<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1997
REGISTRATION NO. 333-33499
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
RIVERWOOD INTERNATIONAL CORPORATION
RIVERWOOD HOLDING, INC.
RIC HOLDING, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2631 84-0772929
DELAWARE 2631 58-22050241
DELAWARE 2631 58-2205497
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION IDENTIFICATION NO.)
CODE NUMBER)
</TABLE>
------------------------
3350 CUMBERLAND CIRCLE, SUITE 1400
ATLANTA, GEORGIA 30339
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
BILL H. CHASTAIN, ESQ.
RIVERWOOD INTERNATIONAL CORPORATION
3350 CUMBERLAND CIRCLE, SUITE 1400
ATLANTA, GEORGIA 30339
(770) 644-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------------
COPY TO:
DAVID A. BRITTENHAM, ESQ.
DEBEVOISE & PLIMPTON
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
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- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
RIVERWOOD INTERNATIONAL CORPORATION
OFFER TO EXCHANGE 10 5/8% SENIOR NOTES DUE 2007,
FOR ANY AND ALL EXISTING NOTES (AS DEFINED BELOW)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 3,
1997, UNLESS EXTENDED. AS DESCRIBED HEREIN, WITHDRAWAL RIGHTS WITH RESPECT TO
THE EXCHANGE OFFER ARE EXPECTED TO EXPIRE AT THE EXPIRATION OF THE EXCHANGE
OFFER.
------------------------
Riverwood International Corporation, a Delaware corporation ("Riverwood"),
hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus (the "Prospectus") and the accompanying
Letter of Transmittal (the "Letter of Transmittal") to exchange up to
$250,000,000 aggregate principal amount of its 10 5/8% Senior Notes due 2007
(the "New Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act") pursuant to a Registration Statement of which
this Prospectus is a part, for a like principal amount of its issued and
outstanding 10 5/8% Senior Notes due 2007 (the "Existing Notes"). The New Notes
and the Existing Notes, as the case may be, are referred to herein as the
"Notes." The Existing Notes were originally issued and sold by Riverwood in a
transaction that was exempt from registration under the Securities Act (the
"Offering") and resold to certain qualified institutional buyers in reliance on,
and subject to the restrictions imposed pursuant to, Rule 144A under the
Securities Act ("Rule 144A"). The terms of the New Notes are identical in all
material respects to the terms of the Existing Notes for which they may be
exchanged pursuant to the Exchange Offer, except that the New Notes will have
been registered under the Securities Act, and thus will not bear restrictive
legends restricting their transfer pursuant to the Securities Act.
Interest on each of the New Notes issued pursuant to the Exchange Offer will
accrue from the last interest payment date on which interest was paid or duly
provided for on the Existing Notes surrendered in exchange therefor or, if no
interest has been paid or duly provided for, from the original date of issuance
of the Existing Notes.
Interest on the Notes is payable semi-annually on February 1 and August 1 of
each year, commencing on February 1, 1998. The Notes will mature on August 1,
2007. Except as described below, Riverwood may not redeem the Notes prior to
August 1, 2002. On or after such date, Riverwood may redeem the Notes, in whole
or in part, at the redemption prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. In addition, at any time and
from time to time on or prior to August 1, 2000, Riverwood may, subject to
certain requirements, redeem up to 35% of the original aggregate principal
amount of the Notes with the net cash proceeds of one or more Public Equity
Offerings (as defined herein) by Riverwood, RIC Holding, Inc., Riverwood's
parent ("RIC Holding"), or Riverwood Holding, Inc., RIC Holding's parent
("Holding"), at a price equal to 110.625% of the principal amount of the Notes
to be redeemed, together with accrued and unpaid interest, if any, to the date
of redemption, provided that at least 65% of the original aggregate principal
amount of the Notes remains outstanding after each such redemption. The Notes
will not be subject to any sinking fund requirement. Upon the occurrence of a
Change of Control (as defined herein), (i) prior to August 1, 2002, Riverwood
may redeem the Notes, in whole or in part, at a redemption price equal to 100%
of the principal amount thereof plus the Applicable Premium (as defined herein),
together with accrued and unpaid interest, if any, to the date of redemption,
and (ii) if Riverwood does not so redeem the Notes, each Holder will have the
right to require Riverwood to repurchase the Notes at a purchase price in cash
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. See "Description of Notes."
(COVER CONTINUED ON NEXT PAGE)
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS OCTOBER 1, 1997.
<PAGE>
The Notes will be fully and unconditionally guaranteed on an unsecured,
senior basis by Holding and RIC Holding and by certain future subsidiaries of
Riverwood. The Notes will be unsecured obligations of Riverwood and will be
effectively subordinated to all existing and future secured indebtedness of
Riverwood and its subsidiaries to the extent of the value of the assets securing
such indebtedness, and to all indebtedness of Riverwood's subsidiaries. The
Notes will rank PARI PASSU in right of payment with all other Senior
Indebtedness (as defined herein) of Riverwood and will rank senior in right of
payment to all existing and future Senior Subordinated Indebtedness (as defined
herein) and all other subordinated indebtedness of Riverwood. The indenture (the
"Indenture") pursuant to which the Existing Notes were issued permits Riverwood
and its subsidiaries to incur additional indebtedness, including Senior
Indebtedness, subject to certain limitations. See "Description of Notes." At
June 28, 1997, on a pro forma basis after giving effect to the Offering and the
application of the net proceeds therefrom, the aggregate amount of indebtedness
(including the Notes) of Holding and its subsidiaries (the "Company") would have
been approximately $1,702.1 million (of which $775.9 million would have been
secured indebtedness), and unused commitments of $331.0 million would have been
available under the Revolving Facility (as defined herein). At June 28, 1997, on
a pro forma basis after giving effect to Offering and the application of the net
proceeds therefrom, the aggregate amount of indebtedness of Riverwood's
subsidiaries would have been approximately $74.4 million and aggregate unused
commitments of approximately $43.2 million would have been available under the
Machinery Facility (as defined herein) and the credit facilities of Riverwood's
non-U.S. subsidiaries. See "Capitalization" and "Description of Notes--Ranking."
The Exchange Offer is not conditioned upon any minimum number of Existing
Notes tendered. The Exchange Offer will expire at 5:00 p.m., New York City time,
on November 3, 1997, unless extended by the Company (such date as it may be so
extended, the "Expiration Date"). The date of acceptance for exchange of the
Existing Notes (the "Exchange Date") will be promptly following the Expiration
Date, upon surrender of the Existing Notes. Existing Notes tendered pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date;
otherwise such tenders are irrevocable. New Notes to be issued in exchange for
properly tendered Existing Notes will be delivered through the facilities of The
Depository Trust Company by the Exchange Agent (as defined herein) promptly upon
acceptance thereof.
<PAGE>
The Existing Notes were originally issued and sold in a transaction that was
exempt from registration under the Securities Act (the "Offering") and resold to
certain qualified institutional buyers in reliance on, and subject to the
restrictions imposed pursuant to, Rule 144A under the Securities Act ("Rule
144A"). Based on interpretations by the Staff of the Securities and Exchange
Commission (the "Commission") as set forth in no-action letters issued to third
parties (including EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988),
MORGAN STANLEY & CO. INCORPORATED (available June 5, 1991), K-III COMMUNICATIONS
CORPORATION (available July 2, 1993) and SHEARMAN & STERLING (available July 2,
1993)), the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for the Existing Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than any such holder which is
(i) an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired Existing Notes directly from
the Company or (iii) a broker-dealer who acquired Existing Notes as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that (a) such New Notes are acquired in the ordinary course of such holder's
business, (b) at the time of the commencement of the Exchange Offer such holder
has no arrangement with any person to participate in a distribution of the New
Notes and (c) such holder is not engaged in, and does not intend to engage in, a
distribution of the New Notes. Holders of the Existing Notes that, at the time
of the commencement of the Exchange Offer, are engaged in, intend to engage in,
or have an arrangement to engage in, a distribution of the New Notes may not
rely on the applicable interpretations of the Staff of the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction. In addition,
since the Commission has not considered the Exchange Offer in the context of a
no-action letter, there can be no assurance that the Staff of the Commission
would make a similar determination with respect to the Exchange Offer as in such
other circumstances. Each holder of Existing Notes that desires to participate
in the Exchange Offer will be required to make certain representations described
in "The Exchange Offer -- Terms of the Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer in exchange for Existing Notes, where such Existing Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act and that it has not entered into
any arrangement or understanding with the Company or any affiliate of the
Company to distribute New Notes in connection with any resale of such New Notes.
A broker-dealer that acquired Existing Notes in a transaction other than as part
of its market-making activities or other trading activities will not be able to
participate in the Exchange Offer. 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 Notes received in
exchange for Existing Notes where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any such broker-dealer electing to exchange Existing Notes, acquired for its own
account as a result of market-making activities or other trading activities and
for use in connection with any such resale. Any holder that cannot rely upon
such interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. See "The Exchange Offer" and "Plan of Distribution."
The New Notes may be represented by one or more Global Securities (as
defined) registered in the name of a nominee of The Depository Trust Company, as
Depositary. Beneficial interests in the Global Securities will be shown on, and
transfers will be effected only through, records maintained by the Depositary
and its participants. See "Description of New Notes -- Book-Entry, Delivery and
Form."
2
<PAGE>
There has not previously been any public market for the New Notes. The
Company does not intend to list the New Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can be
no assurance that an active market for the New Notes will develop. Moreover, to
the extent that Existing Notes are tendered and accepted in the Exchange Offer,
a holder's ability to sell untendered, and tendered but unaccepted, Existing
Notes could be adversely affected. See "Risk Factors -- Absence of Public
Market."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses it incurs for the Exchange Offer. No
dealer manager is being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE, NOR WILL THE COMPANY ACCEPT SURRENDER
FOR EXCHANGE FROM HOLDERS OF EXISTING NOTES, IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR "BLUE SKY" LAWS OF SUCH JURISDICTION.
------------------------
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (together
with any amendments thereto, the "Registration Statement") on Form S-4 under the
Securities Act, with respect to the New Notes offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus does not contain
all of the information included in the Registration Statement and the exhibits
and schedules thereto. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein or therein and
filed as an exhibit to the Registration Statement are not necessarily complete
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company and the New Notes, reference is hereby made to the
Registration Statement and the exhibits and schedules thereto.
Pursuant to the Indenture, Riverwood will, to the extent permitted under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and whether or
not it is subject to Section 13(a) or 15(d) of the Exchange Act, file with the
Commission, and provide the trustee for the Notes and the holders of the Notes
with copies of, annual and quarterly reports and other information, documents
and reports which are required to be filed by a person subject to the reporting
requirements of Section 13(a) or 15(d) of the Exchange Act as if it was subject
to such reporting requirements. In accordance with the terms of the 1996
Indentures (as defined herein), the Company files with the Commission annual and
quarterly reports and other information, documents and other reports which are
specified in Sections 13 and 15(d) of the Exchange Act. Reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, New York,
New York 10048 and Suite 1400, Northwestern Atrium Center, 14th Floor, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can also be
obtained at prescribed rates by writing to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549 and such material is
contained on the worldwide web site maintained by the Commission at
http://www.sec.gov.
------------------------
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, AND
THE RELATED NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS. AS USED IN
THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, "HOLDING" REFERS TO
RIVERWOOD HOLDING, INC., "RIVERWOOD" REFERS TO RIVERWOOD INTERNATIONAL
CORPORATION, THE "PREDECESSOR" OR THE "PREDECESSOR COMPANY" REFERS TO THE
CORPORATION FORMERLY NAMED RIVERWOOD INTERNATIONAL CORPORATION ("RIC") AND ITS
SUBSIDIARIES FOR PERIODS PRIOR TO THE MERGER (AS DEFINED HEREIN), AND THE
"COMPANY" REFERS TO HOLDING AND ITS SUBSIDIARIES, FOR PERIODS FROM AND AFTER THE
MERGER, AND THE PREDECESSOR COMPANY, FOR PERIODS PRIOR TO THE MERGER. SEE
"GLOSSARY OF CERTAIN TERMS" FOR DEFINITIONS OF CERTAIN TERMS USED HEREIN.
THE COMPANY
OVERVIEW
The Company is a leading provider of paperboard and paperboard packaging
solutions, either directly or through independent converters, to multinational
beverage and consumer products companies, such as Anheuser-Busch Companies,
Inc., Miller Brewing Company, numerous Coca-Cola bottling companies, PepsiCo,
Inc., Sara Lee Corporation and Mattel, Inc. The Company is one of only two major
manufacturers of coated unbleached kraft paperboard ("CUK Board"). CUK Board,
which serves as the principal raw material for the Company's packaging products,
is a specialized high-quality grade of paperboard with superior strength
characteristics and printability for high-resolution graphics that make it
particularly well suited for a variety of packaging applications. In order to
capitalize on the growth in CUK Board demand, the Company has invested over $1
billion since the beginning of 1992 in expanding its Coated Board business
segment. The Company's Coated Board business segment accounted for approximately
88% of the Company's net sales for the nine months ended December 31, 1996. The
Company also manufactures and sells linerboard, corrugating medium and kraft
paper (collectively, "containerboard") through its Containerboard business
segment.
COATED BOARD
The Company's primary focus is the production and sale of CUK Board for use
as multiple packaging beverage cartons ("carrierboard") for beer, soft drinks
and other beverages, and folding cartons ("folding cartonboard") for
confectionary, frozen and dry foods, toys and other consumer products. The
Company sells carrierboard under the brand names Aqua-Kote-Registered Trademark-
and Krafbrite-Registered Trademark- and folding cartonboard under the brand
names Pearl-Kote-Registered Trademark- and OmniKote.-Registered Trademark- In
1996, carrierboard accounted for approximately 70% of the Company's total CUK
Board production.
The Company utilizes over three-fourths of its carrierboard production in
its integrated beverage business and sells the remainder in the open market to
independent converters, including licensees of the Company's proprietary carton
designs, principally for use in the beverage packaging market. In its integrated
beverage business, the Company provides integrated beverage packaging solutions
that generally include each of the following elements: (i) the production of
carrierboard, (ii) the printing and cutting, or conversion, of carrierboard into
beverage cartons for use on packaging machines and (iii) the sale to customers
of converted beverage cartons for use on proprietary packaging machines
designed, manufactured and installed by the Company. As part of the Company's
integrated beverage business, particularly in its international operations, the
Company's carrierboard may be sold to and converted by licensees of the
Company's beverage carton designs who, in turn, sell converted beverage cartons
to end-users for use on the Company's proprietary packaging machines. The
Company's integrated beverage business also includes sales of Company produced
and converted carrierboard to customers for use on third party packaging
machines.
4
<PAGE>
The Company produces and sells folding cartonboard principally in the open
market to independent converters for use in folding cartons for packaging a
variety of consumer products. The Company focuses on folding cartonboard
applications for consumer products companies seeking the strength and
printability of CUK Board. The Company's ability to produce either carrierboard
or folding cartonboard on its CUK Board paper machines enables the Company to
respond to changes in supply and demand in these businesses. Additionally, at
its paper mill in Norrkoping, Sweden (the "Swedish Mill"), the Company
manufactures white lined chip board ("WLC"), a coated 100% recycled paperboard
grade used principally in European folding cartonboard applications.
CUK BOARD PRODUCTION. The Company produces CUK Board at its West Monroe,
Louisiana mill (the "West Monroe Mill") and its Macon, Georgia mill (the "Macon
Mill"). These mills have a current total combined annual production capacity of
over one million tons of CUK Board. In February 1997, the Company completed a
project to modify the pulp mill at the Macon Mill at a cost of approximately $32
million. In June 1997, the Company completed the conversion of the second Macon
Mill linerboard machine to CUK Board production for an expected cost of
approximately $85 million, and commenced CUK Board production on the machine.
The Company expects that the machine will achieve its full, annual production
capacity of approximately 275,000 tons of CUK Board in 18 to 24 months. The
Company's CUK Board production at its West Monroe and its Macon Mills was
approximately 652,000 tons and 218,000 tons, respectively, for the year ended
December 31, 1996.
CONVERTING OPERATIONS. The Company converts CUK Board as well as other
grades of paperboard into cartons at 17 carton converting plants at 16 sites
that it operates in the United States, the United Kingdom, Spain, France and
Australia, as well as through converting plants associated with its joint
ventures in Brazil, Japan and Denmark and licensees in other markets outside the
United States. The converting plants print, cut and glue paperboard into cartons
designed to meet customer specifications. The Company's U.S. converting plants
are dedicated to converting carrierboard produced by the Company into beverage
cartons. The Company's international converting plants convert carrierboard and
folding cartonboard produced by the Company, as well as paperboard supplied by
outside producers, into cartons. In 1996, the Company completed a program begun
in 1994 to upgrade certain of its existing domestic converting plants with new
printing presses and related equipment, and opened a new converting plant
located in Perry, Georgia near the Macon Mill.
PROPRIETARY PACKAGING MACHINERY AND CARTON DESIGNS. The Company employs a
"pull through" marketing strategy in its integrated beverage business, the key
elements of which are (i) the design and manufacture of proprietary packaging
machines capable of packaging PET and glass bottles, cans and other primary
containers, (ii) the installation of the machines at beverage customer locations
under multi-year machinery use arrangements and (iii) the development of
proprietary beverage cartons with high-resolution graphics for use on those
machines.
CONTAINERBOARD
Through its Containerboard business segment, the Company manufactures
containerboard -- linerboard, corrugating medium and kraft paper -- which is
sold in the open market. Corrugating medium is combined with linerboard to make
corrugated containers. Kraft paper is used primarily to make grocery bags and
sacks. With the completion of the upgrade of the second Macon Mill linerboard
machine, the Company's principal paper machines have the capacity to produce
both linerboard and CUK Board. The Company has in the past used its CUK Board
machines to produce linerboard and expects to continue to produce and sell
linerboard to respond to changes in supply and demand in its businesses. The
Company also continues to operate paper machines dedicated to the production of
corrugating medium and kraft paper. In addition to the Company's U.S.
containerboard operations, the Company currently owns 50% of Igaras Papeis e
Embalagens S.A. ("Igaras"), an integrated containerboard producer located in
Brazil.
5
<PAGE>
BUSINESS TRENDS AND INITIATIVES
The Company's financial performance during 1996 fell significantly short of
its business plan, which had anticipated substantial improvements over 1995
results. While the Company's integrated beverage business experienced improved
operating results in 1996 compared to 1995 and raw material costs for paperboard
generally remained stable or decreased, a number of factors had a substantial
negative impact on the Company's results of operations. In the Containerboard
business segment, the Company's results were adversely affected primarily by
significant declines in market pricing for the Company's containerboard products
that began in the latter part of 1995 and continued through 1996 and into 1997.
Average market selling prices for linerboard declined from $530 per ton in
September 1995 to $290 per ton in May 1997, according to Resource Information
Systems, Inc., an economic consulting firm ("RISI"). In the Coated Board
business segment, results were adversely affected primarily by significant
declines in both selling prices and sales volumes of the Company's open market
folding cartonboard. Selling prices were adversely affected by pricing pressures
from competing substrates and generally by weakness in domestic and
international folding cartonboard markets. Sales volumes declined primarily due
to weakness in domestic and international folding cartonboard markets, as well
as product quality problems at the West Monroe Mill and the Company's delay in
lowering its folding cartonboard selling prices in response to pricing decreases
for competing substrates, each of which resulted in the loss of certain customer
accounts and folding cartonboard applications.
The Company is pursuing a number of long-term initiatives to address the
factors discussed above and to improve productivity and profitability. First,
with the completion of the upgrade of the second Macon Mill linerboard machine,
the Company has further reduced capacity dedicated to linerboard production, as
part of its strategy to emphasize the production and sale of CUK Board and CUK
Board-based products. Second, the Company has taken actions to increase open
market folding cartonboard sales above 1996 levels. The Company has established
key account relationships with a number of major independent converters,
involving multi-year commitments by the Company to supply a significant portion
of these customers' requirements for CUK Board. Certain multinational consumer
products companies have specified the Company's folding cartonboard for their
cartons, and the Company intends to pursue additional relationships of this
type. The Company believes that it has addressed and corrected the West Monroe
product quality issues that negatively impacted 1996 sales volumes. In addition,
the Company is undertaking a comprehensive, long-term marketing initiative aimed
at potential new folding cartonboard applications. Third, the Company has
undertaken a profit center reorganization of its operations, implemented a
number of cost savings measures, effected several management changes and, as
part of its ongoing reevaluation of current operations and assets, has reduced
planned capital expenditures and begun a Company-wide inventory reduction
initiative.
The Company's profit center reorganization of its operations is designed to
(i) focus on profitability, (ii) reevaluate the Company's commitment of assets
to business sectors with relatively lower profitability, (iii) provide greater
control over costs and revenues and (iv) enhance managerial autonomy and
accountability. A major initial project was the reorganization of the Company's
North American beverage operations into three business units, each of which is a
separate profit center serving a different customer market segment. To date, the
Company's cost savings measures have consisted of streamlining and consolidating
international and other operations to eliminate duplication and excess overhead.
These measures have included the sale or closure of (i) the Company's last
folding cartonboard converting plant in the U.S., located in Kankakee, Illinois,
(ii) a beverage multiple packaging converting plant in Bakersfield, California,
(iii) packaging machinery manufacturing facilities in Marietta, Georgia and
Koln, Germany, and (iv) the trucking transportation operations in West Monroe,
Louisiana, as well as the consolidation and realignment of certain operations in
the U.S., Australia and Europe. The Company's management changes include the
hiring of Stephen M. Humphrey as President and Chief Executive Officer in March
1997 and the replacement of the managers of certain key Company operations. The
Company continues to evaluate its current operations and assets with a view to
rationalizing
6
<PAGE>
its operations and improving profitability, in particular with respect to its
international converting assets and strategy. See "-- Recent Developments,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Strategy."
STRATEGY
The Company's strategy is to profitably expand its position as a leader in
CUK Board-based paperboard packaging. To implement its strategy, the Company is
emphasizing the production and sale of CUK Board and CUK Board-based products
through its Coated Board business segment, while utilizing its linerboard
production capacity to respond to changes in supply and demand in its
businesses. The principal components of the Company's strategy are as follows:
- Continue to develop proprietary packaging machinery and innovative
proprietary carton designs, and increase installation of packaging
machines at customers' facilities with a focus on the overall
profitability of the integrated beverage packaging solutions provided to
existing and new customers.
- Increase CUK Board production capacity through completion of the start-up
phase of the second Macon Mill paper machine over the next two years and
utilize this additional capacity to lower production costs and increase
efficiency by optimizing mill scheduling and machine yields.
- Increase the Company's market share in folding cartonboard markets by
targeting applications for which the Company believes its folding
cartonboard offers competitive advantages.
- Continue to implement the Company's profit center reorganization of its
operations and cost savings measures, and continue to evaluate its current
operations and assets with a view to rationalization and profitability
improvements.
- Position the Company over the long-term to provide integrated beverage
packaging solutions to multinational soft drink and beer companies as they
expand internationally.
THE TRANSACTIONS
On July 28, 1997, Riverwood sold the Existing Notes to Chase Securities
Inc., Credit Suisse First Boston Corporation and Merrill Lynch, Pierce, Fenner &
Smith Incorporated (the "Initial Purchasers"), which resold the Existing Notes
to qualified institutional buyers. The Company applied the net proceeds of the
sale of the Existing Notes to prepay a portion of the term loan and other
borrowings under its Senior Secured Credit Agreement (as defined herein),
including a portion of the outstanding revolving credit borrowings thereunder.
The application of the proceeds did not involve any revolving credit commitment
reduction. In connection with these prepayments, financial and other covenants
in the Company's Credit Agreements (as defined herein) were amended to reflect
the Company's recent financial results and market and operating conditions, as
well as the sale of the Existing Notes and the prepayment of term loan and other
borrowings under the Senior Secured Credit Agreement. Covenant modifications
under the Credit Agreements included the elimination of the minimum consolidated
net worth requirement, reductions in minimum interest coverage ratio and EBITDA
requirements and reductions in permitted capital expenditures. See "Use of the
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition, Liquidity and Capital Resources"
and "Description of Senior Secured Credit Facilities."
7
<PAGE>
USE OF PROCEEDS OF THE OFFERING
The Company will not receive any proceeds from the Exchange Offer. As
described above under "The Transactions," the net proceeds from the sale of the
Existing Notes, were used to prepay a portion of the term loan and other
borrowings under the Senior Secured Credit Agreement, including a portion of the
outstanding revolving credit borrowings thereunder.
THE EXCHANGE OFFERING
<TABLE>
<S> <C>
Registration Agreement..... The Existing Notes were issued on July 28, 1997 to the Initial
Purchasers. The Initial Purchasers resold the Existing Notes to
certain qualified institutional buyers in reliance on, and
subject to the restrictions imposed pursuant to, Rule 144A of
the Securities Act. In connection therewith, Riverwood and the
Initial Purchasers entered into the Registration Rights
Agreement, dated as of July 28, 1997 (the "Registration Rights
Agreement"), providing, among other things, for the Exchange
Offer. See "The Exchange Offer."
The Exchange Offer......... New Notes are being offered in exchange for an equal principal
amount of Existing Notes. As of the date hereof, $250,000,000
aggregate principal amount of Existing Notes is outstanding.
Existing Notes may be tendered only in integral multiples of
$1,000.
Resale of New Notes........ Based on interpretations by the Staff of the Commission as set
forth in no-action letters issued to third parties (including
EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988),
MORGAN STANLEY & CO. INCORPORATED (available June 5, 1991),
K-III COMMUNICATIONS CORPORATION(available July 2, 1993) and
SHEARMAN & STERLING (available July 2, 1993)), the Company
believes that the New Notes issued pursuant to the Exchange
Offer may be offered for resale, resold or otherwise
transferred by any holder thereof (other than any such holder
that is a broker-dealer or an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that (i) such New
Notes are acquired in the ordinary course of business, (ii) at
the time of the commencement of the Exchange Offer such holder
has no arrangement or understanding with any person to
participate in a distribution of the New Notes and (iii) such
holder is not engaged in, and does not intend to engage in, a
distribution of the New Notes. By tendering Existing Notes in
exchange for New Notes, each holder will represent to the
Company that: (i) it is not such an affiliate of the Company,
(ii) any New Notes to be received by it will be acquired in the
ordinary course of business and (iii) at the time of the
commencement of the Exchange Offer it had no arrangement with
any person to participate in a distribution of the New Notes
and, if such holder is not a broker-dealer, it is not engaged
in, and does not intend to engage in, a distribution of New
Notes. If a holder of Existing Notes is unable to make the
foregoing representations, such holder may not rely on the
applicable interpretations of the Staff of the Commission as
set forth in such no-action letters, and must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale
transaction.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer in exchange for Existing Notes,
where such Existing Notes were acquired by such broker-dealer
as a result of market-making activities or other activities,
must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act and that it has not entered
into any arrangement or understanding with the Company or an
affiliate of the Company to distribute the New Notes in
connection with any resale of such New Notes. 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 such a broker-dealer in connection with
resales of New Notes where such Existing Notes were acquired by
such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, starting
on the Expiration Date, and ending on the close of business 90
days after the Expiration Date, it will make this Prospectus
available to any such participating broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
To comply with the securities laws of certain jurisdictions, it
may be necessary to qualify for sale or register the New Notes
prior to offering or selling such New Notes. The Company has
agreed, pursuant to the Registration Rights Agreement and
subject to certain specified limitations therein, to register
or qualify the New Notes for offer or sale under the securities
or "blue sky" laws of such jurisdictions as may be necessary to
permit the holders of New Notes to trade the New Notes without
any material restrictions or limitations under the securities
laws of the several states of the United States.
Consequences of Failure Upon consummation of the Exchange Offer, subject to certain
to Exchange Existing limited exceptions, holders of Existing Notes who do not
Notes.................... exchange their Existing Notes for New Notes in the Exchange
Offer will no longer be entitled to registration rights and
will not be able to offer or sell their Existing Notes, unless
such Existing Notes are subsequently registered under the
Securities Act (which, subject to certain limited exceptions,
the Company will have no obligation to do), except pursuant to
an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. See "The
Exchange Offer -- Terms of the Exchange Offer" and "--
Consequences of Failure to Exchange."
Expiration Date............ 5:00 p.m., New York City time, on November 3, 1997 (not less
than 30 calendar days following the commencement of the
Exchange Offer), unless the Exchange Offer is extended by the
Company in its sole discretion, in which case the term
"Expiration Date" means the latest date and time to which the
Exchange Offer is extended.
Interest on the New The New Notes will accrue interest at a rate of 10 5/8% per
Notes.................... annum from July 28, 1997, the issue date of the Existing Notes
or the most recent date to which interest is paid on the
Existing Notes. Interest on the New Notes is payable on
February 1 and August 1 of each year, commencing on February 1,
1998.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Conditions to the The Exchange Offer is not conditioned upon any minimum
Exchange Offer........... principal amount of Existing Notes being tendered for exchange.
However, the Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See "The
Exchange Offer -- Conditions." Except for the requirements of
applicable federal and state securities laws, there are no
federal or state regulatory requirements to be complied with by
the Company in connection with the Exchange Offer.
Procedures for Tendering Each holder of Existing Notes wishing to accept the Exchange
Existing Notes........... Offer must complete, sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise deliver
such Letter of Transmittal, or such facsimile, together with
any other required documentation to the Exchange Agent (as
defined herein) at the address set forth herein and effect a
tender of Existing Notes pursuant to the procedures for book-
entry transfer as provided for herein. See "The Exchange Offer
-- Procedures for Tendering" and "-- Book Entry Transfer."
Certain other procedures may apply with respect to certain
book-entry transfers. See "The Exchange Offer--Exchanging
Book-Entry Notes."
Guaranteed Delivery Holders of Existing Notes who wish to tender their Existing
Procedures............... Notes and who cannot deliver their Existing Notes and a
properly completed Letter of Transmittal or any other documents
required by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date may tender their Existing Notes
according to the guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders of Existing Notes may be withdrawn to any time prior to
5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Existing Notes, a written or facsimile
transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein under "The
Exchange Offer -- Exchange Agent" prior to 5:00 p.m., New York
City time, on the Expiration Date.
Acceptance of Existing Subject to certain conditions, any and all Existing Notes that
Notes and Delivery of are properly tendered in the Exchange Offer prior to 5:00 p.m.,
New Notes................ New York City time, on the Expiration Date will be accepted for
exchange. The New Notes issued pursuant to the Exchange Offer
will be delivered promptly following the Expiration Date. See
"The Exchange Offer -- Terms of the Exchange Offer."
Certain U.S. Tax The exchange of Existing Notes for New Notes pursuant to the
Consequences............. Exchange Offer should not constitute a taxable exchange by its
holder for U.S. federal income tax purposes. Accordingly, the
holder should not recognize any taxable gain or loss. See
"Certain Federal Income Tax Considerations."
Exchange Agent/Trustee..... State Street Bank and Trust Company, the trustee under the
Indenture (the "Trustee"), is serving as exchange agent (in
such capacity the "Exchange Agent"), in connection with the
Exchange Offer.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Fees and Expenses.......... Expenses incident to the Company's consummation of the Exchange
Offer and compliance with the Registration Agreement will be
borne by the Company. See "The Exchange Offer -- Fees and
Expenses."
Use of Proceeds............ The Company will not receive any proceeds from the Exchange
Offer. The net proceeds from the sale of Existing Notes were
used to prepay a portion of the term loans and other borrowings
under the Company's Senior Secured Credit Agreement (as defined
herein), including a portion of the outstanding revolving
credit borrowings thereunder. See "Use of Proceeds."
</TABLE>
SUMMARY OF TERMS OF NEW NOTES
The Exchange Offer relates to the exchange of up to $250,000,000 aggregate
principal amount of Existing Notes for an equal aggregate principal amount of
New Notes. New Notes will be entitled to the benefits of the same indenture that
governs the Existing Notes and will govern the New Notes (the "Indenture"). The
form and terms of the New Notes are identical in all material respects to the
form and terms of the Existing Notes, except that the New Notes will have been
registered under the Securities Act, and thus will not bear restrictive legends
restricting their transfer pursuant to the Securities Act. See "Description of
Notes."
<TABLE>
<S> <C>
Issuer..................... Riverwood International Corporation.
Securities Offered......... $250.0 million aggregate principal amount of 10 5/8% Senior
Notes due 2007.
Maturity................... August 1, 2007.
Interest Payment Dates..... February 1 and August 1 of each year, commencing on February 1,
1998.
Sinking Fund............... None.
Optional Redemption........ Except as described below, Riverwood may not redeem the Notes
prior to August 1, 2002. On or after such date, Riverwood may
redeem the Notes, in whole or in part, at the redemption prices
set forth herein, together with accrued and unpaid interest, if
any, to the date of redemption. In addition, at any time and
from time to time on or prior to August 1, 2000, Riverwood may,
subject to certain requirements, redeem up to 35% of the
original aggregate principal amount of the Notes with the net
cash proceeds of one or more Public Equity Offerings by
Riverwood, RIC Holding or Holding at a price equal to 110.625%
of the principal amount of the Notes to be redeemed, together
with accrued and unpaid interest, if any, to the date of
redemption, provided that at least 65% of the original
aggregate principal amount of the Notes remains outstanding
after each such redemption. See "Description of Notes --
Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, (i) prior to August
1, 2002, Riverwood may redeem the Notes, in whole or in part,
at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium, together with accrued and
unpaid interest, if any, to the date of redemption, and (ii) if
Riverwood does not so redeem the Notes, each Holder will have
the right to require Riverwood to repurchase the
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Notes at a purchase price in cash equal to 101% of the
principal amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. The Facilities (as
defined herein), however, prohibit the purchase of the Notes by
Riverwood in the event of a Change of Control, unless and until
such time as the indebtedness under the Facilities are repaid
in full. See "Description of Notes" and "Description of Senior
Secured Credit Facilities." There can be no assurance that
sufficient funds will be available if necessary to make any
such required repurchases.
Note Guarantees............ The Notes will be fully and unconditionally guaranteed on an
unsecured, senior basis by Holding and RIC Holding and by
certain future subsidiaries of Riverwood (each a "Note
Guarantor"). See "Description of Notes -- Note Guarantees."
Ranking.................... The Notes will be unsecured obligations of Riverwood and will
rank PARI PASSU in right of payment with all existing and
future Senior Indebtedness of Riverwood and will rank senior in
right of payment to all existing and future Senior Subordinated
Indebtedness of Riverwood and all other subordinated
indebtedness of Riverwood. The Notes will also be effectively
subordinated to all existing and future secured indebtedness of
Riverwood and its subsidiaries to the extent of the value of
the assets securing such indebtedness, and to all indebtedness
of Riverwood's subsidiaries. See "Description of Notes --
Ranking."
Restrictive Covenants...... The Indenture governing the Notes limits (i) the incurrence of
additional indebtedness by Riverwood and its subsidiaries, (ii)
the redemption of capital stock of Riverwood, the payment of
dividends on capital stock of Riverwood and the redemption of
certain subordinated obligations of Riverwood, (iii) other
restricted payments, (iv) sales of assets and subsidiary stock,
(v) transactions with affiliates, (vi) the existence of liens,
(vii) certain sale and leaseback transactions and (viii)
consolidations, mergers and transfers of all or substantially
all Riverwood's assets. The Indenture also prohibits certain
restrictions on distributions from subsidiaries. All of these
limitations and prohibitions are subject to a number of
important qualifications and exceptions. See "Description of
Notes -- Certain Covenants."
Absence of a Public Market The New Notes are new securities for which there presently is
for the Notes............ no established market. Although the Initial Purchasers have
informed Riverwood that they currently intend to make a market
in the New Notes, the Initial Purchasers are not obligated to
do so and any such market making may be discontinued at any
time without notice. Accordingly, there can be no assurance as
to the development or liquidity of any market for the New
Notes. The Existing Notes are eligible for trading by qualified
buyers in the PORTAL market. Riverwood does not intend to apply
for listing of the New Notes on any securities exchange or for
quotation of the Notes through the National Association of
Securities Dealers Automated Quotation System. See "Transfer
Restrictions," "Risk Factors -- Absence of Public Market;
Restrictions on Transfer" and "Plan of Distribution."
</TABLE>
12
<PAGE>
RISK FACTORS
Prospective investors should carefully consider all the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth below and discussed in detail under "Risk Factors" for risks
involved with an investment in the Notes, including: (i) risks relating to
substantial leverage and debt service obligations; (ii) pricing weakness and
variability; (iii) risks relating to the Company's strategy; (iv) risk of future
losses; (v) risks relating to New Macon Mill capacity; reliance on two mills;
(vi) competition; (vii) cost of raw materials; (viii) risks associated with
international operations; (ix) risks relating to certain Louisiana tax matters;
(x) environmental regulation and expenditures; (xi) restrictive financing
covenants; (xii) note guarantees subject to holding company structure; unsecured
status of the Notes; (xiii) change of control; (xiv) control of the Company;
(xv) fraudulent transfer considerations; (xvi) absence of a public market;
restrictions on transfer; and (xvii) forward looking statements. See "Risk
Factors."
13
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated financial
data with respect to the Company and the Predecessor as of and for the periods
ended on the dates indicated. The summary historical consolidated statement of
operations data for the years ended December 31, 1994 and 1995, the three months
ended March 27, 1996 and the nine months ended December 31, 1996 and the summary
historical consolidated balance sheet data as of December 31, 1995 and 1996 are
derived from the audited consolidated financial statements of the Company and
the Predecessor included elsewhere in this Prospectus. The summary historical
consolidated financial data for the three months ended June 29, 1996 and the six
months ended June 28, 1997 are derived from the unaudited condensed consolidated
financial statements of the Company included elsewhere in this Prospectus. Such
unaudited condensed consolidated financial statements, in the opinion of the
Company's management, include all adjustments necessary for the fair
presentation of the financial condition and results of operations for the
Company for such periods and as of such dates. This information should be read
in conjunction with the consolidated financial statements of the Company and the
Predecessor and the related notes thereto appearing elsewhere in this Prospectus
(the "Consolidated Financial Statements") and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The summary
historical consolidated statement of operations data for the years ended
December 31, 1992 and 1993 and the summary historical consolidated balance sheet
data as of December 31, 1992, 1993 and 1994 are derived from audited
consolidated financial statements of the Predecessor that are not included in
this Prospectus. As a result of, among other things, the Merger, purchase
accounting and the effect of the disposition of substantially all of the assets
of the U.S. Timberlands/Wood Products business segment, the financial data of
the Company and the Predecessor are not comparable in all material respects.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------------------- -------------------------------------
THREE NINE THREE SIX
MONTHS MONTHS MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
------------------------------------------ MARCH 27, DECEMBER JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 31, 1996 1996 1997
--------- --------- --------- --------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (A):
Net sales................. $ 1,118.2 $ 1,120.4 $ 1,282.8 $ 1,342.3 $ 293.6 $ 852.1 $ 293.9 $ 561.2
Gross profit.............. 259.3 221.2 287.6 292.2 60.9 117.8 41.5 67.3
Income (loss) from
operations (b).......... 146.1 83.5 154.2 133.1 15.7 1.4 6.1 (1.5)
Interest expense.......... 74.8 87.1 93.2 105.7 26.4 145.8 49.8 80.9
(Loss) income from
continuing operations... 43.8 3.2 10.3 45.5 (2.1) (130.3) (36.6) (76.5)
Income from discontinued
operations.............. -- -- -- -- -- 35.5 15.4 --
Net income (loss)(c)...... 43.8 1.1 2.4 45.5 (2.1) (105.1) (21.3) (76.5)
OTHER FINANCIAL DATA (A):
EBITDA (d)................ $ 210.7 $ 183.4 $ 210.2 $ 263.7 $ 56.1 $ 148.6 $ 64.8 $ 72.7
Adjusted EBITDA(e)........ 163.5 120.3 137.9 205.9 39.4 103.8 45.9 72.7
Depreciation, amortization
and cost of timber
harvested............... 84.8 94.0 95.0 92.6 24.4 100.8 39.9 65.7
Capital expenditures
(f)..................... 378.6 288.9 240.2 170.1 44.1 132.3 34.3 88.8
Cash interest expense
(g)..................... 68.5 80.6 87.3 101.1 25.4 133.9 46.0 74.2
Ratio of EBITDA to cash
interest expense........ 3.1x 2.3x 2.4x 2.6x 2.2x 1.1x 1.4x 1.0x
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------------------- -------------------------------------
THREE NINE THREE SIX
MONTHS MONTHS MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
------------------------------------------ MARCH 27, DECEMBER JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 31, 1996 1996 1997
--------- --------- --------- --------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges (h)............. 1.9 (h) 1.3 1.4 (h) (h) (h) (h)
OTHER OPERATING DATA:
Coated board mill
production (thousands of
tons):
Carrierboard.............. 397.7 390.6 484.2 615.1 170.7 435.3 168.3 307.8
Folding cartonboard....... 209.4 225.7 246.4 312.0 62.5 201.6 78.0 139.8
WLC....................... 111.0 120.0 127.2 131.1 29.1 90.5 29.0 57.2
--------- --------- --------- --------- ----------- ----------- ----------- -----------
Total coated board........ 718.1 736.3 857.8 1,058.2 262.3 727.4 275.3 504.8
Containerboard mill
production (thousands of
tons) (i)............... 455.7 672.1 605.7 469.5 95.3 392.7 99.7 173.7
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------ ----------------------
DECEMBER 31, DECEMBER
------------------------------- 31, JUNE 28,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- ----------- ---------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END)
(A):
Cash, cash equivalents and marketable
securities.......................... $ 154.0 $ 143.8 $ 120.3 $ 37.2 $ 17.4 $ 12.2
Total working capital (j)............. 186.9 221.4 135.5 166.0 58.8 52.5
Net property, plant, equipment, timber
and timberlands..................... 1,318.3 1,462.2 1,395.8 1,466.1 1,675.2 1,676.8
Total assets.......................... 1,904.0 2,070.3 2,102.3 2,201.3 2,671.5 2,649.9
Total debt............................ 961.9 1,089.1 1,087.2 1,114.5 1,585.4 1,694.0
Shareholders' equity.................. 477.2 500.1 516.3 562.3 654.2 559.9
</TABLE>
- ------------------------
(a) On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/ Wood Products business segment for approximately $550
million in cash. The operating results for the U.S. Timberlands/Wood
Products business segment have been classified as discontinued operations
for the nine months ended December 31, 1996. Discontinued operations of the
U.S. Timberlands/Wood Products business segment have not been reclassified
in the Predecessor's Statement of Operations. See Note 28 to the audited
Consolidated Financial Statements for results of operations of the U.S.
Timberlands/Wood Products business segment for periods prior to the date of
the sale. Pro forma interest expense and pro forma income (loss) from
continuing operations for the nine months ended December 31, 1996 would have
been approximately $122.7 million and approximately $(107.2 million),
respectively, if the sale of substantially all the assets of the U.S.
Timberlands/Wood Products business segment and the prepayment of term loan
and revolving credit borrowings under the Senior Secured Credit Agreement
with the proceeds from such sale had occurred as of March 26, 1996.
(b) On December 29, 1994, the Predecessor sold approximately 50% of its
investment in Igaras, an integrated containerboard producer located in
Brazil, which produces linerboard, corrugating
15
<PAGE>
medium and corrugated boxes, after first spinning off a wholly owned
subsidiary to operate the Predecessor's packaging machinery operations in
Brazil. Prior to that date, the Predecessor included the results of
operations of Igaras in its consolidated financial statements through the
date of the sale. Subsequent to December 29, 1994, neither the Company nor
the Predecessor consolidates Igaras, but instead reports its investment in
Igaras using the equity method of accounting. The Company currently owns 50%
of the common stock of Igaras. See "Business -- Containerboard."
(c) Net income (loss) for the nine months ended December 31, 1996 and the year
ended December 31, 1994 included an Extraordinary Loss on Early
Extinguishment of Debt of $10.3 million and $7.9 million, respectively, net
of tax where applicable. See Note 22 to the audited Consolidated Financial
Statements. Net income for the year ended December 31, 1993 included a
charge of $2.1 million, net of tax, for the cumulative effect of a change in
accounting for postemployment benefits.
(d) EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting) before consolidated interest expense,
consolidated income taxes, consolidated depreciation and amortization, cost
of timber harvested and other non-cash charges deducted in determining
consolidated net income and extraordinary items and the cumulative effect of
accounting changes and earnings of, but including dividends from,
non-controlled affiliates. EBITDA reflects the sale of approximately 50% of
Igaras as if the sale occurred as of December 31, 1991 and thus excludes the
EBITDA of Igaras but includes dividends actually received from Igaras.
EBITDA also excludes certain Other Costs of the Predecessor and excludes
Purchased Asset Costs (as defined herein) resulting from purchase accounting
during periods subsequent to the Merger. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Overview" and
"-- General." The Company believes that EBITDA provides useful information
regarding the Company's debt service ability, but should not be considered
in isolation or as a substitute for the consolidated statement of income or
cash flow data prepared in accordance with generally accepted accounting
principles and included herein.
(e) Adjusted EBITDA is defined as EBITDA (see note (d)) less the EBITDA of the
U.S. Timberlands/ Wood Products business segment for periods prior to its
sale on October 18, 1996.
(f) Capital expenditures include amounts invested in packaging machinery and
capitalized interest. Capital expenditures in 1992, 1994, and 1995 include
$201.5 million, $7.8 million, and $13.2 million, respectively, related to
the acquisition of businesses.
(g) Cash interest expense is defined as interest expense less amortization of
debt issuance costs and less interest income. Pro forma cash interest
expense for the nine months ended December 31, 1996 and the six months ended
June 28, 1997 would have been approximately $139.3 million and $76.0
million, respectively, after giving effect to the Offering at the interest
rate for the Notes of 10.625%, and prepayment of term loan and other
borrowings under the Senior Secured Credit Agreement had occurred on March
26, 1996.
(h) The ratio of earnings to fixed charges is calculated by dividing (1) income
before income taxes, equity in net earnings of (but including dividends
from) non-controlled affiliates, extraordinary items and the cumulative
effect of accounting changes before fixed charges and income taxes by (2)
fixed charges which consist of interest expense, capitalized interest, and
one-third of rent expense. Earnings before income taxes and fixed charges
were insufficient to cover fixed charges by $16.8 million, $10.9 million,
$42.9 million, $140.3 million and $83.2 million for the year ended December
31, 1993, the three months ended March 27, 1996, the three months ended June
29, 1996, the nine months ended December 31, 1996, and the six months ended
June 28, 1997, respectively. Assuming the sale of substantially all the
assets of the U.S. Timberlands/Wood Products business segment and the
prepayment of term loan and revolving credit borrowings under the Senior
Secured Credit Agreement with the proceeds from such sale had occurred as of
March 26, 1996, pro forma earnings before income taxes and fixed charges
would have been insufficient to cover pro
16
<PAGE>
forma fixed charges by approximately $117.2 million for the nine months
ended December 31, 1996.
(i) For comparative purposes, containerboard production is presented as if the
sale of approximately 50% of Igaras occurred as of December 31, 1991. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Accordingly, containerboard production from Igaras for the
years ended December 31, 1992, 1993, and 1994, respectively, is not included
in the consolidated operating data. Containerboard production for 1992 and
1993 reflects the purchase of the Macon Mill and consequent increases in
containerboard production. The Company acquired the Macon Mill in July 1992;
containerboard production from the Macon Mill for the first half of 1992 is
not included in total 1992 containerboard production.
(j) Total working capital is defined as current assets less current
liabilities.
17
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, BEFORE TENDERING
THEIR EXISTING NOTES FOR NEW NOTES, HOLDERS OF EXISTING NOTES SHOULD CONSIDER
CAREFULLY THE FOLLOWING FACTORS, WHICH ARE GENERALLY APPLICABLE TO THE EXISTING
NOTES AND THE NEW NOTES.
RISKS RELATING TO SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
In connection with the Merger in March 1996, the Company incurred
substantial indebtedness, resulting in its highly leveraged capital structure.
In connection with the Merger, the Company entered into a credit agreement (as
amended, the "Senior Secured Credit Agreement"), which, as of July 31, 1997,
provides for senior secured credit facilities (the "Senior Secured Credit
Facilities") consisting of $645.0 million in outstanding term loans under a term
loan facility (the "Term Loan Facility"), and a $400.0 million revolving credit
facility (the "Revolving Facility"). In addition, Riverwood International
Machinery, Inc. ("RIMI"), a wholly owned subsidiary of Riverwood, entered into a
credit agreement (as amended, the "Machinery Credit Agreement," and together
with the Senior Secured Credit Agreement, the "Credit Agreements") providing for
a $140.0 million secured revolving credit facility (the "Machinery Facility,"
and together with the Senior Secured Credit Facilities, the "Facilities") for
the purpose of financing or refinancing packaging machinery. In connection with
the Merger, the Company also completed an offering of $250.0 million aggregate
principal amount of 10 1/4% Senior Notes due 2006 (the "1996 Senior Notes") and
$400.0 million aggregate principal amount of 10 7/8% Senior Subordinated Notes
due 2008 (the "Senior Subordinated Notes" and together with the 1996 Senior
Notes, the "1996 Notes"). On July 28, 1997, the Company completed the Offering
of $250.0 million aggregate principal amount of the Existing Notes.
As of June 28, 1997, on a pro forma basis after giving effect to the
application of the net proceeds of the Offering, the Company would have had an
aggregate principal amount (excluding unused commitments) of $1,693.7 million of
outstanding long-term debt, and redeemable common stock and shareholders' equity
of $557.4 million. Total amounts outstanding under the Revolving Facility were
$206.0 million as of June 28, 1997. See "Capitalization." The Company's earnings
before income taxes and fixed charges were insufficient to cover fixed charges
by $140.3 million for the nine months ended December 31, 1996 and $83.2 million
for the six months ended June 28, 1997. Scheduled term loan principal payments
under the Term Loan Facility will be approximately $1 million, $3 million, $4
million, $4 million, $120 million, $173 million, $184 million and $156 million
for each of the years 1997 through 2004, respectively. The Revolving Facility
will mature in March 2003 and the Machinery Facility will mature in March 2001,
with all amounts then outstanding becoming due. The Company's Australian
revolving credit facility matures in September 1998, with all amounts then
outstanding becoming due. The total amount outstanding under this facility was
$22.0 million at May 31, 1997. The Indenture permits the Company to incur or
guarantee additional indebtedness, including indebtedness under the Facilities,
subject to certain limitations and the Company has additional borrowing capacity
on a revolving credit basis under the Facilities. See "Use of Proceeds,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Description of Senior Secured Credit Facilities,"
"Description of Machinery Facility," and "Description of Notes."
The Company's high degree of leverage could have important consequences to
the holders of the Notes, including but not limited to the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired in the future; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) certain of the Company's borrowings will be at variable rates of
interest, which will expose the Company to the risk of increased interest rates;
(iv) the indebtedness outstanding under the Facilities is secured and will
mature prior to the maturity of the Notes; and (v) the Company's flexibility to
adjust to changing market conditions and ability to withstand competitive
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pressures could be limited, and the Company may be more vulnerable to a downturn
in general economic conditions or its business or be unable to carry out capital
spending that is important to its growth strategy and productivity improvement
programs.
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend on its financial and
operating performance, which, in turn, is subject to prevailing economic and
competitive conditions and to certain financial, business and other factors
beyond its control, including operating difficulties, increased operating costs,
market cyclicality, product prices, the response of competitors, regulatory
developments, and delays in implementing strategic projects. If the Company's
cash flow and capital resources are insufficient to fund its debt service
obligations, the Company may be forced to further reduce or delay capital
expenditures, sell additional assets, or seek to obtain additional equity
capital, or to restructure its debt. There can be no assurance that the
Company's cash flow and capital resources will be sufficient for payment of
interest on and principal of its indebtedness in the future, or that any such
alternative measures would be successful or would permit the Company to meet its
scheduled debt service obligations. In the absence of such operating results and
resources, the Company could face substantial liquidity problems and might be
required to dispose of material assets or operations to meet its debt service
and other obligations, and there can be no assurance as to the timing of such
sales or the proceeds that the Company could realize therefrom.
PRICING WEAKNESS AND VARIABILITY
The Company's ability to meet its debt service and other obligations will
depend in significant part on the selling prices that the Company realizes for
its open market folding cartonboard and containerboard products.
In its Coated Board business segment, the Company historically has
experienced moderate cyclical pricing for its folding cartonboard, which is
principally sold in the open market to independent converters. In 1996, excess
supply of competing substrates and soft demand drove open market folding
cartonboard selling prices down, and selling prices fell more rapidly than they
had historically. Weakness in open market folding cartonboard (including
depressed selling prices), particularly in Europe, has continued in 1997.
Depressed selling prices for the Company's open market folding cartonboard have
had, and in the future could have, a significant negative impact on the
Company's cash flow. There can be no assurance that these depressed prices will
improve in the future. In addition, although prices for the Company's
carrierboard have been relatively stable, there can be no assurance that
competitive factors will not adversely affect such prices in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's Containerboard business segment operates in markets that
historically have experienced significant fluctuations in selling prices.
Selling prices in 1996 and through June 1997 for the Company's containerboard
products were significantly below selling prices in 1995. Since late 1996,
selling prices of the Company's containerboard products have been below related
total production costs. The Company's inability to maintain the selling prices
of its containerboard products has had, and in the future could have, a
significant negative impact on the Company's cash flow. There can be no
assurance that the depressed selling prices for the Company's containerboard
products will improve in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Notwithstanding the steps taken by the Company to improve its operating
results, at the depressed selling prices for open market folding cartonboard and
containerboard that have prevailed since 1996, the Company's cash flow from
operations has been less than its debt service and maintenance capital
expenditure requirements. Accordingly, the Company's long-term prospects will
depend on its realizing
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improved pricing for these products. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Financial Condition,
Liquidity and Capital Resources."
RISKS RELATING TO THE COMPANY'S STRATEGY
The Company's ability to meet its debt service and other obligations will
depend in significant part on the extent to which the Company can implement
successfully its business strategy. There can be no assurance that the Company
will be able to fully implement its strategy or that the anticipated results of
its strategy will be realized. The components of the Company's strategy are
subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the control of the Company. See "--
Risks Relating to New Macon Mill Capacity; Reliance on Two Mills,"
"-- Competition," "-- Risks Associated with International Operations,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Strategy."
RISK OF FUTURE LOSSES
The Company had net losses of $105.1 million and $76.5 million for the nine
months ended December 31, 1996 and the six months ended June 28, 1997,
respectively. The Company expects to incur a net loss in the third quarter of
1997 and net losses in subsequent periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RISKS RELATING TO NEW MACON MILL CAPACITY; RELIANCE ON TWO MILLS
The West Monroe Mill and the Macon Mill have a current combined annual
production capacity of over one million tons of CUK Board. In June 1997, the
Company completed the upgrade of the second Macon Mill paper machine for an
expected cost of approximately $85 million. The Company expects that the machine
will achieve its full annual production capacity of approximately 275,000 tons
of CUK Board in 18 to 24 months. The Company currently estimates that it will
take several years for coated board markets to absorb the significant increase
in the Company's CUK Board capacity resulting from the Macon Mill upgrade, and
in the interim, the Company will use excess capacity for production of
linerboard, subject to market conditions. The Company expects to sell a
significant portion of its additional CUK Board production in open markets,
principally internationally. There can be no assurance that additional CUK Board
output can be sold in these markets or that such additional CUK Board can be
sold without experiencing price reductions. Efficient start-up and production of
CUK Board from the upgraded second Macon Mill machine is dependent upon many
manufacturing process and engineering factors, and there can be no assurance
that the Company will not experience equipment failures, lengthy shut-downs or
other disruptions in production during the start-up process.
All of the Company's CUK Board is produced at its West Monroe and Macon
Mills. Any prolonged disruption in either facility's production due to labor
difficulties, equipment failure, destruction of or material damage to such
facility, or other reasons, could have a material adverse effect on the
Company's results of operations. While the Company maintains property and
business interruption insurance (other than for labor-related disruptions),
there can be no assurance that the proceeds of such insurance would be adequate
to repair or rebuild its facilities in such event or to compensate the Company
for losses incurred during the period of any such disruption. See "Business --
Properties."
COMPETITION
There are only two major producers worldwide of CUK Board, the Company and
The Mead Corporation ("Mead"). The Company faces significant competition in its
CUK Board business segment from Mead. Like the Company, Mead is an integrated
provider of CUK Board that manufactures and converts CUK Board, designs and
places packaging machines with customers and sells CUK Board in the open market.
The highly leveraged nature of the Company could limit the Company's ability to
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respond to market conditions or to make necessary or desirable capital
expenditures as effectively as Mead, which is not as leveraged as the Company.
In addition, there can be no assurance that there will not be new entrants in
the CUK Board market segment.
The Company's folding cartonboard sales are affected by competition from
Mead's CUK Board and from other substrates: solid bleached sulfate ("SBS") and
recycled clay coated news ("CCN") and, internationally, WLC and folding boxboard
("FBB"). There are a large number of suppliers of paperboard for folding carton
applications. CUK Board competes in niche applications in folding cartonboard
markets, serving only a small portion thereof. Suppliers of paperboard in these
markets compete primarily on the basis of quality, service and price. There can
be no assurance that the Company will be able to continue to compete
successfully in folding cartonboard markets.
In the beverage packaging industry, CUK Board competes with plastics and
corrugated packaging for secondary packaging of bottles, cans and other primary
containers. For multiple packages of fewer than 12 units, CUK Board is generally
more expensive than these alternative materials, when measured as secondary
packaging cost per ounce of fluid. However, for multiple packages of 12 units or
more, CUK Board is generally less expensive than competing packaging materials.
In addition to price, CUK Board competes with these materials on the basis of
quality of graphics, carton designs and consumer acceptance. See "Business --
Coated Board -- Competition."
COST OF RAW MATERIALS
Amounts paid by the Company for pine pulpwood, hardwood and recycled fibers
(including old corrugated containers ("OCC")), used in the manufacture of
paperboard, and various chemicals used in the coating of CUK Board, represent
the largest components of the Company's variable costs of CUK Board and
containerboard production. The cost of these materials is subject to market
fluctuations caused by factors beyond the Company's control. OCC pricing tends
to be very volatile. With the October 1996 sale of the Company's timberlands,
the Company now relies on private land owners and the open market for all of its
virgin and recycled fiber requirements (except for CUK Board clippings from its
converting operations). Under the terms of the sale of those timberlands, the
Company and the buyer, Plum Creek Timber Company, L.P., entered into a 20-year
supply agreement, with a 10-year renewal option, for the purchase by the
Company, at market-based prices, of a majority of the West Monroe Mill's
requirements for pine pulpwood and residual chips, as well as a portion of the
Company's needs for hardwood pulpwood at the West Monroe Mill. While the Company
has not experienced any significant difficulty in obtaining adequate supplies of
virgin or recycled fiber for its West Monroe Mill or Macon Mill, there can be no
assurance that this will continue to be the case for either such mill. Moreover,
significant increases in the cost of these materials, to the extent not
reflected in prices for the Company's products, could have a material adverse
effect on the Company's results of operations. See "Business -- Coated Board --
Raw Materials."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company operates facilities in nine countries, either directly or
through its joint ventures, and sells its products in approximately 50
countries. For the nine months ended December 31, 1996, net sales of the
Company's products outside the United States totalled approximately $303.5
million (prior to intercompany eliminations), representing approximately 33.4%
of the Company's net sales (prior to intercompany eliminations) for the nine
months ended December 31, 1996. The Company's equity in net earnings of Igaras
was $17.3 million for that period. As a result, the Company is subject to risks
associated with operating in foreign countries, including devaluations and
fluctuations in currency exchange rates, imposition of limitations on conversion
of foreign currencies into U.S. dollars or remittance of dividends and other
payments by foreign subsidiaries, imposition or increase of withholding and
other taxes on remittances and other payments by foreign subsidiaries,
hyperinflation in certain
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foreign countries and imposition or increase of investment and other
restrictions by foreign governments. No assurance can be given that such risks
will not have a material adverse effect on the Company in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
RISKS RELATING TO CERTAIN LOUISIANA TAX MATTERS
During 1997, the Company has paid $33.1 million in estimated state income
taxes, including $27.5 million in Louisiana income tax, relating to its 1996
election in connection with the Merger to step up the tax basis of its assets.
The Company's calculation of its Louisiana tax was based on state law in effect
at the time of the Merger, including a 1993 amendment. In May 1997, the
Louisiana Supreme Court declared the 1993 amendment to be void under the
Louisiana constitution, retroactive to 1993. It is possible that the voiding of
the 1993 amendment could result in the Company being required to pay significant
additional Louisiana income tax relating to the election (plus interest on the
additional tax). After consultation with Louisiana tax counsel, the Company
believes that it has a reasonable basis for filing its Louisiana income tax
return for 1996 (which is due in November 1997) without the payment of any
additional tax due to the voiding of the 1993 amendment. There can be no
assurance, however, that the Company would ultimately prevail on this issue if
Louisiana were to challenge such filing position. If the Company were not to
prevail in such a challenge, significant additional Louisiana income tax
relating to the election could be payable. Management estimates that the maximum
amount of such additional tax is approximately $50 million (plus statutory
interest on any additional tax). The Company intends to file its tax return
without the payment of additional tax due to the voiding of the 1993 amendment,
and management believes that the additional tax ultimately paid (if any) would
be substantially less than the estimated maximum amount, although no assurance
can be given in this regard. The Company and its advisors are continuing to
study this situation. Since the law is unclear and the amounts involved could be
significant, it may be several years before this matter is resolved. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Tax Matters Relating to the Merger."
ENVIRONMENTAL REGULATION AND EXPENDITURES
The Company is committed to compliance with all applicable environmental
laws and regulations throughout the world. Environmental law is, however,
dynamic rather than static. As a result, costs, which are unforeseeable at this
time, may be incurred when new laws are enacted, and when environmental agencies
promulgate or revise rules and regulations.
In late 1993, the United States Environmental Protection Agency (the "EPA")
proposed regulations (generally referred to as the "cluster rules") that would
mandate more stringent controls on air and water discharges from United States
pulp and paper mills. In 1996, the EPA released additional information regarding
the proposed cluster rules. Based on this information, the Company expects that
the cluster rules may be finally promulgated in 1997 and estimates the capital
spending that may be required to comply with the cluster rules could reach $55
million to be spent at its two U.S. paper mills over an eight-year period
beginning in 1997. The Company anticipates that the majority of this spending
for compliance with the cluster rules will occur later in the eight-year period.
The Company had no capital spending during the first half of 1997 related to
compliance with the cluster rules.
The Company is engaged in environmental remediation projects for certain
properties currently owned or operated by the Company and certain properties
divested by the Company for which responsibility was retained for pre-existing
conditions. The Company's costs in some instances cannot be reliably estimated
until the remediation process is substantially underway. To address these
contingent environmental costs, the Company has accrued reserves when such costs
are probable and can be reasonably estimated. The Company believes that, based
on current information and regulatory requirements, the accruals established by
the Company for environmental expenditures are adequate. Based on current
knowledge, to the extent that additional costs may be incurred that exceed the
accrued
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reserves, such amounts are not expected to have a material impact on the results
of operations, cash flows, or financial condition of the Company, although no
assurance can be given that material costs will not be incurred in connection
with clean-up activities at these properties. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Environmental
Matters" and "Business -- Environmental Matters."
RESTRICTIVE FINANCING COVENANTS
The Credit Agreements contain a number of significant covenants that, among
other things, restrict the ability of the Company to dispose of assets, incur
additional indebtedness, incur guarantee obligations, repay the Notes or amend
the Indenture, pay dividends, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
engage in mergers or consolidations, make capital expenditures or engage in
certain transactions with affiliates, and will otherwise restrict corporate
activities. In addition, under the Credit Agreements, the Company is required to
comply with specified financial ratios and tests, including minimum EBITDA and
interest coverage ratio requirements. In connection with the sale of
substantially all of the assets of the U.S. Timberlands/Wood Products business
segment in October 1996, financial and other covenants in the Credit Agreements
were modified to reflect such sale as well as the Company's financial results
and market and operating conditions. In connection with the consummation of the
Offering, financial and other covenants in the Credit Agreements were modified.
See "Description of Senior Secured Credit Facilities" and "Description of
Machinery Facility." The indentures governing the 1996 Senior Notes and the
Senior Subordinated Notes (together, the "1996 Indentures", and together with
the Indenture, the "Note Indentures") also contain certain restrictive
covenants. See "Description of 1996 Notes." The Indenture for the Notes also
contains restrictive covenants substantially similar to the covenants applicable
to the 1996 Senior Notes. See "Description of Notes."
The Company's ability to comply with the covenants and restrictions
contained in the Credit Agreements, or the Note Indentures may be affected by
events beyond its control, including prevailing economic, financial and industry
conditions. The breach of any such covenants or restrictions could result in a
default under either Credit Agreement, or the relevant Note Indenture that would
permit the applicable lenders under the Facilities (the "Senior Secured
Lenders") or the holders of the relevant 1996 Notes or the Notes, as the case
may be, to declare all amounts outstanding thereunder to be due and payable,
together with accrued and unpaid interest, and the commitments of the applicable
Senior Secured Lenders to make further extensions of credit under the applicable
Facilities could be terminated. If the Company were unable to repay its
indebtedness to its Senior Secured Lenders, such lenders could proceed against
the collateral securing such indebtedness. See "Description of Senior Secured
Credit Facilities" and "Description of Machinery Facility."
NOTE GUARANTEES SUBJECT TO HOLDING COMPANY STRUCTURE; UNSECURED STATUS OF THE
NOTES
Holding is a holding company with no independent operations and no
significant assets other than the capital stock of RIC Holding. Holding,
therefore, will be dependent upon the receipt of dividends or other
distributions from RIC Holding to fund any obligations that it incurs, including
obligations under its guarantee of the Notes (the "Holding Note Guarantee"). RIC
Holding is also a holding company with no significant independent operations and
no significant assets other than the capital stock of Riverwood. RIC Holding
will, therefore, be dependent upon the receipt of dividends or other
distributions from Riverwood to fund any obligations that it incurs, including
obligations under its guarantee of the Notes (together with the Holding Note
Guarantee, the "Note Guarantees"). The Indenture does not, however, permit
distributions from Riverwood to Holding or RIC Holding, other than for certain
specified purposes as described under "Description of Notes -- Certain Covenants
- -- Limitation on Restricted Payments and Investments." The Credit Agreements and
the 1996 Indentures contain similar or more restrictive provisions. See
"Description of Senior Secured Credit Facilities," "Description of Machinery
Facility"
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and "Description of 1996 Notes." Accordingly, if Riverwood should at any time be
unable to pay interest on or principal of the Notes, it is highly unlikely that
Riverwood or RIC Holding will be able to distribute the funds necessary to
enable RIC Holding or Holding, respectively, to meet its obligations under its
respective Note Guarantees.
The Indenture permits the Company to incur certain secured indebtedness,
including indebtedness under the Credit Agreements, which is secured by a lien
on substantially all of the assets of the Company, including pledges of all or a
portion of the capital stock of certain of the Company's subsidiaries. The Notes
are unsecured and therefore do not have the benefit of such collateral.
Accordingly, if an event of default occurs under the Facilities, the Senior
Secured Lenders will have a prior right to the assets of the Company, to the
exclusion of the holders of the Notes. In such event, such assets would first be
used to repay in full all amounts outstanding under the Credit Agreements,
resulting in all or a portion of the Company's assets being unavailable to
satisfy the claims of the holders of Notes and other unsecured indebtedness.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined in the Indenture),
the Company may be required to make an offer to purchase all of the outstanding
Notes at a price equal to 101% of the principal amount thereof at the date of
purchase plus accrued and unpaid interest, if any, to the date of purchase. The
occurrence of certain events that would constitute a Change of Control would
constitute a default under the Credit Agreements. In addition, the Credit
Agreements prohibit the purchase of the Notes by the Company in the event of a
Change of Control, unless and until such time as the indebtedness under the
Facilities is repaid in full. The Company's failure to purchase the Notes in
such instance would result in a default under the Credit Agreements and the 1996
Indentures. The inability to repay the indebtedness under the Facilities or the
1996 Indentures, if accelerated, would also constitute an event of default under
the Indenture, which could have materially adverse consequences to the Company
and to the holders of the Notes. In the event of a Change of Control, there can
be no assurance that the Company would have sufficient assets to satisfy all of
its obligations under the Facilities, the 1996 Notes and the Notes. Future
Senior Indebtedness of the Company may also contain prohibitions of certain
events or transactions that could constitute a Change of Control or require such
Senior Indebtedness to be repurchased upon a Change of Control. See "Description
of Notes -- Change of Control" and "Description of Senior Secured Credit
Facilities."
CONTROL OF THE COMPANY
Holding's largest stockholders, (i) Clayton, Dubilier & Rice Fund V Limited
Partnership ("CD&R Fund V"), a Cayman Islands exempted limited partnership, an
investment fund managed by Clayton, Dubilier & Rice, Inc. ("CD&R"), and (ii)
FIMA Finance Management Inc. ("FIMA"), each own approximately 30% of the
outstanding Class A Common Stock of Holding (together with the Class B Common
Stock of Holding, the "Holding Common Stock"). The general partner of CD&R Fund
V is CD&R Associates V Limited Partnership ("Associates V"), a Cayman Islands
exempted limited partnership. CD&R Fund V is entitled to nominate five persons
(one of which is a designee of Chase Equity Associates, L.P.) to the Board of
Directors (the "Board") of each of Holding, RIC Holding and Riverwood, and FIMA
is entitled to nominate two persons to each such Board pursuant to the terms of
a Stockholders' Agreement entered into among Holding and each of the Equity
Investors (as defined herein) (the "Stockholders' Agreement"). See "Management
- -- Directors and Executive Officers -- Election and Compensation of Directors."
Pursuant to such Stockholders' Agreement, the Chairman of the Board of Holding,
RIC Holding and Riverwood is selected from the CD&R Fund V nominees.
Accordingly, CD&R and FIMA exercise significant influence over the board of
directors and business and operations of the Company.
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CD&R received an initial annual fee of $500,000 (and reimbursement of
out-of-pocket expenses) for providing management, consulting, monitoring and
financial advisory services to the Company. Pursuant to a consulting agreement,
so long as CD&R Fund V has an investment in the Company, CD&R will continue to
receive such fee. Holding, RIC Holding and Riverwood have entered into an
indemnification agreement in favor of CD&R, CD&R Fund V and certain related
persons and entities. See "Certain Relationships and Related Transactions --
CD&R and CD&R Fund V."
FRAUDULENT TRANSFER CONSIDERATIONS
If, under relevant federal and state fraudulent transfer and conveyance
statutes, in a bankruptcy or reorganization case or a lawsuit by or on behalf of
unpaid creditors of Riverwood, Holding or RIC Holding, a court were to find
that, at the time the Notes were issued by Riverwood or guaranteed by Holding or
RIC Holding, (a) Riverwood issued or Holding or RIC Holding guaranteed the Notes
with the intent of hindering, delaying or defrauding current or future creditors
or (b) (i) Riverwood, Holding or RIC Holding received less than reasonably
equivalent value or fair consideration for issuing or guaranteeing the Notes, as
applicable, and (ii) Riverwood, Holding or RIC Holding, as the case may be, (A)
was insolvent or was rendered insolvent by reason of the incurrence or
guarantee, as applicable, of the indebtedness constituting the Notes, (B) was
engaged, or about to engage, in a business or transaction for which its assets
constituted unreasonably small capital, (C) intended to incur, or believed that
it would incur, debts beyond its ability to pay as such debts matured (as all of
the foregoing terms are defined in or interpreted under the relevant fraudulent
transfer or conveyance statutes) or (D) was a defendant in an action for money
damages, or had a judgment for money damages docketed against it (if, in either
case, after final judgment the judgment is unsatisfied), such court could avoid
or subordinate the Notes or the Note Guarantees to presently existing and future
indebtedness of Riverwood, Holding or RIC Holding and take other action
detrimental to the holders of the Notes, including, under certain circumstances,
invalidating the Notes or the Note Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, Riverwood, Holding or RIC Holding would be
considered insolvent if, at the time it incurs or guarantees, as the case may
be, the indebtedness constituting the Notes, either (i) the sum of its debts
(including contingent liabilities) is greater than its assets, at a fair
valuation, or (ii) the present fair saleable value of its assets is less than
the amount required to pay the probable liability on its total existing debts
and liabilities (including contingent liabilities) as they become absolute and
matured. There can be no assurance as to what standards a court would use to
determine whether Riverwood, Holding or RIC Holding, as the case may be, was
solvent at the relevant time, or whether, whatever standard was used, the Notes
or Note Guarantees would not be avoided on another of the grounds set forth
above.
Riverwood, Holding and RIC Holding believe that at the time the Existing
Notes were initially issued by Riverwood and guaranteed by Holding and RIC
Holding, Riverwood, Holding and RIC Holding (i) was (a) neither insolvent nor
rendered insolvent thereby, (b) in possession of sufficient capital to run their
respective businesses effectively and (c) incurring debts within their
respective abilities to pay as the same mature or become due and (ii) had
sufficient assets to satisfy any probable money judgment against them in any
pending action. Riverwood, Holding and RIC Holding also believe that at the time
the New Notes will initially be issued by Riverwood and guaranteed by Holding
and RIC Holding Riverwood, Holding and RIC Holding (i) will be (a) neither
insolvent nor rendered insolvent thereby, (b) in possession of sufficient
capital to run their respective businesses effectively and (c) incurring debts
within their respective abilities to pay as the same mature or become due and
(ii) will have sufficient assets to satisfy any probable money judgment against
them in any pending action. In reaching the foregoing conclusions, Riverwood,
Holding and RIC Holding relied upon their analyses of internal cash flow
projections (which, among other things, assume that the Company will in the
future realize certain selling price and volume increases and favorable changes
in product mix) and estimated values of assets and liabilities of
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the Company. There can be no assurance, however, that a court passing on such
questions would reach the same conclusions.
ABSENCE OF PUBLIC MARKET
The New Notes are new securities for which there presently is no established
market and none may develop. Although the Initial Purchasers have informed the
Company that they currently intend to make a market in the New Notes, the
Initial Purchasers are not obligated to do so and any such market making may be
discontinued at any time without notice. In addition, such market making
activity may be limited during the pendency of the Exchange Offer or the
effectiveness of a shelf registration statement in lieu thereof. Accordingly,
there can be no assurance as to the development or liquidity of any market for
the New Notes. The Existing Notes are eligible for trading by qualified buyers
in the PORTAL market. The Company does not intend to apply for listing of the
New Notes on any securities exchange or for quotation of the Notes through the
National Association of Securities Dealers Automated Quotation System. See
"Transfer Restrictions" and "Plan of Distribution."
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the remaining untendered or tendered but not
accepted Existing Notes could be adversely affected. Because the Company
anticipates that most holders of the Existing Notes will elect to exchange such
Existing Notes for New Notes due to the absence of restrictions on the resale of
New Notes under the Securities Act, the Company anticipates that the liquidity
of the market for any Existing Notes remaining after the consummation of the
Exchange Offer may be substantially limited.
The liquidity of, and trading market for, the Notes also may be adversely
affected by general declines in the market or by declines in the market for
similar securities. Such declines may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects for,
the Company.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, and in
particular, concerning the likelihood of the Company's success in implementing
its business strategy. Forward-looking statements are made based upon
management's expectations and beliefs concerning future developments and their
potential effect upon the Company. There can be no assurance that future
developments will be in accordance with management's expectations or that the
effect of future developments on the Company will be those anticipated by
management. There are certain important factors that could cause actual results
to differ materially from estimates reflected in such forward-looking
statements, including those risk factors discussed herein. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Business Trends and Initiatives" and "-- Information Concerning Forward-Looking
Statements."
26
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
the New Notes pursuant to the Exchange Offer. The net proceeds (after deducting
the discount to the Initial Purchasers and offering expenses) to Riverwood from
the Offering were approximately $242 million. Riverwood applied the net proceeds
from the Offering as follows: (i) $105.0 million to refinance a portion of the
Tranche A Term Loans under the Senior Secured Credit Agreement (the "Tranche A
Term Loans"), (ii) $50.0 million to refinance the Tranche D Loan under the
Senior Secured Credit Agreement (the "Tranche D Loan") and (iii) the remainder
to prepay outstanding revolving credit borrowings under the Senior Secured
Credit Agreement. In connection with such application of proceeds, certain
financial and other covenants in the Company's Credit Agreements were amended.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition, Liquidity and Capital Resources" and
"Description of Senior Secured Credit Facilities."
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 28, 1997 and as adjusted to give effect to the Offering and
the use of proceeds therefrom. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and related notes thereto, all
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
JUNE 28, 1997 JUNE 28, 1997
-------------- --------------
<S> <C> <C>
(DOLLARS IN MILLIONS)
Long-Term Debt:
Revolving Facility(a).......................................................... $ 206.0 $ 69.0
Tranche A Term Loans........................................................... 350.0 245.0
Tranche B Term Loans........................................................... 285.2 285.2
Tranche C Term Loans........................................................... 114.8 114.8
Machinery Facility............................................................. 35.0 35.0
Senior Notes due 2006.......................................................... 250.0 250.0
Existing Notes................................................................. -- 250.0
Senior Subordinated Notes due 2008............................................. 400.0 400.0
Other Long-Term Debt........................................................... 44.7 44.7
-------------- --------------
Total Long-Term Debt........................................................... 1,685.7 1,693.7
Redeemable Common Stock and Shareholders' Equity(b)............................ 559.9 557.4(c)
-------------- --------------
Total Capitalization........................................................... $ 2,245.6 $ 2,251.1
</TABLE>
- ------------------------
(a) Riverwood applied approximately $87 million of the net proceeds of the
Offering and $50.0 million in proceeds from the Tranche D Loan to prepay
borrowings under the Revolving Facility in an aggregate amount of
approximately $137 million. See "Use of Proceeds" and "Description of Senior
Secured Credit Facilities."
(b) The amount of Redeemable Common Stock at June 28, 1997 was $9.4 million.
(c) Reflects a non-cash, extraordinary charge from early extinguishment of debt
of approximately $2.5 million, net of tax, related to the refinancing of
$105.0 million of the Tranche A Term Loans.
