<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 27, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STONE CONTAINER CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2621 36-2041256
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Identification No.)
Organization) Classification Code
Number)
</TABLE>
150 North Michigan Avenue
Chicago, Illinois 60601
312-346-6600
(Address including zip code, and telephone number
including area code, of Registrant's principal executive offices)
------------------------
Arnold F. Brookstone
Executive Vice President-Chief Financial and Planning Officer
Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601
312-346-6600
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C> <C>
Frederick C. Lowinger Barry M. Fox Leslie T. Lederer
Sidley & Austin Cleary, Gottlieb, Steen & Stone Container Corporation
One First National Hamilton 150 North Michigan Avenue
Plaza One Liberty Plaza Chicago, Illinois 60601
Chicago, Illinois New York, New York 10006
60603
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING PRICE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE (1) (1) FEE
<S> <C> <C> <C> <C>
First Mortgage Notes.......... $650,000,000 100% $650,000,000 $224,138
Senior Notes.................. $250,000,000 100% $250,000,000 $ 86,207
Total......................... $900,000,000 100% $900,000,000 $310,345
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
STONE CONTAINER CORPORATION
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NO.
- ---------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus........................... Facing Sheet; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.................. Available Information; Inside Front and
Outside Back Cover Pages of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges... Outside Front Cover Page of Prospectus;
Prospectus Summary; The Company; Risk
Factors; Selected Financial Data
4. Use of Proceeds....................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price....... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution.............................. Not Applicable
7. Selling Security Holders.............. Not Applicable
8. Plan of Distribution.................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Underwriting
9. Description of Securities to be
Registered........................... Outside Front Cover Page of Prospectus;
Capitalization; Description of Notes
10. Interests of Named Experts and
Counsel.............................. Experts; Legal Matters
11. Information with Respect to the
Registrant........................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Summary Financial
Data; The Company; Risk Factors;
Capitalization; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Properties; Management; Security
Ownership By Certain Beneficial Owners
and Management; Credit Agreement;
Description of Notes; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED , 1994
$650,000,000
% FIRST MORTGAGE NOTES DUE
$250,000,000
% SENIOR NOTES DUE
[LOGO]
STONE CONTAINER CORPORATION
Interest on the % First Mortgage Notes due (the "First
Mortgage Notes") is payable semi-annually on and of
each year, commencing , 1995. Interest on the % Senior Notes due
, (the "Senior Notes") is payable semi-annually on
and of each year, commencing , 1995. The First
Mortgage Notes and the Senior Notes are collectively referred to herein as the
"Notes." The First Mortgage Notes may not be redeemed by Stone Container
Corporation (the "Company") prior to and are redeemable thereafter
at the redemption prices set forth herein. The Senior Notes may not be redeemed
by the Company prior to and are redeemable thereafter at the
redemption prices set forth herein. The Notes do not provide for any sinking
fund. Upon a Change of Control (as defined), and upon the satisfaction of
certain conditions, the Company will be required to offer to repurchase the
outstanding Notes at a price equal to 101% of the aggregate principal amount of
such Notes, plus accrued and unpaid interest to the date of repurchase. See
"Description of Notes -- Change of Control."
The First Mortgage Notes will be senior secured obligations of the Company and
the Senior Notes will be senior unsecured obligations of the Company. The Notes
will rank PARI PASSU in right of payment with each other and all other Senior
Indebtedness (as defined) of the Company. The Notes will be senior in right of
payment to all Subordinated Indebtedness (as defined) of the Company. See
"Description of Notes -- Ranking." The net proceeds to the Company from the
issuance and sale of the Notes offered hereby (the "Offering") will be used to
repay indebtedness and for general corporate purposes. See "Use of Proceeds."
The issuance and sale of the Notes in the Offering will occur concurrently with
certain related transactions and the closing by the Company of a new senior
secured credit agreement (the "Credit Agreement") consisting of a $250 million
term loan and a revolving credit facility under which $400 million (of which
borrowing availability will be reduced by any letter of credit commitments, of
which approximately $59 million will be outstanding at closing, and less
approximately $ million of borrowings thereunder which will be drawn down as
of closing) will be available as of the closing, each of which is conditioned
upon the successful completion of the other. Borrowings under the Credit
Agreement will constitute Senior Indebtedness and will be secured by a
significant portion of the assets of the Company. See "Credit Agreement."
Application will be made to list the First Mortgage Notes and the Senior Notes
on the New York Stock Exchange.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH THIS OFFERING.
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
<S> <C> <C> <C>
Per First Mortgage Note............................................................. % % %
Total............................................................................... $ $ $
Per Senior Note..................................................................... % % %
Total............................................................................... $ $ $
- ----------------------------------------------------------------------------------------------------------------
<FN>
(1) Plus accrued interest, if any, from date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deduction of expenses of the Offering payable by the Company
estimated at $ .
</TABLE>
The First Mortgage Notes and the Senior Notes are offered subject to receipt and
acceptance by the Underwriters, to prior sale and to the Underwriters' right to
reject any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the First Mortgage Notes and the
Senior Notes will be made at the office of Salomon Brothers Inc, Seven World
Trade Center, New York, New York, or through the facilities of The Depository
Trust Company, on or about , 1994.
SALOMON BROTHERS INC
BT SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
KIDDER, PEABODY P CO.
INCORPORATED
BEAR, STEARNS & CO. INC.
The date of this Prospectus is , 1994.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE FIRST MORTGAGE NOTES AND/ OR THE
SENIOR NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET
FORTH HEREIN UNDER THE CAPTION "RISK FACTORS." CERTAIN CAPITALIZED TERMS USED
HEREIN ARE DEFINED ELSEWHERE IN THIS PROSPECTUS. AS USED HEREIN, THE TERM
"COMPANY" INCLUDES STONE CONTAINER CORPORATION, ITS SUBSIDIARIES AND ITS
AFFILIATES, EXCEPT AS THE CONTEXT OTHERWISE MAY REQUIRE.
THE COMPANY
The Company is a major international pulp and paper company engaged
principally in the production and sale of paper, packaging products, and market
pulp. The Company believes that it is the world's largest producer of unbleached
containerboard and kraft paper and the world's largest converter of those
products into corrugated containers and paper sacks and bags. The Company also
believes that it is one of the world's largest paper companies in terms of
annual tonnage, having produced approximately 7.5 million total tons of paper
and pulp in each of 1993 and 1992. The Company produced approximately 4.9
million and 5.0 million tons of unbleached containerboard and kraft paper in
1993 and 1992, respectively, which accounted for approximately 66% of its total
tonnage produced for both 1993 and 1992. The Company had net sales of
approximately $5.1 billion and $5.5 billion in 1993 and 1992, respectively. The
Company owns or has an interest in 135 manufacturing facilities in the United
States, 26 in Canada, 15 in Germany, six in France, two in Belgium and one in
each of the United Kingdom and the Netherlands. The facilities include 23 mills.
The Company also maintains sales offices in the United States, Canada, the
United Kingdom, Germany, Belgium, France, Mexico, China and Japan, has a
forestry operation in Costa Rica and has a joint venture relationship in
Venezuela.
PAPERBOARD AND PAPER PACKAGING
The Company believes that its integrated unbleached paperboard and paper
packaging system is the largest in the world with 16 mills and 136 converting
plants located throughout the United States and Canada and in Europe. The major
products in this business are containerboard and corrugated containers, which
are primarily sold to a broad range of manufacturers of consumable and durable
goods; kraft paper and paper bags and sacks, which are primarily sold to
supermarket chains, retailers of consumer products and, in the case of multiwall
shipping sacks, to the agricultural, chemical and cement industries; and
boxboard and folding cartons, which are sold to manufacturers of consumable
goods and other box manufacturers. The unbleached packaging business of the
Company has an annual capacity of approximately 5.3 million tons and is more
than 80% integrated. In 1993, total sales for the paperboard and paper packaging
business of the Company were approximately $3.8 billion, or approximately 75% of
total consolidated sales.
WHITE PAPER AND PULP
The Company believes that, together with its 75% owned consolidated
subsidiary, Stone-Consolidated Corporation ("Stone-Consolidated"), it is the
largest producer of uncoated groundwood paper in North America and the fourth
largest producer of newsprint in North America. Stone-Consolidated, a Canadian
corporation, owns all of the Canadian and United Kingdom newsprint and uncoated
groundwood paper assets of the Company. Stone-Consolidated owns three newsprint
mills (two in Canada and one in the United Kingdom) and two uncoated groundwood
paper mills in Canada. The Company owns a newsprint mill in Snowflake, Arizona,
the production of which is marketed by Stone-Consolidated on a commission basis.
The Company and Stone-Consolidated have the capacity to produce 1.4 million tons
of newsprint and 500,000 tons of uncoated groundwood paper annually. Newsprint
is marketed to newspaper publishers and commercial printers. Uncoated groundwood
paper is sold for use primarily in newspaper inserts, retail store advertising
fliers, magazines, telephone directories and as computer paper.
The Company believes it has a major market position in North America in the
production of market pulp. The Company owns and operates five market pulp mills
in North America, including the Castlegar, British Columbia mill in which the
Company has a 25% interest (the "Celgar mill"). These mills have the
3
<PAGE>
capacity to produce 1.5 million tons of market pulp annually. The geographic
diversity of the Company's mills enables the Company to offer its customers a
product mix of bleached northern hardwood and bleached southern hardwood and
southern softwood pulp. Market pulp is sold to manufacturers of paper products,
including fine papers, photographic papers, tissue and newsprint.
In 1993, total sales for the white paper and pulp business of the Company
(which includes Stone-Consolidated sales) were approximately $965 million, or
approximately 19% of total consolidated sales.
PRODUCT PRICING AND INDUSTRY TRENDS
The markets for products sold by the Company are highly competitive and are
also sensitive to changes in industry capacity and cyclical changes in the
economy, both of which can significantly impact selling prices and thereby the
Company's profitability. From 1990 through the third quarter of 1993, the
Company experienced substantial declines in the pricing of most of its products.
Since October 1993, however, market conditions have improved, permitting the
Company to implement price increases for most of its products. Notwithstanding
these increases, prices remain below the historical high prices which were
achieved during the peak of the last industry cycle, particularly prices for
newsprint and market pulp. While product prices have increased since October
1993, the Company's production costs (including labor, fiber and energy), as
well as its interest expense, have increased since the last pricing peak in the
industry, increasing pressure on the Company's net margins on its products.
The Company's containerboard and corrugated container product lines, which
represent a substantial portion of the Company's net sales, had generally
experienced declining product prices from 1990 through the third quarter of
1993. However, the Company increased linerboard prices by $25 per ton in the
fourth quarter of 1993 and $30 per ton in the first quarter of 1994 and
concurrently increased corrugating medium prices by $25 per ton and by $40 per
ton, respectively. Following each of the containerboard increases, the Company
implemented corrugated container price increases. The Company implemented a
further $40 per ton increase in the price of linerboard and a $50 per ton
increase in corrugating medium effective July 1, 1994. The Company has also
announced a 9.5% price increase on corrugated containers effective July 25,
1994. Historically, suppliers, including the Company, have taken up to 90 days
to pass increased linerboard and corrugating medium prices through to corrugated
container customers. The Company converts more than 80% of its linerboard and
corrugating medium products into corrugated containers, making the achievement
of price increases in corrugated containers essential for the Company to realize
substantial financial benefit from linerboard and corrugating medium price
increases.
According to industry publications, immediately preceding the price increase
effective October 1, 1993, the reported transaction price for 42 lb. kraft
linerboard, the base grade of linerboard, was $300 per ton and as of July 1,
1994, the reported transaction price for this base grade was $385-$395 per ton.
According to industry publications, the reported transaction price for
corrugating medium immediately preceding October 1, 1993 was $280 per ton and
$375-$385 per ton as of July 1, 1994.
The Company has also implemented price increases in kraft paper and kraft
paper converted products. The Company increased prices on retail bags and sacks
8% on each of April 1, May 1, and July 1, 1994. In addition, the Company has
announced a $50 per ton (approximately 8.6%) increase for kraft paper to become
effective August 1, 1994.
Pricing for market pulp has improved substantially in 1994. The Company has
increased prices for various grades of market pulp by up to $190 per metric
tonne since November 1993. According to industry publications, the reported
transaction price for southern bleached hardwood kraft ("SBHK") was $370 per
metric tonne as of the third quarter of 1993 and $500-570 per metric tonne as of
the second quarter of 1994. The Company has begun to implement a further price
increase of $70 per metric tonne (approximately 12.2%) effective July 1, 1994.
After further declines in the first quarter of 1994, pricing for newsprint
has also recently improved. The Company increased newsprint prices in the second
quarter of 1994 by $48 per metric tonne in the eastern markets of North America
and $41 per metric tonne in the western markets of North America and
4
<PAGE>
has announced price increases of $41 per metric tonne in the eastern markets of
North America and $48 per metric tonne in the western markets of North America
in the third quarter of 1994. According to industry publications, the reported
transaction price for newsprint in the eastern markets of North America was $411
per metric tonne as of March 1, 1993 and $455 per metric tonne as of June 1,
1994. To date, uncoated groundwood papers have not achieved significant price
increases. However, a price increase for this product line has been announced
for the third quarter of 1994.
Although supply/demand balances appear favorable for most of the Company's
core products, there can be no assurance that announced price increases will be
achieved or that prices can be maintained at present levels.
Prices of wood fiber and recycled fiber, the principal raw materials in the
manufacture of the Company's products, have increased substantially in 1994. The
historically cyclical markets for fiber are highly competitive, and as the
demand for the Company's products rises, the demand for and cost of fiber,
particularly recycled fiber, may further increase. See "Risk Factors --
Cyclicality and Pricing; Fiber Supply and Pricing."
FINANCIAL STRATEGY
In 1993, the Company adopted a financial plan designed to enhance the
Company's liquidity and improve its financial flexibility, which included
prepaying the near term scheduled amortizations under certain bank credit
agreements (the "1989 Credit Agreement"). The financial plan was implemented in
response to continuing net losses resulting from depressed sales prices for the
Company's products and the Company's highly leveraged capital structure and
related interest expense associated with indebtedness incurred to finance the
acquisition of Consolidated-Bathurst Inc. (a Canadian corporation, renamed Stone
Container (Canada) Inc. ("Stone Canada")). As part of the financial plan, in
1993 the Company satisfied its remaining 1993 and 1994 scheduled amortization
obligations under the 1989 Credit Agreement and repaid outstanding borrowings (a
portion of which could subsequently be reborrowed) under the revolving credit
facility portion of the 1989 Credit Agreement with the proceeds from (i) the
sale of $400 million aggregate principal amount of additional Company
indebtedness, (ii) the public offering in Canada of approximately 25% of the
common stock (Cdn. $231 million) of Stone-Consolidated and the contemporaneous
sale by Stone-Consolidated of Cdn. $231 million principal amount of convertible
subordinated debentures in Canada and $225 million principal amount of senior
secured notes in the U.S., and (iii) the sale of $125 million of assets. In
February 1994, the Company sold $710 million principal amount of 9 7/8% Senior
Notes due 2001 and approximately 19 million shares of its common stock for gross
proceeds of approximately $289 million from the sale of such common stock (the
"February 1994 Offerings"). The Company used the $962 million of net proceeds
from the February 1994 Offerings to (i) prepay scheduled amortizations under the
1989 Credit Agreement for all of 1995 and a portion of 1996 and 1997, (ii)
redeem the Company's $98 million principal amount of 13 5/8% Subordinated Notes
due 1995, and (iii) repay outstanding borrowings under the revolving credit
facility portion of the 1989 Credit Agreement, a portion of which remained
available for reborrowing thereunder.
