaries," we are permitted to designate some
of our subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries
will not be bound by 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 before 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 the 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 the 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 (this 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.
You 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
You 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
under the provisions of the certificate of designation or the failure to
repurchase new preferred stock under the terms of the offers;
(3) failure by PCA or any of its Restricted Subsidiaries to comply with any
of the other covenants or agreements in the certificate of designation
and the continuance of that 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 the Indebtedness (a "Payment Default"); or
(b) results in the acceleration of the Indebtedness prior to its express
maturity,
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and, in each case, the principal amount of any the Indebtedness, together
with the principal amount of any other the 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) some events of bankruptcy or insolvency with respect to PCA or any of
its Significant Subsidiaries, which events described in clauses (1)
through (5) are referred to as a "Voting Rights Triggering Events".
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 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 under the terms of the preceding paragraph, you 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 you;
PLUS
(2) without duplication, any accrued and unpaid dividends on the 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 you at your 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 the 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 the 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
the offering or the making of the 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 under the terms of 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 under the terms of an issuer tender
offer or otherwise, assuming the 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
You 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 you, 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 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 you are entitled, you 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 nor the consolidation or merger of
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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 the 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 the 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, you will have the right to require PCA to
repurchase all or any part, but not any fractional shares, of your new preferred
stock under a Change of Control Offer on the terms described 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 you 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 the
notice, which date shall be no earlier than 30 days and no later than 60 days
from the date the notice is mailed, under the procedures required by the
certificate of designation and described in the 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 the 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 the 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 in 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 you the Change of Control Payment for the
new preferred stock, and the transfer agent will promptly authenticate and mail,
or cause to be transferred by book-entry, to you 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 under 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 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."
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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 you 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
the Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct or
indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of 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, your ability to
require PCA to repurchase the 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 the 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) the 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 the
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 the Restricted Subsidiary's
most recent balance sheet, of PCA or any Restricted Subsidiary, other
than contingent liabilities, that are assumed by the transferee of
the assets;
(b) any securities, notes or other obligations received by PCA or the
Restricted Subsidiary from the transferee that are converted, sold or
exchanged by PCA or the 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 the Asset Sale having an aggregate fair
market value, taken together with all other Designated Noncash
Consideration received since the Issue Date under this clause (c)
that is at that time outstanding, not to exceed 10% of Total Assets
at the time of the receipt of the 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 the 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;
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(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 the assets are sold;
(3) to make a capital expenditure or commit, or cause the Restricted
Subsidiary to commit, to make a capital expenditure, the commitments to
include amounts anticipated to be expended under PCA's capital
investment plan as adopted by the Board of Directors of PCA, within 24
months of the 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 the Net Proceeds, PCA may temporarily reduce
revolving credit borrowings or otherwise invest the 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 you and all holders of Parity Securities containing
provisions similar to those described 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 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 the Excess Proceeds for any purpose not otherwise
prohibited by the certificate of designation. If the aggregate Liquidation
Preference of new preferred stock and other Parity Securities tendered into the
Asset Sale Offer exceeds the amount of Excess Proceeds, the transfer agent shall
select the new preferred stock and the other Parity Securities to be purchased
on a pro rata basis based on the Liquidation Preference of new preferred stock
and the 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 the Timberlands Sale;
(2) PCA's Debt and new preferred stock to Cash Flow Ratio at the time of the
Timberlands Repurchase, after giving pro forma effect to (a) the
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.
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 the laws and
regulations are applicable in connection with each repurchase of new preferred
stock under an Asset Sale Offer. To the extent that the provisions of any
securities laws or
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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 the conflict.
The agreements governing PCA's outstanding Exchange Debenture Senior Debt
currently prohibit PCA from purchasing any new preferred stock, and also
provides that some 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 the prohibition. If PCA does not obtain the consent or
repay the borrowings, PCA will remain prohibited from purchasing new preferred
stock. In this 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 any 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 you at your 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 your name 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.
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 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 to the
holders of the new preferred stock in their capacity as holders of the
new preferred stock, 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 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
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(3) make any Restricted Investment, the 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 the 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 the Restricted Payment and after giving pro
forma effect thereto as if the 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 under 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) the 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 the Restricted Payment, or, if the
Consolidated Net Income for the period is a deficit, less 100% of the
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 the 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 the 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
the Restricted Investment, less the cost of disposition, if any, and
(ii) the initial amount of the 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 the 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 the net cash proceeds
that are utilized for the 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 under
the fifth paragraph described under the caption "--Repurchase at the
Option of Holders--Asset Sales;"
(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
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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', under 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 the 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 the 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 the Restricted Subsidiary,
as the case may be, under 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 the additional Indebtedness is incurred
or the 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 the 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 permanently repay Indebtedness under a Credit Facility
under 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
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under Credit Facilities in accordance with this clause (1) shall be in
addition to any Indebtedness permitted to be incurred under 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 the 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 under
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 the Indebtedness by
PCA or the 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 the Indebtedness being held by a Person other than PCA or a
Restricted Subsidiary thereof; and
(b) any sale or other transfer of any the 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 the Restricted Subsidiary, as
the case may be, has determined that the entering into of the 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 the Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, the 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
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will not be deemed to be an incurrence of Indebtedness or an issuance of
Disqualified Stock for purposes of this covenant; PROVIDED, in each
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 under 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 the business, assets or a Subsidiary for the purpose of
financing the acquisition; PROVIDED, HOWEVER, that (a) the 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 the balance sheet for purposes of
this clause (a), and (b) the maximum assumable liability in respect of
all the Indebtedness shall at no time exceed the gross proceeds
including noncash proceeds, the fair market value of the 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 the 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 under this clause (15),
not to exceed $25.0 million at any one time outstanding; PROVIDED that
the Indebtedness was incurred by the prior owner of the asset or the
Restricted Subsidiary before the acquisition by the Restricted
Subsidiary and was not incurred in connection with, or in contemplation
of, the 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 under 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
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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 under
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 under the first paragraph of this covenant,
PCA will be permitted to classify or later reclassify the 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 that 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 the acquisition, except to the extent the Indebtedness was
incurred in connection with or in contemplation of the 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, the 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 the 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;
(11) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business;
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(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 the 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 the restrictions apply only to
the Receivables Subsidiary;
(15) encumbrances or restrictions existing under or arising under 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 the 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 the 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 the dividend and other payment restrictions
than those contained in the dividends or other payment restrictions
prior to the 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 the consolidation or merger, if other than PCA, or to
which the 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 the consolidation or merger, if other
than PCA, or the Person to which the 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 under
agreements reasonably satisfactory to the transfer agent;
(3) immediately after the transaction no Voting Rights Triggering Event
exists; and
(4) PCA or the Person formed by or surviving the consolidation or merger, if
other than PCA, or to which the sale, assignment, transfer, conveyance
or other disposition shall have been made will, on the date of the
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 under 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 the 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 the Investment would be permitted at
that time and if the Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted
Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a
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) the 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 the
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 the Affiliate Transaction
complies with this covenant and that the 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 the
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 the 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 that 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 the 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 the 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 the 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 the 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 the 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 the 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 the 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
You may transfer or exchange new preferred stock under the term of the
certificate of designation if the requirements of the transfer agent for the
transfer or exchange are met. The transfer agent may require you, among other
things, to furnish appropriate endorsements and transfer documents and PCA may
require you 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 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 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 your consent, 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 you 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 you or that does not adversely affect your legal rights under the
certificate of designation.
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 the 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." The defined terms used in this description but not defined below
under "-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.
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.
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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 the 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
You may transfer or exchange subordinated exchange debentures in accordance with
the subordinated exchange debentures indenture. The registrar and the exchange
trustee may require you, among other things, to furnish appropriate endorsements
and transfer documents and PCA may require you 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 of any bankruptcy proceeding at the rate specified in the
applicable Exchange Debenture Senior Debt, whether or not the interest is an
allowable claim, before you 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 you may receive
and retain Permitted Junior Securities and payments made from the trust
described under
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"-Legal Defeasance and Covenant Defeasance" so long as the trust was created
under the terms of 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 the 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 the
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 the default shall have been cured or waived for a period of not
less than 90 consecutive days.
If you or the exchange trustee 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 the payment is prohibited by these
subordination provisions, you or the exchange trustee, as the case may be, shall
hold the payment in trust for the benefit of the holders of Exchange Debenture
Senior Debt. Upon the proper written request of the holders of Exchange
Debenture Senior Debt, you or the exchange trustee, 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.
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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 under 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 the 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
the offering, the making of the 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 under the terms of 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 under an issuer tender offer or otherwise, assuming the 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>
MANDATORY REDEMPTION
PCA is not required to make mandatory redemption or sinking fund payments with
respect to the subordinated exchange debentures.
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REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, you will have the right to require PCA to
repurchase all or any part, equal to $1,000 or an integral multiple thereof, of
your subordinated exchange debentures under 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 another 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 you at your 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 your 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.
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;
(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;
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(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 "-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 the Indebtedness (a "Payment Default"); or
(b) results in the acceleration of the Indebtedness prior to its express
maturity,
and, in each case, the principal amount of any the Indebtedness, together
with the principal amount of any other the 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) some 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 an event 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 the 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 the Acceleration Notice but only if the Event of Default is then
continuing.
You may not enforce the subordinated exchange debentures indenture or the
subordinated exchange debentures except as provided in the subordinated exchange
debentures indenture. Subject to some 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 you 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 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 under the
optional redemption provisions of the subordinated exchange debentures
indenture, an equivalent premium shall also become and be
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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 the Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No person serving in the role of director, officer, employee, incorporator or
stockholder of PCA 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, the
obligations or their creation. By accepting a subordinated exchange debenture,
you waive and release this 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 the subordinated exchange debentures
when the 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 some of the 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, some 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.
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 the 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;
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(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 on the ruling or
change in the applicable federal income tax law, the Opinion of Counsel
shall confirm that, you will not recognize income, gain or loss for
federal income tax purposes as a result of the 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 the 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 you will not recognize income, gain or
loss for federal income tax purposes as a result of the 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 the Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of the deposit, other than a Default or Event of
Default resulting from the borrowing of funds to be applied to the
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) the 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 least a majority
in principal amount of the subordinated exchange debentures then outstanding,
including 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 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 consents obtained in connection with a purchase of, or tender offer or
exchange
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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 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 the 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.
Notwithstanding the preceding, without your consent, 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 you 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 you or that does not adversely affect your legal rights under the
subordinated exchange debentures indenture; or
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(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 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 the deposit or shall occur as a result of the deposit and
the deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which 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 some cases,
or to realize on some of the property received in respect of the 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
the 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 some 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 these provisions, the exchange trustee will be under
no obligation to exercise any of its rights or powers under the subordinated
exchange debentures indenture at your request, unless you shall have offered to
the exchange trustee security and indemnity satisfactory to it against any loss,
liability or expense.