27
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data with respect to the Company and the Predecessor as of and for the periods
ended on the dates indicated. The selected historical consolidated statement of
operations data for the years ended December 31, 1994 and 1995, the three months
ended March 27, 1996 and the nine months ended December 31, 1996 and the
selected historical consolidated balance sheet data as of December 31, 1995 and
1996 are derived from the audited consolidated financial statements of the
Company and the Predecessor included elsewhere in this Prospectus. The selected
historical consolidated financial data for the three months ended June 29, 1996
and the six months ended June 28, 1997 are derived from the unaudited condensed
consolidated financial statements of the Company included elsewhere in this
Prospectus. Such unaudited condensed consolidated financial statements, in the
opinion of the Company's management, include all adjustments necessary for the
fair presentation of the financial condition and results of operations for the
Company for such periods and as of such dates. This information should be read
in conjunction with the Consolidated Financial Statements appearing elsewhere in
this Prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The selected historical consolidated statement of
operations data for the years ended December 31, 1992 and 1993 and the selected
historical consolidated balance sheet data as of December 31, 1992, 1993 and
1994 are derived from audited consolidated financial statements of the
Predecessor that are not included in this Prospectus. As a result of, among
other things, the Merger, purchase accounting and the effect of the disposition
of substantially all of the assets of the U.S. Timberlands/Wood Products
business segment, the financial data of the Company and the Predecessor are not
comparable in all material respects.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------------------- ---------------------------
THREE THREE
MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED MONTHS ENDED ENDED
------------------------------- MARCH 27, DECEMBER 31, JUNE 29,
1992 1993 1994 1995 1996 1996 1996
--------- --------- --------- --------- ----------- -------------- -----------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (A):
Net sales............................ $ 1,118.2 $ 1,120.4 $ 1,282.8 $ 1,342.3 $ 293.6 $ 852.1 $ 293.9
Costs and expenses:
Cost of sales........................ 858.9 899.2 995.2 1,050.1 232.7 734.3 252.4
Selling, general and
administrative..................... 107.7 125.0 131.1 126.2 30.9 99.8 31.6
Research, development and
engineering........................ 5.8 8.8 9.4 9.9 2.0 7.4 1.8
Other costs (b)...................... 1.1 0.8 1.3 21.5 11.1 -- --
Restructuring of operations
costs, net (c)..................... -- 8.0 -- -- -- -- --
Other income (expense), net.......... 1.4 4.9 8.4 (1.5) (1.2) (9.2) (2.0)
--------- --------- --------- --------- ----------- -------------- -----------
Total costs and expenses............. 972.1 1,036.9 1,128.6 1,209.2 277.9 850.7 287.8
--------- --------- --------- --------- ----------- -------------- -----------
Income (loss) from operations (d).... 146.1 83.5 154.2 133.1 15.7 1.4 6.1
Interest income...................... 5.5 4.8 3.5 2.0 0.3 0.7 0.2
Interest expense..................... 74.8 87.1 93.2 105.7 26.4 145.8 49.8
--------- --------- --------- --------- ----------- -------------- -----------
(Loss) income from continuing
operations before income taxes and
equity in net earnings of
affiliates......................... 76.8 1.2 64.5 29.4 (10.4) (143.7) (43.5)
Income tax expense (benefit)......... 33.0 (2.0) 54.2 18.8 (3.4) 4.2 (2.3)
--------- --------- --------- --------- ----------- -------------- -----------
(Loss) income from continuing
operations before equity in net
earnings of affiliates............. 43.8 3.2 10.3 10.6 (7.0) (147.9) (41.2)
Equity in net earnings of
affiliates......................... -- -- -- 34.9 4.9 17.6 4.6
--------- --------- --------- --------- ----------- -------------- -----------
(Loss) income from continuing
operations......................... 43.8 3.2 10.3 45.5 (2.1) (130.3) (36.6)
<CAPTION>
SIX MONTHS
ENDED
JUNE 28,
1997
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA (A):
Net sales............................ $ 561.2
Costs and expenses:
Cost of sales........................ 493.9
Selling, general and
administrative..................... 61.3
Research, development and
engineering........................ 2.5
Other costs (b)...................... --
Restructuring of operations
costs, net (c)..................... --
Other income (expense), net.......... (5.0)
-----------
Total costs and expenses............. 562.7
-----------
Income (loss) from operations (d).... (1.5)
Interest income...................... 0.2
Interest expense..................... 80.9
-----------
(Loss) income from continuing
operations before income taxes and
equity in net earnings of
affiliates......................... (82.2)
Income tax expense (benefit)......... 2.7
-----------
(Loss) income from continuing
operations before equity in net
earnings of affiliates............. (84.9)
Equity in net earnings of
affiliates......................... 8.4
-----------
(Loss) income from continuing
operations......................... (76.5)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------------------- ---------------------------
THREE THREE
MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED MONTHS ENDED ENDED
------------------------------- MARCH 27, DECEMBER 31, JUNE 29,
1992 1993 1994 1995 1996 1996 1996
--------- --------- --------- --------- ----------- -------------- -----------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income from discontinued operations,
net of tax of $0................... -- -- -- -- -- 35.5 15.4
--------- --------- --------- --------- ----------- -------------- -----------
(Loss) income before extraordinary
item and cumulative effect of
accounting changes, net of tax..... 43.8 3.2 10.3 45.5 (2.1) (94.8) (21.3)
Extraordinary loss on early
extinguishment of debt, net of tax
(e)................................ -- -- (7.9) -- -- (10.3) --
Cumulative effect of accounting
changes, net of tax (e)............ -- (2.1) -- -- -- -- --
--------- --------- --------- --------- ----------- -------------- -----------
Net income (loss) (e)................ $ 43.8 $ 1.1 $ 2.4 $ 45.5 $ (2.1) $ (105.1) $ (21.3)
--------- --------- --------- --------- ----------- -------------- -----------
--------- --------- --------- --------- ----------- -------------- -----------
OTHER FINANCIAL DATA (A):
EBITDA (f)........................... $ 210.7 $ 183.4 $ 210.2 $ 263.7 $ 56.1 $ 148.6 $ 64.8
Adjusted EBITDA (g).................. 163.5 120.3 137.9 205.9 39.4 103.8 45.9
Depreciation, amortization and cost
of timber harvested................ 84.8 94.0 95.0 92.6 24.4 100.8 39.9
Capital expenditures (h)............. 378.6 288.9 240.2 170.1 44.1 132.3 34.3
Cash interest expense(i)............. 68.5 80.6 87.3 101.1 25.4 133.9 46.0
Ratio of EBITDA to cash interest
expense............................ 3.1x 2.3x 2.4x 2.6x 2.2x 1.1x 1.4x
Ratio of earnings to fixed charges
(j)................................ 1.9 (j) 1.3 1.4 (j) (j) (j)
OTHER OPERATING DATA:
Coated board mill production
(thousands of tons):
Carrierboard......................... 397.7 390.6 484.2 615.1 170.7 435.3 168.3
Folding cartonboard.................. 209.4 225.7 246.4 312.0 62.5 201.6 78.0
WLC.................................. 111.0 120.0 127.2 131.1 29.1 90.5 29.0
--------- --------- --------- --------- ----------- -------------- -----------
Total coated board................... 718.1 736.3 857.8 1,058.2 262.3 727.4 275.3
Containerboard mill production
(thousands of tons) (k)............ 455.7 672.1 605.7 469.5 95.3 392.7 99.7
<CAPTION>
SIX MONTHS
ENDED
JUNE 28,
1997
-----------
<S> <C>
Income from discontinued operations,
net of tax of $0................... --
-----------
(Loss) income before extraordinary
item and cumulative effect of
accounting changes, net of tax..... (76.5)
Extraordinary loss on early
extinguishment of debt, net of tax
(e)................................ --
Cumulative effect of accounting
changes, net of tax (e)............
-----------
Net income (loss) (e)................ $ (76.5)
-----------
-----------
OTHER FINANCIAL DATA (A):
EBITDA (f)........................... $ 72.7
Adjusted EBITDA (g).................. 72.7
Depreciation, amortization and cost
of timber harvested................ 65.7
Capital expenditures (h)............. 88.8
Cash interest expense(i)............. 74.2
Ratio of EBITDA to cash interest
expense............................ 1.0x
Ratio of earnings to fixed charges
(j)................................ (j)
OTHER OPERATING DATA:
Coated board mill production
(thousands of tons):
Carrierboard......................... 307.8
Folding cartonboard.................. 139.8
WLC.................................. 57.2
-----------
Total coated board................... 504.8
Containerboard mill production
(thousands of tons) (k)............ 173.7
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------- ---------------------------
AS ADJUSTED(M)
DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------ DECEMBER 31, JUNE 28, JUNE 28,
1992 1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- -------------- ----------- ----------------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END)
(A):
Cash, cash equivalents and
marketable securities............. $ 154.0 $ 143.8 $ 120.3 $ 37.2 $ 17.4 $ 12.2 $ 12.2
Total working capital (l)........... 186.9 221.4 135.5 166.0 58.8 52.5 52.5
Net property, plant and equipment,
timber and timberlands............ 1,318.3 1,462.2 1,395.8 1,466.1 1,675.2 1,676.8 1,676.8
Total assets........................ 1,904.0 2,070.3 2,102.3 2,201.3 2,671.5 2,649.9 2,656.4
Total debt.......................... 961.9 1,089.1 1,087.2 1,114.5 1,585.4 1,694.0 1,702.0
Shareholders' equity................ 477.2 500.1 516.3 562.3 654.2 559.9 557.4
</TABLE>
- ------------------------
(a) On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/Wood Products business segment for approximately $550
million in cash. The operating results for the U.S. Timberlands/Wood
Products business segment have been classified as discontinued operations
for the nine months ended December 31, 1996. Discontinued operations of the
U.S. Timberlands/Wood Products business segment have not been reclassified
in the Predecessor's Statement of Operations. See Note 28 to the audited
Consolidated Financial Statements for results of operations of the U.S.
Timberlands/Wood Products business segment for periods prior to the date of
the sale. Pro forma interest expense and
29
<PAGE>
income (loss) from continuing operations for the nine months ended December
31, 1996 would have been approximately $122.7 million and approximately
$(107.2 million), respectively, if the sale of substantially all the assets
of the U.S. Timberlands/Wood Products business segment and the prepayment of
term loan and revolving credit borrowings under the Senior Secured Credit
Agreement with the proceeds from such sale had occurred as of March 26,
1996.
(b) Other costs include expenses associated with stock-based compensation plans
resulting primarily from the increase in the closing price of the
Predecessor's common stock on the New York Stock Exchange from related grant
prices, and accrued expenses related to the Predecessor's review of
strategic alternatives.
(c) The Restructuring of operations costs, net, in 1993, in the amount of
approximately $8.0 million, consist of a $25.0 million pre-tax charge for
the costs related to restructuring and consolidating certain operations and
an approximately $17.0 million pre-tax gain on the sale of non-strategic
timberlands.
(d) On December 29, 1994, the Predecessor sold approximately 50% of its
investment in Igaras, an integrated containerboard producer located in
Brazil, which produces linerboard, corrugating medium and corrugated boxes,
after first spinning off a wholly owned subsidiary to operate the
Predecessor's packaging machinery operations in Brazil. Prior to that date,
the Predecessor included the results of operations of Igaras in its
consolidated financial statements through the date of the sale. Subsequent
to December 29, 1994, neither the Company nor the Predecessor consolidates
Igaras, but instead reports its investment in Igaras using the equity method
of accounting. The Company currently owns 50% of the common stock of Igaras.
See "Business -- Containerboard."
(e) Net income (loss) for the nine months ended December 31, 1996 and the year
ended December 31, 1994 included an Extraordinary Loss on Early
Extinguishment of Debt of $10.3 million and $7.9 million, respectively, net
of tax where applicable. See Note 22 to the audited Consolidated Financial
Statements. Net income (loss) for the year ended December 31, 1993 included
a charge of $2.1 million, net of tax, for the cumulative effect of a change
in accounting for postemployment benefits.
(f) EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting) before consolidated interest expense,
consolidated income taxes, consolidated depreciation and amortization, cost
of timber harvested and other non-cash charges deducted in determining
consolidated net income and extraordinary items and the cumulative effect of
accounting changes and earnings of, but including dividends from,
non-controlled affiliates. EBITDA reflects the sale of approximately 50% of
Igaras as if the sale occurred as of December 31, 1991 and thus excludes the
EBITDA of Igaras but includes dividends actually received from Igaras.
EBITDA also excludes certain Other Costs of the Predecessor and excludes
Purchased Asset Costs (as defined herein) resulting from purchase accounting
during periods subsequent to the Merger. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Overview" and
"-- General." The Company believes that EBITDA provides useful information
regarding the Company's debt service ability, but should not be considered
in isolation or as a substitute for the consolidated statement of income or
cash flow data prepared in accordance with generally accepted accounting
principles and included herein.
(g) Adjusted EBITDA is defined as EBITDA (see note (f)) less the EBITDA of the
U.S. Timberlands/Wood Products business segment for periods prior to its
sale on October 18, 1996.
(h) Capital expenditures include amounts invested in packaging machinery and
capitalized interest. Capital expenditures in 1992, 1994, and 1995 include
$201.5 million, $7.8 million and $13.2 million, respectively, related to the
acquisition of businesses.
(i) Cash interest expense is defined as interest expense less amortization of
debt issuance costs and less interest income. Pro forma cash interest
expense for the nine months ended December 31, 1996 and the six months ended
June 28, 1997 would have been approximately $139.3 million and $76.0
million, respectively, after giving effect to the Offering, at the interest
rate for the Notes of 10.625%, and prepayment of term loan and other
borrowings under the Senior Secured Credit Agreement had occurred on March
26, 1996.
(j) The ratio of earnings to fixed charges is calculated by dividing (1) income
before income taxes, equity in net earnings of (but including dividends from
non controlled affiliates), extraordinary items and the cumulative effect of
accounting changes before fixed charges and income taxes by (2) fixed
charges which consist of interest expense, capitalized interest and
one-third of rent expense. Earnings before income taxes and fixed charges
were insufficient to cover fixed charges by $16.8 million, $10.9 million,
$83.2 million, $140.3 million and $42.9 million for the year ended December
31, 1993, the three months ended March 27, 1996, the three months ended June
29, 1996, the nine months ended December 31, 1996, and the six months ended
June 28, 1997, respectively. Assuming the sale of substantially all the
assets of the U.S. Timberlands/Wood Products business segment and the
prepayment of term loan and revolving credit borrowings under the Senior
Secured Credit Agreement with the proceeds from such sale had occurred as of
March 26, 1996, pro forma earnings before income taxes and fixed charges
would have been insufficient to cover pro forma fixed charges by
approximately $117.2 million for the nine months ended December 31, 1996.
(k) For comparative purposes, containerboard production is presented as if the
sale of approximately 50% of Igaras occurred as of December 31, 1991. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Accordingly, containerboard production from Igaras for the
years ended December 31, 1992, 1993, and 1994, respectively, is
30
<PAGE>
not included in the consolidated operating data. Containerboard production
for 1992 and 1993 reflects the purchase of the Macon Mill and consequent
increases in containerboard production. The Company acquired the Macon Mill
in July 1992; containerboard production from the Macon Mill for the first
half of 1992 is not included in total 1992 containerboard production.
(l) Total working capital is defined as current assets less current
liabilities.
(m) As adjusted to reflect the Offering and application of proceeds therefrom.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the consolidated
financial statements of the Company contained elsewhere in this Prospectus (the
"Consolidated Financial Statements").
OVERVIEW
As a result of the Merger, purchase accounting, the effect of the
disposition of substantially all of the U.S. Timberlands/Wood Products business
segment and certain Other Costs of the Predecessor, the results of operations of
the Company for periods subsequent to the Merger are not comparable in all
material respects to the results of operations of the Predecessor for periods
prior to the Merger.
THE MERGER AND PURCHASED ASSET COSTS
On March 27, 1996, Holding, through its wholly owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. On such date, CDRO
Acquisition Corp., Holding's acquisition subsidiary, was merged (the "Merger")
into RIC. RIC, as the surviving corporation of the Merger, became a wholly owned
subsidiary of RIC Holding. On March 28, 1996, RIC transferred substantially all
of its properties and assets to Riverwood, other than the capital stock of
Riverwood, and RIC was merged (the "Subsequent Merger") into RIC Holding. Upon
consummation of the Subsequent Merger, RIC Holding, as the surviving corporation
in the Subsequent Merger, became the direct parent company of Riverwood.
The Merger was accounted for as a purchase in accordance with APB Opinion
No. 16 "Business Combinations" ("APB 16"). Purchase accounting has resulted and
will continue to result in increased cost of sales, amortization and
depreciation. Additionally, the new capital structure has resulted and will
continue to result in higher reported interest expense. The consolidated
financial statements for periods prior to March 28, 1996 have been prepared on
the historical cost basis using accounting principles that had been adopted by
the Predecessor. The Company's consolidated balance sheet at December 31, 1996
is not comparable with the December 31, 1995 historical consolidated balance
sheet of the Predecessor.
Certain expenses and costs are excluded from the Company's Net (Loss) Income
in determining EBITDA (see "-- General"), including amortization, depreciation
or expenses associated with the write-up of inventory, fixed assets and
intangible assets in accordance with APB 16 and APB Opinion No. 17, "Intangible
Assets", collectively referred to as the "Purchased Asset Costs." During the
nine-month period ended December 31, 1996, the Company's (Loss) from Operations
included Purchased Asset Costs as follows:
<TABLE>
<CAPTION>
TOTAL
CONTINUING DISCONTINUED
(IN THOUSANDS OF DOLLARS) COATED BOARD CONTAINERBOARD OPERATIONS OPERATIONS
- --------------------------------------------------- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Cost of sales (excluding depreciation)............. $ 581 $ -- $ 581 $ --
Depreciation expense............................... 10,472 2,687 13,159 2,277
Amortization of intangible assets.................. 2,576 -- 2,576 --
-------------- ------- ----------- -------------
Net impact on (Loss) from Operations............... $ 13,629 $ 2,687 $ 16,316 $ 2,277
-------------- ------- ----------- -------------
-------------- ------- ----------- -------------
</TABLE>
32
<PAGE>
During the three months ended June 29, 1996, the Company's Income from
Operations included Purchased Asset Costs as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) COATED BOARD CONTAINERBOARD CORPORATE TOTAL
- -------------------------------------------------------- -------------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
Cost of sales (excluding depreciation expense).......... $ 199 $ -- $ -- $ 199
Depreciation expense.................................... 9,483 1,267 (64) 10,686
Amortization of intangible assets....................... 195 (50) 23 168
------- ------- --- ---------
Net impact on Income from Operations.................... $ 9,877 $ 1,217 $ (41) $ 11,053
------- ------- --- ---------
------- ------- --- ---------
</TABLE>
During the six months ended June 28, 1997, the Company's (Loss) from
Operations included Purchased Asset Costs as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) COATED BOARD CONTAINERBOARD TOTAL
- -------------------------------------------------------------------- -------------- --------------- ---------
<S> <C> <C> <C>
Cost of sales (excluding depreciation expense)...................... $ 512 $ -- $ 512
Depreciation expense................................................ 8,655 1,822 10,477
Amortization of intangible assets................................... 1,918 -- 1,918
-------------- ------- ---------
Net Impact on (Loss) from Operations................................ $ 11,085 $ 1,822 $ 12,907
-------------- ------- ---------
-------------- ------- ---------
</TABLE>
SALE OF U.S. TIMBERLANDS/WOOD PRODUCTS
On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/ Wood Products business segment for approximately $550 million
in cash. In addition, the buyer assumed certain specified preclosing
liabilities. Under the terms of the agreement for such sale, the Company and the
buyer, Plum Creek Timber Company, L.P., entered into a 20-year supply agreement
with a 10-year renewal option for the purchase by the Company, at market-based
prices, of a majority of the West Monroe Mill's requirements for pine pulpwood
and residual chips, as well as a portion of the Company's needs for hardwood
pulpwood at the West Monroe Mill. The Company did not realize any gain or loss
on the sale. The operating results of the U.S. Timberlands/Wood Products
business segment have been classified as discontinued operations for the period
beginning March 28, 1996 and ending October 18, 1996 (the date of the sale).
Discontinued operations have not been segregated in the statements of cash flows
nor have they been reclassified as discontinued operations in the Predecessor's
statements of operations and balance sheets.
OTHER COSTS OF PREDECESSOR
Prior to March 28, 1996, the Predecessor Company incurred expenses
associated with stock-based compensation plans, expenses related to RIC's review
of strategic alternatives and provision for environmental reserves. These
expenses were classified as Other Costs on the Predecessor's Consolidated
Statements of Operations. Stock-based compensation expense was allocated to each
of the business segments based upon the responsibility of the individuals
holding or exercising the stock incentive benefits. During the three months
ended March 27, 1996, $1.2 million, $0.1 million, $0.2 million and $0.8 million
of stock-based compensation expense were allocated to the Coated Board,
Containerboard and U.S. Timberlands/Wood Products business segments and
Corporate and Eliminations, respectively, as compared to $7.4 million, $0.9
million, $0.8 million and $8.7 million, respectively for the year ended December
31, 1995, and $0.6 million, $0.2 million, $0.1 million and $0.4 million,
respectively, for the year ended December 31, 1994. Expenses related to RIC's
review of strategic alternatives and environmental reserves were included in
Corporate and Eliminations for business segment reporting purposes. See "--
General" and Note 18 to the audited Consolidated Financial Statements included
elsewhere in this Prospectus.
33
<PAGE>
GENERAL
The Company reports its results in two business segments: Coated Board and
Containerboard. The operating results of the U.S. Timberlands/Wood Products
business segment have been classified as discontinued operations for the period
beginning March 28, 1996 through the date of the sale. The results of operations
of the U.S. Timberlands/Wood Products business segment have not been
reclassified as discontinued operations in the Predecessor's Consolidated
Statements of Operations for periods prior to the Merger. The Coated Board
business segment includes the production and sale of CUK Board for packaging
cartons from the West Monroe Mill and Macon Mill and WLC from the Swedish Mill;
converting operations facilities in the United States, Australia and Europe; and
the design, manufacture and installation of packaging machinery related to the
assembly of beverage cartons. The Containerboard business segment includes the
production and sale of linerboard, corrugating medium and kraft paper from
paperboard mills in the United States. The discontinued U.S. Timberlands/Wood
Products business segment included timberlands and operations engaged in the
supply of pulpwood to the West Monroe Mill from the Company's former U.S.
timberlands, as well as the manufacture and sale of lumber and plywood.
The table below sets forth Net Sales, (Loss) Income from Operations and
EBITDA (see "Selected Historical Consolidated Financial Data"). EBITDA excludes
the EBITDA of Igaras but includes dividends actually received from Igaras.
EBITDA also excludes Other Costs of the Predecessor and excludes Purchased Asset
Costs resulting from the purchase accounting during periods subsequent to the
Merger. The Company believes that EBITDA provides useful information regarding
the Company's debt service ability, but should not be considered in isolation or
as a substitute for the Statements of Operations or cash flow data prepared in
accordance with generally accepted accounting principles.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------ -------------------------------------------
SIX THREE NINE THREE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 28, JUNE 29, DECEMBER 31, MARCH 27, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1997 1996 1996 1996 1995 1994
- ---------------------------------------- --------- --------- -------------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales (Segment Data):
Coated Board.......................... $ 512,128 $ 266,231 $ 749,688 $ 234,608 $ 1,007,123 $ 793,983
Containerboard........................ 49,094 27,653 102,424 25,496 192,497 342,614
U.S. Timberlands/Wood Products........ -- -- -- 37,336 159,749 164,944
Intersegment Eliminations............. -- -- -- (3,791) (17,065) (18,753)
--------- --------- -------------- ----------- -------------- --------------
Net Sales............................... $ 561,222 $ 293,884 $ 852,112 $ 293,649 $ 1,342,304 $ 1,282,788
--------- --------- -------------- ----------- -------------- --------------
--------- --------- -------------- ----------- -------------- --------------
(Loss) Income from Operations
(Segment Data):
Coated Board.......................... $ 35,086 $ 19,768 54,976 $ 24,638 $ 103,683 $ 89,704
Containerboard........................ (25,538) (7,260) (30,969) (5,955) 17,539 23,781
U.S. Timberlands/Wood Products........ -- -- -- 13,868 49,583 67,645
Corporate and Eliminations............ (11,042) (6,396) (22,588) (16,901) (37,668) (26,943)
--------- --------- -------------- ----------- -------------- --------------
(Loss) Income from Operations......... $ (1,494) $ 6,112 $ 1,419 $ 15,650 $ 133,137 $ 154,187
--------- --------- -------------- ----------- -------------- --------------
--------- --------- -------------- ----------- -------------- --------------
EBITDA (Segment Data):
Coated Board.......................... $ 92,331 $ 52,446 $ 135,449 $ 47,174 $ 176,606 $ 139,155
Containerboard........................ (12,749) (2,264) (15,624) (1,242) 38,403 22,673
U.S. Timberlands/Wood Products........ -- 18,934 44,805 16,766 57,805 72,329
Corporate and Eliminations............ (6,849) (4,277) (16,070) (6,565) (9,107) (23,993)
--------- --------- -------------- ----------- -------------- --------------
EBITDA.................................. $ 72,733 $ 64,839 $ 148,560 $ 56,133 $ 263,707 $ 210,164
--------- --------- -------------- ----------- -------------- --------------
--------- --------- -------------- ----------- -------------- --------------
</TABLE>
In the fourth quarter of 1996, the Company adopted the Last-in, First-out
("LIFO") method of determining the cost of principally all its inventories
effective March 28, 1996. Prior to the fourth quarter of
34
<PAGE>
1996, the Company determined the cost of all its inventory using the First-in,
First-out ("FIFO") method. Accordingly, 1996 operating results have been
restated to reflect the adoption of the LIFO method effective March 28, 1996.
For a discussion of the impact of this accounting change on the Consolidated
Financial Statements, see Note 23 to the audited Consolidated Financial
Statements included elsewhere in this Prospectus.
BUSINESS TRENDS AND INITIATIVES
The Company's cash flow from operations and EBITDA are influenced by sales
volume and selling prices for its products and raw material costs, and are
affected by a number of significant business, economic and competitive factors.
Many of these factors are not within the Company's control. Historically, in the
Coated Board business segment, the Company has experienced relatively stable
pricing for its carrierboard and integrated beverage carton products, and
moderate cyclical pricing for its folding cartonboard, which is principally sold
in the open market. The Company's folding cartonboard sales are affected by
competition from competitor's CUK Board and from other substrates--SBS and CCN
and, internationally, WLC--as well as by general market conditions. In the
Containerboard business segment, conditions in the cyclical worldwide commodity
paperboard markets have a substantial impact on the Company's containerboard
sales.
The Company's financial performance during 1996 fell significantly short of
its business plan, which had anticipated substantial improvements over 1995
results. While the Company's integrated beverage business experienced improved
operating results in 1996 compared to 1995 and raw material costs for paperboard
generally remained stable or decreased, a number of factors had a substantial
negative impact on the Company's results of operations.
In the Containerboard business segment, the Company's results were adversely
affected primarily by significant declines in market pricing for the Company's
containerboard products that began in the latter part of 1995 and continued
through 1996 and into 1997. Average market selling prices for linerboard
declined from $530 per ton in September 1995 to $290 per ton in May 1997,
according to RISI. The Company also shifted a limited amount of production from
CUK Board to linerboard in the last half of 1996 to correct imbalances in CUK
Board inventory levels due to softness in worldwide folding cartonboard open
markets. This action resulted in increased containerboard sales volumes but had
a negative impact on the Company's results because of depressed containerboard
selling prices. These lower prices continued to decline through the first half
of 1997. Effective June 1, 1997, the Company began to implement a previously
announced price increase for corrugating medium of $40 per ton. Additionally, in
June 1997 the Company announced price increases effective with shipments on
August 1, 1997 for linerboard and corrugating medium of $40 per ton and kraft
paper of $50 per ton. There can be no assurance that the June and August price
increases will be accepted in containerboard markets. In the event that the
containerboard market experiences continued weakness and industry inventory
levels were to increase as a result, the Company will consider effecting
containerboard machine outages at its mills, as it has in the past in response
to industry weakness and excess capacity.
In the Coated Board business segment, the Company's open market folding
cartonboard sales volume in 1996 was approximately 21 percent below 1995 due to
a combination of factors. First, excess supply of competing substrates and soft
demand in domestic and international folding cartonboard markets drove folding
carton substrate pricing down, which had a negative impact on both selling
prices and sales volumes of the Company's folding cartonboard. Open market
folding cartonboard prices fell more rapidly than they had historically, and the
Company's delay in lowering its folding cartonboard selling prices resulted in a
loss of certain customer accounts. Second, product quality problems at the West
Monroe Mill also resulted in a loss of certain accounts and applications. The
Company's open market folding cartonboard sales also were negatively impacted in
part by a slower than expected recovery of general market conditions in European
markets. The weakness in folding cartonboard open markets, including depressed
prices, that arose during 1996 continued through the first half of 1997. The
35
<PAGE>
Company has recently announced a price increase for its domestic folding
cartonboard products, although there can be no assurance that such price
increase will be accepted in the folding cartonboard open markets.
The Company is pursuing a number of long-term initiatives to address the
factors discussed above and to improve productivity and profitability. First,
with the completion in June 1997 of the upgrade of the second Macon Mill
linerboard machine, the Company has further reduced capacity dedicated to
linerboard production, as part of its strategy to emphasize the production and
sale of CUK Board and CUK Board-based products. Second, the Company has taken
actions to increase open market folding cartonboard sales above 1996 levels. The
Company has established key account relationships with a number of major
independent converters, involving multi-year commitments by the Company to
supply a significant portion of these customers' requirements for CUK Board.
Certain multinational consumer products companies have specified the Company's
folding cartonboard for their cartons, and the Company intends to pursue
additional relationships of this type. The Company believes that it has
addressed and corrected the West Monroe product quality issues that negatively
impacted 1996 sales volumes. In addition, the Company is undertaking a
comprehensive, long-term marketing initiative aimed at potential new folding
cartonboard applications. Third, the Company has undertaken a profit center
reorganization of its operations, implemented a number of cost savings measures,
effected several management changes and, as part of its ongoing reevaluation of
current operations and assets, has reduced planned capital expenditures and
begun a Company-wide inventory reduction initiative, with a goal of
significantly reducing inventory levels over the next two years.
The Company's profit center reorganization of its operations is designed to
(i) focus on profitability, (ii) reevaluate the Company's commitment of assets
to business sectors with relatively lower profitability, (iii) provide greater
control over costs and revenues and (iv) enhance managerial autonomy and
accountability. A major initial project was the reorganization of the Company's
North American beverage operations into three business units, each of which is a
separate profit center serving a different customer market segment. To date, the
Company's cost savings measures have consisted of streamlining and consolidating
international and other operations to eliminate duplication and excess overhead.
These measures have included the sale or closure of (i) the Company's last
dedicated folding cartonboard converting plant in the U.S., located in Kankakee,
Illinois, (ii) a beverage multiple packaging converting plant in Bakersfield,
California, (iii) packaging machinery manufacturing facilities in Marietta,
Georgia and Koln, Germany, and (iv) the trucking transportation operations in
West Monroe, Louisiana, as well as the consolidation and realignment of certain
operations in the U.S., Australia and Europe. The Company's management changes
included the hiring of Stephen M. Humphrey as President and Chief Executive
Officer in March 1997 and the replacement of the managers of certain key Company
operations. The Company continues to evaluate its current operations and assets
with a view to rationalizing its operations and improving profitability, in
particular with respect to its international converting assets and strategy.
OUTLOOK
The Company expects that its 1997 full year EBITDA will exceed its 1996
EBITDA (excluding the results of the former U.S. Timberlands/Wood Products
business segment), although no assurance can be given in this regard. The
achievement of this expectation is dependent upon (among other things) a number
of profit improvement initiatives, including the continued successful start-up
of the second Macon Mill paper machine, significantly increasing open market
folding cartonboard sales volumes above 1996 levels, selling price improvements
for containerboard products, improvements in international converting operations
and continued cost savings from actions taken to date. These cost savings
actions had a slight positive impact on the Company's results of operations for
the six-month period ended June 28, 1997. The Company anticipates that these
cost savings actions will reduce expenditures by at least $20 million on an
annualized basis. See "-- Business Trends and Initiatives." The Company is
36
<PAGE>
also currently pursuing further cost reduction initiatives that the Company
believes will position it to realize significant further cost savings after
1997, although no assurance can be given in this regard.
FIRST SIX MONTHS OF 1997 COMPARED WITH FIRST SIX MONTHS OF 1996
RESULTS OF OPERATIONS
The following is a discussion of the Company's results of operations on a
pro forma basis. The discussion is based upon the six-month period ended June
28, 1997, exclusive of the net effect of Purchased Asset Costs in that period,
in comparison to the three-month period ended June 29, 1996, exclusive of the
net effect of Purchased Asset Costs in that period, plus the three-month period
ended March 27, 1996, exclusive of Other Costs and the U.S. Timberlands/Wood
Products business segment results of operations (the "first six months of 1996"
or "six months ended June 29, 1996"), as follows:
<TABLE>
<CAPTION>
PRO FORMA % INCREASE PRO FORMA
SIX MONTHS ENDED (DECREASE) FROM SIX MONTHS ENDED
(IN THOUSANDS OF DOLLARS) JUNE 28, 1997 PRIOR PERIOD JUNE 29, 1996
- ------------------------------------------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C>
Net Sales (Segment Data):
Coated Board........................................ $ 512,128 2.3 $ 500,837
Containerboard...................................... 49,094 (7.6) 53,149
---------- ----------
Net Sales............................................. 561,222 1.3 553,986
Cost of Sales......................................... 482,945 6.1 455,096
---------- ----------
Gross Profit.......................................... 78,277 (20.8) 98,890
Selling, General and Administrative................... 61,264 (0.8) 61,772
Research, Development and Engineering................. 2,528 (32.5) 3,744
Other Expenses, net................................... 3,072 (10.5) 3,432
---------- ----------
Income from Operations................................ $ 11,413 (61.9) $ 29,942
---------- ----------
---------- ----------
Income (Loss) from Operations (Segment Data):
Coated Board........................................ $ 46,171 (17.0) $ 55,625
Containerboard...................................... (23,716) (99.7) (11,878)
Corporate........................................... (11,042) 20.0 (13,805)
---------- ----------
Income from Operations................................ $ 11,413 (61.9) $ 29,942
---------- ----------
---------- ----------
</TABLE>
PAPERBOARD PRODUCTION
Total tons of paperboard produced at the Company's paper mills for the first
six months of 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
JUNE 28, JUNE 29,
(IN THOUSANDS OF TONS) 1997 1996
- -------------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Carrierboard................................................................................ 307.8 339.0
Folding cartonboard......................................................................... 139.8 140.5
WLC......................................................................................... 57.2 58.1
----- -----
Total Coated Board.......................................................................... 504.8 537.6
Containerboard.............................................................................. 173.7 195.0
----- -----
678.5 732.6
----- -----
----- -----
</TABLE>
37
<PAGE>
This tonnage represents production at the Company's paper mills and does not
represent shipments or sales of paperboard to customers. Containerboard
production included 9,600 tons and 15,000 tons of saleable off-specification CUK
Board for the six months ended June 28, 1997 and June 29, 1996, respectively,
produced on CUK Board paper machines and sold in the Containerboard business
segment. The Company's U.S. mill production of containerboard decreased by
approximately 21,300 tons in the first six months of 1997 as compared to the
same period of 1996, while its production of CUK Board decreased by
approximately 31,900 tons in the first six months of 1997 as compared to the
same period of 1996. The decrease in production is due principally to lower
daily production rates for both containerboard and CUK Board to enhance the
Company's ability to produce quality paperboard, to higher maintenance-related
down time on one of four U.S. CUK Board paper machines and to the shutdown of
the second Macon Mill linerboard machine in preparation for the conversion to
CUK Board production. During the first six months of 1997 and 1996, the Company
took 38 and 49 machine days, respectively, of unscheduled corrugating medium
paper machine outages to balance inventory levels. The Company's CUK Board
capacity can also be used for linerboard production when market conditions
warrant. During the first six months of 1997 and 1996, the Company produced
approximately 4,000 and 1,400 tons, respectively, of linerboard on U.S. CUK
Board paper machines. The Company expects to produce linerboard on its CUK Board
paper machines during the second half of 1997. The second paper machine at the
Macon Mill is expected to produce approximately 170,000 tons of linerboard and
CUK Board during 1997. The amount of CUK Board produced on this machine during
the second half of 1997 will depend on the progress of the start-up process for
the machine and CUK Board market conditions, as well as mill scheduling
considerations.
NET SALES
Principally as a result of the factors described below, the Company's Net
Sales in the first six months of 1997 increased by $7.2 million, or 1.3 percent,
compared with the first six months of 1996. Net Sales in the Coated Board
business segment increased $11.3 million, or 2.3 percent, in the first six
months of 1997 to $512.1 million from $500.8 million in the first six months of
1996, due primarily to increased sales volume of approximately 45,000 tons in
worldwide folding cartonboard open markets, substantially offset by lower
average selling prices in those markets. In addition, the Company's domestic
integrated beverage business benefited from increased sales volumes, slight
selling price improvement, lower distribution costs and favorable product mix.
Net Sales in the Containerboard business segment decreased $4.1 million, or 7.6
percent, to $49.1 million in the first six months of 1997 from $53.2 million in
the first six months of 1996, due principally to a decrease in containerboard
selling prices as a result of the significant decline in containerboard markets
worldwide that began in the latter part of 1995 and has continued into the first
six months of 1997, offset to some extent by higher sales volumes.
GROSS PROFIT
Principally as a result of the factors discussed below, the Company's gross
profit for the first six months of 1997 decreased $20.6 million, or 20.8
percent, to $78.3 million from $98.9 million in the first six months of 1996.
The Company's gross profit margin decreased to 14.0 percent for the first six
months of 1997 from 17.8 percent in the first six months of 1996. In the
Containerboard business segment, gross profit decreased $12.2 million to a loss
of $20.8 million to the first six months of 1997 as compared to a loss of $8.6
million in the first six months of 1996. This decrease was due principally to
sales volume increases combined with declining selling prices of containerboard
which were below related production costs. Gross profit in the Coated Board
business segment decreased by $8.1 million, or 7.5 percent, to $100.2 million in
the first six months of 1997 as compared to $108.3 million in the first six
months of 1996, while that segment's gross profit margin decreased to 19.6
percent in the first six months of 1997 from 21.6 percent in the first six
months of 1996. This decrease in the gross profit resulted principally from
lower selling prices in worldwide folding cartonboard open markets, offset
somewhat by lower production costs at the Company's domestic integrated beverage
business.
38
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative expenses decreased $0.5 million, or 0.8
percent, to $61.3 million in the first six months of 1997 as compared to $61.7
million in the first six months of 1996. As a percentage of Net Sales, Selling,
General and Administrative expenses decreased to 10.9 percent in the first six
months of 1997 from 11.1 percent in the same period of 1996.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, Development and Engineering expenses decreased by $1.2 million to
$2.5 million due principally to reduced research and development activities on
packaging machinery resulting from the closure of the packaging machinery
facilities in Marietta, Georgia and Koln, Germany.
OTHER EXPENSES, NET
Other Expenses, net, decreased by approximately $0.3 million to $3.1
million.
INCOME FROM OPERATIONS
Principally as a result of the above factors, the Company's Income from
Operations in the first six months of 1997 decreased by $18.5 million, or 61.9
percent, to $11.4 million from $29.9 million in the first six months of 1996,
while the operating margin as a percent of Net Sales decreased to 2.0 percent
from 5.4 percent. (Loss) from Operations in the Containerboard business segment
increased $11.8 million to a loss of $23.7 million in the first six months of
1997 from a (Loss) from Operations of $11.9 million in the first six months of
1996, primarily as a result of the factors described above. Income from
Operations in the Coated Board business segment decreased $9.4 million, or 17.0
percent, to $46.2 million in the first six months of 1997 from $55.6 million in
the first six months of 1996, while the operating margin as a percent of Net
Sales decreased to 9.0 percent from 11.1 percent for the same periods, primarily
as a result of the factors described above.
INTEREST INCOME, INTEREST EXPENSE, INCOME TAXES AND EQUITY IN NET EARNINGS OF
AFFILIATES
INTEREST INCOME
Interest Income decreased $0.3 million to $0.2 million in the first six
months of 1997 from the first six months of 1996, primarily as a result of lower
average balances of cash and equivalents and marketable securities in 1997 as
compared to 1996.
INTEREST EXPENSE
Interest Expense increased $4.7 million to $80.9 million in the first six
months of 1997 from $76.2 million in the same period of 1996, primarily as a
result of the incremental indebtedness incurred in connection with the Merger,
offset to some extent by a reduction in debt related to the October 1996
repayment of term loans under the Senior Secured Credit Agreement from a portion
of the proceeds of the sale of substantially all of the assets of the U.S.
Timberlands/Wood Products business segment.
INCOME TAX EXPENSE (BENEFIT)
During the first six months of 1997, the Company recognized an income tax
expense of $2.7 million on a (Loss) from Continuing Operations before Income
Taxes and Equity in Net Earnings of Affiliates of $82.2 million. During the
second quarter of 1996, the Company recognized an income tax benefit of $2.3
million on a (Loss) from Continuing Operations before Income Taxes and Equity in
Net Earnings of Affiliates of $43.5 million. The 1997 expense and 1996 benefit
differed from the statutory federal income tax rate because of valuation
allowances established on net operating loss carryforward tax assets in the U.S.
and certain international locations where the realization of benefits is
uncertain. Cash paid for
39
<PAGE>
income taxes during the first six months of 1997 was $34.9 million. See "--
Liquidity and Capital Resources -- Tax Matters Relating to the Merger."
In the first quarter of 1996, the Predecessor recognized an income tax
benefit of $3.4 million on a (Loss) from Continuing Operations before Income
Taxes and Equity in Net Earnings of Affiliates of $10.4 million.
EQUITY IN NET EARNINGS OF AFFILIATES
Equity in Net Earnings of Affiliates is comprised primarily of the Company's
equity in net earnings of Igaras, an integrated containerboard producer located
in Brazil, which produces linerboard, corrugating medium, corrugated boxes and
beverage cartons, which is accounted for under the equity method of accounting.
Equity in Net Earnings of Affiliates decreased $1.2 million to $8.4 million in
the first six months of 1997 from $9.6 million in the first six months of 1996,
primarily as a result of the decline in containerboard markets worldwide, and
lower interest income at Igaras, offset somewhat by a decrease in Igaras' income
taxes.
During the first six months of 1997 and the second quarter of 1996, the
Company received dividends from Igaras of $0.9 million and $1.0 million,
respectively, net of taxes of $0.2 million and nil, respectively. During the
first quarter of 1996, the Predecessor did not receive a dividend from Igaras.
The Company received net dividends from its investments in affiliates, other
than Igaras, that are accounted for using the equity method of accounting
totaling $0.8 million and $0.4 million for the first six months of 1997 and
1996, respectively.
1996 COMPARED WITH 1995
RESULTS OF OPERATIONS
The following is a discussion of the Company's results of operations on a
pro forma basis. The discussion is based upon the nine-month period ended
December 31, 1996, exclusive of the net effect of Purchased Asset Costs made in
this period, plus the three-month period ended March 27, 1996, exclusive of
Other Costs and the U.S. Timberlands/Wood Products business segment results of
operations (the "Year ended December 31, 1996"), in comparison to the year ended
December 31, 1995, exclusive of Other Costs and the U.S. Timberlands/Wood
Products business segment's results of operations as follows:
<TABLE>
<CAPTION>
PRO FORMA % INCREASE PRO FORMA
YEAR ENDED (DECREASE) YEAR ENDED
(IN THOUSANDS OF DOLLARS) DECEMBER 31, 1996 FROM PRIOR YEAR DECEMBER 31, 1995
- ----------------------------------------------------- ------------------- ----------------- -------------------
<S> <C> <C> <C>
Net Sales (Segment Data):
Coated Board....................................... $ 984,296 (2.3) $ 1,007,123
Containerboard..................................... 127,920 (33.6) 192,497
---------- -------------------
Net Sales............................................ 1,112,216 (7.3) 1,199,620
Cost of Sales........................................ 937,149 (2.2) 957,951
---------- -------------------
Gross Profit......................................... 175,067 (27.6) 241,669
Selling, General and Administrative.................. 130,821 5.7 123,737
Research, Development and Engineering................ 9,349 (4.8) 9,819
Other Expense, net................................... 4,487 16.9 3,838
---------- -------------------
Income from Operations............................... $ 30,410 (70.8) $ 104,275
---------- -------------------
---------- -------------------
Income (Loss) from Operations (Segment Data):
Coated Board....................................... $ 94,486 (14.9) $ 111,070
Containerboard..................................... (34,117) -- 18,460
Corporate.......................................... (29,959) (18.6) (25,255)
---------- -------------------
Income from Operations............................... $ 30,410 (70.8) $ 104,275
---------- -------------------
---------- -------------------
</TABLE>
40
<PAGE>
PAPERBOARD PRODUCTION
Total tons of paperboard produced at the Company's paper mills for 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF TONS) 1996 1995
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Carrierboard............................................................ 606.0 615.1
Folding cartonboard..................................................... 264.1 312.0
WLC..................................................................... 119.6 131.1
--------- ---------
Total Coated Board...................................................... 989.7 1,058.2
Containerboard.......................................................... 488.0 469.5
--------- ---------
1,477.7 1,527.7
--------- ---------
--------- ---------
</TABLE>
This tonnage represents production at the Company's paper mills and does not
represent shipments or sales of paperboard to customers. Containerboard
production included 25,900 tons and 48,400 tons of saleable off-specification
coated board for 1996 and 1995, respectively, produced on CUK Board paper
machines and sold in the Containerboard business segment. The Company's U.S.
mill production of containerboard increased by approximately 18,500 tons, while
its production of CUK Board decreased by approximately 68,500 tons in 1996 as
compared to 1995. During 1996, the Company produced approximately 77,000 tons of
linerboard on U.S. CUK Board paper machines of which approximately 33,000 tons
were produced in the third quarter and approximately 43,000 tons were produced
in the fourth quarter. This shift in production was a result of the Company's
efforts to produce and sell additional linerboard rather than CUK Board during
1996 to correct imbalances in the CUK Board inventory levels due to softness in
the worldwide folding cartonboard open markets. In addition, the Company took 49
days of unscheduled corrugating medium paper machine outages in the first
quarter of 1996 and 15 days of unscheduled CUK Board paper machine outages
during the fourth quarter of 1996 to correct imbalances in medium and CUK Board
inventories, respectively. During 1995, the Company took 94 combined machine
operating days of paper machine outages to begin to correct imbalances in
containerboard inventories that resulted from weakness in the containerboard
industry in 1995.
NET SALES
As a result of the factors described below, the Company's Net Sales in 1996
declined by $87.4 million, or 7.3 percent, compared with 1995. Net Sales in the
Containerboard business segment decreased $64.6 million, or 33.6 percent, to
$127.9 million in 1996 from $192.5 million in 1995, due principally to selling
price declines as a result of the significant decline in containerboard markets
worldwide that began in the latter part of 1995 and continued through 1996,
which were partially offset by increased sales volumes. Net Sales in the Coated
Board business segment decreased by $22.8 million in 1996, or 2.3 percent, to
$984.3 million from $1,007.1 million in 1995, due primarily to decreased sales
volume as a result of an overall decline in demand in worldwide folding
cartonboard open markets, and loss of volume to competitors due to substitution
by customers of competing substrates for the Company's folding cartonboard in
these markets due to pricing pressures, quality and production issues at the
West Monroe Mill and other competitive factors. Sales volume in worldwide
folding cartonboard open markets declined by approximately 86,000 tons, or 21
percent, in 1996 when compared with 1995. These decreases were offset somewhat
by increased sales growth in the Company's integrated beverage products markets
as well as selling price increases in U.S. integrated beverage markets.
GROSS PROFIT
As a result of the factors discussed below, the Company's Gross Profit for
1996 decreased $66.6 million, or 27.6 percent, to $175.1 million from $241.7
million in 1995. The Company's gross profit margin decreased to 15.7 percent for
1996 from 20.1 percent in 1995. In the Containerboard business segment,
41
<PAGE>
Gross Profit decreased $52.4 million in 1996 as compared to 1995, to a loss in
1996 of $27.1 million. This decrease was due principally to selling price
declines resulting from the significant decline in containerboard markets
worldwide that began in the latter part of 1995 and continued through 1996. In
the Coated Board business segment, Gross Profit decreased by $12.5 million, or
5.8 percent, to $204.7 million in 1996 as compared to $217.2 million in 1995,
while its gross profit margin decreased to 20.8 percent in 1996 from 21.6
percent in 1995. The decrease in the gross profit margin percentage resulted
principally from a shift in sales from folding cartonboard open markets to lower
margin U.S. integrated beverage products combined with increased production
costs in certain international folding cartonboard markets, lower selling prices
in U.S. folding cartonboard open markets and unabsorbed fixed costs at the two
U.S. paper mills as a result of CUK Board paper machine outages effected in the
fourth quarter of 1996 in order to correct CUK Board inventory imbalances. These
factors were offset somewhat by selling price increases in U.S. domestic
integrated beverage markets.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative expenses increased $7.1 million, or 5.7
percent, to $130.8 million in 1996 as compared to $123.7 million in 1995, and as
a percentage of Net Sales, increased from 10.3 percent in 1995 to 11.8 percent
in 1996. This increase is primarily a result of higher warehousing expenses and
lower deferral of packaging machine design costs, which were somewhat offset by
a decline in incentive compensation expenses.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, Development and Engineering expenses decreased by $0.5 million, or
4.8 percent, to $9.3 million in 1996.
OTHER EXPENSES, NET
Other Expenses, net, increased by approximately $0.6 million, or 16.9
percent, to $4.5 million in 1996 primarily as a result of lower sales of minor
surplus assets and higher banking fees, partially offset by higher gains on
foreign currency transactions.
INCOME FROM OPERATIONS
Primarily as a result of the factors discussed above, the Company's Income
from Operations in 1996 decreased by $73.9 million, or 70.8 percent, to $30.4
million from $104.3 million in 1995, while the Company's operating margin
decreased to 2.7 percent in 1996 from 8.7 percent in 1995. Income from
Operations in the Containerboard business segment decreased $52.6 million to a
loss of $34.1 million in 1996 from Income from Operations of $18.5 million in
1995, primarily as a result of the factors described above. Income from
Operations in the Coated Board business segment decreased $16.6 million, or 14.9
percent, to $94.5 million in 1996 from $111.1 million in 1995, while the
operating margin decreased to 9.6 percent from 11.0 percent for 1995, primarily
as a result of the factors described above.
INTEREST INCOME, INTEREST EXPENSE, INCOME TAXES, EQUITY IN NET EARNINGS OF
AFFILIATES, DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT
INTEREST INCOME
Interest Income decreased $1.0 million to $1.0 million in 1996 from the same
period in 1995, primarily as a result of lower average balances of cash and
equivalents and marketable securities in 1996 as compared to 1995.
42
<PAGE>
INTEREST EXPENSE
Interest Expense increased $66.5 million to $172.2 million in 1996 from 1995
primarily as a result of incremental indebtedness incurred in connection with
the Merger. During 1996 and 1995, the Company capitalized interest of $2.5
million and $2.3 million, respectively. Amortization of deferred debt issuance
costs, exclusive of the amount recognized as an extraordinary loss on early
extinguishment of debt (see "-- Extraordinary Loss on Early Extinguishment of
Debt"), for 1996 and 1995 was $12.4 million and $2.7 million, respectively. The
increase in the amortization of deferred debt issuance costs in 1996 is a result
of significantly higher deferred debt issuance costs incurred in connection with
the above mentioned incremental borrowings.
INCOME TAX EXPENSE (BENEFIT)
During 1996, the Company recognized an income tax expense of $0.7 million on
a Loss from Continuing Operations before Income Taxes and Equity in Net Earnings
of Affiliates of $154.1 million. This expense differed from the statutory
federal income tax rate primarily because of valuation allowances established on
net operating loss carryforward tax assets in the United States and certain
international locations where the realization of such benefits is less likely
than not. During 1995, the Predecessor received $16.1 million of gross dividends
from its equity investment in Igaras, of which $12.1 million was a special
dividend. Accordingly, the Predecessor recognized the related income taxes and
withholding taxes on these dividends. As a result, the effective income tax rate
for 1995 was 64 percent.
EQUITY IN NET EARNINGS OF AFFILIATES
Equity in Net Earnings of Affiliates comprises primarily the Company's
equity in net earnings of Igaras, which is accounted for under the equity method
of accounting. Equity in Net Earnings of Affiliates decreased $12.4 million to
$22.5 million for 1996, primarily as a result of the significant decline in
containerboard markets worldwide. During 1996, the Company received dividends
from Igaras of approximately $5.0 million. Under the Igaras joint venture
agreement, Igaras is required to pay dividends equal to at least 25 percent of
its net profits.
DISCONTINUED OPERATIONS
On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/ Wood Products business segment for approximately $550 million
in cash. The Company did not recognize any gain or loss on the sale. Net Sales
in the U.S. Timberlands/Wood Products business segment decreased by $28.0
million, or 19.6 percent, in 1996 as compared to 1995, due principally to the
partial year of sales reported in 1996 and to decreased plywood selling prices,
partially offset by higher lumber selling prices. Excluding the effects of
Purchased Asset Costs for 1996, and excluding Other Costs for periods prior to
the Merger, Income from Operations in the U.S. Timberlands/Wood Products
business segment increased $1.5 million, or 3.0 percent, in 1996 as compared to
1995, primarily as a result of lower log costs and increased selling prices for
lumber.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
In October 1996, the Company applied the proceeds from the sale of
substantially all the assets of the U.S. Timberlands/Wood Products business
segment to loans outstanding under the Term Loan Facility and to outstanding
borrowings under the Revolving Facility. This early retirement of debt resulted
in a non-cash extraordinary charge in 1996 of $10.3 million, net of income taxes
of zero, relating to the write-off of deferred debt issuance costs.
43
<PAGE>
1995 COMPARED WITH 1994
RESULTS OF OPERATIONS
Excluding Other Costs and including the operations of the U.S.
Timberlands/Wood Products business segment, Income from Operations for 1995 and
1994 was as follows:
<TABLE>
<CAPTION>
% INCREASE
YEAR ENDED (DECREASE) YEAR ENDED
DECEMBER 31, 1995 FROM PRIOR YEAR DECEMBER 31, 1994
------------------- ----------------- -------------------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Income from Operations (Excluding Other Costs):
Coated Board........................................ $ 111,070 23.0 $ 90,279
Containerboard...................................... 18,460 (23.0) 23,975
U.S. Timberlands/Wood Products...................... 50,378 (25.6) 67,726
Corporate and Eliminations.......................... (25,255) (4.7) (26,491)
---------- ----- ----------
Income from Operations................................ $ 154,653 (0.5) $ 155,489
---------- ----- ----------
---------- ----- ----------
</TABLE>
PAPERBOARD PRODUCTION
Total tons of paperboard produced at the Predecessor's paper mills for 1995
and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
(IN THOUSANDS OF TONS)
Carrierboard................................................................................ 615.1 484.2
Folding cartonboard......................................................................... 312.0 246.4
WLC......................................................................................... 131.1 127.2
--------- ---------
Total Coated Board.......................................................................... 1,058.2 857.8
Containerboard (excluding production from Igaras)........................................... 469.5 605.7
--------- ---------
1,527.7 1,463.5
--------- ---------
--------- ---------
</TABLE>
The Predecessor's U.S. mill production of CUK Board increased by
approximately 196,400 tons, while its production of containerboard decreased by
approximately 136,200 tons in 1995 as compared to 1994. Containerboard
production included 48,400 tons and 39,500 tons of saleable off-specification
CUK Board for 1995 and 1994, respectively, produced on CUK Board paper machines
and sold in the containerboard business segment. For comparative purposes,
containerboard production in 1994 is presented as if the sale of approximately
50 percent of Igaras occurred as of December 31, 1993. In 1994, the Predecessor
completed a two-year construction project to upgrade over half of the 525,000
ton annual linerboard capacity at its Macon Mill in order to convert production
from linerboard to CUK Board (the "First Macon Conversion"). With this
accomplished, dedicated annual linerboard capacity decreased by 275,000 tons and
was replaced by CUK Board capacity of 300,000 tons per year when the machine
reached full capacity in 1996. Total production of CUK Board from the Macon Mill
during 1995 and 1994 was approximately 230,600 and 80,200 tons, respectively.
From its acquisition in mid-1992 through the first quarter of 1994, most of the
Macon Mill operations were reported in the Containerboard business segment.
Beginning in the second quarter of 1994, the CUK Board portion of these
operations has been reported in the Coated Board business segment.
NET SALES
As a result of the factors described below, Net Sales in 1995 increased by
$59.5 million, or 4.6 percent, compared with 1994. Net Sales in the Coated Board
business segment increased by $213.1 million, or 26.8 percent, due principally
to increased worldwide volume in most CUK Board markets, and to a lesser extent,
increased selling prices in most folding cartonboard open markets, higher
revenues in
44
<PAGE>
European integrated beverage markets and the positive effect on sales volumes of
the acquisition of the converting facility in France. These increases were
partially offset by decreased volume in European folding carton markets in 1995
and a decrease in packaging machinery leasing revenues in comparison to 1994
results, which benefited from the introduction in 1994 of a new packaging
machinery program. Net Sales in the Containerboard business segment decreased by
$150.1 million, or 43.8 percent, in 1995 compared with 1994. Excluding the
operations of Igaras, which were consolidated in 1994 and included net sales of
$155.1 million in this business segment in 1994, Net Sales in the Containerboard
business segment increased $5.0 million, or 2.7 percent, due primarily to
selling price increases in the first half of 1995 which were offset
significantly by a decrease in volume resulting from the First Macon Conversion
and lower demand in the containerboard market worldwide that began in the third
quarter of 1995 and continued through the fourth quarter of 1995. Although
containerboard selling prices in 1995 were higher than 1994, the Predecessor had
experienced selling price decreases for containerboard since the beginning of
the third quarter of 1995. Net Sales in the U.S. Timberlands/Wood Products
business segment decreased by $5.2 million, or 3.1 percent, due principally to
selling price and volume decreases in lumber which were somewhat offset by
increased plywood selling prices.
GROSS PROFIT
As a result of the factors discussed below, Gross Profit for 1995 increased
$4.7 million, or 1.6 percent, from 1994. The gross profit margin decreased to
21.8 percent for 1995 from 22.4 percent for 1994. Excluding the operations of
Igaras, which were consolidated in 1994 and accounted for as an equity
investment in 1995, Gross Profit increased $57.4 million, or 24.5 percent in
1995, while the gross profit margin increased to 21.8 percent from 20.8 percent
in 1994. Gross Profit in the Coated Board business segment increased $39.5
million, or 22.2 percent in 1995, while its gross profit margin decreased to
21.6 percent from 22.4 percent in 1994. The increase in Gross Profit was the
result of increased volume and selling prices in most worldwide CUK Board
markets and lower domestic converting costs as the Predecessor incurred higher
costs in 1994 to meet U.S. beverage market demand that exceeded the
Predecessor's U.S. converting capacity. In 1995, the Predecessor increased its
converting capacity through the addition of new converting presses and equipment
that significantly reduced costs incurred from subcontracting carton production.
The increase in Gross Profit was partially offset by an increase in the cost of
CUK Board production as a result of increased recycled fiber costs, higher fixed
costs at the Macon Mill and increased production costs at the Macon Mill during
the start-up period following the First Macon Conversion. Additionally, lower
packaging machinery leasing revenues and the effect of acquisitions of
converting facilities in each of France and the United States reduced the Coated
Board business segment's gross profit margin in 1995 as compared to 1994. In the
Containerboard business segment, Gross Profit decreased $27.5 million, or 52.0
percent, to $25.4 million in 1995 from $52.9 million in 1994, with a 1995 gross
profit margin of 13.2 percent. Excluding the operations of Igaras, which were
included in this business segment in 1994, Gross Profit increased $25.3 million
from $0.1 million in 1994. The increase in Gross Profit was due principally to
higher containerboard selling prices worldwide which were offset in part by
higher costs of recycled fiber, higher costs at the Macon Mill, and unabsorbed
fixed costs at both the West Monroe and Macon Mills as a result of 94 combined
machine operating days of paper machine outages effected in order to begin to
correct imbalances in containerboard inventories that resulted from weakness in
the containerboard industry in late 1995. Gross Profit in the U.S.
Timberlands/Wood Products business segment decreased by $8.9 million, or 15.0
percent, in 1995, and the gross profit margin decreased to 31.6 percent from
36.1 percent in 1994 due principally to selling price and volume decreases for
lumber which were partially offset by higher plywood selling prices and lower
log costs relating to a change in the estimate of ultimate yield of timber.
Based on improved measurements of existing volume and growth rates, the
Predecessor adjusted its estimate in 1995 of the total future yield of timber to
be harvested resulting in a lower unit rate of cost of timber harvested, which
in turn reduced cost of timber harvested by $6.7 million.
45
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative expenses decreased $4.9 million, or 3.7
percent, in 1995 compared with 1994, and as a percent of Net Sales, decreased to
9.4 percent in 1995 from 10.2 percent in 1994. Excluding the operations of
Igaras, which were reported on a consolidated basis in 1994, Selling, General
and Administrative expenses increased $10.5 million, or 9.0 percent, in 1995
compared with 1994, and as a percentage of Net Sales, decreased to 9.4 percent
in 1995 from 10.3 percent in 1994. The increase in Selling, General and
Administrative expenses was primarily a result of increases in selling and
marketing expenses to support the Predecessor's efforts to further penetrate
worldwide coated board markets.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, Development and Engineering expenses in 1995 versus 1994 increased
by $0.6 million, or 5.9 percent, to $9.9 million, primarily due to a higher
level of packaging machinery engineering costs associated with expanding
packaging machinery operations.
OTHER COSTS
Other Costs increased $20.2 million to $21.5 million in 1995 from $1.3
million in 1994. The increase in Other Costs was the result of $16.5 million of
increased expenses associated with the stock based compensation plans and $3.7
million of costs relating to the Predecessor's review of strategic alternatives.
The increase in stock based compensation expense was the result of both an
increase in the Predecessor's common stock closing price on the New York Stock
Exchange (the "Closing Price") at December 31, 1995 as compared to December 31,
1994, and from the exercise of stock based compensation benefits throughout 1995
at prices that exceeded the December 31, 1994 Closing Price. The Predecessor's
common stock closed at $19.125 per share and $15.625 per share at December 31,
1995 and 1994, respectively.
OTHER (EXPENSE) INCOME, NET
Other (Expense) Income, net, decreased $9.9 million to a net expense of $1.5
million in 1995 from income of $8.4 million in 1994. This decrease was primarily
due to an $8.9 million pretax gain on the sale of certain oil and gas mineral
rights on the Predecessor's U.S. timberlands in 1994 and higher amortization
expense on certain intangible assets in 1995.
INCOME FROM OPERATIONS
As a result of the above factors, Income from Operations in 1995 decreased
by $21.1 million, or 13.7 percent, to $133.1 million from 1994, while the
operating margin decreased to 9.9 percent from 12.0 percent. Excluding the
operations of Igaras which were consolidated in 1994 and Other Costs recorded in
1995 and 1994, Income from Operations increased by $33.8 million, or 28.0
percent, while the operating margin increased to 11.5 percent from 10.7 percent.
Income from Operations in the Coated Board business segment increased $14.0
million, or 15.6 percent, in 1995 compared to 1994. Excluding Other Costs
recorded in the Coated Board business segment in 1995 and 1994, the Coated Board
business segment's Income from Operations increased $20.8 million, or 23.0
percent, to $111.1 million in 1995 compared to $90.3 million in 1994, while the
operating margin remained relatively constant from year to year, primarily as a
result of the factors described above. Income from Operations in the
Containerboard business segment decreased $6.3 million to $17.5 million in 1995
from $23.8 million in 1994. Excluding the operations of Igaras which were
included in this business segment in 1994, and excluding Other Costs recorded in
1995 and 1994, Income from Operations in this business segment increased $29.1
million to $18.5 million in 1995 from a loss of $10.6 million in 1994, while the
operating margin increased to 9.6 percent in 1995, primarily as a result of the
factors described above. Income
46
<PAGE>
from Operations in the U.S. Timberlands/Wood Products business segment decreased
$18.0 million, or 26.6 percent, to $49.6 million in 1995 compared to 1994.
Excluding Other Costs recorded in 1995 and 1994, and the $8.9 million pretax
gain on the sale of certain oil and gas mineral rights included in this business
segment in 1994, Income from Operations in the U.S. Timberlands/Wood Products
business segment decreased $8.4 million, or 14.4 percent, to $50.4 million in
1995, while the operating margin decreased to 31.5 percent from 35.7 percent in
1994, primarily as a result of the factors described above.
INTEREST INCOME, INTEREST EXPENSE, INCOME TAXES, EQUITY IN NET EARNINGS OF
AFFILIATES AND EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
INTEREST INCOME
Interest Income decreased by $1.5 million, or 42.6 percent, to $2.0 million
in 1995. Excluding the interest income related to Igaras, Interest Income
decreased by $0.6 million in 1995 as compared to 1994 due to lower average
balances of cash and equivalents and marketable securities.
INTEREST EXPENSE
Compared with 1994, Interest Expense increased by $12.5 million, or 13.4
percent, to $105.7 million from $93.2 million. Capitalized interest in 1995
decreased to $2.3 million from $23.0 million in 1994, due primarily to the
completion of the First Macon Conversion in late 1994. Excluding interest
expense related to Igaras in 1994, gross interest expense remained unchanged in
1995 as compared to 1994.
INCOME TAXES
The Predecessor had income tax expense of $18.8 million and $54.2 million in
1995 and 1994, respectively, on Income from Continuing Operations before Income
Taxes and Equity in Net Earnings of Affiliates of $29.4 million and $64.4
million, respectively.
During 1995, the Predecessor received $16.1 million of dividends from
Igaras, of which amount $12.1 million was a special dividend. Accordingly, the
Predecessor recognized the related income taxes and withholding taxes on these
dividends which resulted in an effective income tax rate of 64 percent.
Excluding the tax effects of the special dividend from Igaras, the Predecessor's
effective income tax rate for 1995 was approximately 45 percent.
On December 29, 1994, the Predecessor sold approximately 50 percent of its
investment in Igaras for $100 million in cash after first spinning off a wholly
owned subsidiary to operate the packaging machinery operations in Brazil. Prior
to that date, the Predecessor owned 100 percent of Igaras. As a result of the
sale of its investment in Igaras, the Predecessor recorded a pretax loss of $0.6
million and an income tax expense of approximately $27.5 million in 1994. The
gain on this sale was significantly higher for income tax purposes than for
financial reporting purposes, resulting in the additional income tax expense in
1994. In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), these additional income taxes
were not recognized until the sale was apparent. In the first quarter of 1994,
the Predecessor recognized a tax benefit of $0.8 million, primarily relating to
a tax law change that reduced the Swedish statutory federal tax rate from 30
percent to 28 percent. Excluding the effects of the items described above, the
Predecessor's effective income tax rate for 1994 was approximately 42 percent.
EQUITY IN NET EARNINGS OF AFFILIATES
Equity in Net Earnings of Affiliates, which was $34.9 million in 1995,
comprised the Predecessor's equity in net earnings of Igaras under the equity
method of accounting.
47
<PAGE>
During 1995, the Predecessor received gross dividends from Igaras totaling
$16.1 million, including a special dividend of $12.1 million received in
December 1995.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
On June 30, 1994, the Predecessor used the proceeds of new borrowings to
prepay approximately $179 million principal of notes payable to insurance
companies and banks and to pay related accrued interest and expenses of
refinancing. This early extinguishment of debt resulted in an extraordinary
charge to 1994 net earnings of approximately $7.9 million, net of income taxes
of approximately $5.0 million.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company broadly defines liquidity as its ability to generate sufficient
cash flow from operating activities to meet its obligations and commitments. In
addition, liquidity includes the ability to obtain appropriate debt and equity
financing and to convert into cash those assets that are no longer required to
meet existing strategic and financial objectives. Therefore, liquidity cannot be
considered separately from capital resources that consist of current or
potentially available funds for use in achieving long-range business objectives
and meeting debt service commitments.
CASH FLOWS
Cash and equivalents decreased by approximately $5.1 million in the first
six months of 1997 primarily as a result of $128.1 million of net cash used in
investing activities, offset in part by $111.9 million and $12.3 million of net
cash provided by financing and operating activities, respectively. Cash provided
by operating activities included a reduction in inventories of approximately
$19.4 million as a result of the Company's ongoing program to reduce
inventories. See "-- Business Trends and Initiatives." Cash used in investing
activities related principally to the purchases of property, plant and
equipment. See "-- Liquidity and Capital Resources -- Capital Expenditures."
Depreciation and amortization during the first six months of 1997 totaled
approximately $65.7 million, and is expected to be approximately $140 million to
$145 million for fiscal 1997.
Cash and equivalents increased by approximately $16.5 million in the nine
months ended December 31, 1996, primarily as a result of $1,134.6 million of net
cash provided by financing activities, offset in part by $1,095.0 million and
$24.9 million of net cash used in investing and operating activities,
respectively. Cash used in investing activities related principally to the
acquisition of RIC and to purchases of property, plant and equipment, offset
somewhat by the sales of assets. See "-- Liquidity and Capital Resources --
Capital Expenditures." Depreciation and amortization during the nine months
ended December 31, 1996 totaled approximately $100.8 million.
The Company's Coated Board business segment experiences seasonality
principally due to the seasonality of the worldwide multiple packaging beverage
segment. Historically, the Company's Coated Board business segment reports its
strongest sales in the second and third quarters of the fiscal year driven by
the seasonality of the Company's integrated beverage business.
48
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from debt service on its
substantial indebtedness and from the funding of its capital expenditures. As of
June 28, 1997, the Company had outstanding approximately $1,671 million of
long-term debt, consisting primarily of $650.0 million aggregate principal
amount of the 1996 Notes, $750.0 million in term loan borrowings under the Term
Loan Facility and additional amounts under the Revolving Facility, the Machinery
Facility and other debt issues and facilities. During the first six months of
1997, the Company had a net increase in revolving credit facilities of
approximately $113.6 million and repaid approximately $1.7 million of debt.
Proceeds from the Offering were applied to prepay a portion of the Company's
Senior Secured Credit Facilities. See "-- Debt Service" and "-- Financing
Sources and Cash Flows."
DEBT SERVICE
Principal and interest payments under the Facilities and interest payments
on the 1996 Notes and the Notes represent significant liquidity requirements for
the Company. With respect to the Term Loan Facility, the Company applied $105.0
million of the proceeds from the Offering to refinance a portion of the Tranche
A Term Loans under the Term Loan Facility, $50.0 million of the proceeds of the
Offering to refinance the Tranche D Loan under the Senior Secured Credit
Agreement, and the remaining proceeds from the Offering to prepay outstanding
revolving credit borrowings under the Revolving Facility. Scheduled term loan
principal payments under the Term Loan Facility have been reduced to reflect
this application of proceeds. Annual term loan amortization requirements under
the Term Loan Facility will be approximately $1 million, $3 million, $4 million,
$4 million, $120 million, $173 million, $184 million and $156 million for each
of the years 1997 through 2004, respectively. This application of proceeds did
not involve any reduction in the current aggregate Revolving Facility commitment
of $400.0 million. In the third quarter of 1997, the Company will record a
non-cash, extraordinary charge to earnings of approximately $2.5 million, net of
tax, related to the write-off of the applicable portion of deferred debt
issuance costs on the Tranche A Term Loans.
The Revolving Facility will mature in March 2003 and the Machinery Facility
will mature in March 2001, with all amounts then outstanding becoming due. The
Company expects that its working capital and business needs will require it to
continue to have access to these or similar revolving credit facilities after
their respective maturity dates, and that the Company accordingly will have to
extend, renew, replace or otherwise refinance such facilities at or prior to
such dates. No assurance can be given that it will be able to do so. The loans
under the Facilities bear interest at floating rates based upon the interest
rate option elected by the Company. As of June 28, 1997, the Tranche A Term
Loans, Tranche B Term Loans and Tranche C Term Loans under the Term Loan
Facility bore interest at average rates per annum equal to 8.23%, 8.82% and
9.19%, respectively. Borrowings under each of the Revolving Facility and the
Machinery Facility bore interest as of such date at an average rate per annum
equal to 8.19%. The Notes, the 1996 Senior Notes and the Senior Subordinated
Notes bear interest at rates of 10 5/8%, 10 1/4% and 10 7/8%, respectively.
Giving effect to the Offering, interest expense in 1997 is expected to be
approximately $170 million to $175 million, including approximately $10 million
of non-cash amortization of deferred debt issuance costs. During the first six
months of 1997, cash paid for interest was approximately $72.4 million. The
Company's Australian revolving credit facility matures in September 1998, with
all amounts then outstanding becoming due. The total amount outstanding under
such facility was $22.0 million at June 28, 1997. While the Company expects to
extend, renew, replace or otherwise refinance such facility at or prior to such
date, no assurance can be given that it will be able to do so.
The Company uses interest rate swap and cap agreements to fix or cap a
portion of its variable rate Term Loan Facility to a fixed rate in order to
reduce the impact of interest rate changes on future income. The differential to
be paid or received under these agreements is recognized as an adjustment to
interest expense related to the debt.
49
<PAGE>
COVENANT RESTRICTIONS
The Credit Agreements impose restrictions on the Company's ability to make
capital expenditures and the Credit Agreements and the Note Indentures limit the
Company's ability to incur additional indebtedness. Such restrictions, together
with the highly leveraged nature of the Company, could limit the Company's
ability to respond to market conditions, to meet its capital spending program,
to provide for unanticipated capital investments or to take advantage of
business opportunities. The covenants contained in the Credit Agreements also,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur guarantee obligations, repay the relevant 1996 Notes or
the Notes, pay dividends, create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances, make acquisitions, engage in
mergers or consolidations, make capital expenditures or engage in certain
transactions with affiliates, and otherwise restrict corporate activities. The
covenants contained in the relevant Note Indentures also impose restrictions on
the operation of the Company's businesses. At June 28, 1997, the Company was in
compliance with the financial covenants in the Credit Agreements.
In connection with the consummation of the Offering, certain financial and
other covenants in the Credit Agreements were amended to reflect the Company's
recent financial results and market and operating conditions, as well as the
consummation of the Offering and the prepayment of the term loan and other
borrowings under the Senior Secured Credit Agreement. Covenant modifications
included reductions in permitted capital expenditures, the elimination of the
minimum consolidated net worth requirement, and reduction in minimum EBITDA and
interest coverage ratio requirements. See "Description of Senior Secured Credit
Facilities."
CAPITAL EXPENDITURES
In connection with the Merger, the Company acquired assets (including
goodwill and other intangible assets) with a fair value of approximately $3,092
million (including cash of $26 million) and assumed liabilities of approximately
$1,606 million.
Capital spending for the first six months of 1997 was approximately $89
million. During the first six months of 1997, the Company completed projects to
modify the pulp mill at the Macon Mill and to convert the second Macon Mill
linerboard machine to CUK Board production. The cost of the pulp mill
modification, completed in February 1997, was approximately $32 million. The
paper machine conversion is expected to cost approximately $85 million. Through
June 28, 1997, the Company has spent a cumulative total of approximately $63
million on the paper machine conversion. For the first six months of 1997,
capital spending on these two projects totaled approximately $49 million. The
pulp mill modification project and the conversion of the second Macon Mill
linerboard machine were each completed on budget and on schedule. Other capital
spending during this period related primarily to increasing paper production
efficiencies, increasing converting capacity, manufacturing packaging machinery
and upgrading the Company's information systems. Total capital spending for
fiscal 1997 is expected to be approximately $155 million, which represents a
reduction from previously planned capital expenditures, and is expected to
relate principally to the pulp mill modification, the conversion of the second
paper machine at the Macon Mill, the production of packaging machinery and the
planned upgrading of the Company's information systems (which is expected to
cost up to approximately $30 million through 1999). See "-- Upgrade of
Information Systems and Year 2000 Compliance."
Capital spending for the nine months ended December 31, 1996 was
approximately $132 million. For the nine months ended December 31, 1996, capital
spending on the Macon Mill pulp mill modifications and machine conversion
project totaled approximately $44 million. Other capital spending during this
period related primarily to increasing paper production efficiencies, increasing
converting capacity,
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and manufacturing packaging machinery. Additionally, at the date of the Merger,
the Company reacquired packaging machinery and purchased a converting press for
an aggregate of approximately $47 million, which were previously financed under
operating lease arrangements.
ASSET DISPOSITIONS
During the nine months ended December 31, 1996, the Company sold assets for
gross proceeds of approximately $555 million. These assets consisted primarily
of substantially all of the assets of the U.S. Timberlands/Wood Products
business segment, and also included the machinery and equipment of the Company's
last dedicated folding carton converting plant in the United States, located in
Kankakee, Illinois. The Company did not recognize any gain or loss on the sale
of these assets. The Company applied the proceeds of the sale of the U.S.
Timberlands/Wood Products business segment to repay a portion of the outstanding
borrowings under the Term Loan Facility and the Revolving Facility.
FINANCING SOURCES AND CASH FLOWS
In connection with and following the Merger, the Company decided in 1996 to
exit certain businesses and operating activities, including the sale or closure
of the Company's last dedicated folding carton converting plant in the United
States, located in Kankakee, Illinois, packaging machinery manufacturing plants
in Marietta, Georgia and Koln, Germany, a beverage multiple packaging converting
plant in Bakersfield, California and the trucking transportation operations in
West Monroe, Louisiana, as well as the consolidation and realignment of certain
operations in the United States, Australia and Europe. The cost of exiting these
businesses and operating activities was approximately $40.9 million which was
accrued during 1996 as a purchase accounting adjustment. The costs relate
principally to the severance of approximately 750 employees, relocation and
other plant closure costs. At June 28, 1997, $22.8 million of this total was
accrued in Other accrued liabilities on the Condensed Consolidated Balance
Sheet. During the first six months of 1997, $9.9 million was paid out and
charged against the accrual and related primarily to severance costs.
At June 28, 1997, the Company and its U.S. and international subsidiaries
had the following amounts undrawn under revolving credit facilities:
<TABLE>
<CAPTION>
TOTAL AMOUNT TOTAL AMOUNT
TOTAL AMOUNT OF OUTSTANDING AT AVAILABLE AT
(IN THOUSANDS OF DOLLARS) COMMITMENTS JUNE 28, 1997 JUNE 28, 1997
- ---------------------------------------------------------------- ---------------- -------------- --------------
<S> <C> <C> <C>
Revolving Facility.............................................. $ 400,000 $ 206,000 $ 194,000
Machinery Facility.............................................. 140,000 35,000 21,000
International Facilities........................................ 54,720 32,567 22,153
---------------- -------------- --------------
$ 594,720 $ 273,567 $ 237,153
---------------- -------------- --------------
---------------- -------------- --------------
</TABLE>
The total amount outstanding under the Revolving Facility was $206.0 million
as of June 28, 1997. In July 1997, the Company applied approximately $87 million
of the net proceeds from the Offering and $50 million in proceeds from the
Tranche D Loan, which became available to the Company upon the closing of the
Offering, to repay a portion of the outstanding borrowings under the Revolving
Facility (without any revolving credit commitment reduction). As a result, the
total amount outstanding under the Revolving Facility at July 29, 1997 was
approximately $91 million resulting in approximately $309 million of borrowing
availability under the Revolving Facility at that date.
The Machinery Facility is limited by a borrowing base. During December 1996,
the commitment for the Australian revolving facility was reduced from
approximately $37 million to approximately $32 million. The Company anticipates
pursuing additional working capital financing for its foreign operations as
necessary, and possibly implementing a receivables securitization program.
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As described above, the Company has substantial liquidity, but anticipates
additional borrowings under the Revolving Facility throughout 1997. The Company
believes that cash generated from operations, together with amounts available
under its Revolving Facility, the Machinery Facility and other available
financing sources, will be adequate to permit the Company to meet its debt
service obligations, capital expenditure program requirements, ongoing operating
costs and working capital needs until the maturity of the Revolving Facility
(assuming extension or refinancing of the Machinery Facility at its earlier
maturity), although no assurance can be given in this regard. The Company's
future financial and operating performance, ability to service or refinance its
debt and ability to comply with the covenants and restrictions contained in its
debt agreements (see "-- Covenant Restrictions"), will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control, and will be substantially dependent on the
selling prices for the Company's products and the Company's ability to
successfully implement its overall business and profitability strategies. See
"Risk Factors" and "-- Business Trends and Initiatives."
While the Company believes that Igaras has adequate liquidity, the Company
shares control of Igaras with its joint venture partner and future dividend
payments from Igaras, if any, would be subject to restrictions in the joint
venture agreement and would reflect only the Company's remaining interest of
50%. Under the Igaras joint venture agreement, Igaras is required to pay
dividends equal to at least 25% of its net profits. Due to currency
fluctuations, inflation and changes in political and economic conditions,
earnings from Brazilian operations have been subject to significant volatility.
There can be no assurance that such volatility will not recur in the future.
During the nine months ended December 31, 1996, Holding completed an
offering of shares of Holding Common Stock to certain members of management and
key employees (the "Management Investors") of the Company. During the nine
months ended December 31, 1996, the Company issued 111,900 shares of Holding
Common Stock to the Management Investors for gross proceeds of $11.2 million.