The Company is continuing to pursue its financial strategy of enhancing the
Company's liquidity and improving its financial flexibility. Concurrently with
the closing of this Offering, the Company will (i) repay all of the outstanding
indebtedness under and terminate the 1989 Credit Agreement, (ii) enter into the
Credit Agreement and (iii) merge the Company's 93% owned subsidiary Stone
Savannah River Pulp & Paper Corporation ("Stone Savannah") into a wholly owned
subsidiary of the Company and repay or acquire Stone Savannah's outstanding
indebtedness, common stock and preferred stock, each of which is conditioned
upon the successful completion of the other transactions (collectively, the
"Related Transactions"). The Credit Agreement will consist of a $250 million
secured term loan and a secured revolving credit facility under which $400
million (of which borrowing availability will be reduced by any letter of credit
commitments, of which approximately $59 million will be outstanding at closing,
and less approximately $ million of borrowings thereunder which will be drawn
down as of closing) will be available at closing. In connection with the Stone
Savannah merger, the Company will (i) repay all of the indebtedness outstanding
under and terminate Stone Savannah's bank credit agreement (the
5
<PAGE>
"Stone Savannah Credit Agreement"), (ii) call for redemption the $130 million
principal amount of Stone Savannah's 14 1/8% Senior Subordinated Notes due 2000
(the "Stone Savannah Notes") at a redemption price equal to 107.0625% of
principal amount, (iii) repurchase the 72,346 outstanding shares of common stock
of Stone Savannah not owned by the Company, and (iv) call for redemption or
otherwise acquire the 425,243 outstanding shares of Series A Cumulative
Redeemable Exchangeable Preferred Stock of Stone Savannah (the "Stone Savannah
Preferred") not owned by the Company for approximately $51.5 million (including
redemption premium and accrued and unpaid dividends). The completion of this
Offering, together with the Related Transactions, will extend the scheduled
amortization obligations and final maturities of more than $1 billion of the
Company's indebtedness, improve the Company's liquidity by replacing its current
$166 million revolving credit facility commitments with $400 million of
revolving credit commitments (of which borrowing availability will be reduced by
any letter of credit commitments, of which approximately $59 million will be
outstanding at closing, and less approximately $ million of borrowings
thereunder which will be drawn down as of closing) and improve the Company's
financial flexibility through entering into the Credit Agreement.
The sources and uses of funds in connection with the Offering and the
Related Transactions are estimated to be as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Sources: $
First Mortgage Notes.........................................................
Senior Notes.................................................................
Credit Agreement
Term Loan..................................................................
Revolving Credit Facility(1)...............................................
-------------
Total:......................................................................... $
-------------
-------------
Uses:
Repayment of 1989 Credit Agreement borrowings................................ $
Repayment of Stone Savannah Credit Agreement borrowings......................
Redemption of Stone Savannah Notes...........................................
Repurchase of Stone Savannah Common Stock....................................
Redemption of Stone Savannah Preferred.......................................
General corporate purposes(2)................................................
-------------
Total:......................................................................... $
-------------
-------------
<FN>
- ------------------------
(1) Commitment of $400 million (of which borrowing availability will be reduced
by any letter of credit commitments, of which approximately $59 million
will be outstanding at closing, and less approximately $ million of
borrowings thereunder which will be drawn down as of closing).
(2) Includes payment of fees and expenses relating to the Credit Agreement,
which are estimated to total $ million and expenses relating to the
Offering (other than the Underwriters' discount) estimated to total $
million.
</TABLE>
RECENT DEVELOPMENTS
On July 26, 1994, the Company reported net losses for the quarter and six
months ended June 30, 1994. Sales for the periods were higher than the year-ago
levels.
Sales were $1.35 billion and $2.65 billion for the second quarter and first
half of 1994, respectively. For the comparable periods of 1993, sales were $1.27
billion and $2.57 billion, respectively.
The net loss for the second quarter of 1994 was $50.8 million, or $.58 per
common share, compared to the net loss of $71.6 million, or $1.03 per common
share, for the second quarter of 1993.
For the first half of 1994, the loss was $129.7 million, or $1.55 per common
share, before the extraordinary loss on the early extinguishment of debt and the
cumulative effect of a change in accounting for postemployment benefits (SFAS
112).
6
<PAGE>
Including the extraordinary loss and the cumulative effect of SFAS 112, the
Company reported a net loss of $160.7 million, or $1.92 per common share, for
the first six months of 1994.
For the first six months of 1993, the loss was $134.3 million, or $1.94 per
common share, before the cumulative effect of a change in accounting for
post-retirement benefits other than pensions (SFAS 106). The adoption of SFAS
106, effective January 1, 1993, resulted in a non-cash charge of $39.5 million
net of income taxes, or $.56 per common share, resulting in a net loss of $173.8
million, or $2.50 per common share, for the first six months of 1993.
The second-quarter and first-half losses were increased by significantly
higher costs of recycled fiber for the Company's North American paper mills.
Costs of old corrugated containers ("OCC"), the primary source of recycled fiber
for containerboard, were approximately $20 million higher in the second quarter
1994 compared to the second quarter 1993, and approximately $18 million higher
in the second quarter 1994 compared to the first quarter 1994.
Income from operations for the second quarter 1994 include a gain from an
involuntary conversion relating to a digester failure at the Company's Panama
City, Florida, pulp and paper mill. This gain, of $13.7 million after taxes,
reflects the expected net proceeds from the property damage claim in excess of
the carrying value of the assets destroyed or damaged.
THE OFFERING OF NOTES
<TABLE>
<S> <C>
Securities Offered................ $650 million principal amount of % First Mortgage
Notes due (the "First Mortgage Notes").
$250 million principal amount of % Senior Notes due
(the "Senior Notes") (the Senior Notes and the
First Mortgage Notes being collectively referred to as
the "Notes").
The First Mortgage Notes will be issued pursuant to an
indenture dated as of , 1994 (the "First Mortgage
Note Indenture") between the Company and Norwest Bank
Minnesota, N.A., as trustee (the "First Mortgage Note
Trustee"), and the Senior Notes will be issued pursuant
to an indenture dated as of , 1994 (the "Senior
Note Indenture") between the Company and The Bank of New
York, as trustee (the "Senior Note Trustee"). The First
Mortgage Note Indenture and the Senior Note Indenture
will be substantially identical, except for provisions,
including certain covenants, with respect to the
Collateral (as defined) securing the First Mortgage
Notes, and are collectively referred to herein as the
"Indentures."
Interest Payment Dates............ Interest on the First Mortgage Notes will be payable
semi-annually on and
, commencing , 1995.
Interest on the Senior Notes will be payable
semi-annually on and , commencing ,
1995.
Optional Redemption............... The First Mortgage Notes are redeemable at the option of
the Company, in whole or from time to time in part, on
and after , at the redemption prices set forth
herein, together with accrued and unpaid interest. See
"Description of Notes -- Optional Redemption."
The Senior Notes are redeemable at the option of the
Company, in whole or from time to time in part, on and
after , at
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
the redemption prices set forth herein, together with
accrued and unpaid interest. See "Description of Notes
-- Optional Redemption."
Change of Control................. Upon the occurrence of a Change of Control (as defined)
the Company is required to offer to repurchase each
holder's Notes at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase. If
such repurchase would constitute an event of default
under Specified Bank Debt (as defined), then, prior to
making such repurchase offer, the Company is required to
(i) repay in full in cash such Specified Bank Debt or
(ii) obtain the requisite consent of lenders of such
Specified Bank Debt to permit the repurchase of Notes
without giving rise to an event of default under such
Specified Bank Debt. Such Change of Control provisions
in and of themselves may not afford holders of the Notes
protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger or
similar transaction involving the Company that may
adversely affect such holders if such transaction is not
the type of transaction included within the definition
of Change of Control. A transaction involving specified
Stone family members or their affiliates will result in
a Change of Control only if it is the type of
transaction specified by such definition. See "Descrip-
tion of Notes -- Change of Control." There can be no
assurance that the Company would have sufficient funds
to pay the required purchase price for all Notes
tendered by the holders thereof in the event of a Change
of Control. Neither the Board of Directors of the
Company nor the respective trustees under the Indentures
relating to the Notes may waive the Change of Control
provisions.
Ranking........................... The Notes will rank PARI PASSU in right of payment with
all existing and future Senior Indebtedness (as defined)
of the Company and senior in right of payment and in
rights upon liquidation to all existing and future
Subordinated Indebtedness (as defined) of the Company.
Obligations of the Company's Subsidiaries (as defined),
however, will represent prior claims with respect to the
assets and earnings of such Subsidiaries. Borrowings
under the Credit Agreement will constitute Senior
Indebtedness and will be secured by a significant por-
tion of the Company's assets. The First Mortgage Notes
will be secured by certain other assets of the Company
as described herein. See "Description of Notes --
Ranking."
Limitation on Future Liens........ FIRST MORTGAGE NOTES AND SENIOR NOTES. If the Company or
any Subsidiary shall permit the existence of any Lien
(as defined) other than Permitted Liens (as defined)
upon any of its respective assets as security for (i)
any Indebtedness (as defined) or other obligation of the
Company that ranks PARI PASSU with the Notes or any
Indebtedness or other obligation of a Subsidiary of the
Company, the Company will secure or will cause such
Subsidiary to guarantee and secure the outstanding Notes
equally and ratably with such Indebtedness or other
obligation
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
or (ii) any Subordinated Indebtedness (as defined), the
Company will secure the outstanding Notes prior to such
Subordinated Indebtedness; PROVIDED, HOWEVER, that the
foregoing shall not apply to certain specified Liens,
including Liens to secure any Indebtedness under the
Credit Agreement which Indebtedness will be secured by
Liens on a significant portion of the assets of the
Company and Liens in favor of the First Mortgage Notes
described herein.
FIRST MORTGAGE NOTES. Under the terms of the First
Mortgage Note Indenture, the Company will not, and will
not permit any of its Subsidiaries to, directly or
indirectly, (i) incur or suffer to exist any Lien upon
any of the Collateral other than Permitted Collateral
Liens (as defined), (ii) take any action or omit to take
any action with respect to the Collateral that might or
would have the result of affecting or impairing the
security interests in the Collateral under the First
Mortgage Note Indenture and the Security Documents (as
defined), or (iii) grant or suffer to exist any interest
whatsoever in any of the Collateral by any Person (other
than the First Mortgage Note Trustee) other than Permit-
ted Collateral Liens.
Limitation on Future Guaranties... Neither the Company nor any Subsidiary (including
Seminole Kraft Corporation ("Seminole")) will guarantee
Indebtedness; PROVIDED, HOWEVER, that the foregoing
shall not apply to certain specified guaranties,
including guaranties in a principal amount up to the
principal amount outstanding or committed under the 1989
Credit Agreement as of November 1, 1991, plus $250
million, less the proceeds from the sale of Indebtedness
under the 1991 Indenture (as defined) issued from time
to time that are applied to repay Indebtedness under the
Credit Agreements (as defined) as refinanced or extended
from time to time (which would include Indebtedness
under the new Credit Agreement).
For further information on ranking, limitations on Liens
and limitations on guaranties, see "Description of Notes
-- Certain Covenants -- Limitation on Future Liens and
Guaranties." For further information on the collateral
securing the borrowings under the Credit Agreement, see
"Credit Agreement -- Security."
Collateral Asset Sales............ FIRST MORTGAGE NOTES. Pursuant to the First Mortgage
Note Indenture, within 360 days following the
consummation of a Collateral Asset Sale (as defined) or
the receipt of proceeds from a Collateral Loss Event (as
defined), the Company will apply the net proceeds
therefrom (i) to an investment in specified replacement
Collateral; and/or (ii) subject to the receipt of
certain minimum proceeds, to make an offer to repurchase
First Mortgage Notes at 100% of the principal amount
thereof plus accrued interest thereon to the date of
purchase. See "Description of Notes -- Additional First
Mortgage Note Covenants -- Limitation on Collateral
Asset Sales."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Certain Other Covenants........... Each of the Indentures, among other things, (i)
proscribes the use of certain proceeds of certain Asset
Dispositions (as defined) by the Company or its
Restricted Subsidiaries (as defined), (ii) restricts the
ability of the Company and its Subsidiaries, subject to
certain exceptions, to pay dividends or make
distributions with respect to shares of the Company's
Capital Stock (as defined) or acquire or retire Capital
Stock of the Company, (iii) subject to certain
significant exceptions, restricts the ability of the
Company and its Restricted Subsidiaries to create, incur
or guarantee Indebtedness and (iv) requires the Company
to make certain offers to repurchase Debt Securities (as
defined) in the event that the Company's Subordinated
Capital Base (as defined) is less than a specified
level. See "Description of Notes -- Certain Covenants."
Use of Proceeds................... The net proceeds of this Offering, together with
borrowings under the Credit Agreement, will be used to
(i) repay all of the outstanding indebtedness under and
terminate the 1989 Credit Agreement, (ii) repay all of
the outstanding indebtedness under and terminate the
Stone Savannah Credit Agreement and redeem the Stone
Savannah Notes, (iii) purchase the 72,346 outstanding
shares of Stone Savannah common stock not owned by the
Company and (iv) redeem or otherwise acquire the 425,243
outstanding shares of Stone Savannah Preferred not owned
by the Company. See "Use of Proceeds."
</TABLE>
COLLATERAL FOR THE FIRST MORTGAGE NOTES
The First Mortgage Notes will be initially secured by a first ranking lien
on the Company's properties described below, located in
and .
10
<PAGE>
SUMMARY FINANCIAL DATA
The following summary Statement of Operations and Balance Sheet Data for the
five years ended December 31, 1993 has been derived from, and should be read in
conjunction with, the related audited consolidated financial statements and
accompanying notes of the Company. The audit report relating to the Company's
1993 consolidated financial statements contains an explanatory paragraph
referring to certain liquidity matters discussed in Notes 11 and 18 to the
Company's 1993 consolidated financial statements included elsewhere in this
Prospectus. The selected financial data for the three months ended March 31,
1994 and March 31, 1993 have been derived from the unaudited consolidated
financial statements for the quarters ended March 31, 1994 and 1993 included
elsewhere in this Prospectus. The summary financial data do not purport to be
indicative of the Company's future results of operations or financial position.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED
MARCH 31, DECEMBER 31,
------------------------ --------------------------------------------------------------
1994 1993 1993 1992(A) 1991 1990
---------- ---------- ---------- -------------- -------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $1,290,844 $1,306,357 $5,059,579 $5,520,655 $5,384,291 $5,755,858
Cost of products sold............ 1,067,144 1,070,264 4,223,444 4,473,746 4,287,212(c) 4,421,930
Selling, general and
administrative expenses......... 133,540 136,071 512,174 543,519 522,780 495,499
Depreciation and amortization.... 89,269 87,102 346,811 329,234(c) 273,534(c) 257,041
Income (loss) before interest
expense, income taxes, minority
interest, extraordinary loss and
cumulative effects of accounting
changes......................... (7,559) 13,227 (36,598) 162,107 385,113 615,736
Interest expense................. 113,512 102,230 426,726 386,122 397,357 421,667
Income (loss) before income
taxes, minority interest,
extraordinary loss and
cumulative effects of accounting
changes......................... (121,071) (89,003) (463,324) (224,015) (12,244) 194,069
Extraordinary loss from early
extinguishment of debt (net of
income tax benefit)............. (16,782) -- -- -- -- --
Cumulative effect of change in
accounting for postemployment
benefits (net of income tax
benefit)........................ (14,189) -- -- -- -- --
Cumulative effect of change in
accounting for post-retirement
benefits (net of income tax
benefit)........................ -- (39,544) (39,544) -- -- --
Cumulative effect of change in
accounting for income taxes..... -- -- -- (99,527) -- --
Net income (loss)................ (109,918) (102,259) (358,729) (269,437) (49,149) 95,420
Income (loss) per common share
before extraordinary loss and
cumulative effects of ac-
counting changes................ (.99) (.91) (4.59) (2.49)(d) (.78)(d) 1.56(d)
Net income (loss) per common
share........................... (1.37) (1.47) (5.15) (3.89)(d) (.78)(d) 1.56(d)
Ratio of earnings to fixed
charges......................... (e) (e) (e) (e) (e) 1.2
Dividends paid per common share
(d)............................. -- -- -- $ 0.35 $ 0.71 $ 0.71
Average common shares
outstanding..................... 81,482 71,121 71,163 70,987(d) 63,207(d) 61,257(d)
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital.................. $ 844,532 $ 220,916 $ 809,504 $ 756,964 $ 770,457 $ 439,502
Property, plant and equipment --
net............................. 3,295,312 3,613,559 3,386,395 3,703,248 3,520,178 3,364,005
Goodwill......................... 877,388 970,588 910,534 983,499 1,126,100 1,160,516
Total assets..................... 6,705,808 7,021,407 6,836,661 7,026,973 6,902,852 6,689,989
Long-term debt................... 4,085,388(f) 3,621,219(f) 4,268,277(f) 4,104,982(f) 4,046,379(f) 3,680,513(f)
Stockholders' equity............. 723,530 1,021,729 607,019 1,102,691 1,537,543 1,460,487
OTHER DATA:
Net cash provided by (used in)
operating activities............ $ (114,215) $ (34,780) $ (212,685) $ 85,557 $ 210,498 $ 451,579(c)
Capital expenditures............. 17,690(g) 29,378(g) 149,739(g) 281,446(g) 430,131(g) 551,986(g)
Paperboard, paper and market
pulp:
Produced (thousand tons)....... 1,979 1,866 7,475 7,517 7,365 7,447
Converted (thousand tons)...... 1,085 1,087 4,354 4,373 4,228 4,241
Corrugated shipments (billion sq.