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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.
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 some other organizations. Access to DTC's system is also
available to other entities including 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 under 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.
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The laws of some states require that some Persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Certificate to those 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 the interests to
Persons that do not participate in the DTC system, or otherwise take actions in
respect of the interests, may be affected by the lack of a physical certificate
evidencing the 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 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 the 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
the 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 the Participant or Participants has or have given
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 the Certificates to
its Participants.
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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.
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 you or, if no account
is specified, by mailing a check to your 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 the 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.
DEFINITIONS
Set forth below are some of the 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 the 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 that other Person
is merged with or into or became a Subsidiary of the specified Person,
whether or not the Indebtedness is incurred in connection with, or in
contemplation of, that other Person merging with or into, or becoming a
Subsidiary of, the specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by the
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 the 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 that Person, whether through the ownership of voting securities, by
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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 new preferred stock or
subordinated exchange debenture, as applicable, on any redemption date, the
greater of:
(1) 1.0% of the Liquidation Preference of the new 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 the redemption date of (i) the redemption price
of the new preferred stock or subordinated exchange debentures, as
applicable, at April 1, 2004, the redemption price being set forth in
the table appearing above under the caption "-Optional Redemption" in
the section "--New Preferred Stock" or "--Subordinated Exchange
Debentures," as applicable, plus (ii) all required dividend payments
due on the new preferred stock or interest payments due on the
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 the Redemption Date plus 50 basis points; over
(b) the Liquidation Preference of the new 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 subordinated exchange debentures
indenture, as applicable, described above under the caption "-Repurchase
at the Option of Holders-Change of Control" in the section "-New
Preferred Stock" or "-Subordinated Exchange Debentures," as applicable,
and/or the provisions described above under the caption
"-Covenants-Merger, Consolidation or Sale of Assets" in the section
"-New 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
under 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
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(8) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "-Covenants-Restricted
Payments" in the section "-New 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 the sale and
leaseback transaction including any period for which the 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 the
transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to the 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, that "person" shall be deemed to have beneficial ownership
of all securities that that "person" has the right to acquire by conversion or
exercise of other securities, whether the 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 that 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
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(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
timberland;
(3) the consummation of any transaction, including 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 that Person for the period PLUS:
(1) provision for taxes based on income or profits of that Person and its
Restricted Subsidiaries for the period, to the extent that the provision
for taxes was deducted in computing the Consolidated Net Income; PLUS
(2) consolidated interest expense of that Person and its Restricted
Subsidiaries for the period, whether paid or accrued and whether or not
capitalized, including 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 under
Hedging Obligations, to the extent that the expense was deducted in
computing the 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 the 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 that Person and its Restricted Subsidiaries for that
period to the extent that the depreciation, amortization and other
non-cash expenses were deducted in computing the 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 the charges were deducted in
computing the 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 Note 4 under "Selected
Combined Financial and Other Data"; MINUS
(6) non-cash items increasing the Consolidated Net Income for that 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.
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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 the Restricted Subsidiary without prior governmental approval, that has not
been obtained, and without direct or indirect restriction under 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 that Person and its Restricted
Subsidiaries; PLUS
(2) the total amount of Indebtedness of any other Person, to the extent that
the 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 that Person
and all preferred stock of Restricted Subsidiaries of that 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 that Person and its Restricted
Subsidiaries for the 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 the 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 the Board of Directors on the Issue Date; or
(2) was nominated for election or elected to the Board of Directors either
(a) with the approval of a majority of the Continuing Directors who were
members of the Board at the time of the nomination or election or (b)
under 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 the 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 the 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 any guarantee agreements and security documents, in each case
as the agreements may be amended, including any amendment and restatement
thereof, supplemented or otherwise
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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 the 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 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 the lenders
or to special purpose entities formed to borrow from the lenders against the
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 new preferred
stock of PCA as of that date to (2) the Consolidated Cash Flow of PCA for the
four most recent full fiscal quarters ending immediately prior to that 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 the four-quarter
period through and including the date of determination, including any related
financing transactions, as if the acquisitions and dispositions had occurred at
the beginning of the 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 the 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 the 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 the 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 the
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 under an Officers' Certificate
executed by the principal executive officer and the principal financial officer
of PCA or the Restricted Subsidiary. Such Officers' Certificate shall state the
basis of the 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.
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"DESIGNATED EXCHANGE DEBENTURE SENIOR DEBT" means:
(1) any Indebtedness under or in respect of the Credit Agreement and the
notes; and
(2) any other Exchange Debenture Senior Debt permitted under the
subordinated exchange debentures 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;"
PROVIDED that for purposes of clause (2) of the third paragraph under the
caption "--Subordinated Exchange Debentures--Subordination," the notes 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, under 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 new
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 the Capital Stock upon the occurrence of a change of control
or an asset sale shall not constitute Disqualified Stock if the terms of the
Capital Stock provide that PCA may not repurchase or redeem any Capital Stock
under the provisions unless the repurchase or redemption complies with the
covenant described above under the caption "-Covenants-Restricted Payments" in
the section "-New Preferred Stock" or "-Subordinated Exchange Debentures," as
applicable. The new preferred stock as in effect on the Issue Date will not
constitute Disqualified Stock for purposes of the certificate of designation and
the subordinated exchange debentures 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 exchange notes or the guarantees of the exchange notes;
(3) any other Indebtedness incurred by PCA and its Restricted Subsidiaries
under the terms of the subordinated exchange debentures indenture,
unless the instrument under which the 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 the 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
subordinated exchange debentures 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 the amounts are repaid.
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"FIXED CHARGES" means, with respect to any specified Person for any period, the
sum, without duplication, of:
(1) the consolidated interest expense of that Person and its Restricted
Subsidiaries for the period, whether paid or accrued, including 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 under Hedging Obligations; PLUS
(2) the consolidated interest of that Person and its Restricted Subsidiaries
that was capitalized during the period; PLUS
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by that Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of that Person or one of its Restricted
Subsidiaries, whether or not the 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 that 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 that Person and its
Restricted Subsidiaries for the period to the Fixed Charges of that Person and
its Restricted Subsidiaries for the 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 the incurrence, assumption, Guarantee, repayment, repurchase or redemption of
Indebtedness, or the 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 the 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 the 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 the 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 the period to the transactions described in this prospectus
and the related corporate overhead savings and cost savings that were
added to pro forma
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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 the 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 Issue Date to the Restricted Subsidiary by Persons
other than PCA or any of its Restricted Subsidiaries, the proceeds of which are
used for the 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 any other statements by other
entities 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 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 that 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 that Person against
fluctuations in interest rates.
"INDEBTEDNESS" means, with respect to any specified Person, any indebtedness of
that 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 the 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 the 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 that 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
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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 the sale or disposition, that Person is no
longer a Subsidiary of PCA, PCA shall be deemed to have made an Investment on
the date of the sale or disposition equal to the fair market value of the Equity
Interests of the Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "-Covenants-Restricted Payments" in the section "-New 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 the Subsidiary in the third Person
in an amount equal to the fair market value of the Investment held by the
acquired Person in the third Person in an amount determined as provided in the
final paragraph of the covenant described above under the caption
"-Covenants-Restricted Payments" in the section "-New Preferred Stock" or
"-Subordinated Exchange Debentures," as applicable.
"ISSUE DATE" means the closing date for sale and original issuance of the new
preferred stock.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of the 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 or loss
of that 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 the
gain or loss, realized in connection with: (a) any Asset Sale; or (b)
the disposition of any securities by that Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
that Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain or loss, together with any related provision for
taxes on the 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 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 the Asset Sale,
including 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 the Asset Sale and any reserve
for adjustment in respect of the sale price of the asset or assets established
in accordance with GAAP.
"NEW EXCHANGE DEBENTURES" means PCA's 12 3/8% Subordinated Exchange Debentures
due 2010 issued under the subordinated exchange debentures indenture (1) in the
Preferred Stock Exchange Offer or (2) in connection with a resale of
subordinated exchange debentures in reliance on a shelf registration statement.
"NEW PREFERRED STOCK" means PCA's Series B 12 3/8% Senior Exchangeable Preferred
Stock due 2010 issued under the certificate of designation (1) in the Preferred
Stock Exchange Offer or (2) 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 the 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 the 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 the Investment:
(a) that Person becomes a Restricted Subsidiary of PCA; or
(b) that 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 under and in compliance with the
covenant described above under the caption "-Repurchase at the Option of
Holders-Asset Sales" in the section "-New 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 those persons incurred in the ordinary
course of business, including under any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of the 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 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 Investment was made and without giving effect
to subsequent changes in value, when taken together with all other
Investments made under 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 under 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 subordinated exchange debentures 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 ranked equally 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 the 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 that date, either:
(a) the holders of any the 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 the plan of reorganization or
readjustment; or
(b) the 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 subordinated exchange debentures 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 that Person is merged
with or into or consolidated with PCA or any Subsidiary of PCA; PROVIDED
that the Liens were in existence prior to the contemplation of the
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 the Liens were in existence prior
to the contemplation of the 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
"-Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock"
in the section "-New Preferred Stock" or "-Subordinated Exchange
Debentures," as applicable, covering only the assets acquired with the
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 "-Covenants-Incurrence of
Indebtedness and Issuance of Preferred Stock" in the section "-New
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 subordinated exchange
debentures indenture, as applicable, to be incurred so long as the Lien
attached only to the assets of the Restricted Subsidiary which is the
obligor under the 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 the 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;
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(2) the 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
subordinated exchange debentures, the 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) the 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 the
note, other than amounts required to be established as reserves under
agreements, amounts paid to investors in respect of interest, principal and
other amounts owing to the 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 under 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 all collateral securing the accounts
receivable, all contracts and all guarantees or other obligations in respect of
the accounts receivable, proceeds of the 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 under Standard Securitization
Undertakings;
(b) are recourse to or obligate PCA or any of its Restricted Subsidiaries
in any way other than under 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 under Standard Securitization
Undertakings;
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(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 the 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 targeted levels of operating
results.
This 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 the designation and an Officers'
Certificate certifying, to the best of the officer's knowledge and belief after
consulting with counsel, that the 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 the 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 a representative, then the Representative for the Designated Exchange
Debenture Senior Debt shall at all times constitute the holders of a majority in
outstanding principal amount of the 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 under the Securities Act, as the 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 the payment of
interest or principal was scheduled to be paid in the original documentation
governing the Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase the interest or principal prior to the date
originally scheduled for the payment thereof.
"STOCKHOLDERS AGREEMENT" means the 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 that 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 that Person or a Subsidiary of the Person or (b) the
only general partners of which are that Person or one or more
Subsidiaries of that 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 a larger amount
as may be necessary to repurchase or redeem all outstanding new preferred stock
or subordinated exchange debentures in the event of a repurchase or redemption
of all outstanding new 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 subordinated exchange debentures indenture.