Under certain circumstances, a Management Investor can require the Company to
repurchase his or her shares of Holding Common Stock. At June 30, 1997,
Management Investors holding an aggregate of 38,750 shares of Holding Common
Stock were entitled to require the Company to repurchase their shares. As of
July 31, 1997 a total of 6,000 shares of management investor stock have been
repurchased as a result of involuntary termination of employment. See Note 11 to
the audited Consolidated Financial Statements included elsewhere in this
Prospectus.
ENVIRONMENTAL MATTERS
The Company is committed to compliance with all applicable environmental
laws and regulations throughout the world. Environmental law is, however,
dynamic rather than static. As a result, costs, which are unforeseeable at this
time, may be incurred when new laws are enacted, and when environmental agencies
promulgate or revise rules and regulations.
In late 1993, the EPA proposed regulations (generally referred to as the
"cluster rules") that would mandate more stringent controls on air and water
discharges from United States pulp and paper mills. In 1996, the EPA released
additional information regarding the proposed cluster rules. Based on this
information, the Company expects that the cluster rules may be finally
promulgated in 1997 and estimates the capital spending that may be required to
comply with the cluster rules could reach $55 million to be spent at its two
U.S. paper mills over an eight-year period beginning in 1997. The Company
anticipates that the majority of this spending for compliance with the cluster
rules will occur later in the eight-year period. The Company had no capital
spending during the first half of 1997 related to compliance with the cluster
rules.
In late 1995, the Louisiana Department of Environmental Quality (the "DEQ")
notified the Company that the Predecessor may be liable for the remediation of
hazardous substances at a wood treatment site in Shreveport, Louisiana, that the
Predecessor or its predecessor previously operated, and at a former oil
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refinery site in Caddo Parish, Louisiana that the Company currently owns.
Neither the Company nor the Predecessor ever operated the oil refinery. In
response to the DEQ, the Company has provided additional information concerning
these sites and has commenced its own evaluation of any claims and remediation
liabilities for which it may be responsible. The Company received a letter from
the DEQ dated May 20, 1996, requesting a plan for soil and groundwater sampling
of the wood treatment site. The Company first met with the DEQ on July 18, 1996,
and then submitted a soil sampling plan to the DEQ. The Company expects approval
of this sampling plan in the second half of 1997. On September 6, 1996, the
Company received from the DEQ a letter requesting remediation of the former oil
refinery site in Caddo Parish, Louisiana. The Company met with the DEQ on
February 17, 1997 to discuss these matters. The Company anticipates entering
into a cooperative agreement with the DEQ to perform a phased-in evaluation of
soil and groundwater conditions at the Shreveport site. The Company is in
discussions with the DEQ regarding the participation of other responsible
parties in any clean up of hazardous substances at both of these sites.
The Company is engaged in environmental remediation projects for certain
properties currently owned or operated by the Company and certain properties
divested by the Company for which responsibility was retained for pre-existing
conditions. The Company's costs in some instances cannot be reliably estimated
until the remediation process is substantially underway. To address these
contingent environmental costs, the Company has accrued reserves when such costs
are probable and can be reasonably estimated. The Company believes that, based
on current information and regulatory requirements, the accruals established by
the Company for environmental expenditures are adequate. Based on current
knowledge, to the extent that additional costs may be incurred that exceed the
accrued reserves, such amounts are not expected to have a material impact on the
results of operations, cash flows, or financial condition of the Company,
although no assurance can be given that material costs will not be incurred in
connection with clean-up activities at these properties, including the
Shreveport and Caddo Parish sites referred to above.
INTERNATIONAL OPERATIONS
At December 31, 1996, approximately 21 percent of the Company's total net
assets were denominated in currencies other than the U.S. dollar. The Company
has significant operations in countries that use the Swedish krona, the British
pound sterling, the German mark, the Spanish peseta, the French franc or the
Australian dollar as their functional currencies. The offsetting effect of
generally stronger U.S. dollar currency exchange rates in Britain and Australia
and the effect of weaker U.S. dollar currency exchange rates in Sweden, Germany,
Spain and France combined to produce a cumulative net translation adjustment
gain of approximately $8 million, which was recorded as an adjustment to
shareholders' equity for the nine months ended December 31, 1996. The magnitude
and direction of this adjustment in the future depends on the relationship of
the U.S. dollar to other currencies. The Company cannot predict major currency
fluctuations. The Company's revenues from export sales fluctuate with changes in
foreign currency exchange rates. The Company pursues a currency hedging program
in order to limit the impact of foreign currency exchange fluctuations on
financial results. See "-- Financial Instruments."
FINANCIAL INSTRUMENTS
The functional currency for most of the Company's international subsidiaries
is the local currency for the country in which the subsidiaries own their
primary assets. The translation of the applicable currencies into U.S. dollars
is performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. Any related translation adjustments are
recorded directly to shareholders' equity. Gains and losses on foreign currency
transactions are included in Other (Expense) Income, net, in the Consolidated
Statements of Operations for the period in which the exchange rate changes.
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<PAGE>
The Company pursues a currency hedging program which utilizes derivatives to
limit the impact of foreign currency exchange fluctuations on its consolidated
financial results. Under this program, the Company enters into forward exchange
and option contracts in the normal course of business to hedge certain foreign
currency denominated transactions. Realized and unrealized gains and losses on
these forward contracts are included in the measurement of the basis of the
related foreign currency transaction when recorded. The premium on an option
contract is accounted for separately and amortized to Other (Expense) Income,
net, over the term of the contract. These instruments involve, to varying
degrees, elements of market and credit risk in excess of the amounts recognized
in the Consolidated Balance Sheets. The Company does not hold or issue financial
instruments for trading purposes. See Note 4 to the audited Consolidated
Financial Statements included elsewhere in this Prospectus.
UPGRADE OF INFORMATION SYSTEMS AND YEAR 2000 COMPLIANCE
The Company has begun to upgrade its information systems through an
initiative expected to cost up to approximately $30 million to be spent through
1999. When the upgrade is complete, the Company expects a major improvement in
its information systems and business processes. This initiative is expected to
be complete by June 1999. Capital spending on this project during the first six
months of 1997 totaled approximately $1.6 million.
In conjunction with the information systems upgrade, the Company is also in
the process of replacing its computer software applications and systems to
accommodate the "Year 2000" dating changes necessary to permit correct recording
of yearly dates for 2000 and later years. The Company does not expect that the
cost of its Year 2000 compliance program will be material to its financial
condition or results of operations (other than the initial investment in
information systems of up to approximately $30 million). The Company believes
that it will be able to achieve compliance by the end of 1999, but would
anticipate a material disruption in its operations as the result of any failure
by the Company to be in compliance. In the event that any of the Company's
significant suppliers or customers does not successfully and timely achieve Year
2000 compliance, the Company's business or operations could be adversely
affected.
FLUCTUATIONS IN U.S. CURRENCY EXCHANGE RATES
Fluctuations in U.S. dollar currency exchange rates did not have a
significant impact on Net Sales, Gross Profit, operating expenses or Income from
Operations of the Company or Predecessor or any of their business segments for
the six months ended June 28, 1997, the nine months ended December 31, 1996, the
three months ended June 28, 1997 and March 27, 1996 or for either of the years
ended December 31, 1995 and 1994.
IMPACT OF INFLATION
In the United States, the inflation rate was approximately 3 percent for
1996. In both Europe and Australia, where the Company has manufacturing
facilities, the inflation rate for 1996 was approximately 2 percent. Net sales
from international operations during the nine months ended December 31, 1996
amounted to approximately $303.5 million, or 33.4 percent of the Company's Net
Sales (prior to inter-company eliminations) for the nine months ended December
31, 1996.
TAX MATTERS RELATING TO THE MERGER
Pursuant to an election under Section 338(h)(10) of the Internal Revenue
Code of 1986, as amended (the "Code"), the Merger has been treated for income
tax purposes as a taxable sale of the assets of RIC and a taxable sale of the
assets of RIC's subsidiaries to which such election applies. As a result,
following the Merger the tax basis of the assets of the Company are
substantially equal to their fair market value. The excess of the Merger
consideration over the fair market value of the taxable net assets
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<PAGE>
is deductible over 15 years for federal income tax purposes. The Company's
future taxable income will be reduced by such amortization deductions and
increased depreciation and other deductions resulting from the stepped-up tax
basis of those assets, together with deductions for interest on indebtedness and
certain other expenses incurred in connection with the Merger.
For periods prior to the Merger, the Predecessor had historically been
included in the consolidated federal and certain combined state income tax
returns of a company formerly known as Manville Corporation ("Manville"). For
periods after the Merger, the Company will now be included in the consolidated
federal and certain combined state income tax returns of Holding.
Pursuant to a previously existing tax sharing agreement between the Company
and Manville (the "Tax Sharing Agreement"), the Company was required to make tax
sharing payments to Manville (or Manville to make tax sharing payments to the
Company in certain cases) with respect to the Company's share of consolidated
federal and combined state and local income tax liabilities, generally computed
as if the Company were the parent of a separate consolidated group of companies.
The Tax Sharing Agreement was terminated upon the closing of the Merger.
The Tax Matters Agreement, dated as of October 25, 1995, among Manville,
RIC, RIC Holding and CDRO Acquisition Corp. (the "Tax Matters Agreement") was
entered into in connection with the Merger. The Tax Matters Agreement requires
the Company to make tax sharing payments to Manville (or Manville to make tax
sharing payments to the Company in certain cases), calculated in a manner
generally consistent with past practices under the Tax Sharing Agreement, with
respect to the Company's share of consolidated federal and combined state and
local income tax liabilities for all pre-closing periods, excluding taxes
associated with the election under Section 338(h)(10) of the Code, to the extent
such amounts have not previously been paid pursuant to the Tax Sharing
Agreement. The Tax Matters Agreement further requires Manville to bear the risk
of federal and state tax audits (excluding state tax matters associated with the
Section 338(h)(10) election), and the Company to bear the risk of foreign tax
audits, for periods prior to the Merger.
Pursuant to the Tax Matters Agreement, Manville agreed to bear the cost of
the Section 338(h)(10) election for federal tax purposes and for purposes of
state taxes for which Manville and the Predecessor filed returns on a combined
basis. The Company agreed to bear the cost of this election for purposes of
other state taxes ("stand-alone taxes"), including Louisiana income tax. During
1997, the Company has paid $33.1 million in estimated stand-alone taxes relating
to the election, including $27.5 million in Louisiana income tax. The Company's
calculation of its Louisiana tax was based on state law in effect at the time of
the Merger, including a 1993 amendment. In May 1997, the Louisiana Supreme Court
declared the 1993 amendment to be void under the Louisiana constitution,
retroactive to 1993. It is possible that the voiding of the 1993 amendment could
result in the Company being required to pay significant additional Louisiana
income tax relating to the election (plus interest on the additional tax). The
Company's Louisiana tax return for the period that includes the Merger is due in
November 1997. After consultation with Louisiana tax counsel, the Company
believes that it has a reasonable basis for filing its Louisiana income tax
return for 1996 (which is due in November 1997) without the payment of any
additional tax due to the voiding of the 1993 amendment. There can be no
assurance, however, that the Company would ultimately prevail on this issue if
Louisiana were to challenge such filing position. If the Company were not to
prevail in such a challenge, significant additional Louisiana income tax
relating to the election could be payable. Management estimates that the maximum
amount of such additional tax is approximately $50 million (plus statutory
interest on any additional tax). The Company intends to file its tax return
without the payment of additional tax due to the voiding of the 1993 amendment,
and management believes that the additional tax ultimately paid (if any) would
be substantially less than the estimated maximum amount, although no assurance
can be given in this regard. The Company and its advisors are continuing to
study this situation. Since the law is unclear and the amounts involved could be
significant, it may be several years before this matter is resolved.
55
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INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Prospectus (other than the
financial statements and other statements of historical fact) are
forward-looking statements, including, without limitation, (i) the statement in
"-- Business Trends and Initiatives" concerning (a) the improvements that the
Company's long-term initiatives, including, without limitation, its profit
center reorganization, are designed to achieve and (b) the Company's expectation
that the second Macon Mill paper machine will achieve its full annual production
capacity of approximately 275,000 tons in 18 to 24 months; (ii) the statements
in
"-- Outlook" concerning (a) the Company's expectation that its 1997 EBITDA will
exceed its 1996 EBITDA (excluding the results of the former U.S.
Timberlands/Wood Products business segment) as well as each of the factors that
the Company believes support such expectation, (b) the Company's expectation
that it will achieve a reduction of expenditures of at least $20 million on an
annualized basis and (c) the Company's belief that further cost reduction
initiatives that it is currently pursuing will position it to realize
significant further cost savings after 1997; (iii) the statements in "-- Results
of Operations -- Paperboard Production" concerning the Company's expectation
that the second Macon Mill paper machine will produce approximately 170,000 tons
of linerboard and CUK Board during 1997; (iv) the statements in "-- Financial
Condition, Liquidity and Capital Resources -- Liquidity and Capital Resources"
concerning (a) the Company's expectation that it will extend, renew, replace or
otherwise refinance its Australian revolving facility prior to September 1998,
(b) the Company's expectations that total capital spending for 1997 will be
approximately $155 million and that the planned upgrading of the Company's
information systems will cost up to $30 million (and its belief that the Company
will achieve Year 2000 compliance by the end of 1999), (c) the Company's belief
that cash generated from operations, together with amounts available under
available financing sources, will be adequate to permit the Company to meet its
debt service obligations, capital expenditure program requirements, ongoing
operating costs and working capital needs until the maturity of the Revolving
Facility (assuming extension or refinancing of the Machinery Facility at its
earlier maturity), (d) the Company's expectations with respect to capital
spending that may be required to comply with the cluster rules and that, based
on current knowledge, environmental costs are not expected to have a material
impact on the results of operations, cash flows or financial condition of the
Company and (e) the Company's beliefs and estimates in respect of certain
Louisiana income tax matters relating to the Section 338(h)(10) election,
including, without limitation, management's belief that additional tax
ultimately paid (if any) would be substantially less than $50 million; and (v)
other statements as to management's or the Company's expectations and belief
presented in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Forward-looking statements are made based upon management's current
expectations and belief concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management. The
factors described in this Prospectus (including without limitation those
discussed in "Risk Factors" and
"-- Business Trends and Initiatives") could affect (and in some cases have
affected) the Company's actual results and could cause such results to differ
materially from estimates or expectations reflected in such forward-looking
statements. See "Risk Factors" and "-- Business Trends and Initiatives."
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition, the
Company does not intend to review or revise any particular forward-looking
statement referenced herein in light of future events.
ACCOUNTING CHANGES
In the fourth quarter of 1996, the Company adopted the LIFO method of
determining the cost of principally all its inventories effective March 28,
1996. Prior to the fourth quarter of 1996, the Company determined the cost of
principally all its inventory using the FIFO method. The Company believes that
the
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LIFO method results in a better matching of current costs with current revenues.
Additionally, the LIFO method is widely used in the paper products industry.
This change in accounting principle was applied retroactively. Accordingly, the
second and third quarters of 1996 have been restated to reflect the adoption of
the LIFO method effective March 28, 1996 (see Note 23 to the audited
Consolidated Financial Statements included elsewhere in this Prospectus).
Effective January 1, 1996, the Predecessor adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No.
121 establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangible assets, and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable intangible
assets to be disposed of. The adoption of SFAS No. 121 by the Predecessor did
not have a significant impact on its operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION" ("SFAS No. 131"). SFAS No. 131 establishes
standards for the way public companies report information about operating
segments in annual financial statements and requires that those companies report
selected information about operating segments in interim financial reports. SFAS
No. 131 is effective for fiscal years beginning after December 31, 1997. The
Company has not determined the impact that SFAS No. 131 will have on its
business segment disclosures.
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<PAGE>
BUSINESS
OVERVIEW
The Company is a leading provider of paperboard and paperboard packaging
solutions, either directly or through independent converters, to multinational
beverage and consumer products companies, such as Anheuser-Busch Companies,
Inc., Miller Brewing Company, numerous Coca-Cola bottling companies, PepsiCo,
Inc., Sara Lee Corporation and Mattel, Inc. The Company is one of only two major
manufacturers of CUK Board. CUK Board, which serves as the principal raw
material for the Company's packaging products, is a specialized high-quality
grade of paperboard with superior strength characteristics and printability for
high-resolution graphics that make it particularly well suited for a variety of
packaging applications. In order to capitalize on the growth in CUK Board
demand, the Company has invested over $1 billion since the beginning of 1992 in
expanding its Coated Board business segment. The Company's Coated Board business
segment accounted for approximately 88% of the Company's net sales for the nine
months ended December 31, 1996. The Company also manufactures and sells
linerboard, corrugating medium and kraft paper through its Containerboard
business segment.
In March 1996, Holding, through its wholly owned subsidiaries, acquired all
of the outstanding shares of common stock of RIC. RIC Holding is a wholly owned
subsidiary of Holding and Riverwood is a wholly owned subsidiary of RIC Holding.
The principal executive offices of Riverwood are located at 3350 Cumberland
Circle, Suite 1400, Atlanta, Georgia 30339 and its telephone number is (770)
644-3000.
STRATEGY
The Company's strategy is to profitably expand its position as a leader in
CUK Board-based paperboard packaging. To implement its strategy, the Company is
emphasizing the production and sale of CUK Board and CUK Board-based products
through its Coated Board business segment, while utilizing its linerboard
production capacity to respond to changes in supply and demand in its
businesses. The principal components of the Company's strategy are as follows:
CONTINUE TO DEVELOP PROPRIETARY PACKAGING MACHINERY AND INNOVATIVE CARTON
DESIGNS. The design, manufacture and leasing of packaging machinery is an
integral part of the integrated beverage packaging solutions provided by the
Company to its customers in the beverage industry. The Company believes that it
has significant opportunities to install additional machines capable of
packaging bottles, cans and other primary containers in CUK Board-based cartons
at the facilities of existing and new customers, both domestically and
internationally. Management believes that increased installation of packaging
machinery will increase "pull through" demand for beverage cartons made from
carrierboard, thereby increasing the Company's base of business. At the same
time, the Company is focusing on the overall profitability of the integrated
beverage packaging solutions provided to existing and new customers.
Customers in the beverage industry are seeking more flexibility, higher
filling line speeds and reduced secondary packaging costs through both reduced
material requirements and lighter carrierboard weights, while demanding product
performance criteria unique to beverage applications. Management believes that
the Company is well positioned to satisfy these varied requirements profitably.
Moreover, the Company believes that its ability to work with customers to
satisfy their demand for new beverage packaging formats will result in increased
demand for the Company's CUK Board, beverage cartons and packaging machinery.
INCREASE CUK BOARD PRODUCTION CAPACITY AND LOWER PRODUCTION COSTS. In June
1997, the Company completed the conversion of the second Macon Mill linerboard
machine to CUK Board production at an expected cost of approximately $85
million, and commenced CUK Board production on the machine. When the machine
achieves its full, annual production capacity of approximately 275,000 tons
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of CUK Board in 18 to 24 months, the Company expects to have total annual CUK
Board capacity of more than 1.3 million tons. Management believes that no other
significant new CUK Board capacity is scheduled to come on line worldwide in the
next several years, other than Mead's plans to add 35,000 tons of annual CUK
Board capacity beginning in 1998. Management believes that the Company's ability
to produce additional carrierboard and cartonboard will allow it to meet
customer demand as its customers expand, particularly in international markets.
In addition, the flexibility to produce carrierboard, cartonboard or linerboard
on its CUK Board machines enables the Company to respond to changes in supply
and demand, principally by allowing the Company to use excess CUK Board capacity
to supply the larger containerboard market. The Company expects to continue to
produce linerboard on its CUK Board machines during the start-up of the second
Macon Mill machine over the next two years and thereafter based on market
conditions.
With the upgrading of the Macon Mill's first linerboard machine in 1994 and
the second machine in June 1997, the Company has modern equipment and facilities
at its Macon Mill. The Company will utilize the additional Macon Mill capacity
to optimize mill scheduling and machine yields as part of its ongoing initiative
to lower production costs and increase efficiency at its mills.
INCREASE THE COMPANY'S MARKET SHARE IN FOLDING CARTONBOARD
MARKETS. Although worldwide consumption of all grades of folding cartonboard
exceeds 28 million tons annually, the Company estimates that CUK Board accounts
for less than 3.5% of the annual consumption of the relatively large folding
carton segment. To increase its market share, the Company is pursuing a strategy
of targeting packaging applications in folding carton markets presently served
by other substrates for which it believes the strength characteristics and
printability of its Pearl-Kote-Registered Trademark- and
OmniKote-Registered Trademark- are particularly suited, such as dry and frozen
foods, toys, hardware and other consumer products. In addition, the Company
continues to research and develop new product initiatives designed to increase
sales of CUK Board for folding carton applications.
The Company has also taken actions designed to increase CUK Board market
share by establishing key account relationships with a number of major North
American independent converters, involving multi-year commitments by the Company
to supply a significant portion of these customers' requirements for CUK Board.
Certain multinational consumer products companies have specified the Company's
folding cartonboard for their cartons, and the Company intends to pursue
additional relationships of this type.
CONTINUE TO IMPLEMENT REORGANIZATION AND COST SAVINGS MEASURES. The Company
has undertaken a profit center reorganization of its operations, designed to (i)
focus on profitability, (ii) reevaluate its commitment of assets to business
sectors with relatively lower profitability, (iii) provide greater control over
costs and revenues and (iv) enhance managerial autonomy and accountability. A
major initial project was the reorganization of the Company's North American
beverage operations into three business units, each of which is a separate
profit center serving a different customer market segment. The Company is also
implementing a number of cost savings measures, including reorganizing
operations and streamlining and consolidating international and other operations
to eliminate duplication and excess overhead. These measures have also included
the sale or closure of (i) the Company's last folding cartonboard converting
plant in the United States, located in Kankakee, Illinois, (ii) a beverage
multiple packaging plant in Bakersfield, California, (iii) packaging machinery
manufacturing plants in Marietta, Georgia and Koln, Germany and (iv) the
trucking transportation operations in West Monroe, Louisiana, as well as the
consolidation and realignment of certain operations in the United States,
Australia and Europe. In addition, the Company has begun to upgrade its domestic
information systems through an initiative expected to provide significant
improvements in its systems and business processes. The Company continues to
evaluate its current operations and assets with a view to rationalizing and
improving the profitability of its operations, in particular with respect to its
international converting assets and strategy.
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POSITION THE COMPANY FOR LONG-TERM INTERNATIONAL GROWTH
OPPORTUNITIES. Management believes that markets outside of the Company's core
North American market present significant long-term opportunities for growth. As
multinational soft drink and beer companies continue to expand internationally,
management believes that they will bring with them their marketing and
merchandising concepts, including the use of carrierboard secondary packaging
for enhanced graphics and point of sale presence. To take advantage of expected
international growth opportunities, management is pursuing a strategy to
position the Company to provide integrated beverage packaging solutions to soft
drink and beer companies as they expand internationally. As a result of the
steps taken to date in furtherance of this strategy, management believes that
the Company is positioned to provide such packaging solutions without having to
make additional material investments, other than for packaging machinery. These
steps have included: (i) increasing the Company's CUK Board production capacity,
(ii) investing in design and development of packaging machinery to meet the
needs of local markets, (iii) increasing international converting capacity
through establishing relationships with international converters, in addition to
the Company's own international converting facilities, and (iv) improving the
Company's means to execute coordinated sales and market development initiatives
globally.
COATED BOARD
OVERVIEW
The Company's primary focus is the production and sale of CUK Board for use
as multiple packaging beverage cartons ("carrierboard") for beer, soft drinks
and other beverages, and folding cartons ("folding cartonboard") for
confectionary, frozen and dry foods, toys and other consumer products. The
Company sells carrierboard under the brand names Aqua-Kote-Registered Trademark-
and Krafbrite-Registered Trademark- and folding cartonboard under the brand
names Pearl-Kote-Registered Trademark- and OmniKote-Registered Trademark-. In
1996, carrierboard accounted for approximately 70% of the Company's total CUK
Board production.
The Company utilizes over three-fourths of its carrierboard production in
its integrated beverage business and sells the remainder in the open market to
independent converters, including licensees of the Company's proprietary carton
designs, principally for use in the beverage packaging market. In its integrated
beverage business, the Company provides integrated beverage packaging solutions
that generally include each of the following elements: (i) the production of
carrierboard, (ii) the printing and cutting, or conversion, of carrierboard into
beverage cartons for use on packaging machines and (iii) the sale to customers
of converted beverage cartons for use on proprietary packaging machines
designed, manufactured and installed by the Company. As part of the Company's
integrated beverage business, particularly in its international operations, the
Company's carrierboard may be sold to and converted by licensees of the
Company's beverage carton designs who, in turn, sell converted beverage cartons
to end-users for use on the Company's proprietary packaging machines. The
Company's integrated beverage business also includes sales of Company produced
and converted carrierboard to customers for use on third party packaging
machines.
The Company produces and sells folding cartonboard principally in the open
market to independent converters for use in folding cartons for packaging a
variety of consumer products. The Company focuses on folding cartonboard
applications for consumer products companies seeking the strength and
printability of CUK Board. The Company's ability to produce either carrierboard
or folding cartonboard on its CUK Board paper machines enables the Company to
respond to changes in supply and demand in these businesses. Additionally, at
its Swedish Mill, the Company manufactures WLC, a coated 100% recycled
paperboard grade used principally in European folding cartonboard applications.
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CUK BOARD PRODUCTION
The Company produces CUK Board at its West Monroe Mill and its Macon Mill.
These mills have a current total combined annual production capacity of over one
million tons of CUK Board. In February 1997, the Company completed a project to
modify the pulp mill at the Macon Mill at a cost of approximately $32 million.
The pulp mill was modified to permit separate processing of pine and hardwood
fibers and to increase pulp capacity, which will enable the Company to increase
CUK Board output on its Macon Mill machines while reducing dependence on OCC. In
June 1997, the Company completed the conversion of the second Macon Mill
linerboard machine to CUK Board production at an expected cost of approximately
$85 million, and commenced CUK Board production on the machine. The Company
expects that the machine will achieve its full, annual production capacity of
approximately 275,000 tons of CUK Board in 18 to 24 months. The Company's CUK
Board production at its West Monroe Mill was approximately 652,000 tons for the
year ended December 31, 1996. The Macon Mill produced approximately 218,000 tons
of CUK Board for the year ended December 31, 1996.
CUK Board is manufactured from pine and hardwood fibers and, in some cases,
recycled fibers, such as OCC and clippings from the Company's converting
operations. Virgin fiber is obtained in the form of wood chips or pulp wood
acquired through open market purchases. These chips are chemically treated to
form softwood and hardwood pulp, which are then blended (together, in some
cases, with recycled fibers). In the case of carrierboard, a chemical is added
to increase moisture resistance. The pulp is then processed through the mill's
paper machines, which consist of a paper-forming section, a press section (where
water is removed by pressing the wet paperboard between rolls), a drying section
and the coating section. Coating on CUK Board, principally a mixture of
pigments, binding agents and water, provides a white, smooth finish, and is
applied in multiple steps to achieve desired levels of brightness, smoothness
and shade. After the CUK Board is coated, it is wound into rolls, which are then
shipped to the Company's converting plants or to outside converters.
CONVERTING OPERATIONS
The Company converts CUK Board as well as other grades of paperboard into
cartons at 17 carton converting plants at 16 sites that it operates in the
United States, the United Kingdom, Spain, France and Australia, as well as
through converting plants associated with its joint ventures in Brazil, Japan
and Denmark and licensees in other markets outside the United States. The
converting plants print, cut and glue paperboard on multi-color printing
presses, cutting lines and gluing lines into cartons designed to meet customer
specifications.
The Company's U.S. converting plants are dedicated to converting
carrierboard produced by the Company into beverage cartons. In 1996, the Company
completed a program begun in 1994 to upgrade certain of its existing domestic
converting plants with new printing presses and related equipment, and opened a
new converting plant located in Perry, Georgia near the Macon Mill. As part of
its ongoing reorganization of operations, the Company closed its last folding
cartonboard converting plant in the U.S., located in Kankakee, Illinois in 1996
and closed a beverage multiple packaging converting plant in Bakersfield,
California in April 1997. The Company's international converting plants convert
carrierboard and folding cartonboard produced by the Company, as well as
paperboard supplied by outside producers, into cartons.
PROPRIETARY PACKAGING MACHINERY AND CARTON DESIGNS
The Company employs a "pull through" marketing strategy in its integrated
beverage business, the key elements of which are (i) the design and manufacture
of proprietary packaging machines, (ii) the installation of the machines at
beverage customer locations under multi-year machinery use arrangements and
(iii) the development of proprietary beverage cartons with high resolution
graphics for use on
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those machines. The Company leases substantially all of its packaging machines
to customers, typically under machinery use agreements with original terms of
three to six years.
The Company's packaging machines are designed to package PET and glass
bottles, cans and other primary containers, using beverage cartons designed by
the Company, made from the Company's CUK Board and converted into beverage
cartons by the Company, its joint venture partners or its licensees. In order to
meet customer requirements, the Company has developed an extensive portfolio of
packaging machines consisting of several principal machinery lines, including
over 60 different models of packaging machines. The Company's machines package
cans and PET or glass bottles in a number of formats including baskets, clips,
trays, wraps and fully enclosed cartons. These machines have packaging ranges
from two to 36 cans per package and have the ability to package cans at speeds
of up to 3,000 cans per minute. The Company also manufactures ancillary
equipment, such as machines for taping cartons and placing coupons in cartons.
The Company designs cartons and designs, tests and manufactures prototype
packaging machinery at its Product Development Center (the "PDC") in Marietta,
Georgia, which was established in 1992. At the PDC, the Company integrates
carton and packaging machinery designs to create packaging solutions to meet
customer needs. The Company manufactures and also designs packaging machinery at
its U.S. manufacturing facility in Crosby, Minnesota and at a facility near
Barcelona, Spain. As part of its ongoing reorganization of operations, the
Company closed its packaging machinery manufacturing facilities in Marietta,
Georgia and in Koln, Germany in April 1997 and in June 1997, respectively. By
manufacturing packaging machinery in one U.S. and one European location, the
Company expects to improve customer service, simplify its work processes and
reduce costs.
MARKETING AND DISTRIBUTION
The Company markets its CUK Board and CUK Board-based products principally
to multinational brewers, soft drink bottlers, food companies and other consumer
products companies that use printed packaging for retail display, multiple
packaging and shipment of their products. The Company also sells CUK Board in
the open market to carrierboard and cartonboard converters. The Company markets
CUK Board under the names Aqua-Kote-Registered Trademark- and
Krafbrite-Registered Trademark- (carrierboard) and
Pearl-Kote-Registered Trademark- and OmniKote-Registered Trademark- (folding
cartonboard).
CARRIERBOARD. In its carrierboard operations, the Company's major customers
for beverage cartons include Anheuser-Busch Companies, Inc., Miller Brewing
Company, numerous Coca-Cola bottling companies and PepsiCo, Inc. The Company
also sells carrierboard in the open market to independent converters, including
licensees of the Company's proprietary carton designs, for the manufacture of
beverage cartons. For the nine months ended December 31, 1996, Anheuser-Busch
Companies, Inc. accounted for 11% of the Company's net sales. No other customer
accounted for more than 10% of net sales for such period.
FOLDING CARTONBOARD. In its folding cartonboard operations, the Company
sells substantially all of its folding cartonboard to numerous independent
converters that convert the folding cartonboard into cartons for consumer
products. In many cases, the Company has a relationship with multinational end-
user consumer products companies, such as Sara Lee Corporation and Mattel, Inc.,
but sells its folding cartonboard to an independent converter that manufactures
folding cartons and, in turn, sells these cartons to the end-user. The Company
has established account relationships with a number of major independent
converters. These relationships involve multi-year commitments by the Company to
supply a significant portion of these customers' requirements for CUK Board. If
the customer decides to purchase CUK Board, it has agreed to purchase a
significant portion of its CUK Board requirements from the Company. The terms of
these arrangements include certain limitations on the Company's ability to raise
the selling prices of its folding cartonboard.
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DISTRIBUTION AND SALES. Distribution of carrierboard and folding
cartonboard is primarily accomplished through direct sales offices in the United
States, Australia, Brazil, Cyprus, Hong Kong, Italy, Japan, Mexico, Singapore,
Sweden and the United Kingdom. The establishment of these non-U.S. direct sales
offices has been part of the Company's strategy to develop further its
international operations.
JOINT VENTURES. The Company is a party to joint ventures with Rengo Company
Limited and Danapak Holding A/S to market machinery-based packaging systems in
Japan and Scandinavia, respectively. The joint ventures cover CUK Board supply,
use of proprietary carton designs and marketing and distribution of packaging
systems. As part of its ongoing initiative to rationalize its operations,
including its international converting assets, the Company is considering
additional joint venture opportunities and other similar arrangements. In
addition, a Brazilian joint venture produces and markets cartons for
machinery-based multiple packaging customers in Argentina, Brazil, Paraguay and
Uruguay, with carrierboard and packaging machines supplied by the Company.
RAW MATERIALS
Pine pulpwood, hardwood and recycled fibers are the principal raw materials
used in the manufacture of the Company's CUK Board products. With the October
1996 sale of the Company's timberlands in Louisiana and Arkansas, the Company
now relies on private land owners and the open market for its fiber
requirements. Under the terms of the sale of those timberlands, the Company and
the buyer, Plum Creek Timber Company, L.P., entered into a 20-year supply
agreement, with a 10-year renewal option, for the purchase by the Company, at
market-based prices, of a majority of the West Monroe Mill's requirements for
pine pulpwood and residual chips, as well as a portion of the Company's needs
for hardwood pulpwood at the West Monroe Mill. The Company purchases the
remainder of the wood fiber used in CUK Board production at the West Monroe Mill
from other private land owners in this region. The Company believes that
adequate supplies of open market timber currently are available to meet its
fiber needs at the West Monroe Mill.
The Macon Mill purchases most of its fiber requirements on the open market,
and is a significant consumer of recycled fiber, primarily in the form of
clippings from the Company's domestic converting plants as well as OCC and other
recycled fibers. The Company has not experienced any difficulties obtaining
sufficient OCC or other recycled fibers for its Macon Mill operations, which it
purchases in part from brokers located in the eastern United States. OCC
pricing, however, tends to be very volatile since it is based largely on the
demand for this fiber from recycled paper and containerboard mills. The Macon
Mill purchases all of its virgin pine and hardwood requirements from private
landowners in central and southern Georgia. Because of the adequate supply and
large concentration of private landowners in this area, the Company believes
that adequate supplies of pine and hardwood timber currently are available to
meet its fiber needs at the Macon Mill.
The Company purchases a variety of other raw materials for the manufacture
of its paperboard, primarily process chemicals and coating chemicals such as
kaolin and titanium dioxide. All such raw materials are readily available, and
the Company is not dependent upon any one source of such raw materials.
WLC PRODUCTION
The Company produces WLC at its Swedish Mill, which produced approximately
119,600 tons of WLC during 1996. WLC is used for a variety of folding carton
applications principally throughout Europe.
COMPETITION
There are only two major producers of CUK Board, the Company and Mead. The
Company faces significant competition in its CUK Board business segment from
Mead. Like the Company, Mead
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produces and converts CUK Board, designs and places packaging machinery with
customers and sells CUK Board in the open market.
In the beverage packaging industry, cartons made from CUK Board compete with
plastics and corrugated packaging for packaging glass or plastic bottles, cans
and other primary containers. Although plastics and corrugated packaging
generally provide lower cost and/or moderately faster packaging solutions, the
Company believes that cartons made from CUK Board offer advantages over these
materials, in areas such as distribution, high quality graphics, carton designs,
environmental friendliness and design flexibility.
In folding cartonboard markets, the Company's CUK Board competes principally
with Mead's CUK Board, CCN and SBS and, internationally, WLC and FBB. Folding
cartonboard grades compete based on price, strength and printability. CUK Board
has generally been priced in a range that is higher than CCN and lower than SBS.
CUK Board has slightly better tear strength characteristics than SBS and
significantly better tear strength and cross-direction stiffness than CCN. There
are a large number of producers of paperboard for folding cartonboard markets,
which are subject to significant competitive and other business pressures.
CONTAINERBOARD
In the United States, the Company manufactures containerboard -- linerboard,
corrugating medium and kraft paper -- which is sold in the open market.
Corrugating medium is combined with linerboard to make corrugated containers.
Kraft paper is used primarily to make grocery bags and sacks. With the
completion of the upgrade of the second Macon Mill linerboard machine, the
Company's principal paper machines have the capacity to produce both linerboard
and CUK Board. The Company has in the past used its CUK Board machines to
produce linerboard and expects to continue to produce and sell linerboard to
respond to changes in supply and demand in its businesses. The Company also
continues to operate paper machines dedicated to the production of corrugating
medium and kraft paper.
In 1996, the Company produced approximately 255,600 tons of linerboard from
the Macon Mill and approximately 119,100 tons of corrugating medium, 54,400 tons
of linerboard and 29,400 tons of kraft paper from its West Monroe Mill.
The primary customers for the Company's U.S. containerboard production are
independent and integrated corrugated converters. The Company sells corrugating
medium and linerboard through direct sales offices in the United States. Outside
of the United States, linerboard is primarily distributed through independent
sales representatives. Almost all of the kraft paper produced by the Company is
sold under a long-term supply contract at market prices, with an initial
renewable term expiring in July 1999, to Gaylord Container Corporation, an
integrated producer and converter of kraft paper.
The Company's Containerboard business segment operates within a highly
fragmented industry. Most products within this industry are viewed as
commodities; consequently, selling prices tend to be cyclical, being affected by
economic activity and industry capacity.
In addition to the Company's U.S. Containerboard operations, the Company
currently owns 50% of Igaras, an integrated containerboard producer located in
Brazil, which was acquired by Riverwood's predecessor companies in 1958. Igaras
was a wholly owned subsidiary of the Company prior to the Company's sale of
approximately 50% of its interest in Igaras on December 29, 1994 to Companhia
Suzano Papel e Celulose, S.A. ("Suzano") for $100 million. In connection with
the Merger, Suzano received an additional share of common stock of Igaras, and
as a result the Company and Suzano each own 50% of the common stock of Igaras.
The arrangements between the Company and Suzano were not otherwise affected.
Igaras is Brazil's second largest containerboard company and fourth largest
corrugated container converter. Igaras operates two mills and three corrugated
box plants and owns or
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leases approximately 176,000 acres of timberlands, which are used exclusively
for wood chip and energy requirements of the paper mills. In 1996 Igaras
completed the construction of a multiple packaging plant in Brazil. At its
mills, Igaras operates three paper machines primarily for the production of
linerboard, with a fourth paper machine for production of corrugating medium.
Igaras's total containerboard production in 1996 was approximately 480,800 tons.
Igaras sold approximately 40% of its 1996 linerboard production in export
markets. Igaras also sells linerboard, corrugating medium and corrugated boxes
through direct sales offices in Brazil. Outside of Brazil, Igaras distributes
linerboard primarily through independent sales representatives.
U.S. TIMBERLANDS/WOOD PRODUCTS
On October 18, 1996, the Company sold substantially all of the assets of its
U.S. Timberlands/Wood Products business segment for approximately $550 million
in cash. The operating results for the U.S. Timberlands/Wood Products business
segment have been classified as discontinued operations for the nine months
ended December 31, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
PATENTS AND TRADEMARKS
The Company has a large patent portfolio, presently owning, controlling or
holding rights to approximately 1,550 U.S. and foreign patents, with
approximately 2,900 patent applications currently pending. The Company's patents
fall into two principal categories: packaging machinery and structural carton
designs.
The Company is the plaintiff in an action against Mead with respect to the
Company's Twin-Stack-Registered Trademark-system. Mead has brought suit in
England and France against the Company with respect to a carrier handle patent.
The Company does not expect these lawsuits, either individually or in the
aggregate, to have a material adverse effect on the Company's business, results
of operations or financial condition.
EMPLOYEES AND LABOR RELATIONS
As of June 28, 1997, the Company had approximately 5,300 employees worldwide
(excluding employees of joint ventures), approximately 3,600 of whom were
members of unions and covered by collective bargaining agreements. The Company
has experienced a long history of good working relationships with its employees.
The Company's collective bargaining agreement covering employees at the Macon
Mill is scheduled to expire on January 1, 1998.
There are five unions representing the Company's U.S. employees, one of
which, the United Paperworkers International Union, is associated with the West
Monroe Mill and converting facility and the Macon Mill, where it represents
approximately 1,200 and 400 employees, respectively, through three local unions.
There has not been a work stoppage at the West Monroe Mill in the last ten
years, nor at the Macon Mill since its acquisition by the Company in 1992. The
current union contract covering the West Monroe Mill was renegotiated and
ratified by the union in February 1997 and covers the six-year period from March
1, 1997 to February 28, 2003. The contract covering employees at the adjacent
converting plants was renegotiated and ratified by the union in 1996 and covers
the four-year period from September 1, 1996 through August 31, 2000. The
Clinton, Mississippi converting facility contract was negotiated and ratified by
the union in January 1997 and covers the six-year period from February 1, 1997
through January 31, 2003. The Company's U.S. converting plants, other than its
converting facility in Perry, Georgia, are represented by unions.
The Company's international employees are represented by unions in the
United Kingdom, Sweden, France, Spain and Australia.
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ENVIRONMENTAL MATTERS
The Company is committed to compliance with all applicable environmental
laws and regulations throughout the world. Environmental law is, however,
dynamic rather than static. As a result, costs, which are unforeseeable at this
time, may be incurred when new laws are enacted, and when environmental agencies
promulgate or revise rules and regulations.
In late 1993, the EPA proposed regulations (generally referred to as the
"cluster rules") that would mandate more stringent controls on air and water
discharges from United States pulp and paper mills. In 1996, the EPA released
additional information regarding the proposed cluster rules. Based on this
information, the Company expects that the cluster rules may be finally
promulgated in 1997 and estimates the capital spending that may be required to
comply with the cluster rules could reach $55 million to be spent at its two
U.S. paper mills over an eight-year period beginning in 1997. The Company
anticipates that the majority of this spending for compliance with the cluster
rules will occur later in the eight-year period. The Company had no capital
spending during the first half of 1997 related to compliance with the cluster
rules.
In late 1995, the Louisiana DEQ notified the Company, that the Predecessor
may be liable for the remediation of hazardous substances at a wood treatment
site in Shreveport, Louisiana that the Predecessor or its predecessor previously
operated, and at a former oil refinery site in Caddo Parish, Louisiana that the
Company currently owns. Neither the Company nor the Predecessor ever operated
the oil refinery. In response to the DEQ, the Company has provided additional
information concerning these sites and has commenced its own evaluation of any
claims and remediation liabilities for which it may be responsible. The Company
received a letter from the DEQ dated May 20, 1996, requesting a plan for soil
and groundwater sampling of the wood treatment site. The Company first met with
the DEQ on July 18, 1996 and then submitted a soil sampling plan to the DEQ. The
Company expects approval of this sampling plan in the second half of 1997. On
September 6, 1996, the Company received from the DEQ a letter requesting
remediation of the former oil refinery site in Caddo Parish, Louisiana. The
Company met with the DEQ on February 17, 1997 to discuss these matters. The
Company anticipates entering into a cooperative agreement with the DEQ to
perform a phased-in evaluation of soil and groundwater conditions at the
Shreveport site. The Company is in discussions with the DEQ regarding the
participation of other responsible parties in any clean up of hazardous
substances at both of these sites.
The Company is engaged in environmental remediation projects at certain
properties currently owned or operated by the Company and certain properties
divested by the Company for which responsibility was retained for pre-existing
conditions. The Company's costs in some instances cannot be reliably estimated
until the remediation process is substantially underway. To address these
contingent environmental costs, the Company has accrued reserves when such costs
are probable and can be reasonably estimated. The Company believes that, based
on current information and regulatory requirements, the accruals established by
the Company for environmental expenditures are adequate. Based on current
knowledge, to the extent that additional costs may be incurred that exceed the
accrued reserves, such amounts are not expected to have a material impact on the
results of operations, cash flow, or financial condition of the Company,
although no assurance can be given that material costs will not be incurred in
connection with clean-up activities at these properties, including the
Shreveport and Caddo Parish sites referred to above.
PROPERTIES
HEADQUARTERS
Holding and RIC Holding are headquartered in Delaware. Riverwood is
headquartered and currently leases approximately 70,000 square feet of office
space in Atlanta, Georgia.
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MANUFACTURING FACILITIES
A listing of the major plants and properties owned, or leased, and operated
by the Company is set forth below. The Company's buildings are adequate and
suitable for the business of the Company. The Company also leases certain
facilities, warehouses and office space throughout the United States and in
foreign countries.
<TABLE>
<CAPTION>
APPROX. NO. OF PRINCIPAL PRODUCTS MANUFACTURED
TYPE OF FACILITY AND LOCATION(1) SQ. FEET OF FLOOR SPACE OR USE OF FACILITY
- --------------------------------------------------- ----------------------- -----------------------------------
<S> <C> <C>
PAPERBOARD MILLS:
West Monroe, LA.................................... 1,535,000 CUK Board; linerboard; corrugating
medium; kraft paper
Macon, GA.......................................... 756,000 CUK Board; linerboard
Norrkoping, Sweden................................. 417,000 White lined chip board
CONVERTING PLANTS:
West Monroe, LA (2 plants)......................... 621,000 Beverage carriers
Cincinnati, OH..................................... 241,800 Beverage carriers
Clinton, MS........................................ 210,000 Beverage carriers
Perry, GA(2)....................................... 130,000 Beverage carriers
Ft. Atkinson, WI................................... 120,000 Beverage carriers
Bristol, Avon, United Kingdom...................... 428,000 Beverage carriers; folding cartons
Smithfield, New South Wales, Australia............. 230,000 Beverage carriers; folding cartons
Reservoir, Victoria, Australia..................... 136,000 Beverage carriers; folding cartons
and litho laminate
Woodville, South Australia, Australia.............. 71,000 Beverage carriers; folding cartons
Dandenong, Victoria, Australia..................... 59,000 Beverage carriers; folding cartons
Marsden, Queensland, Australia..................... 56,000 Beverage carriers; folding cartons
Igualada, Barcelona, Spain......................... 131,000 Beverage carriers; folding cartons
Beauvois en Cambresis, France...................... 70,000 Folding cartons
Le Pont de Claix, France........................... 120,000 Folding cartons
St. Paul Trois Chateaux, France.................... 15,000 Folding cartons
Montdidier, France................................. 50,000 Folding cartons
</TABLE>
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<TABLE>
<CAPTION>
APPROX. NO. OF PRINCIPAL PRODUCTS MANUFACTURED
TYPE OF FACILITY AND LOCATION(1) SQ. FEET OF FLOOR SPACE OR USE OF FACILITY
- --------------------------------------------------- ----------------------- -----------------------------------
<S> <C> <C>
PACKAGING MACHINERY/OTHER:
Crosby, MN......................................... 188,000 Packaging machinery engineering
design and manufacturing
Marietta, GA....................................... 64,000 PDC--Research and development;
packaging machinery engineering
design and prototype machine
manufacturing; carton engineering
design
Igualada, Barcelona, Spain......................... 12,000 Packaging machinery engineering
design and manufacturing
</TABLE>
- ------------------------
(1) The facilities in Marietta, Georgia; Clinton, Mississippi (part only);
Dandenong, Victoria, Australia; Marsden, Queensland, Australia (underlying
land only); Reservoir, Victoria, Australia; Beauvois en Cambresis, France;
Le Pont De Claix, France; St. Paul Trois Chateaux, France; and Montdidier,
France, are leased. All other facilities listed are owned by the Company.
(2) The facility located in Perry, Georgia is leased from the Middle Georgia
Regional Development Authority in consideration of the issuance of
industrial development bonds by such entity.
LEGAL PROCEEDINGS
The Company is not currently involved in legal proceedings that, either
individually or in the aggregate, are expected by the Company to have a material
adverse effect on the Company's business, results of operations or financial
condition.
On December 6, 1995, Forrest Kelly Clay, a former shareholder of the
Predecessor, commenced a purported class action lawsuit in the United States
District Court for the Northern District of Georgia, against the Company and
certain officers of the Company (the "Individual Defendants," and together with
the Company, the "Defendants"). In his complaint, Clay alleges that the
Defendants violated the federal securities laws by disseminating misleading
statements and by omissions concerning the strategic alternatives that the
Predecessor was considering, including its potential sale to a third-party
investor. The complaint also alleged that the Individual Defendants, through
their exercise of stock appreciation rights ("SARs"), violated the federal
securities laws by trading in the Predecessor's securities while in possession
of material, non-public information. The complaint generally seeks damages in an
unspecified amount, as well as other relief. On June 2, 1997, the court granted
Defendants' Motion for Summary Judgment and dismissed the action in its
entirety. The court based its ruling on the fact that (i) none of the statements
attributable to the Company concerning its review of strategic alternatives was
false and (ii) there is no causal relationship between plaintiff's purchase of
Riverwood common stock and the Individual Defendants' exercise of SARs.
Plaintiff filed his Notice of Appeal to the United States Court of Appeals for
the Eleventh Circuit on June 5, 1997. The record was completed for purposes of
appeal on September 2, 1997 and briefing has been scheduled accordingly pursuant
to the Eleventh Circuit Rules.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the current directors of Holding, and of
the executive officers of Riverwood as of September 1, 1997, are set forth
below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ------------------------------------------------------------------------------
<S> <C> <C>
Stephen M. Humphrey........ 52 President and Chief Executive Officer; Director
Robert H. Burg............. 52 Senior Vice President, Human Resources
Thomas M. Gannon........... 48 Senior Vice President and Chief Financial Officer
Robert C. Hart............. 59 Senior Vice President, Paperboard Operations
Octavio Orta............... 53 Senior Vice President, Coated Board Sales and Packaging Operations
B. Charles Ames............ 72 Chairman and Director
G. Andrea Botta............ 44 Director
Kevin J. Conway............ 38 Director
Alberto Cribiore........... 51 Director
Leon J. Hendrix, Jr........ 55 Director
Hubbard C. Howe............ 68 Director
Samuel M. Mencoff.......... 40 Director
Joseph E. Parzick.......... 42 Director
Brian J. Richmand.......... 43 Director
Lawrence C. Tucker......... 54 Director
</TABLE>
Stephen M. Humphrey is the President and Chief Executive Officer of Holding,
RIC Holding and Riverwood. Mr. Humphrey joined Riverwood in March 1997. From
1994 through 1996, Mr. Humphrey was Chairman, President and Chief Executive
Officer of National Gypsum Company. From 1981 until 1994 Mr. Humphrey was
employed by Rockwell International Corporation where he held a number of key
executive positions.
Thomas M. Gannon assumed the position of Senior Vice President and Chief
Financial Officer in July 1997. From August 1995 to date, Mr. Gannon has served
as Corporate Vice President of Finance and Administration and Chief Financial
Officer of Libby-Owens-Ford. From April 1976 through August 1995, Mr. Gannon
served in various positions with Rockwell International Corporation.
Robert H. Burg is Senior Vice President, Human Resources of Riverwood. Mr.
Burg joined Riverwood in January 1993. From 1981 until he joined Riverwood, Mr.
Burg was employed by Colgate-Palmolive Company, most recently as Vice President
of Global Compensation and Development.
Robert C. Hart is Senior Vice President, Paperboard Operations of Riverwood.
Mr. Hart joined Riverwood in 1967 in a position at the West Monroe Mill and has
been in his current position as Senior Vice President since 1992.
Octavio Orta is Senior Vice President, Coated Board Sales & Packaging
Operations of Riverwood. Mr. Orta joined Riverwood in 1990 as Vice President,
International Division.
B. Charles Ames is Chairman of the Board of Holding, RIC Holding and
Riverwood. Since 1989, Mr. Ames has been a principal of CD&R. Mr. Ames is Vice
President and a director of CD&R Investment Associates, Inc., a Delaware
corporation and a general partner of the general partner of CD&R Fund V
("Associates, Inc."), and is a limited partner of Associates V. Mr. Ames also
serves on the board of directors of several publicly-held companies, including
The Progressive Corporation, M.A. Hanna Company and Warner-Lambert Company.
69
<PAGE>
G. Andrea Botta has been President of EXOR America Inc. (formerly IFINT-USA
Inc.) ("EXOR America") since 1993 and for more than five years prior thereto,
Vice President of Acquisitions of IFINT-USA Inc. EXOR Group S.A., the parent
company of EXOR America, is the international investment holding company of the
Agnelli Group. Mr. Botta is a director of Lear Corporation, Western Industries
Inc., Rockefeller Center Properties and Constitution Reinsurance Corporation.
Kevin J. Conway is a principal of CD&R and a limited partner of Associates
V. Prior to joining CD&R in 1994, Mr. Conway was a Vice President at Goldman,
Sachs & Co., an investment banking firm.
Alberto Cribiore is the Managing Principal of Brera Capital Partners, LLC, a
private equity investment firm. Mr. Cribiore also serves as a director of WESCO
Distribution, Inc. and its parent CDW Holding Corporation, and as Chairman and a
director of MCM Group, Inc. and its wholly-owned subsidiary, McCarthy, Crisanti
& Maffei, Inc. Mr. Cribiore was a principal of CD&R from 1985 to March 1997 and
a President of CD&R from 1995 to March 1997.
Leon J. Hendrix, Jr. is a principal of CD&R and a limited partner of
Associates V. Prior to joining CD&R in 1993, Mr. Hendrix was employed by
Reliance Electric Company (since 1973) and most recently served as its Chief
Operating Officer and director. Mr. Hendrix also serves as a director of
Keithley Instruments, Inc., National City Bank of Cleveland, WESCO Distribution,
Inc. and its parent CDW Holding Corporation, Remington Arms Company, Inc. and
its parent RACI Holding, Inc., NACCO Industries, Inc. and Cambrex Corporation.
Mr. Hendrix is a member of the Board of Trustees of Clemson University.
Hubbard C. Howe is a principal of and has been a professional employee of
CD&R since 1991. Mr. Howe is Vice President and a director of Associates, Inc.,
and a limited partner of Associates V. Mr. Howe also serves as Chief Executive
Officer, Chairman and a director of APS Holding Corporation and its wholly-owned
subsidiary A.P.S., Inc., Chairman, Chief Executive Officer and a director of
Remington Arms Company, Inc. and its parent RACI Holding, Inc., and Vice
Chairman and a director of Nu-kote International, Inc. and its parent Nu-Kote
Holding, Inc.
Samuel M. Mencoff has been employed principally as a Vice President of
Madison Dearborn Partners, Inc., the general partner of Madison Dearborn
Partners, L.P., the general partner of Madison Dearborn Capital Partners, L.P.,
since 1993. From 1987 until 1993, Mr. Mencoff served as Vice President of First
Chicago Venture Capital. Mr. Mencoff is a member of the operating committees of
the general partners of Huntway Partners, L.P. and Golden Oak Mining Company,
L.P., respectively, and a member of the board of directors of Buckeye Cellulose
Corporation and Bay State Paper Holding Company.
Joseph E. Parzick has been a professional employee of EXOR America since
1996. Prior to joining EXOR America, Mr. Parzick was a Managing Director of
Lehman Brothers Inc., an investment banking firm.
Brian J. Richmand has been employed principally as a General Partner of
Chase Capital Partners, formerly known as Chemical Venture Partners, the general
partner of Chase Equity Associates, L.P., since 1993. Prior to joining Chase
Capital Partners, Mr. Richmand was a partner at the law firm of Kirkland &
Ellis. Mr. Richmand is also currently a director of Physical Electronics, Inc.,
Western Pork Production Co., Inc., OCI Holdings, Inc, and Qualitech Steel
Corporation.
Lawrence C. Tucker has been a General Partner of Brown Brothers Harriman &
Co., a private banking firm, since 1979. Mr. Tucker also serves as a director of
WorldCom, Inc. and WellCare Management Group, Inc. Brown Brothers Harriman & Co.
is the general partner of The 1818 Fund, L.P., The 1818 Fund II, L.P. (the "1818
Fund"), and The 1818 Mezzanine Fund, L.P.
ELECTION AND COMPENSATION OF DIRECTORS
All directors are elected annually and hold office until their successors
are elected and qualified, or until their earlier removal or resignation. The
Stockholders Agreement entered into among Holding and
70
<PAGE>
each of CD&R Fund V, FIMA, the 1818 Fund, HWH Investment Pte Ltd, Chase Equity
Associates, L.P., formerly known as Chemical Equity Associates ("Chase"), First
Plaza Group Trust, Madison Dearborn Capital Partners, L.P. and Wolfensohn-River
LLC (collectively, the "Equity Investors"), provides that CD&R Fund V is
entitled to nominate five persons, FIMA is entitled to nominate two persons, the
1818 Fund is entitled to nominate one person and Madison Dearborn Capital
Partners, L.P. is entitled to nominate one person to serve on the Boards of each
of Holding, RIC Holding and Riverwood. There is also an understanding between
Chase and CD&R Fund V with respect to the nomination of CD&R Fund V's fifth
nominee to such Boards. CD&R Fund V exercised its intention to nominate a
designee of Chase (the "Chase Designee") as its nominee to such Boards; however,
Chase does not have a legally enforceable right to such directorship. The
Chairman of each of the Boards is selected from one of the CD&R Fund V nominees
(other than the Chase Designee). Each of the Boards of Holding, RIC Holding and
Riverwood has an Executive Committee, a Compensation and Benefits Committee and
an Audit Committee. The Executive Committee consists of the Chief Executive
Officer, two of the CD&R Fund V-nominated directors (other than the Chase
Designee), one of the FIMA-nominated directors and the director nominated by the
1818 Fund. The Compensation and Benefits Committee consists of two of the CD&R
Fund V-nominated directors (other than the Chase Designee), one of the
FIMA-nominated directors and two directors nominated by the Equity Investors
other than CD&R Fund V and FIMA (but including the Chase Designee) (the "Other
Investors"). The Audit Committee consists of one of the CD&R Fund V-nominated
directors (other than the Chase Designee), one of the FIMA-nominated directors,
two of the Other Investor-nominated directors and one independent director. The
Executive Committee's current members are Messrs. Ames, Botta, Conway, Humphrey,
and Tucker. The members of the Compensation and Benefits Committee are currently
Messrs. Hendrix, Ames, Botta, Cribiore and Richmand; and the Audit Committee
consists of Messrs. Tucker, Conway, Mencoff and Parzick.
Non-employee directors who are not employed by or affiliated with CD&R
receive compensation for their services on the Boards of $30,000 per year plus
$2,500 per board meeting attended. Currently, four of the Company's directors
are employees of CD&R, to which the Company pays fees for advisory and
management consulting services.
COMPENSATION SUMMARY
The following table summarizes the compensation paid for services rendered
during the fiscal year indicated below by the Company or, in the case of
services rendered prior to the Merger, the Predecessor Company, to the current
and former Chief Executive Officers and the four most highly compensated other
executive officers (the "Named Executive Officers").
71
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES UNDERLYING LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(5) (7) (8)
OTHER ANNUAL (6) STOCK ALL OTHER
NAME YEAR SALARY $ BONUS $ COMPENSATION SARS OPTIONS COMPENSATION
- -------------------------------------- --------- --------- --------- ------------- --------- --------- --------------
B. Charles Ames(1).................... -- -- -- -- -- --
Chairman
James O. Egan(2)...................... 1996 181,364 270,000(4) 9,939 0 0 0
Sr. Vice President and
Chief Financial Officer
Octavio Orta.......................... 1996 272,083 0 2 0 30,000 4,500
Sr. Vice President, Coated 1995 226,250 98,000 0 0 0 5,575
Board Sales and 1994 210,000 100,000 1,994 195,000 0 7,970
Packaging Operations
Robert C. Hart........................ 1996 259,583 0 0 0 15,000 4,500
Sr. Vice President, 1995 226,250 91,045 5,363 0 0 5,575
Paperboard Operations 1994 210,000 115,000 27,461 195,000 0 7,970
Robert H. Burg........................ 1996 215,000 0 0 0 9,000 4,500
Sr. Vice President, Human 1995 185,000 59,532 0 0 0 5,575
Resources 1994 175,000 94,029 22,789 140,000 0 7,970
Thomas H. Johnson..................... 1996 483,333 0 0 0 90,000 2,797,543(9)
former President and Chief 1995 400,000 100,000 0 0 0 5,575
Executive Officer(3) 1994 340,000 200,000 0 675,000 0 7,970
</TABLE>
- ------------------------
(1) Mr. Ames assumed the positions of Chairman and chief executive officer of
the Company on October 8, 1996. On March 31, 1997, Mr. Ames resigned as
chief executive officer and Mr. Humphrey assumed the position of Chief
Executive Officer and President. Mr. Ames continues to serve as the
Chairman. Mr. Ames is a principal and professional employee of CD&R and
received no compensation directly from the Company for his services as
Chairman and chief executive officer. The Company pays CD&R an annual fee
for management and financial consulting services (see "Certain Relationships
and Related Transactions" below), which include Mr. Ames's services as
Chairman and chief executive officer.
(2) Mr. Egan resigned as of July 28, 1997 from his position as Senior Vice
President and Chief Financial Officer.
(3) Mr. Johnson served as President and Chief Executive Officer until November
11, 1996, when he assumed the position of Vice-Chairman of the Company. See
"Employment Agreements" below. Mr. Johnson resigned as of June 30, 1997 from
his position as Vice-Chairman.
(4) Upon the commencement of his employment with the Company on May 8, 1996, the
Company paid Mr. Egan a commencement incentive of $150,000 and a guaranteed
minimum bonus to Mr. Egan for 1996 of $120,000.
(5) Amounts consist of tax reimbursement payments to the Named Executive
Officers in respect of certain taxable perquisites provided to them.
(6) Stock appreciation rights ("SARs") with respect to the common stock of the
Predecessor Company were granted during 1994 to the Named Executive Officers
indicated in the Summary Compensation Table. None of the SARs are currently
outstanding; all of the SARs were exercised prior to or cashed-out in
connection with the Merger.
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<PAGE>
(7) In June 1996, certain Named Executive Officers received options to purchase
shares of Holding Common Stock as indicated in the Summary Compensation
Table.
(8) Amounts consist of Company contributions on behalf of the Named Executive
Officers to the Company's tax-qualified savings plan, except as described
below in footnote 8 below.
(9) Includes $2,793,043 paid to Mr. Johnson on November 11, 1996 in connection
with the change in his status with the Company. See "-- Employment
Agreements."
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE PRICE GRANT DATE
UNDERLYING OPTIONS EMPLOYEES IN FISCAL PER SHARE PERCENT VALUE
NAME GRANTED (#) YEAR ($/SHARE) EXPIRATION DATE ($)(3)
- ------------------ --------------------- --------------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
B.C. Ames......... -- -- -- -- --
J. Egan........... -- -- -- -- --
O. Orta........... 20,000(1) 10.1% $ 100 June 3, 2006 $ 447,200
10,000(2) $ 223,600
R. Hart........... 10,000(1) 5.1% $ 100 June 3, 2006 $ 223,600
5,000(2) $ 111,800
R. Burg........... 6,000(1) 3.0% $ 100 June 3, 2006 $ 134,160
3,000(2) $ 67,080
T. Johnson........ 60,000(4) 30.3% $ 100 June 30, 1998 $ 1,341,600
30,000(5) $ 670,800
</TABLE>
- ------------------------
(1) The Options will become vested in five equal annual installments on each of
the first five anniversaries of June 4, 1996 (the "Date of Grant"), subject
in each case to the Named Executive Officer's continued employment.
(2) The Options become vested nine years and six months following the Date of
Grant, or as of any earlier date as of which the Company achieves its five
year EBITDA target.
(3) The dollar amounts set forth under this heading are based on an economic
option pricing model commonly used to value option grants on the basis of
certain assumptions. An economic option pricing model will produce different
results depending on the assumptions made, and the values shown above are
merely good faith estimates of the present value of the option grants.
Because one of the assumptions in the model is the future volatility in the
value of the Common Stock, the actual present value of such option grants
cannot be determined.
(4) The terms governing, among other things, the vesting of Mr. Johnson's
options were modified in connection with the change in Mr. Johnson's status
with the Company as follows and as described in footnote 5 below: 20% of Mr.
Johnson's options covering 60,000 shares (the "Service Options") (i.e.,
Service Options covering 12,000 Shares) became vested on June 3, 1997. An
additional 20% of such Service Options would have become vested on December
31, 1997 if Mr. Johnson continued to serve as Vice-Chairman of the Company
through such date pursuant to the Services Agreement (as defined herein)
(see "Employment Agreements" below). However, Mr. Johnson resigned as of
June 30, 1997 from such position and, effective on such date, Mr. Johnson's
unvested Service Options were cancelled. Pursuant to the Services Agreement,
Mr. Johnson may exercise the Service Options with respect to 12,000 Shares
held by Mr. Johnson as of June 30, 1997 on or prior to June 30, 1998 and, if
not exercised, such options will expire on June 30, 1998.
(5) With respect to Mr. Johnson's options covering 30,000 Shares (the
"Performance Options"), upon the termination of Mr. Johnson's services
pursuant to the Services Agreement on June 30, 1997, a
73
<PAGE>
proportionate share of the Performance Options may become vested as of such
date, based upon the portion, if any, of the EBITDA target achieved as of
such date. Pursuant to the Services Agreement, any Performance Options that
become vested may be exercised by Mr. Johnson on or prior to June 30, 1998
and, if not exercised, will expire on June 30, 1998. Performance Options
that do not become vested as described herein will be cancelled in
connection with Mr. Johnson's resignation.
PENSION PLAN
All U.S. salaried employees and hourly employees at non-union locations who
satisfy the service eligibility criteria are participants in the Riverwood
International Employees Retirement Plan (the "Retirement Plan"). Pension
benefits under the Retirement Plan are limited in accordance with the provisions
of the Code, governing tax qualified pension plans. The Company has adopted a
Supplemental Pension Plan (the "Supplemental Plan" and, together with the
Retirement Plan, the "Pension Plans") that provides for payment to participants
of retirement benefits equal to the excess of the benefits that would have been
earned by each such participant had the limitations of the Code not applied to
the Retirement Plan and the amount actually earned by such participant under the
Retirement Plan. Each of the Named Executive Officers (other than Mr. Egan who
had not satisfied the plan's service criteria at the time of his resignation,
and Mr. Ames, who is not eligible to participate under the plan terms) is
eligible to participate in the Pension Plans. Benefits under the Supplemental
Plan are not pre-funded; such benefits are paid by the Company when due. The
Pension Plan Table below sets forth the estimated annual benefits payable upon
retirement at or after age 65, including amounts attributable to the
Supplemental Plan, for specified remuneration levels and years of service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
REMUNERATION 15 20 25 30 35
- ----------------------------------------------- --------- --------- --------- --------- ---------
$125,000....................................... $ 24,773 $ 33,030 $ 41,288 $ 49,545 $ 57,803
150,000........................................ 30,023 40,030 50,038 60,045 70,053
175,000........................................ 35,273 47,030 58,788 70,545 82,303
200,000........................................ 40,523 54,030 67,538 81,045 94,553
225,000........................................ 45,773 61,030 76,288 91,545 106,803
250,000........................................ 51,023 68,030 85,038 102,045 119,053
300,000........................................ 61,523 82,030 102,538 123,045 143,553
400,000........................................ 82,523 110,030 137,538 165,045 192,553
450,000........................................ 93,023 124,030 165,038 186,045 217,053
500,000........................................ 103,523 138,030 172,538 207,045 241,553
600,000........................................ 124,523 166,030 207,538 249,045 290,553
</TABLE>
- ------------------------
(A) Had the Named Executive Officers who participate in the Pension Plan,
retired as of December 31, 1996, their respective five-year average
salaries, plus bonus, for purposes of the table set forth above, would have
been as follows: Mr. Johnson, $532,867; Mr. Hart, $313,208; Mr. Orta,
$309,143; and Mr. Burg, $241,640.
(B) On December 31, 1996, the Named Executive Officers participating in the
Pension Plans had the following years of credited service under such plans:
Mr. Hart -- 30, Mr. Johnson -- 7, Mr. Orta -- 7, and Mr. Burg -- 4.
(C) Salary as defined in the Pension Plans includes payments under the annual
incentive compensation plan but excludes payments under any equity incentive
plan of the Company or the Predecessor Company.
74
<PAGE>
EMPLOYMENT AGREEMENTS
Each of Messrs. Orta, Hart and Burg is currently a party to an employment
agreement with the Company providing for an employment term commencing in 1996
and extending for five years for Mr. Octavio Orta and three years for each other
such Named Executive Officer. The agreements provide for payment of the base
salaries, bonuses and other benefits set forth in the Summary Compensation
Table. The agreements further provide that, in the event of a termination of any
such Named Executive Officer's employment by the Company without "cause" (as
defined in the employment agreements) or by such Named Executive Officer for
"good reason" (as so defined), such Named Executive Officer is entitled to
continued salary and welfare benefits generally for a period equal to the
longest of one year, the balance of the employment term or one month for each
year of service, and a pro rata incentive bonus for the year of termination. The
agreements also contain certain noncompetition and nonsolicitation provisions
and provide for the termination of previously existing employment agreements.
Mr. Egan was a party to a similar employment agreement with the Company until he
resigned from his position as Senior Vice President and Chief Financial Officer
in July 1997. It is anticipated that Mr. Gannon will enter into a similar
employment agreement with the Company, effective as of July 14, 1997.
On November 11, 1996, Holding, RIC Holding and Riverwood entered into a
services agreement with Mr. Johnson (the "Services Agreement"), providing, among
other things, for a change in Mr. Johnson's status from President and Chief
Executive Officer to Vice-Chairman of each of Holding, RIC Holding and
Riverwood. Mr. Johnson resigned as of June 30, 1997 from his position as Vice-
Chairman.
Under the Services Agreement, on November 11, 1996, Riverwood made a
lump-sum payment to Mr. Johnson equal to $2,793,043.24 and, on January 15, 1998,
Riverwood will make an additional lump-sum payment to Mr. Johnson of $22,958.13.
In addition, on July 15, 1997, Mr. Johnson received an additional lump-sum
payment of $10,330.18, with respect to Mr. Johnson's participation in
Riverwood's supplemental executive retirement plan for the period November 11,
1996 through June 30, 1997.
The Services Agreement further provides that, during the period of his
services pursuant to such agreement, Mr. Johnson will receive fees for his
services at an annual rate of $500,000, will be eligible for payments of
incentive compensation of up to $1,000,000 if Riverwood meets certain set
revenue targets during 1997 and will continue to participate in all pension,
welfare and fringe benefit programs, other than Riverwood's long-term disability
benefit program, of Riverwood in which he was participating immediately prior to
November 11, 1996.
On March 31, 1997 (the "Commencement Date"), Riverwood entered into an
employment agreement (the "Humphrey Agreement") with Mr. Humphrey having a term
of five years. The provisions of the Humphrey Agreement are substantially
similar to those contained in the employment agreements for the Named Executive
Officers described above, except as follows. The Humphrey Agreement provides
that Mr. Humphrey will receive an annual base salary of $500,000 and a minimum
bonus of $250,000 for 1997. The Humphrey Agreement also provides for the grant
of options to purchase up to 225,000 shares of Class A Common Stock, at exercise
prices ranging from $50 per share to $100 per share (the price per share of
Holding Common Stock in connection with the Merger). 50% of such options will
generally become vested solely on the basis of Mr. Humphrey's continued
employment and all or a portion of the remaining 50% of such options will
generally become vested depending upon whether the Company achieves certain
performance objectives during specified periods of Mr. Humphrey's employment. In
the event of a termination of Mr. Humphrey's employment by the Company without
cause or by Mr. Humphrey for good reason, Mr. Humphrey will receive continued
payments of his base salary and continued benefits for the remainder of the
employment term or, if shorter, for three years.
Riverwood and Holding expect to enter into an Employment Agreement,
effective as of July 14, 1997 (the "Gannon Agreement"), with Thomas M. Gannon.
The provisions of the Gannon Agreement are expected to be substantially similar
to those contained in the Humphrey Agreement described
75
<PAGE>
above, except as follows. The Gannon Agreement is expected to have an initial
term of three years and provide an annual base salary of $265,000 and a minimum
bonus of $100,000 for 1997. Following 1997, Mr. Gannon's incentive compensation
amount will be contingent on whether he elects to make a "meaningful" investment
in Holding (generally defined as 50% or more of the maximum equity participation
offered him). The Gannon Agreement is expected to provide that if Mr. Gannon
makes a meaningful investment, his annual target award opportunity will remain
at 100% of his annual base salary. If, however, Mr. Gannon elects to make less
than a meaningful investment in Holding, his annual target award opportunity
will decrease to 60% of his annual base salary at that time. The Gannon
Agreement is expected to further provide Mr. Gannon with the opportunity to
purchase up to 5,000 shares of Holding Common Stock at a purchase price to be
determined by the Board of Directors of Holding. Upon the purchase of such
shares, Mr. Gannon will be granted a maximum of 15,000 options to purchase
additional shares of Holding Common Stock at an exercise price to be determined
by Holding's Board of Directors. Two-thirds of these options will generally
become vested solely on the basis of Mr. Gannon's continued employment and the
remaining one-third will generally become vested depending on whether the
Company achieves certain performance objectives.
COMPENSATION COMMITTEE INTERLOCKS
During fiscal year 1996, Messrs. Hendrix, Ames, Botta, Cribiore and Richmand
served on the Compensation and Benefits Committee of the Holding Board. Messr.
Hendrix, one of the two CD&R Fund V-nominated directors, is an employee of CD&R.
CD&R received a fee from RIC Holding of $12 million in connection with the
Merger and arranging the financing thereof. CD&R receives an annual fee of
$500,000 for advisory, management, consulting and monitoring services from
Riverwood. Holding, RIC Holding and Riverwood have also agreed to indemnify the
members of the Boards employed by CD&R and CD&R against liabilities incurred
under securities laws with respect to their services for Holding, RIC Holding
and Riverwood.
Messrs. Hendrix and Cribiore are the CD&R Fund V-nominated directors on the
Compensation and Benefits Committees of Holding, RIC Holding and Riverwood.
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<PAGE>
OWNERSHIP OF CAPITAL STOCK
Holding owns all of the outstanding common stock of RIC Holding. RIC Holding
owns all of the outstanding common stock of Riverwood. As of July 31, 1997, the
Holding Common Stock was beneficially owned as follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS
- ------------------------------------------------------------------------ ------------------- -------------------
<S> <C> <C>
Clayton, Dubilier & Rice Fund V Limited Partnership (1)................. 2,250,000 29.6%
1403 Foulk Road
Suite 106
Wilmington, Delaware 19803
FIMA Finance Management Inc. (2)........................................ 2,250,000 29.6
Citco Building, Wickhams Cay
P.O. Box 662
Roadtown, Tortola
British Virgin Islands
The 1818 Fund II, L.P. (3).............................................. 750,000 9.9
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 10005
HWH Investment Pte Ltd.................................................. 700,000 9.0
250 North Bridge Road
Singapore 179101
Republic of Singapore
Chase Equity Associates, L.P. (4)....................................... 500,000 6.6
380 Madison Avenue
New York, NY 10017
First Plaza Group Trust................................................. 500,000 6.6
Mellon Bank, N.A., as Trustee
c/o General Motors Investment Management Corporation
767 Fifth Avenue
New York, NY 10153
Madison Dearborn Capital Partners, L.P. (5)............................. 500,000 6.6
Three First National Plaza
Chicago, IL 60602
Wolfensohn-River LLC.................................................... 50,000 0.7
599 Lexington Avenue
New York, NY 10022
------------------- -------------------
Total Equity Investors.................................................. 7,500,000 98.6
Total Management Investors (6).......................................... 105,900 1.4
------------------- -------------------
Total Equity Investors and Management Investors......................... 7,605,900 100.0%
------------------- -------------------
------------------- -------------------
</TABLE>
- ------------------------
(1) Messrs. Ames, Barbe, Conway, Gogel, Hendrix, Howe, Pearson and Rice may be
deemed to share beneficial ownership of the shares owned of record by CD&R
Fund V by virtue of their status as
77
<PAGE>
stockholders of Associates, Inc., the managing general partner of Associates
V, the general partner of CD&R Fund V, but each expressly disclaims such
beneficial ownership of the shares owned by CD&R Fund V. The stockholders of
Associates, Inc. share investment and voting power with respect to
securities owned by CD&R Fund V. The business address for each of them is
1403 Foulk Road, Suite 106, Wilmington, Delaware 19803.
(2) Reflects transfer on January 6, 1997 of shares formerly held by EXOR Group
S.A. to its affiliate, FIMA, a wholly-owned subsidiary.
(3) Mr. Tucker may be deemed to share beneficial ownership of the shares owned
of record by The 1818 Fund II, L.P. by virtue of his affiliation with such
organization. Mr. Tucker expressly disclaims any such beneficial ownership.
(4) Chase Equity Associates, L.P., formerly known as Chemical Equity Associates,
purchased shares of Class B Holding Common Stock, which does not have voting
rights. Mr. Richmand may be deemed to share beneficial ownership of the
shares owned of record by Chase Equity Associates, L.P. by virtue of his
affiliation with such organization. Mr. Richmand expressly disclaims any
such beneficial ownership.
(5) Mr. Mencoff may be deemed to share beneficial ownership of the shares owned
of record by Madison Dearborn Capital L.P. by virtue of his affiliation with
such organization. Mr. Mencoff expressly disclaims any such beneficial
ownership.
(6) As of July 31, 1997, a total of 6,000 shares of management investor stock
have been repurchased as a result of involuntary termination of employment.
No directors own shares of Holding Common Stock. As of June 28, 1997, the
Named Executive Officers owned an aggregate of 48,000 shares of Holding
Common Stock, including 30,000 shares owned by Mr. Johnson.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CD&R Fund V, which is one of Holding's largest stockholders, is a private
investment fund managed by CD&R. Amounts contributed to CD&R Fund V by its
limited partners are invested at the discretion of the general partner in equity
or equity-related securities of entities formed to effect leveraged acquisition
transactions and in the equity of corporations where the infusion of capital,
coupled with the provision of managerial assistance by CD&R, can be expected to
generate returns on investments comparable to returns historically achieved in
leveraged buyout transactions. The general partner of CD&R Fund V is Associates
V, and the general partners of Associates V are Associates, Inc. and CD&R Cayman
Investment Associates, Inc., a Cayman Islands exempted company. Mr. Ames, who is
a principal of CD&R and Vice President and a director of Associates, Inc. and a
limited partner of Associates V, is Chairman of Holding, RIC Holding and
Riverwood. Mr. Conway, who is a principal of CD&R and a limited partner of
Associates V, is a director of Holding, RIC Holding and Riverwood. Mr. Hendrix,
who is principal of CD&R and a limited partner of Associates V, is a director of
Holding, RIC Holding and Riverwood. Mr. Howe, who is a principal of CD&R, a
limited partner of Associates V, and Vice President and a director of
Associates, Inc., is a director of Holding, RIC Holding and Riverwood. See
"Management--Directors and Executive Officers." CD&R Fund V purchased $225
million of equity of Holding in connection with the Merger.
CD&R is a private investment firm which is organized as a Delaware
corporation. CD&R is the manager of a series of investment funds, including CD&R
Fund V. CD&R generally assists in structuring, arranging financing for and
negotiating the transactions in which the funds it manages invest. After the
consummation of such transactions, CD&R generally provides management and
financial advisory and consulting services to the companies in which its
investment funds have invested during the period of such fund's investment. Such
services include helping the company to establish effective banking, legal and
other business relationships and assisting management in developing and
implementing strategies for improving the operational, marketing and financial
performance of the Company.
CD&R received an initial annual fee of $500,000 for providing such
management and financial consulting services to the Company and reimbursement of
out-of-pocket expenses. Pursuant to a consulting agreement, dated as of March
27, 1996, so long as CD&R Fund V has an investment in the Company, CD&R will
continue to receive an annual fee of $500,000 (and reimbursement of
out-of-pocket expenses) for providing management and financial consulting
services to the Company. The Note Indentures allow the payment to CD&R of annual
fees for management and financial consulting services of up to $1 million,
although there is no current intention to increase the amount of the annual fee
to be received by CD&R.