ft.)............................ 12.9 12.9 52.48 51.67 49.18 47.16
Consolidated EBITDA (h).......... 81,710 100,329 310,213 491,341 658,647 872,777
<CAPTION>
1989(B)
----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $5,329,716
Cost of products sold............ 3,893,842
Selling, general and
administrative expenses......... 474,438
Depreciation and amortization.... 237,047
Income (loss) before interest
expense, income taxes, minority
interest, extraordinary loss and
cumulative effects of accounting
changes......................... 826,542
Interest expense................. 344,693
Income (loss) before income
taxes, minority interest,
extraordinary loss and
cumulative effects of accounting
changes......................... 481,849
Extraordinary loss from early
extinguishment of debt (net of
income tax benefit)............. --
Cumulative effect of change in
accounting for postemployment
benefits (net of income tax
benefit)........................ --
Cumulative effect of change in
accounting for post-retirement
benefits (net of income tax
benefit)........................ --
Cumulative effect of change in
accounting for income taxes..... --
Net income (loss)................ 285,828
Income (loss) per common share
before extraordinary loss and
cumulative effects of ac-
counting changes................ 4.67(d)
Net income (loss) per common
share........................... 4.67(d)
Ratio of earnings to fixed
charges......................... 2.0
Dividends paid per common share
(d)............................. $ 0.70
Average common shares
outstanding..................... 61,223(d)
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital.................. $ 614,433
Property, plant and equipment --
net............................. 2,977,860
Goodwill......................... 1,089,817
Total assets..................... 6,253,708
Long-term debt................... 3,536,911(f)
Stockholders' equity............. 1,347,624
OTHER DATA:
Net cash provided by (used in)
operating activities............ $ 315,196(c)
Capital expenditures............. 501,723(g)
Paperboard, paper and market
pulp:
Produced (thousand tons)....... 6,772
Converted (thousand tons)...... 3,930
Corrugated shipments (billion sq.
ft.)............................ 41.56
Consolidated EBITDA (h).......... 1,063,589
<FN>
- ----------------------------------------
(a) Restated to reflect the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" retroactive to January 1,
1992.
(b) The Company acquired Stone Canada in 1989.
(c) Adjusted to conform with the current financial statement presentation.
(d) Amounts per common share and average common shares outstanding have been
adjusted to reflect a 2% Common Stock dividend issued September 15, 1992.
(e) The Company's earnings for the three months ended March 31, 1994 and 1993
and the years ended December 31, 1993, 1992 and 1991 were insufficient to
cover fixed charges by $119.3 million and $91.9 million and $466.5 million,
$270.1 million and $94.6 million, respectively.
(f) Includes approximately $659.8 million and $562.0 million as of March 31,
1994 and 1993, respectively, and $672.6 million, $574.8 million, $563.5
million, $458.2 million and $267.2 million as of December 31, 1993, 1992,
1991, 1990 and 1989, respectively, of long-term debt of certain
consolidated subsidiaries that is non-recourse to the parent.
(g) Includes approximately $4.0 million and $3.0 million for the three months
ended March 31, 1994 and 1993, respectively, and $14.6 million, $79.1
million, $219.8 million, $245.2 million and $36.8 million for 1993, 1992,
1991, 1990 and 1989, respectively, of expenditures financed through project
financings.
(h) "Consolidated EBITDA" means earnings before interest, taxes, depreciation
and amortization. Consolidated EBITDA is not intended to represent cash
flow or any other measure of performance in accordance with GAAP. The
Consolidated EBITDA presented herein is different than the EBITDA
definition that will be in the Company's Credit Agreement. In calculating
EBITDA for purposes of the Credit Agreement, the net income or net loss of
Seminole and Stone-Consolidated will not be included except to the extent,
if any, such subsidiaries pay dividends to the Company. See "Credit
Agreement."
</TABLE>
11
<PAGE>
RISK FACTORS
BEFORE INVESTING, PROSPECTIVE PURCHASERS OF THE NOTES SHOULD CAREFULLY
CONSIDER THE RISK FACTORS SET FORTH BELOW AND THE OTHER INFORMATION INCLUDED
ELSEWHERE IN THIS PROSPECTUS.
SIGNIFICANT LEVERAGE AND DEBT SERVICE REQUIREMENTS
Since July 1993, the Company has issued more than $1.1 billion of debt
securities, the proceeds from which were used to refinance indebtedness,
including the repayment of revolving credit facilities (which were subsequently
reborrowed), and to fund working capital needs due to continued losses.
Therefore, the Company remains significantly leveraged and will continue to be
so after completion of the Offering and the Related Transactions. The Company's
long-term debt to total capitalization ratio was 74.6% at March 31, 1994. On a
pro forma basis, after giving effect to (i) the Offering and the use of the
estimated net proceeds therefrom, together with borrowings under the Credit
Agreement and (ii) the consummation of the Related Transactions, such ratio at
March 31, 1994 would have been approximately %. Capitalization, for purposes
of this ratio, includes long-term debt, deferred income taxes, redeemable
preferred stock, minority interests and stockholders' equity. Giving effect to
the Offering and the Related Transactions, the amounts of long-term debt
(excluding capitalized lease obligations) outstanding at March 31, 1994 maturing
through 2000 and thereafter are as follows:
<TABLE>
<CAPTION>
THE COMPANY
NON-RECOURSE EXCLUDING
CONSOLIDATED INDEBTEDNESS OF SEMINOLE AND
TOTAL CERTAIN SUBSIDIARIES(1) STONE-CONSOLIDATED
------------- ----------------------- -------------------
<S> <C> <C> <C>
Remainder of 1994................................... $ 26.5 $ 16.0 $ 10.5
1995................................................ 269.2(2) 21.5 247.7(2)
1996................................................ 45.4 27.5 17.9
1997................................................ 252.5 21.6 230.9
1998................................................ 483.5 20.5 463.0
1999................................................ 399.3(3) 21.6 377.7(3)
2000................................................ 644.0 252.3 391.7
Thereafter.......................................... 2,357.1 166.9 2,190.2
<FN>
- ------------------------------
(1) Includes indebtedness of Seminole and Stone-Consolidated. See "-- Credit
Agreement Restrictions."
(2) The 1995 maturities currently include approximately $228.7 million
outstanding under Stone Financial Corporation's and Stone Fin II
Receivables Corporation's revolving credit facilities at March 31, 1994,
which the Company intends to refinance. The Company is currently planning a
transaction to refinance these two existing receivables programs through
Stone Financial Corporation. The proposed refinancing transaction is
contemplated to approximate $300 million of receivables financing, which
would be scheduled to mature in 1999. The proposed refinancing is subject
to execution of definitive documentation and the public offering of notes
by Stone Financial Corporation to provide funding for such receivables
financing, and there can be no assurance that it will be consummated.
(3) The revolving credit facility under the Credit Agreement will mature in
May, 1999 and the letter of credit relating to certain industrial revenue
bonds in Florence County, South Carolina (the "Florence Letter of Credit"),
currently in the amount of approximately $59 million, will expire in May,
1999. This amount does not acount for any borrowings which may be
outstanding under the revolving credit agreement as of its expiration.
</TABLE>
In order to meet its amortization obligations, beginning in 1997 and
continuing thereafter, the Company will be required to raise sufficient funds
from operations and/or other sources and/or refinance or restructure maturing
indebtedness. No assurance can be given that the Company will be successful in
doing so.
In addition to these amortization obligations, the Company will continue to
incur substantial ongoing interest expense relating to its indebtedness. The
Company's income before interest expense and income taxes was insufficient to
cover interest expense for the three months ended March 31, 1994 and March 31,
1993 by $118.9 million and $89.5 million respectively, and for the years ended
December 31, 1993 and 1992 by $466.9 million and $229.3 million, respectively,
and will be insufficient for the year 1994. The Company's net interest expense
will increase as a result of this Offering and the Related Transactions, as the
estimated net proceeds of the Offering and borrowings under the Credit Agreement
will be used in part to (i) repay all of the outstanding borrowings under the
1989 Credit Agreement and
12
<PAGE>
the Stone Savannah Credit Agreement, which borrowings currently bear interest at
lower rates than expected interest rates for the Notes, and (ii) purchase the
shares of common stock of Stone Savannah not owned by the Company and redeem the
shares of Stone Savannah Preferred not owned by the Company. See "Use of
Proceeds." Furthermore, even though the Company has repaid amounts borrowed
under its 1989 Credit Agreement, borrowings under the Credit Agreement (less
than those borrowed under the 1989 Credit Agreement) will still bear interest
calculated based upon a floating rate of interest, and the Company's cost of
borrowing under the Credit Agreement will fluctuate as these underlying base
rates of interest change. See "Credit Agreement."
The Company will continue to require access to significant funds, whether
from operating cash flows, revolving credit facilities or other sources of
liquidity, such as additional asset sales, to meet its debt service requirements
in the future. Moreover, Seminole and Stone-Consolidated, to the extent they
generate positive net cash flows from operations, if any, will not be permitted
to provide funds to the Company (whether by dividend, loan or otherwise) to fund
the Company's obligations, including its payment obligations with respect to the
Notes, until certain financial covenants contained in debt instruments of these
companies have been met. Such financial covenants have not been satisfied to
date and are not likely to be satisfied in 1994. There can be no assurances that
such financial covenants will be met in the future.
CYCLICALITY AND PRICING; FIBER SUPPLY AND PRICING
The markets for paper, packaging products and market pulp sold by the
Company are highly competitive, and are sensitive to changes in industry
capacity and cyclical changes in the economy, both of which can significantly
impact selling prices and thereby the Company's profitability. From 1990 through
the third quarter of 1993, the Company experienced substantial declines in the
pricing of most of its products. Since October 1993, however, market conditions
have improved, permitting the Company to implement price increases for most of
its products. Notwithstanding these increases, prices remain below the
historical high prices which were achieved during the peak of the last industry
cycle, particularly prices for newsprint and market pulp. While product prices
have increased since October 1993, the Company's production costs (including
labor, fiber and energy), as well as its interest expense, have increased since
the last pricing peak in the industry, increasing pressure on the Company's net
margins on its products.
The Company's containerboard and corrugated container product lines, which
represent a substantial portion of the Company's net sales, had generally
experienced declining product prices from 1990 through the third quarter of
1993. However, the Company increased linerboard prices by $25 per ton in the
fourth quarter of 1993 and $30 per ton in the first quarter of 1994 and
concurrently increased corrugating medium prices by $25 per ton and by $40 per
ton, respectively. Following each of the containerboard increases, the Company
implemented corrugated container price increases. The Company implemented a
further $40 per ton increase in the price of linerboard and a $50 per ton
increase in corrugating medium effective July 1, 1994. The Company has also
announced a 9.5% price increase on corrugated containers effective July 25,
1994. Historically, suppliers, including the Company, have taken up to 90 days
to pass increased linerboard and corrugating medium prices through to corrugated
container customers. The Company converts more than 80% of its linerboard and
corrugating medium production into corrugated containers, making the achievement
of price increases in corrugated containers essential for the Company to realize
substantial financial benefit from linerboard and corrugating medium price
increases. While there can be no assurance that prices will continue to increase
or even be maintained at present levels, the Company believes that the
supply/demand characteristics for linerboard, corrugating medium and corrugated
containers are improving which could allow for further price restorations for
these product lines.
According to industry publications, immediately preceding the price increase
effective October 1, 1993, the reported transaction price for 42 lb. kraft
linerboard, the base grade of linerboard, was $300 per ton and as of July 1,
1994, the reported transaction price for this base grade was $385-$395 per ton.
According to industry publications, the reported transaction price for
corrugating medium immediately preceding October 1, 1993 was $280 per ton and
$375-$385 per ton as of July 1, 1994.
13
<PAGE>
Pricing conditions for market pulp, newsprint and uncoated groundwood paper
have been volatile in recent years. Additions to industry-wide capacity and
declines in demand for such products during the past three years led to
supply/demand imbalances that had contributed to depressed prices for these
products. In 1994, however, pricing for market pulp has improved substantially.
The Company has increased prices for various grades of market pulp by up to $190
per metric tonne since November 1993. According to industry publications, the
reported transaction price for SBHK was $370 per metric tonne as of the third
quarter of 1993 and $500-570 per metric tonne as of the second quarter of 1994.
The Company has begun to implement a further price increase of $70 per metric
tonne (approximately 12.2%) as of July 1, 1994. After further declines in the
first quarter of 1994, pricing for newsprint has also recently improved. The
Company increased newsprint prices in the second quarter of 1994 by $48 per
metric tonne in the eastern markets of North America and $41 per metric tonne in
the western markets in North America and has announced price increases of $41
per metric tonne in the eastern markets of North America and $48 per metric
tonne in the western markets of North America in the third quarter of 1994.
According to industry publications, the reported transaction price for newsprint
in the eastern markets of North America was $411 per metric tonne as of March 1,
1993 and $455 per metric tonne as of June 1, 1994. The benefit to the Company's
cash flows and profitability from such partial price recovery in newsprint is
limited, however, because Stone-Consolidated owns all of the Canadian and United
Kingdom newsprint and uncoated groundwood assets of the Company and the
restrictive terms of Stone-Consolidated's indebtedness will not permit
Stone-Consolidated to provide funds to the Company (whether by dividend, loan or
otherwise) from cash generated from operations, if any, until certain financial
covenants have been satisfied. Such financial covenants have not been satisfied
to date and are not likely to be satisfied in 1994. There can be no assurances
that such financial covenants will be met in the future. To date, uncoated
groundwood papers have not achieved significant price increases. However, a
price increase for this product line has been announced for the third quarter of
1994. While other producers have announced similar price increases for market
pulp and newsprint there can be no assurance that such price increases will be
achieved as scheduled.
Although supply/demand balances appear favorable for most of the Company's
products, there can be no assurance that announced price increases will be
achieved or that prices can be maintained at present levels.
Wood fiber and recycled fiber, the principal raw materials in the
manufacture of the Company's products, are purchased in highly competitive,
price sensitive markets. These raw materials have historically exhibited price
and demand cyclicality. In addition, the supply and price of wood fiber, in
particular, is dependent upon a variety of factors over which the Company has no
control, including environmental and conservation regulations, natural
disasters, such as forest fires and hurricanes, and weather. In addition, recent
increased demand for the Company's products has resulted in greater demand for
raw materials which has recently translated into higher raw material prices.
The Company purchases or cuts a variety of species of timber from which the
Company utilizes wood fiber depending upon the product being manufactured and
each mill's geographic location. Despite this diversification, wood fiber prices
have increased substantially in 1994. A decrease in the supply of wood fiber,
particularly in the Pacific Northwest and the southeastern United States due to
environmental considerations, has caused, and will likely continue to cause,
higher wood fiber costs in those regions. In addition, the increase in demand
for products manufactured in whole or in part from recycled fiber has caused a
shortage of recycled fiber, particularly OCC used in the manufacture of premium
priced recycled containerboard and related products. The Company's paperboard
and paper packaging products use a large volume of recycled fiber. In 1993, the
Company processed approximately 1.9 million tons of recycled fiber. The Company
used approximately 1.25 million tons of OCC in its products in 1993. The Company
believes that the cost of OCC has risen from $55 per ton at June 30, 1993 to
$125 per ton as of June 30, 1994. While the Company has not experienced any
significant difficulty in obtaining wood fiber and recycled fiber in economic
proximity to its mills, there can be no assurances that this will continue to be
the case for any or all of its mills. In addition, there can be no assurance
that all or any part of increased fiber costs can be passed along to consumers
of the Company's products directly or in a timely manner.