"TIMBERLANDS SALE" means a sale or series of sales by PCA or a Restricted
Subsidiary of PCA of timberland.
"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) the Purchase/Supply Agreements between PCA and TPI, Tenneco Automotive,
Inc. and Tenneco Packaging Specialty and Consumer Products, Inc., each
dated the Issue Date;
(2) the Facilities Use Agreement between PCA and TPI, dated the Issue Date;
(3) the Human Resources Agreement among PCA, TPI and Tenneco Inc., dated the
Issue Date;
(4) the Transition Services Agreement among PCA and TPI, dated the Issue
Date;
(5) the Holding Company Support Agreement among PCA and PCA Holdings, dated
the Issue Date;
(6) the 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
the 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 the 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 under a Board Resolution, but
only to the extent that the 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 the
agreement, contract, arrangement or understanding are no less favorable
to PCA or the 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 that Person's
financial condition or to cause that 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 the designation and an Officers'
Certificate certifying that the designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"-Covenants-Restricted Payments" in the section "-New 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 subordinated
exchange debentures indenture, as applicable, and any Indebtedness of the
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of PCA as
of that date and, if the Indebtedness is not permitted to be incurred as of that
date under the covenant described under the caption "-Covenants-Incurrence of
Indebtedness and Issuance of Preferred Stock" in the section "-New Preferred
Stock" or "-Subordinated Exchange Debentures," as applicable, PCA shall be in
default of the covenant. The Board of Directors of PCA may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that the
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of PCA of any outstanding Indebtedness of the Unrestricted Subsidiary
and the designation shall only be permitted if (1) the Indebtedness is permitted
under the covenant described under the caption "-Covenants-Incurrence of
Indebtedness and Issuance of Preferred Stock" in the section "-New Preferred
Stock" or "-Subordinated Exchange Debentures," as applicable, calculated on a
pro forma basis as if the 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 the designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of that
Person that is at the time entitled to vote in the election of the Board of
Directors of that 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 that date and the making of the
payment; by
(2) the then outstanding principal amount of the Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any specified Person means any Wholly
Owned Subsidiary of that Person which at the time of determination is a
Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any specified Person means a Subsidiary of that
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
that Person and/or by one or more Wholly Owned Subsidiaries of that 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, under the terms of a Purchase Agreement
dated March 30, 1999. The Purchase Agreement is filed as Exhibit 10.1 to the
registration statement of which this prospectus forms a part. 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, which is filed as
Exhibit 4.4 to the registration statement of which this prospectus forms a part,
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 under 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 in 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 in 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 in 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.
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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 exchange offer
without further registration under the Securities Act. See SHEARMAN & STERLING
(available July 2, 1993); MORGAN STANLEY & CO. INCORPORATED (available June 5,
1991); and EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1989). 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 in compliance with 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) 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) 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 under 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");
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(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 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 some specified holders, who wishes to exchange
notes for exchange notes in the exchange offer will be required to make
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 the 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 the notes
under 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 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 the holder,
including 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
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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 in the exchange offer in integral multiples of $1,000.
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 to differentiate the exchange notes from the
outstanding 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.
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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,
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, a form of which is
filed as Exhibit 99.1 to the registration statement of which this prospectus
forms a part, 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."
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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 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.
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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 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 under 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, a form of which is filed as Exhibit 99.3 to the
registration statement of which this prospectus forms a part, 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
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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
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.
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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 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
(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.
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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.
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
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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.
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
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Purchase Agreement, PCA, the guarantor subsidiaries and the initial purchasers
entered into a preferred stock registration rights agreement, which is filed as
Exhibit 4.5 to the registration statement of which this prospectus forms a part,
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;
(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. See SHEARMAN &
STERLING (available July 2, 1993); MORGAN STANLEY & CO. INCORPORATED (available
June 5, 1991); and EXXON CAPITAL HOLDINGS CORPORATION
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(available May 13, 1989). 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.
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) 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) 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;
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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 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
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.
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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 to differentiate the new preferred
stock from the outstanding preferred stock;
(2) the new preferred stock has been registered under the Securities Act
and, therefore, will not bear legends restricting its transfer; and
(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;
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(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, 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, a
form of which is filed as Exhibit 99.2 to the registration statement of which
this prospectus forms a part, 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."
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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 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
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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 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;
189
<PAGE>
(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, a form of which is filed as Exhibit 99.4
to the registration statement of which this prospectus forms a part, 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 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.
190
<PAGE>
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 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.
191
<PAGE>
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.
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.
192
<PAGE>
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 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.
193
<PAGE>
UNITED STATES FEDERAL TAX CONSEQUENCES
The following discussion, including the opinion of counsel described below, is
based upon current provisions of the Internal Revenue Code of 1986, applicable
Treasury regulations, judicial authority and administrative rulings and
practice. The Internal Revenue Service may take a contrary view, and no ruling
from the IRS has been or will be sought. Legislative, judicial or administrative
changes or interpretations could alter or modify the following statements and
conditions. Moreover, these changes or interpretations may or may not be
retroactive and could affect the tax consequences to you. If you are an
insurance company, tax-exempt organization, financial institution,
broker-dealer, foreign corporation or non-resident of the United States, you may
be subject to special rules not discussed below. We recommend that every holder
consult their own tax advisor as to the particular tax consequences of
exchanging their existing notes for exchange notes, of exchanging their existing
preferred stock for new preferred stock, and as to the applicability and effect
of any state, local or foreign tax laws in regard to the exchange offer.
ACQUISITION OF THE EXCHANGE NOTES
Kirkland & Ellis, counsel to PCA, has advised us that in its opinion, the
exchange of the existing notes for exchange notes in the exchange offer will not
be treated as a taxable "exchange" for federal income tax purposes because the
exchange notes should not be considered to differ materially in kind or extent
from the existing notes. Rather, the exchange notes received by a holder will be
treated as a continuation of the existing notes in the hands of that holder. As
a result, there will be no federal income tax consequences to you if you
exchange existing notes for exchange notes in the exchange offer.
ACQUISITION OF THE NEW PREFERRED STOCK
Kirkland & Ellis, counsel to PCA, has advised us that in its opinion, the
exchange of the existing preferred stock for new preferred stock in the exchange
offer will not be treated as a taxable "exchange" for federal income tax
purposes because the new preferred stock should not be considered to differ
materially in kind or extent from the existing preferred stock. Rather, the new
preferred stock received by a holder will be treated as a continuation of the
existing preferred stock in the hands of that holder. As a result, there will be
no federal income tax consequences to you if you exchange existing preferred
stock for new preferred stock in the exchange offer.
194
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes or new preferred stock for its
own account under the terms of the exchange offer in exchange for outstanding
notes and preferred stock which were acquired by the 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 the exchange notes or new
preferred stock. This prospectus, as it may be amended or supplemented from time
to time, may be used by broker-dealers 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 broker-dealers for use in connection with resales of exchange notes
and preferred stock. During this period, we will update this prospectus if
necessary. 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 under the terms of 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. Resales
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
broker-dealers and/or the purchasers of the 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 under the terms of the
exchange offer and any broker or dealer that participates in a distribution of
exchange notes or new preferred stock may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on the resale of
exchange notes or new preferred stock and any commissions or concessions
received by any 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 these 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.
195
<PAGE>
LEGAL MATTERS
Some of the 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. Some 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.
EXPERTS
The balance sheet of Packaging Corporation of America as of January 31, 1999,
included in this prospectus has been audited by Ernst & Young LLP, independent
public accountants, as indicated in their report with respect to the balance
sheet, and is included herein in reliance upon the authority of the firm as
experts in accounting and auditing.
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 to the combined financial statements, and are included
herein in reliance upon the authority of the 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. 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 those documents filed as exhibits to the registration statement.
Each of those statements is qualified in all respects by the 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 those 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 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 those 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 our reports or other documents may be
obtained at prescribed rates from the Public Reference Section
196
<PAGE>
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.