CD&R, CD&R Fund V, Holding, Riverwood and RIC Holding entered into an
indemnification agreement dated as of March 27, 1996, pursuant to which Holding,
RIC Holding and Riverwood have agreed to indemnify CD&R, CD&R Fund V, Associates
V, Associates, Inc. (together with any other general partner of Associates V)
and their respective directors, officers, partners, employees, agents, advisors,
representatives and controlling persons against certain liabilities arising
under the federal securities laws, liabilities arising out of the performance of
the consulting agreement and certain other claims and liabilities.
MANAGEMENT
Following the consummation of the Merger, Holding adopted the Equity
Incentive Plan providing for the issuance of up to 695,000 shares of Holding
Common Stock pursuant to the sale of shares of Holding Common Stock and the
grant of options with respect to Holding Common Stock under the plan.
On June 4, 1996, certain members of management and key employees of the
Company purchased shares of Holding Common Stock, at a purchase price of $100.00
per share, pursuant to the Equity Incentive Plan. Under certain circumstances,
such stockholders can require the Company to purchase
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their shares of Holding Common Stock. See Note 11 to the audited consolidated
financial statements of the Company included elsewhere in this Prospectus. Such
management stock purchases included purchases of 30,000, 10,000, 5,000, 3,000
and 5,000 shares of Holding by Messrs. Johnson, Orta, Hart, Burg and by all
other executive officers of the Company as a group, respectively. The Company
guaranteed certain loans for $400,000, $600,000, $150,000 and $165,000 extended
to Messrs. Johnson, Orta, Burg and to all other executive officers as a group,
respectively. Mr. Johnson resigned from his position as Vice-Chairman as of June
30, 1997, and will have the right to require the Company to repurchase his
shares of Holding Common Stock. Upon his resignation as Senior Vice President,
Forest Resources and Corporate Development, Mr. McCauley will have the right to
require the Company to repurchase his shares of Holding Common Stock.
DESCRIPTION OF SENIOR SECURED CREDIT FACILITIES
A syndicate of lenders, led by The Chase Manhattan Bank as Administrative
Agent, has made available to Riverwood and certain of its subsidiaries (the
"Subsidiary Borrowers"), subject to certain terms and conditions, the Senior
Secured Credit Facilities, consisting of outstanding term loans under the Term
Loan Facility, and committed availability of $400.0 million under the Revolving
Facility, which is available on a revolving credit basis for general corporate
purposes of Riverwood and its subsidiaries. Prior to the Offering, $750.0
million in term loans and $50.0 million of the Tranche D Loan was outstanding
under the Senior Secured Credit Agreement. Upon the consummation of the Offering
and the application of the proceeds therefrom, (i) $645.0 million was
outstanding under the Term Loan Facility described below, (ii) no amount was
outstanding under the Tranche D Loan, which was prepaid in full and (iii) on a
pro forma basis as if the closing of the Offering occurred on June 28, 1997,
approximately $69 million would have been outstanding under the Revolving
Facility. The following summary of certain provisions of the Senior Secured
Credit Facilities is a description of such provisions.
STRUCTURE. The Senior Secured Credit Facilities consist of (a) a term loan
facility (the "Term Loan Facility"), in an aggregate outstanding principal
amount of $645.0 million as of July 31, 1997, consisting of three tranches in
principal amounts of $245.0 million, $285.2 million and $114.8 million (the
"Tranche A Term Loans," "Tranche B Term Loans" and "Tranche C Term Loans,"
respectively), and (b) a revolving credit facility providing for revolving loans
to Riverwood and the Subsidiary Borrowers and the issuance of letters of credit
for the account of Riverwood and the Subsidiary Borrowers in an aggregate
principal amount (including the aggregate stated amount of letters of credit and
the aggregate reimbursement and other obligations in respect thereof) at any
time not to exceed $400.0 million (the "Revolving Facility"). The proceeds of
the Tranche D Loan, in the principal amount of $50.0 million, were applied to
prepay outstanding borrowings under the Revolving Facility. The Tranche D Loan
was prepaid in full with the proceeds of the Offering.
AVAILABILITY. The availability of the Revolving Facility is subject to
various conditions precedent typical of bank loans. A portion of the Revolving
Facility is available as a multicurrency facility, and letters of credit may be
issued.
The Tranche A Term Loans mature in February 2003. The Revolving Facility
matures in March 2003. The Tranche B Term Loans mature in February 2004 and the
Tranche C Term Loans mature in August 2004. Amortization of the Term Loan
Facility is in semi-annual payments commencing in August 1997. After giving
effect to the Offering, scheduled semi-annual payments on the Tranche A Term
Loans will total approximately $89.0 million in 2001, $104.0 million in 2002 and
$52.0 million in 2003. Scheduled semi-annual payments on the Tranche B Term
Loans will total approximately $704,000 in 1997, $2.1 million in 1998, $2.8
million in 1999, $2.8 million in 2000, $30.0 million in 2001, $57.0 million in
2002, $109.1 million in 2003 and $80.7 million in 2004. Scheduled semi-annual
payments on the Tranche C Term Loans will total approximately $285,000 in 1997,
$858,000 in 1998, $1.1 million in 1999, $1.1 million in 2000, $1.2 million in
2001, $12.0 million in 2002, $23.0 million in 2003 and $75.3 million in 2004. In
addition, the Senior Secured Credit Facilities are subject to mandatory
prepayment and reductions
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(generally to be applied first to the Term Loan Facility) in an amount equal to,
subject to certain exceptions, (a) 50% of the net proceeds of certain offerings
of equity securities by Holding, (b) 100% of the net proceeds of (i) certain
debt offerings by Holding, Riverwood or any of their subsidiaries and (ii)
certain asset sales, leases or other dispositions, (c) 75% of Riverwood's excess
operating cash flow unless certain financial performance tests are met, in which
case the percentage is reduced from 75% to 50%, and (d) when amended in
connection with the Offering, $155.0 million of the net proceeds of the
Offering, which proceeds will be applied first to refinance the Tranche D Loan,
and then to refinance the Tranche A Term Loans (applied to the installments
thereof in order of maturity). In the event of any receivables securitization,
the Revolving Facility will be permanently reduced, by an amount equal to the
proceeds of such securitization.
SECURITY; GUARANTY. The obligations of Riverwood under the Senior Secured
Credit Facilities are unconditionally and irrevocably guaranteed by Holding, RIC
Holding and certain domestic subsidiaries of Riverwood (other than certain
subsidiaries created to implement any future receivables securitization). In
addition, the Senior Secured Credit Facilities and the guarantees thereunder are
secured by security interests in and pledges of or liens on substantially all
the material tangible and intangible assets of the Company and the guarantors,
including pledges of all the capital stock of, or other equity interests in,
each direct or indirect domestic subsidiary of Riverwood and, subject to limited
exceptions, 65% of the capital stock of, or other equity interests in, each
directly owned foreign subsidiary of Riverwood.
INTEREST. At Riverwood's election, the interest rates per annum applicable
to the loans under the Senior Secured Credit Facilities are fluctuating rates of
interest measured by reference to either (a) an adjusted London inter-bank
offered rate ("LIBOR") plus a borrowing margin or (b) an alternate base rate
("ABR") (equal to the highest of The Chase Manhattan Bank's published prime
rate, a certificate of deposit rate plus 1% and the Federal Funds effective rate
plus 1/2 of 1%) plus a borrowing margin. The borrowing margins applicable to
Tranche A Term Loans and loans under the Revolving Facility are 1.50% for ABR
loans and 2.50% for LIBOR loans. These margins are subject to reduction if
certain financial performance thresholds are met. The interest rate borrowing
margins applicable to the Tranche B Term Loans and the Tranche C Term Loans are
2.00% and 2.50%, respectively, for ABR loans and 3.00% and 3.50%, respectively,
for LIBOR loans and are not be subject to reduction. Amounts under the Senior
Secured Credit Facilities not paid when due bear interest at a default rate
equal to 2.00% above the rate otherwise applicable to the Tranche C Term Loans.
FEES. Riverwood pays certain fees with respect to the Senior Secured Credit
Facilities, including (i) fees on the unused commitments of the lenders equal to
1/2 of 1% on the undrawn portion of the commitments in respect of the
facilities; (ii) letter of credit fees on the aggregate face amount of
outstanding letters of credit equal to the then applicable borrowing margin for
LIBOR-based revolving credit borrowings plus a 1/4 of 1% per annum fronting bank
fee for the letter of credit issuing bank; (iii) annual administration fees; and
(iv) agent, arrangement and other similar fees. Riverwood expects to pay certain
amendment and other fees in connection with the amendments of the Senior Secured
Credit Facilities that are expected to be effected in connection with the
closing of the Offering. See
"-- Covenants."
COVENANTS. The Senior Secured Credit Facilities contain a number of
covenants that, among other things, restrict the ability of Holding, RIC
Holding, Riverwood and its subsidiaries to dispose of assets, incur additional
indebtedness, incur guarantee obligations, prepay other indebtedness or amend
other debt instruments, pay dividends, create liens on assets, make investments,
loans or advances, make acquisitions, create subsidiaries, engage in mergers or
consolidations, change the business conducted by Riverwood, make capital
expenditures, or engage in certain transactions with affiliates and otherwise
restrict certain corporate activities. In addition, under the Senior Secured
Credit Facilities Riverwood is required to comply with specified financial
ratios and minimum tests, including minimum interest coverage ratios and minimum
EBITDA tests. In connection with the Offering, certain financial and other
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covenants in the Company's Credit Agreements were amended to reflect the
Company's recent financial results and market and operating conditions, as well
as the refinancing of the Tranche A Term Loans and the Tranche D Loan and the
prepayment of the Revolving Facility borrowings. Covenant modifications under
the Credit Agreements included the elimination of the minimum consolidated net
worth requirement, reductions of minimum interest coverage ratio and EBITDA
requirements and reductions in permitted capital expenditures.
The amended covenants permit capital expenditures (subject to certain
carryover allowances and other adjustments) of no more than $175.0 million,
$140.0 million, $140.0 million and $135.0 million for 1997 through 2000,
respectively, and $130.0 million per year thereafter. The amended covenants also
specify, among other changes, the following minimum EBITDA and interest coverage
ratio requirements for each four quarter period ending during the following test
periods:
<TABLE>
<CAPTION>
PERIOD EBITDA COVERAGE RATIO
- ------------------------------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
December 31, 1996--December 30, 1997........................................... $ 130.0 million 0.80 to 1.00
December 31, 1997--December 30, 1998........................................... $ 140.0 million 0.85 to 1.00
December 31, 1998--December 30, 1999........................................... $ 200.0 million 1.00 to 1.00
December 31, 1999--December 30, 2000........................................... $ 265.0 million 1.25 to 1.00
December 31, 2000--December 30, 2001........................................... $ 325.0 million 1.50 to 1.00
December 31, 2001--December 30, 2002........................................... $ 350.0 million 1.75 to 1.00
December 31, 2002--December 30, 2003........................................... $ 375.0 million 2.00 to 1.00
Thereafter..................................................................... $ 400.0 million 2.25 to 1.00
</TABLE>
The Senior Secured Credit Facilities also contain provisions that prohibit
any amendment or modification of the Note Indentures adverse to the lenders
under the Senior Secured Credit Facilities and that limit Riverwood's ability to
prepay or refinance the Notes without the consent of such lenders.
EVENTS OF DEFAULT. The Senior Secured Credit Facilities contain customary
events of default including non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations or warranties in any
material respect, cross default and cross acceleration to certain other
indebtedness, bankruptcy, material judgments and liabilities and change of
control.
The description of the Senior Secured Credit Facilities set forth above does
not purport to be complete and is qualified in its entirety by reference to the
Senior Secured Credit Agreement setting forth the principal terms and conditions
of the Senior Secured Credit Facilities.
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DESCRIPTION OF MACHINERY FACILITY
The Chase Manhattan Bank and certain other lenders (collectively, the
"Machinery Lenders") have made available to RIMI, a wholly owned subsidiary of
Riverwood, up to $140.0 million through a secured revolving credit facility (the
"Machinery Facility") expiring March, 2001 for the purpose of financing or
refinancing packaging machinery. For a description of the Company's proprietary
packaging machinery, see "Business -- Coated Board -- Proprietary Packaging
Machinery and Carton Design."
Loans under the Machinery Facility bear interest at the rates applicable to
the Revolving Credit Facility described above under "Description of Senior
Secured Credit Facilities" and will mature in March 2001. Advances under the
Machinery Facility cannot exceed a formula applied against a borrowing base
consisting of the packaging machinery owned by RIMI. The advance rate formula
will permit advances against machinery purchased by RIMI in which the Machinery
Lenders receive a perfected security interest equal to 94% of the original
purchase price paid by RIMI to the Company for such machinery during the first
year after purchase, decreasing to 81% in the second year, 68% in the third
year, 55% in the fourth year and 42% in the fifth year. The advance rate formula
for machinery in which the Machinery Lenders do not have a perfected security
interest is reduced to approximately 65% of those amounts (which machinery
cannot contribute more than 50% of the total borrowing base). Packaging
machinery purchased by RIMI prior to March 27, 1996 are included in the
borrowing base subject to a different advance rate formula. RIMI is required
periodically to compute its borrowing capacity by applying the advance rate
formula to its borrowing base. If then outstanding loans under the Machinery
Facility exceed that capacity, RIMI is required to repay the excess amount of
any such outstanding loans. RIMI is also obligated to pay a commitment fee of
0.50% per annum on the unused portion of the Machinery Facility.
The Machinery Lenders have a perfected security interest in substantially
all of the machinery in the borrowing base which is located in the United
States. In addition, all of the assets and guarantees which secure the Senior
Secured Credit Facilities secure all of RIMI's obligations under the Machinery
Facility and all of the borrowing base assets which secure the Machinery
Facility also secure the loans made under the Senior Secured Credit Facilities.
The covenants and defaults contained in the Machinery Facility are substantially
the same as the covenants and defaults contained in the Senior Secured Credit
Facilities.
As of June 28, 1997, $35.0 million was outstanding under the Machinery
Facility and undrawn Machinery Facility availability as of that date was
approximately $21 million.
The description of the Machinery Facility set forth above does not purport
to be complete and is qualified in its entirety by reference to the Machinery
Credit Agreement for the Machinery Facility setting forth the principal terms
and conditions of the Machinery Facility.
DESCRIPTION OF 1996 NOTES
The 1996 Senior Notes mature in 2006 and the Senior Subordinated Notes
mature in 2008. The 1996 Senior Notes and the Senior Subordinated Notes bear
interest at rates of 10 1/4% and 10 7/8%, respectively. Except as described
below, Riverwood may not redeem the 1996 Notes prior to 2001. On or after such
date, Riverwood may redeem the 1996 Notes, in whole or in part, at certain
redemption prices, together with accrued and unpaid interest, if any, to the
date of redemption. In addition, at any time and from time to time on or prior
to 1999, Riverwood may, subject to certain requirements, redeem up to 40% of the
original aggregate principal amount of the 1996 Senior Notes and the Senior
Subordinated Notes with the net cash proceeds of one or more public equity
offerings at prices equal to stated percentages of the principal amount of the
Senior Notes and the Senior Subordinated Notes, as the case may be, to be
redeemed, together with accrued and unpaid interest, if any, to the date of
redemption, provided that at least 60% of the original aggregate principal
amount of each of the 1996 Notes remains outstanding after each such redemption.
The 1996 Notes are not be subject to any sinking fund obligations.
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Upon the occurrence of a Change of Control, (i) prior to April 1, 2001,
Riverwood may redeem the 1996 Notes, in whole or in part, at a redemption price
equal to 100% of the principal amount thereof plus an applicable premium,
together with accrued and unpaid interest, if any, to the date of redemption and
(ii) if Riverwood does not so redeem the 1996 Notes, it may be required to make
an offer to repurchase the 1996 Notes at a price equal to 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of repurchase, PROVIDED, HOWEVER, that the holders of 1996 Senior Notes will
have the opportunity to have their 1996 Notes repurchased prior to holders of
Senior Subordinated Notes. The Senior Secured Credit Facilities, however,
prohibit the purchase of the 1996 Notes by Riverwood in the event of a Change of
Control, unless and until such time as the indebtedness under the Senior Secured
Credit Facilities is paid in full.
The 1996 Senior Notes are fully and unconditionally guaranteed on an
unsecured, senior basis, and the Senior Subordinated Notes are fully and
unconditionally guaranteed on an unsecured, senior subordinated basis, by
Holding and RIC Holding.
The 1996 Senior Notes are unsecured and rank PARI PASSU in right of payment
with all existing and future Senior Indebtedness of Riverwood and rank senior to
all existing and future Senior Subordinated Indebtedness of Riverwood and all
other subordinated indebtedness of Riverwood. The Senior Subordinated Notes are
subordinated to all existing and future Senior Indebtedness of Riverwood. The
Senior Subordinated Notes are unsecured and rank PARI PASSU with any future
Senior Subordinated Indebtedness of Riverwood and rank senior to all other
subordinated indebtedness of Riverwood. The 1996 Notes are effectively
subordinated to all existing and future secured indebtedness of Riverwood and
its subsidiaries to the extent of the value of the assets securing such
indebtedness.
The 1996 Indentures contain restrictive covenants that, among other things,
limit (i) the incurrence of additional indebtedness by Riverwood and its
subsidiaries, (ii) the redemption of capital stock of Riverwood, the payment of
dividends on capital stock of Riverwood and the redemption of certain
subordinated obligations of Riverwood, (iii) other restricted payments, (iv)
sales of assets and subsidiary stock, (v) transactions with affiliates and (vi)
consolidations, mergers and transfers of all or substantially all Riverwood
assets. The 1996 Indentures also prohibit certain restrictions on distributions
from subsidiaries. The indenture under which the 1996 Senior Notes were issued
also limits (i) the existence of certain liens and (ii) certain sale and
leaseback transactions, while the indenture under which the Senior Subordinated
Notes were issued also limits the incurrence of Senior Subordinated Indebtedness
and Secured Indebtedness. All of these limitations and prohibitions are subject
to a number of important qualifications and exceptions.
The covenants, events of default, ranking, redemption and guarantee
provisions, and definitions contained in the indenture governing the 1996 Senior
Notes are substantially similar to those that will be contained in the Indenture
governing the Notes.
The description of the 1996 Notes and 1996 Indentures set forth above does
not purport to be complete and is qualified in its entirety by reference to the
1996 Indentures setting forth the principal terms and conditions of the 1996
Notes.
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THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
Exhibit to the Registration Statement of which this Prospectus forms a part.
TERMS OF THE EXCHANGE OFFER
GENERAL. In connection with the issuance of the Existing Notes pursuant to
a Purchase Agreement, dated as of July 25, 1997, among Riverwood and the Initial
Purchasers, the Initial Purchasers and their respective assignees became
entitled to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, Riverwood has agreed (i) to file
with the Commission within 45 days after July 28, 1997, the date the Existing
Notes were issued (the "Issue Date"), the Registration Statement of which this
Prospectus is a part with respect to a registered offer to exchange the Existing
Notes for the New Notes, (ii) to use its reasonable best efforts to cause the
Registration Statement to become effective under the Securities Act no later
than 105 days after the Issue Date and (iii) to use its reasonable best efforts
to consummate the Exchange Offer no later than 135 calendar days after the Issue
Date. Riverwood will keep the Registration Statement effective for not less than
30 days after the date notice of the Exchange Offer is mailed to holders of the
Existing Notes. The Exchange Offer being made hereby, if commenced and
consummated within the time periods described in this paragraph, will satisfy
those requirements under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, all Existing Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will be
accepted for exchange. New Notes will be issued in exchange for an equal
principal amount of outstanding Existing Notes accepted in the Exchange Offer.
Existing Notes may be tendered only in integral multiples of $1,000. This
Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders as of October 2, 1997. The Exchange Offer is not conditioned
upon any minimum principal amount of Existing Notes being tendered for exchange.
However, the obligation to accept Existing Notes for exchange pursuant to the
Exchange Offer is subject to certain conditions as set forth herein under "--
Conditions."
Existing Notes shall be deemed to have been accepted as validly tendered
when, as and if Riverwood has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Existing Notes for the purposes of receiving the New Notes and delivering New
Notes to such holders.
Based on interpretations by the Staff of the Commission as set forth in
no-action letters issued to third parties (including EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988), MORGAN STANLEY & CO. INCORPORATED
(available June 5, 1991), K-III COMMUNICATIONS CORPORATION (available July 2,
1993) and SHEARMAN & STERLING (available July 2, 1993)), Riverwood believes that
the New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is a broker-dealer or an "affiliate" of Riverwood within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that (i) such
New Notes are acquired in the ordinary course of business, (ii) at the time of
the commencement of the Exchange Offer such holder has no arrangement with any
person to participate in a distribution of such New Notes and (iii) such holder
is not engaged in, and does not intend to engage in and does not have an
understanding or arrangement with any person to engage in a distribution of such
New Notes. Riverwood has not sought, and does not intend to seek, a no-action
letter from the Commission with respect to the effects of the Exchange Offer,
and there can be no assurance that the Staff would make a similar determination
with respect to the New Notes as it has in such no-action letters.
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By tendering Existing Notes in exchange for New Notes or executing the
Letter of Transmittal, each holder will represent to Riverwood that: (i) it is
not an affiliate of Riverwood, (ii) any New Notes to be received by it will be
acquired in the ordinary course of business and (iii) at the time of the
commencement of the Exchange Offer it had no arrangement or understanding with
any person to participate in a distribution of the New Notes and, if such holder
is not a broker-dealer, it is not engaged in, and does not intend to engage in,
a distribution of New Notes. If a holder of Existing Notes is unable to make the
foregoing representations, such holder may not rely on the applicable
interpretations of the Staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction unless such sale is made
pursuant to an exemption from such requirements.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes where such Existing Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a prospectus meeting the requirements of the Securities Act and
that it has not entered into any arrangement or understanding with Riverwood or
any affiliate of Riverwood to distribute New Notes in connection with any resale
of such New Notes. See "Plan of Distribution."
Upon consummation of the Exchange Offer, subject to certain limited
exceptions, holders of Existing Notes who do not exchange their Existing Notes
for New Notes in the Exchange Offer will no longer be entitled to registration
rights and will not be able to offer or sell their Existing Notes, unless such
Existing Notes are subsequently registered under the Securities Act (which,
subject to certain limited exceptions, Riverwood will have no obligation to do),
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION. The term "Expiration
Date" shall mean November 3, 1997 (not less than 30 calendar days following the
commencement of the Exchange Offer), unless Riverwood, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date to which the Exchange Offer is extended. Notwithstanding any
extension of the Exchange Offer, if the Exchange Offer is not consummated by
December 10, 1997, Riverwood must pay liquidated damages to each holder of
Existing Notes in an amount equal to $0.096 per week per $1,000 principal amount
of Existing Notes held by such holder until the Exchange Offer is consummated.
See "Registration Rights."
To extend the Expiration Date, Riverwood will notify the Exchange Agent of
any extension by oral or written notice and will notify the holders of the
Existing Notes by means of a press release or other public announcement prior to
9:00 A.M., New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that Riverwood is
extending the Exchange Offer for a specified period of time.
Riverwood reserves the right (i) to delay acceptance of any Existing Notes,
to extend the Exchange Offer or to terminate the Exchange Offer and not permit
acceptance of Existing Notes not previously accepted if any of the conditions
set forth herein under "-- Conditions" shall have occurred and shall not have
been waived by Riverwood, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend the terms of
the Exchange Offer in any manner deemed by it to be advantageous to the holders
of the Existing Notes. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the Exchange Agent. If the Exchange Offer is amended in a manner
determined by Riverwood to constitute a material change, Riverwood will promptly
disclose such amendment in a manner reasonably calculated to inform the holders
of the Existing Notes of such amendment.
Without limiting the manner in which Riverwood may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, Riverwood shall have no obligations
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to publish, advertise, or otherwise communicate any such public announcement,
other than by making a timely release to an appropriate news agency.
INTEREST ON THE NEW NOTES
The New Notes will accrue interest at the rate of 10 5/8% per annum from the
Issue Date of the Existing Notes or the most recent date to which interest has
been paid thereon. Interest on the New Notes is payable on February 1 and August
1 of each year, commencing February 1, 1998.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Existing Notes into
the Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date or
(ii) the holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OTHER REQUIRED DOCUMENTS
SHOULD BE SENT TO THE COMPANY. Delivery of all documents must be made to the
Exchange Agent at its address set forth below. Holders may also request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender for such holders.
The tender by a holder of Existing Notes will constitute an agreement
between such holder and Riverwood in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal. Any beneficial
owner whose Existing Notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender should
contact such registered holder promptly and instruct such registered holder to
tender on his behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the
Existing Notes tendered pursuant thereto are tendered for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such person should so indicate
when signing, and unless waived by Riverwood, evidence satisfactory to Riverwood
of their authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal or acceptability of the tendered Existing Notes will be
determined by Riverwood in its sole discretion, which determination will be
final and binding. Riverwood reserves the absolute right to reject any and all
Existing Notes not properly tendered or any Existing Notes which, if accepted,
would, in the opinion of counsel for Riverwood, be unlawful. Riverwood also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Existing Notes. Riverwood's 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 Existing
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Notes must be cured within such time as Riverwood shall determine. Neither
Riverwood, the Exchange Agent nor any other person shall be under any duty to
give notification of defects or irregularities with respect to tenders of
Existing Notes, nor shall any of them incur any liability for failure to give
such notification. Tenders of Existing Notes will not be deemed to have been
made until such irregularities have been cured or waived. Any Existing Notes
received by the Exchange Agent that is not properly tendered and as to which the
defects or irregularities have not been cured or waived will be returned without
cost to such holder by the Exchange Agent, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration Date.
In addition, Riverwood reserves the right in its sole discretion, subject to
the provisions of the Indenture, (i) to purchase or make offers for any Existing
Notes that remain outstanding subsequent to the Expiration Date or, as set forth
under "-- Conditions", (ii) to terminate the Exchange Offer in accordance with
the terms of the Registration Rights Agreement, (iii) to redeem Existing Notes
as a whole or in part at any time and from time to time, as set forth under
"Description of Notes -- Optional Redemption" and (iv) to the extent permitted
by applicable law, to purchase Existing Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Existing Notes properly tendered will be accepted promptly after the
Expiration Date, and the New Notes will be issued promptly after acceptance of
the Existing Notes. See "-- Conditions." For purposes of the Exchange Offer,
Existing Notes shall be deemed to have been accepted as validly tendered for
exchange when, as and if Riverwood has given oral or written notice thereof to
the Exchange Agent.
In all cases, issuance of New Notes for Existing Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of a Book-Entry Confirmation of such Existing Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents. If any tendered Existing Notes are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer, such unaccepted or such
nonexchanged Existing Notes will be credited to an account maintained with such
Book-Entry Transfer Facility as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Existing Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Existing Notes by causing the
Book-Entry Transfer Facility to transfer such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, the Letter of
Transmittal or facsimile thereof with any required signature guarantees and any
other required documents must, in any case, be transmitted to and received by
the Exchange Agent at one of the addresses set forth below under "-- Exchange
Agent" on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
EXCHANGING BOOK-ENTRY NOTES
The Exchange Agent and the Book Entry Transfer Facility have confirmed that
any financial institution that is a participant in the Book Entry Transfer
Facility may utilize the Book-Entry Transfer Facility Automated Tender Offer
Program ("ATOP") procedures to tender Existing Notes.
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Any participant in the Book Entry Transfer Facility may make book-entry
delivery of Existing Notes by causing the Book Entry Transfer Facility to
transfer such Existing Notes into the Exchange Agent's account in accordance
with the Book Entry Transfer Facility's ATOP procedures for transfer. However,
the exchange for the Existing Notes so tendered will only be made after a
Book-Entry Confirmation of such book-entry transfer of Existing Notes into the
Exchange Agent's account, and timely receipt by the Exchange Agent of an Agent's
Message (as such term is defined in the next sentence) and any other documents
required by the Letter of Transmittal. The term "Agent's Message" means a
message, transmitted by the Book Entry Transfer Facility and received by the
Exchange Agent and forming part of a Book-Entry Confirmation, which states that
the Book Entry Transfer Facility has received an express acknowledgment from a
participant tendering Existing Notes that 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 Riverwood may enforce such
agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if (i) the tender is made through an Eligible
Institution, (ii) prior to the Expiration Date, the qExchange Agent receives
from such Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and the Notice of Guaranteed Delivery,
substantially in the form provided by Riverwood (the "Notice of Guaranteed
Delivery") (by facsimile transmission, mail or hand delivery), setting forth the
name and address of the holder of Existing Notes and the amount of Existing
Notes tendered, stating that the tender is being made thereby and guaranteeing
that within three New York Stock Exchange ("NYSE") trading days after the date
of execution of the Notice of Guaranteed Delivery, a Book-Entry Confirmation and
any other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent, and (iii) a Book-Entry
Confirmation and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within three NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time on the
Expiration Date at one of the addresses set forth below under "-- Exchange
Agent." Any such notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility from which the Existing Notes was
tendered, identify the principal amount of the Existing Notes to be withdrawn,
and specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Existing Notes and otherwise comply
with the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notice will be determined by the
Company, whose determination shall be final and binding on all parties. Any
Existing Notes so withdrawn will be deemed not be have been validly tendered for
exchange for purposes of the Exchange Offer. Any Existing Notes which have been
tendered for exchange but which are not exchanged for any reason will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Existing Notes as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Existing Notes may be
retendered by following one of the procedures described under "-- Procedures for
Tendering" and "-- Book-Entry Transfer" above at any time on or prior to the
Expiration Date.
CONDITIONS
The Company has no obligation to consummate the Exchange Offer if the New
Notes to be received by a holder of Existing Notes in the Exchange Offer, upon
receipt, will not be tradable by such holder
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without restriction under the Securities Act and the Exchange Act and without
material restrictions under the "blue sky" or securities laws of the several
states of the United States. The Exchange Offer is also subject to the condition
that it not violate applicable law or any applicable interpretation of the
Commission or its Staff. All conditions to the Exchange Offer (with the
exception of certain necessary governmental approvals) must be satisfied or
waived prior to the Expiration Date.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed to State Street Bank and Trust Company,
as follows:
<TABLE>
<S> <C> <C>
BY MAIL: BY HAND IN NEW YORK TO 4:30
P.M.
(AS DROP AGENT):
P.O. Box 778 Telephone: 61 Broadway
Boston, Massachusetts 02102 617 664-5587 15th Floor
Attention:Corporate Trust Department Corporate Trust Window
Kellie Mullen New York, NY 10006
BY OVERNIGHT COURIER: Facsimile: BY HAND IN BOSTON TO 4:30 P.M.:
Two International Place 617 664-5232 Two International Place
Boston, Massachusetts 02110 Fourth Floor
Attention:Corporate Trust Department Corporation Trust
Kellie Mullen Boston, Massachusetts 02110
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by Riverwood. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of Riverwood.
Riverwood will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. Riverwood, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. Riverwood may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of the Prospectus and related documents to the beneficial
owners of the Existing Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by Riverwood, including fees and expenses of the Exchange Agent and Trustee
and accounting, legal, printing and related fees and expenses.
Riverwood will pay all transfer taxes, if any, applicable to the exchange of
Existing Notes pursuant to the Exchange Offer. If, however, New Notes or
Existing Notes for principal amounts not tendered or accepted for exchange are
to be registered or issued in the name of any person other than the registered
holder of the Existing Notes tendered, or if tendered Existing Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Existing 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
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submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Existing Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws.
Riverwood does not currently anticipate that it will register the Existing Notes
under the Securities Act. To the extent that Existing Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Existing Notes could be adversely affected.
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, if (i) because any change in
law or applicable interpretations of the staff of the Commission does not permit
Riverwood to effect the Exchange Offer as contemplated thereby or (ii) any of
the Existing Notes validly tendered pursuant to the Exchange Offer are not
exchanged for New Notes within 135 days after the Issue Date or (iii) any
Initial Purchaser so requests with respect to Existing Notes purchased on the
Issue Date not eligible to be exchanged for New Notes in the Exchange Offer and
held by such Initial Purchaser following the consummation of the Exchange Offer
or (iv) any holder either (A) is not eligible to participate in the Exchange
Offer or (B) participates in the Exchange Offer and does not receive freely
transferable New Notes in exchange for tendered Existing Notes or (v) Riverwood
so elects, Riverwood will file with the Commission a shelf registration
statement (the "Shelf Registration Statement") relating to the offer and sale of
Transfer Restricted Notes (as defined herein) by such holders who satisfy
certain conditions relating to, among other things, the provision of information
in connection with the Shelf Registration Statement. Riverwood will use its
reasonable best efforts to have the Exchange Offer and, if applicable, a Shelf
Registration Statement declared effective by the Commission as promptly as
practicable after the filing thereof. For purposes of the foregoing, "Transfer
Restricted Notes" means each Existing Note until (i) the date on which such
Existing Note has been exchanged for a freely transferable New Note in the
Exchange Offer; (ii) the date on which such Existing Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iii) the date on which such Existing Note is
distributed to the public pursuant to Rule 144 under the Securities Act or is
saleable pursuant to Rule 144(k) under the Securities Act.
Unless the Exchange Offer would not be permitted by a policy of the
Commission, Riverwood will commence the Exchange Offer and will use its
reasonable best efforts to consummate the Exchange Offer as promptly as
practicable, but in any event prior to 135 days after the Issue Date. If
applicable, the Company will use its reasonable best efforts to keep the Shelf
Registration Statement effective for a period ending on the earlier of (i) two
years after the Issue Date or such shorter period that will terminate when all
the Existing Notes covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement or (ii) the date on which the
Existing Notes are eligible for resale without volume restrictions pursuant to
Rule 144 under the Securities Act. If (i) the Exchange Offer Registration
Statement is not filed with the Commission on or prior to 45 days after the
Issue Date, (ii) the Exchange Offer Registration Statement is not declared
effective within 105 days after the Issue Date or the Shelf Registration
Statement, if required to be filed under the terms of the Registration Rights
Agreement, is not filed within 135 days after the Issue Date (or in the case of
a Shelf Registration Statement required to be filed in response to a change in
law or the applicable interpretations of the Commission's staff, if later,
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within 30 days after publication of the change in law or interpretation), (iii)
the Exchange Offer is not consummated on or prior to 135 days after the Issue
Date, or (iv) the Shelf Registration Statement is filed and declared effective
within 135 days after the Issue Date (or in the case of a Shelf Registration
Statement required to be filed in response to a change in law or the applicable
interpretations of the Commission's staff, if later, within 30 days after
publication of the change in law or interpretation) but shall thereafter cease
to be effective (at any time that Riverwood is obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), Riverwood will be
obligated to pay liquidated damages to each holder of Transfer Restricted
Securities, during the period of one or more Registration Default, in an amount
equal to $0.096 per week per $1,000 principal amount of the Transfer Restricted
Securities held by such holder until the applicable Registration Statement is
filed or declared effective, the Exchange Offer is consummated or the Shelf
Registration Statement again becomes effective, as the case may be, provided
that, except in certain limited circumstances, Riverwood's obligation to pay
liquidated damages will terminate upon consummation of the Exchange Offer. All
accrued liquidated damages shall be paid to holders in the same manner as
interest payments on the Notes on semi-annual payment dates which correspond to
interest payment dates for the Notes. Following the cure of all Registration
Defaults, the accrual of liquidated damages will cease. Notwithstanding the
foregoing, the Company shall not be required to pay liquidated damages to a
holder of Transfer Restricted Notes if such holder failed to comply with its
obligations to make representations set forth in the next paragraph or failed to
provide certain information required to be provided by it.
Each holder of Existing Notes who wishes to exchange such Existing Notes for
New Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any New Notes to be received
by it will be acquired in the ordinary course of its business; (ii) it has no
arrangements or understandings with any person to participate in the
distribution of the Existing Notes or the New Notes and (iii) it is not an
"affiliate," as defined in Rule 405 under the Securities Act of Riverwood or if
it is such an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
New Notes. If the holder is a broker-dealer that will receive New 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 New Notes.
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DESCRIPTION OF NOTES
GENERAL
The Existing Notes (as defined on the cover page of this Prospectus) were
issued, and the New Notes offered hereby will be issued, under an Indenture,
dated as of July 28, 1997 (the "Indenture"), among Riverwood International
Corporation, as issuer (the "Company"), RIC Holding, Inc. and Riverwood Holding,
Inc., as Note Guarantors, and State Street Bank and Trust Company as Trustee
(the "Trustee").
The following summary of certain provisions of the Indenture and the Notes
is a description thereof after giving effect to the Offering and the application
of the proceeds therefrom, and summarizes the material terms thereof but does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part thereof by the TIA. The
Indenture is filed as an Exhibit to the Registration Statement of which this
Prospectus forms a part. The definitions of certain terms used in the following
summary are set forth below under "-- Certain Definitions" below. In particular,
the term "Existing Notes" as used in the following summary is used as so
defined, and does not refer to the Notes for which New Notes will be exchanged,
except as otherwise specifically noted.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee, at State Street Bank and Trust
Company, 61 Broadway, Concourse Level, Corporate Trust Window, New York, NY
10006, except that, at the option of the Company, payment of interest may be
made by check mailed to the registered holders of the Notes at their registered
addresses.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes will be unsecured senior obligations of the Company, limited to
$250.0 million aggregate principal amount, and will mature on August 1, 2007.
Each Note will bear interest at the rate per annum shown on the front cover of
this Prospectus from July 28, 1997, or from the most recent date to which
interest has been paid or provided for, payable semiannually to Holders of
record at the close of business on the January 15 or July 15 immediately
preceding the interest payment date on and of each year, commencing February 1,
1998.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time on or after August 1, 2002, and prior to maturity, upon not less
than 30 nor more than 60 days prior notice mailed by first-class mail to each
Holder's registered address, at the following redemption prices (expressed as a
percentage of principal amount), plus accrued interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on August 1 of the years set
forth below:
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<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------------------------------------------------------------------------------------ ------------
<S> <C>
2002................................................................................ 105.313%
2003................................................................................ 103.542%
2004................................................................................ 101.771%
2005 and thereafter................................................................. 100.000%
</TABLE>
In addition, at any time and from time to time prior to August 1, 2000, the
Company may redeem in the aggregate up to 35% of the original aggregate
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings by the Company, RIC Holding or Holding following which there is a
Public Market, at a redemption price (expressed as a percentage of principal
amount thereof) of 110.625% plus accrued interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); PROVIDED, HOWEVER,
that at least 65% of the original aggregate principal amount of the Notes must
remain outstanding after each such redemption.
The Notes will be subject to redemption, at the option of the Company, prior
to August 1, 2002 in whole or in part, at any time within 180 days after a
Change of Control on not less than 30 nor more than 60 days prior notice to each
holder of Notes to be redeemed, in amounts of $1,000 or an integral multiple
thereof, at a redemption price equal to the sum of (i) the principal amount
thereof plus (ii) accrued and unpaid interest, if any, to the redemption date
(subject to the right of holders of record on relevant record dates to receive
interest due on relevant interest payment dates) plus (iii) the Applicable
Premium. Each holder of Notes will also have certain rights to require the
Company to purchase such Notes upon the occurrence of a Change of Control. See
"-- Change of Control" below.
SELECTION
In the case of any partial redemption, selection of Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in original principal amount or less will be redeemed
in part. If any Note is to be redeemed in part only, the notice of redemption
relating to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note.
RANKING OF NOTES
The indebtedness evidenced by the Notes will be unsecured Senior
Indebtedness of the Company, will rank PARI PASSU in right of payment with all
existing and future Senior Indebtedness of the Company and will be senior in
right of payment to all existing and future Subordinated Obligations of the
Company. The Notes will also be effectively subordinated to all Secured
Indebtedness of the Company to the extent of the value of the assets securing
such Indebtedness, and to all Indebtedness of its Subsidiaries.
At June 28, 1997, on a pro forma basis after giving effect to the issuance
and sale of the Notes and the application of the net proceeds therefrom as
described under "Use of Proceeds," the outstanding Senior Indebtedness of the
Company and its Subsidiaries would have been $1,273.2 million, of which $771.0
million would have been Secured Indebtedness and $400.0 million would have been
Subordinated Obligations of the Company and the outstanding Indebtedness of the
Company's Subsidiaries would have been $74.4 million, of which $59.2 million
would have been Senior Indebtedness. In addition, at June 28, 1997, RIC Holding
had $12.7 million of outstanding indebtedness, consisting of Existing Notes
other than the 1996 Notes as well as certain other debt. Although the Indenture
contains limitations on the amount of additional Indebtedness which the Company
and its Subsidiaries may Incur, under certain circumstances the amount of such
Indebtedness could be substantial and, in any case,
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such Indebtedness may be Senior Indebtedness or Secured Indebtedness. See "--
Certain Covenants -- Limitation on Indebtedness" below.
NOTE GUARANTEES
Holding and RIC Holding, and certain future subsidiaries of the Company (as
described below), as primary obligors and not merely as sureties, will
irrevocably and unconditionally Guarantee on an unsecured senior basis the
performance and punctual payment when due, whether at Stated Maturity, by
acceleration or otherwise, of all obligations of the Company under the Indenture
and the Notes, whether for payment of principal of or interest on the Notes,
expenses, indemnification or otherwise (all such obligations guaranteed by such
Note Guarantors being herein called the "Guaranteed Obligations"). Such Note
Guarantors will agree to pay, in addition to the amount stated above, any and
all expenses (including reasonable counsel fees and expenses) incurred by the
Trustee or the Holders in enforcing any rights under any Note Guarantee. Each
Note Guarantee will be limited in amount to an amount not to exceed the maximum
amount that can be Guaranteed by the applicable Note Guarantor without rendering
the Note Guarantee, as it relates to such Note Guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. Each Note Guarantee
will also be effectively subordinated to all Guarantor Secured Indebtedness to
the extent of the value of the assets securing such Indebtedness, and to all
Indebtedness of the subsidiaries of the applicable Note Guarantor. After the
Issue Date, the Company will cause each Restricted Subsidiary that is a
Significant Subsidiary and that Guarantees payment of the Bank Indebtedness (a
"Subsidiary Guarantor") to execute and deliver to the Trustee a supplemental
indenture pursuant to which such Restricted Subsidiary will Guarantee payment of
the Notes. See "-- Certain Covenants -- Future Note Guarantors" below.
Each Note Guarantee is a continuing guarantee and shall (a) remain in full
force and effect until payment in full of all principal of or interest on the
Notes, and all other Guaranteed Obligations then due and payable, or in the case
of a Subsidiary Guarantor, upon the earlier release or termination of its
Guarantee of the Bank Indebtedness, or upon such Subsidiary Guarantor no longer
being a Restricted Subsidiary, (b) be binding upon each Note Guarantor and (c)
enure to the benefit of and be enforceable by the Trustee, the Noteholders, and
their successors, transferees and assigns.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined below), each Holder
of the Notes will have the right to require the Company to purchase all or any
part of such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date) pursuant to
the offer described below and the other procedures set forth in the Indenture;
PROVIDED, HOWEVER, that, notwithstanding the occurrence of a Change of Control,
the Company shall not be obligated to purchase the Notes pursuant to this
covenant in the event that it has exercised its rights to redeem all of the
Notes as described under "-- Optional Redemption". A "Change of Control" means
any of the following events:
(i) (A) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders or Holding or RIC
Holding, is or becomes (as a result of the issuance of securities, by merger or
otherwise) the Beneficial Owner, directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of the Company and (B) the Permitted
Holders Beneficially Own, directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company than
such other person and do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the Board of
Directors (for the purposes of this clause (i), such other person shall be
deemed to Beneficially Own any Voting Stock of a specified corporation held by a
parent corporation of which such specified corporation is a Subsidiary, if such
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other person Beneficially Owns, directly or indirectly, more than 35% of the
voting power of the Voting Stock of such parent corporation and the Permitted
Holders Beneficially Own, directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent corporation
and do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the board of directors of such
parent corporation);
(ii) the merger or consolidation of Parent or the Company with or into
another Person or the sale of all or substantially all the assets of Parent or
the Company to another Person (a "Transferee"), in each case, other than a
Person that is controlled by the Permitted Holders, and, in the case of any such
merger or consolidation, the securities of Parent or the Company, as the case
may be, that are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock of Parent or
the Company, as the case may be, are changed into or exchanged for cash,
securities or property, unless either (x) pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, (or following consummation of such transaction the Beneficial
Owners of such securities otherwise are Beneficial Owners of) securities of the
surviving corporation or Transferee (or another Person of which the surviving
corporation or Transferee is a Subsidiary) that represent immediately after such
transaction, at least a majority of the aggregate voting power of the Voting
Stock of the surviving corporation or Transferee or such other Person, or (y)
pursuant to any such transaction (A) no "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted
Holders, is or becomes (as a result of the issuance of securities, by merger or
otherwise), the Beneficial Owner, directly or indirectly, of more than 35% of
the total voting power of the Voting Stock of the surviving corporation or
Transferee, as the case may be, or (B) the Permitted Holders Beneficially Own,
directly or indirectly, in the aggregate an equal or greater percentage of the
total voting power of the Voting Stock of the surviving corporation or
Transferee, as the case may be, than any such other person or have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of the surviving corporation or
Transferee, as the case may be (for purposes of this clause (ii), such other
person shall be deemed to Beneficially Own any Voting Stock of a specified
corporation held by a parent corporation of which such specified corporation is
a Subsidiary, if such other person Beneficially Owns, directly or indirectly,
more than 35% of the voting power of the Voting Stock of such parent corporation
and the Permitted Holders Beneficially Own, directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of such
parent corporation and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the board
of directors of such parent corporation); or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors of the Company then still in office who 3
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of the Notes pursuant to
this covenant, then prior to the mailing of the notice to Holders described
below, but in any event within 30 days following any Change of Control, the
Company shall (i) repay in full all Bank Indebtedness or offer to repay in full
all Bank Indebtedness and repay the Bank Indebtedness of each lender who has
accepted such offer or (ii) obtain the requisite consent under the agreements
governing the Bank Indebtedness to permit the repurchase of the Notes as
provided for below.
Within 30 days following any Change of Control (except as provided in the
proviso to the first sentence of this "-- Change in Control" section), the
Company shall mail a notice to each Holder at its
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registered address with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of Holders of record on a record date to
receive interest on the relevant interest payment date); (2) the circumstances
and relevant facts and financial information regarding such Change of Control;
(3) the repurchase date for the Notes (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed; and (4) the
instructions determined by the Company, consistent with this covenant, that a
Holder must follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict or are
inconsistent with provisions of this covenant, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under this paragraph by virtue thereof.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the terms of the Bank Indebtedness. In
addition, the Credit Agreements will prohibit the purchase of the Notes by the
Company in the event of a Change of Control, unless and until such time as the
Bank Indebtedness is repaid in full. Future Indebtedness of the Company and its
Subsidiaries may contain prohibitions of certain events which would constitute a
Change of Control, provide for a default upon the occurrence of such an event,
or require such Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the Notes could cause a default under such Indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
Holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
CERTAIN COVENANTS
The Indenture will contain covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur any Indebtedness (other than pursuant to the
following paragraph (b)) unless (x) on the date thereof the Consolidated
Coverage Ratio would be greater than 2.0:1, if such Indebtedness is Incurred on
or prior to March 31, 1999 and 2.25:1 if such Indebtedness is Incurred
thereafter and (y) in the case of any such Indebtedness Incurred by a Restricted
Subsidiary, such Indebtedness is Permitted Subsidiary Indebtedness.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness under the Senior Secured Credit Agreement of the
Company, in an aggregate principal amount at any time outstanding not to
exceed an amount equal to $1,045.0 million minus (without duplication) the
following amounts:
(A) the aggregate amount of all scheduled repayments of principal
actually made thereunder since the Issue Date and all mandatory
repayments of principal actually made thereunder since the Issue Date
with the Net Available Cash from Asset Dispositions other than Financing
Dispositions (to the extent, in the case of repayments of revolving
credit indebtedness, that the corresponding commitments have been
permanently reduced), and
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(B) at any date of determination, an amount equal to (x) the amount
then outstanding (i.e., advanced, and received by, and available for use
by, the Company) under any Receivables Financing (as set forth in the
books and records of the Company and confirmed by the agent, trustee or
other representative of the institution or group providing such
Receivables Financing) that has been entered into by any Receivables
Subsidiary since the Issue Date and that, as of such date of
determination, has not expired or otherwise terminated, minus (y) the sum
(without duplication) of (1) the aggregate borrowing commitment amount
under the Senior Secured Credit Agreement that at the time can be used
only for the purpose of funding any liabilities or obligations arising in
connection with any such Receivables Financing, or funding any
refinancing, refunding, repayment or replacement in respect of any such
Receivables Financing, plus (2) the aggregate face amount of letters of
credit issued or to be issued under or pursuant to the Senior Secured
Credit Agreement to support any such liabilities or obligations, or any
such refinancing, refunding, repayment or replacement, which letters of
credit at the time are undrawn and outstanding or have been drawn,
PROVIDED that such reduction shall be effective on the business day next
following the date of receipt of such confirmation by the Company and
shall no longer be effective on the business day next preceding the date
of such expiration or other termination;
(ii) Indebtedness of the Company or any Subsidiary of the Company under
the Machinery Credit Agreement or otherwise Incurred to finance or refinance
packaging machinery (including the development, manufacture or acquisition
thereof) in connection with any Related Business, in an aggregate principal
amount outstanding at any time not to exceed the then aggregate book value
of the packaging machinery that is thereby financed or refinanced or that is
otherwise owned by the Company or any of its Subsidiaries on the Issue Date
(or, if greater, to the extent that any such machinery shall be appraised by
an independent appraiser, the appraised value of such machinery);
(iii) Indebtedness of the Company owing to and held by any Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by
the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that any
subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of any such Indebtedness (except to
the Company or a Restricted Subsidiary) will be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof;
(iv) Indebtedness represented by the Notes, any Indebtedness (other than
the Indebtedness described in clauses (i)-(iii) above) outstanding, or
Incurred pursuant to commitments outstanding, on the Issue Date (including,
without limitation, the Existing Notes) and any Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause (iv) or
paragraph (a);
(v) (A)(x)Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Restricted Subsidiary was
acquired by the Company and (y) Indebtedness of a Person assumed by the
Company or a Restricted Subsidiary in connection with the acquisition of
assets from such Person provided that at the time such assets were owned by
such other Person such Indebtedness was either secured by such assets or
related to the acquisition, ownership, improvement or use of such assets by
such other Person (in each case other than Indebtedness Incurred as
consideration in, in contemplation of, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary or such assets were acquired by the Company or a
Restricted Subsidiary, as applicable); PROVIDED, HOWEVER, that at the time
such Restricted Subsidiary is acquired by the Company or such assets are
acquired by the Company or a
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Restricted Subsidiary, as applicable, the Company would have been able to
Incur $1.00 of additional Indebtedness pursuant to paragraph (a) after
giving effect to the Incurrence of such Indebtedness pursuant to this clause
(v) and (B) Refinancing Indebtedness Incurred by the Company or a Restricted
Subsidiary, as applicable, in respect of Indebtedness Incurred by the
Company or such Restricted Subsidiary, as applicable, pursuant to this
clause (v);
(vi) Indebtedness (A) in respect of judgment, appeal, surety,
performance and other like bonds provided by the Company and its Restricted
Subsidiaries in the ordinary course of their business and which do not
secure other Indebtedness (other than any involved in any judgment, appeal
or similar proceeding to which any such bond relates), (B) of the Company or
any Restricted Subsidiary with respect to letters of credit or bankers'
acceptances incurred in the ordinary course of business, (C) consisting of
accommodation guarantees for the benefit of trade creditors of the Company
or any of its Restricted Subsidiaries, or represented by Guarantees
consisting of contracts for the purchase of wood chips in the ordinary
course of business, (D) under (x) Currency Agreements designed to protect
the Company or any Restricted Subsidiary against fluctuations in foreign
currency exchange rates in respect of foreign exchange exposures incurred by
the Company or any Restricted Subsidiary in the ordinary course of its
business, (y) Interest Rate Agreements entered into in the ordinary course
of business and designed to protect the Company against fluctuations in
interest rates in respect of Indebtedness of the Company or any Restricted
Subsidiary permitted to be Incurred under the Indenture, and (z) Commodities
Agreements designed to protect the Company or any Restricted Subsidiary
against fluctuations in the price of, or the shortage or supply of,
commodities entered into in the ordinary course of business, (E) in respect
of the financing of insurance premiums in the ordinary course of business,
(F) of the Company or any Restricted Subsidiary arising from the honoring of
a check, draft or similar instrument drawn against insufficient funds,
provided that such Indebtedness is extinguished within two business days of
its incurrence, and (G) of a Receivables Subsidiary secured by a Lien on all
or part of the assets disposed of in, or otherwise Incurred in connection
with, a Financing Disposition;
(vii) Indebtedness represented by the Note Guarantees, Guarantees by the
Company or any Restricted Subsidiary of Indebtedness Incurred by any
Restricted Subsidiary, and Guarantees of Indebtedness Incurred pursuant to
or described in clause (i), (ii) or (iv) hereof;
(viii) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities, or obligations in respect of purchase
price adjustments, in connection with the acquisition or disposition of
assets permitted under the Indenture;
(ix) Indebtedness (1) of the Company consisting of guarantees of up to
an aggregate principal amount of $30.0 million of borrowings by Management
Investors in connection with the purchase of Management Stock by such
Management Investors or (2) of the Company or any Restricted Subsidiary
consisting of guarantees in respect of loans or advances made to officers or
employees of Holding, RIC Holding, the Company or any Restricted Subsidiary,
or guarantees otherwise made on their behalf, (A) in respect of travel,
entertainment and moving-related expenses incurred in the ordinary course of
business, (B) in respect of moving-related expenses incurred in connection
with any closing or consolidation of any facility or (C) in the ordinary
course of business not exceeding $2.5 million in the aggregate outstanding
at any time;
(x) Bank Indebtedness or working capital Indebtedness of non-U.S.
Restricted Subsidiaries not exceeding an aggregate principal amount of the
sum (determined as of the end of the most recent fiscal quarter ending at
least 45 days prior to the date of determination) of (A) 90% of Receivables
of all non-U.S. Restricted Subsidiaries, and (B) 75% of Inventory of all
non-U.S. Restricted Subsidiaries; and
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(xi) Indebtedness of the Company or any Restricted Subsidiary (other
than Indebtedness permitted to be Incurred pursuant to paragraph (a) or any
other clause of this paragraph (b)) in an aggregate principal amount not
exceeding $100.0 million.
LIMITATION ON RESTRICTED PAYMENTS AND INVESTMENTS. (a) The Company will
not, and will not permit any Restricted Subsidiary, directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or in respect
of its Capital Stock (including any payment in connection with any merger or
consolidation involving the Company) except (x) dividends or distributions
payable or made solely in its Capital Stock (other than Disqualified Stock), (y)
dividends or distributions payable or made to the Company or another Restricted
Subsidiary, and (z) in the case of a Restricted Subsidiary that is not a Wholly
Owned Subsidiary, dividends or distributions payable or made to the holders of
such Capital Stock on a pro rata basis (measured by value), or on a basis that
results in the receipt by the Company or a Restricted Subsidiary of dividends or
distributions of equal or greater value,
(ii) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of the Company held by Persons other than the Company or another
Restricted Subsidiary,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations (other than (x) the purchase,
repurchase or other acquisition of Subordinated Obligations so acquired in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition or
(y) any purchase, repurchase, redemption, defeasance, or other acquisition or
retirement of any Existing Notes other than the Existing Senior Subordinated
Notes), or
(iv) make any Investment (other than a Permitted Investment) in any Person,
(any such dividend, distribution, purchase, redemption, repurchase, defeasance,
other acquisition, retirement or Investment being herein referred to as a
"Restricted Payment") if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment: (1) a Default will have occurred and be
continuing (or would result therefrom); (2) the Company could not Incur at least
$1.00 of additional Indebtedness under paragraph (a) of the covenant described
under "-- Limitation on Indebtedness"; or (3) the aggregate amount of such
Restricted Payment and all other Restricted Payments (the amount so expended, if
other than in cash, to be determined in good faith by the Board of Directors,
whose determination will be conclusive and evidenced by a resolution of the
Board of Directors) declared or made subsequent to the Issue Date would exceed
the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from June 30, 1997, to the end of the
most recent fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income will be a
deficit, minus 100% of such deficit), excluding any amounts included
pursuant to clause (F) below;
(B) the aggregate Net Cash Proceeds received by the Company from the
issue or sale of the Capital Stock (other than Disqualified Stock) of Parent
or the Company subsequent to the Issue Date (other than an issuance or sale
to a Restricted Subsidiary of the Company), PROVIDED, HOWEVER, that the Net
Cash Proceeds determined in accordance with this clause (B) shall not
include any portion of such Net Cash Proceeds that at the time of such
determination is included in any amount that is excluded from the
calculation of the amount of Restricted Payments pursuant to the proviso to
paragraph (b) (vii) below;
(C) the aggregate Net Cash Proceeds received by the Company from the
issue or sale of its Capital Stock (other than Disqualified Stock) to an
employee stock ownership plan or similar trust established by the Company or
any of its Restricted Subsidiaries subsequent to the Issue Date;
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PROVIDED, HOWEVER, that if such plan or trust Incurs any Indebtedness to or
Guaranteed by the Company to finance the acquisition of such Capital Stock,
such aggregate amount shall be limited to (x) to the extent such
Indebtedness is owed to the Company, any increase in the Consolidated Net
Worth of the Company resulting from principal repayments made by such plan
or trust with respect to such Indebtedness and (y) to the extent such
Indebtedness is Guaranteed by the Company, the aggregate amount of principal
payments made by such plan or trust with respect to such Indebtedness;
(D) without duplication of any Net Cash Proceeds included pursuant to
clause (B) above, the aggregate Net Cash Proceeds received subsequent to the
Issue Date as capital contributions to the Company;
(E) the amount by which Indebtedness of the Company or any of its
Restricted Subsidiaries is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Restricted Subsidiary) subsequent to
the Issue Date of any Indebtedness of the Company or its Restricted
Subsidiaries convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company or Parent (less the amount of any cash or
other property (other than Capital Stock) distributed by the Company or any
Restricted Subsidiary upon such conversion or exchange plus the amount of
any cash or other property received by the Company or any Restricted
Subsidiary upon such conversion or exchange); and
(F) the amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from (i) payments of dividends or interest,
repayments of the principal of loans or advances or other transfers of
assets to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition
of "Investment") or the receipt of proceeds from the sale or other
disposition of any portion of any Investment in an Unrestricted Subsidiary
not to exceed, in the case of any Unrestricted Subsidiary, the amount of
Investments previously made by the Company or any Restricted Subsidiary in
such Unrestricted Subsidiary, which amount was included in the calculation
of the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase, repurchase, defeasance, redemption, retirement or other
acquisition of Capital Stock of the Company or Subordinated Obligations made by
exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid in lieu of
the issuance of fractional shares or scrip), or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
of the Company or an employee stock ownership plan or other trust established by
the Company or any of its Subsidiaries) or Capital Stock of the Company or
Parent; PROVIDED, HOWEVER, that (A) such purchase, repurchase, defeasance,
redemption, retirement or other acquisition will be excluded in the calculation
of the amount of Restricted Payments and (B) to the extent so applied to such
purchase, repurchase, defeasance, redemption, retirement or other acquisition,
the Net Cash Proceeds from such sale will be excluded from clause(3)(B) of
paragraph (a) above;
(ii) any purchase, repurchase, defeasance, retirement, redemption or other
acquisition of Subordinated Obligations made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of the Company
which is permitted to be Incurred pursuant to the covenant described under "--
Limitation on Indebtedness"; PROVIDED, HOWEVER, that such purchase, defeasance,
retirement, redemption or other acquisition will be excluded in the calculation
of the amount of Restricted Payments;
(iii) any purchase, repurchase, defeasance, retirement, redemption or other
acquisition of Subordinated Obligations from Net Available Cash to the extent
permitted by the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock"; PROVIDED, HOWEVER, that
such purchase,
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defeasance, retirement, redemption or other acquisition will be excluded in the
calculation of the amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividend would have complied with this
covenant; PROVIDED, HOWEVER, that such dividend will be included in the
calculation of the amount of Restricted Payments;
(v) the repurchase of Notes pursuant to the covenants described under "--
Change of Control" above and under "-- Limitation on Sales of Assets and
Subsidiary Stock" below; PROVIDED, HOWEVER, that such repurchases will be
excluded in the calculation of the amounts of Restricted Payments;
(vi) (A) loans, advances, dividends or distributions by the Company or any
Restricted Subsidiary to RIC Holding or Holding not to exceed an amount
necessary to permit each of RIC Holding and Holding to pay (1) its costs
(including all professional fees and expenses) incurred to comply with its
reporting obligations under federal or state laws or under the Indenture or the
indentures relating to the Existing Senior Notes and Existing Senior
Subordinated Notes, including the covenant described under "-- SEC Reports," or
in connection with reporting or other obligations under the Credit Agreements or
any related collateral documents or guarantees, (2) its expenses incurred in
connection with any public offering of equity securities or of Indebtedness
permitted by the Indenture which has been terminated by the board of directors
of the Company, a Restricted Subsidiary, RIC Holding or Holding, as applicable,
in each case, (x) the net proceeds of which were specifically intended to be
received by or contributed or loaned to the Company or a Restricted Subsidiary
or (y) in a prorated amount of such expenses in proportion to the amount of such
net proceeds specifically intended to be so received, contributed or loaned, (3)
in the case of RIC Holding, its expenses incurred in connection with the
acquisition, development, maintenance, ownership, prosecution, protection and
defense of its intellectual property and associated rights (including but not
limited to trademarks, service marks, trade names, trade dress, patents,
copyrights and similar rights, including registrations and registration or
renewal applications in respect thereof; inventions, processes, designs,
formulae, trade secrets, know-how, confidential information, computer software,
data and documentation, and any other intellectual property rights; and licenses
of any of the foregoing) to the extent such intellectual property and associated
rights relate to the business of the Company or any of its Subsidiaries, and (4)
its other operational expenses (other than taxes) incurred in the ordinary
course of business and not exceeding $1.0 million in any fiscal year and (B)
loans or advances by the Company or any Restricted Subsidiary to RIC Holding or
Holding not to exceed an amount necessary to permit each of RIC Holding and
Holding to pay its interim expenses incurred in connection with any public
offering of equity securities or of Indebtedness permitted by the Indenture, the
net proceeds of which are specifically intended to be received by or contributed
or loaned to the Company or a Restricted Subsidiary, or a prorated amount of
such interim expenses in proportion to the amount of such net proceeds
specifically intended to be so received, contributed or loaned, which loans and
advances shall be repaid to the Company or the relevant Restricted Subsidiary
promptly out of the proceeds of such offering, unless such offering shall be of
Indebtedness of the Company or a Restricted Subsidiary or shall have been
terminated by the board of directors of the Company, RIC Holding or Holding, as
applicable; PROVIDED, HOWEVER, that such loans, advances, dividends or
distributions pursuant to this clause (vi) will be excluded in the calculation
of the amount of Restricted Payments;
(vii) loans, advances, dividends or distributions by the Company or any
Restricted Subsidiary to RIC Holding or Holding in order for Holding to
repurchase or otherwise acquire or settle shares of Holding Common Stock or
options, warrants or other rights in respect thereof, or the repurchase or other
acquisition or settlement by the Company or any Subsidiary of shares of Holding
Common Stock or options, warrants or other rights in respect thereof, in each
case from the Management Investors not to exceed an aggregate amount (net of
repayments of any such loans or advances) equal to (A) $25.0 million, plus (B)
$5.0 million multiplied by the number of calendar years that have commenced
since the Issue Date, plus (C) the Management Contribution Amount (if any);
PROVIDED, HOWEVER, that if (x) the amount of such loans, advances, dividends or
distributions made in any fiscal year (net of repayments of
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any such loans or advances whenever made, which repayments are made in such
year) exceeds $5.0 million plus the portion of the Management Contribution
Amount (if any) attributable to such fiscal year, plus the Annual Carryover
Amount for such fiscal year, or (y) the amount of such loans, advances,
dividends or distributions made after the Issue Date (net of repayments of any
such loans or advances) exceeds $25.0 million plus the Management Contribution
Amount (if any), the amount of any such excess will be included in the
calculation of the amount of Restricted Payments (in each case, without
duplication of any portion of any such excess amount otherwise included in such
calculation);
(viii) payments by the Company or any Restricted Subsidiary to RIC Holding to
pay (A) without duplication of amounts payable pursuant to subclause (B) of this
clause (viii), any taxes, charges or assessments, including but not limited to,
sales, use, transfer, rental, ad valorem, value-added, stamp, property,
consumption, franchise, license, capital, net worth, gross receipts, excise,
occupancy, intangibles or similar taxes, charges or assessments (other than
federal, state or local taxes measured by income and federal, state or local
withholding imposed on payments made by RIC Holding) required to be paid by RIC
Holding by virtue of its being incorporated or having capital stock outstanding
(but not by virtue of owning stock of any corporation other than the Company),
or being a holding company parent of the Company or receiving dividends from or
other distributions in respect of the stock of the Company, or having guaranteed
any obligations of the Company or any Subsidiary thereof, or having made any
payment in respect to any of the items for which the Company is permitted to
make payments to Holding pursuant to clauses (vi), (vii), (viii), (ix), (x) or
(xi) hereof, or acquiring, developing, maintaining, owning, prosecuting,
protecting or defending its intellectual property and associated rights
(including but not limited to receiving or paying royalties for the use thereof)
relating to the business or businesses of the Company and any Subsidiary thereof
or (B) any other federal, state or local taxes measured by income for which RIC
Holding is liable up to an amount not to exceed with respect to such federal
taxes the amount of any such taxes which the Company would have been required to
pay on a separate company basis or on a consolidated basis if the Company had
filed a consolidated return on behalf of an affiliated group (as defined in
Section 1504 of the Code or an analogous provision of state, local or foreign
law) of which it were the common parent, or with respect to state and local
taxes, on a combined basis if the Company had filed a combined return on behalf
of an affiliated group consisting only of the Company and its Subsidiaries;
PROVIDED, HOWEVER, that such payments will be excluded in the calculation of the
amount of Restricted Payments;
(ix) payments by the Company or any Restricted Subsidiary to Holding, or to
RIC Holding in order for RIC Holding to make payments to Holding, to pay (A)
without duplication of amounts payable pursuant to subclause (B) of this clause
(ix), any taxes, charges or assessments, including but not limited to, sales,
use, transfer, rental, ad valorem, value-added, stamp, property, consumption,
franchise, license, capital, net worth, gross receipts, excise, occupancy,
intangibles or similar taxes, charges or assessments (other than federal, state
or local taxes measured by income and federal, state or local withholding
imposed on payments made by Holding) required to be paid by Holding by virtue of
its being incorporated or having capital stock outstanding (but not by virtue of
owning stock of any corporation other than RIC Holding or the Company, or
through any such other corporation, stock of any other corporation), or being a
holding company parent of RIC Holding or the Company or receiving dividends from
or other distributions in respect of the stock of RIC Holding (to the extent
attributable to its intellectual property and associated rights, relating to the
business or businesses of the Company and any Subsidiary thereof, including but
not limited to receiving royalties for the use thereof, or to the stock of the
Company) or the Company, or having guaranteed any obligations of RIC Holding (to
the extent attributable to RIC Holding's intellectual property and associated
rights relating to the business or businesses of the Company and any Subsidiary
thereof or obligations of the Company), the Company or any Subsidiary thereof,
or having made any payment in respect to any of the items for which the Company
is permitted to make payments to RIC Holding or Holding pursuant to clauses
(vi), (vii), (viii), (ix), (x) or (xi) hereof, or (B) without duplication of
amounts payable pursuant to clause (viii) hereof, any other federal, state or
local taxes measured by income for which Holding is liable up to an amount not
to
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exceed with respect to such federal taxes the amount of any such taxes which the
Company would have been required to pay on a separate company basis or on a
consolidated basis if the Company had filed a consolidated return on behalf of
an affiliated group (as defined in Section 1504 of the Code or an analogous
provision of state, local or foreign law) of which it were the common parent, or
with respect to state and local taxes, on a combined basis if the Company had
filed a combined return on behalf of an affiliated group consisting only of the
Company and its Subsidiaries; PROVIDED, HOWEVER, that such payments will be
excluded in the calculation of the amount of the Restricted Payments;
(x) loans, advances, dividends or distributions by the Company or any
Restricted Subsidiary to RIC Holding or Holding to pay dividends on the Holding
Common Stock following an initial public offering of the Holding Common Stock,
in an amount not to exceed in any fiscal year 6% of the aggregate gross proceeds
(before underwriting commissions and other expenses) received by Holding in such
public offering or any additional public offerings (or if the Company and
Holding have merged, payment of such dividends by the Company); PROVIDED,
HOWEVER, that such loans, advances, dividends or distributions will be included
in the calculation of the amount of Restricted Payments;
(xi) payments by the Company or any Restricted Subsidiary to RIC Holding or
Holding not to exceed an amount necessary to permit each of RIC Holding and
Holding to (A) make payments in respect of its indemnification obligations owing
to directors, officers or other Persons under its charter or by-laws or pursuant
to written agreements with any such Person, PROVIDED that such payments relate
to the Company or any of its Subsidiaries, (B) satisfy its obligations under the
Registration and Participation Agreement, the Stockholders Agreement, the
Consulting Agreement and the Indemnification Agreement or (C) make payments in
respect of indemnification obligations of Holding in connection with any
offering of Holding Common Stock the net proceeds of which are specifically
intended to be received by or contributed or loaned to the Company or a
Restricted Subsidiary, or in respect of a prorated amount of such
indemnification obligations in proportion to the amount of such net proceeds
specifically intended to be so received, contributed or loaned; PROVIDED,
HOWEVER, that such payments will be excluded in the calculation of the amount of
Restricted Payments; or
(xii) payments by the Company or any Restricted Subsidiary to RIC Holding to
pay principal of, and premium, if any, and interest on, any Existing Notes
(other than the Existing Senior Subordinated Notes) that are outstanding on the
Issue Date (whether by way of scheduled payment, or by purchase, repurchase,
redemption, defeasance or other acquisition or retirement); PROVIDED, HOWEVER,
that such payments will be excluded in the calculation of the amount of
Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock, or pay any Indebtedness owed, to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its property or assets to the
Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date, including without limitation, each of the
Credit Agreements and any related collateral documents and guarantees;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary (x) pursuant to an agreement relating to any Indebtedness (A)
Incurred by such Restricted Subsidiary prior to the date on which such
Restricted Subsidiary was acquired by the Company or (B) of a Person assumed
by the Company or a Restricted Subsidiary in connection with the acquisition
of assets from such Person provided that at the time such assets were owned
by such other Person such Indebtedness was either secured by such assets or
related to the acquisition, ownership, improvement or use of such assets (in
each case other than Indebtedness Incurred as consideration in, in
contemplation of, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or such assets were acquired by the Company or a
Restricted Subsidiary, as
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applicable) or (y) that is not pursuant to an agreement relating to
Indebtedness, and is in existence at the time that such Person becomes a
Subsidiary of the Company and not incurred in connection with, or in
contemplation of, such Person becoming such a Subsidiary;
(3) any encumbrance or restriction pursuant to an agreement (a
"Refinancing Agreement") that extends, renews, refinances or replaces an
agreement referred to in clause (1) or (2) of this covenant or this clause
(3) (an "Initial Agreement") or contained in any amendment to an Initial
Agreement; PROVIDED, HOWEVER, that the encumbrances and restrictions
contained in any such Refinancing Agreement or amendment are not materially
less favorable to the Noteholders than encumbrances and restrictions
contained in the Initial Agreement or Initial Agreements to which such
Refinancing Agreement or amendment relates (as determined in good faith by
the Company);
(4) any encumbrance or restriction (A) that restricts in a customary
manner (x) the subletting, assignment or transfer of any property or asset
that is subject to a lease, license or similar contract, or (y) the
assignment or transfer of any lease, license or other contract, or (B)
contained in security agreements or mortgages securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or restriction
restricts the transfer of the property or asset subject to such security
agreements or mortgages;
(5) any restriction with respect to a Restricted Subsidiary, or any
property or assets of any Restricted Subsidiary, imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially
all the Capital Stock or assets of such Restricted Subsidiary, or the sale
or disposition of the property or assets that are subject to such
restriction, pending the closing of such sale or disposition;
(6) customary provisions restricting dispositions of real property
interests set forth in any reciprocal easement agreements of the Company or
any Restricted Subsidiary;
(7) any encumbrance or restriction pursuant to an agreement relating to
any foreign Indebtedness incurred by any non-U.S. Restricted Subsidiary;
(8) any encumbrance or restriction required by any regulatory authority
having jurisdiction over the Company or any Restricted Subsidiary or any of
their businesses;
(9) any encumbrance or restriction pursuant to an agreement relating to
Indebtedness of or a Financing Disposition to or by any Receivables
Subsidiary or Equipment Subsidiary; and
(10) any encumbrance or restriction pursuant to a joint venture or
similar agreement or arrangement entered into in connection with a Fiskeby
Transaction.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless
(i) either (x) in the case of any Asset Disposition, the Company or such
Restricted Subsidiary receives consideration (including by way of relief from,
or by any other Person assuming responsibility for, any liabilities, contingent
or otherwise) at the time of such Asset Disposition at least equal to the fair
market value, as may be determined (and shall be determined, to the extent an
Asset Disposition involves a fair market value greater than $10.0 million) in
good faith by the Board of Directors, whose determination will be conclusive and
evidenced by a resolution of the Board of Directors (including as to the value
of all noncash consideration), of the shares and assets subject to such Asset
Disposition, or (y) in the case of a Financing Disposition, the Board of
Directors shall have determined in good faith, which determination will be
conclusive and evidenced by a resolution of the Board of Directors, that such
Financing Disposition is economically fair and reasonable to the Company or such
Restricted Subsidiary, as the case may be, and in the best interest of the
Company or such Restricted Subsidiary and its respective creditors,
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(ii) in the case of any Asset Disposition having a fair market value of
$10.0 million or more, at least 75% of the consideration thereof received by the
Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents
(other than with respect to an Asset Disposition consisting of an exchange of
equipment for use in related lines of business, a Financing Disposition or a
Fiskeby Transaction), and
(iii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition (other than any Financing Disposition relating to any Receivables
Financing) is applied by the Company (or such Restricted Subsidiary, as the case
may be) as follows:
(A) FIRST, to the extent the Company elects (or is required by the terms
of any Senior Indebtedness (other than the Notes) or Indebtedness (other
than Preferred Stock) of a Restricted Subsidiary), to prepay, repay or
purchase Senior Indebtedness (other than the Notes) or such Indebtedness (in
each case other than Indebtedness owed to the Company or a Restricted
Subsidiary) within 365 days after an Asset Disposition;
(B) SECOND, to the extent of the balance of Net Available Cash after
application in accordance with clause (A), to the extent the Company or such
Restricted Subsidiary elects, to reinvest in Additional Assets (including by
means of an Investment in Additional Assets by a Restricted Subsidiary with
Net Available Cash received by the Company or another Restricted Subsidiary)
within 365 days after an Asset Disposition, or, if such reinvestment in
Additional Assets is a project authorized by the Board of Directors of the
Company or a Restricted Subsidiary, as the case may be, that will take
longer than such 365 days to complete (an "Authorized Project"), the period
of time necessary to complete the Authorized Project; and
(C) THIRD, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make a Note Offer (as
defined below) to purchase Notes pursuant to and subject to the conditions
set forth in section (b) of this covenant within 365 days after an Asset
Disposition or, in the event that the Company or a Restricted Subsidiary
shall have undertaken an Authorized Project, within 20 days after completion
of such Authorized Project;
PROVIDED, HOWEVER, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) or (C) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and will cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions of this covenant, the Company and the Restricted Subsidiaries will
not be required to apply any Net Available Cash in accordance with this covenant
except to the extent that the aggregate Net Available Cash from all Asset
Dispositions which is not applied in accordance with this covenant exceeds $25.0
million.
For the purposes of clause (ii) of the first sentence of this covenant, the
following are deemed to be cash: (w) the assumption of Indebtedness of the
Company (other than Disqualified Stock of the Company) or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition, (x)
Indebtedness of any Restricted Subsidiary that is no longer a Restricted
Subsidiary as a result of such Asset Disposition, to the extent that the Company
and each other Restricted Subsidiary is released from any Guarantee of such
Indebtedness in connection with such Asset Disposition, (y) securities received
by the Company or any Restricted Subsidiary from the transferee that are
promptly converted by the Company or such Restricted Subsidiary into cash or
Cash Equivalents, and (z) consideration consisting of Indebtedness of the
Company or any Restricted Subsidiary.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(C) of this covenant, the Company will be required to
purchase Notes tendered pursuant to an offer by the Company for the Notes (the
"Note Offer") at a purchase price of 100% of their principal amount plus accrued
and unpaid interest to the date of purchase in accordance with the procedures
(including
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prorating in the event of oversubscription) set forth in the Indenture. If the
aggregate purchase price of Notes tendered pursuant to the Note Offer is less
than the Net Available Cash allotted to the purchase of the Notes, the Company
may apply the remaining Net Available Cash in any manner. After repayment of all
the Notes tendered pursuant to the Note Offer, the remaining amount of Net
Available Cash, if any, will be reset at zero. The Company will not be required
to make a Note Offer pursuant to this covenant if the Net Available Cash
available therefor (after application of the proceeds as provided in clauses (A)
and (B) of this covenant section (a)(iii)) is less than $25.0 million (which
lesser amount will be carried forward for purposes of determining whether a Note
Offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict or are inconsistent with provisions of this covenant, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under this covenant by virtue
thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction (including the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of the Company
(an "Affiliate Transaction") on terms (i) that are less favorable to the Company
or such Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's-length dealings with a Person
who is not such an Affiliate and (ii) that, in the event such Affiliate
Transaction involves an aggregate amount in excess of $10.0 million, have not
been approved by a majority of the members of the Board of Directors having no
material direct or indirect financial interest in or with respect to such
Affiliate Transaction. For purposes of this paragraph, any transaction or series
of related transactions with any Affiliate shall be deemed to have satisfied the
requirements set forth in this paragraph if (x) such transaction or series of
related transactions is approved by a majority of the members of the Board of
Directors having no material direct or indirect financial interest in or with
respect to such Affiliate Transaction, or (y) in the event there are no such
directors without any such interest, a fairness opinion is provided by a
nationally recognized appraisal or investment banking firm with respect to such
transaction or series of related transactions.
(b) The provisions of the foregoing paragraph (a) will not apply to:
(i) any Restricted Payment permitted pursuant to, or any other payment
or transaction permitted by, the covenant described under " -- Limitation on
Restricted Payments and Investments," or any Indebtedness permitted to be
Incurred pursuant to clause (ix) of paragraph (b) of the covenant described
under " -- Limitation on Indebtedness," or any payments in respect thereof,
(ii) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors,
(iii) the payment of reasonable fees to directors of the Company and its
Subsidiaries who are not employees of the Company or its Subsidiaries,
(iv) any transaction between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries,
(v) any transaction with an officer or member of the board of directors
of the Company, RIC Holding or Holding not covered by clause (ii) above
entered into in the ordinary course of business (x) involving compensation
or employee benefit arrangements or (y) not involving more than $100,000 in
any one case,
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(vi) any transaction arising out of agreements as in existence on the
Issue Date, including but not limited to the Indemnification Agreement and
any payments made pursuant thereto,
(vii) payment to CD&R or any Affiliate of CD&R of fees in an aggregate
amount not to exceed $1.0 million in any fiscal year plus all reasonable
out-of-pocket expense incurred by CD&R or any such Affiliate in connection
with its performance of management consulting, monitoring and financial
advisory services with respect to Holding, RIC Holding, the Company and its
Restricted Subsidiaries, and
(viii) loans and advances (or guarantees in respect thereof and payments
thereunder) made to officers or employees of Holding, RIC Holding, the
Company or any Restricted Subsidiary, or guarantees made on their behalf
(and payments thereunder), (A) in respect of travel, entertainment and
moving-related expenses incurred in the ordinary course of business, (B) in
respect of moving-related expenses incurred in connection with any closing
or consolidation of any facility and (C) in the ordinary course of business
not exceeding $2.5 million in the aggregate outstanding at any time.