14
<PAGE>
RECENT LOSSES; NET CASH USED IN OPERATING ACTIVITIES
Due principally to depressed product prices and significant interest costs
attributable to the Company's highly leveraged capital structure, the Company
incurred a net loss in the first half of 1994 and the previous three years. The
net loss for the second quarter of 1994 was $50.8 million, or $.58 per common
share, compared to the net loss of $71.6 million, or $1.03 per common share, for
the second quarter of 1993. For the first half of 1994, the loss was $129.7
million, or $1.55 per common share, before the extraordinary loss on the early
extinguishment of debt and the cumulative effect of a change in accounting for
post-employment benefits (SFAS 112).
Including the extraordinary loss and the cumulative effect of SFAS 112, the
Company reported a net loss of $160.7 million, or $1.92 per common share, for
the first six months of 1994.
For the first six months of 1993, the loss was $134.3 million, or $1.94 per
common share, before the cumulative effect of a change in accounting for
post-retirement benefits other than pensions (SFAS 106). The adoption of SFAS
106, effective January 1, 1993, resulted in a non-cash charge of $39.5 million
net of income taxes, or $.56 per common share, resulting in a net loss of $173.8
million, or $2.50 per common share, for the first six months of 1993.
The second-quarter and first-half losses were increased by significantly
higher costs of recycled fiber for the Company's North American paper mills.
Costs of OCC, the primary source of recycled fiber for containerboard, were
approximately $20 million higher in the second quarter 1994 compared to the
second quarter 1993, and approximately $18 million higher in the second quarter
1994 compared to the first quarter 1994.
Income from operations for the second quarter 1994 include a gain from an
involuntary conversion relating to a digester failure at the Company's Panama
City, Florida, pulp and paper mill. This gain, of $13.7 million after taxes,
reflects the expected net proceeds from the property damage claim in excess of
the carrying value of the assets destroyed or damaged.
For the year 1993, the Company incurred a loss (before the cumulative effect
of an accounting change) of $319.2 million, or $4.59 per common share, and
(after the cumulative effect of such change) a net loss of $358.7 million or
$5.15 per common share. For the year 1992, the loss (before the cumulative
effect of an accounting change), was $169.9 million, or $2.49 per common share
and (after the cumulative effect of such change) a net loss of $269.4 million or
$3.89 per common share.
Such net losses have significantly impaired the Company's liquidity and
available sources of liquidity. Net cash used in operating activities totalled
$114.2 million for the three months ended March 31, 1994 compared with $34.8
million for the same period in 1993 and totalled $213 million for the year ended
December 31, 1993, while net cash provided by operating activities totalled $86
million for the year ended December 31, 1992. See "Selected Consolidated
Financial Data."
Notwithstanding the improvements in the Company's liquidity and financial
flexibility which will result from the Offering and the execution and delivery
of the new Credit Agreement, unless the Company achieves price increases beyond
current levels, the Company will continue to incur net losses and will not
generate sufficient cash flows to meet fully the Company's debt service
requirements in the future. Without such price increases, the Company may
exhaust all or substantially all of its cash resources and borrowing
availability under the revolving credit facilities under the Credit Agreement.
In such event, the Company would be required to pursue other alternatives to
improve liquidity, including additional sales of assets, the deferral of certain
capital expenditures, obtaining additional sources of funds or liquidity or
pursuing the possible restructuring of its indebtedness. There can be no
assurance that such measures, if required, would generate the liquidity required
by the Company to operate its business and service its indebtedness. In order to
meet its amortization obligations, beginning in 1997 and continuing thereafter,
the Company will be required to raise sufficient funds from operations and/or
other sources and/or refinance or restructure maturing indebtedness. No
assurance can be given that the Company will be successful in doing so.
15
<PAGE>
CREDIT AGREEMENT RESTRICTIONS
All indebtedness under the Credit Agreement will be secured by a significant
portion of the assets of the Company. The Credit Agreement is expected to
contain covenants that include, among other things, requirements to maintain
certain financial tests and ratios (including an indebtedness ratio, a minimum
interest coverage ratio and a tangible net worth test) and certain restrictions
and limitations, including those on capital expenditures, changes in control,
payment of dividends, sales of assets, lease payments, investments, additional
borrowings, liens, repurchases or prepayment of certain indebtedness, guarantees
of indebtedness, mergers and purchases of stock and assets. The Credit Agreement
is also expected to contain cross-acceleration provisions to the non-recourse
debt of Stone-Consolidated, Seminole and Stone Venepal (Celgar) Pulp Inc.
("SVCP"), through which the Company indirectly owns a 25% interest in the Celgar
mill. Additionally, the term loan portion of the Credit Agreement will provide
for mandatory prepayments from sales of certain assets, certain debt financings
and excess cash flows. All mandatory and voluntary prepayments will be allocated
against the term loan amortizations in inverse order of maturity. Amortization
amounts under the term loan will be 0.5% of principal amount on each April 1 and
October 1 for the period from April 1, 1995 through April 1, 1999, 47.5% on
October 1, 1999 and 48.0% on April 1, 2000. In addition, mandatory prepayments
from sales of collateral pledged under the Credit Agreement (unless substitute
collateral has been provided) will be allocated pro rata between the term loan
and the revolving credit facility, and, to the extent applied to repay the
revolving credit facility, will permanently reduce loan commitments thereunder.
The Credit Agreement is expected to limit in certain specific circumstances
any further investments by the Company in Stone-Consolidated, Seminole and SVCP.
As of March 31, 1994, Seminole had $155.9 million in outstanding indebtedness
(including $118.0 million in secured indebtedness owed to bank lenders) and is
significantly leveraged. The Company had entered into an output purchase
agreement with Seminole which required the Company to purchase Seminole's
linerboard production at fixed prices until certain production levels are met
(which levels were met at June 3, 1994). The Company is required to purchase,
and Seminole is required to sell, all of Seminole's production of linerboard at
market prices for the remainder of the term of the agreement. Seminole, however,
is dependent on the adequate supply of OCC since it produces a 100% recycled
fiber product. Due to the recent increases in the cost of raw materials, in
addition to market prices that currently are lower than the fixed prices
previously paid pursuant to the output purchase agreement, Seminole may have to
seek waivers from its bank lenders with respect to compliance with certain
financial covenants at September 30, 1994. There can be no assurance that the
lenders will grant such waivers or that Seminole will not require additional
waivers in the future. Depending upon the level of market prices and the cost
and supply of OCC, Seminole may need to undertake additional measures to meet
its debt service requirements, including obtaining additional sources of
liquidity, postponing or restructuring debt service payments or refinancing the
indebtedness. In the event that such measures are required and not successful,
and such indebtedness is accelerated by the lenders to Seminole, the lenders to
the Company under the Credit Agreement and various other of its debt instruments
would be entitled to accelerate the indebtedness owed by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition and Liquidity."
There can be no assurance that the Company will be able to achieve and
maintain compliance with the prescribed financial ratio tests or other
requirements of the Credit Agreement. Failure to achieve or maintain compliance
with such financial ratio tests or other requirements under the Credit
Agreement, in the absence of a waiver or amendment, would result in an event of
default and could lead to the acceleration of the obligations under the Credit
Agreement. While the Company has successfully sought and received waivers and
amendments under its 1989 Credit Agreement on various occasions, if waivers or
amendments are requested by the Company under the Credit Agreement, there can be
no assurance that the new lenders under the Credit Agreement will grant such
requests. The failure to obtain any such waivers or amendments would reduce the
Company's flexibility to respond to adverse industry conditions and could have a
material adverse effect on the Company. See "Credit Agreement -- Covenants."
16
<PAGE>
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive environmental regulation
by federal, state and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations. The Company has in
the past made significant capital expenditures to comply with water, air and
solid and hazardous waste regulations and expects to make significant
expenditures in the future. Capital expenditures for environmental control
equipment and facilities were approximately $28 million in 1993 and the Company
anticipates that 1994 and 1995 environmental capital expenditures will
approximate $71 million and $96 million, respectively (not including any
expenditures required under the proposed "cluster rules" described below).
Included in these amounts are capital expenditures for Stone-Consolidated which
were approximately $5 million in 1993 and are anticipated to approximate $36
million in 1994 and $64 million in 1995. Although capital expenditures for
environmental control equipment and facilities and compliance costs in future
years will depend on legislative and technological developments which cannot be
predicted at this time, the Company anticipates that these costs will increase
when final "cluster rules" are adopted and as other environmental regulations
become more stringent.
In December 1993, the U.S. Environmental Protection Agency (the "EPA")
issued a proposed rule affecting the pulp and paper industry. These proposed
regulations, informally known as the "cluster rules," would make more stringent
requirements for discharge of wastewaters under the Clean Water Act and would
impose new requirements on air omissions under the Clean Air Act. Pulp and paper
manufacturers (including the Company) have submitted extensive comments to the
EPA on the proposed regulations in support of the position that requirements
under the proposed regulations are unnecessarily complex, burdensome and
environmentally unjustified. The EPA has indicated that it may reopen the
comment period on the proposed regulations in September 1994 to allow review and
comment on new data that the industry will submit to the agency on the
industry's air toxics emissions. It cannot be predicted at this time whether the
EPA will modify the requirements in the final regulations which are scheduled to
be issued in 1996, with compliance required within three years from such date.
The Company is considering and evaluating the potential impact of the rules, as
proposed, on its operations and capital expenditures over the next several
years. Preliminary estimates indicate that the Company could be required to make
capital expenditures of $350-$450 million during the period of 1996 through 1998
in order to meet the requirements of the rules, as proposed. In addition, annual
operating expenses would increase by as much as $20 million beginning in 1998.
In order to establish the estimated capital expenditure range referenced above,
the Company used assumptions least favorable to the Company among the possible
range of outcomes. The ultimate financial impact of the regulations cannot be
accurately estimated at this time but will be affected by several factors,
including the actual requirements imposed under the final rule, advancements in
control process technologies, possible reconfiguration of mills and inflation.
In addition, the Company is from time to time subject to litigation and
governmental proceedings regarding environmental matters in which injunctive
and/or monetary relief is sought. The Company has been named as a potentially
responsible party ("PRP") at a number of sites which are the subject of remedial
activity under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA" or "Superfund") or comparable state laws.
Although the Company is subject to joint and several liability imposed under
Superfund, at most of the multi-PRP sites there are organized groups of PRPs and
costs are being shared among PRPs. Future environmental regulations, including
the final "cluster rules," may have an unpredictable adverse effect on the
Company's operations and earnings, but they are not expected to adversely affect
the Company's competitive position. For further information, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition and Liquidity -- Environmental Issues."
RANKING
The First Mortgage Notes will be senior secured obligations of the Company
and the Senior Notes will be senior unsecured obligations of the Company. The
First Mortgage Notes and the Senior Notes will rank PARI PASSU in right of
payment with each other and with all existing and future Senior Indebtedness
17
<PAGE>
of the Company, including the indebtedness under the Credit Agreement and the
Company's $240 million principal amount of 11 7/8% Senior Notes due 1998, $150
million principal amount of 12 5/8% Senior Notes due 1998 and $710 million
principal amount of 9 7/8% Senior Notes due 2001. The payment of the principal
of, interest on and any other amounts due on Subordinated Indebtedness will be
subordinated in right of payment to the prior payment in full of the Notes. As
of June 30, 1994, the total amount of outstanding Senior Indebtedness was
approximately $2.3 billion (which amount does not reflect the effects of the
Offering or the Related Transactions).
Obligations of the Company's subsidiaries will represent prior claims with
respect to assets and earnings of such subsidiaries. Thus, the Notes will be
structurally subordinated to all current and future indebtedness of the
Company's subsidiaries, including trade payables.
A significant portion of the Company's assets will secure borrowings
outstanding under the Credit Agreement. See "Credit Agreement -- Security."
Likewise, the First Mortgage Notes are secured obligations of the Company. See
"Description of Notes -- Additional First Mortgage Note Indenture Definitions --
Collateral." In the event of the Company's insolvency or liquidation, the claims
of the lenders under the Credit Agreement would have to be satisfied out of the
collateral securing the Credit Agreement before any such assets would be
available to pay claims of holders of the Notes. Similarly, the holders of First
Mortgage Notes would have to be satisfied out of the Collateral under the First
Mortgage Note Indenture and Security Documents (as defined) before any such
assets would be available to pay claims of holders of the Senior Notes. If the
lenders under the Credit Agreement and/or the First Mortgage Note Trustee under
the First Mortgage Note Indenture and the Security Documents should foreclose on
their respective collateral, no assurance can be given that there will be
sufficient assets available in the Company to pay amounts due on the First
Mortgage Notes or the Senior Notes, respectively. See "Description of Notes --
Ranking."
Pursuant to the Company's receivables financing programs (excluding
Stone-Consolidated's program), at March 31, 1994, approximately $228.7 million
was outstanding under Stone Financial Corporation's and Stone Fin II Receivables
Corporation's revolving credit facilities. The Company is currently planning a
transaction to refinance these two existing receivables programs through Stone
Financial Corporation. The proposed refinancing transaction is contemplated to
approximate $300 million of receivables financing which would be scheduled to
mature in 1999. The proposed refinancing is subject to execution of definitive
documentation and the public offering of notes by Stone Financial Corporation to
provide funding for such receivables financing, and there can be no assurance
that it will be consummated.
FIRST MORTGAGE NOTE HOLDERS MAY RECEIVE
LESS THAN THEIR INVESTMENT UPON LIQUIDATION
The Collateral securing the First Mortgage Notes has an appraised value
estimated by to be in an amount equal to $ (approximately times
the principal amount of the First Mortgage Notes). However, no assurance can be
given that the proceeds of the sale of the Collateral would be sufficient to
repay all of the First Mortgage Notes. If such net proceeds were insufficient to
pay all amounts due on the First Mortgage Notes, then holders of the First
Mortgage Notes (to the extent that the proceeds of the sale of such Collateral
are insufficient to fully repay the First Mortgage Notes) would only have an
unsecured claim against any remaining unencumbered assets of the Company
(subject, in the case of subsidiaries of the Company, to the claims of holders
of indebtedness of each subsidiary). As a result, there is a risk that holders
of the First Mortgage Notes will receive less than their investment upon any
liquidation of the Company. See "Description of Notes -- Additional First
Mortgage Note Indenture Definitions -- Collateral."
FUTURE ACCESS TO THE CAPITAL MARKETS
Giving effect to the Offering, the Company will have sold debt securities on
a number of occasions since July 1993 for total proceeds of approximately $2
billion and in February 1994 sold equity securities
18
<PAGE>
for total proceeds of approximately $290 million. The recent issuance of a
substantial amount of securities may make it difficult, at least in the near
future, for the Company to access the capital markets for further financings and
therefore may limit the Company's sources for future liquidity.
LIMITED MARKET FOR NOTES
The Company will apply to list both the First Mortgage Notes and the Senior
Notes on the New York Stock Exchange. Nonetheless, it is likely that the First
Mortgage Notes and the Senior Notes will each have a limited trading market.
Certain of the Underwriters have indicated an intention initially to make a
market in the First Mortgage Notes and/or the Senior Notes as permitted by
applicable laws and regulations. No Underwriter, however, is obligated to make a
market in the First Mortgage Notes and/or the Senior Notes and any such market
making could be discontinued at any time at the sole discretion of such
Underwriter.