197
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THE CONTAINERBOARD GROUP (A DIVISION OF TENNECO PACKAGING INC.)-AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................................................. F-2
Combined Statements of Assets, Liabilities and Interdivision Account as of December 31, 1998, 1997 and
1996.................................................................................................... F-3
Combined Statements of Revenues, Expenses and Interdivision Account for the years ended December 31,
1998, 1997 and 1996..................................................................................... F-4
Combined Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996................... F-5
Notes to Combined Financial Statements................................................................... F-7
PACKAGING CORPORATION OF AMERICA-AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors........................................................................... F-25
Balance Sheet as of January 31, 1999..................................................................... F-26
Note to Balance Sheet.................................................................................... F-27
PACKAGING CORPORATION OF AMERICA-UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998 (audited).............. F-28
Consolidated Statements of Income for the six months ended June 30, 1998 (unaudited), for the period from
January 1, 1999 through April 11, 1999 (unaudited) and for the period from April 12, 1999 through June
30, 1999 (unaudited).................................................................................... F-29
Consolidated Statements of Cash Flows for the six months ended June 30, 1998 (unaudited), for the period
from January 1, 1999 through April 11, 1999 (unaudited) and for the period from April 12, 1999 through
June 30, 1999 (unaudited)............................................................................... F-30
Notes to Consolidated Financial Statements (unaudited)................................................... F-31
</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>
DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
(In thousands)
Current assets:
Cash $ 1 $ 1 $ 1,027
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
Receivables from affiliated companies 10,390 19,057 10,303
Notes receivable 27,390 573 547
Inventories:
Raw materials 86,681 100,781 99,459
Work in process and finished goods 48,212 38,402 36,995
Materials and supplies 44,310 42,043 35,834
--------- --------- ---------
Inventory, gross 179,203 181,226 172,288
Excess of FIFO over LIFO cost (28,484) (25,445) (28,308)
--------- --------- ---------
Inventory, net 150,719 155,781 143,980
--------- --------- ---------
Prepaid expenses and other current assets 41,092 35,019 35,536
--------- --------- ---------
Total current assets 243,563 237,511 208,375
--------- --------- ---------
Property, plant and equipment, at cost:
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)
--------- --------- ---------
Property, plant and equipment, net 941,356 929,646 910,131
--------- --------- ---------
Intangibles 50,110 56,470 55,660
--------- --------- ---------
Other long-term assets 131,092 77,312 72,076
--------- --------- ---------
Investments 1,282 16,324 14,809
--------- --------- ---------
Total assets $1,367,403 $1,317,263 $1,261,051
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND INTERDIVISION ACCOUNT
Current liabilities:
Accounts payable $ 87,054 $ 124,633 $ 111,588
Payables to Tenneco affiliates 7,091 6,164 29,402
Current portion of long-term debt 617 3,923 1,603
Current portion of deferred gain - 1,973 1,973
Accrued liabilities 69,390 70,426 166,663
--------- --------- ---------
Total current liabilities 164,152 207,119 311,229
--------- --------- ---------
Long-term liabilities:
Long-term debt 16,935 23,941 18,713
Deferred taxes 254,064 174,127 87,165
Deferred gain - 34,262 36,235
Other 23,860 23,754 23,287
--------- --------- ---------
Total long-term liabilities 294,859 256,084 165,400
--------- --------- ---------
Interdivision account 908,392 854,060 784,422
--------- --------- ---------
Total liabilities and interdivision account $1,367,403 $1,317,263 $1,261,051
--------- --------- ---------
--------- --------- ---------
</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>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
(IN THOUSANDS)
Net sales $ 1,571,019 $ 1,411,405 $ 1,582,222
Cost of sales (1,289,644) (1,242,014) (1,337,410)
------------- ------------- -------------
Gross profit 281,375 169,391 244,812
Selling and administrative expenses (108,944) (102,891) (95,283)
Restructuring, impairment and other (14,385) - -
Other income, net 26,818 44,681 56,243
Corporate allocations (63,114) (61,338) (50,461)
------------- ------------- -------------
Income (loss) before interest, taxes and extraordinary item 121,750 49,843 155,311
Interest expense, net (2,782) (3,739) (5,129)
------------- ------------- -------------
Income (loss) before taxes and extraordinary item 118,968 46,104 150,182
Provision for income taxes (47,529) (18,714) (59,816)
------------- ------------- -------------
Income (loss) before extraordinary item 71,439 27,390 90,366
Extraordinary Loss - - -
------------- ------------- -------------
Net income 71,439 27,390 90,366
Interdivision account, beginning of period 854,060 784,422 640,483
Interdivision account activity, net (17,107) 42,248 53,573
------------- ------------- -------------
Interdivision account, end of period $ 908,392 $ 854,060 $ 784,422
------------- ------------- -------------
------------- ------------- -------------
</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>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS)
Cash flows from operating activities:
Net income $ 71,439 $ 27,390 $ 90,366
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation, depletion and amortization 96,950 87,752 78,730
Extraordinary loss-early debt extinguishment
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)
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)
Increase (decrease) in deferred income taxes 71,342 85,070 8,318
Undistributed earnings of affiliated companies 302 (2,264) (536)
Increase (decrease) in other noncurrent reserves 107 467 (27,287)
Changes in noncash components of working capital, excluding transactions with
Tenneco
Decrease (increase) in current assets-
Accounts receivable 12,100 (26,092) 38,261
Inventories, net 5,062 (10,932) 1,287
Prepaid expenses and other 4,572 782 (8,070)
(Decrease) increase in current liabilities-
Accounts payable (37,580) 13,045 (47,930)
Accrued liabilities (9,301) (22,207) (24,041)
----------- ----------- -----------
Net cash provided by operating activities 195,401 107,213 55,857
----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (103,429) (110,186) (168,642)
Prepaid Meridian Lease (84,198) - -
Acquisition of businesses - (5,866) -
Other long-term assets (10,970) (6,983) (23,478)
Proceeds from disposals 26,214 10,460 122,654
Other transactions, net (5,350) 690 (4,766)
----------- ----------- -----------
Net cash used for investing activities (177,733) (111,885) (74,232)
----------- ----------- -----------
</TABLE>
F-5
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
---------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- -----------
(IN THOUSANDS)
Cash flows from financing activities:
Proceeds from long-term debt issued $ - $ 1,146 $ 430
Payments on long-term debt (10,346) (1,618) (1,886)
(Decrease) increase in interdivision account (17,109) 19,907 168,074
Working capital transactions with Tenneco and affiliated companies-
Decrease (increase) in receivables from affiliated companies 8,667 (8,754) (1,781)
Decrease (increase) in factored receivables 192 16,204 (25,563)
Increase (decrease) in accounts payable to affiliated companies 928 (23,239) (8,007)
Dividends paid to Tenneco - - (114,500)
--------- --------- -----------
Net cash (used for) provided by financing activities (17,668) 3,646 16,767
--------- --------- -----------
Net decrease in cash - (1,026) (1,608)
Cash, beginning of period 1 1,027 2,635
--------- --------- -----------
Cash, end of period $ 1 $ 1 $ 1,027
--------- --------- -----------
--------- --------- -----------
</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
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.
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.
F-7
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be fully recoverable. In the event that facts and
circumstances indicate that the carrying amount of any long-lived assets may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to discounted cash flows is required.
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.
F-8
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
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
F-9
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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>
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.
Intangible assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be fully recoverable. In the event that facts and
circumstances indicate that the carrying amount of any intangible assets may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows through
the remaining amortization period associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to
discounted cash flows is required.
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.
F-10
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
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>
F-11
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
4. LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
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 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.
F-12
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
5. PENSION AND OTHER BENEFIT PLANS (CONTINUED)
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>
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
F-13
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
5. PENSION AND OTHER BENEFIT PLANS (CONTINUED)
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.
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.
F-14
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
6. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
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 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-15
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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-16
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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 computed on a separate return basis. These income taxes represent
liabilities to Packaging and do not reflect any tax attributes of the
Tenneco consolidated tax group.
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-17
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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-18
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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-19
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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 affiliates provide services to the Group which are
typical of a consolidated entity with operations in several businesses.
These services included general management, investor and media relations,
legal, human resources, accounting, public company reporting, data
processing systems, support, training, finance, treasury, and insurance
management. These expenses were allocated to the Group in the aggregate, not
individually, from Packaging and Tenneco affiliates, based upon the relative
level of effort and
F-20
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
10. RELATED-PARTY TRANSACTIONS (CONTINUED)
time spent on Group activities. This was generally measured using a formula
based upon the Group's percentage of Tenneco's fixed assets, revenues and
payroll. The Group believes the method for the historical allocations was
reasonable.
As a stand-alone entity, the Group does not expect that it will incur a
similar level of costs due to a less complex corporate structure and a
different level of need for such services. The Group estimates it will incur
approximately $30 million in stand-alone overhead costs in the first year
following the acquisition and believes this is representative of what the
costs would have been as a stand-alone entity for historical periods.
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
F-21
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
12. LEASES (CONTINUED)
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.
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-22
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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 owned and leased assets to be contributed included the Group's
four linerboard and medium mills, 67 plants, three sawmills, an air-drying
yard, three recycling facilities, miscellaneous other property, which
includes sales offices and woodlands forest management offices, numerous
distribution centers, warehouses and five design centers and an ownership or
controlling interest in approximately 950,000 acres of timberland. The
transactions closed on April 12, 1999.
In connection with the transactions, 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.
The impairment charge of $230.1 million recorded in the Group's financial
statements has been allocated to the following financial statement line
items (in thousands):
<TABLE>
<S> <C>
Intangibles....................................................... $ 46,206
Machinery and equipment........................................... 183,906
---------
Total........................................................... $ 230,112
---------
---------
</TABLE>
The impairment charge will first be applied against the goodwill
specifically attributable to the containerboard assets and the remaining
amount will be applied against plant, property and equipment.
F-23
<PAGE>
THE CONTAINERBOARD GROUP
(A DIVISION OF TENNECO PACKAGING INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
14. SALE OF COMPANY AND RELATED IMPAIRMENT (UNAUDITED) (CONTINUED)
The Group's financial statements reflect $230.1 million of the $293.0
million charge representing the impairment attributable to the assets
reflected in the Group's financial statements. Tenneco has informed us that
the remaining $62.9 million charge primarily includes liabilities for direct
incremental costs of sales, severance costs and other contractual
obligations directly related to the containerboard transaction, and the
impairment of other containerboard-related assets not contributed to the
joint venture. The $62.9 million charge is not part of the Group's financial
statements.
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).
16. SUMMARIZED COMBINED FINANCIAL INFORMATION ABOUT GUARANTOR SUBSIDIARIES
The following is summarized aggregated financial information for Dahlonega
Packaging Corporation, Dixie Container Corporation, PCA Hydro, Inc., PCA
Tomahawk Corporation and PCA Valdosta Corporation, each of which was a
wholly-owned subsidiary of Packaging and included in the Group's combined
financial statements. In conjunction with the sale of the Group as described
in Note 14, each of these companies became subsidiaries of PCA and fully,
unconditionally, jointly and severally guaranteed $550 million in
subordinated debt issued by PCA in conjunction with the transaction.
Separate financial statements of the guarantor subsidiaries are not
presented because, in the opinion of management, such financial statements
are not material to investors.
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Current assets $ 49,463 $ 42,844 $ 42,664
Non-current assets 13,985 46,399 45,051
--------- --------- ---------
Total assets 63,448 89,243 87,715
Current liabilities 13,826 12,687 10,542
Non-current liabilities 7,264 4,785 4,559
--------- --------- ---------
Total liabilities 21,090 17,472 15,101
--------- --------- ---------
Interdivision Account $ 42,358 $ 71,771 $ 72,614
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Net sales $ 32,970 $ 25,758 $ 24,666
Gross profit 1,172 3,253 4,719
Net loss (866) (1,217) (351)
</TABLE>
F-24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Packaging Corporation of America
We have audited the accompanying balance sheet of Packaging Corporation of
America as of January 31, 1999. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Packaging Corporation of America at
January 31, 1999 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
August 23, 1999
F-25
<PAGE>
PACKAGING CORPORATION OF AMERICA
BALANCE SHEET
JANUARY 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Shareholder's equity
Preferred Stock, par value $1.00, authorized--100 shares; issued--none
Common Stock, par value $1.00, authorized--10 shares; issued--none......................................... $ --
Total shareholder's equity............................................................................. $ --
</TABLE>
F-26
<PAGE>
PACKAGING CORPORATION OF AMERICA
NOTE TO BALANCE SHEET
1. GENERAL
Packaging Corporation of America (PCA) was incorporated on January 25, 1999
pursuant to the General Corporation Laws of the State of Delaware. PCA was
formed to acquire The Containerboard Group of Tenneco Packaging Inc. which
was completed on April 12, 1999.
PCA had no operations from the date of incorporation on January 25, 1999 to
January 31, 1999.