LIMITATION ON LIENS. (a) The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien (the "Initial Lien"), other than any Permitted Lien, on any of its property
or assets (including any Capital Stock owned by it), whether owned on the Issue
Date or thereafter acquired, securing any obligation unless contemporaneously
therewith effective provision is made to secure the Notes equally and ratably
with (or on a senior basis to, in the case of Indebtedness expressly
subordinated in right of payment to the Notes) such obligation for so long as
such obligation is so secured. The preceding sentence will not require the
Company or any Restricted Subsidiary to secure the Notes if the Initial Lien
consists of one or more Permitted Liens.
(b) Any Lien created for the benefit of the Holders of the Notes pursuant to
the foregoing paragraph (a) shall be automatically and unconditionally released
and discharged upon the earliest to occur of (i) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value of all of
the then outstanding Notes, or the payment in full of the principal amount of,
and all premium and interest then due and payable on, the then outstanding
Notes, (ii) the release and discharge of the Initial Lien, and (iii) any sale,
exchange or transfer to any Person not an Affiliate of the Company of the
property or assets (including Capital Stock) subject to the Initial Lien
provided that after giving effect to such sale, exchange or transfer, such
property or assets (including Capital Stock) remain subject to the Initial Lien.
LIMITATION ON THE SALE OR ISSUANCE OF PREFERRED STOCK OF RESTRICTED
SUBSIDIARIES. The Company will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell any shares of Preferred
Stock of any Restricted Subsidiary except (i) to the Company or a Wholly Owned
Subsidiary, (ii) if, immediately after giving effect to such issuance or sale,
such Restricted Subsidiary would no longer constitute a Restricted Subsidiary or
(iii) Permitted Subsidiary Preferred Stock.
FUTURE NOTE GUARANTORS. The Company will cause each Significant Subsidiary
which Guarantees the Bank Indebtedness to execute and deliver to the Trustee a
supplemental indenture pursuant to which such Subsidiary will Guarantee payment
of the Notes. Each Note Guarantee will be limited to an amount not to exceed the
maximum amount that can be Guaranteed by that Subsidiary without rendering the
Note Guarantee, as it relates to such Subsidiary, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company will not, and will
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction (other than a Permitted Sale/ Leaseback Transaction) with respect to
any property unless (i) the Company or such Subsidiary would be entitled to
Incur Indebtedness in an amount equal to the Attributable Debt with respect to
such Sale/ Leaseback Transaction pursuant to the covenant described under "--
Limitation on Indebtedness," (ii) the consideration received by the Company or
any Restricted Subsidiary in connection with such Sale/Leaseback Transaction is
at least equal to the fair value of such property, as may be determined
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(and in the case of a Sale/Leaseback Transaction involving a fair value in
excess of $10.0 million, shall be determined) in good faith by the Board of
Directors, whose determination will be conclusive and evidenced by a resolution
of the Board of Directors, and (iii) the transfer of such property is permitted
by, and (to the extent required by such covenant) the Company applies the
proceeds of such transaction in compliance with, the covenant described under
"-- Limitation on Sale of Assets and Subsidiary Stock".
SEC REPORTS. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, to the extent permitted by the Exchange Act the Company will file with the
SEC and provide, within 15 days after the Company is required to file the same
with the SEC, the Trustee and Noteholders and prospective Noteholders (upon
request) with the annual reports and the information, documents and other
reports which are specified in Sections 13 and 15(d) of the Exchange Act. In the
event that the Company is not permitted to file such reports, documents and
information with the SEC, the Company will provide substantially similar
information to the Trustee, the Noteholders, and prospective Noteholders (upon
request) as if the Company was subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act. The Company will be deemed to have satisfied
such requirements if Holding or RIC Holding files and provides reports,
documents and information of the types otherwise so required, in each case
within the applicable time periods, and the Company is not required to file such
reports, documents and information separately under the applicable rules and
regulations of the Commission (after giving effect to any exemptive relief)
because of the filings by Holding or RIC Holding. The Company also will comply
with the other provisions of TIA Section 314(a).
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require such Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require such Noteholder to pay any
taxes required by law or permitted by the Indenture. The Company is not required
to transfer or exchange any Note selected for redemption or to transfer or
exchange any Note for a period of 15 days prior to a selection of Notes to be
redeemed. The Notes will be issued in registered form and the registered holder
of a Note will be treated as the owner of such Note for all purposes.
DEFEASANCE
The Company at any time may terminate all its respective obligations under
the Notes and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Notes, to replace mutilated, destroyed,
lost or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes. The Company at any time may terminate its obligations under the
covenants described under "-- Certain Covenants" above, the operation of the
cross acceleration provision, the bankruptcy provisions with respect to
Subsidiaries and the judgment default provision described under "-- Defaults"
below and the limitations contained in clause (iii) under "-- Merger and
Consolidation" below ("covenant defeasance"). If the Company exercises its legal
defeasance option or its covenant defeasance option, each Note Guarantor will be
released from all of its obligations with respect to its Note Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option with respect to the Notes, payment of the Notes may not
be accelerated because of an Event of Default with respect thereto. If the
Company exercises its covenant defeasance option, payment of the Notes may not
be accelerated because of an Event of Default specified in clause (iv), (vi),
(vii) (with respect only to Subsidiaries), (viii) or (ix) under "-- Defaults"
below or because of the failure of the Company to comply with clause (iii) under
"-- Merger and Consolidation" below.
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Defeasance options with respect to the Notes may be exercised to any
redemption date or the maturity date. In order to exercise either defeasance
option, the Company must irrevocably deposit in trust (the "defeasance trust")
with the Trustee money or U.S. Government Obligations for the payment of
principal, premium (if any) and interest on the Notes to redemption or maturity,
as the case may be, and must comply with certain other conditions, including
delivery to the Trustee of an Opinion of Counsel to the effect that holders of
the Notes will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company") will
be a corporation, limited liability company, limited partnership or business
trust organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia and the Successor Company (if not the
Company) will expressly assume, by indenture supplemental to the Indenture,
executed and delivered to the Trustee, in form reasonably satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been Incurred by
the Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default will have occurred and be continuing; (iii) immediately
after giving effect to such transaction, the Successor Company would be able to
Incur an additional $1.00 of Indebtedness under paragraph (a) of the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness"; and (iv)
the Company will have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture with the same
effect as if the Successor Company had been named as the Company therein, and
thereafter the predecessor Person shall be relieved of all obligations and
covenants under the Indenture and the Securities, except that the predecessor
Company in the case of a conveyance, transfer or lease of all or substantially
all its assets will not be released from the obligation to pay the principal of
and interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company.
DEFAULTS
An Event of Default is defined in the Indenture as:
(i) a default in any payment of interest on any Note when due,
continued for 30 days,
(ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required purchase, upon
declaration of acceleration or otherwise,
(iii) the failure by the Company to comply with its obligations under
the covenant described under " -- Merger and Consolidation" above,
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(iv) the failure by the Company to comply for 30 days after notice with
any of its obligations under the covenants described under " -- Change of
Control" or " -- Certain Covenants" above (in each case, other than a
failure to purchase Notes),
(v) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the Notes or the Indenture,
(vi) the failure by the Company or any Restricted Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated
exceeds $20 million or its foreign currency equivalent (the "cross
acceleration provision"),
(vii) certain events of bankruptcy, insolvency or reorganization of the
Company or a Restricted Subsidiary (the "bankruptcy provisions"),
(viii) the rendering of any judgment or decree for the payment of money
in excess of $15.0 million or its foreign currency equivalent (net of
amounts paid within 30 days of any such judgment or decree under any
insurance, indemnity, bond, surety or similar instrument) against the
Company or a Restricted Subsidiary by a court or other adjudicatory
authority of competent jurisdiction for which the Company or the Restricted
Subsidiary, as applicable, is not insured by a third Person and (A) an
enforcement proceeding thereon is commenced or (B) such judgment or decree
remains outstanding at the later of (I) the day which is the sixtieth day
after the judgment is rendered and (II) the day on which any right to appeal
expires (the "judgment default provision") or
(ix) any Note Guarantee ceases to be in full force and effect (except as
contemplated by the terms thereof or of the Indenture) or any Note Guarantor
denies or disaffirms its obligations under the Indenture or any Note
Guarantee and such Default continues for 10 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (iv) or (v) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Company of the default, and the Company does not
cure such default within the time specified in clauses (iv) and (v) hereof after
receipt of such notice.
If an Event of Default with respect to the Notes occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the
outstanding Notes by notice to the Company may declare the principal of and
accrued and unpaid interest on all the Notes to be due and payable. Upon such a
declaration, such principal and interest will be due and payable immediately. If
an Event of Default with respect to the Notes relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. Under certain circumstances, the Holders of a
majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders
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have offered the Trustee reasonable security or indemnity against any loss,
liability or expense, (iv) the Trustee has not complied with such request within
60 days after the receipt of the request and the offer of security or indemnity
and (v) the Holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the Holders of a majority
in principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder or that would involve the Trustee in personal liability.
Prior to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within the earlier of 90 days after it occurs or 30 days after it is known to a
Trust Officer or written notice of it is received by the Trustee. Except in the
case of a Default in the payment of principal of, premium (if any) or interest
on any Note, the Trustee may withhold notice if and so long as a committee of
its Trust Officers in good faith determines that withholding notice is in the
interests of the Noteholders. In addition, the Company is required to deliver to
the Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. The Company also is required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute one of certain Defaults, its status and what action the Company
is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
and any past default and its consequences or compliance with any provisions or
covenants may be waived with the consent of the Holders of a majority in
principal amount of the Notes then outstanding. However, without the consent of
each Holder of an outstanding Note affected, no amendment may, among other
things, (i) reduce the amount of Notes whose Holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under " -- Optional
Redemption" above, (v) make any Note payable in money other than that stated in
such Note, (vi) impair the right of any Holder to receive payment of principal
of and interest on such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes, (vii) make any change in the amendment or waiver provisions that
require each Noteholder's consent, or (viii) modify the Note Guarantees (except
as contemplated by the terms thereof or of the Indenture) in any manner adverse
to the Noteholders.
Without the consent of any Noteholder, the Company and the Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add Guarantees with respect to the Notes, to secure the Notes, to
confirm and evidence the release and discharge of any Lien created for the
benefit of the Holders of the Notes pursuant to the covenant described under "--
Certain Covenants -- Limitation on Liens," to add to the covenants of the
Company for the benefit of the Noteholders, to surrender any right or power
conferred upon the Company or any Note Guarantor, to make any change that does
not adversely affect
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the rights of any Noteholder, or to comply with any requirement of the SEC in
connection with the qualification of the Indenture under the TIA or otherwise.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all such Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is to be the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes. State Street Bank and Trust Company, as successor to Fleet
National Bank, is also the Trustee for the Existing Senior Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Acquisition Date" means March 27, 1996.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock of
any Person that at such time is a Restricted Subsidiary acquired from a third
party; PROVIDED, HOWEVER, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Transactions with Affiliates" only, "Affiliate" shall also mean any
Beneficial Owner of shares representing 10% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company, or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable) to
the extent conferring Beneficial Ownership of such Voting Stock, and any Person
who would be an Affiliate of any such Beneficial Owner pursuant to the first
sentence hereof.
"Annual Carryover Amount" means, for any fiscal year, the amount (if any) by
which (x) $5.0 million plus the portion of the Management Contribution Amount
(if any) attributable to the immediately preceding fiscal year, exceeds (y) the
amount of loans, advances, dividends or distributions pursuant to paragraph (b)
(vii) of the covenant described under "-- Limitation on Restricted Payments and
Investments" (net of repayments of any such loans or advances), which loans,
advances, dividends, distributions or repayments were made in the immediately
preceding fiscal year.
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"Applicable Premium" means, with respect to a Note, the greater of (i) 1.0%
of the then outstanding principal amount of such Note and (ii) the excess of (A)
the present value of all remaining required interest and principal payments due
on such Note, computed using a discount rate equal to the Treasury Rate plus 75
basis points, over (B) the then outstanding principal amount of such Note.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purposes
of this definition as a "disposition") by the Company or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction), other than (i) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Restricted
Subsidiary, (ii) a disposition in the ordinary course of business, (iii)
dispositions with a fair market value of less than $10.0 million in the
aggregate in any fiscal year, (iv) a disposition of Capital Stock of a
Restricted Subsidiary pursuant to an agreement or other obligation with or to a
Person (other than the Company or a Restricted Subsidiary) from whom such
Restricted Subsidiary was acquired, or from whom such Restricted Subsidiary
acquired its business and assets (having been newly formed in connection with
such acquisition), entered into in connection with such acquisition, (v) a
disposition of properties and assets that is governed by the provisions under
the first paragraph of "-- Merger and Consolidation" above, (vi) a disposition
of not more than 5% of the outstanding Capital Stock of a non-U.S. Restricted
Subsidiary that has been approved by the Board of Directors and (vii) for
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Sales of Assets and Subsidiary Stock" only, a disposition subject to the
covenant described under
"-- Certain Covenants -- Limitation on Restricted Payments and Investments".
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
assumed in making calculations in accordance with FAS 13) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of (a) the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
scheduled mandatory redemption or similar payment with respect to such Preferred
Stock multiplied by (b) the amount of such payment by (ii) the sum of all such
payments.
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable under or in respect of any of the
Credit Agreements and any related notes, collateral documents, letters of credit
and guarantees, including principal, premium (if any), interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or any Restricted Subsidiary whether or
not a claim for post-filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof.
"Beneficial Owner" means a "beneficial owner" as defined in Rules 13d-3 and
13d-5 under the Exchange Act.
"Beneficially Own" means "beneficially own" as defined in Rules 13d-3 and
13d-5 under the Exchange Act, and "Beneficial Ownership" has a meaning
correlative thereto.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
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"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Capital Stock" of any Person means any and all shares of, rights to
purchase, warrants or options for, or participations or other interests in
(however designated) equity of such Person, including any Preferred Stock, but
excluding any debt securities convertible into such equity.
"Cash Equivalents" means (A) any security, maturing not more than six months
after the date of acquisition, issued by the United States of America, or an
instrumentality or agency thereof and guaranteed fully as to principal, premium,
if any, and interest by the United States of America, (B) any certificate of
deposit, time deposit or bankers' acceptance, maturing not more than six months
after the day of acquisition, issued by any commercial banking institution that
is a member of the Federal Reserve System or a commercial banking institution
organized and located in a country recognized by the United States of America,
in each case having combined capital and surplus and undivided profits of not
less than $500.0 million (or the equivalent thereof), whose short-term debt
(other than short-term debt of a lender under the Credit Agreement) has a
rating, at the time as of which any investment therein is made, of "P-1" (or
higher) according to Moody's Investors Service, Inc. or any successor rating
agency ("Moody's"), or "A-1" (or higher) according to Standard and Poor's
Ratings Group (a division of McGraw Hill Inc.) or any successor rating agency
("S&P"), (C) commercial paper maturing not more than three months after the date
of acquisition, issued by a corporation (other than an Affiliate or Subsidiary
of the Company) organized and existing under the laws of the United States of
America with a rating, at the time as of which any investment therein is made,
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P,
(D) any money market deposit accounts issued or offered by a domestic commercial
bank having capital and surplus in excess of $500.0 million (or the equivalent
thereof), (E) investments in money market funds complying with the risk limiting
conditions of Rule 2a-7 (or any successor rule) of the Commission under the
Investment Company Act of 1940, as amended, and (F) investments similar to any
of the foregoing denominated in foreign currencies approved by the Board of
Directors.
"CD&R" means Clayton, Dubilier & Rice, Inc., a Delaware corporation.
"CD&R Fund V" means Clayton, Dubilier & Rice Fund V Limited Partnership.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodities Agreements" means one or more of the following agreements
entered into by a Person and one or more financial institutions: commodity
future contracts, forward contracts, options or other similar agreements or
arrangements designed to protect against fluctuations in the price of, or the
shortage of supply of, commodities from time to time.
"Consolidated Cost of Timber Harvested" means, for any period, the cost of
timber harvested of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Company" means Riverwood International Corporation, a Delaware corporation,
and any successor thereto.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; PROVIDED, HOWEVER, that:
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(1) if the Company or any Restricted Subsidiary (x) has Incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness and the
application of the proceeds thereof as if such Indebtedness had been
Incurred on the first day of such period or (y) has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of the
period that is no longer outstanding on such date of determination, or if
the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio involves a discharge of Indebtedness, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect to
such discharge of such Indebtedness, including with the proceeds of such new
Indebtedness, as if such discharge had occurred on the first day of such
period (except that, in making such computation, the amount of Indebtedness
under any revolving credit facility shall be computed based upon the average
daily balance of such Indebtedness during such four-quarter period),
(2) if since the beginning of such period the Company or any Restricted
Subsidiary shall have disposed of any company or any business or any group
of assets constituting an operating unit (a "Disposal"), the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Disposal for such period or increased by an amount equal to the EBITDA (if
negative) directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Disposal for such period
(and, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale),
(3) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have acquired any company or any
business or any group of assets constituting an operating unit (an
"Acquisition"), EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Acquisition occurred on the first
day of such period, and
(4) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made
any Disposal or Acquisition that would have required an adjustment pursuant
to clause (2) or (3) above if made by the Company or a Restricted Subsidiary
during such period, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if such
Disposal or Acquisition occurred on the first day of such period.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness to the extent of the remaining term of such
Interest Rate Agreement). If any Indebtedness bears, at the option of the
Company or a Restricted Subsidiary, a fixed or floating rate of interest and is
being given pro forma effect, the interest expense on such Indebtedness shall be
computed by applying, at the option of the Company or such Restricted
Subsidiary, either a fixed or floating rate. If any Indebtedness which is being
given pro forma effect was Incurred under a revolving credit facility, the
interest expense on such Indebtedness shall be computed based upon the average
daily balance of such Indebtedness during the applicable period.
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"Consolidated Income Tax Expense" means for any period, as applied to any
Person, the provision for federal, state, local and foreign income taxes of such
Person and its Consolidated Subsidiaries for such period as determined in
accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, net of any
interest income of the Company and its consolidated Restricted Subsidiaries, as
determined in accordance with GAAP, MINUS, to the extent included in such
interest expense, amortization of financing costs associated with the Riverwood
Acquisition and the financing thereof, PLUS, to the extent Incurred by the
Company and its Restricted Subsidiaries in such period but not included in such
interest expense, (i) interest expense attributable to capital leases, (ii)
amortization of debt discount, (iii) the interest portion of any deferred
payment obligation, (iv) net costs associated with Interest Rate Agreements, (v)
interest actually paid by the Company or any Restricted Subsidiary on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by the Company or any Restricted Subsidiary, (vi) the earned discount or yield
with respect to the sale of receivables (without duplication of amounts included
in Consolidated Net Income) and (vii) for the purposes of determining whether a
Sale/Leaseback Transaction is permitted under the covenant described under "--
Certain Covenants -- Limitation on Sale/Leaseback Transactions" only,
obligations for the interest component of rental payments in respect of any
lease in a Sale/Leaseback Transaction (other than a capital lease) determined as
if such lease were a capital lease, all as determined in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries, as determined in accordance with
GAAP; PROVIDED, HOWEVER, that there shall not be included in such Consolidated
Net Income: (i) any net income of any Person if such Person is not a Restricted
Subsidiary, except that the Company's equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution, (ii) any net income (loss) of any Person acquired by the Company
or a Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition, (iii) any net income of any Restricted Subsidiary
if such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company (other than
restrictions in effect on the Issue Date with respect to a Restricted Subsidiary
and other than restrictions that are, with respect to such Restricted
Subsidiary, taken as a whole, no less favorable to the holders of the Notes than
the restrictions in effect with respect to such Restricted Subsidiary on the
Issue Date), except that subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to an
amount equal to the aggregate amount of cash that could have been distributed by
such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause); (iv) any
gain or loss realized upon the sale or other disposition of any asset of the
Company or its consolidated Subsidiaries (including pursuant to any
Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the
ordinary course of business, (v) any extraordinary gain or loss, and (vi) the
cumulative effect of a change in accounting principles. Notwithstanding the
foregoing, for the purpose of the covenant described under "-- Certain Covenants
- -- Limitation on Restricted Payments and Investments" only, there shall be
excluded from Consolidated Net Income (x) any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof and (y) any noncash compensation
charge or expense relating to the deferred compensation referred to in clause
(iv) of the definition of "Consolidated Net Worth" and (z)(A) any non-cash
charges resulting from any write-up of assets of the Company or any of its
Subsidiaries in connection
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with the Riverwood Acquisition, less (B) any tax benefit received from any such
non-cash charge being deducted from the taxable income of the Company or any of
its Subsidiaries.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and the Restricted Subsidiaries, determined on a
Consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock, plus (iv) the aggregate amount of
deferred compensation owed by RIC Holding or any Subsidiary thereof to any
Management Investor that shall have been cancelled, waived or exchanged in
connection with the grant to such Management Investor of the right to receive or
acquire shares of Holding Common Stock or stock units in respect thereof;
without giving effect to (x) any noncash compensation charge or expense relating
to the deferred compensation referred to in the preceding clause (iv) or (y)
charges resulting from the write-up of inventory, the depreciation and
amortization of fixed assets and intangible assets and the cost of timber
harvested pertaining to, adjustments required or permitted by Accounting
Principles Board Opinion Nos. 16 and 17 in connection with the Riverwood
Acquisition.
"Consolidated Non-Cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization, Consolidated Cost of Timber Harvested and
other non-cash charges of such Person and its Consolidated Subsidiaries for such
period, on a Consolidated basis, as determined in accordance with GAAP
(excluding any non-cash charge which requires an accrual or reserve for cash
charges for any future period, other than accruals for future retiree medical
and other obligations made pursuant to SFAS No. 87, No. 106 and No. 112, as
amended or modified), including any non-cash charges resulting from any write-up
of assets of such Person or any of its Consolidated Subsidiaries in connection
with the Riverwood Acquisition.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; PROVIDED, HOWEVER, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in a Unrestricted Subsidiary will be
accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Consulting Agreement" means the Consulting Agreement, dated as of March 27,
1996, among Holding, RIC Holding, the Company and CD&R, as in effect on the
Issue Date.
"Credit Agreements" means the Senior Secured Credit Agreement and the
Machinery Credit Agreement.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement (including
derivative agreements) as to which such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
(other than Management Stock) which by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable) or upon the happening of any event (i) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, (ii) is
convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to ninety-one days after the Stated Maturity of the Notes.
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"EBITDA" for any period means the sum of Consolidated Net Income,
Consolidated Interest Expense, Consolidated Income Tax Expense and Consolidated
Non-Cash Charges deducted in computing Consolidated Net Income (Loss), without
duplication, in each case for such period, of such Person and its Consolidated
Subsidiaries on a Consolidated basis, all determined in accordance with GAAP.
"Equipment Subsidiary" means Riverwood International Machinery, Inc., a
Delaware corporation, or any other Subsidiary of the Company engaged solely in
the business of manufacturing, acquiring, owning, leasing and financing and
refinancing packaging machinery in connection with any Related Business, and any
business or activities incidental or related to such business.
"Equity Investors" means CD&R Fund V, FIMA Finance Management Inc. The 1818
Fund II, L.P., HWH Investment Pte Ltd, Chase Equity Associates, L.P., First
Plaza Group Trust, Madison Dearborn Capital Partners, L.P. and Wolfensohn-River
LLC.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Notes" means any outstanding (i) 10 3/4% Senior Notes Due 2000 of
RIC Holding, (ii) 11 1/4% Senior Subordinated Notes Due 2002 of RIC Holding,
(iii) 10 3/8% Senior Subordinated Notes Due 2004 of RIC Holding, (iv) 6 3/4%
Convertible Subordinated Notes Due 2003 of RIC Holding, (v) Existing Senior
Notes, and (vi) Existing Senior Subordinated Notes.
"Existing Senior Notes" means the Company's 10 1/4% Senior Notes Due 2006.
"Existing Senior Subordinated Notes" means the Company's 10 7/8% Senior
Subordinated Notes Due 2008.
"Financing Disposition" means any sale, transfer, conveyance or other
disposition of property or assets by the Company or any Subsidiary to any
Receivables Subsidiary, or by any Receivables Subsidiary, in each case in
connection with the Incurrence by a Receivables Subsidiary of Indebtedness, or
obligations to make payments to the obligor on Indebtedness, secured by any Lien
in respect of such property or assets.
"Fiskeby Transaction" means any sale, lease, transfer, conveyance or other
disposition of Capital Stock, property or assets of Fiskeby Board AB or any of
its Swedish subsidiaries or affiliates (including any disposition by means of a
merger, consolidation or similar transaction or pursuant to a joint venture
arrangement).
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the Acquisition Date, including those set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person,
including any such obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by agreement to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); PROVIDED,
HOWEVER, that the term "Guarantee" shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
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"Guarantor Secured Indebtedness" means, as to any Note Guarantor, any
Indebtedness of such Note Guarantor secured by a Lien.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Currency Agreement or Commodities
Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Holding" means Riverwood Holding, Inc., a Delaware corporation, any
corporation succeeding to its ownership of RIC Holding, and any successor
thereto.
"Holding Common Stock" means the common stock, par value $0.01 per share, of
Holding.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of indebtedness of such
Person for borrowed money; (ii) the principal of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto); (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except Trade Payables), which purchase price is due more
than one year after the date of placing such property in service or taking
delivery and title thereto or the completion of such services; (v) all
Capitalized Lease Obligations of such Person; (vi) the amount of all obligations
of such Person with respect to the redemption, repayment or other repurchase of
any Disqualified Stock or, with respect to any Subsidiary of the Company, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vii) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; PROVIDED, HOWEVER,
that the amount of Indebtedness of such Person shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the amount
of such Indebtedness of such other Persons; (viii) all Indebtedness of other
Persons to the extent Guaranteed by such Person; and (ix) to the extent not
otherwise included in this definition, Hedging Obligations of such Person. With
respect to any Indebtedness denominated in a foreign currency, for purposes of
determining compliance with any U.S. dollar-denominated restriction on the
Incurrence of such Indebtedness under the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness," the amount of such Indebtedness shall
be calculated based on the currency exchange rate in effect on the date that
such Indebtedness was incurred, in the case of term debt, or first committed, in
the case of revolving debt, PROVIDED that any such Indebtedness outstanding on
the Acquisition Date shall be calculated based on the currency exchange rate in
effect on the Acquisition Date.
"Indemnification Agreement" means the Indemnification Agreement, dated as of
the Acquisition Date, among Holding, RIC Holding, the Company, CD&R, CD&R Fund
V, CD&R Associates V Limited Partnership, a Connecticut limited partnership, and
CD&R Investment Associates, Inc., a Delaware corporation, as in effect on the
Issue Date.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
(including derivative agreements) or arrangement as to which such Person is
party or a beneficiary.
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"Inventory" means goods held for sale or lease by a Person in the ordinary
course of business (and shall in no event include goods, the title to which is
held by a lessee); in calculating the amount of Inventory for all purposes
hereunder, there shall be deducted a reserve for goods which have been
segregated by such Person to be returned to the applicable vendor for credit, as
determined in accordance with U.S. generally accepted accounting principles.
"Investment" in any Person means any direct or indirect advance, loan or
other extensions of credit (other than advances and other extensions of credit
to customers in the ordinary course of business that are recorded as accounts
receivable on the balance sheet of such Person) or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, Indebtedness or other similar instruments issued
by such Person, in each case calculated net of any return on such Investment,
whether by dividend, interest, distribution, return of capital, repayment or
otherwise. For purposes of the definition of "Unrestricted Subsidiary" and the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments and Investments" only, (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of any Subsidiary of the Company at the time that
such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have an "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in
such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
For the purposes of clause (a)(3)(F) of the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments and Investments" only,
"Investments" shall not be calculated net of any return as described above.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Machinery Credit Agreement" means the Credit Agreement, dated as of March
20, 1996, among Riverwood International Machinery, Inc., a Delaware corporation,
the other borrowers party thereto from time to time, The Chase Manhattan Bank,
as successor to Chemical Bank, as administrative agent, and the other lenders
party thereto from time to time, as amended through the Issue Date, and as such
agreement may be amended, supplemented or otherwise modified from time to time
or refunded, refinanced, restructured, replaced, renewed, repaid or extended
from time to time (whether with the original administrative agent and lenders or
other agents and lenders or otherwise, and whether provided under the original
Machinery Credit Agreement or other credit agreements or otherwise).
"Management Contribution Amount" means an amount equal to (x) the Net Cash
Proceeds received by the Company as a capital contribution out of the proceeds
of the sale to Management Investors of Holding Common Stock or options, warrants
or rights to purchase in respect thereof, plus (y) the aggregate amount of
deferred compensation owed by RIC Holding or any Subsidiary thereof to any
Management Investor that is or has been cancelled, waived or exchanged in
connection with the grant to such Management Investor of the right to receive or
acquire shares of Holding Common Stock or stock units in respect thereof.
"Management Investors" means the officers, directors, employees and other
members of the management of Holding, RIC Holding, the Company or a Subsidiary
of any thereof, or family members or relatives thereof or trusts for the benefit
of any of the foregoing, who at any particular date shall Beneficially Own or
have the right to acquire, directly or indirectly, Holding Common Stock.
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"Management Stock" means Holding Common Stock, or options, warrants or
rights to purchase or acquire Holding Common Stock, held by any of the
Management Investors.
"Net Available Cash" from an Asset Disposition means cash or Cash
Equivalents received (including any cash payments received by way of deferred
payment of principal pursuant to a note or receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) incurred, and
all Federal, state, provincial, foreign and local taxes required to be paid or
accrued as a liability under generally accepted accounting principles, as a
consequence of such Asset Disposition, (ii) all payments made on, and all
installment payments required to be made to retire, any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Disposition, or to any
other Person (other than the Company or any Restricted Subsidiary thereof)
owning a beneficial interest in the assets disposed of in such Asset
Disposition, and (iv) appropriate amounts to be provided by the Company or any
Restricted Subsidiary as a reserve, in accordance with generally accepted
accounting principles, against any liabilities associated with the assets
disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the proceeds of such issuance or sale in the form of cash or Cash
Equivalents, including payments in respect of deferred payment obligations when
received in the form of, or stock or other assets when disposed for, cash or
Cash Equivalents, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees and expenses actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Note Guarantee" means the Guarantee of the Notes by RIC Holding and
Holding, and Guarantees which may from time to time be executed and delivered
pursuant to the terms of the Indenture. Each Note Guarantee shall be in the form
prescribed in the Indenture.
"Note Guarantor" means any Person that has issued a Note Guarantee.
"Officer" means the Chairman of the Board, Chief Executive Officer, Chief
Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion in form and substance
reasonably satisfactory to the Trustee from legal counsel who is reasonably
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Parent" means Holding and/or RIC Holding, as applicable, and any successor
corporations and any corporation succeeding to the direct or indirect ownership
of the Company.
"Permitted Holder" means any of (i) CD&R, CD&R Fund V or any other
investment fund or vehicle managed, sponsored or advised by CD&R, or any
Affiliate of or successor to CD&R, CD&R Fund V or any such other investment fund
or vehicle, (ii) any other Equity Investor (other than Wolfensohn-River LLC) or
any Affiliate thereof or successor thereto, or (iii) any Management Investor.
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"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in
(i) a Restricted Subsidiary or Receivables Subsidiary or a Person which
will, upon the making of such Investment, become a Restricted Subsidiary or
Receivables Subsidiary;
(ii) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
(iii) Temporary Cash Investments;
(iv) receivables owing to the Company or any Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(v) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(vi) loans or advances to officers or employees of Holding, RIC Holding,
the Company or any Restricted Subsidiary referred to in clause (x) of
paragraph (b) of the covenant described in
"-- Certain Covenants -- Limitations on Transactions with Affiliates";
(vii) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
(viii) non cash consideration acquired by the Company or any Restricted
Subsidiary in connection with an Asset Disposition permitted under "--
Limitation on Sales of Assets and Subsidiary Stock," or any disposition of
property or other assets not constituting an Asset Disposition;
(ix) Investments in existence or made pursuant to legally binding
written commitments as in existence on the Issue Date;
(x) evidences of Indebtedness, securities or other property received
from another Person by the Company or any Restricted Subsidiary in
connection with any bankruptcy proceeding or other reorganization of such
other Person, or as a result of foreclosure, perfection or enforcement of
any Lien in exchange for evidences of Indebtedness, securities or other
property of such other Person held by the Company or any Restricted
Subsidiary in accordance with the terms of the Indenture;
(xi) (A) Currency Agreements designed to protect the Company or any
Restricted Subsidiary against fluctuations in foreign currency rates in
respect of foreign exchange exposures incurred by the Company or any
Restricted Subsidiary in the ordinary course of its business, (B)
Commodities Agreements designed to protect the Company or any Restricted
Subsidiary against fluctuations in the price of, or the shortage or supply
of, commodities entered into in the ordinary course of business and (C)
Interest Rate Agreements designed to protect the Company or any Restricted
Subsidiary against fluctuations in interest rates in respect of Indebtedness
of the Company or any Restricted Subsidiary;
(xii) deposits with respect to leases or utilities provided to third
parties in the ordinary course of business, or deposits otherwise described
in clause (a) of the definition of "Permitted Liens";
(xiii) any joint venture or similar arrangement established in connection
with any Fiskeby Transaction;
(xiv) Indebtedness of the Company to any Restricted Subsidiary;
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(xv) the Notes or the Existing Notes;
(xvi) bonds secured by assets leased to and operated by the Company or
any Restricted Subsidiary that were issued in connection with the financing
of such assets so long as the Company or any Restricted Subsidiary may
obtain title to such assets at any time by paying a nominal fee, cancelling
such bonds and terminating the transaction;
(xvii) promissory notes of any Management Investor acquired in connection
with the issuance of Holding Common Stock to such Management Investor;
(xviii) in the case of a Receivables Subsidiary, (x) Investments in
connection with a Financing Disposition by or to such Receivables
Subsidiary, including Investments of funds held in accounts permitted or
required by the arrangements governing such Financing Disposition or any
related Indebtedness, or (y) any promissory note issued by RIC Holding or
Holding, provided that if RIC Holding or Holding, as applicable, receives
cash from such Receivables Subsidiary in exchange for such note, an equal
cash amount is contributed by RIC Holding to the Company; and
(xix) other Investments in an amount not to exceed $50.0 million in the
aggregate outstanding at any one time.
"Permitted Liens" means, with respect to any Person,
(a) pledges or deposits made or other Liens granted (1) under
worker's compensation laws, unemployment insurance laws, social security
laws or similar legislation, (2) in connection with bids, tenders,
contracts (other than for the payment of borrowed money) or leases to
which such Person is a party, (3) to secure public or statutory
obligations, including but not limited to as security for contested
taxes, assessments or import duties, (4) as security for the payment of
insurance-related or worker's compensation-related obligations
(including, but not limited to, in respect of deductibles, self-insured
retention amounts and premiums and adjustments thereto) or (5) for the
payment of rent or utilities, in each case Incurred in the ordinary
course of business;
(b) Liens imposed by law, such as carriers', warehousemen's,
landlords', materialmens', employees', laborers', employers', suppliers',
banks', mechanics', repairmens' and other like Liens, in each case for
sums not yet due or being contested in good faith by appropriate
proceedings or other Liens arising by reason of any judgment, award,
decree, order of any court or other governmental authority against such
Person with respect to which such Person shall then be taking appropriate
legal proceedings or other proceedings for review or the period within
which such proceedings may be instituted shall not have expired;
(c) Liens for taxes, assessments and similar charges not yet due or
payable or not yet subject to penalties for non-payment or which are
being contested in good faith by appropriate proceedings;
(d) Liens in favor of issuers of surety, performance, judgment,
appeal and other like bonds or letters of credit issued pursuant to the
request of and for the account of such Person in the ordinary course of
its business;
(e) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, licenses, rights-of-way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning provisions, covenants, conditions, waivers or other
restrictions as to the use of real properties or minor irregularities of
title (and with respect to leasehold interests, mortgages, obligations,
liens and other encumbrances incurred, created, assumed or permitted to
exist and arising by, through or under a landlord or owner of the leased
property, with or without consent of the lessee), or Liens incidental to
the conduct of the business of such Person or to the ownership of its
properties which were not Incurred by such
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Person in connection with Indebtedness and which do not in the aggregate
materially adversely affect the value of said properties or materially
impair their use in the operation of the business of such Person;
(f) Liens securing Indebtedness Incurred to finance the
construction, purchase or lease of, or repairs, improvements or additions
to, property or assets, and obligations relating to such Indebtedness;
PROVIDED, HOWEVER, that the Lien may not extend to any other property or
assets owned by the Company or any Restricted Subsidiary at the time the
Lien is Incurred, and the Indebtedness secured by the Lien may not be
Incurred more than 365 days after the later of the acquisition,
completion of construction, repair, improvement, addition or commencement
of full operation of the property or assets subject to the Lien;
(g) Liens existing, or provided for under written arrangements
existing, as of the Issue Date;
(h) Liens on property, assets or shares of stock of a Person at the
time such Person becomes a Subsidiary; PROVIDED, HOWEVER, such Liens are
not created, Incurred or assumed by such Person in connection with, or in
contemplation of, such other Person becoming such a Subsidiary; PROVIDED
FURTHER, HOWEVER, that such Liens may not extend to any other property
owned by the Company or any Restricted Subsidiary (other than
improvements, accessions, proceeds or dividends or distributions in
respect thereof);
(i) Liens on property or assets at the time the Company or a
Restricted Subsidiary acquired the property or assets, including any
acquisition by means of a merger or consolidation with or into the
Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that such Liens
are not created in connection with, or in contemplation of, such
acquisition; PROVIDED FURTHER, HOWEVER, that the Liens may not extend to
any other property owned by the Company or any Restricted Subsidiary
(other than improvements, accessions, proceeds or dividends or
distributions in respect thereof);
(j) Liens securing Indebtedness or other obligations of a Restricted
Subsidiary owing to the Company or a Restricted Subsidiary;
(k) Liens securing Hedging Obligations; provided, however, that if
such Hedging Obligations are obligations relating to an Interest Rate
Agreement the related Indebtedness is, and is permitted to be under the
Indenture, secured by a Lien on the same property securing such Hedging
Obligations;
(l) Liens in respect of Indebtedness permitted by clause (ii),
(ix)(1) or (x) of paragraph (b) of the covenants described in "-- Certain
Covenants -- Limitation on Indebtedness" above;
(m) Liens to secure Indebtedness or other obligations of any
Receivables Subsidiary or Equipment Subsidiary;
(n) Liens securing Bank Indebtedness;
(o) Liens granted to secure the Notes pursuant to the covenants
described under
"-- Certain Covenants -- Limitation on Liens";
(p) Liens granted to secure up to $15.0 million of Indebtedness or
other obligations;
(q) any Lien on stock or other securities of an Unrestricted
Subsidiary that secures Indebtedness or other obligations of such
Subsidiary;
(r) any encumbrance or restriction (including, but not limited to,
put and call agreements) with respect to the Capital Stock of any joint
venture or similar arrangement pursuant to any joint venture or similar
agreement; and
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(s) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions, renewals
or replacements) as a whole, or in part, of any Indebtedness or other
obligation secured by any Lien referred to in clauses (f), (g), (h), (i),
(k), (l), (m), (n), (o), (p) and (s); PROVIDED, HOWEVER, that (x) such
new Lien shall be limited to all or part of the same property or assets
that secured the original Lien (plus improvements, accessions, proceeds
or dividends or distributions in respect thereof) and (y) if such Lien
secures Indebtedness, the Indebtedness secured by such Lien at such time
is not increased to any amount greater than the sum of (A) the
outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clauses (f), (g), (h), (i), (k), (l), (m),
(n), (o), (p) and (s) at the time the original Lien became a Permitted
Lien under the Indenture and (B) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement.
"Permitted Sale/Leaseback Transaction" means any Sale/Leaseback Transaction
relating to the financing of packaging machinery.
"Permitted Subsidiary Indebtedness" means Indebtedness of any Restricted
Subsidiary that is (a) Incurred as permitted under paragraph (b) of "-- Certain
Covenants -- Limitations on Indebtedness" or (b) Incurred as permitted under
paragraph (a) of "-- Certain Covenants -- Limitation on Indebtedness" and not
exceeding $200.0 million plus (if positive) 5% of the Company's Consolidated Net
Worth in an aggregate principal amount outstanding at any given time.
"Permitted Subsidiary Preferred Stock" means, with respect to any
Subsidiary, any Preferred Stock of such Subsidiary that (a) is Disqualified
Stock and such Subsidiary would be entitled to Incur Indebtedness permitted by
the Indenture in an aggregate principal amount equal to the aggregate
involuntary maximum fixed repurchase price of such Preferred Stock or (b) is not
Disqualified Stock and no dividends or distributions thereon are paid (to any
Person other than the Company or any Wholly Owned Subsidiary) other than in
accordance with the covenant described under "-- Certain Covenants -- Limitation
on Restricted Payments and Investments."
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company, RIC Holding or Holding pursuant to an effective
registration statement under the Securities Act (whether alone or in conjunction
with any secondary public offering).
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Company, RIC Holding or Holding, as applicable, has been
distributed by means of an effective registration statement under the Securities
Act.
"Receivable" means a right to receive payment arising from a sale or lease
of goods or services by a Person pursuant to an arrangement with another Person
pursuant to which such other Person is obligated to pay for goods or services
under terms that permit the purchase of such goods and services on credit, as
determined in accordance with U.S. generally accepted accounting principles.
"Receivables Financing" means any financing by any Receivables Subsidiary of
Receivables of the Company that have been transferred to such Receivables
Subsidiary in a Financing Disposition.
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"Receivables Subsidiary" means a Subsidiary of the Company that (a) is
engaged solely in the business of acquiring, selling, collecting, financing or
refinancing Receivables, accounts (as defined in the Uniform Commercial Code)
and other accounts and receivables (including any thereof constituting or
evidenced by chattel paper, instruments or general intangibles), all proceeds
thereof and all rights (contractual and other), collateral and other assets
relating thereto, and any business or activities incidental or related to such
business, and (b) is designated as a "Receivables Subsidiary" by the Board of
Directors.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, restructure, replace, renew, repay or extend (including pursuant to
any defeasance or discharge mechanism) (collectively, "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness existing on the
Issue Date or Incurred in compliance with the Indenture (including Indebtedness
of the Company that refinances Indebtedness of any Restricted Subsidiary (to the
extent permitted in the Indenture) and Indebtedness of any Restricted Subsidiary
that refinances Indebtedness of another Restricted Subsidiary) including
Indebtedness that refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that
(i) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being refinanced and (iii) such Refinancing Indebtedness is Incurred in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than (x) the aggregate principal
amount (or if issued with original issue discount, the aggregate accreted value)
then outstanding of the Indebtedness being refinanced plus (y) the amount of
premium or other amounts paid and fees and expenses incurred in connection with
such refinancing; PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall
not include (x) Indebtedness of a Restricted Subsidiary that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary.
"Registration and Participation Agreement" means the agreement, dated the
Acquisition Date, among Holding and the purchasers of Holding Common Stock
providing among other things for certain registration rights in respect of
Holding Common Stock, as in effect on the Issue Date.
"Related Business" means the businesses of the Company and the Restricted
Subsidiaries as conducted on the Issue Date, and any business related, ancillary
or complementary to such businesses.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"RIC Holding" means RIC Holding, Inc., a Delaware corporation, any
corporation succeeding to its ownership of the Company, and any successor
thereto.
"Riverwood Acquisition" means the acquisition on March 27, 1996 of the
Company by RIC Holding, and the mergers related thereto.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary, whereby
the Company or a Restricted Subsidiary transfers such property to a Person and
the Company or a Restricted Subsidiary leases it from such Person, other than
leases between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
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"Senior Indebtedness" means (i) the Bank Indebtedness and the Notes and (ii)
all Indebtedness of the Company, including interest thereon (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or any Restricted Subsidiary whether or
not a claim for post-filing interest is allowed in such proceedings), whether
outstanding on the Issue Date or thereafter Incurred, unless in the instrument
creating or evidencing the same or pursuant to which the same is outstanding it
is expressly provided that such obligations are not superior in right of payment
to the Senior Subordinated Notes; PROVIDED, HOWEVER, that Senior Indebtedness
shall not include (1) any obligation of the Company to any Subsidiary, (2) any
liability for Federal, state, local or other taxes owed or owing by the Company,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of the Company which is
expressly subordinate in right of payment to any other Indebtedness of the
Company, including any Senior Subordinated Indebtedness and any Subordinated
Obligations, (5) any obligations with respect to any Capital Stock, or (6) any
Indebtedness Incurred in violation of the Indenture.
"Senior Secured Credit Agreement" means the Credit Agreement, dated as of
March 20, 1996, among the Company, the other borrowers party thereto from time
to time, The Chase Manhattan Bank, as administrative agent, and the lenders
party thereto from time to time, as amended through the Issue Date, and as such
agreement may be amended, supplemented or otherwise modified from time to time
or refunded, refinanced, restructured, replaced, renewed, repaid or extended
from time to time (whether with the original administrative agent and lenders or
other agents and lenders or otherwise, and whether provided under the original
Senior Secured Credit Agreement or other credit agreements or otherwise).
"Senior Subordinated Indebtedness" means the Existing Senior Subordinated
Notes and any other Indebtedness of the Company that specifically provides that
such Indebtedness is to rank PARI PASSU with such notes and is not by its
express terms subordinate in right of payment to any Indebtedness of the Company
which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary of the Company that
would be a "significant subsidiary" of the Company as defined in Rule 1-02 of
Regulation S-X under the Securities Act of 1993, as amended, and the Exchange
Act.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the purchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Stockholders Agreement" means the Stockholders Agreement, dated as of March
27, 1996, among Holding and the Equity Investors, as in effect on the Issue
Date.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is expressly
subordinate in right of payment to the Notes pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership,
limited liability company or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other equity interests
(including partnership interests) generally 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
(i) such Person or (ii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations (x) of the United States of America or any agency thereof
or obligations Guaranteed by the United States of America or any agency thereof,
or (y) of any foreign country recognized by the United States of
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America rated at least "A" by S&P or "A-1" by Moody's, (ii) investments in time
deposit accounts, certificates of deposit and money market deposits maturing
within 365 days of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States of America, any
state thereof or any foreign country recognized by the United States of America
having capital, surplus and undivided profits aggregating in excess of $250.0
million (or the foreign currency equivalent thereof) and whose long-term debt is
rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act), (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) investments in commercial paper, maturing not more than 180
days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to S&P, (v) investments in securities with maturities of six
months or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by S&P
or "A-1" by Moody's, (vi) any money market deposit accounts issued or offered by
a domestic commercial bank or a commercial bank organized and located in a
country recognized by the United States, in each case, having capital and
surplus in excess of $500.0 million or investments in money market funds
complying with the risk limiting conditions of Rule 2a-7 (or any successor rule)
of the Commission under the Investment Company Act of 1940, as amended, and
(vii) similar investments approved by the Board of Directors in the ordinary
course of business.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. SectionSection
77aaa-77bbbb) as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the date
fixed for redemption of the Notes following a Change of Control (or, if such
Statistical Release is no longer published, any publicly available source of
similar market data)) most nearly equal to the then remaining Average Life to
Stated Maturity of the Notes; PROVIDED, HOWEVER, that if the Average Life to
Stated Maturity of the Notes is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the Average Life to
Stated Maturity of the Notes 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.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
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"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that
is not a Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER,
that either (A) such designation was made at or prior to the Issue Date, (B) the
Subsidiary to be so designated has total consolidated assets of $1,000 or less
or (C) if such Subsidiary has consolidated assets greater than $1,000, then such
designation would be permitted under the covenant entitled
"-- Certain Covenants -- Limitation on Restricted Payments and Investments." The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "-- Certain Covenants --
Limitation on Indebtedness" and (y) no Default shall have occurred and be
continuing.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or another Wholly Owned Subsidiary.
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CERTAIN FEDERAL TAX CONSIDERATIONS
The principal United States federal income tax consequences of the
acquisition, ownership and disposition of the Notes to the initial acquirors
thereof and the principal United States federal estate tax consequences of the
ownership of the Notes to acquirors who are Foreign Holders (as defined below)
are set forth in the following discussion. This discussion is based on currently
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect or as
proposed on the date hereof and all of which are subject to change, possibly
with retroactive effect, or different interpretations. This discussion does not
address the tax consequences to subsequent purchasers of the Notes, and is
limited to acquirors who hold the Notes as capital assets. Moreover, the
discussion is for general information only, and does not address all of the tax
consequences that may be relevant to particular acquirors in light of their
personal circumstances, or to certain types of acquirors (such as certain
financial institutions, insurance companies, tax-exempt entities, dealers in
securities or persons who have hedged the interest rate on the Notes).
PROSPECTIVE ACQUIRORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR
GIFT TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX
LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
EXCHANGE OFFER
The exchange of an Existing Note for a New Note pursuant to the Exchange
Offer should not constitute a taxable exchange of the Existing Notes. As a
result, the New Notes should have the same issue price (and adjusted issue price
immediately after the exchange) and the same amount of original issue discount,
if any, as the Existing Notes, and each holder should have the same adjusted
basis and holding period in the New Notes as it had in the Existing Notes
immediately before the exchange. The following discussion assumes that the
exchange of Existing Notes for New Notes pursuant to the Exchange Offer will not
be treated as a taxable exchange and that the Existing Notes and the New Notes
will be treated as the same security for federal income tax purposes.
UNITED STATES TAXATION OF UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a holder of a Note
that is for United States federal income tax purposes, (a) a citizen or resident
of the United States, (b) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (c) an estate the income of which is subject to United
States federal income taxation regardless of source or (d) a trust if (i) a
court within the United States is able to exercise primary supervision over the
administration of the trust and (ii) at least one United States person has the
authority to control all substantial decisions of the trust. Recently enacted
legislation authorizes the issuance of Treasury regulations that, under certain
circumstances, could reclassify as a non-U.S. partnership a partnership that
would otherwise be treated as a U.S. partnership, or could reclassify as a U.S.
partnership a partnership that would otherwise be treated as a non-U.S.
partnership. Such regulations would apply only to partnerships created or
organized after the date that proposed regulations are filed with the Federal
Register (or, if earlier, the date of issuance of a notice substantially
describing the expected contents of the regulations).
PAYMENT OF INTEREST ON THE NOTES OTHER THAN PAYMENTS UPON REGISTRATION
DEFAULT. In general, interest paid on a Note (other than payments upon a
Registration Default discussed below) will be taxable to a United States Holder
as ordinary interest income, as received or accrued, in accordance with such
holder's method of accounting for federal income tax purposes. Assuming that
original issue
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discount on a Note is not greater than a DE MINIMIS amount equal to 0.25% of its
stated principal amount multiplied by the number of complete years to its
maturity, any such discount will be deemed to be equal to zero, and a holder
will not be required to accrue a portion of such discount as income in each
taxable year. See, however, the discussion below under "Payments upon
Registration Default." Holders should consult their tax advisors as to the
possible effect of payments upon a Registration Default on the treatment of
original issue discount on the Notes, if any.
PAYMENTS UPON REGISTRATION DEFAULT. Because the Notes provide for the
payment of liquidated damages under the circumstances described above under
"Exchange Offer; Registration Rights," the Notes could be subject to certain
Treasury Regulations relating to debt instruments that provide for one or more
contingent payments (the "Contingent Payment Regulations"). Under the Contingent
Payment Regulations, however, a payment is not a contingent payment merely
because of a contingency that, as of the issue date, is "remote." The Company
intends to take the position that, for purposes of the Contingent Payment
Regulations, the payment of such liquidated damages was a remote contingency as
of the issue date. Accordingly, the Contingent Payment Regulations should not
apply to the Notes unless payments are actually made upon a Registration
Default, in which case, the rules described below would apply to such payments.
If (i) the payment of such liquidated damages were not a remote contingency
for purposes of the Contingent Payment Regulations or (ii) payments are actually
made upon a Registration Default, and if such payments were to be treated as
contingent payments payable on the occurrence of an "incidental contingency"
under the such regulations, then such payments would be includible in a holder's
gross income in the taxable year in which such payments were actually made,
regardless of the tax accounting method used by such holder. If (i) the payment
of such liquidated damages were not a remote contingency for purposes of the
Contingent Payment Regulations or (ii) payments are actually made upon a
Registration Default, and if such payments were NOT to be treated as contingent
payments payable on the occurrence of an "incidental contingency" under the such
regulations, then (a) all payments (including any PROJECTED payments of such
liquidated damages) on a Note in excess of its issue price would effectively be
treated as original issue discount, and (b) a holder would be required to
include an allocable portion of such amounts in gross income on a constant yield
basis whether or not the payment of such liquidated damages were fixed or
determinable in the taxable year.
The Company's position for purposes of the Contingent Payment Regulations
that the payment of such liquidated damages was a remote contingency as of the
Issue Date is binding on a holder for federal income tax purposes, unless such
holder discloses in the proper manner to the Internal Revenue Service (the
"IRS") that it is taking a different position.
Prospective investors should consult their tax advisors as to the tax
considerations relating to debt instruments providing for payments such as the
liquidated damages payable upon a Registration Default, in particular in
connection with the possible application of the Contingent Payment Regulations.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES. Upon the sale, exchange,
redemption, retirement at maturity or other disposition of a Note, a United
States Holder will generally recognize taxable gain or loss equal to the
difference between the sum of cash plus the fair market value of all other
property received on such disposition (except to the extent such cash or
property is attributable to accrued interest, which will be taxable as ordinary
income) and such holder's adjusted tax basis in the Note.
Gain or loss recognized on the disposition of a Note generally will be
capital gain or loss (except to the extent the gain is attributable to accrued
market discount, as described below) and will be long-term capital gain or loss
if, at the time of such disposition, the United States Holder's holding period
for the Note is more than one year. Under recently enacted legislation, a
reduced tax rate on capital gain will apply to an individual United States
Holder if such holder's holding period for the Note is more than eighteen months
at the time of disposition.
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MARKET DISCOUNT. A holder (other than a holder who makes the election
described below) that acquires a Note with market discount that is not DE
MINIMIS, except in certain non-recognition transactions, generally will be
required to treat any gain realized upon the disposition of the Note as interest
income to the extent of the market discount that accrued during the period such
holder held such Note. (For this purpose a person disposing of a market discount
Note in a transaction other than a sale, exchange or involuntary conversion
generally is treated as realizing an amount equal to the fair market value of
the Note.) A holder may also be required to recognize as ordinary income any
principal payments with respect to a Note to the extent such payments do not
exceed the accrued market discount on the Note. For these purposes, market
discount generally equals the excess of the stated redemption price of the Note
over the basis of the Note in the hands of the holder immediately after its
acquisition. However, market discount is deemed not to exist if the market
discount is less than a statutorily defined DE MINIMIS amount equal to 1/4 of 1
percent of the Note's contract redemption price at maturity multiplied by the
number of complete years to the Note's maturity after the holder acquired the
Note (or, in the case of a holder that acquires a Note pursuant to the Exchange
Offer, the Existing Note exchanged for such Note).
The market discount rules also provide that any holder of Notes that were
acquired at a market discount may be required to defer the deduction of a
portion of the interest on any indebtedness incurred or maintained to acquire or
carry the Notes, until the Notes are disposed of.
A holder of a Note acquired at market discount may elect to include market
discount in income as the discount accrues. In such a case, the foregoing rules
with respect to the recognition of ordinary income on dispositions and with
respect to the deferral of interest deductions on indebtedness related to such
Note would not apply. The current inclusion election applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies, and may not be revoked without the consent
of the IRS.
AMORTIZABLE BOND PREMIUM. Generally, if the tax basis of an obligation held
as a capital asset exceeds the amount payable at maturity of the obligation,
such excess may constitute amortizable bond premium that the holder of such
obligation may elect to amortize under the constant interest rate method and
deduct over the period from the holder's acquisition date to the obligation's
maturity date. A holder that elects to amortize bond premium must reduce its tax
basis in the related obligation by the amount of the aggregate deductions
allowable for the amortizable bond premium. Any election to amortize bond
premium applies to all bonds (other than bonds the interest in which is
excludible from gross income) held by the holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the holder,
and the election may not be invoked without the consent of the IRS.
In the case of an obligation, such as a Note, that may be called at a
premium prior to maturity, an earlier call date is treated as its maturity date,
and the amount of bond premium is determined by treating the amount payable on
such call date as the amount payable at maturity if such a calculation produces
a smaller amortizable bond premium than any other call date or the method
described in the preceding paragraph. If a holder of a Note is required to
amortize and deduct bond premium by reference to a call date, the Note will be
treated as maturing on such date for the amount payable, and, if not redeemed on
such date, the Note will be treated as reissued on such date for the amount so
payable. If a Note purchased at a premium is redeemed pursuant to a call prior
to such early call date or its maturity, a purchaser who has elected to deduct
bond premium may deduct the excess of its adjusted basis in the Note over the
amount received on redemption (or, if greater, the amount payable on maturity)
as an ordinary loss in the taxable year of redemption.
The amortizable bond premium deduction is treated as a reduction of interest
on the bond instead of as a deduction, except as Treasury regulations may
otherwise provide. Proposed regulations relating to the amortization of bond
premium were issued in June 1996. The proposed regulations, which apply by their
terms to bonds acquired on or after the date 60 days after the date final
regulations are
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published, provide that the offset of amortizable bond premium against interest
income on the bond occurs when income is taxable to a holder as received or
accrued, in accordance with such holder's method of accounting for such income.
TRANSFER. The Notes have been issued in registered form and will be
transferable only upon their surrender for registration of transfer. Under
proposed Treasury regulations, a holder (other than an individual) who transfers
a Note through another method may be subject to an excise tax equal to the
product of (i) 1% of the principal amount of the obligation transferred and (ii)
the number of calendar years (or portions thereof) remaining until the maturity
of such obligation.
BACKUP WITHHOLDING AND INFORMATION REPORTING. In general, a United States
Holder of a Note will be subject to backup withholding at the rate of 31% with
respect to interest, principal and premium, if any, paid on a Note, unless the
holder (a) is an entity (including corporations, tax-exempt organizations and
certain qualified nominees) that is exempt from withholding and, when required,
demonstrates this fact, or (b) provides the Company with its Taxpayer
Identification Number ("TIN") (which for an individual would be the holder's
Social Security Number), certifies that the TIN provided to the Company is
correct and that the holder has not been notified by the IRS that it is subject
to backup withholding due to underreporting of interest or dividends, and
otherwise complies with applicable requirements of the backup withholding rules.
In addition, such payments of principal, premium and interest to United States
Holders that are not corporations, tax-exempt organizations or qualified
nominees will generally be subject to information reporting requirements. A
holder of Notes who does not provide the Company with his correct TIN may be
subject to penalties imposed by the IRS.
The Company will report to holders of the Notes and the IRS the amount of
any "reportable payments" (including any interest paid) and any amount withheld
with respect to the Notes during the calendar year.
The amount of any backup withholding from a payment to a holder will be
allowed as a credit against such holder's federal income tax liability and may
entitle such holder to a refund, provided that the required information is
furnished to the IRS.
UNITED STATES TAXATION OF FOREIGN HOLDERS
PAYMENT OF INTEREST ON THE NOTES. In general, payments of interest received
by any holder of a Note that is not a United States Holder (a "Foreign Holder")
will not be subject to a United States federal withholding tax, provided that
(a)(i) the holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (ii) the holder is not a controlled foreign corporation that is related to
the Company actually or constructively through stock ownership and (iii) either
(x) the beneficial owner of the Note, under penalties of perjury, provides the
Company or its agent with the beneficial owner's name and address and certifies
that it is not a United States Holder on IRS Form W-8 (or a suitable substitute
form) or (y) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "financial institution") holds the Note and certifies to the
Company or its agent under penalties of perjury that such a Form W-8 (or
suitable substitute form) has been received by it from the beneficial owner or
qualifying intermediary and furnishes the payor a copy thereof, (b) the Foreign
Holder is subject to United States federal income tax with respect to the Note
on a net basis because payments received with respect to the Note are
effectively connected with a U.S. trade or business of the Foreign Holder (in
which case the Foreign Holder may also be subject to "branch profits tax" under
section 884 of the Code) and provides the Company with a properly executed IRS
Form 4224, or (c) the Foreign Holder is entitled to the benefits of an income
tax treaty under which the interest is exempt from United States withholding tax
and the Foreign Holder or such Holder's agent provides a properly executed IRS
Form 1001 claiming the exemption. Payments of interest not exempt from U.S.
federal
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withholding tax as described above will be subject to such withholding tax at
the rate of 30% (subject to reduction under an applicable income tax treaty).
In April 1996, the IRS issued proposed regulations that would change certain
of the certification and other procedures described in the preceding paragraph
(the "1996 Proposed Regulations"). The changes set forth in the 1996 Proposed
Regulations would not materially affect a Foreign Holder's ability to qualify
for an exemption from withholding tax with respect to payments of interest on
the Note. Under the 1996 Proposed Regulations, a Foreign Holder claiming the
benefit of an income tax treaty as described in clause (c) of the preceding
paragraph (but not a Foreign Holder claiming the portfolio interest exemption
described in clause (a)) would be required to provide its TIN to the payor. The
1996 Proposed Regulations would apply to payments of interest made after
December 31, 1997, which date could be postponed when final regulations are
issued.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES. A Foreign Holder generally will
not be subject to United States federal income tax (and generally no tax will be
withheld) with respect to gain realized on the sale, exchange, redemption,
retirement at maturity or other disposition of Notes, unless (i) the gain is
effectively connected with a United States trade or business conducted by the
Foreign Holder, or (ii) the Foreign Holder is an individual who is present in
the United States for a period or periods aggregating 183 or more days in the
taxable year of the disposition and certain other conditions are met.
With respect to a Foreign Holder subject to United States federal income tax
as described in the preceding paragraph, an exchange of an Existing Note for a
Note should not constitute a taxable exchange of the Existing Note (see
"Exchange Offer" described above). As described under "-- United States Taxation
of United States Holders -- Payment upon Registration Default," the Existing
Notes provide for the payment of liquidated damages upon a Registration Default.
Foreign Holders should consult their tax advisors as to the tax considerations
relating to debt instruments providing for payments such as the liquidated
damages.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Under current Treasury
regulations, backup withholding and information reporting do not apply to
payments made by the Company or a paying agent to Foreign Holders if the
certification described under "-- Payment of Interest on Notes" is received,
provided that the payor does not have actual knowledge that the holder is a
United States person. If any payments of principal and interest are made to the
beneficial owner of a Note by or through the foreign office of a foreign
custodian, foreign nominee or other foreign agent of such beneficial owner, or
if the foreign office of a foreign "broker" (as defined in applicable Treasury
regulations) pays the proceeds of the sale of a Note or a coupon to the seller
thereof, backup withholding and information reporting will not apply.
Information reporting requirements (but not backup withholding) will apply,
however, to a payment by a foreign office of a broker that is a United States
person, that derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the United States, or that is a
"controlled foreign corporation" (generally, a foreign corporation controlled by
United States shareholders) with respect to the United States, unless the broker
has documentary evidence in its records that the holder is a Foreign Holder and
certain other conditions are met, or the holder otherwise establishes an
exemption. Payment by a United States office of a broker is subject to both
backup withholding at a rate of 31% and information reporting unless the holder
certifies under penalties of perjury that it is a Foreign Holder, or otherwise
establishes an exemption. A Foreign Holder may obtain a refund or a credit
against such Holder's U.S. federal income tax liability of any amounts withheld
under the backup withholding rules, provided the required information is
furnished to the IRS.
In addition, in certain circumstances, interest on a Note owned by a Foreign
Holder will be required to be reported annually on IRS Form 1042S, in which case
such form will be filed with the IRS and furnished to the Foreign Holder.
FEDERAL ESTATE TAXES. Subject to applicable estate tax treaty provisions,
Notes held at the time of death (or theretofore transferred subject to certain
retained rights or powers) by an individual who at the time of death is a
Foreign Holder will not be included in such Holder's gross estate for United
States federal estate tax purposes provided that (a) the individual does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote and (b) the income on the
Notes is not effectively connected with the conduct of a United States trade or
business by the individual.
135
<PAGE>
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form, without coupons. Except as described below, the New Notes will
be deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC"), and registered in the name of Cede & Co. ("Cede") as DTC's nominee
in the form of a global Note certificate (the "Global Certificate") or will
remain in the custody of the Trustee pursuant to the FAST Balance Certificate
Agreement between DTC and the Trustee.
Existing Notes transferred to (i) institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who are not
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) ("QIBs"), (ii) except as described below, persons outside the United States
pursuant to sales in accordance with Regulation S under the Securities Act or
(iii) any other persons who are not QIBs (collectively, "Non-Global Purchasers")
were issued in registered form without coupons (the "Certificated Notes"). Upon
the transfer to a QIB of Certificated Existing Notes initially issued to a
Non-Global Purchaser, such Certificated Existing Notes will be exchanged for an
interest in the Global Certificate representing the Existing Notes in the
custody of the Trustee representing the principal amount of Notes being
transferred. See "-- Certificated Notes."
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking organization"
within the meaning of the New York banking law, (iii) a member of the Federal
Reserve System, (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (v) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Certificate representing New Notes, DTC will credit the
account of Participants tendering Existing Notes in exchange for New Notes with
an interest in the Global Certificate and (ii) ownership of beneficial interests
therein will be effected only through records maintained by DTC (with respect to
interests of Participants), Participants and Indirect Participants. The laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own and that security interests in negotiable
instruments can only be perfected by delivery of certificates representing the
instruments. Consequently, the ability to transfer the Notes or to pledge the
Notes as collateral to persons in such states will be limited to such extent.
So long as DTC or its nominee is the registered owner of a Global
Certificate, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by the Global Certificate for all
purposes under the Indenture and the Notes. Except as provided below, owners of
beneficial interests in a Global Certificate will not be entitled to have Notes
represented by such Global Certificate registered in their names, will not
receive or be entitled to receive physical delivery of Certificated Notes, and
will not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any direction, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Notes represented by a Global Certificate to pledge or
transfer such interest to persons or entities that do not participate in DTC's
system or otherwise to take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
136
<PAGE>
Accordingly, each holder of New Notes owning a beneficial interest in a
Global Certificate must rely on the procedures of DTC and, if such holder of New
Notes is not a Participant or an Indirect Participant, on the procedures of the
Participant through which such holder of New Notes owns its interest, to
exercise any rights of a holder of Notes under the Indenture. The Company
understands that under existing industry practice, in the event the Company
requests any action of a holder of New Notes or a holder of New Notes that is an
owner of a beneficial interest in a Global Certificate desires to take any
action that DTC, as the holder of such Global Certificate, is entitled to take,
DTC would authorize the Participant to take such action or would otherwise act
upon the instruction of such holder of New Notes. Neither the Company nor the
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of the New Notes by DTC, or for
maintaining, supervising or reviewing any records of DTC relating to such New
Notes or for any other matter relating to the actions or procedures of DTC.
Payments with respect to the principal of, premium, if any, and interest on,
any Notes represented by a Global Certificate registered in the name of DTC or
its nominee on the applicable record date will be payable by the Trustee to or
at the direction of DTC or its nominee in its capacity as the registered holder
of the Global Certificate representing such Notes under the Indenture. Under the
terms of the Indenture, the Company and the Trustee may treat the persons in
whose names the Notes, including the Global Certificate, are registered as the
owners thereof for the purpose of receiving such payment and for any and all
other purposes whatsoever. Consequently, neither the Company nor the Trustee has
or will have any responsibility or liability for the payment of such amounts to
beneficial owners of interests in the Global Certificate (including principal,
premium, if any, and interest), or to immediately credit the accounts of the
relevant Participants with such payment, in an amount proportionate to their
respective holdings in principal amount of the Global Certificate as shown on
the records of DTC. The Company expects that payments by the Participant and the
Indirect Participant to the beneficial owners of interests in the Global
Certificate will be governed by standing instructions and customary practice and
will be the responsibility of the Participant or the Indirect Participant and
DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from the sources the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository or DTC ceases to be registered as a
clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Certificate, then
Certificated Notes will be issued to each person that DTC identifies as the
beneficial owner of the Notes represented by the Global Certificate. In
addition, subject to certain conditions, any person having a beneficial interest
in a Global Certificate may, upon request to the Trustee, exchange such
beneficial interest for Certificated Notes. Upon any such issuance, the Trustee
is required to register such Certificated Notes in the name of such person or
persons (or the nominee of any thereof), and cause the same to be delivered
thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Existing Notes to be issued).
137
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. 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 Notes received in exchange for Existing Notes
where such Existing Notes were acquired as a result of market-making activities
or other trading activities. Riverwood has agreed that, for a period of up to 90
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any such broker-dealer for use in connection with any
such resale. In addition, until November 10, 1997, all dealers effecting
transactions in the New Notes may be required to deliver a prospectus.
Riverwood will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit or any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states 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 up to 90 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any participating broker-dealer that is
entitled to use such documents and that requests such documents in the Letter of
Transmittal. The Company has agreed to pay all expenses incident to the Exchange
Offer other than commissions or concessions of any brokers-dealers and will
indemnify the Holders of the Existing Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
Chase Securities Inc. ("CSI") is an affiliate of The Chase Manhattan Bank,
which is administrative agent and a lender to the Company under the Senior
Secured Credit Facilities and the Machinery Facility. The Chase Manhattan Bank
provided the Tranche D Loan, and received its proportionate share of the
prepayment by Riverwood of amounts outstanding under the Senior Secured Credit
Facilities from the proceeds of the Offering. Chase Equity Associates, L.P., a
California limited partnership and an affiliate of CSI, owns shares representing
approximately 6.6% of Holding's non-voting Common Stock. See "Ownership of
Capital Stock." One of the directors nominated to the Board of each of Holding,
RIC Holding and Riverwood by CD&R Fund V is a designee of Chase Equity
Associates, L.P. See "Management -- Directors and Officers." An affiliate of CSI
is a limited partner of CD&R Fund V. In addition, CSI, The Chase Manhattan Bank
and their affiliates participate on a regular basis in various commercial
banking and investment banking transactions for Riverwood, CD&R and their
respective affiliates.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Debevoise & Plimpton, New York, New York.
138
<PAGE>
EXPERTS
The consolidated balance sheet of Riverwood Holding, Inc. and subsidiaries
as of December 31, 1996 and the related consolidated statements of operations,
cash flows and shareholders' equity for the nine months ended December 31, 1996
and for the three months ended March 27, 1996 (Predecessor), except for the
financial statements of Igaras, the Company's investment that is accounted for
by use of the equity method, included in this Prospectus and the related
financial statement schedule included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement. The
consolidated financial statements of Igaras for the year ended December 31,
1996, included in this Prospectus, have been audited by Coopers & Lybrand
Biedermann, Bordasch, independent accountants, as stated in their report
included herein. Such financial statements of the Company and Igaras are
included in reliance upon the reports of such firms given upon their authority
as experts in accounting and auditing.
The consolidated balance sheets of Igaras as of December 31, 1995 and 1996
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996,
included in this Prospectus, have been included herein in reliance on the report
of Coopers & Lybrand Biedermann, Bordasch, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The consolidated balance sheet of Riverwood as of December 31, 1995 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 1995, included
in this Prospectus, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
With respect to the unaudited interim financial information of Riverwood
Holding, Inc. and subsidiaries as of June 28, 1997 and for the three and six
month periods ended June 28, 1997 and the three months ended June 29, 1996,
except for the financial statements of Igaras, the Company's investment that is
accounted for by use of the equity method, included in this Prospectus, Deloitte
& Touche LLP have applied limited procedures in accordance with professional
standards for a review of such information. With respect to the unaudited
interim financial information of Igaras for the three-month and six-month
periods ended June 30, 1997, not included in this Prospectus, Coopers & Lybrand
Biedermann, Bordasch have reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their reports included in this Prospectus they did not
audit and they do not express an opinion on such interim financial information.
Accordingly, the degree of reliance on their reports on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP and Coopers & Lybrand Biedermann, Bordasch are not subject
to the liability provisions of Section 11 of the Securities Act for their
reports on the unaudited interim financial information because these reports are
not "reports" or a "part" of the registration statement prepared or certified by
an accountant within the meaning of Sections 7 and 11 of the Securities Act.
With respect to the unaudited interim financial information of Igaras for
the three-month and six-month periods ended June 30, 1997, not included in this
Prospectus, Coopers & Lybrand Biedermann, Bordasch have reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report, included in this
Prospectus, states that they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited nature
of the review procedures applied. Coopers & Lybrand Biedermann, Bordasch are not
subject to the liability provisions of Section of 11 of the Securities Act of
1933 for their report on the unaudited interim financial information because
that report is not a "report" or a "part" of the registration statement prepared
or certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act.
139
<PAGE>
GLOSSARY OF CERTAIN TERMS
The following industry terms have the meanings set forth below for purposes
of this Prospectus.
<TABLE>
<S> <C>
Aqua-Kote-Registered Trademark-: Riverwood's trademark for CUK Board used for certain beverage
multiple packaging applications.
Carrierboard: CUK Board used in the beverage industry's multiple packaging
which contains a chemical additive to improve moisture
resistance.
CCN: Recycled clay coated news. A recycled grade of paperboard which
competes with CUK Board and SBS for folding carton applications.
Containerboard: Single- and multi-ply, solid and corrugated paperboard used to
make boxes and other containers for shipping materials (includes
linerboard, corrugating medium and kraft paper).
CUK Board: Coated unbleached kraft board made from unbleached sulfate pulp
and used for beverage carriers and folding cartons.
FBB: Folding boxboard. A grade of coated paperboard that competes with
CUK Board for folding carton applications primarily in
international markets.
Folding cartonboard: Paperboard used for folding carton applications.
Krafbrite-Registered Trademark-: Riverwood's trademark for lightweight CUK Board used for the
outer ply of corrugated cartons, especially corrugated beverage
carriers which require a smooth coated surface for quality
graphics reproduction.
Kraft paper: High-strength paper made from unbleached sulfate pulp used in
making grocery bags and sacks.
Linerboard: Uncoated kraft board used as the inner and outer ply of
corrugated boxes.
OCC: Old corrugated containers. Recycled containers used as raw
material feedstock in the production of paperboard.
OmniKote-Registered Trademark-: Riverwood's trademark for CUK Board that incorporates recycled
fibers into the inner layer, primarily used for folding carton
applications.
Paperboard: Certain heavyweight grades of paper primarily used for packaging
products and including carrierboard, cartonboard, linerboard,
corrugating medium and chip board.
Pearl-Kote-Registered Trademark-: Riverwood's trademark for CUK Board used for certain folding
carton applications.
PET: Polyethylene Terephthalate, a polymer-based material used in
fabrication of plastic bottles.
SBS: Solid bleached sulfate. Bleached paperboard made from bleached
sulfate pulp. Competes with CUK Board and CCN for folding carton
applications.
Sulfate pulp: Cellulose fibers resulting from chemical reduction of wood into
component parts during cooking process utilizing alkaline cooking
liquors ("kraft" process).
</TABLE>
140
<PAGE>
<TABLE>
<S> <C>
Twin-Stack-Registered Trademark-: A double-tier packaging system for cans. Features include machine
operation at speeds of up to 3,000 cans per minute, multiple
packaging configuration of up to 36 cans, in single or double
tiers.
WLC: White lined chip board. A recycled grade of coated paperboard
manufactured in Europe which competes with CUK Board for folding
carton applications.
</TABLE>
141
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
RIVERWOOD HOLDING, INC.:
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Accountants..................................................................... F-2
Consolidated Balance Sheets............................................................................ F-4
Consolidated Statements of Operations.................................................................. F-5
Consolidated Statements of Cash Flows.................................................................. F-6
Consolidated Statements of Shareholders' Equity........................................................ F-8
Notes to Consolidated Financial Statements............................................................. F-9
Selected Quarterly Financial Data (Unaudited).......................................................... F-47
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Reports of Independent Accountants..................................................................... F-49
Condensed Consolidated Balance Sheets.................................................................. F-51
Condensed Consolidated Statements of Operations........................................................ F-52
Condensed Consolidated Statements of Cash Flows........................................................ F-53
Notes to Condensed Consolidated Financial Statements................................................... F-55
IGARAS PAPEIS E EMBALAGENS S.A.:
Report of Independent Accountants...................................................................... F-62
Consolidated Balance Sheets............................................................................ F-63
Consolidated Statements of Operations.................................................................. F-65
Consolidated Statements of Cash Flows.................................................................. F-66
Consolidated Statements of Shareholders' Equity........................................................ F-67
Notes to the Consolidated Financial Statements......................................................... F-68
</TABLE>
F-1
<PAGE>
REPORTS OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Riverwood Holding, Inc.:
We have audited the accompanying consolidated balance sheet of Riverwood
Holding, Inc. and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, cash flows and shareholders' equity for
the three months ended March 27, 1996 (Predecessor) and the nine months ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Igaras Papeis e Embalagens S.A. (Igaras), the Company's investment
in which is accounted for by use of the equity method. The Company's equity of
$121,163,000 in Igaras' net assets at December 31, 1996, and of $4,927,000 and
$17,542,000 in Igaras' net income for the three months ended March 27, 1996 and
the nine months ended December 31, 1996, are included in the accompanying
financial statements. The financial statements of Igaras for the year ended
December 31, 1996 were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for such
company, is based on the report of such other auditors.