19
<PAGE>
COMPANY PROFILE
The following is the current profile of the Company's products, markets,
industry position, manufacturing facilities and 1993 production and shipment
figures:
<TABLE>
<CAPTION>
MANUFACTURING 1993 PRODUCTION &
MARKETS INDUSTRY POSITION FACILITIES SHIPMENTS
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
PAPERBOARD AND CONTAINERBOARD A broad range of Industry leader Production at 16 4.388 million
PAPER PACKAGING AND CORRUGATED manufacturers of mills short tons of
CONTAINERS consumable and containerboard
durable goods and Converting at 111 produced
other plants
manufacturers of 52.5 billion
corrugated square feet of
containers. corrugated
containers
shipped
KRAFT PAPER AND Supermarket Industry leader Production at 5 500 thousand
BAGS AND SACKS chains and other mills short tons of
retailers of kraft paper
consumable Converting at 18 produced
products. plants
Industrial and 613 thousand
consumer bags short tons of
sold to the food, paper bags and
agricultural, sacks shipped
chemical and
cement
industries, among
others.
BOXBOARD, FOLDING Manufacturers of A major position Production at 2 81 thousand short
CARTONS AND OTHER consumable goods, in Europe; a mills tons of boxboard
especially food, nominal position and other
beverage and in North America paperboard
tobacco products, produced
and other box Converting at 10
manufacturers. plants 92 thousand short
tons of folding
cartons and
partitions
shipped
WHITE PAPER AND NEWSPRINT Newspaper A major position Production at 5 1.312 million
PULP publishers and mills short tons
commercial produced
printers.
UNCOATED Producers of A major position Production at 2 461 thousand
GROUNDWOOD PAPER advertising mills short tons
materials, produced
magazines,
telephone
directories and
computer papers.
MARKET PULP Manufacturers of A major position Production at 6 733 thousand
paper products, mills short tons
including fine produced
papers,
photographic
papers, tissue
and newsprint.
WOOD PRODUCTS LUMBER, PLYWOOD Construction and A moderate Production at 17 581 million board
AND VENEER furniture position in North mills feet of lumber
industries. America produced
425 million
square feet of
plywood and
veneer produced
</TABLE>
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering, together with borrowings
under the Credit Agreement, will be used to (i) repay all of the outstanding
indebtedness under and terminate the 1989 Credit Agreement, (ii) repay all of
the outstanding indebtedness under and terminate the Stone Savannah Credit
Agreement and redeem the Stone Savannah Notes, (iii) purchase the 72,346
outstanding shares of Stone Savannah common stock not owned by the Company, (iv)
redeem the 425,243 outstanding shares of Stone Savannah Preferred not owned by
the Company, and (v) for general corporate purposes. Such net proceeds are
estimated to aggregate $ million.
The sources and uses of funds in connection with the Offering and the
Related Transactions are estimated to be as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Sources:
First Mortgage Notes......................................................... $
Senior Notes.................................................................
Credit Agreement
Term Loan..................................................................
Revolving Credit Facility(1)...............................................
-------------
Total:......................................................................... $
-------------
-------------
Uses:
Repayment of 1989 Credit Agreement borrowings................................ $
Repayment of Stone Savannah Credit Agreement borrowings......................
Redemption of Stone Savannah Notes...........................................
Repurchase of Stone Savannah Common Stock....................................
Redemption of Stone Savannah Preferred.......................................
General corporate purposes(2)................................................
-------------
Total:......................................................................... $
-------------
-------------
<FN>
- ------------------------
(1) Commitment of $400 million (of which borrowing availability will be reduced
by any letter of credit commitments, of which approximately $59 million
will be outstanding at closing, and less approximately $ million of
borrowings thereunder which will be drawn down as of closing).
(2) Includes payment of fees and expenses relating to the Credit Agreement,
which are estimated to total $ million and expenses relating to the
Offering (other than the Underwriters' discount) estimated to total $
million.
</TABLE>
The 1989 Credit Agreement, which will be fully repaid with the proceeds from
the Offering and borrowings under the Credit Agreement, consists of two term
loan facilities, an additional term loan (the "Additional Term Loan") and two
revolving credit facilities. The final scheduled amortization payment with
respect to the term loan facilities and the Additional Term Loan are each due
March 1, 1997 and each of the revolving credit facilities matures on March 1,
1997.
The term loans (other than the Additional Term Loan) and the revolving
credit facilities under the 1989 Credit Agreement had weighted average interest
rates for the first quarter of 1994 of 9.5% and 6.6%, respectively, and for the
year ended December 31, 1993 of 8.3% and 5.7%, respectively. The weighted
average interest rate on the Additional Term Loan was 6.5% for the first quarter
of 1994 and 6.3% for the year ended December 31, 1993.
The Stone Savannah Credit Agreement consists of a term loan (of which $258
million was outstanding as of March 31, 1994) and a revolving credit facility
(of which no amount was outstanding as of March 31, 1994). The term loan
requires quarterly amortization payments, and all outstanding loan amounts under
the Stone Savannah Credit Agreement are due on December 1, 1998. The weighted
average interest rate on the outstanding borrowings under the Stone Savannah
Credit Agreement were 6.7% and 8.4% for the first quarter of 1994 and for the
year ended December 31, 1993, respectively.
The Stone Savannah Notes bear interest at 14 1/8% and mature December 15,
2000.
21
<PAGE>
CAPITALIZATION
The following table sets forth a summary of the short-term debt and
capitalization of the Company, on a consolidated basis at March 31, 1994, and as
adjusted to give effect to the Offering and the application of the estimated net
proceeds therefrom, the application of borrowings under the Credit Agreement as
of closing and the other Related Transactions.
<TABLE>
<CAPTION>
MARCH 31, 1994
--------------------------
ACTUAL AS ADJUSTED
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Notes payable....................................................................... $ 0
Current maturities of senior and subordinated long-term debt........................ 16,978
Current maturities of debt of consolidated subsidiaries
(non-recourse to parent) (1)....................................................... 279,704
------------
Total short-term debt........................................................... $ 296,682
------------
------------
Long-term debt:
Senior debt:
1989 Credit Agreement (other than revolving credit facilities)...................... $ 659,372
Credit Agreement (other than revolving credit facilities)........................... --
Revolving credit facilities......................................................... 0
12 5/8% Senior Notes due July 15, 1998.............................................. 150,000
11 7/8% Senior Notes due December 1, 1998........................................... 238,941
9 7/8% Senior Notes due February 1, 2001............................................ 710,000
% First Mortgage Notes due ..................................... --
% Senior Notes due ............................................. --
4% - 11 5/8% fixed rate debt and other variable rate debt (including capitalized
lease obligations)................................................................. 295,904
Obligations under accounts receivable securitization programs....................... 228,700
Less: Current maturities.............................................................. (16,977)
------------
Total senior long-term debt......................................................... 2,265,940
------------
------------
Subordinated debt:
10 3/4% Senior Subordinated Notes due June 15, 1997................................. 150,000
11% Senior Subordinated Notes due August 15, 1999................................... 125,000
11 1/2% Senior Subordinated Notes due September 1, 1999............................. 230,000
10 3/4% Senior Subordinated Debentures due April 1, 2002............................ 199,128
8 7/8% Convertible Senior Subordinated Notes due July 15, 2000...................... 248,514
12 1/8% Subordinated Debentures due September 15, 2001.............................. 91,972
6 3/4% Convertible Subordinated Debentures due February 15, 2007.................... 115,000
Less: Current maturities.............................................................. 0
------------
Total subordinated long-term debt................................................... 1,159,614
------------
Debt of consolidated subsidiaries (non-recourse to parent)............................ 939,539
Less: Current maturities.............................................................. (279,705)
------------
Total long-term debt of consolidated subsidiaries (non-recourse to parent).......... 659,834
------------
Total long-term debt................................................................ 4,085,388
------------
Stockholders' equity:
$1.75 Series E Cumulative Convertible Exchangeable Preferred Stock (4,600,000
shares, $25 per share liquidation preference)...................................... 114,983
Common Stock........................................................................ 853,015
Accumulated deficit................................................................. (17,349)
Foreign currency translation adjustment............................................. (220,464)
Unamortized expense of restricted stock plan........................................ (6,655)
------------
Total stockholders' equity...................................................... 723,530
------------
Total capitalization............................................................ 4,808,918
------------
Total short-term debt and capitalization........................................ $ 5,105,600
------------
------------
<FN>
- --------------------------
(1) Includes approximately $258.2 million of indebtedness of Stone Savannah
which will be repaid at closing.
</TABLE>
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected Statement of Operations and Balance Sheet Data for
the five years ended December 31, 1993 has been derived from, and should be read
in conjunction with, the related audited consolidated financial statements and
accompanying notes of the Company. The audit report relating to the Company's
1993 consolidated financial statements contains an explanatory paragraph
referring to certain liquidity matters discussed in Notes 11 and 18 to the
Company's 1993 consolidated financial statements included elsewhere in this
Prospectus. The selected financial data for the three months ended March 31,
1994 and March 31, 1993 have been derived from the unaudited consolidated
financial statements for the quarters ended March 31, 1994 and 1993 included
elsewhere in this Prospectus. The summary financial data do not purport to be
indicative of the Company's future results of operations or financial position.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------------
1994 1993 1993 1992(A) 1991 1990
---------- ---------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
STATEMENT OF OPERATIONS DATA:
Net sales................... $1,290,844 $1,306,357 $5,059,579 $5,520,655 $5,384,291 $5,755,858
Cost of products sold....... 1,067,144 1,070,264 4,223,444 4,473,746 4,287,212(c) 4,421,930
Selling, general and
administrative expenses.... 133,540 136,071 512,174 543,519 522,780 495,499
Depreciation and
amortization............... 89,269 87,102 346,811 329,234(c) 273,534(c) 257,041
Income (loss) before
interest expense, income
taxes, minority interest,
extraordinary loss and
cumulative effects of
accounting changes......... (7,559) 13,227 (36,598) 162,107 385,113 615,736
Interest expense............ 113,512 102,230 426,726 386,122 397,357 421,667
Income (loss) before income
taxes, minority interest,
extraordinary loss and
cumulative effects of
accounting changes......... (121,071) (89,003) (463,324) (224,015) (12,244) 194,069
Extraordinary loss from
early extinguishment of
debt (net of income tax
benefit)................... (16,782) -- -- -- -- --
Cumulative effect of change
in accounting for
postemployment benefits
(net of income tax
benefit)................... (14,189) -- -- -- -- --
Cumulative effect of change
in accounting for
post-retirement benefits
(net of income tax
benefit)................... -- (39,544) (39,544) -- -- --
Cumulative effect of change
in accounting for income
taxes...................... -- -- -- (99,527) -- --
Net income (loss)........... (109,918) (102,259) (358,729) (269,437) (49,149) 95,420
Income (loss) per common
share before extraordinary
loss and cumulative effects
of accounting changes...... (.99) (.91) (4.59) (2.49)(d) (.78)(d) 1.56(d)
Net income (loss) per common
share...................... (1.37) (1.47) (5.15) (3.89)(d) (.78)(d) 1.56(d)
Ratio of earnings to fixed
charges.................... (e) (e) (e) (e) (e) 1.2
Dividends paid per common
share (d).................. -- -- -- $ 0.35 $ 0.71 $ 0.71
Average common shares
outstanding................ 81,482 71,121 71,163 70,987(d) 63,207(d) 61,257(d)
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............. $ 844,532 $ 220,916 $ 809,504 $ 756,964 $ 770,457 $ 439,502
Property, plant and
equipment -- net........... 3,295,312 3,613,559 3,386,395 3,703,248 3,520,178 3,364,005
Goodwill.................... 877,388 970,588 910,534 983,499 1,126,100 1,160,516
Total assets................ 6,705,808 7,021,407 6,836,661 7,026,973 6,902,852 6,689,989
Long-term debt.............. 4,085,388(f) 3,621,219(f) 4,268,277(f) 4,104,982(f) 4,046,379(f) 3,680,513(f)
Stockholders' equity........ 723,530 1,021,729 607,019 1,102,691 1,537,543 1,460,487
OTHER DATA:
Net cash provided by (used
in) operating activities... $ (114,215) $ (34,780) $ (212,685) $ 85,557 $ 210,498 $ 451,579(c)
Capital expenditures........ 17,690(g) 29,378(g) 149,739(g) 281,446(g) 430,131(g) 551,986(g)
Paperboard, paper and market
pulp:
Produced (thousand
tons).................... 1,979 1,866 7,475 7,517 7,365 7,447
Converted (thousand
tons).................... 1,085 1,087 4,354 4,373 4,228 4,241
Corrugated shipments
(billion sq. ft.).......... 12.9 12.9 52.48 51.67 49.18 47.16
Consolidated EBITDA (h)..... 81,710 100,329 310,213 491,341 658,647 872,777
<CAPTION>
1989(B)
--------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................... $5,329,716
Cost of products sold....... 3,893,842
Selling, general and
administrative expenses.... 474,438
Depreciation and
amortization............... 237,047
Income (loss) before
interest expense, income
taxes, minority interest,
extraordinary loss and
cumulative effects of
accounting changes......... 826,542
Interest expense............ 344,693
Income (loss) before income
taxes, minority interest,
extraordinary loss and
cumulative effects of
accounting changes......... 481,849
Extraordinary loss from
early extinguishment of
debt (net of income tax
benefit)................... --
Cumulative effect of change
in accounting for
postemployment benefits
(net of income tax
benefit)................... --
Cumulative effect of change
in accounting for
post-retirement benefits
(net of income tax
benefit)................... --
Cumulative effect of change
in accounting for income
taxes...................... --
Net income (loss)........... 285,828
Income (loss) per common
share before extraordinary
loss and cumulative effects
of accounting changes...... 4.67(d)
Net income (loss) per common
share...................... 4.67(d)
Ratio of earnings to fixed
charges.................... 2.0
Dividends paid per common
share (d).................. $ 0.70
Average common shares
outstanding................ 61,223(d)
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............. $ 614,433
Property, plant and
equipment -- net........... 2,977,860
Goodwill.................... 1,089,817
Total assets................ 6,253,708
Long-term debt.............. 3,536,911(f)
Stockholders' equity........ 1,347,624
OTHER DATA:
Net cash provided by (used
in) operating activities... $ 315,196(c)
Capital expenditures........ 501,723(g)
Paperboard, paper and market
pulp:
Produced (thousand
tons).................... 6,772
Converted (thousand
tons).................... 3,930
Corrugated shipments
(billion sq. ft.).......... 41.56
Consolidated EBITDA (h)..... 1,063,589
<FN>
- ----------------------------------
(a) Restated to reflect the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" retroactive to January 1,
1992.
(b) The Company acquired Stone Canada in 1989.
(c) Adjusted to conform with the current financial statement presentation.
(d) Amounts per common share and average common shares outstanding have been
adjusted to reflect a 2% Common Stock dividend issued September 15, 1992.
(e) The Company's earnings for the three months ended March 31, 1994 and 1993
and the years ended December 31, 1993, 1992 and 1991 were insufficient to
cover fixed charges by $119.3 million and $91.9 million and $466.5 million,
$270.1 million and $94.6 million, respectively.
(f) Includes approximately $659.8 million and $562.0 million as of March 31,
1994 and 1993, respectively, and $672.6 million, $574.8 million, $563.5
million, $458.2 million and $267.2 million as of December 31, 1993, 1992,
1991 and 1990 and 1989, respectively, of long-term debt of certain
consolidated subsidiaries that is non-recourse to the parent.
(g) Includes approximately $4.0 million and $3.0 million for the three months
ended March 31, 1994 and 1993, respectively, and $14.6 million, $79.1
million, $219.8 million, $245.2 million and $36.8 million for 1993, 1992,
1991, 1990 and 1989, respectively, of expenditures financed through project
financings.
(h) "Consolidated EBITDA" means earnings before interest, taxes, depreciation
and amortization. Consolidated EBITDA is not intended to represent cash
flow or any other measure of performance in accordance with GAAP. The
Consolidated EBITDA presented herein is different than the EBITDA
definition that will be in the Company's Credit Agreement. In calculating
EBITDA for purposes of the Credit Agreement, the net income or net loss of
Seminole and Stone-Consolidated will not be included except to the extent,
if any, such subsidiaries pay dividends to the Company. See "Credit
Agreement."
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
audited consolidated financial statements of the Company and the notes thereto
included elsewhere in this Prospectus.