F-27
<PAGE>
PACKAGING CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C>
GROUP (NOTE 1)
JUNE 30, -----------------
1999 DECEMBER 31, 1998
------------ -----------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 46,855 $ 1
Accounts receivable (net of allowance for doubtful accounts of
$4,367 as of June 30, 1999 and $5,220 in 1998)................... 197,631 13,971
Receivables from affiliated companies............................. -- 10,390
Notes receivable.................................................. 701 27,390
Inventories....................................................... 152,815 150,719
Prepaid expenses and other current assets......................... 15,334 41,092
------------ -----------------
TOTAL CURRENT ASSETS............................................ 413,336 243,563
Property, plant and equipment, at cost:
Land, timber, timberlands and buildings........................... 708,367 287,510
Machinery and equipment........................................... 1,868,973 1,289,459
Other, including construction in progress......................... 129,306 100,136
Less: Accumulated depreciation and depletion...................... (790,128) (735,749)
------------ -----------------
PROPERTY, PLANT AND EQUIPMENT, NET.............................. 1,916,518 941,356
Intangible assets................................................. 1,649 50,110
Other long-term assets............................................ 96,122 131,092
Investments....................................................... 994 1,282
------------ -----------------
TOTAL ASSETS.................................................... $2,428,619 $ 1,367,403
------------ -----------------
------------ -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................. $ 7,703 $ 617
Accounts payable.................................................. 117,935 87,054
Payables to Tenneco affiliates.................................... -- 7,091
Accrued interest.................................................. 30,682 --
Accrued liabilities............................................... 65,218 69,390
------------ -----------------
TOTAL CURRENT LIABILITIES....................................... 221,538 164,152
Long-term liabilities:
Long-term debt.................................................... 1,677,765 16,935
Deferred taxes.................................................... 84,107 254,064
Other liabilities................................................. 6,947 23,860
------------ -----------------
TOTAL LONG-TERM LIABILITIES..................................... 1,768,819 294,859
Mandatorily redeemable preferred stock ($100,000 redemption
amount).......................................................... 96,500
Stockholders' equity:
Interdivision account............................................. -- 908,392
Junior preferred stock (liquidation preference $1.00 per share,
100 shares authorized, issued and outstanding)................... -- --
Common stock (par value $.01 per share, 1,000,000 shares
authorized, 430,000 shares issued and outstanding)............... 4 --
Additional paid in capital........................................ 337,741 --
Retained earnings................................................. 4,017 --
------------ -----------------
TOTAL STOCKHOLDERS' EQUITY...................................... 341,762 908,392
------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................... $2,428,619 $ 1,367,403
------------ -----------------
------------ -----------------
</TABLE>
See notes to consolidated financial statements.
Note:The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles of complete financial statements.
F-28
<PAGE>
PACKAGING CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------
<S> <C> <C> <C>
GROUP (NOTE 1)
-------------------------
<CAPTION>
JANUARY 1, APRIL 12,
SIX MONTHS 1999 1999
ENDED THROUGH THROUGH
JUNE 30, APRIL 11, JUNE 30,
1998 1999 1999
----------- ------------ -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Net sales.......................................... $ 777,042 $ 433,182 $ 373,035
Cost of sales...................................... (629,281) (367,483) (297,055)
----------- ------------ -----------
Gross profit..................................... 147,761 65,699 75,980
Impairment loss.................................... -- (230,112) --
Selling and administrative expenses................ (52,432) (30,584) (25,136)
Other income (expense), net........................ 16,015 (2,207) (266)
Corporate allocations/overhead..................... (32,373) (14,890) (5,188)
----------- ------------ -----------
Income (loss) before interest, taxes and
extraordinary item.............................. 78,971 (212,094) 45,390
Interest expense, net.............................. (1,681) (221) (34,079)
----------- ------------ -----------
Income (loss) before taxes and extraordinary
item............................................ 77,290 (212,315) 11,311
Provision for taxes................................ (30,822) 83,716 (4,545)
----------- ------------ -----------
Income (loss) before extraordinary item.......... 46,468 (128,599) 6,766
Extraordinary item, net of tax..................... -- (6,327) --
----------- ------------ -----------
Net income (loss).................................. 46,468 (134,926) 6,766
Preferred dividends and accretion of preferred
stock issuance costs............................. -- -- (2,749)
----------- ------------ -----------
Net income (loss) available to common
stockholders..................................... $ 46,468 $ (134,926) $ 4,017
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
PACKAGING CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------
GROUP (NOTE 1)
-------------------------------
SIX MONTHS JANUARY 1, 1999 APRIL 12, 1999
ENDED THROUGH THROUGH
JUNE 30, 1998 APRIL 11, 1999 JUNE 30, 1999
-------------- --------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash Flows from Operating Activities:
Net income......................................................... $ 46,468 $ (134,926) $ 6,766
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation, depletion and amortization......................... 47,385 30,905 33,652
Extraordinary loss-early debt extinguishment..................... -- 6,327 --
(Gain)/loss on sale of assets.................................... (15,060) 230,112 --
Amortization of deferred gain.................................... (986) (493) --
Increase in deferred income taxes................................ 37,789 9,782 4,320
Undistributed earnings of affiliated companies................... 13 (106) 394
Increase in other noncurrent reserves............................ 1,002 56 --
Changes in components of working capital, excluding transactions
with Tenneco-
Decrease (increase) in current assets-
Accounts receivable.......................................... 3,817 (8,183) (4,621)
Inventories, net............................................. (8,259) (7,514) 5,418
Prepaid expenses and other................................... (1,470) 4,201 (289)
(Decrease) increase in current liabilities-
Accounts payable............................................. (3,836) 26,996 45,800
Accrued liabilities.......................................... (3,060) (3,508) 56,190
-------------- --------------- --------------
Net cash provided by operating activities............................ 103,803 153,649 147,630
-------------- --------------- --------------
Cash Flows from Investing Activities:
Additions to property, plant and equipment......................... (46,557) (1,128,255) (23,419)
Other long-term assets............................................. (5,553) 2,284 (4,426)
Proceeds from disposals............................................ 4,301 825 --
Other, net......................................................... (4,032) 4,001 1,792
-------------- --------------- --------------
Net cash used for investing activities............................... (51,841) (1,121,145) (26,053)
-------------- --------------- --------------
Cash Flows from Financing Activities:
Proceeds from preferred stock...................................... -- -- 96,500
Proceeds from long-term debt issued................................ 130 1,760,000 9,000
Payments on long-term debt......................................... (10,348) (27,550) (84,000)
Financing costs.................................................... -- -- (97,819)
Amortization of financing costs.................................... -- -- 1,596
Decrease in interdivision account.................................. (49,041) (616,769) --
Working capital transactions with Tenneco and affiliated companies-
Decrease (increase) in receivables from affiliated companies..... (3,725) 1,353 --
(Decrease) increase in factored receivables...................... 1,941 (150,099) --
Increase in accounts payable to affiliated companies............. 9,081 561 --
-------------- --------------- --------------
Net cash (used for) provided by financing activities................. (51,962) 967,496 (74,723)
-------------- --------------- --------------
Increase in cash and cash equivalents................................ 0 0 46,854
Cash and cash equivalents at beginning of period..................... 1 1 1
-------------- --------------- --------------
Cash and cash equivalents at end of period........................... $ 1 $ 1 $ 46,855
-------------- --------------- --------------
-------------- --------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
PACKAGING CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999
1. BASIS OF PRESENTATION
On April 12, 1999, Tenneco Packaging Inc. ("TPI"), currently a wholly owned
subsidiary of Tenneco Inc. ("Tenneco"), sold its containerboard and
corrugating packaging products business (the "Group") to Packaging
Corporation of America ("PCA"). The Group is the predecessor to PCA. Under
the terms of the agreement, PCA Holdings, LLC, an entity organized and
controlled by Madison Dearborn Partners, LLC, acquired a 55% common equity
interest in PCA, and TPI contributed the Group, which included $1.76 billion
of debt incurred by TPI immediately prior to the contribution to PCA, in
exchange for $246.5 million in cash and a 45% common equity interest in PCA.
PCA's consolidated financial statements as of June 30, 1999 and for the
period from April 12, 1999 to June 30, 1999, and the Group's (i.e.,
predecessor) combined financial statements for the six months ended June 30,
1998 and for the period from January 1, 1999 to April 11, 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 during the period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the period
ending December 31, 1999.
As a result of the Group's relationship with TPI, the combined consolidated
balance sheets and the related combined consolidated income statements 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 PCA.
2. SUMMARY OF ACCOUNTING POLICIES
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.
SEGMENT INFORMATION
The Group adopted SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information," in 1998 and determined that the Group was
primarily engaged in one line of business: the manufacture and sale of
packaging materials, boxes and containers for industrial and consumer
markets. PCA also believes that it is primarily engaged in this single line
of business. No single customer accounts for more than 10% of total
revenues. PCA has no foreign operations.
F-31
<PAGE>
PACKAGING CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999 (CONTINUED)
3. INVENTORY
The components of inventories are as follows:
<TABLE>
<CAPTION>
----------------------------
<S> <C> <C>
GROUP (NOTE 1)
----------------------------
JUNE 30, DECEMBER 31,
1999 1998
----------- ---------------
(IN THOUSANDS)
Raw materials................................. $ 68,476 $ 86,681
Work in process and finished goods............ 56,749 48,212
Supplies...................................... 50,656 44,310
----------- ---------------
Inventories at FIFO cost...................... 175,881 179,203
Excess of FIFO cost over LIFO cost............ (23,066) (28,484)
----------- ---------------
Inventory, net.............................. $ 152,815 $ 150,719
----------- ---------------
----------- ---------------
</TABLE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
------------------------------
<S> <C> <C>
GROUP (NOTE 1)
JUNE 30, -----------------
1999 DECEMBER 31, 1998
----------- -----------------
(IN THOUSANDS)
Senior credit facility-
Revolving credit facility, interest at LIBOR + 2.75%, due $ -- $ --
April 12, 2005.............................................
Term Loan A, interest at LIBOR + 2.75%, due in varying 431,488 --
quarterly installments through April 12, 2005..............
Term Loan B, interest at LIBOR + 3.25%, due in varying 351,756 --
quarterly installments through April 12, 2007..............
Term Loan C, interest at LIBOR + 3.50%, due in varying 351,756 --
quarterly installments through April 12, 2008..............
Senior subordinated notes, interest at 9 5/8%, payable 550,000 --
semi-annually, due April 1, 2009............................
Capital lease obligations, interest at 8.5%, due in varying 11 18
amounts through 2000........................................
Non-interest bearing note, due in annual installments of $70 321 308
through July 1, 2004, net of discount imputed at 10% of $169
and $182 in 1999 and 1998, respectively.....................
Notes payable, interest at an average rate of 13.5%, due in -- 16,553
varying amounts through 2010................................
Other 136 673
----------- -------
Total 1,685,468 17,552
Less: Current portion......................................... 7,703 617
----------- -------
Total long-term debt........................................ $1,677,765 $ 16,935
----------- -------
----------- -------
</TABLE>
F-32
<PAGE>
PACKAGING CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999 (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
As of June 30, 1999, annual payments for debt during the next five years and
thereafter were: $7,703, $51,827, $82,197, $102,197, $117,197 and
$1,324,347.
PCA prepaid $75,000 of the term loans on May 18, 1999, and $10,000 on July
15, 1999. Accordingly, no quarterly installments are due until June, 2000
for Term Loan A and September, 2001, for Term Loans B and C.
In February, 1999, Tenneco paid off the remaining note payable as part of
the transactions. The payment was $27,220, including a $10,456 premium
payment for early extinguishment of debt.