We conducted our audits in accordance with generally acceptable auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
such consolidated financial statements present fairly, in all material respects,
the financial position of Riverwood Holding, Inc. and subsidiaries at December
31, 1996, and the results of their operations and their cash flows for the three
months ended March 27, 1996 (Predecessor) and the nine months ended December 31,
1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 17, 1997
F-2
<PAGE>
To the Stockholders and Directors of
Riverwood Holding, Inc.:
We have audited the accompanying consolidated balance sheets of Riverwood
International Corporation as of December 31, 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the two
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company'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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Riverwood
International Corporation as of December 31, 1995, and the consolidated results
of its operations and its cash flows for each of the two years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
January 22, 1996
F-3
<PAGE>
RIVERWOOD HOLDING, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
On March 27, 1996, Holding, through its wholly owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. The purchase method of
accounting was used to record assets acquired and liabilities assumed by
Holding. As a result of the Merger, purchase accounting and the effect of
discontinued operations (see Notes 1 and 25), the accompanying financial
statements of the Predecessor and the Company are not comparable in all material
respects since the financial statements report financial position, results of
operations and cash flows of these two separate entities.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------- --------------
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents............................................................ $ 16,499 $ 35,870
Marketable securities........................................................... 858 1,375
Receivables, net of allowances.................................................. 153,864 187,621
Inventories..................................................................... 211,965 193,703
Prepaid expenses................................................................ 8,113 23,229
Deferred tax assets............................................................. 2,897 18,754
-------------- --------------
Total Current Assets.............................................................. 394,196 460,552
-------------- --------------
Property, Plant and Equipment, at cost:
Land and improvements........................................................... 35,761 52,292
Buildings....................................................................... 117,042 160,388
Machinery and equipment......................................................... 1,608,182 1,490,420
-------------- --------------
1,760,985 1,703,100
Less, Accumulated Depreciation.................................................... 85,768 475,897
-------------- --------------
1,675,217 1,227,203
Timber and Timberlands, less cost of timber harvested............................. -- 238,887
-------------- --------------
Property, Plant and Equipment, net................................................ 1,675,217 1,466,090
Deferred Tax Assets............................................................... 1,532 8,333
Investments in Net Assets of Equity Affiliates.................................... 125,030 119,592
Goodwill, net of accumulated amortization of $5,900 in 1996 and $14,996 in 1995... 318,543 59,229
Other Assets...................................................................... 156,969 87,532
-------------- --------------
Total Assets...................................................................... $ 2,671,487 $ 2,201,328
-------------- --------------
-------------- --------------
LIABILITIES
Current Liabilities:
Short-term debt................................................................. $ 18,173 $ 60,692
Accounts payable................................................................ 125,014 114,293
Compensation and employee benefits.............................................. 38,017 56,495
Income taxes.................................................................... 42,031 4,688
Other accrued liabilities....................................................... 112,205 58,384
-------------- --------------
Total Current Liabilities......................................................... 335,440 294,552
Long-Term Debt, less current portion.............................................. 1,567,259 1,041,221
Debt to Affiliate................................................................. -- 12,573
Deferred Income Taxes............................................................. 19,722 232,195
Other Noncurrent Liabilities...................................................... 85,467 58,477
-------------- --------------
Total Liabilities................................................................. 2,007,888 1,639,018
-------------- --------------
CONTINGENCIES AND COMMITMENTS (Note 15)
REDEEMABLE COMMON STOCK, at current redemption value.............................. 9,390 --
-------------- --------------
SHAREHOLDERS' EQUITY
Nonredeemable Common Stock........................................................ 75 657
Capital in Excess of Par Value.................................................... 751,153 526,814
(Accumulated Deficit) Retained Earnings........................................... (105,136) 45,309
Cumulative Currency Translation Adjustment........................................ 8,117 (10,470)
-------------- --------------
Total Shareholders' Equity........................................................ 654,209 562,310
-------------- --------------
Total Liabilities and Shareholders' Equity........................................ $ 2,671,487 $ 2,201,328
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
RIVERWOOD HOLDING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
On March 27, 1996, Holding, through its wholly owned subsidiaries, acquired all
of the outstanding shares of common stock of RIC. The purchase method of
accounting was used to record assets acquired and liabilities assumed by
Holding. As a result of the Merger, purchase accounting and the effect of
discontinued operations (see Notes 1 and 25), the accompanying financial
statements of the Predecessor and the Company are not comparable in all material
respects since the financial statements report financial position, results of
operations and cash flows of these two separate entities.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------- -------------------------------------
NINE MONTHS THREE
ENDED MONTHS YEAR ENDED YEAR ENDED
DECEMBER ENDED DECEMBER DECEMBER
31, MARCH 27, 31, 31,
1996 1996 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales................................... $ 852,112 $ 293,649 $1,342,304 $1,282,788
Cost of Sales............................... 734,314 232,701 1,050,081 995,238
Selling, General and Administrative......... 99,819 30,936 126,191 131,073
Research, Development and Engineering....... 7,339 2,031 9,909 9,356
Other Costs................................. -- 11,114 21,516 1,302
Other (Expense) Income, net................. (9,221) (1,217) (1,470) 8,368
----------- ----------- ----------- -----------
Income from Operations...................... 1,419 15,650 133,137 154,187
Interest Income............................. 702 329 2,006 3,493
Interest Expense............................ 145,845 26,392 105,741 93,243
----------- ----------- ----------- -----------
(Loss) Income from Continuing Operations
before Income Taxes and Equity in Net
Earnings of Affiliates.................... (143,724) (10,413) 29,402 64,437
Income Tax Expense (Benefit)................ 4,180 (3,436) 18,797 54,188
----------- ----------- ----------- -----------
(Loss) Income from Continuing Operations
before Equity in Net Earnings of
Affiliates................................ (147,904) (6,977) 10,605 10,249
Equity in Net Earnings of Affiliates........ 17,542 4,927 34,933 --
----------- ----------- ----------- -----------
(Loss) Income from Continuing Operations.... (130,362) (2,050) 45,538 10,249
Income from Discontinued Operations, net of
tax of $0................................. 35,546 -- -- --
----------- ----------- ----------- -----------
(Loss) Income before Extraordinary Item..... (94,816) (2,050) 45,538 10,249
Extraordinary Loss on Early Extinguishment
of Debt, net of tax....................... (10,320) -- -- (7,872)
----------- ----------- ----------- -----------
Net (Loss) Income........................... $(105,136) $ (2,050) $ 45,538 $ 2,377
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
RIVERWOOD HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
On March 27, 1996, Holding, through its wholly owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. The purchase method of
accounting was used to record assets acquired and liabilities assumed by
Holding. As a result of the Merger, purchase accounting and the effect of
discontinued operations (see Notes 1 and 25), the accompanying financial
statements of the Predecessor and the Company are not comparable in all material
respects since the financial statements report financial position, results of
operations and cash flows of these two separate entities.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------- -------------------------------------
NINE MONTHS THREE
ENDED MONTHS YEAR ENDED YEAR ENDED
DECEMBER ENDED DECEMBER DECEMBER
31, MARCH 27, 31, 31,
1996 1996 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income........................... $(105,136) $ (2,050) $ 45,538 $ 2,377
Noncash Items Included in Net (Loss) Income:
Depreciation, amortization and cost of
timber harvested........................ 100,846 24,438 92,646 95,004
Extraordinary loss on early extinguishment
of debt, net............................ 10,320 -- -- 7,872
Deferred income taxes..................... (403) (3,574) 7,047 34,172
Pension, postemployment and postretirement
benefits expense (credit), net of
benefits paid........................... (553) 1,861 (277) 2,305
Translation loss.......................... -- -- -- 7,609
Write-off of deferred debt issuance
costs................................... -- -- -- 2,040
Net gain on sale of assets................ -- -- (1,781) (9,409)
Equity in net earnings of affiliates, net
of dividends............................ (12,136) (4,927) (18,818) --
Amortization of debt issuance costs....... 11,226 619 2,635 2,368
Other, net................................ 979 (2,350) 278 475
Changes Net of Effects of Acquisitions/
Dispositions:
Decrease (Increase) in Current Assets:
Receivables............................... 7,934 14,737 (30,598) (33,870)
Inventories............................... 21,261 (14,659) (29,075) (15,040)
Prepaid expenses.......................... (1,670) 8,298 (3,144) (591)
(Decrease) Increase in Current Liabilities:
Accounts payable.......................... (14,491) 18,182 3,484 5,822
Compensation and employee benefits........ (9,977) (10,248) 5,669 22,950
Income taxes.............................. 344 (3,343) (9,969) 722
Other accrued liabilities................... (29,267) 12,360 7,024 3,304
Decrease in Other Noncurrent Liabilities.... (4,199) (2,569) (2,413) (10,749)
----------- ----------- ----------- -----------
Net Cash (Used In) Provided by Operating
Activities................................ (24,922) 36,775 68,246 117,361
----------- ----------- ----------- -----------
</TABLE>
F-6
<PAGE>
RIVERWOOD HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------- -------------------------------------
NINE MONTHS THREE
ENDED MONTHS YEAR ENDED YEAR ENDED
DECEMBER ENDED DECEMBER DECEMBER
31, MARCH 27, 31, 31,
1996 1996 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of RIC, net of Cash Acquired.... (1,459,372) -- -- --
Purchases of Marketable Securities
Classified as Held-to-Maturity............ -- -- (1,375) (34,948)
Proceeds from the Maturities of Marketable
Securities................................ 78 439 2,630 90,147
Acquisition of Equipment Previously Leased
under Operating Leases.................... (46,742) -- -- --
Purchases of Property, Plant and
Equipment................................. (132,286) (44,074) (156,875) (232,472)
Payment for Acquisitions, net............... -- -- (1,087) (20,819)
Proceeds from Sales of Assets, net of
selling costs............................. 550,727 623 20,669 134,180
Increase in Other Assets.................... (7,407) (8,004) (11,401) (23,177)
----------- ----------- ----------- -----------
Net Cash Used in Investing Activities....... (1,095,002) (51,016) (147,439) (87,089)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock,
net....................................... 760,617 838 2,986 619
Issuance of Debt............................ 1,803,146 12,669 1,500 200,213
Increase in Debt Issuance Costs............. (89,792) -- -- (14,909)
Net Increase (Decrease) in Notes Payable.... 111,073 (3,000) 45,000 115,000
Payments on Debt............................ (403,801) (2,833) (42,533) (290,369)
Predecessor Debt Paid at Merger............. (1,046,690) -- -- --
Dividends................................... -- (2,630) (10,506) (10,481)
----------- ----------- ----------- -----------
Net Cash Provided by (Used in) Financing
Activities................................ 1,134,553 5,044 (3,553) 73
----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH........................... 1,869 (638) 904 1,364
----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash and Equiva-
lents..................................... 16,498 (9,835) (81,842) 31,709
Cash and Equivalents at Beginning of
Period.................................... 1 35,870 117,712 86,003
----------- ----------- ----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD....... $ 16,499 $ 26,035 $ 35,870 $ 117,712
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
RIVERWOOD HOLDING, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
On March 27, 1996, Holding, through its wholly owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. The purchase method of
accounting was used to record assets acquired and liabilities assumed by
Holding. As a result of the Merger, purchase accounting and the effect of
discontinued operations (see Notes 1 and 25), the accompanying financial
statements of the Predecessor and the Company are not comparable in all material
respects since the financial statements report financial position, results of
operations and cash flows of these two separate entities.
<TABLE>
<CAPTION>
(ACCUMULATED CUMULATIVE
NONREDEEMABLE CAPITAL IN DEFICIT) CURRENCY PENSION TOTAL
COMMON EXCESS OF RETAINED TRANSLATION LIABILITY SHAREHOLDERS'
PREDECESSOR: STOCK PAR VALUE EARNINGS ADJUSTMENT ADJUSTMENT EQUITY
- --------------------------------- ------------------- ----------- -------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993.... $ 655 $ 523,211 $ 18,381 $ (37,926) $ (4,182) $ 500,139
Net Income....................... -- -- 2,377 -- -- 2,377
Currency translation
adjustment..................... -- -- -- 19,415 -- 19,415
Issuance of 36,411 shares of
Common Stock................... -- 619 -- -- -- 619
Dividends of $0.16 per share on
Common Stock................... -- -- (10,481) -- -- (10,481)
Pension liability adjustment..... -- -- -- -- 4,182 4,182
----- ----------- -------------- ----------- ------------- --------------
Balances at December 31, 1994.... 655 523,830 10,277 (18,511) -- 516,251
Net Income....................... -- -- 45,538 -- -- 45,538
Currency translation
adjustment..................... -- -- -- 8,041 -- 8,041
Issuance of 162,052 shares of
Common Stock................... 2 2,984 -- -- -- 2,986
Dividends of $0.16 per share on
Common Stock................... -- -- (10,506) -- -- (10,506)
----- ----------- -------------- ----------- ------------- --------------
Balances at December 31, 1995.... 657 526,814 45,309 (10,470) -- 562,310
Net (Loss)....................... -- -- (2,050) -- -- (2,050)
Currency translation
adjustment..................... -- -- -- (989) -- (989)
Issuance of 43,148 shares of
Common Stock................... -- 846 -- -- -- 846
Dividends of $0.04 per share on
Common Stock................... -- -- (2,630) -- -- (2,630)
----- ----------- -------------- ----------- ------------- --------------
Balances at March 27, 1996....... $ 657 $ 527,660 $ 40,629 $ (11,459) $ -- $ 557,487
----- ----------- -------------- ----------- ------------- --------------
----- ----------- -------------- ----------- ------------- --------------
- -------------------------------------------------------------------------------------------------------------------------------
COMPANY:
- ---------------------------------
Balances at March 28, 1996....... $ -- $ 1 $ -- $ -- $ -- $ 1
Net (Loss)....................... -- -- (105,136) -- -- (105,136)
Currency translation
adjustment..................... -- -- -- 8,117 -- 8,117
Issuance of 7,000,000 shares of
Class A Common Stock........... 70 699,930 -- -- -- 700,000
Issuance of 500,000 shares of
Class B Common Stock........... 5 49,995 -- -- -- 50,000
Stock Issuance Costs............. -- (451) -- -- -- (451)
Adjustment to redemption value of
Redeemable Common Stock........ -- 1,678 -- -- -- 1,678
----- ----------- -------------- ----------- ------------- --------------
Balances at December 31, 1996.... $ 75 $ 751,153 $ (105,136) $ 8,117 $ -- $ 654,209
----- ----------- -------------- ----------- ------------- --------------
----- ----------- -------------- ----------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Holding and its wholly owned subsidiaries RIC Holding and CDRO Acquisition
Corp. were incorporated in 1995 to acquire the stock of RIC.
On March 27, 1996, Holding, through its wholly owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. On such date, CDRO
Acquisition Corp. was merged into RIC. RIC, as the surviving corporation in the
Merger, became a wholly owned subsidiary of RIC Holding. On March 28, 1996, RIC
transferred substantially all of its properties and assets to Riverwood, other
than the capital stock of Riverwood, and RIC was merged into RIC Holding.
Thereupon, Riverwood was renamed "Riverwood International Corporation." Upon
consummation of the Subsequent Merger, RIC Holding, as the surviving corporation
in the Subsequent Merger, became the parent company of Riverwood.
Holding and its subsidiaries RIC Holding and CDRO Acquisition Corp.
conducted no significant business other than in connection with the Merger and
related transactions through March 27, 1996.
In connection with the Merger, the purchase method of accounting was used to
establish and record a new cost basis for the assets acquired and liabilities
assumed. The difference between the purchase price and the fair market values of
the assets acquired and liabilities assumed was recorded as goodwill.
The allocation of the $1,459.4 million net cash paid for the acquisition is
summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------------------
<S> <C>
Current assets................................................................ $ 412,165
Property, plant and equipment................................................. 2,130,012
Intangible assets............................................................. 385,819
Other noncurrent assets....................................................... 137,476
Liabilities................................................................... (1,606,100)
--------------
Total......................................................................... $ 1,459,372
--------------
--------------
</TABLE>
The consolidated financial statements presented herein for the periods prior
to March 28, 1996, represent the Predecessor's financial position, results of
operations and cash flows prior to the Merger and, consequently, are stated on
the Predecessor's historical cost basis. The consolidated financial statements
as of December 31, 1996, and for nine months then ended, reflect the adjustments
which were made to record the Merger. On October 18, 1996, the Company sold
substantially all of the assets of the U.S. Timberlands/Wood Products business
segment. The operating results for the U.S. Timberlands/Wood Products business
segment have been classified as discontinued operations for the period beginning
March 28, 1996 and ending October 18, 1996 (the date of sale) in the
Consolidated Statements of Operations. Discontinued operations have not been
segregated in the Consolidated Statements of Cash Flows nor have they been
reclassified as discontinued operations in the Predecessor's Consolidated
Statements of Operations and Consolidated Balance Sheets. Accordingly, the
financial statements of the Predecessor for periods prior to March 28, 1996 are
not comparable in all material respects with the financial statements subsequent
to the date of the Merger. The most significant differences relate to
discontinued operations and to amounts recorded in connection with the Merger
for inventory, property, plant and equipment, intangibles and debt which
resulted in increased cost of sales, amortization, depreciation and interest
expense in the nine months ended December 31, 1996 and will continue to do so in
future periods.
F-9
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The following is a summary of significant accounting policies of the
Company. For a summary of the Predecessor's significant accounting policies,
please refer to the Predecessor's financial statements incorporated by reference
in the annual report filed with the Securities and Exchange Commission on Form
10-K dated December 31, 1995.
The accompanying consolidated financial statements include all of the
accounts of Riverwood Holding, Inc. and its subsidiaries. The accompanying
consolidated financial statements include the worldwide operations of the
paperboard, packaging and packaging machinery businesses and through the date of
sale (see Note 25), the wood products business. All significant transactions and
balances between the consolidated operations have been eliminated.
The Company's international subsidiaries are principally consolidated and
reported on the basis of fiscal years ending November 30 and interim quarterly
periods ending on a date approximately one month prior to the U.S. quarterly
periods. The U.S. quarterly periods are generally on a 13-week basis ending on a
Saturday; however, the length of the first and fourth quarters will vary
depending upon the calendar.
The Company accounts for investments in which it has a 20 percent to 50
percent ownership interest and for corporate joint ventures using the equity
method.
(B) CASH AND EQUIVALENTS
Cash and equivalents include time deposits, certificates of deposit and
other marketable securities with original maturities of three months or less.
(C) MARKETABLE SECURITIES
Marketable securities are investments in debt securities with maturities in
excess of three months and are valued at amortized cost, which approximates
market. All marketable securities at December 31, 1996 and 1995 were classified
as held-to-maturity, and have various maturity dates which do not exceed one
year.
(D) INVENTORIES
Inventories are stated at the lower of cost or market. Cost of inventories
is determined principally on the last-in, first-out ("LIFO") basis. Average cost
bases are used to determine the cost of supplies inventories.
(E) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Betterments, renewals
and extraordinary repairs that extend the life of the asset are capitalized;
other repairs and maintenance charges are expensed as incurred. The Company's
cost and related accumulated depreciation applicable to assets retired or sold
are removed from the accounts and the gain or loss on disposition is recognized
in income.
F-10
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest is capitalized on major projects. The capitalized interest is
recorded as part of the asset to which it relates and is amortized over the
asset's estimated useful life. Capitalized interest was approximately $2.0
million, $0.5 million, $2.3 million and $23.0 million in the nine-month period
ended December 31, 1996, the three-month period ended March 27, 1996, and the
years ended December 31, 1995 and 1994, respectively.
(F) DEPRECIATION, AMORTIZATION AND COST OF TIMBER HARVESTED
Depreciation and amortization are principally computed using the
straight-line method based on the following estimated useful lives of the
related assets:
<TABLE>
<S> <C>
Buildings................................................... 10 to 40 years
Land improvements........................................... 3 to 20 years
Machinery and equipment..................................... 2 to 40 years
Furniture and fixtures...................................... 1 to 12 years
Automobiles and light trucks................................ 2 to 5 years
</TABLE>
For certain major capital additions, the Company computes depreciation on
the units-of-production method until the asset's designed level of production is
achieved and sustained.
Cost of timber harvested was based on unit cost rates calculated using the
total estimated yield of timber to be harvested and the unamortized timber
costs.
The Company assesses its long-lived assets other than goodwill for
impairment whenever facts and circumstances indicate that the carrying amount
may not be fully recoverable. To analyze recoverability, the Company projects
future cash flows, undiscounted and before interest, over the remaining life of
such assets. If these projected cash flows are less than the carrying amount, an
impairment would be recognized, resulting in a write-down of assets with a
corresponding charge to earnings. The impairment loss is measured based upon the
difference between the carrying amount and the fair value of the assets.
Goodwill is amortized on a straight-line basis over 40 years. The cost of
patents, licenses and trademarks is amortized on a straight-line basis over 15
to 20 years. The related amortization expense is included in Other (Expense)
Income, net, in the Consolidated Statements of Operations. The Company assesses
goodwill for impairment whenever facts and circumstances indicate that the
carrying amount may not be fully recoverable. To analyze recoverability, the
Company projects future cash flows, undiscounted and before interest, over the
remaining life of the goodwill. If these projected cash flows are less than the
carrying amount of the goodwill, an impairment would be recognized, resulting in
a write down of goodwill with a corresponding charge to earnings. The impairment
loss is measured based upon the difference between the carrying amount of the
goodwill and the undiscounted future cash flows before interest.
(G) CAPITALIZATION AND AMORTIZATION OF CERTAIN COSTS
Certain pre-operating and start-up costs are incurred during the process of
bringing major projects into production. Such costs are deferred until the
project becomes commercially operational. These costs are then amortized over a
five-year period. Included in Other Assets were $0.8 and $12.9 million of
unamortized, pre-operating and start-up costs at December 31, 1996 and 1995,
respectively.
F-11
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(H) INTERNATIONAL CURRENCY
The functional currency for most of the international subsidiaries is the
local currency for the country in which the subsidiaries own their primary
assets. The translation of the applicable currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. Any related translation adjustments are
recorded directly to Shareholders' Equity. Gains and losses on foreign currency
transactions are included in Other (Expense) Income, net, in the Consolidated
Statements of Operations for the period in which the exchange rate changes.
The Company enters into forward exchange contracts to hedge certain foreign
currency denominated exposures and option contracts to hedge anticipated
transactions denominated in foreign currency. Realized and unrealized gains and
losses on these contracts are included in Other (Expense) Income, net, in the
Consolidated Statements of Operations. The discount or premium on a forward
exchange contract is included in the measurement of the basis of the related
foreign currency transaction when recorded. The premium on an option contract is
accounted for separately and amortized to Other (Expense) Income, net, over the
term of the contract.
The Igaras operations are in a highly inflationary economy and use the U.S.
dollar as the functional currency. Therefore, in accordance with accounting
standards, certain assets of this entity were translated at historical exchange
rates and all translation adjustments were reflected in the Consolidated
Statements of Operations in 1994 when the Brazilian operations were consolidated
(see Note 27). Certain amounts reported as exchange gains and losses associated
with these Brazilian operations were reflected on a gross basis against the Net
Sales and Cost of Sales line items in 1994. The effect of this accounting
treatment was to decrease Net Sales and Cost of Sales for Brazilian operations,
thereby reflecting actual U.S. dollar prices and terms and reducing the
financial reporting effects of hyperinflation. All other Brazilian translation
gains and losses were included in Other (Expense) Income, net.
(I) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109. The
Standard requires, among other things, the use of the liability method of
computing deferred income taxes. Under the liability method, the effect of
changes in corporate tax rates on deferred income taxes is recognized currently
as an adjustment to income tax expense. The liability method also requires that
deferred tax assets or liabilities be recorded based on the difference between
the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes. A valuation allowance is established for deferred tax assets
when it is more likely than not that the benefits of such assets will not be
realized.
Income taxes are provided at rates applicable in the countries in which the
income is earned. Investment tax credits granted by various countries are
accounted for as reductions of income tax expense in the year in which the
related expenditures become eligible for investment benefit under applicable tax
regulations.
(J) REVENUE RECOGNITION
The Company recognizes revenue primarily when goods are shipped to
customers. Revenues from packaging machinery use agreements are recognized on a
straight-line basis over the term of the agreements.
F-12
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(K) INSURANCE RESERVES
It is the Company's policy to self-insure or fund a portion of certain
expected losses related to group health benefits. Provisions for losses expected
are recorded based on the Company's estimates, on an undiscounted basis, of the
aggregate liabilities for known claims and estimated claims incurred but not
reported.
(L) ENVIRONMENTAL REMEDIATION RESERVES
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals for
such losses are adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation obligations
are not discounted to their present value.
(M) USE OF ESTIMATES
The preparation of the consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual amounts could differ from those estimates.
(N) RECLASSIFICATION
The Company has reclassified the presentation of certain prior period
information to conform with the current presentation format.
NOTE 3 -- RECEIVABLES
The components of receivables at December 31 were as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------- -----------
(IN THOUSANDS OF DOLLARS) 1996 1995
- ----------------------------------------------------- --------- -----------
<S> <C> <C>
Trade................................................ $ 138,587 $ 178,845
Less, allowance...................................... 829 1,476
--------- -----------
137,758 177,369
Other................................................ 16,106 10,252
--------- -----------
$ 153,864 $ 187,621
--------- -----------
--------- -----------
</TABLE>
Selling, General and Administrative expenses included provisions for losses
on receivables of $1.0 million in the nine-month period ended December 31, 1996,
$0.2 million in the three-month period ended March 27, 1996, $0.6 million in
fiscal year 1995 and $0.1 million in fiscal year 1994.
NOTE 4 -- FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business. These financial instruments include foreign
currency forward exchange and option contracts
F-13
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- FINANCIAL INSTRUMENTS (CONTINUED)
and interest rate swap and cap agreements. These instruments involve, to varying
degrees, elements of market and credit risk in excess of the amounts recognized
in the Consolidated Balance Sheets. The Company does not hold or issue financial
instruments for trading purposes.
The Company enters into forward exchange contracts to hedge substantially
all accounts receivable and certain accounts payable resulting from transactions
denominated in nonfunctional currencies. The purpose of the forward exchange
contracts is to protect the Company from the risk that the eventual functional
currency cash flows resulting from the collection of the hedged accounts
receivable or payment of the hedged accounts payable will be adversely affected
by changes in exchange rates. At December 31, 1996 and 1995, the Company and the
Predecessor had various forward exchange contracts, with maturities ranging up
to one year, to exchange nonfunctional currencies for functional currencies (to
hedge accounts receivable and payable denominated in non-functional currencies).
When aggregated and measured in U.S. dollars at year-end exchange rates, these
forward exchange contracts totaled approximately $60.0 million and $74.6 million
at December 31, 1996 and 1995, respectively. Generally, unrealized gains and
losses resulting from these contracts are recognized currently in operations and
approximately offset corresponding unrealized gains and losses recognized on the
hedged accounts receivable or accounts payable.
The Predecessor also entered into forward contracts to hedge the debt
incurred in connection with the acquisition of a beverage and folding carton
converting business in France (see Note 27). The Company assumed these forward
contracts in the Merger. The purpose of the forward contract was to protect the
Company from the risk that the eventual functional currency cost of the debt
incurred in connection with the acquisition would be adversely affected by
changes in exchange rates. At December 31, 1996 and 1995, these forward
contracts totaled approximately $5.7 million and $11.3 million, respectively.
Unrealized losses resulting from these forward contracts were not significant at
both December 31, 1996 and 1995.
During 1996 and 1995, the Company and the Predecessor entered into option
contracts to hedge certain anticipated foreign currency transactions. The
purpose of the option contracts is to protect the Company from the risk that the
eventual functional currency cash flows resulting from anticipated foreign
currency transactions will be adversely affected by changes in exchange rates.
At December 31, 1996 and 1995, various option contracts existed, with maturities
ranging up to six and nine months, respectively. When aggregated and measured in
U.S. dollars at year-end exchange rates, the notional amounts under these
purchased option contracts totaled approximately $40.4 million and $35.3 million
at December 31, 1996 and 1995, respectively. Option contract premiums are
amortized over the term of the contract. Gains, if any, related to these
contracts are recognized in income when the anticipated transaction occurs.
Total gains recognized on option contracts during the nine-month period ended
December 31, 1996, the three-month period ended March 27, 1996, and fiscal years
1995 and 1994 totaled approximately $0.1 million, nil, $2.1 million and $0.1
million, respectively. At both December 31, 1996 and 1995, unrealized gains on
these option contracts were nil. Also included as part of its option contracts
at December 31, 1995, the Predecessor had outstanding call spreads that operated
as an initial option contract cost reduction device. When aggregated and
measured in U.S. dollars at year-end exchange rates, these call spreads totaled
approximately $11.3 million at December 31, 1995. There were no call spreads
outstanding at December 31, 1996. Gains and losses resulting from call spreads
are recognized currently in operations based on quoted market prices. Net gains
resulting from call spreads recognized during the nine months ended December 31,
1996, the three months ended
F-14
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- FINANCIAL INSTRUMENTS (CONTINUED)
March 27, 1996, and fiscal years 1995 and 1994 totaled approximately nil, $0.1
million, $0.3 million and $0.2 million, respectively.
The Company uses interest rate swap and cap agreements to fix or cap a
portion of its variable rate Term Loan Facility to a fixed rate in order to
reduce the impact of interest rate changes on future income. The differential to
be paid or received under these agreements is recognized as an adjustment to
interest expense related to the debt. At December 31, 1996, the Company had
interest rate swap agreements (with a notional amount of $250 million) under
which the Company will pay fixed rates of 6.07 percent to 6.38 percent and
receive three-month LIBOR. At December 31, 1996, the Company capped its three-
month LIBOR interest rate exposure to 7.0 percent under cap agreements (with a
notional amount of $400 million) that expire through November 30, 1998.
The Company's customers are not concentrated in any specific geographic
region, but are concentrated in certain industries. Customers of the Coated
Board business segment include the beverage and packaged foods industries.
Customers of the Containerboard business segment include integrated and
non-integrated containerboard converters. Customers of the U.S. Timberlands/Wood
Products business segment (through the date of sale, see Note 25) included
building material suppliers and related brokers. During the nine months ended
December 31, 1996, one customer accounted for approximately 11 percent of the
Company's net sales. During the three months ended March 27, 1996 and the years
ended December 31, 1995 and 1994, no single customer accounted for more than 10
percent of the Predecessor's net sales. There were no significant accounts
receivable from a single customer at December 31, 1996 and 1995. The Company
reviews a customer's credit history before extending credit. The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends, and other information.
The following methods and assumptions were used to estimate the fair value
of each category of financial instrument for which it is practicable to estimate
that value:
CASH, EQUIVALENTS, MARKETABLE SECURITIES, NONTRADE RECEIVABLES AND SHORT-
TERM BORROWINGS
The carrying amount of these instruments approximates fair value due to
their short-term nature.
LONG-TERM DEBT
The fair value of long-term debt is based on quoted market prices or the
discounted cash flows method.
FORWARD EXCHANGE AND OPTION CONTRACTS
The fair value of forward and option contracts is based on notional amounts
at quoted market prices.
INTEREST RATE SWAP AND CAP AGREEMENTS
The fair value of interest rate swap and cap agreements is based on notional
amounts and adjusted for quoted market prices by counter parties.
F-15
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair value of the Company's financial
instruments as of December 31 were as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------------------------------------------
1996 1995
----------------------------------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS OF DOLLARS) AMOUNTS VALUE AMOUNTS VALUE
- ------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash, equivalents and marketable
securities............................... $ 17,357 $ 17,357 $ 37,245 $ 37,245
Nontrade receivables....................... $ 16,106 $ 16,106 $ 10,252 $ 10,252
Short-term borrowings...................... $ 6,919 $ 6,919 $ 10,489 $ 10,489
Long-term debt............................. $1,578,513 $1,521,444 $1,103,997 $1,170,548
Currency forward exchange contracts........ $ 65,666 $ 65,518 $ 85,861 $ 86,297
Currency option contracts.................. $ 90 $ 196 $ 156 $ 151
Interest rate swap contracts............... $ -- $ (1,689) $ -- $ --
Interest rate cap contracts................ $ 992 $ 160 $ -- $ --
</TABLE>
NOTE 5 -- INVENTORIES
The major classes of inventories at December 31 were as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------- -----------
(IN THOUSANDS OF DOLLARS) 1996 1995
- ----------------------------------------------------- --------- -----------
<S> <C> <C>
Finished goods....................................... $ 89,412 $ 67,336
Work-in-process...................................... 12,496 19,941
Raw materials........................................ 71,075 61,298
Supplies............................................. 38,982 45,128
--------- -----------
$ 211,965 $ 193,703
--------- -----------
--------- -----------
</TABLE>
Inventories in the amount of $33.0 million and $121.1 million at December
31, 1996 and 1995, respectively, were valued using the first-in, first-out
("FIFO") or average cost method. The balance of the inventories was valued using
the LIFO method (see Note 23). The excess of current values over amounts for
financial reporting purposes was $1.5 million and $29.4 million at December 31,
1996 and 1995, respectively. The Predecessor valued its U.S. inventories
principally on the LIFO basis while all international inventories were valued on
the FIFO basis.
In connection with the Merger, the Company adjusted its inventory balances
to its estimated fair value which resulted in the elimination of the
Predecessor's LIFO reserve of approximately $28.3 million and a write-up of the
acquired inventory to a value which exceeded the Predecessor's FIFO cost by
approximately $16.3 million. The write-up to inventory is charged to cost of
sales when, and if, the March 27, 1996 LIFO base inventory layers are
liquidated. Approximately $0.6 million of this fair value write-up of
inventories was charged to cost of sales during the nine months ended December
31, 1996.
As it relates to discontinued operations (see Note 25), the Company wrote up
its acquired inventory to a value which exceeded the Predecessor's FIFO cost of
approximately $2.7 million and such inventory was included in the value of the
assets sold as no liquidation of base inventory layers occurred in the
discontinued operations inventories through the date of sale.
F-16
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INVESTMENTS IN NET ASSETS OF EQUITY AFFILIATES
The major components of Investments in Net Assets of Equity Affiliates at
December 31 were as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------- -----------
(IN THOUSANDS OF DOLLARS) 1996 1995
- ----------------------------------------------------- --------- -----------
<S> <C> <C>
Equity investment in Igaras.......................... $ 121,163 $ 118,177
Other equity investments............................. 3,867 1,415
--------- -----------
$ 125,030 $ 119,592
--------- -----------
--------- -----------
</TABLE>
Investments are accounted for using the equity method of accounting. The
most significant of these investments is Igaras. On December 29, 1994,
Predecessor sold approximately 50 percent of its investment in Igaras to
Companhia Suzano Papel e Celulose, S.A. ("Suzano") for $100 million in cash
after first spinning off a wholly owned subsidiary to operate its packaging
machinery operations in Brazil. Prior to that date, the Predecessor owned 100
percent of Igaras. The results of operations of Igaras are consolidated with the
Predecessor's results of operations through the date of sale. In connection with
the Merger, Suzano received an additional share of common stock of Igaras, and
as a result, the Company and Suzano each own 50 percent of the common stock of
Igaras.
As of December 29, 1994, the Company (and prior to the Merger, the
Predecessor) has the ability to exercise significant influence, but not control,
over the operating and financial policies of Igaras. The agreement governing the
Igaras joint venture relationship specifies that each party has equal
representation on the board of directors and each party exercises equal
influence over Igaras's accounting and operating activities. Accordingly, the
Company reports its investment in Igaras using the equity method of accounting.
The following unaudited pro forma data summarize the results of operations for
1994 as if the sale of approximately 50 percent of Igaras had occurred prior to
1994, and the equity method was used to record Predecessor's interest in
Igaras's 1994 results of operations.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1994
(IN THOUSANDS OF
DOLLARS)
(UNAUDITED)
------------------------
<S> <C>
Net Sales........................................................... $ 1,129,633
Cost of Sales....................................................... 894,940
Selling, General and Administrative................................. 115,733
Research, Development, and Engineering.............................. 9,220
Other Costs......................................................... 1,302
Other Income, net................................................... 11,653
-----------
Income from Operations............................................ 120,091
Interest Income..................................................... 2,550
Interest Expense.................................................... 85,175
-----------
Income before Income Taxes, Equity in Net Earnings of Affiliate and
Extraordinary Item................................................ 37,466
Income Taxes........................................................ 18,818
Equity in Net Earnings of Affiliate................................. 9,869
-----------
Income before Extraordinary Item.................................. $ 28,517
-----------
-----------
</TABLE>
F-17
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INVESTMENTS IN NET ASSETS OF EQUITY AFFILIATES (CONTINUED)
The following represents the summarized balance sheet information for Igaras
as of December 31:
<TABLE>
<CAPTION>
<S> <C> <C>
COMPANY PREDECESSOR
--------- -----------
(IN THOUSANDS OF DOLLARS) 1996 1995
- ----------------------------------------------------- --------- -----------
Current Assets....................................... $87,543 $109,985
Noncurrent Assets.................................... $ 286,382 $ 243,369
Current Liabilities.................................. $70,678 $90,278
Noncurrent Liabilities............................... $31,964 $26,465
Shareholders' Equity................................. $ 271,283 $ 236,611
</TABLE>
The following represents the summarized income statement information for
Igaras for the nine months ended December 31, 1996, the three months ended March
27, 1996 and the year ended December 31, 1995:
<TABLE>
<CAPTION>
COMPANY
---------------- PREDECESSOR
NINE MONTHS ----------------------------------
ENDED THREE MONTHS YEAR ENDED
DECEMBER 31, ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1996 MARCH 27, 1996 1995
- --------------------------------------- ---------------- ----------------- ---------------
Net Sales.............................. $ 175,116 $ 59,582 $ 275,551
<S> <C> <C> <C>
Cost of Sales.......................... 117,615 38,962 139,011
---------------- -------- ---------------
Gross Profit........................... $ 57,501 $ 20,620 $ 136,540
---------------- -------- ---------------
---------------- -------- ---------------
Income from Operations................. $ 42,350 $ 14,521 $ 108,532
---------------- -------- ---------------
---------------- -------- ---------------
Net Income............................. $ 34,552 $ 10,113 $ 70,010
---------------- -------- ---------------
---------------- -------- ---------------
</TABLE>
During the nine-month period ended December 31, 1996, the three-month period
ended March 27, 1996 and the year ended December 31, 1995, paperboard was sold
to Igaras totaling approximately $4.8 million, $0.3 million and $6.0 million,
respectively. The amount of the carrying value of the investment in Igaras at
December 31, 1996 differs from the underlying equity in net assets by $14.5
million and relates to the write-down of this investment to estimated fair value
in purchase accounting and to the elimination of profit in Igaras's ending
inventory. The amount of the carrying value of the investment in Igaras at
December 31, 1995 differs from the underlying equity in net assets by $0.1
million and relates to the elimination of profit in Igaras's ending inventory.
Included in Receivables at December 31, 1996 and 1995 were amounts due from
Igaras of $4.2 million and $0.6 million, respectively.
The amount of the Company's portion of Igaras's undistributed earnings at
December 31, 1996 and 1995 was approximately $12.2 million and $32.8 million,
respectively. The amount of dividends received from Igaras during the nine
months ended December 31, 1996, the three months ended March 27, 1996 and the
year ended December 31, 1995 were $5.0, nil and $16.1 million, respectively.
F-18
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- OTHER ASSETS
Other Assets included the following at December 31:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------- -----------
(IN THOUSANDS OF DOLLARS) 1996 1995
- ----------------------------------------------------- --------- -----------
<S> <C> <C>
Patents, licenses, and trademarks.................... $ 61,376 $ 9,827
Deferred start-up costs.............................. 809 15,680
Other................................................ -- 5,765
--------- -----------
Total amortizable assets........................... 62,185 31,272
Less, accumulated amortization....................... 2,281 7,246
--------- -----------
59,904 24,026
Deferred debt issuance costs, net.................... 68,247 13,492
Pension assets....................................... 13,880 33,818
Capitalized spare parts.............................. 9,440 1,054
Deferred design costs................................ 1,229 8,852
Other................................................ 4,269 6,290
--------- -----------
$ 156,969 $ 87,532
--------- -----------
--------- -----------
</TABLE>
NOTE 8 -- SHORT-TERM DEBT
Short-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------- -----------
(IN THOUSANDS OF DOLLARS) 1996 1995
- ------------------------------------------------------ ----------- -----------
<S> <C> <C>
Short-term borrowings................................. $ 6,919 $ 10,489
Current portion of long-term debt..................... 11,254 50,203
----------- -----------
$ 18,173 $ 60,692
----------- -----------
----------- -----------
</TABLE>
In connection with the Merger, the Company called $125 million of
Convertible Subordinated Notes, of which $6.1 million was not redeemed at
December 31, 1996 and is included in current portion of long-term debt.
Short-term borrowings were principally at the Company's international
subsidiaries. The weighted average interest rate on short-term borrowings as of
December 31, 1996 and 1995 was 8.9 percent and 9.3 percent, respectively.
NOTE 9 -- COMPENSATION AND EMPLOYEE BENEFITS
Accruals for future compensated employee absences, principally vacation,
were $18.0 million and $21.3 million at December 31, 1996 and 1995,
respectively, and were included in Compensation and employee benefits on the
Consolidated Balance Sheets.
F-19
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT
In connection with the Merger, the Company entered into the Senior Secured
Credit Agreement with certain lenders providing the Senior Secured Credit
Facilities with aggregate commitments not to exceed $1,550 million, including
the $1,150 million Term Loan Facility and the $400 million Revolving Facility.
In addition, RIMI, entered into the Machinery Credit Agreement providing for the
$140 million Machinery Facility with certain lenders for the purpose of
financing or refinancing packaging machinery. In connection with the Merger, the
Company also completed the Notes Offering of $250 million aggregate principal
amount of 10 1/4% Notes due 2006 and $400 million aggregate principal amount of
10 7/8% Senior Subordinated Notes due 2008. Furthermore, substantially all
outstanding indebtedness (with certain limited exceptions) and packaging
machinery leasing obligations of RIC and its subsidiaries were repaid or
terminated in connection with the Merger.
The Term Loan Facility will mature in 2004, the Revolving Facility will
mature in 2003 and the Machinery Facility will mature in 2001, with all amounts
then outstanding becoming due. The loans under the Facilities bear interest at
floating rates based upon the interest rate option elected by the Company.
On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/ Wood Products business segment for cash of approximately $550
million (see Note 25). The Company applied $400.0 million of the sale proceeds
to repay term loans under the Term Loan Facility, including approximately $375.0
million of tranche "A" term loans, approximately $18.4 million of tranche "B"
term loans and approximately $6.6 million of tranche "C" term loans. The Company
applied the remaining sale proceeds to outstanding revolving credit borrowings
under the Revolving Credit Facility. This application of proceeds did not
involve any revolving credit commitment reduction. Such commitment remains at
$400 million.
The initial application of the interest coverage covenant under the Credit
Agreements is as of December 1996. The Credit Agreements impose restrictions on
the Company's ability to make capital expenditures and both the Credit
Agreements and the Indentures governing the Notes limit the Company's ability to
incur additional indebtedness. Such restrictions, together with the highly
leveraged nature of the Company, could limit the Company's ability to respond to
market conditions, to meet its capital spending program, to provide for
unanticipated capital investments or to take advantage of business
opportunities. The covenants contained in the Credit Agreements also, among
other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur guarantee obligations, repay the Notes, pay dividends,
create liens on assets, enter into sale and leaseback transactions, make
investments, loans or advances, make acquisitions, engage in mergers or
consolidations, make capital expenditures or engage in certain transactions with
affiliates, and otherwise restrict corporate activities. The covenants contained
in the Indentures governing the Notes also impose restrictions on the operation
of the Company's businesses. Holding and RIC Holding are holding companies with
no significant independent operations and no significant assets other than their
investments in the capital stock of RIC Holding and Riverwood, respectively.
Also, in connection with the sale of substantially all of the assets of the
U.S. Timberlands/Wood Products business segment, financial and other covenants
in the Company's Credit Agreements have been modified to reflect the sale as
well as the Company's financial results and market and operating conditions.
Covenant modifications under the Credit Agreements included the addition of a
minimum EBITDA requirement, the elimination of a maximum leverage ratio, the
reduction of the interest coverage
F-20
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT (CONTINUED)
ratio, the reduction of minimum consolidated net worth requirements, the
reduction in capital expenditure limits and a reduction in management stock
repurchase limits. The Company was in compliance with the covenants in the
Credit Agreements at December 31, 1996.
At December 31, 1996, the Company and its U.S. and international
subsidiaries had the following amounts undrawn under revolving credit
facilities:
<TABLE>
<CAPTION>
TOTAL AMOUNT
TOTAL AMOUNT OF OUTSTANDING AT TOTAL AMOUNT AVAILABLE
(IN THOUSANDS OF DOLLARS) COMMITMENTS DECEMBER 31, 1996 AT DECEMBER 31, 1996
- -------------------------------------------------- ---------------- ------------------- ----------------------
<S> <C> <C> <C>
Revolving Facility................................ $ 400,000 $ 101,300 $ 298,700
Machinery Facility................................ 140,000 25,000 29,000
International facilities.......................... 47,861 33,630 14,231
---------------- ---------- ----------
$ 587,861 $ 159,930 $ 341,931
---------------- ---------- ----------
---------------- ---------- ----------
</TABLE>
The Machinery Facility availability is limited by a borrowing base.
During 1995, the maturity of a $37 million revolving credit facility used in
the Company's Australian operations was extended from September 1995 to
September 1998. At December 31, 1996 and 1995, $27 million and $30 million,
respectively, were outstanding under this facility and were classified as long-
term debt. Subsequent to November 30, 1996, the commitment for the Australian
revolving facility was reduced to approximately $32 million.
F-21
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT (CONTINUED)
Long-Term Debt, excluding Long-Term Debt to Affiliate, at December 31
consisted of the following:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
---------- ----------
(IN THOUSANDS OF DOLLARS) 1996 1995
- ------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
10 1/4% Senior Notes due 2006...................................... $ 250,000 $ --
10 7/8% Senior Subordinated Notes due 2008......................... 400,000 --
Term Loan Facility with interest payable at various dates less than
one year at floating rates (8.0 percent to 9.13 percent at
December 31, 1996), payable through 2004......................... 750,000 --
Revolving Facility with interest payable at various dates less than
one year at floating rates (8.04 percent to 9.75 percent at
December 31, 1996), payable in 2003.............................. 101,300 --
Machinery Facility with interest payable at various dates less than
one year at floating rates (8.13 percent at December 31, 1996),
payable in 2001.................................................. 25,000 --
Notes with interest payable semi-annually at 10.75 percent, payable
in 2000.......................................................... 529 150,000
Notes II with interest payable semi-annually at 10.75 percent, paid
in 1996.......................................................... -- 37,500
Senior Subordinated Notes with interest payable semi-annually at
11.25 percent, payable in 2002................................... 804 250,000
Senior Subordinated Notes II with interest payable semi-annually at
11.25 percent, paid in 1996...................................... -- 62,500
Convertible Subordinated Notes with interest payable semi-annually
at 6.75 percent, payable in 2003, convertible beginning March 27,
1996............................................................. 6,141 125,000
Senior Subordinated Notes with interest payable semi-annually at
10.375 percent, payable in 2004.................................. 15 100,000
Notes payable to insurance companies with interest payable semi-
annually from 8.84 to 10.48 percent, paid in 1996................ -- 139,581
Notes payable to banks with interest payable no less often than
quarterly at floating rates, paid in 1996........................ -- 120,000
Note payable to a bank with interest payable no less often than
quarterly at floating rates, paid in 1996........................ -- 45,000
Pollution control revenue bonds with interest payable semi-annually
at 6.25 percent, payable through 2007............................ 1,000 8,500
Notes payable to individuals with interest payable in January 1998
at 6.0 percent, payable January 1998............................. 5,256 11,305
International notes payable to banks with interest payable at
various dates less than one year at interest rates ranging from
4.0 percent to 7.5 percent at December 31, 1996, payable through
1998............................................................. 33,247 33,670
Capitalized leases with interest payable from 6.52 percent to 10.25
percent, payable through 2002.................................... 5,185 8,285
Other.............................................................. 36 83
---------- ----------
1,578,513 1,091,424
Less, current portion.............................................. 11,254 50,203
---------- ----------
$1,567,259 $1,041,221
---------- ----------
---------- ----------
</TABLE>
F-22
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT (CONTINUED)
The Term Loan Facility, the Revolving Facility and the Machinery Facility
were collateralized by substantially all of the net assets (including the
capital stock of certain international subsidiaries) of the Company.
Debt to Affiliate at December 31, 1995 consisted of obligations to Johns
Manville. These obligations were repaid in connection with the Merger. Interest
expense to Manville totaled approximately $0.2 million, $1.0 million and $0.7
million for the three months ended March 27, 1996, and the years ended December
31, 1995 and 1994, respectively.
Long-term debt maturities and expirations of funded long-term working
capital commitments at December 31, 1996, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
- ---------------------------------------------------------------------------------------------------
<S> <C>
1997............................................................................................... $ 11,254
1998............................................................................................... 39,728
1999............................................................................................... 28,675
2000............................................................................................... 81,509
2001............................................................................................... 150,448
After 2001......................................................................................... 1,266,899
-------------
$ 1,578,513
-------------
-------------
</TABLE>
NOTE 11 -- REDEEMABLE COMMON STOCK
During the nine months ended December 31, 1996, Holding completed an
offering of Holding Common Stock to certain members of management and key
employees of the Company. As of December 31, 1996, the Company had issued
111,900 shares of Class A Common Stock to Management Investors at fair value for
gross cash proceeds of $11.2 million, less issuance costs of $0.1 million. In
certain circumstances the Management Investors can require the Company to
repurchase their shares of Class A Common Stock at fair market value as
determined by the Executive Committee of the Board of Directors. These shares
are classified as Redeemable Common Stock on the Consolidated Balance Sheets and
are carried at their redemption value at December 31, 1996. Accordingly, the
difference between the original issue price of $100 per share and the redemption
value at December 31, 1996 of $85 per share as determined by the Executive
Committee of the Board of Directors is accounted for as a credit to Capital in
Excess of Par Value. There were no redemptions of Redeemable Common Stock during
the nine months ended December 31, 1996.
In connection with the issuance of Redeemable Common Stock to Management
Investors, the Company has guaranteed loans, with full recourse, from a bank to
certain Management Investors totaling approximately $2.6 million at December 31,
1996. The Company and the bank have the right to recover the loan proceeds from
a Management Investor's personal assets, including the purchased stock, in the
event of default.
NOTE 12 -- NONREDEEMABLE COMMON STOCK
On March 27, 1996, Holding completed an offering of 7,000,000 shares of
Class A Common Stock with a par value of $0.01 per share to certain
institutional investors for $700 million. Total Class A Common Stock authorized
for issuance at December 31, 1996 was 9,000,000 shares, of which amount
7,111,900 shares were outstanding, including 111,900 shares issued to Management
Investors as
F-23
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- NONREDEEMABLE COMMON STOCK (CONTINUED)
Redeemable Common Stock (see Note 11). Also on March 27, 1996, Holding completed
an offering of 500,000 shares of Class B Common Stock with a par value of $0.01
per share to an institutional investor for $50 million. Total Class B Common
Stock, which is non-voting, authorized for issuance at December 31, 1996 was
3,000,000 shares, of which 500,000 shares were outstanding.
NOTE 13 -- STOCK INCENTIVE PLANS
On June 4, 1996, the Management Investors received a total of 296,550
non-qualified options to purchase additional shares of redeemable Class A Common
Stock for $100 per share (the "Stock Options"). Of these Stock Options, 223,800
options vest over a five-year period and 72,750 options have accelerated vesting
based on achievement of certain financial goals or on December 4, 2005,
whichever occurs first. As of December 31, 1996, no Stock Options were
exercised, canceled or had vested.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for the Stock Options.
Accordingly, under fixed plan accounting, no compensation expense has been
recognized for the Stock Options as the exercise price approximated fair value
at the date of grant. Had compensation expense for the Company's 1996 grants of
Stock Options been determined in accordance with Statement of Financial
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
the Company's Net Loss for the nine months ended December 31, 1996 would
approximate $106.0 million. The fair value of the Stock Options was estimated to
be $22.36 per option on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: dividend yield of zero, no volatility,
risk-free interest rate of 6.53 percent, a zero forfeiture rate and an expected
life of four years. The effects of applying SFAS No. 123 in this pro forma
disclosure are not indicative of future amounts.
In 1992, Predecessor adopted the Riverwood International Corporation 1992
Long-Term Incentive Plan and in 1994, the Predecessor adopted the Riverwood
International Corporation 1994 Long-Term Incentive Plan (the "Incentive Plans").
The Incentive Plans permitted the granting of stock options, stock appreciation
rights, restricted stock units, performance units, dividend equivalents and
other awards valued in whole or in part by reference to or otherwise based on
the Company's common stock. Prior to 1993, no awards had been granted under
terms of the Incentive Plans. In conjunction with the Merger, the Predecessor's
Incentive Plans were terminated and all outstanding restricted stock units and
stock appreciation rights were exercised at a price of $20.25 per unit/right.
NOTE 14 -- CURRENCY TRANSLATION ADJUSTMENT
An analysis of changes in the Cumulative Currency Translation Adjustment
included in Shareholders' Equity at December 31 was as follows:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY --------------------------------------
----------------- THREE MONTHS YEAR ENDED YEAR ENDED
NINE MONTHS ENDED DECEMBER DECEMBER
ENDED MARCH 27, 31, 31,
(IN THOUSANDS OF DOLLARS) DECEMBER 31, 1996 1996 1995 1994
- ---------------------------------- ----------------- ------------ ----------- -----------
Cumulative currency translation
adjustment at beginning of
period.......................... $ -- $ (10,470) $ (18,511) $ (37,926)
<S> <C> <C> <C> <C>
Currency translation
adjustments..................... 8,121 (989) 8,126 19,450
Income taxes related to currency
translation adjustments......... (4) -- (85) (35)
------- ------------ ----------- -----------
$ 8,117 $ (11,459) $ (10,470) $ (18,511)
------- ------------ ----------- -----------
------- ------------ ----------- -----------
</TABLE>
F-24
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- CONTINGENCIES AND COMMITMENTS
Total rental expense was approximately $14.3 million in the nine-month
period ended December 31, 1996, $3.8 million in the three-month period ended
March 27, 1996, $21.7 and $10.2 for the years ended December 31, 1995 and 1994,
respectively.
At December 31, 1996, total commitments of the Company under long-term,
noncancelable contracts were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------------------------------
<S> <C>
1997................................................................................................... $ 13,108
1998................................................................................................... 12,174
1999................................................................................................... 10,655
2000................................................................................................... 9,326
2001................................................................................................... 7,353
After 2001............................................................................................. 18,016
---------
$ 70,632
---------
---------
</TABLE>
The Company is committed to compliance with all applicable laws and
regulations throughout the world. Environmental law is, however, dynamic rather
than static. As a result, costs, which are unforeseeable at this time, may be
incurred when new laws are enacted, and when environmental agencies promulgate
or revise rules and regulations.
In late 1993, the EPA proposed the cluster rules that would mandate more
stringent controls on air and water discharges from the United States pulp and
paper mills. In 1996, the EPA released additional clarification of the proposed
cluster rules. Based on this new information, the Company expects that the
cluster rules may be finally promulgated in 1997 and estimates the capital
spending that may be required to comply with the cluster rules could reach $55
million to be spent at its two U.S. paper mills over an eight-year period
beginning in 1997.
The DEQ notified the Predecessor by letters, dated December 19, 1995, that
the Predecessor may be liable for the remediation of the release or threat of
release of hazardous substances at a wood treatment site in Shreveport,
Louisiana that the Predecessor or its predecessor previously operated, and at a
former oil refinery site in Caddo Parish, Louisiana that the Company currently
owns. Neither the Company nor the Predecessor ever operated the oil refinery. In
response to the DEQ, the Company has provided additional information to the DEQ
concerning these sites and has commenced its own evaluation of any claims and
remediation liabilities for which it may be responsible. The Company received a
letter from the DEQ dated May 20, 1996, requesting a plan for soil and
groundwater sampling of the wood treatment site. The Company first met with the
DEQ on July 18, 1996, and then submitted a soil sampling plan to the DEQ. The
Company expects approval of this sampling plan in the first half of 1997. On
September 6, 1996, the Company received from the DEQ a letter requesting
remediation of the former oil refinery site in Caddo Parish, Louisiana. The
Company met with the DEQ on February 17, 1997 to discuss these matters. The DEQ
has requested that the Company enter into a cooperative agreement to perform a
phased-in approach for evaluating soil and groundwater conditions at the
Shreveport site. The Company is in discussions with the DEQ regarding the
participation of other responsible parties in any clean-up of hazardous
substances at both of these sites.
F-25
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- CONTINGENCIES AND COMMITMENTS (CONTINUED)
The Company is engaged in environmental remediation projects for certain
properties currently owned or operated by the Company and certain properties
divested by the Company for which responsibility was retained for pre-existing
conditions. The Company's costs in some instances cannot be estimated until the
remediation process is substantially underway. To address these contingent
environmental costs, the Company has accrued reserves where such costs are
probable and can be reasonably estimated. The Company believes that, based on
current information and regulatory requirements, the accruals established by the
Company for environmental expenditures are adequate. Based on current knowledge,
to the extent that additional costs may be incurred that exceed the accrued
reserves, such amounts are not expected to have a material impact on the results
of operations, cash flows or financial condition of the Company, although no
assurance can be given that material costs will not be incurred in connection
with clean-up activities at these properties, including the Shreveport and Caddo
Parish sites referred to above.
The Company is party to a number of lawsuits arising out of the conduct of
its business. While there can be no assumptions as to their outcome, the Company
does not believe that these lawsuits will have a material impact on the results
of operations, cash flows or financial condition of the Company.
On December 6, 1995, Forrest Kelly Clay, a former shareholder of the
Predecessor, commenced a purported class action lawsuit in the United States
District Court for the Northern District of Georgia, against the Company and
certain officers of the Company (the "Individual Defendants," and together with
the Company, the "Defendants"). In his complaint, Clay alleges that the
Defendants violated the federal securities laws by disseminating misleading
statements and by omissions concerning the strategic alternatives that the
Predecessor was considering, including its potential sale to a third-party
investor. The complaint also alleged that the Individual Defendants, through
their exercise of stock appreciation rights ("SARs"), violated the federal
securities laws by trading in the Predecessor's securities while in possession
of material, non-public information. The complaint generally seeks damages in an
unspecified amount, as well as other relief. On January 29, 1996, Defendants
filed a motion to dismiss the complaint for failure to state a claim and failure
to plead fraud with particularity. On March 29, 1996, the Court denied
Defendants' motion to dismiss and allowed limited discovery to proceed with
regard to statements attributable to the Company and the nature of the SARs.
That discovery is now complete, and plaintiff has twice amended his complaint
(each time putting forward the same claims made in the initial complaint but
amending certain of the factual allegations). On November 1, 1996, the
Defendants moved to dismiss the amended complaint, noting (i) none of the
statements attributable to the Company concerning its review of strategic
alternatives was false and (ii) that there is no causal relationship between
plaintiff's purchase of Riverwood common stock and the Individual Defendants'
exercise of SARs. That motion has been fully briefed and is currently before the
Court.
F-26
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 -- PENSIONS (CONTINUED)
U.S. HOURLY AND SALARIED PENSION PLANS
All of the Company's U.S. hourly union employees are participants in the
Company's noncontributory defined benefit hourly plan (the "Hourly plan"). The
pension expense of the Hourly plan is based primarily on years of service and
the pension rate near retirement. The Company's U.S. salaried and nonunion
hourly employees are participants in the Company's noncontributory defined
benefit plan that was established during 1992 (the "Salaried plan").
The Company's funding policies with respect to its U.S. pension plans are to
contribute funds to trusts as necessary to at least meet the minimum funding
requirements of the U.S. Internal Revenue Code. Plan assets are invested
primarily in equities and fixed income securities.
(A) PENSION EXPENSE
The pension expense related to the Hourly plan and Salaried plan consisted
of the following:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------------- -----------------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 27, DECEMBER 31, DECEMBER 31,
1996 1996 1995 1994
--------------- ------------- --------------- ---------------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C> <C> <C>
Service costs -- benefits
earned during the
period.................. $ 3,925 $ 1,482 $ 4,001 $ 5,102
Interest cost on projected
benefit obligation...... 10,141 3,197 12,928 12,057
Estimated return on
assets:
- -- actual (gain) loss..... (17,056) (970) (41,716) 7,590
- -- deferred gain (loss)... 3,450 (3,180) 27,751 (22,788)
Net amortization and
deferral................ -- (98) (1,251) (254)
--------------- ------------- --------------- ---------------
$ 460 $ 431 $ 1,713 $ 1,707
--------------- ------------- --------------- ---------------
--------------- ------------- --------------- ---------------
</TABLE>
Certain assumptions used in determining the pension expense related to the
Hourly plan and Salaried plan were as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------- -------------------------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED YEAR ENDED
ENDED ENDED DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996 MARCH 27, 1996 1995 1994
------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Discount rates.................... 7.50% 7.00% 9.00% 7.00%
Rates of increase in future
compensation levels............. 4.50% 5.50% 5.50% 5.50%
Expected long-term rates of return
on assets....................... 9.50% 9.00% 9.00% 9.00%
</TABLE>
F-27
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 -- PENSIONS (CONTINUED)
(B) FUNDED STATUS
The following table sets forth the funded status of the Company's Hourly
plan and Salaried plan as of December 31:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------ ------------------------
1996 1995
------------------------ ------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation............... $ 171,501 $ 843 $ 63,700 $ 108,224
----------- ----------- ----------- -----------
Accumulated benefit obligation.......... $ 175,399 $ 930 $ 63,955 $ 113,721
----------- ----------- ----------- -----------
Projected benefit obligation............ $ 184,879 $ 2,008 $ 63,955 $ 130,374
Plan assets at fair value................. 202,543 -- 69,198 125,610
----------- ----------- ----------- -----------
Plan assets in excess of (less than)
projected benefit obligation............ 17,664 (2,008) 5,243 (4,764)
Unrecognized net loss (gain).............. (4,764) 116 8,366 23,597
Unrecognized prior service cost
(benefit)............................... 980 -- 5,135 (287)
Unrecognized net transition asset......... -- -- (4,826) (3,260)
----------- ----------- ----------- -----------
Net pension asset (liability)............. $ 13,880 $ (1,892) $ 13,918 $ 15,286
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Projected benefit obligations were determined using a discount rate of 7.5
percent in 1996 and 7.0 percent in 1995. The rate of increase in future
compensation levels for the Salaried plan was 4.5 percent and 5.5 percent in
1996 and 1995, respectively. The vested benefit obligation reflects the benefits
the employees would be entitled to receive if the employees were to terminate
their employment immediately.
On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/ Wood Products business segment (see Note 25). Accordingly, the
pension expense related to the U.S. Timberlands/Wood Products employees was
included through the date of sale and the funded status of the U.S.
Timberlands/Wood Products portion of the pension plan was excluded from the
funded status as of December 31, 1996. In connection with this sale, pension
benefits were curtailed. Accordingly, the pension benefit obligation was reduced
by approximately $2.7 million and was recorded as an adjustment to the market
value of assets acquired in the Merger.
As of December 31, 1996 and 1995, accrued retirement contributions for both
the Hourly plan and the Salaried plan included in Compensation and employee
benefits on the Consolidated Balance Sheets were nil and $3.7 million,
respectively.
During 1995, the accumulated benefit obligation under the Salaried plan
exceeded such plan's assets. Effective December 31, 1994, three hourly pension
plans were merged into one plan with plan assets exceeding accumulated benefits.
The credit to shareholders' equity for 1994 was $4.2 million.
F-28
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 -- PENSIONS (CONTINUED)
INTERNATIONAL PENSION PLANS
(A) PENSION EXPENSE
The international defined benefit pension plans are both noncontributory and
contributory and are funded in accordance with applicable local laws. Assets of
the funded plans are invested primarily in equities and fixed income securities.
The pension or termination benefits are based primarily on years of service and
the employees' compensation.
The pension expense related to the international plans consisted of the
following:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------------- ---------------------------------------------------
THREE MONTHS
NINE MONTHS ENDED
ENDED MARCH 27, YEAR ENDED YEAR ENDED
(IN THOUSANDS OF DOLLARS) DECEMBER 31, 1996 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
- -------------------------- ----------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Service costs--benefits
earned during the
period.................. $ 1,683 $ 552 $ 2,337 $ 2,498
Interest cost on projected
benefit obligation...... 3,682 1,208 4,444 4,735
Estimated return on
assets:
-- actual (gain) loss... (4,914) (1,612) (9,417) 805
-- deferred gain
(loss).................. 544 178 4,392 (5,738)
Net amortization and
deferral................ -- (1) -- 121
------- ------------- ------- -------
$ 995 $ 325 $ 1,756 $ 2,421
------- ------------- ------- -------
------- ------------- ------- -------
</TABLE>
Certain assumptions used in determining the pension expense related to the
international plans were as follows:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY -------------------------------------------
----------------- THREE MONTHS
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
ENDED MARCH 27, DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996 1996 1995 1994
----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Discount rates.................... 6.5-8.0% 6.5-8.0% 6.5-9.0% 5.0-8.0%
Rates of increase in future
compensation levels............. 2.5-6.5% 2.5-6.5% 2.5-7.5% 3.0-7.0%
Expected long-term rates of return
on assets....................... 6.5-9.5% 6.5-9.5% 6.5-9.5% 5.0-9.0%
</TABLE>
Approximately 330 employees participate in a multi-employer pension plan
that provides defined benefits to employees under certain union-employer
organization agreements. Pension expense for this plan was $2.5 million, $0.9
million, $2.5 million and $2.1 million in the nine-month period ended December
31, 1996, the three-month period ended March 27, 1996 and in fiscal years 1995
and 1994, respectively.
F-29
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 -- PENSIONS (CONTINUED)
(B) FUNDED STATUS
The following table sets forth the funded status of the international
pension plans as of December 31:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------- -----------
1996 1995
----------- -----------
ACCUMULATED ACCUMULATED
BENEFITS BENEFITS
EXCEED EXCEED
(IN THOUSANDS OF DOLLARS) ASSETS ASSETS
- --------------------------------------------------- ----------- -----------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation........................ $ 43,873 $ 32,041
----------- -----------
Accumulated benefit obligation................... $ 45,245 $ 33,614
----------- -----------
Projected benefit obligation..................... $ 75,132 $ 62,448
Plan assets at fair value.......................... 72,305 61,184
----------- -----------
Plan assets less than projected benefit
obligation....................................... (2,827) (1,264)
Unrecognized net loss.............................. 4,012 1,662
Unrecognized prior service cost.................... -- --
Unrecognized net transition asset.................. -- (13)
----------- -----------
Net pension asset.................................. $ 1,185 $ 385
----------- -----------
----------- -----------
</TABLE>
Projected benefit obligations were determined using discount rates ranging
from 6.5 percent to 8.0 percent in 1996 and 6.5 percent to 9.0 percent in 1995.
The rate of increase in future compensation levels ranged from 2.5 percent to
6.5 percent in 1996 and 2.5 percent to 7.5 percent in 1995. The vested benefit
obligation reflects the benefits the employees would be entitled to receive if
the employees were to terminate their employment immediately.
On December 29, 1994, Predecessor sold approximately 50 percent of its
investment in Igaras (see Note 27). Prior to that date, Predecessor owned 100
percent of Igaras. Accordingly, the pension expense related to Igaras's pension
plan was included in the international plans' pension expense for 1994 through
the date of the sale. Subsequent to December 29, 1994, neither the Company nor
Predecessor consolidates Igaras, but instead reports the investment in Igaras
under the equity method of accounting.
As of December 31, 1996 and 1995, accrued retirement contributions for the
international pension plans included in Compensation and employee benefits on
the Consolidated Balance Sheets were $1.2 and $0.9 million, respectively.
VOLUNTARY SAVINGS AND DEFINED CONTRIBUTION PLANS
The Company provides voluntary savings plans for eligible U.S. employees.
Employees may make contributions of up to 16 percent of their compensation (6
percent pretax and 10 percent after tax). The Company matches 3 percent and may
match up to a total of 6 percent of the eligible compensation, depending on the
Company's performance.
F-30
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 -- PENSIONS (CONTINUED)
The Company's wholly owned Australian subsidiary has defined contribution
plans for eligible salaried and hourly employees. Both groups of employees may
contribute up to 100 percent of their compensation. Through June 30, 1995, the
Predecessor was required by law to contribute 5 percent of all eligible
employees' compensation. Subsequent to June 30, 1995 and during 1996, the
Company and Predecessor were required by law to contribute 6 percent of all
eligible employees' compensation. Furthermore, Predecessor matched up to an
additional 1 percent of all employees' contributions for the first six months of
1995. Subsequent to June 30, 1995, neither the Company nor Predecessor made any
further matching contributions beyond the required 6 percent.
Contributions to these plans were $2.9 million in the nine-month period
ended December 31, 1996, $1.0 million in the three-month period ended March 27,
1996, $3.5 million in fiscal year 1995 and $3.1 million in fiscal year 1994.
Accrued savings plan contributions included in Compensation and employee
benefits on the Consolidated Balance Sheets were nil and $0.5 million at
December 31, 1996 and 1995, respectively.
NOTE 17 -- OTHER POSTRETIREMENT BENEFITS
The Company sponsors defined benefit postretirement health care plans that
provide medical and life insurance coverage to eligible salaried and hourly
retired U.S. employees and their dependents. The base level of medical coverage
is provided to the retiree at no cost. No postretirement medical benefits are
offered to salaried employees who began employment after December 31, 1993.
During 1994, the postemployment benefit plan was modified to vary
cost-sharing provisions based on age and years of service of the retiree. The
amount of unrecognized gain as of December 31, 1995 resulting from the 1994 plan
amendments totaled approximately $8.2 million.
The other postretirement benefits expense consisted of the following:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------------- -----------------------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
(IN THOUSANDS OF DOLLARS) DECEMBER 31, 1996 MARCH 27, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
- -------------------------- ----------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Service costs--benefits
earned during the
year.................... $ 398 $ 141 $ 411 $ 890
Interest cost on
accumulated
postretirement
benefits................ 1,511 491 2,248 2,526
Net amortization (gain)
loss.................... -- (158) (633) 5
------- ----- ------- -------
$ 1,909 $ 474 $ 2,026 $ 3,421
------- ----- ------- -------
------- ----- ------- -------
Discount rate used in
calculation............. 7.5% 7.0% 9.0% 7.0%
------- ----- ------- -------
------- ----- ------- -------
</TABLE>
F-31
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 -- OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The unfunded accrued postretirement benefit obligation cost reconciled with
the amounts shown in the Consolidated Balance Sheets at December 31 was as
follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------- -----------
(IN THOUSANDS OF DOLLARS) 1996 1995
- ------------------------------------------------------ ----------- -----------
<S> <C> <C>
Actuarial present value of the accumulated
postretirement benefit obligation:
Retirees............................................ $ 17,060 $ 19,543
Fully eligible active plan participants............. 2,530 3,097
Other active plan participants........................ 7,169 8,854
----------- -----------
Accumulated postretirement benefit obligation......... 26,759 31,494
Unrecognized prior service cost....................... -- 8,233
Unrecognized net gain (loss).......................... -- (2,874)
----------- -----------
$ 26,759 $ 36,853
----------- -----------
----------- -----------
</TABLE>
The current portion of the postretirement benefit obligations were
approximately $2.2 million and $2.1 million as of December 31, 1996 and 1995,
respectively.
The actuarial present values of accumulated postretirement benefit
obligations were determined using a discount rate of 7.5 percent and 7.0 percent
in 1996 and 1995, respectively. For measurement purposes, a 7.0 percent annual
rate of increase in the per capita cost of covered medical benefits was assumed
for 1996 for all current retirees. This rate was assumed to decrease gradually
to 5.5 percent by the year 2002 and to remain at that level thereafter. For
future retirees, a 6.0 percent annual rate of increase in the per capita cost of
covered medical benefits was assumed for 1996. This rate was assumed to decrease
gradually to 5.5 percent by the year 2000 and to remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. To illustrate, increasing the assumed health care cost
trend rates by one percentage point in each year would increase the actuarial
present value of accumulated postretirement benefit obligation as of December
31, 1996 by $1.1 million and the aggregate of the service and interest cost
components of the periodic cost for the nine months then ended by $0.1 million.
On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/ Wood Products business segment (see Note 25). Accordingly, the
other postretirement benefit expense related to the U.S. Timberlands/Wood
Products employees was included through the date of sale and the unfunded
accrued postretirement benefit obligation cost at December 31, 1996 excluded
amounts relating to the U.S. Timberlands/Wood Products business segment. In
connection with this sale, postretirement benefits were curtailed. Accordingly,
the unfunded accrued postretirement benefit was reduced by approximately $1.6
million and was recorded as an adjustment to the market value of assets acquired
in the Merger.
NOTE 18 -- OTHER COSTS
Other Costs include expenses associated with stock based compensation plans
and other expenses related to Predecessor's review of strategic alternatives
beginning in April 1995 through the date of the Merger (see Note 1). For the
three-month period ended March 27, 1996 and for fiscal years
F-32
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 -- OTHER COSTS (CONTINUED)
1995 and 1994, Predecessor recognized charges of $2.3 million, $17.8 million and
$1.3 million, respectively, related to the stock based compensation plans. For
business segment reporting purposes, these expenses are allocated either to the
respective business segments or Corporate segment based upon the responsibility
of the individuals holding or exercising the stock incentive benefits.
Predecessor incurred $8.0 million and $3.7 million of other expenses in the
three-month period ended March 27, 1996 and in fiscal year 1995, respectively,
related to its review of strategic alternatives and included such expenses in
Corporate and Eliminations for business segment reporting purposes.
Additionally, in the three-month period ended March 27, 1996, the Predecessor
accrued approximately $0.8 million of environmental expenses and included such
expenses in Corporate and Eliminations for business segment reporting purposes.
NOTE 19 -- FOREIGN CURRENCY MOVEMENT EFFECT
Net international currency transaction and translation gains (losses)
included in determining Income from Operations for the nine-month period ended
December 31, 1996, three-month period ended March 27, 1996 and fiscal years 1995
and 1994 were $1.4 million, $(0.5) million, $(0.3) million and $(6.6) million,
respectively, of which $(7.6) million related to Brazil for fiscal year 1994.
NOTE 20 -- SALE OF OIL AND GAS MINERAL RIGHTS
In October 1994, Predecessor sold certain oil and gas mineral rights on its
U.S. timberlands. This sale resulted in a pretax gain of $8.9 million which was
included in Other (Expense) Income, net, in the U.S. Timberlands/Wood Products
business segment.
NOTE 21 -- INCOME TAXES
Income taxes payable at December 31 consisted of the following:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------- -----------
(IN THOUSANDS OF DOLLARS) 1996 1995
- ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
U.S. federal and international income taxes........................... $ 2,290 $ 1,453
Deferred income taxes................................................. -- 385
State and local taxes................................................. 39,741 2,850
----------- -----------
$ 42,031 $ 4,688
----------- -----------
----------- -----------
</TABLE>
Included in state and local taxes at December 31, 1996, were $36.3 million
of taxes related to the Merger. Refundable amounts related to federal income
taxes were nil and $4.8 million as of December 31, 1996 and 1995, respectively,
and were included in Prepaid expenses. Refundable amounts related to state
income taxes were $0.6 million and $3.6 million as of December 31, 1996 and
1995, respectively, and were included in Prepaid expenses.
F-33
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21 -- INCOME TAXES (CONTINUED)
The approximate tax effects of temporary differences giving rise to net
deferred tax assets at December 31 were as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------- -----------
(IN THOUSANDS OF DOLLARS) 1996 1995
- --------------------------------------------------------------------- --------- -----------
<S> <C> <C>
U.S. Deferred Tax Assets:
Federal net operating loss carryforward............................ $ 57,232 $ --
Goodwill........................................................... 16,592 --
Other postretirement benefits...................................... 11,165 --
State and local net operating loss carryforward.................... 10,100 --
Deferred revenues.................................................. 5,095 --
Other compensation and benefits.................................... 4,526 6,192
Inventories........................................................ -- 4,878
Vacation and holiday wages and salaries............................ 3,319 3,975
Environmental reserve.............................................. 2,763 --
Doubtful accounts................................................ 2,213 52
State and local benefit............................................ 985 --
Other.............................................................. 7,444 2,342
--------- -----------
121,434 17,439
--------- -----------
International Deferred Tax Assets:
Revaluation of assets.............................................. 10,682 --
Net operating loss carryforwards................................... 3,930 6,112
Inventories........................................................ -- 5,606
Compensation and benefits.......................................... 1,494 1,317
Other.............................................................. 659 3,935
--------- -----------
16,765 16,970
--------- -----------
Total Deferred Tax Assets............................................ 138,199 34,409
--------- -----------
U.S. Deferred Tax Liabilities:
Property, plant and equipment...................................... 54,188 --
Inventories........................................................ 6,678 6,315
Deferred state and local........................................... 2,815 --
Other.............................................................. 1,937 7
--------- -----------
65,618 6,322
--------- -----------
International Deferred Tax Liabilities............................... 1,686 --
--------- -----------
Total Deferred Tax Liabilities....................................... 67,304 6,322
--------- -----------
Net Deferred Tax Assets before Valuation Allowance................... 70,895 28,087
Less Valuation Allowance............................................. (66,466) (1,000)
--------- -----------
$ 4,429 $ 27,087
--------- -----------
--------- -----------
</TABLE>
The current and long-term portions of the net deferred tax assets were $2.9
million and $1.5 million, respectively, in 1996 and $18.8 million and $8.3
million, respectively, in 1995.
F-34
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21 -- INCOME TAXES (CONTINUED)
The approximate tax effects of temporary differences giving rise to the net
deferred tax liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------- -----------
(IN THOUSANDS OF DOLLARS) 1996 1995
- ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
U.S. Deferred Tax Assets:
Other postretirement benefits....................................... $ -- $ 12,132
State and local benefit............................................. -- 15,817
Federal net operating loss carryforward............................. -- 29,162
Credit for prior year minimum tax carryforward...................... -- 24,218
State and local net operating loss carryforward..................... -- 9,680
Other............................................................... -- 4,354
----------- -----------
-- 95,363
----------- -----------
International Deferred Tax Assets:
Revaluation of assets............................................... 23,912 --
Net operating loss carryforwards.................................... 9,785 1,772
Capital lease obligation............................................ 1,103 1,233
Other............................................................... 1,104 358
----------- -----------
35,904 3,363
----------- -----------
Total Deferred Tax Assets............................................. 35,904 98,726
----------- -----------
U.S. Deferred Tax Liabilities:
Property, plant and equipment....................................... -- 157,092
Deferred state and local taxes...................................... -- 45,191
Timber and timberlands.............................................. -- 66,841
Leasing arrangements................................................ -- 12,500
Pensions............................................................ -- 11,836
Deferred start-up costs............................................. -- 4,326
Other............................................................... -- 5,996
----------- -----------
-- 303,782
----------- -----------
International Deferred Tax Liabilities:
Property, plant and equipment....................................... 25,530 25,657
Other............................................................... 4,543 992
----------- -----------
30,073 26,649
----------- -----------
Total Deferred Tax Liabilities........................................ 30,073 330,431
----------- -----------
Net Deferred Tax (Assets) Liabilities before Valuation Allowance...... (5,831) 231,705
Add Valuation Allowance............................................... 25,553 875
----------- -----------
$ 19,722 $ 232,580
----------- -----------
----------- -----------
</TABLE>
The current and long-term portions of the net deferred tax liabilities were
nil and $19.7 million, respectively, in 1996 and $0.4 million and $232.2
million, respectively, in 1995.
F-35
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21 -- INCOME TAXES (CONTINUED)
The Company has assessed its earnings history and trends, sales backlog,
budgeted pretax earnings, deferred tax liabilities against which deferred tax
assets could be offset, and expiration dates of carryforwards and has determined
that, as of December 31, 1996, it is more likely than not that $4.4 million of
deferred tax assets will be realized. The valuation allowance of $92.0 million
at December 31, 1996 is maintained on net deferred tax assets for which the
Company has not determined that realization is more likely than not. The amounts
of deferred tax assets and liabilities are subject to change pending the filing
of the federal income tax return for the period ended on the Merger date. The
Company will continue to assess the valuation allowance and make adjustments as
appropriate.
The U.S. federal net operating loss carryforward amount totals $168.3
million which expires in 2012. International net operating loss carryforward
amounts total $35.9 million of which $9.1 million expire through 2002 and $26.8
million have no expiration date.