GENERAL
The Company's major products are containerboard and corrugated containers,
newsprint and market pulp. The markets for these products are highly competitive
and sensitive to changes in industry capacity and cyclical changes in the
economy, both of which can significantly impact selling prices and the Company's
profitability. From 1990 through the third quarter of 1993, the Company
experienced substantial declines in the pricing of most of its products. Since
October 1993, however, market conditions have improved, permitting the Company
to implement price increases for most of its products. Notwithstanding these
increases, prices remain below the historical high prices which were achieved
during the peak of the last industry cycle, particularly prices for newsprint
and market pulp. While product prices have increased since October 1993, the
Company's production costs (including labor, fiber and energy), as well as its
interest expense, have increased since the last pricing peak in the industry,
increasing pressure on the Company's net margins on its products. In recent
years, price changes have had a greater impact on the Company's sales and
profitability than changes in sales volume. The Company believes that near term
market conditions may permit the Company to realize further improved product
pricing for most of its product lines. However, there is no assurance any such
price increases will be achieved or that current prices can be maintained. See
"Financial Condition and Liquidity -- Outlook."
Due principally to depressed product prices and significant interest costs
attributable to its highly leveraged capital structure, the Company incurred net
losses in each of the last three years and for the first half of 1994. Such net
losses have significantly impaired the Company's liquidity and available sources
of liquidity and will continue to adversely affect the Company. Unless the
Company achieves price increases beyond current levels, the Company will
continue to incur net losses and will not generate sufficient cash flows to meet
fully the Company's debt service requirements in the future. In 1993, Management
adopted a financial plan designed to enhance the Company's liquidity and
increase its financial flexibility by prepaying amortization requirements under
certain bank credit agreements of the Company and Stone Container (Canada) Inc.
("Stone Canada"). See "Financial Condition and Liquidity" for further details.
24
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1993
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------
1994 1993
------------------------ ------------------------
PERCENT OF PERCENT OF
(DOLLARS IN MILLIONS) AMOUNT NET SALES AMOUNT NET SALES
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Net sales.......................................................... $ 1,290.8 100.0% $ 1,306.3 100.0%
Cost of products sold.............................................. 1,067.1 82.7 1,070.3 82.0
Selling, general and administrative expenses....................... 133.5 10.3 136.0 10.4
Depreciation and amortization...................................... 89.3 6.9 87.1 6.6
Equity loss from affiliates........................................ 4.2 .3 1.8 .1
Other operating (income) expense-net............................... (4.9) (.3) .6 .1
--------- ----- --------- -----
Income from operations............................................. 1.6 .1 10.5 .8
Interest expense................................................... (113.5) (8.8) (102.2) (7.8)
Other, net......................................................... (9.2) (.7) 2.8 .2
--------- ----- --------- -----
Loss before income taxes, minority interest, extraordinary loss and
cumulative effects of accounting changes.......................... (121.1) (9.4) (88.9) (6.8)
Credit for income taxes............................................ (40.0) (3.1) (26.8) (2.1)
Minority interest.................................................. 2.2 .2 (.6) (.1)
--------- ----- --------- -----
Loss before extraordinary loss and cumulative effects of accounting
changes........................................................... (78.9) (6.1) (62.7) (4.8)
Extraordinary loss from early extinguishment of debt (net of $9.8
income tax benefit)............................................... (16.8) (1.3) -- --
Cumulative effect of change in accounting for postemployment
benefits (net of $9.5 income tax benefit)......................... (14.2) (1.1) -- --
Cumulative effect of change in accounting for postretirement
benefits (net of $23.3 income tax benefit)........................ -- -- (39.5) (3.0)
--------- ----- --------- -----
Net loss........................................................... $ (109.9) (8.5) $ (102.2) (7.8)
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
The first quarter 1994 loss before the extraordinary loss from the early
extinguishment of debt and the cumulative effect of a change in the accounting
for postemployment benefits ("SFAS 112") was $78.9 million, or $.99 per share of
common stock. The Company recorded an extraordinary loss from the early
extinguishment of debt of $16.8 million, net of income tax benefit, or $.21 per
share of common stock and a one-time, non-cash cumulative effect charge of $14.2
million, net of income tax benefit, or $.17 per share of common stock from the
adoption of SFAS 112, resulting in a net loss for the 1994 first quarter of
$109.9 million, or $1.37 per share of common stock.
The first quarter 1993 loss before the cumulative effect of a change in the
accounting for postretirement benefits other than pensions was $62.7 million, or
$.91 per share of common stock. The adoption of Statement of Financial
Accounting Standards No. 106 "Accounting for Postretirement Benefits Other than
Pensions" ("SFAS 106"), resulted in a one-time, non-cash cumulative effect
charge of $39.5 million, net of income tax benefit, or $.56 per share of common
stock, resulting in a net loss of $102.2 million or $1.47 per share of common
stock for the first quarter of 1993.
The increase in the loss before the extraordinary loss and the cumulative
effects of accounting changes primarily resulted from low average selling prices
for most of the Company's products, a $13.7 million increase in foreign currency
transaction losses and an increase in interest expense, partially offset by an
increase in the credit for income taxes.
PAPERBOARD AND PAPER PACKAGING:
Net sales for the three months ended March 31, 1994 for the paperboard and
paper packaging segment decreased 2.0% from the prior year period. This decrease
was due in part to the exclusion of sales for the Company's European folding
carton operations which in the early part of 1993 was merged into a joint
venture and accordingly is now accounted for under the equity method of
accounting. Sales from these operations for the first quarter of 1993 were
approximately $44 million. Excluding the effect of the folding carton
operations, sales for the first quarter of 1994 increased 2.7% over the prior
year period reflecting increased sales of paperboard and corrugated containers
which more than offset a sales
25
<PAGE>
decline for paper bags and sacks. The sales increases for paperboard and
corrugated containers reflect higher sales volume which more than offset lower
average selling prices for the first quarter of 1994 compared to the first
quarter of 1993. The sales decrease for paper bags and sacks was primarily
attributable to lower average selling prices which offset an increase in
industrial bag sales volume. Kraft paper sales were virtually unchanged from the
prior year period.
Shipments of corrugated containers, including the Company's proportional
share of the shipments by its foreign affiliates, were 12.9 billion square feet
in each of the first quarter of 1994 and 1993. The 1993 shipments include 49% of
the shipments by its previously owned non-consolidated affiliate Empaques de
Carton Titan, S.A. ("Titan"). The Company sold its 49% equity interest in Titan
in December 1993. On a pro forma basis, adjusted to exclude shipments from
Titan, the Company's shipments of corrugated containers for the first three
months of 1994 increased 482 million square feet, or 3.9%, over the first
quarter of 1993. Shipments of paper bags and sacks were 159 thousand tons for
the three month periods ended March 31, 1994 and 1993.
Production of containerboard and kraft paper for the three months ended
March 31, 1994, including 100% of the production at Seminole and Stone Savannah,
was 1.29 million tons compared to 1.21 million tons produced during the first
quarter of 1993. On a pro forma basis, adjusted to exclude the proportional
share of the 1993 production of Titan, production of containerboard and kraft
paper for the first quarter of 1994 increased 98 thousand tons, or 8.2%, over
the first three months of 1993.
Operating income for the paperboard and paper packaging segment decreased
15.9% for the three months ended March 31, 1994 as compared to the corresponding
1993 period. The decrease was mainly attributable to reduced operating margins
primarily resulting from low average selling prices for the Company's paperboard
and paper packaging products.
WHITE PAPER AND PULP:
First quarter 1994 net sales for the white paper and pulp segment increased
2.6% as compared to the prior year period, primarily due to a significant
increase in market pulp sales. The sales increase for market pulp was due
primarily to increased sales volume. Higher average selling prices also
contributed to the increased market pulp sales. Increased sales of newsprint for
the first quarter of 1994 over the prior year period, primarily resulting from
volume increases, were substantially offset by reduced sales of uncoated
groundwood paper. The sales decrease for uncoated groundwood paper primarily
resulted from lower sales volume.
Production of newsprint, market pulp and uncoated groundwood paper for the
three months ended March 31, 1994, including 100% of the production at
Stone-Consolidated and 25% of the production at the Company's affiliated market
pulp mill in British Columbia, was 667 thousand tons compared with 638 thousands
tons produced during the comparable prior year period.
Operating losses for the white paper and pulp segment decreased 12.5% in the
first quarter of 1994 from the corresponding 1993 period. This decrease is
mainly attributable to improved operating margins primarily resulting from the
higher average selling prices for market pulp.
OTHER:
Net sales and operating income for the other segment decreased in the first
quarter of 1994 from the comparable prior year period as lower sales volume for
the Company's U.S. lumber and wood products more than offset both increased
sales volume and selling prices for the Company's Canadian lumber and wood
products. Shortages of timber available to be harvested due to environmental
concerns in the Pacific Northwest continue to keep raw material costs high for
this segment.
26
<PAGE>
Comparative Results of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1993 1992 1991
------------------------ ------------------------ ------------------------
PERCENT PERCENT PERCENT
OF NET OF NET OF NET
AMOUNT SALES AMOUNT SALES AMOUNT SALES
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................................ $ 5,060 100.0% $ 5,521 100.0% $ 5,384 100.0%
Cost of products sold................................ 4,223 83.5 4,474 81.0 4,287 79.6
Selling, general and administrative expenses......... 512 10.1 544 9.9 523 9.7
Depreciation and amortization........................ 347 6.9 329 6.0 273 5.1
Equity (income) loss from affiliates................. 12 .2 5 .1 (1)
Other net operating (income) expense................. 5 .1 13 .2 (63) (1.2)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations........................ (39) (.8) 156 2.8 365 6.8
Interest expense..................................... (427) (8.4) (386) (6.9) (397) (7.4)
Other, net........................................... (1) -- 1 -- 14 .3
----------- ----------- ----------- ----------- ----------- -----------
Loss before income taxes and cumulative effects of
accounting changes.................................. (467) (9.2) (229) (4.1) (18) (.3)
Provision (credit) for income taxes.................. (148) (2.9) (59) (1.0) 31 .6
----------- ----------- ----------- ----------- ----------- -----------
Loss before cumulative effects of accounting
changes............................................. (319) (6.3) (170) (3.1) (49) (.9)
Cumulative effect of change in accounting for
postretirement benefits............................. (40) (.8) -- -- -- --
Cumulative effect of change in accounting for income
taxes............................................... -- -- (99) (1.8) -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss............................................. $ (359) (7.1) $ (269) (4.9) $ (49) (.9)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
YEAR ENDED DECEMBER 31, 1993 COMPARED WITH YEAR ENDED DECEMBER 31, 1992
Net sales for 1993 were $5.1 billion, a decrease of 8.4% from 1992 net sales
of $5.5 billion. Net sales decreased as a result of both reduced sales volume
and lower average selling prices for most of the Company's products. In 1993,
the Company incurred a loss before the cumulative effect of a change in the
accounting for postretirement benefits other than pensions of $319 million, or
$4.59 per common share. The Company adopted SFAS 106 effective January 1, 1993,
and recorded a one-time, non-cash cumulative effect charge of $39.5 million net
of income taxes or $.56 per common share, resulting in a net loss of $359
million or $5.15 per common share. In 1992, the Company incurred a loss before
the cumulative effect of a change in the accounting for income taxes of $170
million, or $2.49 per common share. The adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"),
effective January 1, 1992, required a one-time, non-cash cumulative effect
charge of $99.5 million, or $1.40 per common share, resulting in a net loss of
$269 million or $3.89 per common share. The increase in the loss before the
cumulative effects of accounting changes primarily resulted from lower average
selling prices for most of the Company's products.
The 1993 results included a $35.4 million pretax gain from the sale of the
Company's 49% equity interest in Titan and the favorable effect of a reduction
in an accrual relating to a change in the Company's vacation pay policy. The
earnings impact of these non-recurring items was partially offset by the
writedown of the carrying values of certain Company assets. The 1993 results
also reflect both an increase in interest expense, primarily associated with a
reduction in capitalized interest caused by completion of capital projects, and
foreign currency transaction losses of $11.8 million. The 1992 results included
foreign currency transaction losses of $15.0 million and an $8.8 million pretax
charge relating to the writedown of investments. The Company recorded an income
tax benefit of $147.7 million in 1993 as compared with an income tax benefit of
$59.4 million in 1992. The increase in the income tax benefit primarily reflects
the tax effect associated with the increased pretax loss for 1993 over 1992.
Additionally, deferred income taxes were provided for the retroactive increase
in the U.S. federal income tax rate, which was more than offset by the effects
of an enacted decrease in German and Canadian income tax rates. The Company's
effective income tax rates for both years reflect the impact of non-deductible
depreciation and amortization.
27
<PAGE>
Segment Data
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1993 1992
------------------------------ ------------------------------
INCOME (LOSS) INCOME (LOSS)
BEFORE INCOME BEFORE INCOME 1991
TAXES AND TAXES AND -----------
CUMULATIVE EFFECT CUMULATIVE EFFECT
OF AN ACCOUNTING OF AN ACCOUNTING
NET SALES CHANGE NET SALES CHANGE NET SALES
----------- ----------------- ----------- ----------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Paperboard and paper packaging.......... $ 3,810 $ 206 $ 4,186 $ 322 $ 4,038
White paper and pulp.................... 965 (194) 1,078 (87) 1,116
Other................................... 331 37 303 12 275
Intersegment............................ (46) -- (46) -- (45)
----------- ------ ----------- ------ -----------
5,060 49 5,521 247 5,384
Interest expense........................ (427) (386)
Foreign currency transaction gains
(losses)............................... (12) (15)
General corporate and miscellaneous
(net).................................. (77) (75)
----------- ------ ----------- ------ -----------
Total............................... $ 5,060 $ (467) $ 5,521 $ (229) $ 5,384
----------- ------ ----------- ------ -----------
----------- ------ ----------- ------ -----------
<CAPTION>
INCOME (LOSS)
BEFORE INCOME
TAXES
-----------------
<S> <C>
Paperboard and paper packaging.......... $ 356
White paper and pulp.................... 84
Other................................... (6)
Intersegment............................ --
------
434
Interest expense........................ (398)
Foreign currency transaction gains
(losses)............................... 5
General corporate and miscellaneous
(net).................................. (59)
------
Total............................... $ (18)
------
------
</TABLE>
Segment and Product Line Sales Data
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
NET SALES -----------------------------------------
-------------------------------
1993 VS 1992
YEAR ENDED DECEMBER 31, -------------------------- 1992 VS 1991
------------------------------- SALES -------------
1993 1992 1991 REVENUE SALES VOLUME SALES REVENUE
--------- --------- --------- ------------ ------------ -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Paperboard and paper packaging:
Corrugated containers........................ $ 2,155 $ 2,234 $ 2,094 (3.5)% 1.4% 6.7%
Paperboard and kraft paper................... 901 1,032 996 (12.7) (5.1) 3.6
Paper bags and sacks......................... 579 634 677 (8.7) (11.0) (6.4)
Folding cartons.............................. 60 178 166 (66.3) nm 7.2
Other........................................ 115 108 105 6.5 nm 2.9
--------- --------- ---------
Total paperboard and paper packaging..... 3,810 4,186 4,038 (9.0) nm 3.7
--------- --------- ---------
White paper and pulp:
Newsprint.................................... 527 538 660 (2.0) .8 (18.5 )
Market pulp.................................. 187 312 229 (40.0) (8.4 ) 36.2
Groundwood paper............................. 243 219 227 11.0 19.4 (3.5 )
Other........................................ 8 9 -- (11.1) nm nm
--------- --------- ---------
Total white paper and pulp............... 965 1,078 1,116 (10.5) nm (3.4 )
--------- --------- ---------
Other.......................................... 331 303 275 9.2 nm 10.2
Intersegment................................... (46) (46) (45) -- nm 2.2
--------- --------- ---------
Total net sales.......................... $ 5,060 $ 5,521 $ 5,384 (8.4) nm 2.5
--------- --------- ---------
--------- --------- ---------
<CAPTION>
SALES VOLUME
------------
<S> <C>
Paperboard and paper packaging:
Corrugated containers........................ 4.1%
Paperboard and kraft paper................... 1.3
Paper bags and sacks......................... (6.3)
Folding cartons.............................. .1
Other........................................ nm
Total paperboard and paper packaging..... nm
White paper and pulp:
Newsprint.................................... (2.5 )
Market pulp.................................. 30.3
Groundwood paper............................. 9.8
Other........................................ nm
Total white paper and pulp............... nm
Other.......................................... nm
Intersegment................................... nm
Total net sales.......................... nm
<FN>
- ------------------------------
nm = not meaningful
</TABLE>
PAPERBOARD AND PAPER PACKAGING:
The 1993 net sales for the paperboard and paper packaging segment decreased
9.0% compared to 1992. This decrease was due in part to the exclusion of sales
for the Company's European folding carton operations which in the early part of
1993 were merged into a joint venture and accordingly are now accounted for
under the equity method of accounting. Sales from these operations were
approximately $178 million in 1992. Sales for 1993 were approximately $60
million prior to the merger in May 1993. Excluding the effect of the folding
carton operations, 1993 net sales for the paperboard and paper packaging segment
decreased 6.4%.