5. MANDATORILY REDEEMABLE PREFERRED STOCK
On April 12, 1999, PCA issued 1,000,000 shares of Preferred Stock,
liquidation preference of $100 per share. 3,000,000 shares are authorized
and 1,000,000 shares are issued and outstanding. PCA incurred $3,500,000 of
issuance costs related to this transaction. These costs are being amortized
through 2010, at which time the Preferred Stock is required to be redeemed.
6. STOCKHOLDERS' EQUITY
On April 12, 1999, PCA issued 100 shares of Junior Preferred Stock,
liquidation preference of $1.00 per share. Holders of the Junior Preferred
Stock are not entitled to receive any dividends or distributions. Holders of
the Junior Preferred Stock have the right to elect one director to PCA's
board of directors. Under the terms of the stockholders' agreement, the
holders of the Junior Preferred Stock have agreed to elect the individual
serving as PCA's chief executive officer to fill this director position.
Shares of Junior Preferred Stock may not be reissued after being reacquired
in any manner by PCA.
In June 1999, the Company granted options to management for the purchase of
29,893 shares of common stock at the fair market value at the date of grant.
Except as noted below, these options vest as follows:
June 2000 20%
June 2001 20%
June 2002 20%
June 2003 20%
June 2004 20%
These options vest immediately upon the closing of an initial public
offering of PCA's equity. However, the option shares are subject to certain
contractual restrictions on transfer following their acquisition upon
exercise of the underlying options. At June 30, 1999, 29,893 options were
outstanding, none of which were exercisable.
7. SALE OF THE GROUP AND RELATED IMPAIRMENT
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 owned and leased assets to be contributed include the Group's
four linerboard and medium mills, 67 plants,
F-33
<PAGE>
PACKAGING CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999 (CONTINUED)
7. SALE OF THE GROUP AND RELATED IMPAIRMENT (CONTINUED)
three sawmills, an air-drying yard, three recycling facilities,
miscellaneous other property, which includes sales offices and woodlands
forest management offices, numerous distribution centers, warehouses and
five 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, TPI 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.
Tenneco then contributed the Group's assets (subject to the new indebtedness
and the Group's liabilities) to PCA in exchange for (a) a 45% common equity
interest in PCA valued at approximately $200 million and (b) $246.5 million
in cash. As a result of the 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 and was allocated to the following financial
statement line items:
<TABLE>
<S> <C>
(IN THOUSANDS)
Intangibles....................................................... $ 46,206
Machinery and equipment........................................... 183,906
---------
Total........................................................... $ 230,112
---------
---------
</TABLE>
The impairment charge was first applied against the goodwill specifically
attributable to the containerboard assets and the remaining amount was
applied against property, plant and equipment.
The Group's financial statements reflect $230.1 million of the $293.0
million charge representing the impairment attributable to the assets
reflected in the Group's financial statements. Tenneco has informed PCA that
the remaining $62.9 million charge primarily includes liabilities for direct
incremental costs of sales, severance costs and other contractual
obligations directly related to the containerboard transaction, and the
impairment of other containerboard-related assets not contributed to PCA.
The $62.9 million charge is not part of the Group's financial statements.
8. EXTRAORDINARY LOSS
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).
9. SUMMARIZED COMBINED FINANCIAL INFORMATION ABOUT GUARANTOR SUBSIDIARIES
The following is summarized aggregated financial information for Dahlonega
Packaging Corporation, Dixie Container Corporation, PCA Hydro, Inc., PCA
Tomahawk Corporation and PCA Valdosta Corporation, each of which was a
wholly-owned subsidiary of TPI and included in the Group's combined
financial statements. In connection with the sale of the Group to PCA, each
of these companies became subsidiaries of PCA and
F-34
<PAGE>
PACKAGING CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999 (CONTINUED)
9. SUMMARIZED COMBINED FINANCIAL INFORMATION ABOUT GUARANTOR SUBSIDIARIES
(CONTINUED)
fully, unconditionally, jointly and severally guaranteed $550 million in
senior subordinated notes issued by PCA in connection with the transaction.
Separate financial statements of the guarantor subsidiaries are not
presented because, in the opinion of management, such financial statements
are not material to investors.
<TABLE>
<CAPTION>
-------------
<S> <C>
JUNE 30, 1999
(UNAUDITED)
-------------
(IN THOUSANDS)
Current assets............................................... $ 15,730
Non-current assets........................................... 14,118
-------------
Total assets............................................... 29,848
Current liabilities.......................................... 3,744
Non-current liabilities...................................... 5,438
-------------
Total liabilities.......................................... 9,182
-------------
Net assets................................................... $ 20,666
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
--------------------
<S> <C> <C>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
Net sales............................................... $ 20,898 $ 15,279
Gross profit............................................ 1,459 492
Net (loss).............................................. (527) (388)
</TABLE>
10. SUBSEQUENT EVENT
In August, 1999, PCA signed definitive purchase and sales agreements with
various buyers to sell approximately 400,000 acres of timberland. PCA
expects to close these transactions by the end of the third quarter of 1999.
F-35
<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.............................................................. 22
Forward-Looking Statements................................................ 32
The Transactions.......................................................... 33
Use of Proceeds........................................................... 35
Capitalization............................................................ 36
Unaudited Pro Forma Financial Information................................. 37
Selected Financial and Other Data......................................... 42
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 46
Business.................................................................. 60
Management................................................................ 69
Certain Relationships and Related Transactions............................ 72
Security Ownership........................................................ 75
Description of Senior Credit Facility..................................... 77
Description of Exchange Notes............................................. 82
Description of New Preferred Stock........................................ 124
The Exchange Offer........................................................ 172
United States Federal Tax Consequences.................................... 194
Plan of Distribution...................................................... 195
Legal Matters............................................................. 196
Experts................................................................... 196
Available Information..................................................... 196
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.*
3.3 Certificate of Incorporation of Dahlonega Packaging Corporation ("Dahlonega").*
3.4 By-laws of Dahlonega.*
3.5 Certificate of Incorporation, as amended, of Dixie Container Corporation ("Dixie").*
3.6 By-laws of Dixie.*
3.7 Certificate of Incorporation of PCA Hydro, Inc. ("PCA Hydro").*
3.8 By-laws of PCA Hydro.*
3.9 Certificate of Incorporation of PCA Tomahawk Corporation ("PCA Tomahawk").*
3.10 By-laws of PCA Tomahawk.*
3.11 Certificate of Incorporation of PCA Valdosta Corporation ("PCA Valdosta").*
3.12 By-laws of PCA Valdosta.*
4.1 Indenture, dated as of April 12, 1999, by and among PCA, Dahlonega, Dixie, PCA Hydro, PCA Tomahawk,
PCA Valdosta and United States Trust Company of New York.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<S> <C>
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").*
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.*
8.1 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 PCA and Paul T.
Stecko.*
10.18 1999 Management Equity Compensation Plan, effective as of June 1, 1999.*
10.19 Management Equity Agreement, dated as of June 1, 1999, among PCA, Paul T. Stecko and the Paul T.
Stecko 1999 Dynastic Trust.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.20 Form of Management Equity Agreement, dated as of June 1, 1999, among PCA and the members of management
party thereto.*
10.21 Memorandum Regarding Special Retention Bonus, dated as of April 16, 1999, from PCA to William J.
Sweeney.*
10.22 Amended and Restated 1999 Management Equity Compensation Plan, effective as of June 2, 1999.
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 Ernst & Young LLP.
23.3 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.*
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 for the Notes.*
99.4 Form of Notice of Guaranteed Delivery for the Preferred Stock.*
99.5 Form of Tender Instructions for the Notes.*
99.6 Form of Tender Instructions for the Preferred Stock.*
</TABLE>
- --------------
* 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.
II-4
<PAGE>
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
August 26, 1999
II-5
<PAGE>
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 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Packaging
Corporation of America has duly caused this Amendment No. 3 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 August 30, 1999.
Packaging Corporation of America
By: /s/ RICHARD B. WEST
--------------------------------------
Name: Richard B. West
Title: Chief Financial Officer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3
to the Registration Statement has been signed below by the following persons in
the capacities indicated on August 30, 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 and 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, Dahlonega Packaging
Corporation has duly caused this Amendment No. 3 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 August 30, 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. 3
to the Registration Statement has been signed below by the following persons in
the capacities indicated on August 30, 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, Dixie Container
Corporation has duly caused this Amendment No. 3 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 August 30, 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. 3
to the Registration Statement has been signed below by the following persons in
the capacities indicated on August 30, 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 Hydro, Inc. has
duly caused this Amendment No. 3 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 August 30, 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. 3
to the Registration Statement has been signed below by the following persons in
the capacities indicated on August 30, 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 Tomahawk
Corporation has duly caused this Amendment No. 3 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 August 30, 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. 3
to the Registration Statement has been signed below by the following persons in
the capacities indicated on August 30, 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, PCA Valdosta
Corporation has duly caused this Amendment No. 3 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 August 30, 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. 3
to the Registration Statement has been signed below by the following persons in
the capacities indicated on August 30, 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-12
<PAGE>
Exhibit 10.22
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-----------------------------------------------------------------------
PACKAGING CORPORATION OF AMERICA
-----------------------------------------------------------------------
AMENDED AND RESTATED
1999 MANAGEMENT EQUITY COMPENSATION PLAN
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. TITLE AND PURPOSE........................................................................................1
2. ADMINISTRATION...........................................................................................1
3. SHARES RESERVED FOR THIS PLAN............................................................................1
4. ISSUANCE OF COMMON STOCK AND OPTIONS.....................................................................2
5. LIMITATION ON ISSUANCE OF SHARES.........................................................................2
6. OPTIONS..................................................................................................2
(a) POWER TO GRANT OPTIONS..........................................................................2
(b) OPTION PRICE....................................................................................2
(c) OPTION TERM.....................................................................................3
(d) TERMINATION OF EMPLOYMENT.......................................................................3
(e) DEATH OR DISABILITY OF OPTION HOLDER............................................................3
(f) EXERCISE PROCEDURES.............................................................................3
(g) CONDITIONS AND LIMITATIONS ON EXERCISE OF OPTIONS...............................................4
7. ADDITIONAL PROVISIONS....................................................................................4
(a) LISTING, REGISTRATION AND COMPLIANCE WITH LAWS AND REGULATIONS..................................4
(b) NON-TRANSFERABILITY.............................................................................4
(c) TAXES...........................................................................................4
(d) NO RIGHT TO EMPLOYMENT CONFERRED................................................................5
8. AMENDMENT................................................................................................5
9. TERMINATION..............................................................................................5
10. FINANCIAL STATEMENTS.....................................................................................5
11. DEFINITIONS..............................................................................................5
</TABLE>
<PAGE>
PACKAGING CORPORATION OF AMERICA
AMENDED AND RESTATED
1999 MANAGEMENT EQUITY COMPENSATION PLAN
1. TITLE AND PURPOSE. This plan shall be known as the Packaging
Corporation of America 1999 Management Equity Compensation Plan (as amended,
supplemented or restated from time to time, this "PLAN"). This Plan is
intended to promote the long-term growth and profitability of Packaging
Corporation of America, a Delaware corporation, by providing those persons
who are involved in its management and growth an opportunity to acquire an
ownership interest in the Company, thereby encouraging such persons to
contribute to and participate in the success of the Company and to remain in
its employ. The purpose of this Plan is to enable the Company to compensate
and/or provide incentives to Participants (defined below) in carrying out
their duties or providing services to the Company. Under this Plan, the
Company may issue shares of Common Stock and/or options to purchase Common
Stock ("OPTIONS") to eligible employees, directors and officers of, and
consultants and advisors to, the Company or its Subsidiaries as may be
selected and approved from time to time by the Board ("PARTICIPANTS"). This
Plan was approved by the stockholders of the Company and adopted by the Board
on May 4, 1999 and amended and restated on June 1, 1999. Capitalized terms
used and not otherwise defined herein have the meanings indicated for such
terms in SECTION 11 of this Plan.