The U.S. and international components of (Loss) Income from Continuing
Operations before Income Taxes and Equity in Net Earnings of Affiliates
consisted of the following:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------------- ----------------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 27, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1996 1996 1995 1994
- -------------------------- --------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
U.S. ..................... $ (142,884) $ (6,223) $ 36,543 $ 45,220
International............. (840) (4,190) (7,141) 19,217
--------------- ------------ --------------- ---------------
$ (143,724) $ (10,413) $ 29,402 $ 64,437
--------------- ------------ --------------- ---------------
--------------- ------------ --------------- ---------------
</TABLE>
The provision for income tax expense (benefit) on (Loss) Income from
Continuing Operations before Income Taxes and Equity in Net Earnings of
Affiliates consisted of the following:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------------- -----------------------------------------------
THREE MONTHS
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
ENDED MARCH 27, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) DECEMBER 31, 1996 1996 1995 1994
- -------------------------- ----------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Current
U.S. federal............ $ -- $ -- $ 5,180 $ 11,957
U.S. state and local.... 2,700 1,084 2,942 2,130
International........... 430 (1,241) 3,628 5,929
------- ------------- --------------- ---------------
Total Current............. 3,130 (157) 11,750 20,016
------- ------------- --------------- ---------------
Deferred
U.S. ................... -- (3,519) 13,477 30,068
International........... 1,050 240 (6,430) 4,104
------- ------------- --------------- ---------------
Total Deferred............ 1,050 (3,279) 7,047 34,172
------- ------------- --------------- ---------------
$ 4,180 $ (3,436) $ 18,797 $ 54,188
------- ------------- --------------- ---------------
------- ------------- --------------- ---------------
</TABLE>
The reported amount of income tax expense (benefit) on (Loss) Income from
Continuing Operations before Income Taxes and Equity in Net Earnings of
Affiliates differed from the amount of income tax (benefit) expense that would
result from applying the U.S. federal statutory income tax rate to (Loss)
F-36
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21 -- INCOME TAXES (CONTINUED)
Income from Continuing Operations before Income Taxes and Equity in Net Earnings
of Affiliates for the following reasons:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------------- -----------------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 27, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1996 1996 1995 1994
- -------------------------- --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
U.S. federal statutory
(benefit) expense....... $ (50,303) $ (3,649) $ 10,291 $ 22,553
Increase (decrease)
resulting from:
Sale of Igaras.......... -- -- -- 27,522
Igaras dividend......... -- 560 7,225 2,717
International income taxes
at higher (lower)
rates................... 1,774 860 (1,264) (2,213)
Goodwill amortization not
included for tax
purposes................ -- 130 2,107 1,023
U.S. state and local
taxes................... (4,446) (340) 3,875 3,836
Change in valuation
allowance............... 55,813 (997) (2,452) 665
Tax rate changes.......... -- -- -- (770)
Other, net................ 1,342 -- (985) (1,145)
--------------- ------------- --------------- ---------------
$ 4,180 $ (3,436) $ 18,797 $ 54,188
--------------- ------------- --------------- ---------------
--------------- ------------- --------------- ---------------
</TABLE>
During 1995, Predecessor received $16.1 million of gross dividends from
Igaras, of which amount $12.1 million was a special, one-time dividend.
Accordingly, the Company recognized the related income taxes and withholding
taxes on these dividends during 1995.
On December 29, 1994, Predecessor sold approximately 50 percent of its
investment in Igaras for $100 million in cash after first spinning off a wholly
owned subsidiary to operate the packaging machinery operations in Brazil. Prior
to that date, the Company owned 100 percent of Igaras. As a result of this sale,
Predecessor recorded a pretax loss of $0.6 million and an income tax expense of
approximately $27.5 million. The gain on this sale was significantly higher for
income tax purposes than for financial reporting purposes resulting in the
additional income tax expense in 1994. In accordance with SFAS No. 109, these
additional income taxes were not recognized until the sale was apparent.
Undistributed earnings intended to be reinvested indefinitely by the
international subsidiaries and equity affiliates totaled approximately $18.2
million at December 31, 1996. No U.S. deferred income tax has been recorded on
these undistributed earnings.
F-37
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22 -- EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
In October, 1996, the Company applied the proceeds from the sale of the U.S.
Timberlands/Wood Products business segment (see Note 25) to loans outstanding
under the Term Loan Facility and to outstanding borrowings under the Revolving
Credit Facility (see Note 10). This early retirement of debt resulted in a
non-cash extraordinary charge of $10.3 million, net of income taxes of $0,
relating to the write-off of deferred debt issuance costs.
On June 30, 1994, the Predecessor used the proceeds of new borrowings to
prepay approximately $179 million principal of notes payable to insurance
companies and banks and to pay related accrued interest and expenses of
refinancing. This early retirement of debt resulted in an extraordinary charge
to 1994 net earnings of $7.9 million, net of income taxes of $5.0 million.
NOTE 23 -- CHANGE IN ACCOUNTING
In the fourth quarter of 1996, the Company adopted the LIFO method of
determining the cost of principally all its inventories effective March 28,
1996. Prior to the fourth quarter of 1996, the Company determined the cost of
principally all its inventory using the FIFO method. The Company believes that
the LIFO method results in a better matching of current costs with current
revenues. Additionally, the LIFO method is widely used in the paper products
industry. This change in accounting principle was applied retroactively.
Accordingly, the second and third quarters of 1996 have been restated to reflect
the adoption of the LIFO method effective March 28, 1996 (see "Selected
Quarterly Financial Data").
Effective January 1, 1996, the Predecessor adopted SFAS No. 121. SFAS No.
121 establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangible assets, and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable intangible
assets to be disposed of. The adoption of SFAS No. 121 by the Predecessor did
not have a significant impact on its operations.
NOTE 24 -- SUPPLEMENTAL CASH FLOW INFORMATION
The following is a summary of net cash paid in connection with the Merger
(see Note 1):
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
- ---------------------------------------------------------------------------------------------------
<S> <C>
Fair value of assets acquired...................................................................... $ 3,091,507
Liabilities assumed................................................................................ (1,606,100)
-------------
Cash paid.......................................................................................... 1,485,407
Less, cash acquired................................................................................ (26,035)
-------------
Net cash paid for acquisition...................................................................... $ 1,459,372
-------------
-------------
</TABLE>
F-38
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 24 -- SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
Cash paid for interest and cash paid (received), net of refunds, for income
taxes was as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMPANY PREDECESSOR
--------------- -----------------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 27, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1996 1996 1995 1994
- -------------------------- --------------- ------------- --------------- ---------------
Interest.................. $ 151,371 $ 15,118 $ 109,739 $ 108,745
--------------- ------------- --------------- ---------------
--------------- ------------- --------------- ---------------
Income taxes.............. $ 23,335 $ (810) $ 23,203 $ 16,829
--------------- ------------- --------------- ---------------
--------------- ------------- --------------- ---------------
</TABLE>
At the date of the Merger, the Company purchased packaging machinery and a
converting press, totaling approximately $47 million, that were previously
financed under operating lease arrangements.
NOTE 25 -- DISCONTINUED OPERATIONS
On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/ Wood Products business segment for cash of approximately $550
million. In addition, the buyer assumed certain specified preclosing
liabilities. Under the terms of the agreement for such sale, the Company and the
buyer entered into a twenty-year supply agreement with a ten-year renewal option
for the purchase by the Company, at market-based prices, of a majority of the
Company's requirements for pine pulpwood and residual chips at the West Monroe
Mill, as well as a portion of the Company's needs for hardwood pulpwood at the
West Monroe Mill. The Company did not recognize any gain or loss on the sale.
The operating results for the U.S. Timberlands/Wood Products business
segment have been classified as discontinued operations for the period beginning
March 28, 1996 through October 18, 1996 (the date of sale) in the Consolidated
Statements of Operations. Discontinued operations have not been segregated in
the Consolidated Statements of Cash Flows nor have they been reclassified as
discontinued operations in the Predecessor's Consolidated Statements of
Operations and Consolidated Balance Sheets.
Net sales of the discontinued U.S. Timberlands/Wood Products business
segment for the period beginning March 28, 1996 through October 18, 1996 (the
date of sale) and income from operations for the same period was $81.1 million,
and $35.5 million, respectively.
NOTE 26 -- PRO FORMA DATA
The following unaudited pro forma financial data has been prepared assuming
that the Merger and related financings were consummated on January 1, 1995 and
excludes from all periods presented the results of operations of the U.S.
Timberlands/Wood Products business segment which was sold on October 18, 1996
(see Note 25) and the interest and extraordinary charge on debt retired from the
proceeds of such sale (see Note 22). This pro forma financial data is presented
for informational
F-39
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 26 -- PRO FORMA DATA (CONTINUED)
purposes and is not necessarily indicative of the operating results that would
have occurred had the Merger been consummated on January 1, 1995, nor is it
necessarily indicative of future operations.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
(IN THOUSANDS OF DOLLARS) DECEMBER 31, 1996 DECEMBER 31, 1995
- ------------------------------------------------- ------------------------------ ------------------------------
<S> <C> <C>
Net Sales........................................ $ 1,110,818 $ 1,199,270
----------- -----------
----------- -----------
Net Loss......................................... $ (135,514) $ (61,265)
----------- -----------
----------- -----------
</TABLE>
NOTE 27 -- BUSINESS COMBINATIONS AND DISPOSALS
In connection with and following the Merger, the Company decided in 1996 to
exit certain businesses and operating activities, including the sale or closure
of the Company's last dedicated folding carton converting plant in the United
States, located in Kankakee, Illinois, a packaging machinery manufacturing plant
in Marietta, Georgia, a beverage multiple packaging converting plant in
Bakersfield, California and the trucking transportation operations in West
Monroe, Louisiana, as well as the consolidation and realignment of certain
operations in the United States, Australia and Europe. The cost of exiting these
businesses and operating activities was approximately $40.9 million which was
accrued as a purchase accounting adjustment. These costs related principally to
the severance of approximately 750 employees, relocation and other plant closure
costs. At December 31, 1996, $32.6 million of this total was included in Other
accrued liabilities in the Consolidated Balance Sheets and is expected to be
paid out primarily in 1997 and 1998.
In January of 1995, Predecessor acquired a 70 percent interest in the
Lemaire Group, a French company which supplies beverage and folding cartons in
France and central Europe from four carton converting facilities in France.
Terms of the acquisition require the Company to purchase the Lemaire Group's
remaining 30 percent interest in early 1998. The aggregate purchase price for a
100 percent interest in the Lemaire Group was $17.6 million, of which $6.3
million was paid in January 1995. Predecessor recorded a note payable in the
amount of $11.3 million for the unpaid portion of the initial purchase price and
the remaining 30 percent interest. The Company assumed this note payable in the
Merger and repaid approximately $6.0 million during the nine months ended
December 31, 1996. The Predecessor accounted for this business combination using
the purchase method.
On December 29, 1994, Predecessor sold approximately 50 percent of its
investment in Igaras for $100 million in cash. As a result of this sale,
Predecessor recorded a pretax loss of $0.6 million and an income tax expense of
approximately $27.5 million (see Note 21).
NOTE 28 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company reports its results in two business segments: Coated Board and
Containerboard. On October 18, 1996, the Company sold substantially all of the
assets of the U.S. Timberlands/Wood Products business segment. The operating
results of the U.S. Timberlands/Wood Products business segment have been
classified as discontinued operations for the period beginning March 28, 1996
through the date of the sale. The results of operations of the U.S.
Timberlands/Wood Products business segment have not been reclassified as
discontinued operations in the Predecessor's Consolidated Statements of
Operations. The Coated Board business segment includes the production and sale
of coated board for packaging cartons from its West Monroe and Macon Mills and
from its mill in Sweden;
F-40
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 28 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED)
carton converting facilities in the United States, Australia and Europe; and the
design, manufacture and installation of packaging machinery related to the
assembly of beverage cartons. The Containerboard business segment includes the
production and sale of linerboard, corrugating medium and kraft paper from
paperboard mills in the United States. The discontinued U.S. Timberlands/Wood
Products business segment included timberlands and operations engaged in the
supply of pulpwood to the West Monroe Mill from the Company's former U.S.
timberlands, as well as the manufacture and sale of lumber and plywood. Prior to
the sale of approximately 50 percent of Igaras on December 29, 1994, the
Containerboard business segment included timberlands and associated
containerboard mills and corrugated box plants owned by Igaras.
The Company's four separate geographic areas are the United States,
Central/South America, Europe and Asia-Pacific. The United States area includes
paper mills, beverage and folding carton facilities, packaging machinery
facilities and prior to the sale of the U.S. Timberlands/Wood Products (see Note
25), 538,000 acres of owned and leased timberlands, lumber mills and a plywood
plant. The Central/South America area includes linerboard and medium mills,
corrugated box plants and 174,000 acres of owned and leased timberlands through
the date of the sale of approximately 50 percent of Igaras (see Note 27) and a
packaging machinery operation. The Europe area includes a coated recycled
paperboard mill, beverage and folding carton plants and a packaging machinery
facility. The Asia-Pacific area includes beverage and folding carton plants.
F-41
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 28 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED)
Business segment information is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMPANY PREDECESSOR
--------------- --------------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED YEAR ENDED
ENDED ENDED DECEMBER DECEMBER
DECEMBER 31, MARCH 27, 31, 31,
(IN THOUSANDS OF DOLLARS) 1996 1996 1995 1994
- ---------------------------------- --------------- ------------ ----------- -----------
NET SALES
Coated Board.................... $ 749,688 $ 234,608 $1,007,123 $ 793,983
Containerboard (G).............. 102,424 25,496 192,497 342,614
U.S. Timberlands/Wood
products (H).................. -- 37,336 159,749 164,944
Intersegment Eliminations (A)... -- (3,791) (17,065) (18,753)
--------------- ------------ ----------- -----------
$ 852,112 $ 293,649 $1,342,304 $1,282,788
--------------- ------------ ----------- -----------
--------------- ------------ ----------- -----------
INCOME (LOSS) FROM OPERATIONS
Coated Board (B)................ $ 54,976 $ 24,638 $ 103,683 $ 89,704
Containerboard (B) (G).......... (30,969) (5,955) 17,539 23,781
U.S. Timberlands/Wood Products
(B) (C) (H)................... -- 13,868 49,583 67,645
Corporate (B) (D) (G)........... (22,588) (16,901) (37,668) (26,943)
--------------- ------------ ----------- -----------
$ 1,419 $ 15,650 $ 133,137 $ 154,187
--------------- ------------ ----------- -----------
--------------- ------------ ----------- -----------
CAPITAL EXPENDITURES
Coated Board.................... $ 121,997 $ 39,779 $ 147,097 $ 206,958
Containerboard (G).............. 6,784 1,919 16,490 30,423
U.S. Timberlands/Wood
Products (H).................. 2,223 2,004 3,650 1,810
Corporate....................... 1,282 372 2,848 1,031
--------------- ------------ ----------- -----------
$ 132,286 $ 44,074 $ 170,085 $ 240,222
--------------- ------------ ----------- -----------
--------------- ------------ ----------- -----------
DEPRECIATION, AMORTIZATION AND
COST OF TIMBER HARVESTED
Coated Board.................... $ 75,748 $ 17,800 $ 63,800 $ 46,778
Containerboard (G).............. 17,005 4,332 19,553 33,073
U.S. Timberlands/Wood
Products (H).................. 7,086 1,735 7,118 13,062
Corporate....................... 1,007 571 2,175 2,091
--------------- ------------ ----------- -----------
$ 100,846 $ 24,438 $ 92,646 $ 95,004
--------------- ------------ ----------- -----------
--------------- ------------ ----------- -----------
</TABLE>
F-42
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 28 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPANY PREDECESSOR
---------- ----------------------
(IN THOUSANDS OF DOLLARS) 1996 1995 1994
- ------------------------------------------------------- ---------- ---------- ----------
IDENTIFIABLE ASSETS AT DECEMBER 31
Coated Board......................................... $1,943,411 $1,262,164 $1,102,161
Containerboard (G)................................... 482,902 378,910 385,757
U.S. Timberlands/Wood Products (H)................... -- 279,763 287,690
Corporate (E) (G).................................... 245,174 280,491 326,684
---------- ---------- ----------
$2,671,487 $2,201,328 $2,102,292
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Geographic area information is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMPANY PREDECESSOR
--------------- --------------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED YEAR ENDED
ENDED ENDED DECEMBER DECEMBER
DECEMBER 31, MARCH 27, 31, 31,
(IN THOUSANDS OF DOLLARS) 1996 1996 1995 1994
- ---------------------------------- --------------- ------------ ----------- -----------
NET SALES
United States................... $ 604,990 $ 223,257 $1,037,419 $ 898,213
Central/South America (G)....... 880 30 137 161,044
Europe.......................... 195,335 58,821 263,108 177,739
Asia-Pacific.................... 107,270 30,693 108,629 85,863
Eliminations (F)................ (56,363) (19,152) (66,989) (40,071)
--------------- ------------ ----------- -----------
$ 852,112 $ 293,649 $1,342,304 $1,282,788
--------------- ------------ ----------- -----------
--------------- ------------ ----------- -----------
INCOME (LOSS) FROM OPERATIONS
United States (B)............... $ (3,606) $ 19,204 $ 154,478 $ 126,933
Central/South America (B) (G)... (1,795) (451) (2,485) 32,138
Europe (B)...................... 4,950 (1,930) 58 6,981
Asia-Pacific (B)................ 824 (112) (1,695) 4,213
Eliminations (F)................ 1,046 (1,061) (17,219) (16,078)
--------------- ------------ ----------- -----------
$ 1,419 $ 15,650 $ 133,137 $ 154,187
--------------- ------------ ----------- -----------
--------------- ------------ ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPANY PREDECESSOR
---------- ----------------------
(IN THOUSANDS OF DOLLARS) 1996 1995 1994
- ------------------------------------------------------- ---------- ---------- ----------
IDENTIFIABLE ASSETS AT DECEMBER 31
United States........................................ $1,876,645 $1,464,546 $1,439,767
Central/South America (G)............................ 17,971 12,710 5,632
Europe............................................... 356,317 298,711 202,677
Asia-Pacific......................................... 184,105 159,411 135,386
Corporate (E) (G).................................... 245,174 280,491 326,684
Eliminations......................................... (8,725) (14,541) (7,854)
---------- ---------- ----------
$2,671,487 $2,201,328 $2,102,292
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
</TABLE>
F-43
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 28 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED)
- ------------------------
Notes:
(A) Represents the elimination of intersegment sales from the U.S.
Timberlands/Wood Products business segment of pulpwood and chips used in the
Coated Board and the Containerboard business segments.
(B) Stock based compensation expense has been allocated to each of the business
segments based upon the responsibility of the individuals holding or
exercising the stock incentive benefits. During the three months ended March
27, 1996, $1.2 million, $0.1 million, $0.2 million and $0.8 million of stock
based compensation expense were allocated to the Coated Board,
Containerboard and U.S. Timberlands/Wood Products business segments and
Corporate and Eliminations, respectively. During 1995, $7.4 million, $0.9
million, $0.8 million and $8.7 million were recorded in the Coated Board,
Containerboard, U.S. Timberlands/Wood Products and Corporate and
Eliminations business segments, respectively, as compared to $0.6 million,
$0.2 million, $0.1 million and $0.4 million, respectively in 1994. Expenses
associated with the Company's review of strategic alternatives and
environmental reserves are included in Corporate for business segment
reporting purposes and have been allocated for geographic area information.
(C) U.S. Timberlands/Wood Products business segment included a pretax gain of
$8.9 million on the sale of certain oil and gas mineral rights on its U.S.
timberlands in 1994.
(D) Primarily consists of unallocated general corporate expenses.
(E) Corporate assets are principally U.S. cash and equivalents, marketable
securities, prepaid pension costs and other prepayments, deferred loan
costs, deferred tax assets and a portion of property, plant and equipment.
Corporate assets as of December 31, 1996, 1995 and 1994 also included the
equity investment in Igaras.
(F) Represents primarily the elimination of intergeographic sales and profits
from transactions between the Company's U.S., Europe, Asia-Pacific and
Central/South America operations.
(G) On December 29, 1994, Predecessor sold approximately 50 percent of its
investment in Igaras after first spinning off a wholly owned subsidiary to
operate the packaging machinery operations in Brazil (see Note 27). Prior to
that date, Predecessor owned 100 percent of Igaras. As a result of this
sale, Predecessor recorded a pretax loss of $0.6 million which was included
in the Corporate section of Income from Operations. The results of
operations of Igaras were included in the Containerboard business segment
through the date of sale. Subsequent to December 29, 1994, neither the
Company nor Predecessor consolidates Igaras, but instead reports the
investment in Igaras using the equity method of accounting and includes it
in Corporate assets.
(H) On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/ Wood Products business segment for cash of approximately
$550 million. The Company did not recognize any gain or loss on the sale.
The operating results for the U.S. Timberlands/Wood Products business
segment have been classified as discontinued operations for the period
beginning March 28, 1996 through October 18, 1996 (see Note 25).
F-44
<PAGE>
NOTE 29 -- RELATED PARTY TRANSACTIONS
The Company receives certain management services provided by Clayton,
Dubilier and Rice, Inc. ("CD&R"), an affiliate of an equity investor in the
Company. Charges for such services, including reimbursement of expenses, totaled
approximately $0.6 million for the nine-month period ended December 31, 1996 and
were included in operating expenses in the Consolidated Statements of
Operations. Additionally, the Company paid fees totaling approximately $15.1
million to CD&R and an affiliate of another equity investor in connection with
the Merger and related financing.
Predecessor received a portion of its corporate and other related services
from Manville. These services, which terminated in connection with the Merger,
and amounts are summarized as follows:
TREASURY MANAGEMENT AGREEMENT
Effective May 1992, Predecessor entered into a Treasury Management Agreement
with Manville that provided for Predecessor's excess cash balances to be
invested separately from Manville. Pursuant to the Treasury Management
Agreement, Manville provided Predecessor with certain treasury management
services on a fee basis.
INTERCOMPANY AGREEMENT
Predecessor had a formalized Intercompany Agreement with Manville that
provided, among other things, that Manville make available to Predecessor
certain management services for a fee. The Intercompany Agreement provided for
certain legal services, U.S. income tax compliance, internal audit and health,
safety and environmental services. Fees charged to Predecessor took into
consideration sales, personnel, estimates of time spent to provide such services
or other appropriate bases that management believed to be representative of the
services received.
Selling, General and Administrative expenses included $0.8 million, $4.7
million and $5.1 million for the three-month period ended March 27, 1996 and the
years ended December 31, 1995 and 1994 respectively, reflecting a reimbursement
of the costs estimated to have been incurred by Manville on behalf of
Predecessor for Corporate, General and Administrative services to Predecessor.
In addition, Predecessor participated in Manville's various property, general
liability and other insurance programs. Additionally, prior to 1994, Predecessor
participated in Manville's medical insurance program. Under these programs,
insurance expense was charged to Predecessor based on its claims experience,
property values or other appropriate bases. Insurance expense charged
Predecessor from Manville was $0.6 million, $6.3 million and $6.8 million for
the three-month period ended March 27, 1996 and the years ended December 31,
1995 and 1994, respectively. These charges were made on a basis management
believed reasonable. A payable to Manville of approximately $5.5 million was
included in Other accrued liabilities on the Consolidated Balance Sheets as of
December 31, 1995.
TAX SHARING AGREEMENT
Predecessor had entered into a Tax Sharing Agreement with Manville to
provide for: (i) the payment of taxes for periods during which Manville and
Predecessor are included in the same consolidated group for U.S. federal, state
or local income tax purposes, (ii) the cooperation of the parties in realizing
certain tax benefits and (iii) the conduct of tax audits and various related
matters.
Refundable amounts from Manville related to federal income taxes of $4.8
million as of December 31, 1995 were included in Prepaid expenses.
F-45
<PAGE>
NOTE 30 -- SUBSEQUENT EVENT (UNAUDITED)
Pursuant to an election under Section 338(h)(10) of the Internal Revenue
Code of 1986, as amended, the Merger has been treated for income tax purposes as
a taxable sale of the assets of RIC and a taxable sale of the assets of RIC's
subsidiaries to which such election applies. Pursuant to a Tax Matters
Agreement, Manville agreed to bear the cost of the Section 338(h)(10) election
for federal tax purposes and for purposes of state taxes for which Manville and
the Predecessor filed returns on a combined basis. The Company agreed to bear
the cost of this election for purposes of other state taxes ("stand-alone
taxes"), including Louisiana income tax. During 1997, the Company has paid $33.1
million in estimated stand-alone taxes relating to the election, including $27.5
million in Louisiana income tax. The Company's calculation of its Louisiana tax
was based on state law in effect at the time of the Merger, including a 1993
amendment. In May 1997, the Louisiana Supreme Court declared the 1993 amendment
to be void under the Louisiana constitution, retroactive to 1993. It is possible
that the voiding of the 1993 amendment could result in the Company being
required to pay significant additional Louisiana income tax relating to the
election (plus interest on the additional tax). The Company's Louisiana tax
return for the period that includes the Merger is due in November 1997. After
consultation with Louisiana tax counsel, the Company believes that it has a
reasonable basis for filing its Louisiana income tax return for 1996 (which is
due in November 1997) without the payment of any additional tax due to the
voiding of the 1993 amendment. There can be no assurance, however, that the
Company would ultimately prevail on this issue if Louisiana were to challenge
such filing position. If the Company were not to prevail in such a challenge,
significant additional Louisiana income tax relating to the election could be
payable. Management estimates that the maximum amount of such additional tax is
approximately $50 million (plus statutory interest on any additional tax). The
Company intends to file its tax return without the payment of additional tax due
to the voiding of the 1993 amendment, and management believes that the
additional tax ultimately paid (if any) would be substantially less than the
estimated maximum amount, although no assurance can be given in this regard. The
Company and its advisors are continuing to study this situation. Since the law
is unclear and the amounts involved could be significant, it may be several
years before this matter is resolved.
F-46
<PAGE>
RIVERWOOD HOLDING, INC.
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
Results of operations for the four quarters of 1996 and 1995 are shown
below:
<TABLE>
<CAPTION>
(LOSS) INCOME
INCOME (LOSS) BEFORE
GROSS FROM EXTRAORDINARY NET (LOSS)
NET SALES PROFIT OPERATIONS ITEM INCOME (A)
------------- ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
QUARTER
COMPANY:
1996
Second (B).......................... $ 293,884 $ 41,489 $ 6,112 $ (21,254) $ (21,254)
Third (B)........................... 291,645 41,081 3,044 (25,754) (25,754)
Fourth.............................. 266,583 35,228 (7,737) (47,808) (58,128)
------------- ----------- -------------- -------------- ------------
Total................................. $ 852,112 $ 117,798 $ 1,419 $ (94,816) $ (105,136)
------------- ----------- -------------- -------------- ------------
------------- ----------- -------------- -------------- ------------
PREDECESSOR:
1996
First............................... $ 293,649 $ 60,948 $ 15,650 $ (2,050) $ (2,050)
------------- ----------- -------------- -------------- ------------
------------- ----------- -------------- -------------- ------------
1995
First............................... $ 313,176 $ 69,393 $ 30,902 $ 10,860 $ 10,860
Second.............................. 366,265 85,577 36,650 17,107 17,107
Third............................... 342,219 76,195 38,316 16,631 16,631
Fourth.............................. 320,644 61,058 27,269 940 940
------------- ----------- -------------- -------------- ------------
Total................................. $ 1,342,304 $ 292,223 $ 133,137 $ 45,538 $ 45,538
------------- ----------- -------------- -------------- ------------
------------- ----------- -------------- -------------- ------------
</TABLE>
NOTES:
(A) On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/ Wood Products business segment for cash of approximately
$550 million. In addition, the buyer assumed certain specified preclosing
liabilities. Under the terms of the agreement for such sale, the Company and
the buyer entered into a twenty-year supply agreement with a ten-year
renewal option for the purchase by the Company, at market-based prices, of a
majority of the Company's requirements for pine pulpwood and residual chips
at its West Monroe Mill, as well as a portion of the Company's needs for
hardwood pulpwood at the West Monroe Mill. The Company did not recognize any
gain or loss on the sale. The Company applied the proceeds from this sale to
outstanding loans under the Term Loan Facility and to outstanding borrowings
under the Revolving Credit Agreement. This early retirement of debt resulted
in a non-cash extraordinary charge to fourth quarter 1996 Net Loss of $10.3
million, net of income taxes of zero, relating to the write-off of deferred
debt issuance costs.
(FOOTNOTES CONTINUED ON NEXT PAGE)
F-47
<PAGE>
RIVERWOOD HOLDING, INC.
SELECTED QUARTERLY FINANCIAL DATA (CONTINUED)
(UNAUDITED)
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
- ------------------------------
(B) In the fourth quarter of 1996, the Company adopted the LIFO method of
determining the cost of principally all its inventories effective March 28,
1996. Prior to the fourth quarter of 1996, the Company determined the cost
of principally all its inventory using the FIFO method. Accordingly, the
second and third quarters of 1996 have been restated to reflect the adoption
of the LIFO method effective March 28, 1996 as follows:
<TABLE>
<CAPTION>
(LOSS) INCOME
INCOME (LOSS) BEFORE
GROSS FROM EXTRAORDINARY NET (LOSS)
NET SALES PROFIT OPERATIONS ITEM INCOME (A)
----------- --------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
QUARTER
Second quarter 1996 as
originally reported.................. $ 293,884 $ 15,086 $ (20,291) $ (51,260) $ (51,260)
Second quarter 1996 LIFO adjustment.... -- 26,403 26,403 30,006 30,006
----------- --------- -------------- -------------- --------------
Second quarter 1996 as
restated............................. $ 293,884 $ 41,489 $ 6,112 $ (21,254) $ (21,254)
----------- --------- -------------- -------------- --------------
----------- --------- -------------- -------------- --------------
Third quarter 1996 as
originally reported.................. $ 291,645 $ 41,497 $ 3,460 $ (26,167) $ (26,167)
Third quarter 1996 LIFO
adjustment........................... -- (416) (416) 413 413
----------- --------- -------------- -------------- --------------
Third quarter 1996 as
restated............................. $ 291,645 $ 41,081 $ 3,044 $ (25,754) $ (25,754)
----------- --------- -------------- -------------- --------------
----------- --------- -------------- -------------- --------------
</TABLE>
F-48
<PAGE>
REPORTS OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors
of Riverwood Holding, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Riverwood Holding, Inc. and its subsidiaries as of June 28, 1997, and the
related condensed consolidated statements of operations for the three and six
month periods ended June 28, 1997 and the three months ended June 29, 1996 and
condensed consolidated statements of cash flows for the six months ended June
28, 1997 and the three months ended June 29, 1996. These financial statements
are the responsibility of the Company's management. We were furnished with the
report of other accountants dated August 5, 1997, on their review of the interim
financial information of Igaras Papeis e Embalagens S.A. (Igaras) for the three
and six months ended June 30, 1997, the Company's investment in which is
accounted for by use of the equity method. The Company's equity of $127,860,000
in Igaras' net assets at June 28, 1997, and of $4,551,000 and $7,808,000 in
Igaras' net income for the three and six month periods ended June 28, 1997,
respectively, are included in the accompanying financial statements.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review and the report of other accountants, we are not aware of
any material modifications that should be made to such condensed consolidated
financial statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Riverwood Holding, Inc. and
subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the nine-month period ended
December 31, 1996 and the three-month period ended March 27, 1996 (Predecessor).
The consolidated statements of operations, shareholders' equity and cash flows
for the nine-month period ended December 31, 1996 and the consolidated
statements of shareholders' equity for the three-month period ended March 27,
1996 (Predecessor) are not presented herein. In our report dated March 17, 1997,
we expressed an unqualified opinion on those consolidated financial statements,
based on our audit and the report of other auditors. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1996 and condensed consolidated statements of operations and
cash flows for the three-month period ended March 27, 1996, are fairly stated,
in all material respects, in relation to the consolidated financial statements
from which they have been derived.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
August 5, 1997
F-49
<PAGE>
To the Shareholders and Board of Directors of
Igaras Papeis e Embalagens S.A.:
We have reviewed the condensed consolidated balance sheet of Igaras Papeis e
Embalagens S.A. as of June 30, 1997, and the related condensed consolidated
statements of operations for the three-month and six-month periods ended June
30, 1997 and cash flows for the six-month period ended June 30, 1997. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles in the
United States of America.
We have previously audited, in accordance with generally accepted auditing
standards in the United States of America, the consolidated balance sheet as of
December 31, 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended; and in our report
dated January 30, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the condensed consolidated balance sheet as of December 31, 1996, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
COOPERS & LYBRAND BIEDERMANN, BORDASCH
Sao Paulo, Brazil
August 5, 1997
F-50
<PAGE>
RIVERWOOD HOLDING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY
-----------------------------
<S> <C> <C>
JUNE 28, DECEMBER 31,
1997 1996
------------- --------------
ASSETS
Current Assets
Cash and equivalents............................................................. $ 11,406 $ 16,499
Marketable securities, at cost (approximates market)............................. 765 858
Receivables, net of allowances................................................... 148,389 153,864
Inventories...................................................................... 186,295 211,965
Prepaid expenses................................................................. 7,861 8,113
Deferred tax assets.............................................................. 2,043 2,897
------------- --------------
Total Current Assets............................................................... 356,759 394,196
Property, Plant and Equipment, net of accumulated depreciation of $135,606 in 1997
and $85,768 in 1996.............................................................. 1,676,783 1,675,217
Investments in Net Assets of Equity Affiliates..................................... 131,334 125,030
Goodwill, net of accumulated amortization of $10,135 in 1997 and $5,900 in 1996.... 314,119 318,543
Other Assets....................................................................... 170,889 158,501
------------- --------------
Total Assets....................................................................... $ 2,649,884 $ 2,671,487
------------- --------------
------------- --------------
LIABILITIES
Current Liabilities
Short-term debt.................................................................. $ 23,045 $ 18,173
Accounts payable................................................................. 117,371 125,014
Compensation and employee benefits............................................... 39,498 38,017
Income taxes..................................................................... 8,561 42,031
Other accrued liabilities........................................................ 115,828 112,205
------------- --------------
Total Current Liabilities.......................................................... 304,303 335,440
Long-Term Debt, less current portion............................................... 1,670,998 1,567,259
Deferred Income Taxes.............................................................. 22,249 19,722
Other Noncurrent Liabilities....................................................... 83,077 85,467
------------- --------------
Total Liabilities.................................................................. 2,080,627 2,007,888
------------- --------------
Contingencies and Commitments (Notes 5 and 7)
Redeemable Common Stock, at current redemption value............................... 9,390 9,390
------------- --------------
SHAREHOLDERS' EQUITY
Nonredeemable Common Stock......................................................... 75 75
Capital in Excess of Par Value..................................................... 751,153 751,153
(Accumulated Deficit).............................................................. (181,606) (105,136)
Cumulative Currency Translation Adjustment......................................... (9,755) 8,117
------------- --------------
Total Shareholders' Equity......................................................... 559,867 654,209
------------- --------------
Total Liabilities and Shareholders' Equity......................................... $ 2,649,884 $ 2,671,487
------------- --------------
------------- --------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-51
<PAGE>
RIVERWOOD HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
On March 27, 1996, Holding, through its wholly owned subsidiary RIC Holding,
acquired all of the outstanding shares of common stock of RIC. The purchase
method of accounting was used to record assets acquired and liabilities assumed
by Holding. As a result of the Merger, purchase accounting, the effect of the
disposition of substantially all of the U.S. Timberlands/Wood Products business
segment (see Note 8) and certain Other Costs of the Predecessor, the
accompanying financial statements of the Predecessor and the Company are not
comparable in all material respects since the financial statements report
results of operations and cash flows of these two separate entities.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
---------------------------------------------- ---------------
THREE MONTHS THREE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
JUNE 28, 1997 JUNE 29, 1996 JUNE 28, 1997 MARCH 27, 1996
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net Sales....................................... $ 294,034 $ 293,884 $ 561,222 $ 293,649
Cost of Sales................................... 258,725 252,395 493,934 232,701
Selling, General and Administrative............. 32,057 31,631 61,264 30,936
Research, Development and Engineering........... 839 1,754 2,528 2,031
Other Costs..................................... -- -- -- 11,114
Other Expenses, net............................. 2,168 1,992 4,990 1,217
-------------- -------------- -------------- ---------------
Income (Loss) from Operations................... 245 6,112 (1,494) 15,650
Interest Income................................. 77 226 219 329
Interest Expense................................ 42,030 49,842 80,931 26,392
-------------- -------------- -------------- ---------------
(Loss) from Continuing Operations before Income
Taxes and Equity in Net Earnings of
Affiliates.................................... (41,708) (43,504) (82,206) (10,413)
Income Tax Expense (Benefit).................... 1,828 (2,272) 2,729 (3,436)
-------------- -------------- -------------- ---------------
(Loss) from Continuing Operations before Equity
in Net Earnings of Affiliates................. (43,536) (41,232) (84,935) (6,977)
Equity in Net Earnings of Affiliates............ 4,910 4,622 8,465 4,927
-------------- -------------- -------------- ---------------
(Loss) from Continuing Operations............... (38,626) (36,610) (76,470) (2,050)
Income from Discontinued Operations, net of tax
of $0......................................... -- 15,356 -- --
-------------- -------------- -------------- ---------------
Net (Loss)...................................... $ (38,626) $ (21,254) $ (76,470) $ (2,050)
-------------- -------------- -------------- ---------------
-------------- -------------- -------------- ---------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-52
<PAGE>
RIVERWOOD HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
On March 27, 1996, Holding, through its wholly owned subsidiary RIC Holding,
acquired all of the outstanding shares of common stock of RIC. The purchase
method of accounting was used to record assets acquired and liabilities assumed
by Holding. As a result of the Merger, purchase accounting, the effect of the
disposition of substantially all of the U.S. Timberlands/Wood Products business
segment (see Note 8) and certain Other Costs of the Predecessor, the
accompanying financial statements of the Predecessor and the Company are not
comparable in all material respects since the financial statements report
results of operations and cash flows of these two separate entities.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------ ---------------
SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
JUNE 28, 1997 JUNE 29, 1996 MARCH 27, 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net (Loss)...................................................... $ (76,470) $ (21,254) $ (2,050)
Noncash Items Included in
Net (Loss):
Depreciation, amortization and cost of timber harvested....... 65,670 39,935 24,438
Deferred income taxes......................................... 3,041 (2,467) (3,574)
Pension, postemployment and postretirement expense, net of
benefits paid............................................... 2,525 415 1,861
Equity in net earnings of affiliates, net of dividends........ (6,608) (3,214) (4,927)
Amortization of deferred debt issuance costs.................. 6,529 3,662 619
Other, net.................................................... 382 181 (2,350)
(Increase) Decrease in Current Assets, net of effects from the
Merger:
Receivables................................................... 2,868 (17,203) 14,737
Inventories................................................... 19,406 (9,353) (14,659)
Prepaid expenses.............................................. (49) (6,164) 8,298
Increase (Decrease) in Current Liabilities, net of effects from
the Merger:
Accounts payable.............................................. (4,118) (9,754) 18,182
Compensation and employee benefits............................ 2,451 (4,128) (10,248)
Income taxes.................................................. (177) 54 (3,343)
Other accrued liabilities..................................... 1,605 (930) 12,360
Decrease in Other Noncurrent Liabilities........................ (4,742) (2,119) (2,569)
-------------- -------------- ---------------
Net Cash Provided by (Used in) Operating Activities............. 12,313 (32,339) 36,775
-------------- -------------- ---------------
</TABLE>
F-53
<PAGE>
RIVERWOOD HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------ ---------------
SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
JUNE 28, 1997 JUNE 29, 1996 MARCH 27, 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
Cash Flows from Investing Activities:
Acquisition of RIC, net of cash acquired........................ -- (1,365,202) --
Payment of Merger Costs......................................... (33,761) -- --
Purchases of Property, Plant and Equipment...................... (88,847) (34,299) (44,074)
Acquisition of equipment previously leased under operating
leases........................................................ -- (46,742) --
Proceeds from Marketable Securities Held to Maturity............ 93 -- 439
Proceeds from Sale of Assets.................................... 836 214 623
Increase in Other Assets........................................ (6,425) (3,462) (8,004)
-------------- -------------- ---------------
Net Cash Used in Investing Activities........................... (128,104) (1,449,491) (51,016)
-------------- -------------- ---------------
Cash Flows from Financing Activities:
Issuance of Debt................................................ -- 1,838,400 12,669
Increase in Debt Issuance Costs................................. -- (92,820) --
Net Increase (Decrease) in Notes Payable........................ 113,573 114,303 (3,000)
Proceeds from Issuance of Common Stock.......................... -- 761,143 838
Payments on Debt................................................ (1,672) (5,724) (2,833)
Predecessor Debt Paid at Merger................................. -- (1,118,461) --
Dividends....................................................... -- -- (2,630)
-------------- -------------- ---------------
Net Cash Provided by Financing Activities....................... 111,901 1,496,841 5,044
-------------- -------------- ---------------
Effect of Exchange Rate Changes on Cash......................... (1,203) (107) (638)
-------------- -------------- ---------------
Net (Decrease) Increase in Cash and Equivalents................. (5,093) 14,904 (9,835)
Cash and Equivalents at Beginning of Period..................... 16,499 1 35,870
-------------- -------------- ---------------
Cash and Equivalents at End of Period........................... $ 11,406 $ 14,905 $ 26,035
-------------- -------------- ---------------
-------------- -------------- ---------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-54
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Holding, its wholly owned subsidiaries RIC Holding and the corporation
formerly named CDRO Acquisition Corporation ("Acquisition Corp.") were
incorporated in 1995 to acquire the stock of RIC.
On March 27, 1996, Holding, through its wholly owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. On such date, Acquisition
Corp. was merged (the "Merger") into RIC. RIC, as the surviving corporation in
the Merger, became a wholly owned subsidiary of RIC Holding. On March 28, 1996,
RIC transferred substantially all of its properties and assets to Riverwood,
other than the capital stock of Riverwood, and RIC was merged (the "Subsequent
Merger") into RIC Holding. Thereupon, Riverwood was renamed "Riverwood
International Corporation." Upon consummation of the Subsequent Merger, RIC
Holding, as the surviving corporation in the Subsequent Merger, became the
direct parent company of Riverwood.
Holding and its subsidiaries RIC Holding and Acquisition Corp. conducted no
significant business other than in connection with the Merger and related
transactions through March 27, 1996.
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
all adjustments, consisting of normal recurring adjustments necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods presented have been made. The Condensed Consolidated Balance
Sheet as of December 31, 1996 was derived from audited financial statements.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1997.
In connection with the Merger, the purchase method of accounting was used to
establish and record a new cost basis for the assets acquired and liabilities
assumed. The difference between the purchase price and the fair market values of
the assets acquired and liabilities assumed was recorded as goodwill.
The condensed consolidated financial statements presented herein for the
three months ended March 27, 1996, represent the Predecessor's results of
operations and cash flows prior to the Merger and, consequently, are stated on
the Predecessor's historical cost basis. The condensed consolidated financial
statements as of June 28, 1997, and for the three and six months then ended and
for the three months ended June 29, 1996, reflect the adjustments which were
made to record the Merger and represent the Company's new cost basis. On October
18, 1996, the Company sold substantially all of the assets of the U.S.
Timberlands/Wood Products business segment (see Note 8). The operating results
for the U.S. Timberlands/Wood Products business segment were classified as
discontinued operations for periods beginning March 28, 1996 and ending October
18, 1996 (the date of the sale). The operating results for the U.S.
Timberlands/Wood Products business segment have not been reclassified as
discontinued operations in the Predecessor's Condensed Consolidated Statement of
Operations or Condensed Consolidated Statement of Cash Flows for the three
months ended March 27, 1996. Accordingly, the financial statements of the
Predecessor for periods prior to March 28, 1996 are not comparable in all
material respects with the financial statements subsequent to the Merger date.
The most significant differences relate to amounts recorded for inventory,
property, plant and equipment,
F-55
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
intangibles and debt which resulted in increased cost of sales, amortization,
depreciation and interest expense in the three and six months ended June 28,
1997, and for the three months ended June 29, 1996, and will continue to do so
in future periods.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For a summary of the Company's significant accounting policies, please refer
to the Company's report on Form 10-K filed with the Securities and Exchange
Commission for the nine month period ended December 31, 1996. For a summary of
RIC's significant accounting policies, please refer to the financial statements
incorporated by reference in RIC's annual report filed with the Securities and
Exchange Commission under Form 10-K for the year ended December 31, 1995.
The Company has reclassified the presentation of certain prior period
information to conform with the current presentation format.
The preparation of the condensed consolidated 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 condensed consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from those estimates.
NOTE 3 -- INVENTORIES
The major classes of inventories were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) JUNE 28, 1997 DECEMBER 31, 1996
- ----------------------------------------------------------------------------- -------------- -------------------
<S> <C> <C>
Finished goods............................................................... $ 77,970 $ 89,412
Work-in-process.............................................................. 15,335 12,496
Raw materials................................................................ 59,019 71,075
Supplies..................................................................... 33,971 38,982
-------------- ----------
Total........................................................................ $ 186,295 $ 211,965
-------------- ----------
-------------- ----------
</TABLE>
In the fourth quarter of 1996, the Company adopted the Last-in, First-out
("LIFO") method of determining the cost of principally all of its inventories
effective March 28, 1996. Prior to the fourth quarter of 1996, the Company
determined the cost of principally all of its inventories using the First-in,
First-out ("FIFO") method. Accordingly, the second quarter of 1996 has been
restated to reflect the adoption of the LIFO method effective March 28, 1996 as
follows:
<TABLE>
<CAPTION>
(LOSS) INCOME
FROM NET
(IN THOUSANDS OF DOLLARS) NET SALES OPERATIONS (LOSS)
- ------------------------------------------------------------------------ ----------- -------------- ----------
<S> <C> <C> <C>
Second quarter 1996 as originally reported.............................. $ 293,884 $ (20,291) $ (51,260)
Second quarter 1996 LIFO adjustment..................................... -- 26,403 30,006
----------- -------------- ----------
Second quarter 1996 as restated......................................... $ 293,884 $ 6,112 $ (21,254)
----------- -------------- ----------
----------- -------------- ----------
</TABLE>
F-56
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 -- INVESTMENTS IN NET ASSETS OF EQUITY AFFILIATES
The Company has investments in affiliates that are accounted for using the
equity method of accounting. The most significant investment is the Company's 50
percent investment in Igaras Papeis e Embalagens S.A. ("Igaras").
The following represents the summarized income statement information for
Igaras, of which the Company recognizes 50 percent in its results of operations:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
---------------------------------------------- ---------------
THREE MONTHS THREE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
(IN THOUSANDS OF DOLLARS) JUNE 28, 1997 JUNE 29, 1996 JUNE 28, 1997 MARCH 27, 1996
- ------------------------------------------------ -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net Sales....................................... $ 58,686 $ 56,748 $ 115,088 $ 59,573
Cost of Sales................................... 40,079 37,938 80,365 39,127
-------------- -------------- -------------- ---------------
Gross Profit.................................... $ 18,607 $ 18,810 $ 34,723 $ 20,446
-------------- -------------- -------------- ---------------
-------------- -------------- -------------- ---------------
Income from Operations.......................... $ 13,043 $ 13,050 $ 22,745 $ 14,275
-------------- -------------- -------------- ---------------
-------------- -------------- -------------- ---------------
Net Income...................................... $ 9,274 $ 8,757 $ 16,082 $ 10,249
-------------- -------------- -------------- ---------------
-------------- -------------- -------------- ---------------
</TABLE>
During the second and first quarters of 1997 and the second quarter of 1996,
the Company received dividends from Igaras of $0.9 million, nil and $1.0
million, respectively, net of taxes of $0.2 million, nil and nil, respectively.
During the first quarter of 1996, the Predecessor did not receive a dividend
from Igaras. The Company received net dividends from its affiliates, other than
Igaras, that are accounted for using the equity method totaling $0.8 million and
$0.4 million in the first quarter of 1997 and second quarter of 1996,
respectively. The Company and the Predecessor did not receive dividends from
such affiliates during the three months ended June 28, 1997 and March 27, 1996.
NOTE 5 -- CONTINGENCIES AND COMMITMENTS
The Company is committed to compliance with all applicable laws and
regulations throughout the world. Environmental law is, however, dynamic rather
than static. As a result, costs, which are unforeseeable at this time, may be
incurred when new laws are enacted, and when environmental agencies promulgate
or revise rules and regulations.
In late 1993, the U.S. Environmental Protection Agency (the "EPA") proposed
regulations (generally referred to as the "cluster rules") that would mandate
more stringent controls on air and water discharges from the United States pulp
and paper mills. In 1996, the EPA released additional information regarding the
proposed cluster rules. Based on this information, the Company expects that the
cluster rules may be finally promulgated in 1997 and estimates the capital
spending that may be required to comply with the cluster rules could reach $55
million to be spent at its two U.S. paper mills over an eight-year period
beginning in 1997. The Company anticipates that the majority of this spending
for compliance with the cluster rules will occur later in the eight-year period.
The Company had no capital spending during the first half of 1997 related to
compliance with the cluster rules.
In late 1995, The Louisiana Department of Environmental Quality ("DEQ")
notified the Company that the Predecessor may be liable for the remediation of
hazardous substances at a wood treatment site in Shreveport, Louisiana, that the
Predecessor or its predecessor previously operated, and at a former oil refinery
site in Caddo Parish, Louisiana that the Company currently owns. Neither the
Company nor the
F-57
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Predecessor ever operated the oil refinery. In response to the DEQ, the Company
has provided additional information concerning these sites and has commenced its
own evaluation of any claims and remediation liabilities for which it may be
responsible. The Company received a letter from the DEQ dated May 20, 1996,
requesting a plan for soil and groundwater sampling of the wood treatment site.
The Company first met with the DEQ on July 18, 1996, and then submitted a soil
sampling plan to the DEQ. The Company expects approval of this sampling plan in
the second half of 1997. On September 6, 1996, the Company received from the DEQ
a letter requesting remediation of the former oil refinery site in Caddo Parish,
Louisiana. The Company met with the DEQ on February 17, 1997 to discuss these
matters. The Company anticipates entering into a cooperative agreement with the
DEQ to perform a phased-in evaluation of soil and groundwater conditions at the
Shreveport site. The Company is in discussions with the DEQ regarding the
participation of other responsible parties in any clean-up of hazardous
substances at both of these sites.
The Company is engaged in environmental remediation projects for certain
properties currently owned or operated by the Company and certain properties
divested by the Company for which responsibility was retained for pre-existing
conditions. The Company's costs in some instances cannot be estimated until the
remediation process is substantially underway. To address these contingent
environmental costs, the Company has accrued reserves when such costs are
probable and can be reasonably estimated. The Company believes that, based on
current information and regulatory requirements, the accruals established by the
Company for environmental expenditures are adequate. Based on current knowledge,
to the extent that additional costs may be incurred that exceed the accrued
reserves, such amounts are not expected to have a material impact on the results
of operations, cash flows or financial condition of the Company, although no
assurance can be given that material costs will not be incurred in connection
with clean-up activities at these properties, including the Shreveport and Caddo
Parish sites referred to above.
The Company is a party to a number of lawsuits arising out of the conduct of
its business. While there can be no assurance as to their ultimate outcome, the
Company does not believe that these lawsuits will have a material impact on the
results of operations, cash flows or financial condition of the Company.
On December 6, 1995, Forrest Kelly Clay, a former shareholder of the
Predecessor, commenced a purported class action lawsuit in the United States
District Court for the Northern District of Georgia, against the Company and
certain officers of the Company (the "Individual Defendants," and together with
the Company, the "Defendants"). In his complaint, Clay alleges that the
Defendants violated the federal securities laws by disseminating misleading
statements and by omissions concerning the strategic alternatives that the
Predecessor was considering, including its potential sale to a third-party
investor. The complaint also alleged that the Individual Defendants, through
their exercise of stock appreciation rights ("SARs"), violated the federal
securities laws by trading in the Predecessor's securities while in possession
of material, non-public information. The complaint generally seeks damages in an
unspecified amount, as well as other relief. On June 2, 1997, the court granted
Defendants' Motion for Summary Judgment and dismissed the action in its
entirety. The court based its ruling on the fact that (i) none of the statements
attributable to the Company concerning its review of strategic alternatives was
false and (ii) there is no causal relationship between plaintiff's purchase of
Riverwood common stock and the Individual Defendants' exercise of SARs.
Plaintiff filed his Notice of Appeal to the United States Court of Appeals for
the Eleventh Circuit on June 5, 1997. A briefing schedule has not yet been set.
F-58
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6 -- OTHER COSTS
Other Costs incurred by the Predecessor in 1996 included expenses associated
with stock based compensation plans, expenses related to RIC's review of
strategic alternatives and provision for environmental reserves.
NOTE 7 -- INCOME TAXES
During the second quarter and first six months of 1997, the Company
recognized an income tax expense of $1.8 million and $2.7 million, respectively,
on a (Loss) from Continuing Operations before Income Taxes and Equity in Net
Earnings of Affiliates of $41.7 million and $82.2 million, respectively. During
the second quarter of 1996, the Company recognized an income tax benefit of $2.3
million on a (Loss) from Continuing Operations before Income Taxes and Equity in
Net Earnings of Affiliates of $43.5 million. The 1997 expense and 1996 benefit
differed from the statutory federal income tax rate because of valuation
allowances established on net operating loss carryforward tax assets in the U.S.
and certain international locations where the realization of benefits is
uncertain.
In the first quarter of 1996, the Predecessor recognized an income tax
benefit of $3.4 million on a (Loss) before Income Taxes and Equity in Net
Earnings of Affiliates of $10.4 million.
Pursuant to an election under Section 338(h)(10) of the Internal Revenue
Code of 1986, as amended, the Merger has been treated for income tax purposes as
a taxable sale of assets of RIC and a taxable sale of assets of RIC's
subsidiaries to which the election applies. Pursuant to a Tax Matters agreement,
Manville agreed to bear the cost of the Section 338(h)(10) election for federal
tax purposes and for purposes of state taxes for which Manville and the
Predecessor filed returns on a combined basis. The Company agreed to bear the
cost of this election for the purposes of other state taxes ("stand alone
taxes") including Louisiana income tax. During 1997, the Company has paid $33.1
million in estimated stand-alone taxes relating to the election, including $27.5
million in Louisiana income tax. The Company's calculation of its Louisiana tax
was based on state law in effect at the time of the Merger, including a 1993
amendment. In May 1997, the Louisiana Supreme Court declared the 1993 amendment
to be void under the Louisiana Constitution, retroactive to 1993. It is possible
that the voiding of the 1993 amendment could result in the Company being
required to pay significant additional Louisiana income tax relating to the
election (plus interest on the additional tax). The Company's Louisiana tax
return for the period that includes the Merger is due in November 1997. After
consultation with Louisiana tax counsel, the Company believes that it has a
reasonable basis for filing its Louisiana income tax return for 1996 (which is
due in November 1997) without the payment of any additional tax due to the
voiding of the 1993 amendment. There can be no assurance, however, the Company
could ultimately prevail on this issue if Louisiana were to challenge such
filing position. If the Company were not to prevail in such a challenge,
significant additional Louisiana income tax relating to the election could be
payable. Management estimates that the maximum amount for such additional tax is
approximately $50 million (plus statutory interest on any additional tax). The
Company intends to file its tax return without the payment of additional tax due
to the voiding of the 1993 amendment, and management believes that the
additional tax ultimately paid (if any) would be substantially less than the
estimated maximum amount, although no assurance can be given in this regard. The
Company and its advisors are continuing to study this situation. Since the law
is unclear and the amounts involved could be significant, it may be several
years before this matter is resolved.
F-59
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 8 -- DISPOSITION OF BUSINESSES AND OPERATING ACTIVITIES
On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/ Wood Products business segment for approximately $550 million
in cash. In addition, the buyer assumed certain specified preclosing
liabilities. Under the terms of the agreement for such sale, the Company and the
buyer, Plum Creek Timber Company, L.P., entered into a twenty-year supply
agreement with a ten-year renewal option for the purchase by the Company, at
market-based prices, of a majority of the Company's requirements for pine
pulpwood and residual chips at its paper mill in West Monroe, Louisiana (the
"West Monroe Mill"), as well as a portion of the Company's needs for hardwood
pulpwood at the West Monroe Mill. The Company did not realize any gain or loss
on the sale. The operating results for the U.S. Timberlands/Wood Products
business segment were classified as discontinued operations for periods
beginning March 28, 1996 and ending October 18, 1996 (the date of the sale). The
operating results of the U.S. Timberlands/Wood Products business segment have
not been reclassified as discontinued operations in the Predecessor's Condensed
Consolidated Statements of Operations or Condensed Consolidated Statements of
Cash Flows for periods prior to the Merger.
In connection with and following the Merger, the Company decided in 1996 to
exit certain businesses and operating activities, including the sale or closure
of the Company's last dedicated folding carton converting plant in the United
States, located in Kankakee, Illinois, packaging machinery manufacturing plants
in Marietta, Georgia and Koln, Germany, a beverage multiple packaging converting
plant in Bakersfield, California and the trucking transportation operations in
West Monroe, Louisiana, as well as the consolidation and realignment of certain
other operations in the United States, Australia and Europe. The cost of exiting
these businesses and operating activities was approximately $40.9 million which
was accrued during 1996 as a purchase accounting adjustment. These costs related
principally to the severance of approximately 750 employees, relocation and
other plant closure costs. At June 28, 1997, $22.8 million of this total was
unspent and accrued in Other accrued liabilities on the Condensed Consolidated
Balance Sheets. During the first half of 1997, $9.9 million was paid out and
charged against the accrual and related primarily to severance costs.
NOTE 9 -- PRO FORMA DATA
The following unaudited pro forma financial data has been prepared assuming
that the Merger and related financings were consummated on January 1, 1996 and
excluding the results of operations of the U.S. Timberlands/Wood Products
business segment from the period presented. This pro forma financial data is
presented for informational purposes and is not necessarily indicative of the
operating results that would have occurred had the Merger been consummated on
January 1, 1996, nor is it necessarily indicative of future operations.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
(IN THOUSANDS OF DOLLARS) MARCH 27, 1996
- ---------------------------- ------------------------
<S> <C>
Net Sales................... $ 258,706
Net Loss.................... $ (31,696)
</TABLE>
F-60
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 10 -- SUBSEQUENT EVENT
On July 28, 1997, the Company completed an offering of $250 million
principal amount of Senior Notes due 2007, bearing interest at 10 5/8 percent
(the "1997 Notes"). The net proceeds of this offering were applied to prepay
certain revolving credit borrowings under the Company's senior secured credit
agreement (without any commitment reduction), and to refinance certain Tranche A
term loans and other borrowings thereunder. The notes have not been registered
under the Securities Act of 1933, as amended. During the third quarter of 1997,
the Company will record a non-cash, extraordinary charge to earnings of
approximately $2.5 million, net of tax, related to the write-off of the
applicable portion of deferred debt issuance costs on the Tranche A term loans.
In connection with this refinancing, the Company's senior secured lenders
have modified certain financial covenants to reflect, among other things, the
Company's recent financial results. After giving effect to such refinancing,
outstanding revolving borrowings under the senior secured agreement were
approximately $69 million (on a pro forma basis as of June 28, 1997) and
scheduled principal payments on the term loans thereunder are approximately $1
million, $3 million, $4 million, $4 million, $120 million, $173 million, $184
million, and $156 million for 1997 through 2004, respectively. The covenant
modifications include reductions in permitted capital expenditures, the
elimination of the minimum consolidated net worth requirement, and reductions in
minimum EBITDA (as defined) and interest coverage ratio requirements. The
amended covenants also specify permitted capital expenditures (subject to
certain carryover allowances and other adjustments) of no more than $175
million, $140 million, $140 million, and $135 million for 1997 though 2000,
respectively, and $130 million per year thereafter. The amended covenants
specify, among other changes, the following amended minimum EBITDA and interest
coverage ratio requirements for each four quarter period ending during the
following test periods:
<TABLE>
<CAPTION>
INTEREST COVERAGE
PERIOD EBITDA RATIO
- ------------------------------------------------------------------------------ -------------- ------------------
<S> <C> <C>
December 31, 1996--December 30, 1997.......................................... $ 130 million 0.80 to 1.00
December 31, 1997--December 30, 1998.......................................... $ 140 million 0.85 to 1.00
December 31, 1998--December 30, 1999.......................................... $ 200 million 1.00 to 1.00
December 31, 1999--December 30, 2000.......................................... $ 265 million 1.25 to 1.00
December 31, 2000--December 30, 2001.......................................... $ 325 million 1.50 to 1.00
December 31, 2001--December 30, 2002.......................................... $ 350 million 1.75 to 1.00
December 31, 2002--December 30, 2003.......................................... $ 375 million 2.00 to 1.00
Thereafter.................................................................... $ 400 million 2.25 to 1.00
</TABLE>
F-61
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
Igaras Papeis e Embalagens S.A.:
We have audited the accompanying consolidated balance sheets of Igaras
Papeis e Embalagens S.A., as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company'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 in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Igaras Papeis e
Embalagens S.A. as of December 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles in the United States of America.
COOPERS & LYBRAND BIEDERMANN, BORDASCH
SAO PAULO, BRAZIL
JANUARY 30, 1997
F-62
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents............................................................ $ 23,177 $ 50,229
Receivables, Net................................................................ 27,296 21,897
Inventories..................................................................... 31,601 33,178
Other Assets.................................................................... 5,469 4,681
-------------- --------------
Total Current Assets.......................................................... 87,543 109,985
-------------- --------------
Property, Plant and Equipment, Net................................................ 274,404 231,562
Deferred Tax Assets............................................................... 5,331 6,779
Other Noncurrent Assets........................................................... 6,647 5,028
-------------- --------------
Total Assets.................................................................. $ 373,925 $ 353,354
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-63
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
LIABILITIES
Current Liabilities:
Short-Term Debt................................................................. $ 30,774 $ 19,372
Current Portion of Long-Term Debt............................................... 5,724 9,427
Accounts Payable................................................................ 14,550 13,106
Income Taxes.................................................................... 4,502 34,564
Deferred Income Taxes........................................................... 130 100
Other Accrued Liabilities....................................................... 14,998 13,709
-------------- --------------
Total Current Liabilities..................................................... 70,678 90,278
Long-Term Debt, less current portion.............................................. 14,587 11,424
Pension Fund...................................................................... 2,032 1,922
Deferred Income Taxes............................................................. 14,474 12,188
Other Noncurrent Liabilities...................................................... 871 931
-------------- --------------
Total Liabilities............................................................. 102,642 116,743
-------------- --------------
Contingencies and Commitments (Note 10)
SHAREHOLDERS' EQUITY
Preferred Stock:
Class A (No par Value; 32 and 16 Shares Authorized,
Issued and Outstanding in 1996 and 1995, respectively)...................... -- --
Class B (No par Value; no shares and 1 Share Authorized,
Issued and
Outstanding in 1996 and 1995, respectively)................................. -- --
Common Stock (No par Value; 167,309,968 and
116,999,983 Shares Authorized, Issued and Outstanding in
1996 and 1995, respectively).................................................. 170,984 170,984
Retained Earnings............................................................... 100,299 65,627
-------------- --------------
Total Shareholders' Equity.................................................... 271,283 236,611
-------------- --------------
Total Liabilities and Shareholders' Equity.................................... $ 373,925 $ 353,354
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-64
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1996 1995 1994
----------- ----------- -----------
Net Sales.................................................................. $ 234,698 $ 275,551 $ 160,526
Cost of Sales.............................................................. 156,577 139,011 105,869
Selling, General and Administrative Expenses............................... 19,989 19,049 15,622
Translation Losses, Net.................................................... 2,115 2,457 6,628
Other (Expense) Income, Net................................................ 854 (6,502) 747
----------- ----------- -----------
Income from Operations..................................................... 56,871 108,532 33,154
Interest Income............................................................ 8,872 16,171 889
Interest Expense........................................................... 4,914 5,909 7,976
----------- ----------- -----------
Income before Income Taxes................................................. 60,829 118,794 26,067
Current Income Tax Expense................................................. 12,400 45,226 4,079
Deferred Income Tax Expense................................................ 3,764 3,558 3,769
----------- ----------- -----------
Net Income................................................................. $ 44,665 $ 70,010 $ 18,219
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-65
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- ----------- ------------
Cash Flows from Operating Activities:
Net Income............................................................... $ 44,665 $ 70,010 $ 18,219
Noncash Items Included in Net Income:
Depreciation, Amortization and Cost of Timber Harvested................ 16,632 14,847 15,231
Deferred Income Tax Expense.............................................. 3,764 3,558 3,769
Pension Expense, Net of Funding.......................................... 337 168 325
Other, Net............................................................... (306) (313) (132)
(Increase) Decrease in Current Assets:
Receivables.............................................................. (5,399) (3,786) (9,098)
Inventories.............................................................. 1,577 (12,937) (1,854)
Other Assets............................................................. (788) (2,975) 49
Increase (Decrease) in Current Liabilities:
Accounts payable......................................................... 1,444 2,065 2,838
Income taxes............................................................. (30,062) 34,038 526
Other Current Liabilities.................................................. 1,289 3,253 4,410
Increase (Decrease) in Other Noncurrent Liabilities........................ (60) 931 --
--------- ----------- ------------
Net Cash Provided by Operating Activities:................................. 33,093 108,859 34,283
--------- ----------- ------------
Cash Flows from Investing Activities:
Purchases of Property, Plant and Equipment................................. (60,010) (41,343) (19,997)
Proceeds from Sales of Property, Plant and Equipment....................... 615 457 147
Increase (Decrease) in Other Noncurrent Assets............................. (1,619) 947 57
--------- ----------- ------------
Net Cash Used in Investing Activities...................................... (61,014) (39,939) (19,793)
--------- ----------- ------------
Cash Flows from Financing Activities:
Proceeds from Long-Term Debt............................................. 9,350 6,084 11,036
Proceeds from Short-Term Debt............................................ 70,476 92,889 88,040
Payments on Debt......................................................... (68,964) (88,677) (106,405)
Dividends................................................................ (9,993) (32,233) (6,029)
--------- ----------- ------------
Net Cash Provided by (Used in) Financing Activities........................ 869 (21,937) (13,358)
--------- ----------- ------------
Net Increase (Decrease) in Cash and Equivalents............................ (27,052) 46,983 1,132
Cash and Equivalents at Beginning of Period................................ 50,229 3,246 2,114
--------- ----------- ------------
Cash and Equivalents at End of Period...................................... $ 23,177 $ 50,229 $ 3,246
--------- ----------- ------------
--------- ----------- ------------
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year for:
Income Taxes............................................................. $ 40,161 $ 8,583 $ 3,582
Interest................................................................. $ 6,776 $ 6,982 $ 7,993
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-66
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PREFERRED STOCK TOTAL
------------------------ COMMON RETAINED SHAREHOLDERS'
CLASS A CLASS B STOCK EARNINGS EQUITY
----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993................ -- -- $ 176,351 $ 15,660 $ 192,011
Net Income................................... -- -- -- 18,219 18,219
Dividends of $0.052 per Share on
Common Stock............................... -- -- -- (6,029) (6,029)
Capital Increase............................. -- -- 264 -- 264
Partial Spin-off............................. -- -- (5,631) -- (5,631)
Conversion of Common Stock to
Preferred Stock............................ -- -- -- -- --
----------- ----------- ----------- ----------- --------------
Balances at December 31, 1994................ -- -- 170,984 27,850 198,834
Net Income................................... -- -- -- 70,010 70,010
Dividends of $0.275 per Share on
Common Stock............................... -- -- -- (32,233) (32,233)
----------- ----------- ----------- ----------- --------------
Balances at December 31, 1995................ -- -- 170,984 65,627 236,611
Net Income................................... -- -- -- 44,665 44,665
Dividends of $0.060 per Share on
Common Stock............................... -- -- -- (9,993) (9,993)
----------- ----------- ----------- ----------- --------------
Balances at December 31, 1996................ -- -- $ 170,984 $ 100,299 $ 271,283
----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-67
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Igaras Papeis e Embalagens S.A. and its wholly-owned subsidiary, Igaras
Agro-Florestal Ltda. (herein referred to as "the Company"). All significant
transactions and balances between the consolidated operations have been
eliminated.
(B) PRINCIPLES OF TRANSLATION
The accounting records of the Company are maintained in local currency. The
Company's financial statements, including the adjustments made outside the local
books of account, have been translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation" ("SFAS No. 52"), as follows:
BALANCE SHEETS
<TABLE>
<S> <C> <C>
Inventories; Prepaid Expenses; Property, Plant and
Equipment
At Historical
Advances for Energy Supply and Shareholders' Equity Exchange Rates
All Other Assets and Liabilities At the Year End
Exchange Rates of:
1996 1995
--------- ---------
R$ 1.0394 R$ 0.9725
US$ 1.00 US$ 1.00
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C>
Cost of Sales; Depreciation; Cost of Timber At Historical
Harvested and Amortization of Other Assets Exchange Rates
All Other Income and Expense Items At the Average
Exchange rate for the
Period
</TABLE>
All gains and losses on translation are included in income from operations.
(C) CASH AND EQUIVALENTS
Cash and equivalents include time deposits, certificates and receipts of
deposits and other marketable securities with original maturities of three
months or less.
(D) INVENTORIES
Inventories are stated at average cost which is lower than market.
F-68
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Cost includes capitalized
interest incurred during the construction phase. In 1996, 1995 and 1994,
$2,504,000, $736,000 and $468,000 of interest expense was capitalized,
respectively.
Expenditures for significant improvements, or for replacement parts, which
extend the useful life of an asset for more than one year, are capitalized,
while maintenance and repair costs are charged against operations as incurred.
Gains and losses from normal retirement or replacement of property, plant
and equipment are reflected in accumulated depreciation with no effect on
current period earnings. The amount of related accumulated deferred losses, net
of accumulated depreciation, was $369,000 and $460,000 as of December 31, 1996
and 1995, respectively. Gains and losses arising from abnormal disposals are
included in income from operations.
(F) DEPRECIATION AND COST OF TIMBER HARVESTED
Depreciation of cost is provided over the estimated useful lives of the
related assets using the straight-line method.
The estimated useful lives used in computing depreciation were as follows
for all years presented:
<TABLE>
<S> <C>
Land Improvements............................................ 35 years
Buildings and Building Equipment............................. 35 years
5 to 20
Machinery, Equipment and Vehicles............................ years
Furniture and Fixtures....................................... 16 years
Computer Hardware............................................ 4 to 5 years
</TABLE>
Timber and timberlands are stated at cost. Cost of timber harvested is based
on unit cost rates calculated using the total estimated yield of timber to be
harvested and the unamortized timber costs.
(G) INCOME TAXES
Deferred income taxes are recognized in accordance with SFAS No. 109,
"Accounting for Income Taxes". The standard requires, among other things, the
use of the liability method of computing deferred income taxes. Under the
liability method, the effect of changes in corporate tax rates on deferred
income taxes is recognized currently as an adjustment to income tax expense. The
liability method also requires that deferred tax assets or liabilities be
recorded based on the difference between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes.
(H) REVENUE RECOGNITION
The Company recognizes revenue primarily when goods are shipped to
customers.
(I) USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and
F-69
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
NOTE 2 -- EFFECTS OF INFLATION
Brazilian corporate law and tax regulations required monetary correction,
until December 31, 1995, (price-level restatement) of permanent assets (fixed
assets, deferred charges and permanent investments) and shareholders' equity
accounts using the Ufir index published by the Brazilian Government. The
computed monetary correction amounts were recorded in the respective Brazilian
balance sheet accounts with the net amount recorded as a gain or loss in the
Brazilian statement of operations. As of January 1, 1996, as established by the
Brazilian corporation law and tax regulations (Law No. 9249/95), the monetary
correction of the financial statements was abolished. Consequently, there are no
effects of monetary correction in the income tax for 1996.
NOTE 3 -- RECEIVABLES
The components of receivables were as follows at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1996 1995
- --------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Trade................................................................ $ 40,957 $ 38,743
Less:
Export Drafts Discounted with Recourse............................. (13,465) (16,841)
Allowance for Bad Debts............................................ (196) (5)
---------- ----------
$ 27,296 $ 21,897
---------- ----------
---------- ----------
</TABLE>
Export sales by geographic area were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
(IN THOUSANDS OF DOLLARS) 1996 1995 1994
- -------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Europe.................................................................... $ 10,511 $ 28,348 $ 19,167
Asia-Africa............................................................... 21,242 28,395 18,620
Latin America, Other than Brazil.......................................... 22,979 27,454 19,103
--------- --------- ---------
Total Export Sales...................................................... $ 54,732 $ 84,197 $ 56,890
--------- --------- ---------
--------- --------- ---------
</TABLE>
The remaining net sales for each of the periods presented were to customers
which were not concentrated in any specific region, but were concentrated
primarily in the consumer products industry. No single customer accounted for
more than 10% of the Company's net sales, and there were no significant accounts
receivable from a single customer. The Company reviews a customer's credit
history before extending credit. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. Bad debt expense (credit)
was $191, $0 and $(60) for the years ended December 31, 1996, 1995 and 1994,
respectively.
F-70
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- INVENTORIES
The major classes of inventories were as follows at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1996 1995
- --------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Finished goods....................................................... $ 2,580 $ 3,336
Work-in-process...................................................... 1,180 786
Raw materials........................................................ 12,177 17,013
Maintenance Materials and Other Supplies............................. 17,349 13,638
Less: Reserve for Obsolete and Slow-Moving Inventory................. (1,685) (1,595)
---------- ----------
$ 31,601 $ 33,178
---------- ----------
---------- ----------
</TABLE>
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows at December
31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1996 1995
- -------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Land and Land Improvements.......................................... $ 8,095 $ 7,038
Buildings and Building Equipment.................................... 38,812 32,318
Machinery, Equipment and Vehicles................................... 259,112 225,171
Furniture and Fixtures.............................................. 4,568 4,179
Computer Hardware................................................... 1,743 1,308
Construction in Progress............................................ 33,560 27,629
----------- -----------
345,890 297,643
Less: Accumulated Depreciation...................................... 131,692 124,927
----------- -----------
214,198 172,716
Timber and Timberlands, less Cost of Timber Harvested............... 60,206 58,846
----------- -----------
$ 274,404 $ 231,562
----------- -----------
----------- -----------
</TABLE>
F-71
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
PRINCIPLE PERIOD
(IN THOUSANDS OF DOLLARS) DUE OUTSTANDING ANNUAL INTEREST RATE 1996 1995
- --------------------------- ---------------- ------------ --------------------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Credibanco................. Annually 1993-1997 9.7% $ 492 $ 1,679
ING Bank................... Annually 1996 Libor+2.5%(8.06% at -- 12
December 31, 1995)
Frances e Brasileiro....... Monthly 1995-1999 5.18% 405 567
Frances e Brasileiro....... Monthly 1995-1999 5.54% 502 702
ING Bank................... Annually 1996 Libor+2.5%(8.06% at -- 3,374
December 31, 1995)
ING Bank................... Annually 1996 Libor+2.5%(8.06% at -- 659
December 31,1995)
Credibanco................. Semi-annually 1996-1997 Libor+1.5%(7.3% at December 431 --
31,1996)
Credibanco................. Semi-annually 1996-1997 Libor+1.5%(7.3% at December 368 --
31,1996)
Credibanco................. Semi-annually 1996-1997 Libor+1.5%(7.3% at December 640 --
31,1996)
ING Bank................... Annually 1996-1997 5.8% 3,374 --
ING Bank................... Annually 1996-1997 5.8% 658 --
Finame..................... Monthly 1993-1996 12.0% -- 119
Finame..................... Monthly 1993-1998 12.0% 6,186 9,171
BNDES...................... Monthly 1994-1999 12.0% 1,457 2,156
BNDES...................... Monthly 1997-1999 12.0% 779 574
BNDES...................... Monthly 1997-2000 12.5% 842 877
BNDES...................... Monthly 1997-2000 10.5% 771 430
BNDES...................... Monthly 1998-2001 12.0% 3,229 --
Others..................... 177 531
--------- ---------
20,311 20,851
Less Current Portion 5,724 9,427
--------- ---------
$ 14,587 $ 11,424
--------- ---------
--------- ---------
</TABLE>
Long-term debt maturities and expirations of funded long-term working
capital commitments at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF
DOLLARS)
------------------------
<S> <C>
1997................................................................ $ 5,724
1998................................................................ 10,729
1999................................................................ 2,034
2000................................................................ 1,143
2001................................................................ 681
--------
$ 20,311
--------
--------
</TABLE>
F-72
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- LONG-TERM DEBT (CONTINUED)
No restrictions, guarantees or covenants are associated with long-term debt.
The weighted average interest rate on short-term debt approximated 8% and at
December 31,1996 and 1995, respectively
NOTE 7 -- OTHER ACCRUED LIABILITIES
The components of other accrued liabilities were as follows at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1996 1995
- ----------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Wages and Compensation................................................. $ 7,389 $ 6,654
Value-Added and Other Taxes Payable.................................... 1,579 4,731
Amount Due to Affiliate................................................ 3,137 624
Other.................................................................. 2,893 1,700
--------- ---------
$ 14,998 13,709
--------- ---------
--------- ---------
</TABLE>
NOTE 8 -- PENSION FUND
The Company maintains a noncontributory defined benefit plan to supplement
the pension benefit provided by the government pension system. The plan covers
all employees meeting minimum eligibility requirements. Pension benefits are
based primarily on years of service and the employee's compensation near
retirement. The Company's funding policy is to contribute funds to trusts as
necessary to maintain the plan on an actuarially sound basis. Plan assets are
primarily invested in listed stocks and Brazilian government bonds.
The components of the periodic pension expense were as follows for the
following years:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
(IN THOUSANDS OF DOLLARS) 1996 1995 1994
- -------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service Cost -- Benefits Earned during the Year......... $ 820 $ 721 $ 503
Interest Cost on Projected Benefit Obligation........... 562 469 311
Actual Return on Plan Assets Gain....................... (357) (162) (168)
Amortization of Prior Service Cost...................... 112 112 112
--------- --------- ---------
Total Pension Expense................................. $ 1,137 $ 1,140 $ 758
--------- --------- ---------
--------- --------- ---------
</TABLE>
Certain assumptions used in determining the pension expense and net pension
liability for 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Discount Rates............................................... 5% per year above Inflation in
Brazil
Rates of Increase in Future Compensation Levels.............. 3% per year above Inflation in
Brazil
Expected Long-Term Rates of Return on Assets................. 5% per year above Inflation in
Brazil
</TABLE>
F-73
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- PENSION FUND (CONTINUED)
The following table sets forth the funded status of the plan as of December
31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1996 1995
- --------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Actuarial Present Value:
Vested Benefit Obligation.......................................... $ 6,694 $ 5,181
---------- ----------
---------- ----------
Accumulated Benefit Obligation..................................... $ 8,683 $ 7,284
---------- ----------
---------- ----------
Projected Benefit Obligation....................................... $ (12,527) $ (10,848)
Plan Assets at Fair Market Value..................................... 8,662 6,806
---------- ----------
Plan Assets less Projected Benefit Obligation........................ (3,865) (4,042)
Unrecognized Net Gain................................................ 24 269
Unrecognized Prior Service Cost...................................... 1,683 1,795
---------- ----------
Pension Liability -- Currently....................................... (126) (56)
Pension Liability -- Long-Term....................................... (2032) (1,922)
---------- ----------
Net Pension Liability................................................ $ (2,158) $ (1,978)
---------- ----------
---------- ----------
</TABLE>
The unrecognized prior service cost is amortized on a straight-line basis
over the average remaining service of employees, which approximates 23 years.
NOTE 9 -- INCOME TAXES
During 1996, 1995 and 1994, the statutory income tax rates including the
social contribution tax on ordinary profits were approximately 32%, 48%, and
41%, respectively. The statutory income tax rate on agricultural profits
including the social contribution tax was 32% for these years.
On December 27, 1996, the government enacted Law No. 9430/96 changing the
statutory income tax rate from 32% to 33% (including social contribution),
effective January 1, 1997. This rate change caused an increase of $89,000 in
deferred income taxes which was recognized during 1996.
Approximate tax effects of temporary differences giving rise to the net
deferred tax assets and liabilities were as follows at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1996 1995
- ----------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Deferred Tax Assets:
Provision for Loss on Electrobras Bonds.............................. $ 1,019 $ 1,043
Inflationary Losses.................................................. 1,842 2,953
Pensions............................................................. 712 612
Miscellaneous........................................................ 1,758 2,171
--------- ---------
Total Deferred Tax Assets.............................................. $ 5,331 $ 6,779
--------- ---------
--------- ---------
Deferred Tax Liabilities:
Inflationary Profit.................................................. $ 9,749 $ 10,937
Property, Plant and Equipment........................................ 4,670 1,054
Miscellaneous........................................................ 185 297
--------- ---------
Total Deferred Tax Liability........................................... $ 14,604 $ 12,288
--------- ---------
--------- ---------
</TABLE>
F-74
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- INCOME TAXES (CONTINUED)
The current and long-term portions of the net deferred tax liability were
$130,000 and $14,474,000, respectively, in 1996, and $100,000 and $12,188,000,
respectively, in 1995.