28
<PAGE>
Net sales of corrugated containers decreased 3.5% from 1992 primarily due to
lower average selling prices in 1993 which more than offset a slight increase in
sales volume. Net sales of paperboard decreased 11.9% from 1992 as a result of
significantly lower average selling prices and declines in sales volume. Net
sales of kraft paper decreased 28.0% from 1992, primarily due to reduced sales
volume.
Net sales for paper bags and sacks decreased from 1992 primarily due to
lower sales volume and a decrease in average selling prices for retail paper
bags which more than offset a modest increase in average selling prices for
industrial paper bags.
Operating income for the paperboard and paper packaging segment for 1993
decreased 35.9% from 1992 due to significantly lower operating margins,
primarily resulting from the lower average selling prices for corrugated
containers and containerboard. Operating income for this segment includes the
previously mentioned $35.4 million pretax gain from the sale of Titan and a
favorable effect of a reduction in an accrual resulting from a change in the
Company's vacation policy. The earnings impact from these non-recurring items
was partially offset by the writedowns of the carrying values of certain Company
assets.
WHITE PAPER AND PULP:
The 1993 net sales for the white paper and pulp segment decreased 10.5%, as
a significant sales decline for market pulp more than offset a sales increase
for uncoated groundwood paper. The sales decline for market pulp was primarily
attributable to significantly lower average selling prices which deteriorated
further in 1993 from the low average selling prices of 1992. Reduced sales
volume in 1993 also contributed to the lower market pulp sales. Newsprint sales
declined slightly in 1993 compared to 1992, primarily as a result of unfavorable
foreign exchange translation effects attributable to the stronger U.S. dollar,
which more than offset the benefits of higher average selling prices and a
slight volume increase. Net sales for groundwood paper increased 11%, primarily
as a result of significant volume increases which more than offset the effects
of slightly lower average selling prices.
The operating loss for the white paper and pulp segment for 1993 increased
significantly over 1992 due to reduced operating margins primarily resulting
from the significantly lower average selling prices for market pulp. Slightly
lower average selling prices for groundwood paper also contributed to the
reduced earnings, although to a much lesser extent. While average selling prices
for newsprint in 1993 improved over the depressed levels of 1992, (although such
prices declined in the fourth quarter of 1993 and in the first quarter of 1994),
and certain cost reductions have been implemented, the margins associated with
such improvements have only partially offset the effects of the lower average
selling prices for market pulp and groundwood paper.
OTHER:
Net sales and operating income for the other segment increased over 1992
mainly due to improved demand and a reduced supply of timber available to the
U.S. building industry. This resulted in increased sales volume and the
realization of higher average selling prices for certain of the Company's lumber
and wood products. However, shortages of timber available to be harvested due to
environmental concerns in the Pacific Northwest continue to keep raw material
costs high.
YEAR ENDED DECEMBER 31, 1992 COMPARED WITH YEAR ENDED DECEMBER 31, 1991
Net sales for 1992 were $5.5 billion, an increase of 2.5% over 1991 net
sales of $5.4 billion. Net sales rose primarily as a result of increased sales
volume, most of which was offset by reduced average selling prices for certain
of the Company's products. In 1992, the Company incurred a loss before the
cumulative effect of a change in accounting for income taxes of $170 million, or
$2.49 per common share, compared to a loss of $49 million, or $.78 per common
share in 1991. The Company adopted SFAS 109, effective January 1, 1992, and
recorded a one-time, non-cash cumulative effect charge of $99.5 million or $1.40
per common share. All per share amounts have been adjusted to reflect a 2%
common stock dividend issued September 15, 1992. The increase in the loss before
the cumulative effect of a change in
29
<PAGE>
accounting for income taxes primarily resulted from lower average selling prices
for newsprint and groundwood paper in 1992 as compared with 1991. Additionally,
continued low average selling prices for the majority of the Company's other
products contributed to the net loss for 1992.
The 1992 results include foreign currency transaction losses of $15.0
million and an $8.8 million pretax charge relating to the writedown of
investments. The 1991 results included non-recurring pretax gains of $59.3
million and foreign currency transaction gains of $4.9 million. The Company
recorded an income tax benefit of $59.4 million in 1992 as compared with a $31.1
million income tax expense in 1991. This change primarily reflects the tax
effect associated with the increased pretax loss for 1992 over 1991. The
Company's effective income tax rates for both years reflect the impact of
non-deductible depreciation and amortization, together with taxes payable by
certain foreign subsidiaries at rates in excess of the U.S. statutory rate.
PAPERBOARD AND PAPER PACKAGING:
The 1992 net sales for the paperboard and paper packaging segment increased
3.7% as sales increases for corrugated containers, paperboard and folding
cartons more than offset sales declines for kraft paper and paper bags and
sacks.
Net sales of corrugated containers increased 6.7% over 1991, primarily as a
result of increased sales volume. Additionally, slightly higher average selling
prices in 1992 contributed to this increase. However, such selling prices
continued to remain at unsatisfactory levels.
Net sales of paperboard increased over 1991 mainly as a result of modestly
higher average selling prices. Such 1992 average paperboard selling prices were
still, however, at unsatisfactory levels. Slight volume increases also
contributed to the improved paperboard sales for 1992. Net sales of kraft paper
decreased 9.3% from 1991, primarily due to reduced sales volume.
Net sales of paper bags and sacks decreased from 1991 primarily due to lower
sales volume and a decrease in average selling prices for retail paper bags.
Operating income for the paperboard and paper packaging segment for 1992
decreased 9.5%, primarily as a result of the inclusion, in 1991, of a
non-recurring pretax gain of $17.5 million from an involuntary conversion
relating to a boiler explosion at the Company's Missoula, Montana linerboard
mill. Excluding this 1991 non-recurring item, 1992 operating income for this
segment would have decreased by 4.8%. This decrease is mainly attributable to
reduced operating margins resulting from continued low average selling prices
for the Company's paperboard and paper packaging products.
WHITE PAPER AND PULP:
The 1992 net sales for the white paper and pulp segment decreased 3.4%, as
significant sales decreases for newsprint more than offset a significant sales
increase for market pulp. The significant decrease in newsprint sales resulted
primarily from lower average selling prices. Additionally, reduced volume
associated with market-related downtime contributed to the lower sales of
newsprint. Net sales for groundwood paper decreased slightly as lower average
selling prices more than offset volume increases for this product. The increase
in 1992 market pulp sales mainly resulted from volume increases associated with
sales generated from the Stone Savannah mill, which commenced market pulp
operations in the fourth quarter of 1991. Furthermore, while market pulp selling
prices declined significantly in the fourth quarter of 1992, the Company
realized modestly higher average selling prices for this product in 1992, as
compared with the even more depressed average selling prices of 1991.
Operating income for the white paper and pulp segment for 1992 decreased
significantly from 1991, primarily due to reduced operating margins resulting
from the significantly lower average selling prices for newsprint and groundwood
paper. The 1991 results included a non-recurring pretax gain of $41.8 million
resulting from the settlement and termination of a Canadian supply contract.
OTHER:
Net sales and operating income for the other segment increased over 1991
mainly due to improved demand and a tighter supply of timber available to the
U.S. building industry. This resulted in increased
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<PAGE>
sales volume and the realization of higher average selling prices for certain of
the Company's lumber and wood products. However, shortages of timber due to
environmental concerns in the Pacific Northwest continued to keep raw material
costs high.
FINANCIAL CONDITION AND LIQUIDITY
The Company's working capital ratio was 1.9 to 1 at March 31, 1994 and at
December 31, 1993 and 1.8 to 1 at December 31, 1992. The Company's long-term
debt to total capitalization ratio was 74.6% at March 31, 1994, 75.9% at
December 31, 1993 and 69.2% at December 31, 1992. Capitalization, for purposes
of this ratio, includes long-term debt (which includes debt of certain
consolidated affiliates which is non-recourse to the Company), deferred income
taxes, redeemable preferred stock, minority interest and stockholders' equity.
The Company's primary capital requirements consist of debt service and
capital expenditures, including capital investment for compliance with certain
environmental legislation requirements and ongoing maintenance expenditures and
improvements. After giving effect to the Offering and the Related Transactions,
the Company will continue to be highly leveraged. Other than the 1995 maturities
of Stone Financial Corporation and Stone Fin II Receivables Corporation (which
the Company currently plans to refinance), there will be no significant debt
amortization obligations until June 1997. However, the Company will continue to
incur substantial ongoing interest expense. The Company spent $149.7 million on
capital expenditures in 1993 and expects to spend approximately $190 million in
1994.
The Company intends to repay its outstanding indebtedness under and
terminate the 1989 Credit Agreement with the net proceeds of this Offering and
borrowings under the Credit Agreement. The Credit Agreement will consist of a
$250 million term loan and a revolving credit facility under which $400 million
(of which borrowing availability will be reduced by any letter of credit
commitments, of which approximately $59 million will be outstanding at closing,
and less approximately $ million of borrowings thereunder which will be drawn
down as of closing) will be available at closing. All indebtedness under the
Credit Agreement will be secured by a significant portion of the assets of the
Company. The Credit Agreement is expected to contain covenants that include,
among other things, requirements to maintain certain financial tests and ratios
(including an indebtedness ratio, a minimum interest coverage ratio and a
tangible net worth test) and certain restrictions and limitations, including
those on capital expenditures, changes in control, payment of dividends, sales
of assets, lease payments, investments, additional borrowings, liens,
repurchases or prepayment of certain indebtedness, guarantees of indebtedness,
mergers and purchases of stock and assets. The Credit Agreement is also expected
to contain cross-acceleration provisions to the non-recourse debt of
Stone-Consolidated, Seminole and SVCP. Additionally, the term loan portion of
the Credit Agreement will provide for mandatory prepayments from sales of
certain assets, certain debt financings and excess cash flows. All mandatory and
voluntary prepayments will be allocated against the term loan amortizations in
inverse order of maturity. Amortization amounts under the term loan will be 0.5%
of principal amount on each April 1 and October 1 for the period from April 1,
1995 through April 1, 1999, 47.5% on October 1, 1999 and 48.0% on April 1, 2000.
In addition, mandatory prepayments from sales of collateral pledged under the
Credit Agreement (unless substitute collateral has been provided) will be
allocated pro rata between the term loan and the revolving credit facility, and,
to the extent applied to repay the revolving credit facility, will permanently
reduce loan commitments thereunder.
The Credit Agreement is expected to limit in certain specific circumstances
any further investments by the Company in Stone-Consolidated, Seminole and SVCP.
As of March 31, 1994, Seminole had $155.9 million in outstanding indebtedness
(including $118.0 million in secured indebtedness owed to bank lenders) and is
significantly leveraged. The Company had entered into an output purchase
agreement with Seminole which required the Company to purchase Seminole's
linerboard production at fixed prices until certain production levels are met
(which levels were met at June 3, 1994). The Company is required to purchase,
and Seminole is required to sell, all of Seminole's production of linerboard at
market prices for the remainder of the term of the agreement. Seminole, however,
is dependent on the adequate supply of OCC since it produces a 100% recycled
fiber product. Due to the recent increases in
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<PAGE>
the cost of raw materials, in addition to market prices that currently are lower
than the fixed prices previously paid pursuant to the output purchase agreement,
Seminole may have to seek waivers from its bank lenders with respect to
compliance with certain financial covenants at September 30, 1994. There can be
no assurance that the lenders will grant such waivers or that Seminole will not
require additional waivers in the future. Depending upon the level of market
prices and the cost and supply of OCC, Seminole may need to undertake additional
measures to meet its debt service requirements, including obtaining additional
sources of liquidity, postponing or restructuring debt service payments or
refinancing the indebtedness. In the event that such measures are required and
not successful, and such indebtedness is accelerated by the lenders to Seminole,
the lenders to the Company under the Credit Agreement and various other of its
debt instruments would be entitled to accelerate the indebtedness owed by the
Company.
There can be no assurance that the Company will be able to achieve and
maintain compliance with the prescribed financial ratio tests or other
requirements of the Credit Agreement. Failure to achieve or maintain compliance
with such financial ratio tests or other requirements under the Credit
Agreement, in the absence of a waiver or amendment, would result in an event of
default and could lead to the acceleration of the obligations under the Credit
Agreement. While the Company has successfully sought and received waivers and
amendments under its 1989 Credit Agreement on various occasions, if waivers or
amendments are requested by the Company under the Credit Agreement, there can be
no assurance that the new lenders under the Credit Agreement will grant such
requests. The failure to obtain any such waivers or amendments would reduce the
Company's flexibility to respond to adverse industry conditions and could have a
material adverse effect on the Company. See "Credit Agreement -- Covenants."
OUTLOOK:
Due to industry conditions during the past few years and due principally to
depressed product prices and significant interest costs attributable to the
Company's highly leveraged capital structure, the Company incurred net losses in
each of the last three years and for the first half of 1994. Such net losses
have significantly impaired the Company's liquidity and available sources of
liquidity and will continue to adversely affect the Company. Unless the Company
achieves sustained further price increases with respect to paperboard and paper
packaging products and significant sustained price increases for white paper and
pulp products, the Company will continue to incur net losses and will not
generate sufficient cash flows to meet fully the Company's debt service
requirements in the future.
The Company's containerboard and corrugated container product lines, which
represent a substantial portion of the Company's net sales, had generally
experienced declining product prices from 1990 through the third quarter of
1993. However, the Company increased linerboard prices by $25 per ton in the
fourth quarter of 1993 and $30 per ton in the first quarter of 1994 and
concurrently increased corrugating medium prices by $25 per ton and by $40 per
ton, respectively. Following each of the containerboard increases, the Company
implemented corrugated container price increases. The Company implemented a
further $40 per ton increase in the price of linerboard and a $50 per ton
increase in corrugating medium effective July 1, 1994. The Company has announced
a 9.5% price increase on corrugated containers effective July 25, 1994.
Historically, suppliers, including the Company, have taken up to 90 days to pass
increased linerboard and corrugating medium prices through to corrugated
container customers. The Company converts more than 80% of its linerboard and
corrugating medium production into corrugated containers, making the achievement
of price increases in corrugated containers essential for the Company to realize
substantial financial benefit from linerboard and corrugating medium prices.
While there can be no assurance that prices will continue to increase or even be
maintained at present levels, the Company believes that the supply/demand
characteristics for linerboard, corrugating medium and corrugated containers are
improving which could allow for further price restorations for these product
lines.
According to industry publications, immediately preceding the price increase
effective October 1, 1993, the reported transaction price for 42 lb. kraft
linerboard, the base grade of linerboard, was $300
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<PAGE>
per ton and as of July 1, 1994, the reported transaction price for this base
grade was $385-$395 per ton. According to industry publications, the reported
transaction price for corrugating medium immediately preceding October 1, 1993
was $280 per ton and $375-$385 per ton as of July 1, 1994.
The Company has also implemented price increase in kraft paper and kraft
converted products. The Company increased prices on retail bags and sacks 8% on
each of April 1, May 1 and July 1, 1994. In addition, the Company has announced
a $50 per ton (approximately 8.6%) increase for kraft paper to become effective
August 1, 1994.