2. ADMINISTRATION. This Plan shall be administered by the Board.
The Board shall have full power to (a) construe and interpret this Plan and
the Management Equity Agreement (as defined in SECTION 4 below), (b) to
establish and amend rules for the administration of this Plan, (c) to issue
Common Stock and/or Options under this Plan, (d) to correct any defect or
omission and to reconcile any inconsistency in this Plan or in the Management
Equity Agreement to the extent the Board deems desirable to carry into effect
this Plan or the terms of the Management Equity Agreement, (d) to determine
who is eligible to be a Participant hereunder, and (f) to delegate certain
duties of the Board hereunder to one or more agents to assist in the
administration of this Plan. The Board may act by a majority of a quorum
present at a meeting or by an instrument executed by a majority of its
members except as otherwise may be expressly required by Section 3.6 of the
Stockholders Agreement, by and among Tenneco Packaging Inc., PCA Holdings LLC
and the Company, dated April 12, 1999 (the "STOCKHOLDERS AGREEMENT") so long
as the applicable provision of such Section is effective and enforceable
against the parties thereto and has not terminated or expired (whether by its
terms, by agreement of the parties thereto or by operation of law). All
actions taken and decisions made by the Board pursuant to this Plan shall be
binding and conclusive on all persons interested in this Plan.
3. SHARES RESERVED FOR THIS PLAN. An aggregate of 44,943 shares of
Common Stock shall be reserved for issuance pursuant to this Plan (as may be
adjusted pursuant to the following sentence, "SHARES"), 29,893 of which
Shares shall be reserved for issuance upon exercise of Options issued
pursuant to this Plan. In order to prevent the dilution or enlargement of
rights of Common Stock issued or sold under this Plan generally, in the event
of a reorganization, recapitalization, stock split, stock dividend,
combination of shares, merger, consolidation or other change in the Common
Stock, the Board shall make appropriate changes in the number and type of
shares of Common Stock
<PAGE>
authorized by this Plan, the number and type of shares of Common Stock
covered by outstanding Options and the prices specified therein.
4. ISSUANCE OF COMMON STOCK AND OPTIONS. All issuances of Common
Stock and Options pursuant to this Plan shall be pursuant to and in
accordance with a written agreement between the Company and the Participants
expressly issuing or granting such Common Stock or Options and containing the
terms of such Common Stock or Options (the "MANAGEMENT EQUITY AGREEMENT") and
no Participant shall have any rights under or in respect of any Common Stock
or Option issued under this Plan unless and until such Participant has
executed and delivered the Management Equity Agreement. The Management Equity
Agreement shall provide, among other things, the Company (and such other
persons as the Company shall designate) the right to repurchase from such
Participant all of his or her Shares upon the termination of such
Participant's employment with the Company and its Subsidiaries for any reason
and such additional terms and conditions as approved by the Board. If any
Shares are repurchased by the Company, such Shares shall again be available
for reissuance under this Plan. Similarly, if any Options expire unexercised
or unpaid or are canceled, terminated or forfeited in any manner without the
issuance of Shares thereunder, such Shares shall again be available under
this Plan. Shares to be sold hereunder or issued upon the exercise of Options
granted hereunder may be either authorized and unissued shares, treasury
shares or a combination thereof, as the Board shall determine. Shares issued
under this Plan shall be issued for a purchase price to be determined by the
Board; provided that the purchase price shall be 100% of the fair value of
the Common Stock at the time the person is granted the right to purchase
Shares hereunder.
5. LIMITATION ON ISSUANCE OF SHARES. The Company may not issue or
sell securities pursuant to this Plan in any twelve-month period which, as of
the date of such issuance or sale, in the aggregate exceed THE GREATER OF (i)
15% of the Company's total assets as of the then most recently completed
fiscal year of the Company, AND (ii) 15% of the Common Stock outstanding on a
fully-diluted basis.
6. OPTIONS.
(a) POWER TO GRANT OPTIONS. Options to be granted under this
Plan may be in any form consistent with this Plan as the Board may determine.
Options granted pursuant to this Plan may either be "incentive stock options"
within the meaning of Section 422A of the Code or any successor provision (an
"INCENTIVE STOCK OPTION") or non-qualified stock options, as the Board may
determine in its sole discretion. Each Option granted under this Plan shall
state whether or not it is an Incentive Stock Option; provided that any
Option granted under this Plan that does not expressly state that it is an
Incentive Stock Option shall not be deemed to be an Incentive Stock Option.
All Options granted under this Plan shall be subject to such terms and
conditions set forth in this Plan and the Management Equity Agreement.
(b) OPTION PRICE. The Option price per Share shall be fixed by
the Board, but shall be 100% of the fair market value of a share of Common
Stock on the date of grant; provided that if an Incentive Stock Option is
granted to a person who at the time such Incentive Stock Option
- 2 -
<PAGE>
is granted owns capital stock of the Company representing over 10% of the
total voting power of all classes of the Company's capital stock, the
Incentive Stock Option price per Share shall be fixed by the Board at not
less than 110% of the fair market value of a share of Common Stock on the
date of grant.
(c) OPTION TERM. Except as otherwise provided in the
Management Equity Agreement, Options issued pursuant to this Plan shall
become exercisable in five equal annual installments beginning on the first
anniversary of the date on which such Options are granted. Except as
otherwise provided in SECTIONS 6(d) or 6(e) hereof or in the Management
Equity Agreement, the right of any holder of an Option granted hereunder to
exercise such Option shall terminate upon the earlier of (i) such holder's
Employment Termination Date and (ii) the Expiration Date of the Option.
(d) TERMINATION OF EMPLOYMENT. Any Option shall be exercisable
only during the holder's employment by the Company or any of its
Subsidiaries, except that an Option may be exercisable for a period of up to
90 days after the termination of such holder's employment for any reason
other than a termination by the Company for cause. An Option may be so
exercised within 90 days after the termination of a holder's employment with
the Company or any of its Subsidiaries (i) only to the extent that the holder
was entitled to do so on such holder's Employment Termination Date and (ii)
only to the extent that the Option would not have expired had the holder
continued to be employed by the Company or any of its Subsidiaries. The Board
may, in its discretion, determine that an authorized leave of absence shall
be deemed to satisfy this Plan's employment requirements.
(e) DEATH OR DISABILITY OF OPTION HOLDER. Upon the death or
permanent disability of the holder of an Option granted under this Plan, the
right to exercise all unexpired installments of such Option shall remain
exercisable for a period of up to six months following the death or permanent
disability of such Option holder.
(f) EXERCISE PROCEDURES. Each Option granted under this Plan
shall be exercised by written notice of the holder thereof to the Company (to
the attention of the Chief Executive Officer or Secretary) in the manner
provided by the Management Equity Agreement. Any holder of any Option shall
be required, as a condition precedent to such holder's right to exercise such
Option at such person's expense, to supply the Board with such evidence,
representations, agreements or assurances (including but not limited to
opinions of counsel satisfactory to the Board) as the Board then may deem
necessary or desirable in order to establish to the satisfaction of the Board
the right of such person to exercise such Option, and the propriety of the
sale of securities by reason of such exercise under the Securities Act and
any other laws or requirements of any governmental authority specified by the
Board, and the Company shall not be obligated to issue any Shares subject to
such Option until all evidence, representation, agreements and assurances
required by the Board shall have been supplied and reviewed by the Board and
are in a form and of substance satisfactory to the Company's counsel. No
Option holder shall have any rights as a stockholder with respect to Shares
issuable under any Option granted under this Plan until and unless such
Shares are issued and delivered to such Option holder. The purchase price
paid upon the exercise of any Option granted
- 3 -
<PAGE>
under this Plan shall be added to the general funds of the Company and may be
used for any proper corporate purpose.
(g) CONDITIONS AND LIMITATIONS ON EXERCISE OF OPTIONS. Options
may be made exercisable in one or more installments upon the happening of
certain events, upon the passage of a specified period of time or upon the
fulfillment of a condition, as the Board shall decide in each case when the
Option is granted. If an Option is intended to be an Incentive Stock Option,
the aggregate fair market value on the date of grant of the Common Stock with
respect to which such Option, and all other Incentive Stock Options granted
to the same person by the Company and any parent and subsidiary corporations,
is exercisable for the first time during any calendar year shall not exceed
$100,000.
7. ADDITIONAL PROVISIONS.
(a) LISTING, REGISTRATION AND COMPLIANCE WITH LAWS AND
REGULATIONS. All Common Stock and/or Options issued pursuant to this Plan
shall be subject to the requirement that if at any time the Board shall
determine, in its discretion, that the listing, registration or qualification
upon any securities exchange or under any state or federal securities or
other law or regulation of such Common Stock or any Shares subject to such
Option or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition to or in connection with the issuance
hereunder of such Common Stock or the issuance or exercise of such Options,
no such Common Stock or Option may be issued or exercised (as the case may
be) unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Board. The recipient of such Common Stock or Option will supply the
Company with such certificates, representations and information as the
Company shall request and shall otherwise cooperate with the Company in
obtaining such listing, registration, qualification, consent or approval. In
the case of officers and other persons subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended, the Board may at any time impose
any limitations upon the exercise of an Option that, in the Board's
discretion, are necessary or desirable in order to comply with such Section
16(b) and the rules and regulations thereunder. If the Company, as part of an
offering of securities or otherwise, finds it desirable because of federal or
state regulatory requirements to reduce the period during which any Options
may be exercised, the Board may, in its discretion and without the holders'
consent, so reduce such period on not less than 10 days' written notice to
the holders thereof. Nothing contained herein shall obligate the Company to
register any Common Stock or other securities under any federal or state
securities laws.