The reported amount of income tax expense on income before income taxes
differs from the amount of income tax expense that would result from applying
the Brazilian statutory income tax rate to income before income taxes for the
following reasons:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
(IN THOUSANDS OF DOLLARS) 1996 1995 1994
- ---------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Brazilian Statutory Expense......................... $ 20,074 $ 57,235 $ 10,515
Accelerated Depreciation............................ -- (8,069) (3,372)
Interest on Own Capital............................. (4,089) -- --
Other, Net.......................................... 179 (382) 705
---------- ---------- ----------
Income Tax Expense.................................. $ 16,164 $ 48,784 $ 7,848
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE 10 -- CONTINGENCIES AND COMMITMENTS
The Company is a party to a number of lawsuits arising out of the conduct of
its business. While there can be no assurance as to their ultimate outcome, the
Company does not believe that these lawsuits will have a material impact on the
results of operations, cash flows or financial condition of the Company.
As of December 31, 1996, outstanding purchase commitments relating to
capital projects totaled approximately $81 million.
NOTE 11 -- SHAREHOLDERS' EQUITY
During December 1994, the Company changed from a limited liability company
(Ltd.) to a public company (S.A.). In addition, Riverwood International
Corporation ("Riverwood", the former 100% shareholder of the Company) sold just
under 50% of its shares to Saragy S.A.
The capital shares consist of 167,309,968 common shares, of which 83,654,984
common shares are owned by Riverwood and 83,654,984 common shares are owned by
Saragy S.A. In addition, the Company has authorized and issued 32 shares of
Class A preferred stock. These preferred shares have preference in the event of
a liquidation of the Company.
These Class A preferred shares also have rights to dividends equal to those
of the common shares.
The Class A preferred shares are not entitled to vote and are not
convertible into common shares. As of April 30, 1996, one Class B preferred
share was converted into one common share with no par value for Saragy S.A. and,
additionally, 50,309,984 common shares with no par value were issued of which
25,154,992 was distributed to Riverwood and 25,154,992 to Saragy S.A.
Earnings may be distributed only out of Reais retained earnings reflected in
the books of Igaras Papeis e Embalagens S.A. As of December 31, 1996, the U.S.
dollar equivalent of this amount available for distribution was approximately
$10,960,000.
F-75
<PAGE>
IGARAS PAPEIS E EMBALAGENS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- PARTIAL SPIN-OFF
In November 1994, the Board of Directors approved the partial spin-off of
assets of Igaras Papeis e Embalagens Ltda., creating Riverwood do Brasil Ltda.
This newly formed company was created to manage the Riverwood's packaging
machinery business. All shares issued were distributed to Riverwood. At November
30, 1994, the net assets of Riverwood do Brasil Ltda., were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
-------------------------
<S> <C>
Assets
Current........................................................... $ 553
Property, Plant and Equipment..................................... 5,078
-------
Net Assets.................................................... $ 5,631
-------
-------
</TABLE>
The impact of this spin-off on the Company's statements of operations is not
material.
NOTE 13 -- RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996, 1995 and 1994, the Company
purchased approximately $5.1 million, $5.7 million and $4.0 million,
respectively, from Riverwood. Intercompany profits in ending inventory are not
material at December 31, 1996 and 1995.
NOTE 14 -- OTHER (EXPENSE) INCOME, NET
Other (expense) income, net in 1995 included approximately $3.6 million of
expenses related to the settlement of certain sales tax matters and
approximately $2.3 million of bonus compensation expenses.
F-76
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THOSE TO WHICH IT RELATES NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY THE NOTES, IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH
TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
--------------------------
<TABLE>
<S> <C>
TABLE OF CONTENTS
Available Information..................... 3
Prospectus Summary........................ 4
Risk Factors.............................. 18
Use of Proceeds........................... 27
Capitalization............................ 27
Selected Historical Consolidated Financial
Data.................................... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 32
Business.................................. 58
Management................................ 69
Ownership of Capital Stock................ 77
Certain Relationships and Related
Transactions............................ 79
Description of Senior Secured Credit
Facilities.............................. 80
Description of Machinery Facility......... 83
Description of 1996 Notes................. 83
The Exchange Offer........................ 85
Registration Rights....................... 91
Description of Notes...................... 93
Certain Federal Income Tax
Considerations.......................... 131
Book-entry; Delivery and Form............. 136
Plan of Distribution...................... 138
Legal Matters............................. 138
Experts................................... 139
Glossary of Certain Terms................. 140
</TABLE>
UNTIL NOVEMBER 10, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
RIVERWOOD INTERNATIONAL CORPORATION
OFFER TO EXCHANGE
10 5/8% SENIOR NOTES, SERIES A
DUE 2007, WHICH HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT OF 1933,
AS AMENDED, FOR ANY AND ALL
OUTSTANDING 10 5/8% SENIOR
NOTES DUE 2007
---------------------
PROSPECTUS
---------------------
OCTOBER 1, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware Corporation Law, as amended, provides in regards
to indemnification of directors and officers as follows:
"145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE. -- (a) A corporation shall have the power to 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. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which 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 reasonable cause to believe that his conduct was unlawful.
(b) A corporation shall have the power to indemnify any person 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 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) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or suit if
the person acted in good faith and in a manner the person 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 Court of Chancery or the 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.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because the person has
met the applicable standard of conduct set forth in subsections (a) and (b) of
this section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
II-1
<PAGE>
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who 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 any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person."
The Certificate of Incorporation and Section 5 of the By-Laws of the Company
authorize indemnification of officers and directors to the full extent permitted
under Delaware law, including a provision eliminating (except under certain
enumerated circumstances) the liability of directors for duty of care
violations.
The indemnification provided for the Delaware General Corporation Law is not
exclusive of any other rights of indemnification, and a corporation may maintain
insurance against liabilities for which indemnification is not expressly
provided by the Delaware General Corporation Law.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Certificate of Incorporation of Riverwood Holding, Inc. (formerly known as New River Holding,
Inc.) ("Holding")(1)
3.2 -- Restated By-Laws of Holding, as amended effective October 8, 1996(2)
3.3 -- Certificate of Incorporation of RIC Holding, Inc. ("RIC Holding")(4)
3.4 -- Restated By-Laws of RIC Holding, as amended effective October 8, 1996(2)
3.5 -- Certificate of Incorporation of Riverwood International Corporation ("Riverwood")(6)
3.6 -- Restated By-Laws of Riverwood, as amended effective October 8, 1996(2)
4.1 -- Indenture, dated as of July 28, 1997, between Riverwood, RIC Holding, Holding and State Street
Bank & Trust Company, as trustee, relating to the 10 5/8% Senior Notes due 2007 of Riverwood(3)
4.2 -- Purchase Agreement, dated as of July 23, among Riverwood, Chase Securities Inc., Credit Suisse
First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Initial
Purchasers")(3)
4.3 -- Registration Rights Agreement, dated as of July 28, 1997, among Riverwood and the Initial
Purchasers(3)
4.4 -- Senior Secured Credit Agreement, dated as of March 27, 1996, as amended (the "Credit
Agreement"), among Riverwood (as successor to RIC Holding), the lenders named therein (the
"Lenders") and The Chase Manhattan Bank (formerly known as Chemical Bank) ("Chase"), as
administrative agent(4)
4.5 -- Amendment No. 1 to the Credit Agreement, dated as of September 13, 1996, among Riverwood, the
Lenders and Chase, as administrative agent(5)
4.6 -- Amendment No. 2 to the Credit Agreement, dated as of September 17, 1996, among Riverwood, the
Lenders and Chase, as administrative agent(5)
4.7 -- Amendment No. 3 to the Credit Agreement, dated as of November 4, 1996, among Riverwood, the
Lenders and Chase, as administrative agent(1)
4.8 -- Amendment No. 4 to the Credit Agreement, dated as of July 15, 1997, among Riverwood, the Lenders
and Chase, as administrative agent(3)
4.9 -- Machinery Credit Agreement, dated March 27, 1996, among Riverwood International Machinery, Inc.,
the other borrowers thereto, The Chase Manhattan Bank (formerly known as Chemical Bank), as
administrative agent, and the lenders party thereto(4)
4.10 -- Indenture, dated March 27, 1996, among RIC Holding, Holding, CDRO Acquisition Corporation
("CDRO") and Fleet National Bank of Connecticut, as trustee, relating to the 10 1/4% Senior
Notes due 2006 of Riverwood, together with the First Supplemental Indenture and the Second
Supplemental Indenture thereto(4)
4.11 -- Indenture, dated March 27, 1996, among RIC Holding, Holding, CDRO and Fleet National Bank of
Massachusetts, as trustee, relating to the 10 7/8% Senior Subordinated Notes due 2008 of
Riverwood, together with the First Supplemental Indenture and the
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------
Second Supplemental Indenture thereto(4)
<S> <C> <C>
4.12 -- Facility Agreement between Riverwood Cartons Pty Ltd and Australia and New Zealand Banking Group
Limited, dated September 21, 1992, as amended by the Agreement Amending the Facility Agreement,
dated September 13, 1995(8)
4.13 -- Indenture, dated as of June 24, 1992, relating to 10 3/4% Senior Notes Due 2000(8)
4.14 -- Indenture, dated as of June 24, 1992, relating to 11 1/4% Senior Subordinated Notes Due 2002(8)
4.15 -- Indenture, dated as of June 30, 1994, relating to 10 3/8% Senior Subordinated Notes Due 2004(8)
4.16 -- Indenture, dated as of September 15, 1993, relating to 6 3/4% Convertible Subordinated Notes Due
2003(8)
5 -- Opinion of Debevoise & Plimpton regarding the legality of the New Notes being registered(9)
10.1 -- Wood Products Supply Agreement, dated as of October 18, 1996, between Plum Creek Timber Company,
L.P. and Riverwood(5)
10.2 -- Form of Investor Stock Subscription Agreement between New River Holding, Inc. (renamed Riverwood
Holding, Inc.) and each of the investors named on the schedule thereto(6)
10.3 -- Form of Management Stock Subscription Agreement between New River Holding, Inc. (renamed
Riverwood Holding, Inc.) and the purchasers named therein(6)
10.4 -- Form of Management Stock Option Agreement between New River Holding, Inc. (renamed Riverwood
Holding, Inc.) and the grantees named therein(6)
10.5 -- Form of Registration and Participation Agreement among New River Holding, Inc. (renamed
Riverwood Holding, Inc.) and certain stockholders of New River Holding, Inc.(6)
10.6 -- Form of New River Holding, Inc. Stock Incentive Plan(6)
10.7 -- Form of Stockholders Agreement among New River Holding, Inc. (renamed Riverwood Holding, Inc.)
and the stockholders of New River Holding, Inc. named therein(6)
10.8 -- Form of Indemnification Agreement, among Holding, RIC Holding, Riverwood, Clayton, Dubilier &
Rice, Inc. and Clayton, Dubilier & Rice Fund V Limited Partnership(6)
10.9 -- Form of Amended and Restated Employment Agreements, among Riverwood, Holding and each of Thomas
H. Johnson, Robert C. Hart and Octavio Orta(6)
10.10 -- Form of Consulting Agreement, among Holding, RIC Holding, the corporation formerly known as
Riverwood, Riverwood and Clayton, Dubilier & Rice, Inc.(6)
10.11 -- Agreement, dated November 11, 1996 among Holding, RIC Holding, Riverwood and Thomas H.
Johnson(1)
10.12 -- Loanout Agreement, dated as of October 8, 1996 by and among Holding, RIC Holding, Riverwood and
Clayton, Dubilier & Rice, Inc.(1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------
<S> <C> <C>
10.13 -- Employment Agreement, effective as of March 31, 1997, among Riverwood, Holding and Stephen
Humphrey(7)
10.14 -- Management Stock Option Agreement, dated as of March 31, 1997, by and between Holding and
Stephen Humphrey(7)
12.1 -- Computation of Ratio of Earnings to Fixed Charges(3)
12.2 -- Computation of EBITDA to Interest Expense(3)
15.1 Letter of Coopers & Lybrand Biedermann, Bordasch with respect to unaudited interim financial
information(10)
15.2 Letter of Deloitte & Touche LLP with respect to unaudited interim financial information(10)
21 -- List of Subsidiaries of Holding(1)
23.1 -- Consent of Deloitte & Touche LLP(10)
23.2 -- Consent of Cooper & Lybrand L.L.P.(10)
23.3 -- Consent of Coopers & Lybrand Biedermann, Bordasch(10)
23.4 -- Consent of Debevoise & Plimpton (included in Exhibit filed as Exhibit 5)(9)
24 -- Powers of Attorney (included on signature pages to this Registration Statement on Form S-4)(3)
25 -- Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939 (Form T-1) of
the Trustee(9)
99.1 -- Form of Letter of Transmittal(9)
99.2 -- Form of Notice of Guaranteed Delivery(9)
99.3 -- Form of Exchange Agreement between Riverwood and State Street Bank and Trust Company, as the
Exchange Agent(9)
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules not included in the Prospectus
appear on the following pages of this Registration Statement.
<TABLE>
<CAPTION>
PAGE SCHEDULE
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
II-8 Report of Coopers & Lybrand L.L.P., Independent Accountants(10)
II-9 Schedule II -- Valuation and Qualifying Accounts(10)
</TABLE>
All other schedules are omitted as the required information is included in
the Company's consolidated financial statements of the related notes or such
schedules are not applicable.
- ------------------------
1 Filed as an exhibit to Holding's Report on Form 10-K, filed March 27, 1997
(Commission File No. 1-11113) and incorporated herein by reference
2 Filed as an exhibit to Holding's Report on Form 10-Q, filed November 8, 1996
(Commission File No. 1-11113) and incorporated herein by reference
II-5
<PAGE>
3 Previously filed
4 Filed as an exhibit to RIC Holding's Annual Report on Form 10-K, filed April
16, 1996 (Commission File No. 1-11113) and incorporated herein by reference
5 Filed as an exhibit to Holding's Report on Form 8-K, filed October 21, 1996
(Commission File No. 1-11113) and incorporated herein by reference
6 Filed as an exhibit to Registration Statement on Form S-1 (Registration No.
33-80475) of New River Holding, Inc. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended, and incorporated herein by reference
7 Filed as an exhibit to Holding's Report on Form 10-Q, filed May 9, 1997
(Commission File No. 1-11113) and incorporated herein by reference
8 Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrants agree to
furnish a copy of such document to the Securities and Exchange Commission
upon request
9 Filed herewith
10 Amended copy filed herewith
ITEM 22. UNDERTAKINGS.
Each Registrant hereby undertakes
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) 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 end 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 a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement; (iii) 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.
(2) 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.
(3) 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
offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement by any person or party who is deemed to be an underwriter within the
meaning of Rule 145 (c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of Section
10 (a) (3) of the Securities Act and is used in connection
II-6
<PAGE>
with an offering of securities subject to Rule 415 will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offering therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the Securities
Act 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
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 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 whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors
of Riverwood Holding, Inc.:
In connection with our audits of the consolidated financial statements of
Riverwood International Corporation as of December 31, 1995 and 1994, and for
each of the two years in the period ended December 31, 1995, which financial
statements are included in this Amendment No. 1 to this Registration Statement
No. 333-33499 on Form S-4, dated October 1, 1997, we have also audited the
financial statement schedules listed in Item 21(b) herein.
In our opinion, these financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
January 22, 1996
II-8
<PAGE>
RIVERWOOD HOLDING, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(A) OF PERIOD
- ------------------------------------------------------ ----------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
COMPANY:
NINE MONTHS ENDED DECEMBER 31, 1996:
Allowances Reducing the Assets in the Balance Sheet:
Doubtful accounts receivable........................ $ -- $ 952 $ -- $ (123) $ 829
Deferred tax assets................................. 33,263 58,756 -- -- 92,019
----------- ----------- ----------- -------------- -----------
Total............................................. $ 33,263 $ 59,708 $ -- $ (123) $ 92,848
----------- ----------- ----------- -------------- -----------
----------- ----------- ----------- -------------- -----------
PREDECESSOR:
THREE MONTHS ENDED MARCH 27, 1996:
Allowances Reducing the Assets in the Balance Sheet:
Doubtful accounts receivable........................ $ 1,476 $ 197 $ -- $ (82) $ 1,591
Deferred tax assets................................. 1,875 -- -- (1,000) 875
----------- ----------- ----------- -------------- -----------
Total............................................. $ 3,351 $ 197 $ -- $ (1,082) $ 2,466
----------- ----------- ----------- -------------- -----------
----------- ----------- ----------- -------------- -----------
TWELVE MONTHS ENDED DECEMBER 31, 1995:
Allowances Reducing the Assets in the Balance Sheet:
Doubtful accounts receivable........................ $ 1,105 $ 589 $ 299 $ (517) $ 1,476
Deferred tax assets................................. 4,327 -- -- (2,452) 1,875
----------- ----------- ----------- -------------- -----------
Total............................................. $ 5,432 $ 589 $ 299 $ (2,969) $ 3,351
----------- ----------- ----------- -------------- -----------
----------- ----------- ----------- -------------- -----------
TWELVE MONTHS ENDED DECEMBER 31, 1994:
Allowances Reducing the Assets in the Balance Sheet:
Doubtful accounts receivable........................ $ 1,202 $ 88 $ 148 $ (333) $ 1,105
Deferred tax assets................................. 3,662 -- 665 --) 4,327
----------- ----------- ----------- -------------- -----------
Total............................................. $ 4,864 $ 88 $ 813 $ (333) $ 5,432
----------- ----------- ----------- -------------- -----------
----------- ----------- ----------- -------------- -----------
</TABLE>
- ------------------------
Notes:
(a) The reduction in the allowance for doubtful accounts receivable relate
principally to charges for which reserves were provided, net of recoveries.
The reduction in the valuation allowance for deferred tax assets represents
the reversal of a valuation allowance on certain international deferred tax
net operating loss carry forward assets for which realization became more
likely than not.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Riverwood
International Corporation has caused this Amendment No. 1 to the Registration
Statement on Form S-4 (the "Amendment") to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on the 1st day of October, 1997.
<TABLE>
<S> <C> <C>
RIVERWOOD INTERNATIONAL CORPORATION
BY: /S/ STEPHEN M. HUMPHREY
-----------------------------------------
Name: Stephen M. Humphrey
Title: President and Chief Executive
Officer
</TABLE>
Pursuant to the requirements of this Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and on the dates
indicated.
PRINCIPAL EXECUTIVE OFFICER:
/s/ STEPHEN M. HUMPHREY
- ------------------------------ President, Chief Executive October 1, 1997
Stephen M. Humphrey Officer and Director
PRINCIPAL ACCOUNTING OFFICER:
/s/ RANDY WRIGHT
- ------------------------------ Chief Accounting Officer October 1, 1997
Randy Wright
PRINCIPAL FINANCIAL OFFICER:
/s/ THOMAS M. GANNON
- ------------------------------ Chief Financial Officer October 1, 1997
Thomas M. Gannon
II-10
<PAGE>
<TABLE>
<C> <S> <C>
DIRECTORS:
*
- ------------------------------ Chairman of the Board of October 1, 1997
B. Charles Ames Directors
*
- ------------------------------ Director October 1, 1997
Kevin J. Conway
*
- ------------------------------ Director October 1, 1997
Alberto Cribiore
*
- ------------------------------ Director October 1, 1997
Leon J. Hendrix, Jr.
*
- ------------------------------ Director October 1, 1997
Hubbard C. Howe
*
- ------------------------------ Director October 1, 1997
Brian J. Richmand
*
- ------------------------------ Director October 1, 1997
Lawrence C. Tucker
*
- ------------------------------ Director October 1, 1997
Samuel M. Mencoff
*
- ------------------------------ Director October 1, 1997
G. Andrea Botta
*
- ------------------------------ Director October 1, 1997
Joseph E. Parzick
</TABLE>
<TABLE>
<S> <C> <C>
/s/ BILL H. CHASTAIN
--------------------------------------
*By: Attorney-in-Fact
</TABLE>
II-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ---------- ------------------------------------------------------------------------------------ ----------
<S> <C> <C> <C>
3.1 -- Certificate of Incorporation of Riverwood Holding, Inc. (formerly known as New River
Holding, Inc.) ("Holding")(1)
3.2 -- Restated By-Laws of Holding, as amended effective October 8, 1996(2)
3.3 -- Certificate of Incorporation of RIC Holding, Inc. ("RIC Holding")(4)
3.4 -- Restated By-Laws of RIC Holding, as amended effective October 8, 1996(2)
3.5 -- Certificate of Incorporation of Riverwood International Corporation ("Riverwood")(6)
3.6 -- Restated By-Laws of Riverwood, as amended effective October 8, 1996(2)
4.1 -- Indenture, dated as of July 28, 1997, between Riverwood, RIC Holding, Holding and
State Street Bank & Trust Company, as trustee, relating to the 10 5/8% Senior Note
due 2007 of Riverwood (3)
4.2 -- Purchase Agreement, dated as of July 23, among Riverwood, Chase Securities Inc.,
Credit Suisse First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Initial Purchasers")(3)
4.3 -- Registration Rights Agreement, dated as of July 28, 1997, among Riverwood and the
Initial Purchasers(3)
4.4 -- Senior Secured Credit Agreement, dated as of March 27, 1996, as amended (the "Credit
Agreement"), among Riverwood (as successor to RIC Holding), the lenders named
therein (the "Lenders") and The Chase Manhattan Bank (formerly known as Chemical
Bank) ("Chase"), as administrative agent(4)
4.5 -- Amendment No. 1 to the Credit Agreement, dated as of September 13, 1996, among
Riverwood, the Lenders and Chase, as administrative agent(5)
4.6 -- Amendment No. 2 to the Credit Agreement, dated as of September 17, 1996, among
Riverwood, the Lenders and Chase, as administrative agent(5)
4.7 -- Amendment No. 3 to the Credit Agreement, dated as of November 4, 1996, among
Riverwood, the Lenders and Chase, as administrative agent(1)
4.8 -- Amendment No. 4 to the Credit Agreement, dated as of July 15, 1997, among Riverwood,
the Lenders and Chase, as administrative agent(3)
4.9 -- Machinery Credit Agreement, dated March 27, 1996, among Riverwood International
Machinery, Inc., the other borrowers thereto, The Chase Manhattan Bank (formerly
known as Chemical Bank), as administrative agent, and the lenders party thereto(4)
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ---------- ------------------------------------------------------------------------------------ ----------
<S> <C> <C> <C>
4.10 -- Indenture, dated March 27, 1996, among RIC Holding, Holding, CDRO Acquisition
Corporation ("CDRO") and Fleet National Bank of Connecticut, as trustee, relating to
the 10 1/4% Senior Notes due 2006 of Riverwood, together with the First Supplemental
Indenture and the Second Supplemental Indenture thereto(4)
4.11 -- Indenture, dated March 27, 1996, among RIC Holding, Holding, CDRO and Fleet National
Bank of Massachusetts, as trustee, relating to the 10 7/8% Senior Subordinated Notes
due 2008 of Riverwood, together with the First Supplemental Indenture and the Second
Supplemental Indenture thereto(4)
4.12 -- Facility Agreement between Riverwood Cartons Pty Ltd and Australia and New Zealand
Banking Group Limited, dated September 21, 1992, as amended by the Agreement
Amending the Facility Agreement, dated September 13, 1995(8)
4.13 -- Indenture, dated as of June 24, 1992, relating to 10 3/4% Senior Notes Due 2000(8)
4.14 -- Indenture, dated as of June 24, 1992, relating to 11 1/4% Senior Subordinated Notes
Due 2002(8)
4.15 -- Indenture, dated as of June 30, 1994, relating to 10 3/8% Senior Subordinated Notes
Due 2004(8)
4.16 -- Indenture, dated as of September 15, 1993, relating to 6 3/4% Convertible
Subordinated Notes Due 2003(8)
5 -- Opinion of Debevoise & Plimpton regarding the legality of the New Notes being
registered(9)
10.1 -- Wood Products Supply Agreement, dated as of October 18, 1996, between Plum Creek
Timber Company, L.P. and Riverwood(5)
10.2 -- Form of Investor Stock Subscription Agreement between New River Holding, Inc.
(renamed Riverwood Holding, Inc.) and each of the investors named on the schedule
thereto(6)
10.3 -- Form of Management Stock Subscription Agreement between New River Holding, Inc.
(renamed Riverwood Holding, Inc.) and the purchasers named therein(6)
10.4 -- Form of Management Stock Option Agreement between New River Holding, Inc. (renamed
Riverwood Holding, Inc.) and the grantees named therein(6)
10.5 -- Form of Registration and Participation Agreement among New River Holding, Inc.
(renamed Riverwood Holding, Inc.) and certain stockholders of New River Holding,
Inc.(6)
10.6 -- Form of New River Holding, Inc. Stock Incentive Plan(6)
10.7 -- Form of Stockholders Agreement among New River Holding, Inc. (renamed Riverwood
Holding, Inc.) and the stockholders of New River Holding, Inc. named therein(6)
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ---------- ------------------------------------------------------------------------------------ ----------
<S> <C> <C> <C>
10.8 -- Form of Indemnification Agreement, among Holding, RIC Holding, Riverwood, Clayton,
Dubilier & Rice, Inc. and Clayton, Dubilier & Rice Fund V Limited Partnership(6)
10.9 -- Form of Amended and Restated Employment Agreements, among Riverwood, Holding and
each of Thomas H. Johnson, Robert C. Hart and Octavio Orta(6)
10.10 -- Form of Consulting Agreement, among Holding, RIC Holding, the corporation formerly
known as Riverwood, Riverwood and Clayton, Dubilier & Rice, Inc.(6)
10.11 -- Agreement, dated November 11, 1996 among Holding, RIC Holding, Riverwood and Thomas
H. Johnson(1)
10.12 -- Loanout Agreement, dated as of October 8, 1996 by and among Holding, RIC Holding,
Riverwood and Clayton, Dubilier & Rice, Inc.(1)
10.13 -- Employment Agreement, effective as of March 31, 1997, among Riverwood, Holding and
Stephen Humphrey(7)
10.14 -- Management Stock Option Agreement, dated as of March 31, 1997, by and between
Holding and Stephen Humphrey(7)
12.1 -- Computation of Ratio of Earnings to Fixed Charges(3)
12.2 -- Computation of EBITDA to Interest Expense(3)
15.1 -- Letter of Coopers & Lybrand Biedermann, Bordasch with respect to unaudited interim
financial information(10)
15.2 -- Letter of Deloitte & Touche LLP with respect to unaudited interim financial
information(10)
21 -- List of Subsidiaries of Holding(1)
23.1 -- Consent of Deloitte & Touche LLP(10)
23.2 -- Consent of Cooper & Lybrand L.L.P.(10)
23.3 Consent of Coopers & Lybrand Biedermann, Bordasch(10)
23.4 -- Consent of Debevoise & Plimpton (included in Exhibit filed as Exhibit 5)(9)
24 -- Powers of Attorney (included on signature pages to this Registration Statement on
Form S-4)(3)
25 -- Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939
(Form T-1) of the Trustee(9)
99.1 -- Form of Letter of Transmittal(9)
99.2 -- Form of Notice of Guaranteed Delivery(9)
99.3 -- Form of Exchange Agreement between Riverwood and State Street Bank and Trust
Company, as the Exchange Agent(9)
</TABLE>
II-14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ---------- ------------------------------------------------------------------------------------ ----------
<S> <C> <C> <C>
</TABLE>
- ------------------------
1 Filed as an exhibit to Holding's Report on Form 10-K, filed March 27, 1997
(Commission File No. 1-11113) and incorporated herein by reference
2 Filed as an exhibit to Holding's Report on Form 10-Q, filed November 8, 1996
(Commission File No. 1-11113) and incorporated herein by reference
3 Previously filed
4 Filed as an exhibit to RIC Holding's Annual Report on Form 10-K, filed April
16, 1996 (Commission File No. 1-11113) and incorporated herein by reference
5 Filed as an exhibit to Holding's Report on Form 8-K, filed October 21, 1996
(Commission File No. 1-11113) and incorporated herein by reference
6 Filed as an exhibit to Registration Statement on Form S-1 (Registration No.
33-80475) of New River Holding, Inc. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended, and incorporated herein by reference
7 Filed as an exhibit to Holding's Report on Form 10-Q, filed May 9, 1997
(Commission File No. 1-11113) and incorporated herein by reference
8 Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrants agree to
furnish a copy of such document to the Securities and Exchange Commission
upon request
9 Filed herewith
10 Amended copy filed herewith
II-15
<PAGE>
Exhibit 5
[LETTERHEAD]
October 1, 1997
Riverwood International Corporation
3350 Cumberland Circle
Suite 1400
Atlanta, Georgia 30339
Registration Statement on Form S-4
of Riverwood International Corporation
(Registration No. 333-33499)
--------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Riverwood International
Corporation, a Delaware corporation (the "Company"), in connection with the
preparation and filing with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), of a
Registration Statement on Form S-4 (as amended, the "Registration Statement"),
which includes a form of prospectus (the "Prospectus") relating to the proposed
exchange by the Company of $250,000,000 aggregate principal amount of its
10-5/8% Senior Notes due 2007, (the "Existing Notes") for $250,000,000 aggregate
principal amount of its 10-5/8% Senior Notes due 2007, (the "New Notes"), which
are to be registered under the Act.
<PAGE>
Riverwood International Corporation October 1, 1997
In so acting, we have examined and relied upon the originals, or
copies certified or otherwise identified to our satisfaction, of such records,
documents, certificates and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below.
We are of the opinion that the New Notes to be offered pursuant to the
Registration Statement will be validly issued and will be legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally or by general principles of equity (regardless of whether such
enforceability is considered in an action at law or in equity).
We express no opinion as to the effect of any Federal or state laws
regarding fraudulent transfers or conveyances.
We express no opinion as to the laws of any jurisdiction other than
the Federal laws of the United States, the laws of the State of New York and the
General Corporation Law of the State of Delaware.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the headings "Legal
Matters" in the Prospectus. In giving such consent, we do not hereby concede
that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Debevoise & Plimpton
-------------------------
Debevoise & Plimpton
2
<PAGE>
EXHIBIT 15.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Riverwood International Corporation, Riverwood Holding, Inc., and RIC
Holding, Inc. Registration on Form S-4
We are aware that our report dated August 5, 1997 on our review of interim
financial information of Igaras Papeis e Embalagens S.A. for the period ended
June 30, 1997 is included in this Amendment No. 1 to Registration Statement No.
333-33499 on Form S-4. Pursuant to Rule 436(c) under the Securities Act of 1933,
this report should not be considered a part of the Registration Statement
prepared or certified by us within the meaning of Sections 7 and 11 of that Act.
COOPERS & LYBRAND BIEDERMANN, BORDASCH
Sao Paulo, Brazil
October 1, 1997
<PAGE>
EXHIBIT 15.2
October 1, 1997
Riverwood Holding, Inc.
Atlanta, Georgia
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Riverwood Holding, Inc. and subsidiaries for the three and six
month periods ended June 28, 1997 and the three months ended June 29, 1996 as
indicated in our report dated August 5, 1997. Because we did not perform an
audit, we expressed no opinion on that information.
We are aware that our report referred to above is being used in this Amendment
No. 1 to Registration Statement No. 333-33499.
We also are aware that the aforementioned reports, pursuant to Rule 436(c) under
the Securities Act of 1933, are not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-33499(relating to $250,000,000 of Senior Notes due 2007) of Riverwood
Holding, Inc. on Form S-4 of our report dated March 17, 1997, appearing in the
Prospectus, which is a part of this Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Riverwood Holding,
Inc., listed as Schedule II. This financial statement schedule is the
responsibility of the Corporation's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statement taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
October 1, 1997
<PAGE>
EXHIBIT
23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to Registration
Statement No. 333-33499 on Form S-4, dated October 1, 1997, of our reports dated
January 22, 1996, on our audits of the financial statements and financial
statement schedules of Riverwood International Corporation. We also consent to
the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
October 1, 1997
<PAGE>
EXHIBIT
23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to Registration
Statement No. 333-33499 on Form S-4, dated October 1, 1997, of our report dated
January 30, 1997, on our audits of the financial statements of Igaras Papeis e
Embalagens S.A. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND BIEDERMANN, BORDASCH
Sao Paulo, Brazil
October 1, 1997
<PAGE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
--------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) ___
STATE STREET BANK AND TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
Massachusetts 04-1867445
(JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.)
225 Franklin Street, Boston, Massachusetts 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
RIVERWOOD INTERNATIONAL CORPORATION
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-0772929
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3350 CUMBERLAND CIRCLE
SUITE 1400
ATLANTA, GEORGIA 30339
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
------------------------
10 5/8% SENIOR NOTE DUE 2007
(TITLE OF INDENTURE SECURITIES)
<PAGE>
General
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of governors of the federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its parent,
State Street Boston Corporation.
(See note on page 2.)
Item 3. through Item 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of
eligibility.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by reference
thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on
file with the Securities and Exchange Commission as Exhibit
2 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by
reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is
on file with the Securities and Exchange Commission as
Exhibit 4 to the Statement of Eligibility and Qualification
of Trustee (Form T-1) filed with the Registration Statement
of Eastern Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority is annexed hereto as Exhibit 7 and made a
part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 11th day of September, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Steven Cimalore
-------------------------------
Steven Cimalore
Vice President
2
<PAGE>
EXHIBIT 5
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by Riverwood
International Corporation of its 10 5/8% Senior Note due 2007, we hereby consent
that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Steven Cimalore
---------------------------
Steven Cimalore
Vice President
Dated: September 11, 1997
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business MARCH 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
Thousands of
ASSETS Dollars
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin . . . . . 1,665,142
Interest-bearing balances . . . . . . . . . . . . . . . . . 8,193,292
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,238,113
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary . . . . . . . . . . . . 5,853,144
Loans and lease financing receivables:
Loans and leases, net of unearned income . . .4,936,454
Allowance for loan and lease losses. . . . . . . 70,307
Allocated transfer risk reserve. . . . . . . . . . . 0
Loans and leases, net of unearned income and allowances . . 4,866,147
Assets held in trading accounts . . . . . . . . . . . . . . . . 957,478
Premises and fixed assets . . . . . . . . . . . . . . . . . . . 380,117
Other real estate owned . . . . . . . . . . . . . . . . . . . . 884
Investments in unconsolidated subsidiaries . . . . . . . . . . . 25,835
Customers' liability to this bank on acceptances outstanding . . 45,548
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . 158,080
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,066,957
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 33,450,737
-----------
-----------
LIABILITIES
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . 8,270,845
Noninterest-bearing . . . . . . . . 6,318,360
Interest-bearing. . . . . . . . . . 1,952,485
In foreign offices and Edge subsidiary . . . . . . . . . . . 12,760,086
Noninterest-bearing . . . . . . . . . 53,052
Interest-bearing. . . . . . . . . 12,707,034
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary. . . . . . . . . . . . . 8,216,641
Demand notes issued to the U.S. Treasury and Trading Liabilities 926,821
Other borrowed money . . . . . . . . . . . . . . . . . . . . . . 671,164
Subordinated notes and debentures. . . . . . . . . . . . . . . . 0
Bank's liability on acceptances executed and outstanding . . . . 46,137
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . 745,529
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 31,637,223
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus. . . . . . . . . . 0
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . 29,931
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,717
Undivided profits and capital reserves/Net unrealized
holding gains (losses) . . . . . . . . . . . . . . . . . . . . . 1,426,881
Cumulative foreign currency translation adjustments. . . . . . . (4,015)
Total equity capital . . . . . . . . . . . . . . . . . . . . . . 1,813,514
----------
Total liabilities and equity capital . . . . . . . . . . . . . . 33,450,737
----------
----------
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
5
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
RIVERWOOD INTERNATIONAL CORPORATION
OFFER TO EXCHANGE ITS 10 5/8% SENIOR NOTES
DUE 2007 ("NEW NOTES"), WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT, FOR ANY AND ALL OUTSTANDING 10 5/8% SENIOR NOTES DUE 2007
("EXISTING NOTES"), PURSUANT TO THE PROSPECTUS DATED OCTOBER 1, 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 3,
1997 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED
(THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO THE EXPIRATION DATE.
To: STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<S> <C>
BY MAIL: BY OVERNIGHT COURIER:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
ATTENTION: Corporate Trust Department ATTENTION: Corporate Trust Department
Kellie Mullen Kellie Mullen
BY HAND in New York to 4:30 p.m. BY HAND in Boston to 4:30 p.m.:
(as drop agent): Two International Place
61 Broadway Fourth Floor
15th Floor Corporation Trust
Corporate Trust Window Boston, Massachusetts 02110
New York, NY 10006
FOR INFORMATION CALL:
617 664-5587
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETING ANY BOX BELOW
------------------------
List below the Existing Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the certificate number(s) and
principal amount of Existing Notes should be listed on a separate signed
schedule affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF EXISTING NOTES TENDERED
Name(s)and Address(es) of Registered
Holder(s) (1) (2) (3) (4)
<S> <C> <C> <C> <C>
<CAPTION>
Principal Amount of
Existing Notes
Tendered in
Aggregate Aggregate Principal Exchange for
Certificate Principal Amount Amount of Existing Certificated
Number(s)* of Existing Notes Notes Tendered** New Notes***
<S> <C> <C> <C> <C>
* Need not be completed by book-entry holders.
** Unless otherwise indicated in this column, the holder will be deemed to have tendered the full aggregate principal
amount represented by such Existing Notes.
*** Unless otherwise indicated, the holder will be deemed to have tendered Existing Notes in exchange for a beneficial
interest in one or more fully registered global notes, which will be deposited with, or on behalf of, The Depository
Trust Company ("DTC") and registered in the name of Cede & Co., its nominee.
</TABLE>
<PAGE>
The undersigned acknowledges that he, she or it has received and reviewed
the Prospectus, dated October 1, 1997 (the "Prospectus"), of Riverwood
International Corporation, a Delaware corporation ("Riverwood"), and this Letter
of Transmittal (the "Letter of Transmittal"), which together constitute
Riverwood's offer (the "Exchange Offer") to exchange up to $250,000,000
aggregate principal amount of its New Notes, which will have been registered
under the Securities Act of 1933, as amended (the "Securities Act") for a like
principal amount of its outstanding Existing Notes. The New Notes and the
Existing Notes are collectively referred to as the "Notes." Capitalized terms
used but not defined herein have the meanings ascribed to them in the
Prospectus.
This Letter of Transmittal is to be used if (i) certificates of Existing
Notes are to be forwarded herewith, (ii) delivery of Existing Notes is to be
made by book-entry transfer to an account maintained by the Exchange Agent at
DTC, pursuant to the procedures set forth in "The Exchange Offer--Procedures for
Tendering" in the Prospectus or (iii) the Existing Notes are tendered according
to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" in the Prospectus. Delivery of this
Letter of Transmittal and any other required documents should be made to the
Exchange Agent. Delivery of documents to a book-entry transfer facility does not
constitute delivery to the Exchange Agent.
Holders whose Existing Notes are not immediately available or who cannot
deliver their Existing Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date must tender their Existing
Notes according to the guaranteed delivery procedure set forth in the Prospectus
under the caption "The Exchange Offer--Procedures for Tendering." See
Instruction 1. Holders of Existing Notes that are tendering by book-entry
transfer to the Exchange Agent's account at DTC can execute the tender through
the DTC Automated Tender Offer Program ("ATOP") for which the transaction will
be eligible. DTC participants should transmit their acceptance to DTC, which
will verify the acceptance and execute a book-entry delivery to the Exchange
Agent's account at DTC. DTC will then send an Agent's Message to the Exchange
Agent for its acceptance. DTC participants may also accept the Exchange Offer by
submitting a notice of guaranteed delivery through ATOP.
In order to participate in the Exchange Offer, the undersigned must complete
the appropriate boxes above and below and sign this Letter of Transmittal to
indicate the action the undersigned desires to take with respect to the Exchange
Offer.
/ / CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED HEREWITH TO THE
EXCHANGE AGENT IN EXCHANGE FOR CERTIFICATED NEW NOTES.
Unless the undersigned (i) has completed item (4) in the box entitled
"Description of Existing Notes Tendered" and (ii) has checked the box above, the
undersigned will be deemed to have tendered Existing Notes in exchange for a
beneficial interest in one or more fully registered global certificates, which
will be deposited with, or on behalf of, DTC and registered in the name of Cede
& Co., its nominee. Beneficial interests in such registered global certificates
will be shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. See "Book-Entry, Delivery and Form" as
set forth in the Prospectus.
/ / CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _________________ / / The Depository Trust Company
Account Number _________________________________________________________________
Transaction Code Number ________________________________________________________
2
<PAGE>
/ / CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name of Registered Holder(s) ___________________________________________________
Window Ticket Number (if any) __________________________________________________
Date of Execution of Notice of Guaranteed Delivery _____________________________
Name of Eligible Institution that Guaranteed Delivery __________________________
If delivered by book-entry transfer:
Account Number ____________________ Transaction Code Number ____________________
/ / CHECK HERE IF YOU (I) ARE A BROKER-DEALER, (II) WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS MADE THERETO, (III) WILL RECEIVE NEW NOTES FOR YOUR OWN ACCOUNT
IN EXCHANGE FOR EXISTING NOTES THAT WERE ACQUIRED AS A RESULT OF MARKET
MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND (IV) ACKNOWLEDGE THAT YOU
WILL DELIVER THE PROSPECTUS IN CONNECTION WITH ANY RESALE OF SUCH NEW NOTES
(BY SO ACKNOWLEDGING AND DELIVERING THE PROSPECTUS, YOU WILL NOT, HOWEVER,
BE DEEMED TO ADMIT THAT YOU ARE AN "UNDERWRITER" WITHIN THE MEANING OF THE
SECURITIES ACT).
Name ___________________________________________________________________________
Address ________________________________________________________________________
3
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to conditions of the Exchange Offer described
herein and in the Prospectus, the undersigned hereby tenders to Riverwood the
aggregate principal amount of Existing Notes indicated above. Subject to, and
effective upon, the acceptance for exchange of Existing Notes tendered hereby,
the undersigned hereby sells, assigns and transfers to, or upon the order of,
the Exchange Agent, as agent of Riverwood, all right, title and interest in and
to such Existing Notes as are being tendered hereby, and irrevocably constitutes
and appoints the Exchange Agent as the true and lawful agent and
attorney-in-fact of the undersigned to cause the Existing Notes tendered hereby
to be transferred and exchanged.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, exchange, sell, assign and transfer the Existing
Notes tendered hereby and to acquire the New Notes issuable upon the exchange of
such tendered Existing Notes, and that the Exchange Agent, as agent of
Riverwood, will acquire good and unencumbered title thereto, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any adverse
claim when the same are accepted by the Exchange Agent, as agent of Riverwood.
The undersigned will, upon request, execute and deliver any additional documents
deemed by Riverwood or the Exchange Agent to be necessary or desirable to
complete the exchange, sale, assignment and transfer of the Existing Notes
tendered hereby.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on the interpretations of the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties (including EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988),
MORGAN STANLEY & CO. INCORPORATED (available June 5, 1991), K-III COMMUNICATIONS
CORPORATION (available May 14, 1993) and SHEARMAN & STERLING (available July 2,
1993)). Based on such interpretations of the staff of the SEC set forth in such
no-action letters, Riverwood believes that the New Notes issued in exchange for
the Existing Notes pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by a holder thereof (other than any such holder
that is an "affiliate" of Riverwood within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that (i) such New Notes are acquired
in the ordinary course of such holder's business, (ii) at the time of the
commencement of the Exchange Offer such holder has no arrangement with any
person to participate in a distribution of the New Notes and (iii) such holder
is not engaged in, does not intend to engage in and does not have an
understanding or arrangement with any person to engage in a distribution of the
New Notes. Riverwood has not sought, and does not intend to seek, a no-action
letter from the SEC with respect to the effects of the Exchange Offer, and there
can be no assurance that the staff of the SEC would make a similar determination
with respect to the New Notes as it has in such no-action letters.
By tendering Existing Notes in exchange for New Notes or executing this
Letter of Transmittal, each holder will represent to Riverwood that: (i) it is
not such an affiliate of Riverwood, (ii) any New Notes to be received by it will
be acquired in the ordinary course of business and (iii) at the time of the
commencement of the Exchange Offer it had no arrangement with any person to
participate in a distribution of the New Notes. If the undersigned is not a
broker-dealer or is a broker-dealer but will not receive New Notes for its own
account in exchange for Existing Notes, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New Notes.
If a holder of Existing Notes is unable to make the foregoing representations,
such holder may not rely on the applicable interpretations of the staff of the
SEC and must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any secondary resale transaction unless
such sale is made pursuant to an exemption from such requirements.
If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Existing Notes, where such Existing Notes were
acquired as a result of market-making activities or other
4
<PAGE>
trading activities, by tendering Existing Notes in exchange for New Notes or
executing this Letter of Transmittal the undersigned acknowledges that it will
deliver a prospectus meeting the requirements of the Securities Act and that it
has not entered into any arrangement or understanding with Riverwood or an
affiliate of Riverwood in connection with any resale of such New Notes; however,
by so acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. The SEC has taken the position that such broker-dealers may fulfill their
prospectus delivery requirements with respect to the New Notes (other than a
resale of New Notes received in exchange for an unsold allotment from the
original sale of the Existing Notes) with the Prospectus. The Prospectus, as it
may be amended or supplemented from time to time, may be used by such
broker-dealers in connection with resales of New Notes received in exchange for
Existing Notes where such Existing Notes were acquired as a result of
market-making activities or other trading activities. Riverwood has agreed that,
for a period of up to 90 days after the Expiration Date, it will make the
Prospectus (as it may be amended or supplemented) available to any such
broker-dealer for use in connection with any such resale. By accepting the
Exchange Offer, each broker-dealer that receives New Notes pursuant to the
Exchange Offer acknowledges and agrees to notify Riverwood prior to using the
Prospectus in connection with the sale or transfer of New Notes and that, upon
receipt of notice from Riverwood of the happening of any event which makes any
statement in the Prospectus untrue in any material respect or which requires the
making of any changes in the Prospectus in order to make the statements therein
not misleading, such broker-dealer will suspend use of the Prospectus until (i)
Riverwood has amended or supplemented the Prospectus to correct such
misstatement or omission and (ii) either Riverwood has furnished copies of the
amended or supplemented Prospectus to such broker-dealer or, if Riverwood has
not otherwise agreed to furnish such copies and declines to do so after such
broker-dealer so requests, such broker-dealer has obtained a copy of such
amended or supplemented Prospectus as filed with the SEC. Riverwood agrees to
deliver such notice and such amended or supplemented Prospectus promptly to any
such broker-dealer that has so notified Riverwood and that is entitled to
receive a copy of such Prospectus from Riverwood pursuant to this paragraph.
Except as described above, the Prospectus may not be used for or in connection
with an offer to resell, a resale or any other retransfer of New Notes. A
broker-dealer that acquired Existing Notes in a transaction other than as part
of its market-making activities or other trading activities will not be able to
participate in the Exchange Offer.
If the undersigned is not a broker-dealer, by accepting the Exchange Offer,
the undersigned represents to Riverwood that (i) the New Notes acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of such holder's
business, (ii) such holder is not participating in, does not intend to
participate in and has no arrangement or understanding with any person to
participate in the distribution of such New Notes and (iii) such holder is not
an "affiliate," as defined in Rule 405 under the Securities Act, of Riverwood or
if such holder is such an affiliate, such holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
All authority conferred or agreed to be conferred in this Letter of
Transmittal and every obligation of the undersigned hereunder shall be binding
upon the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned. This
tender may be withdrawn only in accordance with the procedures set forth in the
instructions contained in this Letter of Transmittal.
The undersigned understands that tenders of the Existing Notes pursuant to
any one of the procedures described under "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and Riverwood in accordance with the
terms and subject to the conditions of the Exchange Offer.
The undersigned understands that if its Existing Notes are accepted for
exchange, interest on the New Notes will accrue from the last interest payment
date to which interest was paid on the Existing Notes
5
<PAGE>
surrendered in exchange thereof, or if no interest has been paid, from the
original date of issuance of the Existing Notes.
The undersigned recognizes that unless the holder of Existing Notes (i)
completes item (4) of the Box entitled "Description of Existing Notes Tendered"
above and (ii) checks the box entitled "Check here if tendered shares of
Existing Notes are being delivered to the Exchange Agent in exchange for
certificated New Notes" above, such holder, when tendering such Existing Notes,
will be deemed to have tendered such Existing Notes in exchange for a beneficial
interest in one or more fully registered global certificates, which will be
deposited with, or on behalf of, DTC and registered in the name of Cede & Co.,
its nominee. Beneficial interests in such registered global certificates will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. See "Exchange Offer" in the Prospectus.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus under "The Exchange Offer--Conditions," Riverwood may not be
required to accept for exchange any of the Existing Notes tendered. Existing
Notes not accepted for exchange or withdrawn will be returned to the undersigned
at the address set forth below unless otherwise indicated under "Special
Delivery Instructions" below.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal or acceptability of any tender will be determined by
Riverwood in its sole discretion, which determination will be final and binding.
Riverwood reserves the absolute right to reject any and all Existing Notes not
properly tendered or any Existing Notes which, if accepted, would, in the
opinion of counsel for Riverwood, be unlawful. Riverwood also reserves the
absolute right to waive any irregularities or conditions of tender as to
particular Existing Notes. Riverwood's 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 Existing Notes must be
cured within such time as Riverwood shall determine. Neither Riverwood, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Existing Notes, nor
shall any of them incur any liability for failure to give such notification.
Tenders of Existing Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any Existing Notes received by the
Exchange Agent that is not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost to
such holder by the Exchange Agent, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby requests that the New Notes (and, if
applicable, substitute certificates representing Existing Notes for any Existing
Notes not exchanged) be issued in the name of the undersigned. Similarly, unless
otherwise indicated under the box entitled "Special Delivery Instructions"
below, the undersigned hereby requests that the New Notes (and, if applicable,
substitute certificates representing Existing Notes for any Existing Notes not
exchanged) be sent to the undersigned at the address shown above in the box
entitled "Description of Existing Notes Tendered."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF EXISTING
NOTES TENDERED" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED
THE EXISTING NOTES AS SET FORTH IN SUCH BOX(ES) ABOVE.
6
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING INTERNAL REVENUE SERVICE FORM W-9)
<TABLE>
<S> <C>
X
X
SIGNATURE(S) OF OWNER(S) Date
</TABLE>
Area Code and Telephone Number _________________________________________________
If a holder is tendering any Existing Notes, this Letter of Transmittal must be
signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Existing Notes or by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth full
title below. See Instruction 3.
Name(s): _______________________________________________________________________
________________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: ______________________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________________
(INCLUDE ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:________________________________________________________
(AUTHORIZED SIGNATURE)
________________________________________________________________________________
(TITLE)
________________________________________________________________________________
(NAME OF FIRM)
Dated: _________________________________________________________________________
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
To be completed ONLY if New Notes (and, if applicable, substitute certificates
representing Existing Notes for any Existing Notes not exchanged) are to be
issued in the name of and sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter of Transmittal above.
Issue New Notes to:
Name(s): _______________________________________________________________________
________________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: _______________________________________________________________________
________________________________________________________________________________
(ZIP CODE)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
To be completed ONLY if certificates for New Notes (and, if applicable,
substitute certificates representing Existing Notes for any Existing Notes not
exchanged) are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter of Transmittal above or to such person or
persons at an address other than shown in the box entitled "Description of
Existing Notes Tendered" on this Letter of Transmittal above.
Mail New Notes to:
Name(s) ________________________________________________________________________
________________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: _______________________________________________________________________
________________________________________________________________________________
(ZIP CODE)
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS
LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S)
FOR EXISTING NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF SUCH EXISTING
NOTES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND EXISTING NOTES; GUARANTEED
DELIVERY PROCEDURE This Letter of Transmittal is to be used to forward, and
must accompany, all certificates representing Existing Notes tendered pursuant
to the Exchange Offer. Certificates representing the Existing Notes in proper
form for transfer (or a confirmation of book-entry transfer of such Existing
Notes into the Exchange Agent's account at the book-entry transfer facility) as
well as a properly completed and duly executed copy of this Letter of
Transmittal and all other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at its address set forth herein prior to 5:00
p.m., New York City time, on the Expiration Date. Existing Notes tendered must
be in integral multiples of $1,000.
The method of delivery of this Letter of Transmittal, the Existing Notes and
all other required documents, including delivery through DTC and any acceptance
of an Agent's Message delivered through ATOP, is at the election and risk of the
tendering holders, but the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. If such delivery is by mail, it is
recommended that registered or certified mail properly insured, with return
receipt requested, be used. In all cases, sufficient time should be allowed to
permit timely delivery.
If a holder desires to tender Existing Notes and such holder's Existing
Notes are not immediately available or time will not permit such holder's Letter
of Transmittal, Existing Notes (or a confirmation of book-entry transfer of
Existing Notes into the Exchange Agent's account at the book-entry transfer
facility) or other required documents to reach the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date, or such holder cannot complete
the procedure of book-entry transfer on a timely basis, such holder may
nevertheless tender Existing Notes if:
(a) such tender is made by or through an Eligible Institution (as
defined below);
(b) the Exchange Agent has received from such Eligible Institution prior
to 5:00 p.m., New York City time, on the Expiration Date, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form provided by
Riverwood (by facsimile transmission, mail or hand delivery), or an Agent's
Message with respect to guaranteed delivery that is accepted by Riverwood,
setting forth the name and address of the holder of such Existing Notes and
the principal amount of Existing Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within three New York Stock
Exchange ("NYSE") trading days after the execution of the Notice of
Guaranteed Delivery, a Book-Entry Confirmation and any other documents
required by this Letter of Transmittal and the instructions hereto, will be
deposited by such Eligible Institution with the Exchange Agent; and
(c) a Book-Entry Confirmation and all other required documents required
by the Letter of Transmittal are received by the Exchange Agent within three
NYSE trading days after the Notice of Guaranteed Delivery.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Existing
Notes (or a timely confirmation of a book-entry transfer of Existing Notes into
the Exchange Agent's account at the book-entry transfer facility) or a Notice of
Guaranteed Delivery from an Eligible Institution is received by the Exchange
Agent.
See "The Exchange Offer" in the Prospectus.
2. WITHDRAWALS Any holder may withdraw a tender of Existing Notes prior to
5:00 p.m., New York City time on the Expiration Date. For a withdrawal to be
effective, a written notice of withdrawal must be received by the Exchange Agent
prior to 5:00 p.m., New York City time on the Expiration Date at one of its
addresses set forth herein. Any such notice of withdrawal must specify the name
and number of the account at the Book-Entry Transfer Facility from which the
Existing Notes was tendered, identify the principal amount of the Existing Notes
to be withdrawn, and specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Existing Notes
and otherwise comply
<PAGE>
with the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notice will be determined by
Riverwood, whose determination shall be final and binding on all parties. If
Existing Notes have been tendered pursuant to the procedures for book-entry
transfer, any notice of withdrawal must specify the name and number of the
participant's account at DTC to be credited with the withdrawn Existing Notes or
otherwise comply with DTC's procedures. See "The Exchange Offer--Withdrawal of
Tenders" in the Prospectus.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES If this Letter of Transmittal or a notice of
withdrawal, as the case may be, is signed by the registered holder of the
Existing Notes tendered hereby, the signature must correspond exactly with the
name as written on the face of the certificates without any change whatsoever.
If any tendered Existing Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any tendered
Existing Notes are registered in different names, it will be necessary to
complete, sign and submit as many separate copies of this Letter of Transmittal
as there are different names in which tendered Existing Notes are held.
If this Letter of Transmittal or any Existing Notes or powers of attorney
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 indicate when signing, and unless waived by
Riverwood, proper evidence satisfactory to Riverwood of their authority so to
act must be submitted.
The signatures on this Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Existing Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Existing Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in this Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that the
signatures in this Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by a firm which
is a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or by a commercial bank or
trust company having an office or correspondent in the United States, or an
"eligible institution" within the meaning of Rule 17Ad-15 of the Securities
Exchange Act of 1934, as amended (each an "Eligible Institution"). If Existing
Notes are registered in the name of a person other than the signer of this
Letter of Transmittal, the Existing Notes surrendered for exchange must be
endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by Riverwood in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS Tendering holders of
Existing Notes should indicate in the applicable box the name and address to
which New Notes issued pursuant to the Exchange Offer are to be issued or sent,
if different from the name or address of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no such instructions are given, any New Notes will be issued in
the name of, and delivered to, the name or address of the person signing this
Letter of Transmittal and any Existing Notes not accepted for exchange will be
returned to the name or address of the person signing this Letter of
Transmittal.
5. BACKUP FEDERAL INCOME TAX WITHHOLDING AND INTERNAL REVENUE SERVICE FORM
W-9 Under the federal income tax laws, payments that may be made by Riverwood
on account of New Notes issued pursuant to the Exchange Offer may be subject to
backup withholding at the rate of 31%. In order to avoid such backup
withholding, each tendering holder should complete and sign the Internal Revenue
Service Form W-9 (the "IRS Form W-9") included in this Letter of Transmittal and
either (a) provide the correct taxpayer identification number ("TIN") and
certify, under penalties of perjury, that the TIN provided is correct and that
(i) the holder has not been notified by the Internal Revenue Service (the "IRS")
that the holder is subject to backup withholding as a result of failure to
report all interest or dividends or (ii) the
2
<PAGE>
IRS has notified the holder that the holder is no longer subject to backup
withholding; or (b) provide an adequate basis for exemption. If the tendering
holder has not been issued a TIN and has applied for one, or intends to apply
for one in the near future, such holder should write "Applied For" in the space
provided for the TIN in Part I of the IRS Form W-9, sign and date the IRS Form
W-9 and sign the Certificate of Payee Awaiting Taxpayer Identification Number.
If "Applied For" is written in Part I, Riverwood (or the Exchange Agent with
respect to the New Notes or a broker or custodian) shall retain 31% of the
payments made to the holder during the sixty (60) day period following the date
of the IRS Form W-9. If the holder furnishes Riverwood (or the Exchange Agent
with respect to the New Notes or a broker or custodian) with its TIN within
sixty (60) days after the date of the IRS Form W-9, Riverwood (or the Exchange
Agent with respect to the New Notes or such broker or custodian, as the case may
be) shall remit such amounts retained during the sixty (60) day period to such
holder and no further amounts shall be retained or withheld from payments made
to such holder thereafter. If, however, the holder has not provided Riverwood
(or the Exchange Agent with respect to the New Notes or such broker or
custodian, as the case may be) with its TIN within such sixty (60) day period,
Riverwood (or the Exchange Agent with respect to the New Notes or such broker or
custodian, as the case may be) shall remit such previously retained amounts to
the IRS as backup withholding. In general, if a holder is an individual, the
taxpayer identification number is the Social Security number of such individual.
If the Exchange Agent or Riverwood is not provided with the correct TIN, the
holder may be subject to a $50 penalty imposed by the IRS. Certain holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these backup withholding and reporting requirements. In order for
a foreign individual to qualify as an exempt recipient, such holder must submit
a statement (generally, IRS Form W-8), signed under penalties of perjury,
attesting to that individual's exempt status. Such statements can be obtained
from the Exchange Agent. For further information concerning backup withholding
and instructions for completing the IRS Form W-9 (including how to obtain a
taxpayer identification number if you do not have one and how to complete the
IRS Form W-9 if Existing Notes are registered in more than one name), consult
the enclosed instructions to the IRS Form W-9.
Failure to complete the IRS Form W-9 will not, by itself, cause Existing
Notes to be deemed invalidly tendered, but may require Riverwood or the Exchange
Agent with respect to the New Notes, broker or custodian to withhold 31% of the
amount of any payments made on account of the New Notes. Backup withholding is
not an additional federal income tax. Rather, the federal income tax liability
of a person subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
6. TRANSFER TAXES Riverwood will pay all transfer taxes, if any,
applicable to the transfer of Existing Notes to it or its order pursuant to the
Exchange Offer. If, however, New Notes and/or substitute Existing Notes not
exchanged are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Existing Notes tendered
hereby, or if tendered Existing Notes are registered in the name of any person
other than the person signing this Letter of Transmittal, or if a transfer tax
is imposed for any reason other than the transfer of Existing Notes to Riverwood
or its order pursuant to the Exchange Offer, the amount of any such transfer
taxes (whether imposed on the registered holder or any other person) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Existing Notes specified in this Letter
of Transmittal.
7. WAIVER OF CONDITIONS Riverwood reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Existing Notes, by
execution of this Letter of Transmittal, shall waive
3
<PAGE>
any right to receive notice of the acceptance of their Existing Notes for
exchange. Neither Riverwood nor any other person is obligated to give notice of
defects or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
9. INADEQUATE SPACE If the space provided herein is inadequate, the
aggregate principal amount of Existing Notes being tendered and the certificate
number or numbers (if available) should be listed on a separate schedule
attached hereto and separately signed by all parties required to sign this
Letter of Transmittal.
10. MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES Any holder whose
Existing Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number indicated above.
12. VALIDITY OF TENDERS All questions as to the validity, form,
eligibility (including time of receipt) and withdrawal or acceptability of any
tender will be determined by Riverwood in its sole discretion, which
determination will be final and binding. Riverwood reserves the absolute right
to reject any and all Existing Notes not properly tendered or any Existing Notes
which, if accepted, would, in the opinion of counsel for Riverwood, be unlawful.
Riverwood also reserves the absolute right to waive any irregularities or
conditions of tender as to particular Existing Notes. Riverwood's 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 Existing
Notes must be cured within such time as Riverwood shall determine. Neither
Riverwood, the Exchange Agent nor any other person shall be under any duty to
give notification of defects or irregularities with respect to tenders of
Existing Notes, nor shall any of them incur any liability for failure to give
such notification. Tenders of Existing Notes will not be deemed to have been
made until such irregularities have been cured or waived. Any Existing Notes
received by the Exchange Agent that is not properly tendered and as to which the
defects or irregularities have not been cured or waived will be returned without
cost to such holder by the Exchange Agent, unless otherwise provided in this
Letter of Transmittal, as soon as practicable following the Expiration Date.
4
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
RIVERWOOD INTERNATIONAL CORPORATION
10 5/8% SENIOR NOTES DUE 2007
This form must be used by a holder of the 10 5/8% Senior Notes due 2007 (the
"Existing Notes") of Riverwood International Corporation, a Delaware corporation
("Riverwood"), that wishes to tender Existing Notes to the Exchange Agent
pursuant to the guaranteed delivery procedures described in "The Exchange
Offer--Procedures for Tendering" of the Prospectus dated October 1, 1997 (the
"Prospectus") and in Instruction 1 to the accompanying Letter of Transmittal.
Any holder that wishes to tender Existing Notes pursuant to such guaranteed
delivery procedures must ensure that the Exchange Agent receives this Notice of
Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration
Date of the Exchange Offer. Capitalized terms not defined herein have the
meaning ascribed to them in the Prospectus or the Letter of Transmittal.
TO: STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<S> <C>
BY MAIL: BY OVERNIGHT COURIER:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
</TABLE>
<TABLE>
<S> <C>
BY HAND in New York to 4:30 p.m. (as drop BY HAND in Boston to 4:30 p.m.:
agent): Two International Place
61 Broadway Fourth Floor
15th Floor Corporation Trust
Corporate Trust Window Boston, Massachusetts 02110
New York, NY 10006
</TABLE>
FOR INFORMATION CALL:
617 664-5587
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
Please read the accompanying instructions carefully.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Riverwood, upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Existing Notes specified below pursuant to the guaranteed delivery procedures
set forth in the Prospectus and in Instruction 1 of the Letter of Transmittal.
The undersigned hereby tenders the Existing Notes listed below:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF
KNOWN) OF
EXISTING NOTES OR ACCOUNT
NUMBER AGGREGATE PRINCIPAL AMOUNT AGGREGATE PRINCIPAL AMOUNT
AT THE BOOK-ENTRY FACILITY REPRESENTED TENDERED
<S> <C> <C>
</TABLE>
All authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
SIGN HERE
Name of Registered or Acting Holder:
- ---------------------------------------------------------
Signature(s):
- --------------------------------------------------------------------------------
Name(s) (PLEASE PRINT):
- ----------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
Telephone Number:
- -------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
THE UNDERSIGNED, A FIRM WHICH IS A MEMBER OF A REGISTERED NATIONAL
SECURITIES EXCHANGE OR OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.,
OR IS A COMMERCIAL BANK OR TRUST COMPANY HAVING AN OFFICE OR CORRESPONDENT IN
THE UNITED STATES, OR IS OTHERWISE AN "ELIGIBLE GUARANTOR INSTITUTION" WITHIN
THE MEANING OF RULE 17AD-15 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, GUARANTEES DEPOSIT WITH THE EXCHANGE AGENT OF THE LETTER OF TRANSMITTAL
(OR FACSIMILE THEREOF), TOGETHER WITH THE EXISTING NOTES TENDERED HEREBY IN
PROPER FORM FOR TRANSFER (OR CONFIRMATION OF THE BOOK-ENTRY TRANSFERS OF SUCH
EXISTING NOTES INTO THE EXCHANGE AGENT'S ACCOUNT AT THE BOOK-ENTRY TRANSFER
FACILITY DESCRIBED IN THE PROSPECTUS UNDER THE CAPTION "THE EXCHANGE
OFFER--PROCEDURES FOR TENDERING" AND IN THE LETTER OF TRANSMITTAL) AND ANY OTHER
REQUIRED DOCUMENTS, WITHIN THREE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE
DATE OF EXECUTION OF THE NOTICE OF GUARANTEED DELIVERY.
2
<PAGE>
SIGN HERE
Name of firm:
- ------------------------------------------------------------------------------
Authorized Signature:
- ------------------------------------------------------------------------
Name (PLEASE PRINT):
- -------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
Telephone Number:
- -------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
DO NOT SEND EXISTING NOTES WITH THIS FORM. ACTUAL SURRENDER OF
EXISTING NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY,
AN EXECUTED LETTER OF TRANSMITTAL.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and any other required documents to the Exchange Agent is at the
election and risk of the holder and the delivery will be deemed made only when
actually received by the Exchange Agent. If delivery is by mail, registered or
certified mail properly insured, with return receipt requested, is recommended.
In all cases sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedure, see Instruction 1 of the
Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Existing Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Existing Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the book-entry transfer facility whose name appears on a security position
listing as the owner of Existing Notes, the signature must correspond with the
name shown on the security position listing as the owner of the Existing Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Existing Notes listed or a participant of the
book-entry transfer facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
holder(s) appears on the Existing Notes or signed as the name of the participant
shown on the book-entry transfer facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
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Exhibit 99.3
October 1, 1997
FORM OF EXCHANGE AGENT AGREEMENT
State Street Bank and Trust Company
61 Broadway
New York, New York 10006
Ladies and Gentlemen:
Riverwood International Corporation (the "Company") proposes to make
an offer (the "Exchange Offer") to exchange up to $250,000,000 aggregate
principal amount of its 10-5/8% Senior Subordinated Notes due 2007 (the
"Existing Notes") for a like principal amount of its 10-5/8% Senior Subordinated
Notes due 2007 (the "New Notes"), which will be registered under the Securities
Act of 1933, pursuant to a Registration Statement. The terms and conditions of
the Exchange Offer as currently contemplated are set forth in a prospectus,
dated October 1, 1997 (the "Prospectus"), proposed to be distributed to all
record holders of the Existing Notes. The Existing Notes and the New Notes are
collectively referred to herein as the "Notes."
The Company hereby appoints State Street Bank and Trust Company to act
as exchange agent (the "Exchange Agent") in connection with the Exchange Offer.
References hereinafter to "you" shall refer to State Street Bank and Trust
Company.
The Exchange Offer is expected to be commenced by the Company on or
about October 1, 1997. The Letter of Transmittal accompanying the Prospectus
(or in the case of book entry securities, the ATOP system) is to be used by the
holders of the Existing Notes to accept the Exchange Offer and contains
instructions with respect to the delivery of certificates for Existing Notes
tendered in connection therewith.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on
November 3, 1997 or on such later date or time to which the Company may extend
the Exchange Offer (the "Expiration Date"). Subject to the terms and conditions
set forth in the Prospectus, the Company expressly reserves the right to extend
the Exchange Offer from time to time and may extend the Exchange Offer by giving
oral notice (confirmed
<PAGE>
in writing) or written notice to you before 9:00 A.M., New York City time, on
the business day following the previously scheduled Expiration Date.
The Company expressly reserves the right to delay acceptance of any
Existing Notes, to amend the Exchange Offer, or to extend or terminate the
Exchange Offer and not to accept for exchange any Existing Notes not previously
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified in the Prospectus under the caption "The Exchange
Offer--Conditions." The Company will give oral notice (confirmed in writing) or
written notice to you, as promptly as practicable, of any amendment, termination
or nonacceptance.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth in the section of the Prospectus captioned "The Exchange
Offer" or as specifically set forth herein; provided, however, that in no way
will your general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Existing Notes
at The Depository Trust Company (the "Book-Entry Transfer Facility") for
purposes of the Exchange Offer within two business days after the date of the
Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of the
Existing Notes by causing the Book-Entry Transfer Facility to transfer such
Existing Notes into your account in accordance with the Book-Entry Transfer
Facility's procedure for such transfers.
3. You are to examine each of the Letters of Transmittal and
certificates for Existing Notes (or confirmation of book-entry transfer into
your account at the Book-Entry Transfer Facility) and any other documents
delivered or mailed to you by or for holders of the Existing Notes to ascertain
whether: (i) the Letters of Transmittal and any such other documents are duly
executed and properly completed in accordance with instructions set forth
therein and (ii) the Existing Notes have otherwise been properly tendered. In
each case where the Letter of Transmittal or any other document has been
improperly completed or executed or any of the certificates for Existing Notes
are not in proper form for transfer or some other irregularity in connection
with the acceptance of the Exchange Offer exists, you will endeavor to inform
the presenters of the need for fulfillment of all requirements and to take any
other action as may be necessary or advisable to cause such irregularity to be
corrected.
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4. With the approval of any Chief Executive Officer, Secretary or
Vice President (each an "Officer") of the Company (such approval, if given
orally, to be confirmed in writing) or any other party designated by such
Officer in writing, you are authorized to waive any irregularities in connection
with any tender of Existing Notes pursuant to the Exchange Offer.
5. Tenders of Existing Notes may be made only as set forth in the
Letter of Transmittal and in the section of the Prospectus captioned "The
Exchange Offer--Procedures for Tendering," and Existing Notes shall be
considered properly tendered to you only when tendered in accordance with the
procedures set forth therein.
Notwithstanding the provision of this paragraph 5, Existing Notes that
any Officer shall approve as having been properly tendered shall be considered
to be properly tendered (such approval, if given orally, shall be confirmed in
writing).
6. You shall advise the Company with respect to any Existing Notes
received subsequent to the Expiration Date and accept instructions of the
Company with respect to disposition of such Existing Notes.
7. Notwithstanding the procedures set forth in the Prospectus under
the Section entitled "Exchange Offer" or in the Letter of Transmittal, you shall
accept tenders:
(a) in cases where the Existing Notes are registered in two or
more names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the
Letter of Transmittal) is acting in a fiduciary or a representative capacity
only when proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Existing
Notes provided that customary transfer requirements, including any applicable
transfer taxes, are fulfilled.
You shall accept partial tenders of Existing Notes where so indicated
and as permitted in the Letter of Transmittal and deliver certificates for
Existing Notes to the transfer agent for split-up and return any untendered
Existing Notes to the holder (or such other person as may be designated in the
Letter of Transmittal) as promptly as practicable after expiration or
termination of the Exchange Offer.
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8. Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, or waiver of any or all such conditions by the Company, the
Company will notify you (such notice if given orally, to be confirmed in
writing) of its acceptance, promptly after the Expiration Date, of all Existing
Notes properly tendered and you, on behalf of the Company, will exchange such
Existing Notes for New Notes and cause such Existing Notes to be canceled.
Delivery of New Notes will be made on behalf of the Company by you at the rate
of $1,000 principal amount of New Notes for each $1,000 principal amount of the
corresponding series of Existing Notes tendered promptly after notice (such
notice if given orally, to be confirmed in writing) of acceptance of such
Existing Notes by the Company; provided, however, that in all cases, Existing
Notes tendered pursuant to the Exchange Offer will be exchanged only after
timely receipt by you of certificates for such Existing Notes (or confirmation
of book-entry transfer into your account at the Book-Entry Transfer Facility), a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees and any other required
documents. You shall issue New Notes only in denominations of $1,000 or any
integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except
that, subject to the terms and upon the conditions set forth in the Prospectus
and the Letter of Transmittal, Existing Notes tendered pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date.
10. The Company shall not be required to exchange any Existing Notes
tendered if any of the conditions set forth in the Exchange Offer are not met.
Notice of any decision by the Company not to exchange any Existing Notes
tendered shall be given (and confirmed in writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not accept
for exchange all or part of the Existing Notes tendered because of an invalid
tender, the occurrence of certain other events set forth in the Prospectus under
the caption "The Exchange Offer--Conditions" or otherwise, you shall, as soon as
practicable after the expiration or termination of the Exchange Offer, return
those certificates for unaccepted Existing Notes (or effect appropriate
book-entry transfer), together with any related required documents and the
Letters of Transmittal relating thereto that are in your possession, to the
persons who deposited them.
12. All certificates for reissued Existing Notes, unaccepted Existing
Notes or for New Notes shall be forwarded by first-class mail.
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13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank, or other persons
or to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those
specifically set forth herein or as may be subsequently agreed to in writing by
you and the Company;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any of
the certificates or the Existing Notes represented thereby deposited with you
pursuant to the Exchange Offer, and will not be required to and will make no
representation as to the validity, value or genuineness of the Exchange Offer;
(c) shall not be obligated to take any legal action hereunder
that will, in your reasonable judgment, involve any expense or liability, unless
you shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to you and reasonably believed by you to be
genuine and to have been signed by the proper party or parties;
(e) may reasonably act upon any tender, statement, request,
comment, agreement or other instrument whatsoever not only as to its due
execution and validity and effectiveness of its provisions, but also as to the
truth and accuracy of any information contained therein, which you shall in good
faith believe to be genuine or to have been signed or represented by a proper
person or persons;
(f) may rely on and shall be protected in acting upon written or
oral instructions from any Officer of the Company;
(g) may reasonably consult with your counsel with respect to any
questions relating to your duties and responsibilities and the advice or opinion
of such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted to be taken by you hereunder in
good faith and in accordance with the advice or opinion of such counsel; and
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(h) shall not advise any person tendering Existing Notes
pursuant to the Exchange Offer as to the wisdom of making such tender or as to
the market value or decline or appreciation in market value of any Existing
Notes.
15. You shall take such action as may from time to time be requested
by the Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery (as defined in the Prospectus) or such other forms
as may be approved from time to time by the Company, to all persons requesting
such documents and to accept and comply with telephone requests for information
relating to the Exchange Offer, provided that such information shall relate only
to the procedures for accepting (or withdrawing from) the Exchange Offer. The
Company will furnish you with copies of such documents at your request. All
other requests for information relating to the Exchange Offer shall be directed
to the Company, Attention: Bradford G. Ankerholz.
16. You shall advise by facsimile transmission or telephone, and
promptly thereafter confirm in writing to the Chief Executive Officer and the
Secretary of the Company and such other person or persons as so requested, daily
(and more frequently during the week immediately preceding the Expiration Date
and if otherwise requested) up to and including the Expiration Date, as to the
number of Existing Notes that have been tendered pursuant to the Exchange Offer
and the items received by you pursuant to this Agreement, separately reporting
and giving cumulative totals as to items properly received and items improperly
received. In addition, you will also provide, and cooperate in making
available, to the Company or any such other person or persons, upon oral request
made from time to time prior to the Expiration Date, such other information as
so reasonably requested. Such cooperation shall include, without limitation,
the granting by you to the Company and such person as the Company may request of
access to those persons on your staff who are responsible for receiving tenders,
in order to ensure that immediately prior to the Expiration Date the Company
shall have received information in sufficient detail to enable it to decide
whether to extend the Exchange Offer. You shall prepare a final list of all
persons whose tenders were accepted, the aggregate principal amount of Existing
Notes tendered, the aggregate principal amount of Existing Notes accepted and
deliver such list to the Company.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall
be stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities, but in any
event for a period of no less than 180
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days. You shall dispose of unused Letters of Transmittal and other surplus
materials by returning them to the Company.
18. You hereby expressly waive any lien, encumbrance or right of
set-off whatsoever that you may have with respect to funds deposited with you
for the payment of transfer taxes by reasons of amounts borrowed by the Company,
if any, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the Letter
of Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent,
which shall be controlled by this Agreement.
21. The Company covenants and agrees to indemnify and hold you
harmless in your capacity as Exchange Agent hereunder against any loss,
liability, cost or expense, including attorneys' fees and expenses, arising out
of or in connection with any act, omission, delay or refusal made by you in
reliance upon any signature, endorsement, assignment, certificate, order,
request, notice, instruction or other instrument or document reasonably believed
by you to be valid, genuine and sufficient and in accepting any tender or
effecting any transfer of Existing Notes reasonably believed by you in good
faith to be authorized, and in delaying or refusing in good faith to accept any
tenders or effect any transfer of Existing Notes; provided, however, that the
Company shall not be liable for indemnification or otherwise for any loss,
liability, cost or expense to the extent arising out of your gross negligence or
willful misconduct. In no case shall the Company be liable under this indemnity
with respect to any claim against you unless the Company shall be notified by
you, by letter or cable or by facsimile confirmed by letter, of the written
assertion of a claim against you or of any other action commenced against you,
promptly after you shall have received any such written assertion or notice of
commencement of action. The Company shall be entitled to participate at its own
expense in the defense of any such claim or other action, and, if the Company so
elects, the Company shall assume the defense of any suit brought to enforce any
such claim. In the event that the Company shall assume the defense of any such
suit, the Company shall
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not be liable for the fees and expenses of any additional counsel thereafter
retained by you so long as the Company shall retain counsel satisfactory to
you to defend such suit.
22. With respect to the Exchange Offer, you shall arrange to comply
with all requirements under the tax laws of the United States, including those
relating to missing Tax Identification Numbers, and shall file any appropriate
reports with the Internal Revenue Service. The Company understands that you are
required to deduct 31% on payments to holders who have not supplied their
correct Taxpayer Identification Number or required certification. Such funds
will be turned over to the Internal Revenue Service in accordance with
applicable regulations.
23. You shall deliver or cause to be delivered, in a timely manner to
each governmental authority to which any transfer taxes are payable in respect
of the exchange of Existing Notes, your check in the amount of all transfer
taxes so payable, and the Company shall reimburse you for the amount of any and
all transfer taxes payable in respect of the exchange of Existing Notes;
provided, however, that you shall reimburse the Company for amounts refunded to
you in respect of your payment of any such transfer taxes, at such time as such
refund is received by you.
24. This Agreement and your appointment as Exchange Agent hereunder
shall be construed and enforced in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely within such
state, and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto; provided, however, that
you may not assign or transfer any of your rights or obligations hereunder
without the prior written consent of the Company.
25. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
26. In case any provision of this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
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28. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
If to the Company:
Riverwood International Corporation
3350 Cumberland Circle
Suite 1400
Atlanta, Georgia 30339
Facsimile: 770-664-2929
Attention: Bradford G. Ankerholz
State Street Bank and Trust Company
61 Broadway
New York, New York 10006
Facsimile: 860-986-7920
Attention: Steven Cimalore
29. Unless terminated earlier by the parties hereto, this Agreement
shall terminate 180 days following the Expiration Date. Notwithstanding the
foregoing, Paragraphs 19, 21 and 23 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver
to the Company any certificates for Notes, funds or property then held by you as
Exchange Agent under this Agreement.
30. This Agreement shall be binding and effective as of the date
hereof.
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Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
RIVERWOOD INTERNATIONAL CORPORATION
By:
--------------------------------------
Name: Bradford G. Ankerholz
Title: Vice President and Treasurer
Accepted as of the date
first above written:
STATE STREET BANK AND TRUST COMPANY,
as Exchange Agent
By:
-------------------------------
Name: Steven Cimalore
Title: Vice President
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SCHEDULE I
FEES
The Company will pay the Exchange Agent a total of $______ for the services
described herein and the Exchange Agent's legal fees relating hereto.