(b) NON-TRANSFERABILITY. Except as otherwise provided under
the Management Equity Agreement, Common Stock or Options issued under this
Plan may not be transferred other than by will or the laws of descent and
distribution and, during the lifetime of the person to whom they are granted,
Options may be exercised only by such person (or his guardian or legal
representative).
(c) TAXES. The Company shall be entitled, if necessary or
desirable, to withhold (or secure payment from this Plan participant in lieu
of withholding) the amount of any withholding
- 4 -
<PAGE>
or other tax due with respect to any amount payable and/or shares issuable
under this Plan, and the Company may defer such payment or issuance unless
indemnified to its satisfaction.
(d) NO RIGHT TO EMPLOYMENT CONFERRED. Nothing in this Plan or
(in the absence of an express provision to the contrary) in the Management
Equity Agreement shall confer on any person any right to continue in the
employment of the Company or interfere in any way with the right of the
Company to terminate such person's employment at any time.
8. AMENDMENT. At any time the Board may make such additions or
amendments as it deems advisable under this Plan, except that it may not,
without further approval by the Company's stockholders and the requisite
approval of the Company's board of directors, (a) increase the maximum number
of shares of Common Stock issued hereunder or issuable upon the exercise of
Options issued hereunder, except pursuant to SECTION 3 above, (b) extend the
term of this Plan, (c) change the class of employees to whom shares of Common
Stock may be sold or to Options may be granted under this Plan.
9. TERMINATION. The Board shall have the right and power to
terminate this Plan at any time. If is not earlier terminated by the Board,
this Plan shall terminate on June 1, 2009. No securities shall be issued
under this Plan after this Plan's termination, but the termination of this
Plan shall not have any other effect, and any Option outstanding at the time
of this Plan's termination may be exercised after such termination to the
same extent such Option would have been exercisable had this Plan not been
terminated.
10. FINANCIAL STATEMENTS. Upon the reasonable request to the Chief
Executive Officer or the Board of any Participant then holding Common Stock
or Options issued hereunder, the Company will provide or make available for
inspection by such Participant copies of the annual audited financial
statements of the Company.
11. DEFINITIONS.
(a) "BOARD" means the Company's Board of Directors or such
committee of two or more persons selected by the Board to administer this
Plan to whom the Board has delegated its powers hereunder.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as it
may be amended from time to time.
(c) "COMMON STOCK" means the Common Stock, par value $.01 per
share, of the Company, and shall include such shares which are substituted
for shares of the Company's Common Stock pursuant to SECTION 3.
(d) "COMPANY" as applied as of any given time shall mean
Packaging Corporation of America, a Delaware corporation, except that if
prior to the given time any corporation or other entity shall have acquired
all or a substantial part of the assets of the Company (as herein defined),
- 5 -
<PAGE>
and shall have agreed to assume the obligations of the Company under this
Plan, then such corporation or other entity shall be deemed to be the Company
at the given time.
(e) "EMPLOYMENT TERMINATION DATE" as applied to the holder of
any Shares or Options granted under this Plan means the first date on which
such holder shall not be employed by the Company for any reason (including
but not limited to voluntary termination of employment, involuntary
termination of employment, retirement, disability or death). The Board may
specify in the Management Equity Agreement (or if not so specified, shall
determine) whether an authorized leave of absence or absence on military or
government service or absence for any other reason shall constitute a
termination of employment for the purposes of this Plan.
(f) "EXPIRATION DATE" as applied to any Option granted under
this Plan means the date specified in the Management Equity Agreement as the
Expiration Date of such Option; provided that in no event may the Expiration
Date occur later than the day prior to the tenth anniversary of the date of
grant of such Option. If no Expiration Date shall be specified in the
Management Equity Agreement, then the Expiration Date of such Option shall be
the day prior to the tenth anniversary of the date of grant of such Option.
(g) "INCENTIVE STOCK OPTIONS" means "incentive stock options"
within the meaning of Section 422A of the Code.
(h) "SECURITIES ACT" means the Securities Act of 1933, as
amended from time to time.
(i) "SUBSIDIARY" means any corporation in which the Company
owns, directly or indirectly, stock possessing 50% or more of the total
combined voting power.
* * * *
- 6 -
<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,
------------------------------------------------------
Pro Forma
1994 1995 1996 1997 1998 1998
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes 127,246 371,229 150,182 46,104 118,968 2,884
Fixed charges 38,876 39,931 44,736 35,500 34,846 167,374
------- ------- ------- ------- ------- ---------
Earnings (loss) 166,122 411,160 194,918 81,604 153,814 170,258
------- ------- ------- ------- ------- ---------
------- ------- ------- ------- ------- ---------
Fixed Charges:
Interest expense 740 1,485 5,129 3,739 2,782 159,476
Interest portion of rent expense 38,136 38,446 39,607 31,761 32,064 7,898
------- ------- ------- ------- ------- ---------
Fixed charges 38,876 39,931 44,736 35,500 34,846 167,374
------- ------- ------- ------- ------- ---------
------- ------- ------- ------- ------- ---------
Ratio of earnings to fixed charges 4.27 10.30 4.36 2.30 4.41 1.02
------- ------- ------- ------- ------- ---------
------- ------- ------- ------- ------- ---------
</TABLE>
<TABLE>
<CAPTION>
Six Jan. 1, April 12, Pro Forma
Months 1999 1999 Six Months
Ended Through Through Ended
June 30, April 11, June 30, June 30,
1998 1999 1999 1999
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Income (loss) before income taxes 77,290 (212,315) 11,311 (6,886)
Fixed charges 17,858 8,691 35,678 82,349
------- -------- ------- ------
Earnings (loss) 95,148 (203,624) 46,989 75,463
------- -------- ------- ------
Fixed Charges:
Interest expense 1,681 221 34,079 78,195
Interest portion of rent expense 16,177 8,470 1,599 4,154
------- -------- ------- ------
Fixed charges 17,858 8,691 35,678 82,349
------- -------- ------- ------
Ratio of earnings to fixed charges 5.33 Note 1 1.32 Note 1
------- -------- ------- ------
------- -------- ------- ------
</TABLE>
Note 1: Due to the net loss, earnings were insufficient to cover fixed
charges by $212,315 for the period January 1, 1999 through April 11,
1999 and by $6,886 for the pro forma six months ended June 30, 1999.
<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,
------------------------------------------------------
Pro Forma
1994 1995 1996 1997 1998 1998
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes 127,246 371,229 150,182 46,104 118,968 2,884
Fixed charges 38,876 39,931 44,736 35,500 34,846 167,374
------- ------- ------- ------- ------- ---------
Earnings (loss) 166,122 411,160 194,918 81,604 153,814 170,258
------- ------- ------- ------- ------- ---------
------- ------- ------- ------- ------- ---------
Combined fixed charges and
PS dividends:
Interest expense 740 1,485 5,129 3,739 2,782 159,476
Preferred stock dividends
(Note 2) 0 0 0 0 0 20,625
Interest portion of rent expense 38,136 38,446 39,607 31,761 32,064 7,898
------- ------- ------- ------- ------- ---------
Combined fixed charges and
preferred stock dividends 38,876 39,931 44,736 35,500 34,846 187,999
------- ------- ------- ------- ------- ---------
------- ------- ------- ------- ------- ---------
Ratio of earnings to combined fixed
charges and preferred stock
dividends 4.27 10.30 4.36 2.30 4.41 Note 1
------- ------- ------- ------- ------- ---------
------- ------- ------- ------- ------- ---------
</TABLE>
<TABLE>
<CAPTION>
Six January 1 April 12, Pro Forma
Months 1999 1999 Six Months
Ended Through Through Ended
June 30, April 11, June 30, June 30,
1998 1999 1999 1999
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income (loss) before income taxes 77,290 (212,315) 11,311 (6,886)
Fixed charges 17,858 8,691 35,678 82,349
------- ---------- ---------- -----------
Earnings (loss) 95,148 (203,624) 46,989 75,463
------- ---------- ---------- -----------
------- ---------- ---------- -----------
Combined fixed charges and
PS dividends:
Interest expense 1,681 221 34,079 78,195
Preferred stock dividends
(Note 2) -- -- -- 6,188
Interest portion of rent expense 16,177 8,470 1,599 4,154
------- ---------- ---------- -----------
Combined fixed charges and
preferred stock dividends 17,858 8,691 35,678 88,536
------- ---------- ---------- -----------
------- ---------- ---------- -----------
Ratio of earnings to combined fixed
charges and preferred stock
dividends 5.33 Note 1 1.32 Note 1
------- ---------- ---------- -----------
------- ---------- ---------- -----------
</TABLE>
Note 1: Due to the net loss, earnings were insufficient to cover fixed
charges and preferred stock dividends by $212,315 for the period
January 1, 1999 through April 11, 1999 and by $13,073 for the pro
forma six months ended June 30, 1999. In addition, for the pro forma
year ended December 31, 1998 earnings were insufficient to cover
fixed charges and preferred stock dividends by $17,741.
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 six months ended June 30, 1999 because of the net loss.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 26, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 23, 1999 in Amendment No. 3 to the
Registration Statement (Form S-4 No. 333-79511) and related Prospectus of
Packaging Corporation of America for the registration of $550,000,000 of
senior subordinated notes and $100,000,000 of senior exchangeable preferred
stock.
ERNST & YOUNG LLP
Chicago, Illinois
August 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000075677
<NAME> PACKAGING CORPORATION OF AMERICA
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR OTHER OTHER
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999 APR-12-1999
<PERIOD-END> DEC-31-1998 APR-11-1999 JUN-30-1999
<CASH> 1 0 46,855
<SECURITIES> 0 0 0
<RECEIVABLES> 56,971 0 202,699
<ALLOWANCES> 5,220 0 4,367
<INVENTORY> 150,719 0 152,815
<CURRENT-ASSETS> 243,563 0 413,336
<PP&E> 1,677,105 0 2,706,646
<DEPRECIATION> 735,749 0 790,128
<TOTAL-ASSETS> 1,367,403 0 2,428,619
<CURRENT-LIABILITIES> 164,152 0 221,538
<BONDS> 17,552 0 1,685,468
0 0 96,500
0 0 0
<COMMON> 0 0 4
<OTHER-SE> 908,392 0 341,758
<TOTAL-LIABILITY-AND-EQUITY> 1,367,403 0 2,428,619
<SALES> 1,571,019 433,182 373,035
<TOTAL-REVENUES> 1,571,019 433,182 373,035
<CGS> 1,289,644 367,483 297,055
<TOTAL-COSTS> 1,289,644 367,483 297,055
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 2,710 412 905
<INTEREST-EXPENSE> 2,782 221 34,079
<INCOME-PRETAX> 118,968 (212,315) 11,311
<INCOME-TAX> 47,529 83,716 4,545
<INCOME-CONTINUING> 71,439 (128,599) 6,766
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 (6,327) 0
<CHANGES> 0 0 0
<NET-INCOME> 71,439 (134,926) 6,766
<EPS-BASIC> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