Pricing conditions for market pulp, newsprint and uncoated groundwood paper
have been volatile in recent years. Additions to industry-wide capacity and
declines in demand for such products during the past three years led to
supply/demand imbalances that have contributed to depressed prices for these
products. In 1994, however, pricing for market pulp has improved substantially.
The Company has increased prices for various grades of market pulp by up to $190
per metric tonne since November 1993. According to industry publications, the
reported transaction price for SBHK was $370 per metric tonne as of the third
quarter of 1993 and $500-570 per metric tonne as of the second quarter of 1994.
The Company has begun to implement a further price increase of $70 per metric
tonne (approximately 12.2%) effective July 1, 1994. After further declines in
the first quarter of 1994, pricing for newsprint has also recently improved. The
Company increased newsprint prices in the second quarter of 1994 by $48 per
metric tonne in the eastern markets of North America and $41 per metric tonne in
the western markets in North America and has announced a price increase of $41
per metric ton in the eastern markets of North America and $48 per metric tonne
in the western markets of North America in the third quarter of 1994. According
to industry publications, the reported transaction price for newsprint in the
eastern markets of North America was $411 per metric tonne as of March 1, 1993
and $455 per metric tonne as of June 1, 1994. The benefit to the Company's cash
flows and profitability from such partial price recovery in newsprint is
limited, however, because Stone-Consolidated owns all of the Canadian and United
Kingdom newsprint and uncoated groundwood assets of the Company and the
restrictive terms of Stone-Consolidated's indebtedness will not permit
Stone-Consolidated to provide funds to the Company (whether by dividend, loan or
otherwise) from cash generated from operations, if any, until certain financial
covenants have been satisfied. To date, uncoated groundwood papers have not
achieved significant price increases. However, a price increase for this product
line has been announced for the third quarter of 1994. While other producers
have announced similar price increases for market pulp and newsprint, there can
be no assurance that such price increases will be achieved as scheduled.
Although supply/demand balances appear favorable for most of the Company's
core products, there can be no assurance that the above price increases will be
achieved or that prices can be maintained at the present levels.
Wood fiber and recycled fiber, the principal raw materials in the
manufacture of the Company's products, are purchased in highly competitive,
price sensitive markets. These raw materials have historically exhibited price
and demand cyclicality. In addition, the supply and price of wood fiber, in
particular, is dependent upon a variety of factors over which the Company has no
control, including environmental and conservation regulations, natural
disasters, such as forest fires and hurricanes, and weather. In addition, recent
increased demand for the Company's products has resulted in greater demand for
raw materials which has recently translated into higher raw material prices.
The Company purchases or cuts a variety of species of timber from which the
Company utilizes wood fiber depending upon the product being manufactured and
each mill's geographic location. Despite this diversification, wood fiber prices
have increased substantially in 1994. A decrease in the supply of wood fiber,
particularly in the Pacific Northwest and the southeastern United States due to
environmental considerations, has caused, and will likely continue to cause,
higher wood fiber costs in those regions. In addition, the increase in demand
for products manufactured in whole or in part from recycled fiber has caused a
shortage of recycled fiber, particularly OCC used in the manufacture of premium
priced recycled containerboard and related products. The Company's paperboard
and paper
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<PAGE>
packaging products use a large volume of recycled fiber. In 1993, the Company
processed approximately 1.9 million tons of recycled fiber. The Company used
approximately 1.25 million tons of OCC in its products in 1993. The Company
believes that the cost of OCC has risen from $55 per ton at June 30, 1993 to
$125 per ton as of June 30, 1994. While the Company has not experienced any
significant difficulty in obtaining wood fiber and recycled fiber in economic
proximity to its mills, there can be no assurances that this will continue to be
the case for any or all of its mills. In addition, there can be no assurance
that all or any part of increased fiber costs can be passed along to consumers
of the Company's products directly or in a timely manner.
Notwithstanding the improvements in the Company's liquidity and financial
flexibility which will result from the Offering and the execution and delivery
of the Credit Agreement, unless the Company achieves price increases beyond
current levels, the Company will continue to incur net losses and will not
generate sufficient cash flows to meet fully the Company's debt service
requirements in the future. Without such price increases, the Company may
exhaust all or substantially all of its cash resources and borrowing
availability under the revolving credit facilities under the Credit Agreement.
In such event, the Company would be required to pursue other alternatives to
improve liquidity, including additional sales of assets, the deferral of certain
capital expenditures, obtaining additional sources of funds or pursuing the
possible restructuring of its indebtedness. There can be no assurance that such
measures, if required, would generate the liquidity required by the Company to
operate its business and service its indebtedness. In order to meet its
amortization obligations, beginning in 1997 and continuing thereafter, the
Company will be required to raise sufficient funds from operations and/or other
sources and/or refinance or restructure maturing indebtedness. No assurance can
be given that the Company will be successful in doing so.
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<PAGE>
CASH FLOWS FROM OPERATIONS:
The following table shows, for the first quarter of 1993 and 1994 and for
the last three years, the net cash provided by (used in) operating activities:
<TABLE>
<CAPTION>
THREE MONTHS YEAR
ENDED ENDED
MARCH 31, DECEMBER 31,
-------------------- ---------------
1994 1993 1993 1992 1991
--------- --------- ------------- --------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net loss................................................. $ (110) $ (102) $ (359) $ (269) $ (49)
Extraordinary loss from early extinguishment of debt..... 17 -- -- -- --
Cumulative effect of change in postemployment benefits... 14 -- -- -- --
Cumulative effect of change in accounting for
postretirement benefits................................ -- 39 39 -- --
Cumulative effect of change in accounting for income
taxes.................................................. -- -- -- 99 --
Depreciation and amortization............................ 89 87 347 329 274
Deferred taxes........................................... (43) (29) (134 ) (67 ) 22
Payment on settlement of interest rate swaps............. -- -- (33 ) -- --
Decrease (increase) in accounts and notes receivable --
net.................................................... (62) (40) 45 (67 ) 33
Decrease (increase) in inventories....................... 16 -- 29 11 (60)
Decrease (increase) in other current assets.............. (19) (18) (9 ) 9 (75)
Increase (decrease) in accounts payable and other current
liabilities............................................ (5) 19 (60 ) (35 ) 59
Other.................................................... (11) 9 (78 (a) 76 (b) 7
--------- --------- ------ ------ ---------
Net cash provided by (used in) operating activities...... $ (114) $ (35) $ (213 ) $ 86 $ 211
--------- --------- ------ ------ ---------
--------- --------- ------ ------ ---------
<FN>
- ------------------------
(a) Includes debt issuance costs of $84 million and an adjustment to remove the
effect of a $35 million gain from the sale of the Company's 49% equity
interest in Titan, partially offset by adjustments to remove the effects of
amortization of deferred debt issuance costs and a non-cash charge of $19
million pertaining to the writedown of certain decommissioned assets.
(b) Includes $54 million of cash received from the sale of an energy contract
in October 1992.
</TABLE>
The results of operations for the first quarter of 1994 and 1993 and the
years 1991 through 1993 have had a significant adverse impact on the Company's
cash flow. Borrowings in the first quarter of 1994 and 1993 and the years 1991,
1992 and 1993 have increased to meet cash flow needs.
During 1993 and in the first quarter of 1994, the Company entered into
various financing and investing activities designed to provide liquidity and
enhance financial flexibility. See "Financing activities" and "Investing
activities."
The decrease in cash flows in the first quarter of 1994 resulted from the
increase in the first quarter 1994 loss (before the extraordinary loss and the
non-cash, cumulative effects of accounting changes) compared with the prior year
period along with an increase in debt fee payments, an increase in the credit
for deferred income taxes and the effects of increases in accounts and notes
receivable and decreases in accounts payable and other current liabilities as
compared to the changes in the prior year period. These decreases were partially
offset by the favorable effect of a reduction in inventories.
The 1993 decrease in accounts and notes receivable reflects the timing of
receivable collections, lower average selling prices for a majority of the
Company's products and the writedown of certain
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<PAGE>
receivables to net realizable value. The increase in accounts and notes
receivable for 1992 reflect an increase in sales volume for certain of the
Company's products during the latter part of 1992 over 1991 and the timing of
receivable collections resulting from the continued slow recovery of the
economy.
Inventories decreased in 1993 due primarily to a reduction in certain
paperstock and newsprint levels, partially attributable to market related
downtime. The decrease in inventories for 1992 resulted mainly from reductions
in certain paperstock levels due to increased sales volume during the latter
part of 1992 and market-related downtime.
The 1992 decrease in other current assets resulted mainly from the
collection of $43 million of cash related to the 1991 settlement and termination
of a Canadian supply contract.
The decreases in accounts payable and other current liabilities for 1993 and
1992 were due primarily to the timing of payments.
FINANCING ACTIVITIES:
On February 3, 1994, under the Company's $1 billion shelf registration, the
Company sold $710 million principal amount of 9 7/8% Senior Notes due February
1, 2001 and 16.5 million shares of common stock for an additional $251.6 million
at $15.25 per common share in the February 1994 Offerings, which included the
exercise by the underwriters of their option to sell an additional 2.47 million
shares of common stock for an additional $37.7 million, also at $15.25 per
common share. The net proceeds from the February 1994 Offerings of approximately
$962 million were used to (i) prepay approximately $652 million of 1995, 1996
and 1997 required amortization under the Company's 1989 Credit Agreement,
including the ratable amortization payment under the revolving credit facilities
which had the effect of reducing the total commitments thereunder to
approximately $168 million; (ii) redeem the Company's 13 5/8% Subordinated Notes
due 1995 at a price equal to par, approximately $98 million principal amount,
plus accrued interest to the redemption date; (iii) repay approximately $136
million of the outstanding borrowings under the Company's revolving credit
facilities without reducing the commitments thereunder; and (iv) provide
liquidity in the form of cash.
The following summarizes the Company's significant financing activities in
1993:
- During 1993, outstanding borrowings under the Company's revolving credit
facilities increased approximately $6.8 million. The net increase takes
into account the financial transactions discussed below and those
transactions discussed in the "Investing activities" section following.
Borrowings and payments made on debt as presented in the Statement of Cash
Flows does not take into account certain repayments and subsequent
reborrowings under the revolving credit facilities which occurred as a
result of these transactions.
- In December 1993, Stone-Consolidated acquired the newsprint and uncoated
groundwood papers business of Stone Canada and sold $346.5 million of
units in an initial public offering comprised of both common stock and
convertible subordinated debentures (the "Units Offering"). Each unit was
priced at $2,100 and consisted of 100 shares of common stock at $10.50 per
share and $1,050 principal amount of convertible subordinated debentures.
The convertible subordinated debentures mature December 31, 2003, bear
interest at an annual rate of 8% and are convertible beginning June 30,
1994, into 6.211 shares of common stock for each Canadian $100 principal
amount, representing a conversion price of $12.08 per share. Concurrently
with the initial public offering, Stone-Consolidated sold $225 million of
senior secured notes in a public offering in the United States. The senior
secured notes mature December 15, 2000 and bear interest at an annual rate
of 10.25%. As a result of the Units Offering, 16.5 million shares of
common stock, representing 25.4% of the total shares outstanding of
Stone-Consolidated, were sold to the public, resulting in the recording in
the Company's Consolidated Balance Sheet of a minority interest liability
of $236.7 million. The Company used approximately $373 million of the net
proceeds from the sale of the Stone-Consolidated securities for repayment
of commitments under its 1989 Credit Agreement and the remainder for
general corporate purposes. As a result of
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<PAGE>
the Units Offering, the Company recorded a charge of $74.4 million to
common stock related to the excess carrying value per common share over
the offering price per common share associated with the shares issued.
- In December 1993, the Company sold two of its short-line railroads in a
transaction in which the Company has guaranteed to contract minimum
railroad services which will provide freight revenues to the railroads
over a 10 year period. The transaction has been accounted for as a
financing and accordingly, had no impact on the Company's 1993 net loss.
The Company received proceeds of approximately $28 million, of which
approximately $19 million was used to repay commitments under the 1989
Credit Agreement.
- In the fourth quarter of 1993, the Company sold, prior to their expiration
date, certain of the U.S. dollar denominated interest rate and cross
currency swaps associated with the 1989 Credit Agreement borrowings of
Stone-Canada. The net proceeds totaled approximately $34.9 million, the
substantial portion of which was used to repay borrowings under the
revolving credit facilities of the 1989 Credit Agreement. The sale of the
swaps resulted in a deferred loss which will be amortized over the
remaining life of the underlying obligation.
- In July 1993, the Company sold $150 million principal amount of 12 5/8%
Senior Notes due July 15, 1998 and, in a private transaction, sold $250
million principal amount of 8 7/8% Convertible Senior Subordinated Notes
due July 15, 2000. The Company filed a shelf registration statement
declared effective August 13, 1993 registering the 8 7/8% Convertible
Senior Subordinated Notes for resale by the holders thereof. The net
proceeds of approximately $386 million received from the sales of these
notes were used by the Company to repay borrowings without reducing
commitments under the revolving credit facilities of its 1989 Credit
Agreement, thereby restoring borrowing availability thereunder.
Due to the pendency of litigation, the Company has postponed a previously
discussed possible transaction relating to an energy supply agreement at its
Florence, South Carolina mill. See "Business -- Legal Proceedings."
INVESTING ACTIVITIES:
Capital expenditures for the three month period ended March 31, 1994
totalled approximately $17.7 million (including capitalized interest of
approximately $0.2 million).
The following summarizes the Company's significant 1993 investing
activities:
- The Company sold its 49% equity interest in Titan. The net proceeds were
used to repay commitments under the 1989 Credit Agreement and for
repayment of borrowings under its revolving credit facilities without
reducing commitments thereunder.
- During 1993, the Company increased its ownership in the common stock of
Stone Savannah from 90.2% to 92.8% through the purchase of an additional
6,152 common shares and through the receipt of Series D Preferred Stock as
a dividend in kind on Stone Savannah's Series B Preferred Stock and the
election of its right to convert the Series D Preferred Stock into 198,438
common shares.
- On May 6, 1993, the Company's wholly owned German subsidiary, Europa
Carton A.G., ("Europa Carton"), completed a joint venture with Financiere
Carton Papier ("FCP"), a French company, to merge the folding carton
operations of Europa Carton with those of FCP ("FCP Group"). Under the
joint venture, FCP Group is owned equally by Europa Carton and the
shareholders of FCP immediately prior to the merger. The Company's
investment in this joint venture is being accounted for under the equity
method of accounting.
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<PAGE>
- Capital expenditures for 1993 totaled approximately $150 million
(including capitalized interest of approximately $9 million), of which
approximately $15 million was funded from existing project financings. The
Company's capital expenditures for 1994 are budgeted at approximately $190
million.
ENVIRONMENTAL ISSUES:
The Company's operations are subject to extensive environmental regulation
by federal, state and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations. The Company has in
the past made significant capital expenditures to comply with water, air and
solid and hazardous waste regulations and expects to make significant
expenditures in the future. Capital expenditures for environmental control
equipment and facilities were approximately $28 million in 1993 and the Company
anticipates that 1994 and 1995 environmental capital expenditures will
approximate $71 million and $96 million, respectively (not including any
expenditures required under the proposed "cluster rules" described below).
Included in these amounts are capital expenditures for Stone-Consolidated which
were approximately $5 million in 1993 and are anticipated to approximate $36
million in 1994 and $64 million in 1995. Although capital expenditures for
environmental control equipment and facilities and compliance costs in future
years will depend on legislative and technological developments which cannot be
predicted at this time, the Company anticipates that these costs will increase
when final "cluster rules" are adopted and as other environmental regulations
become more stringent. Environmental control expenditures include projects
which, in addition to meeting environmental concerns, yield certain benefits to
the Company in the form of increased capacity and production cost savings. In
addition to capital expenditures for environmental control equipment and
facilities, other expenditures incurred to maintain environmental regulatory
compliance (including any remediation) represent ongoing costs to the Company.
In addition, the Company is from time to time subject to litigation and
governmental proceedings regarding environmental matters in which injunctive
and/or monetary relief is sought.
In December 1993, the EPA issued a proposed rule affecting the pulp and
paper industry. These proposed regulations, informally known as the "cluster
rules," would make more stringent requirements for discharge of wastewaters
under the Clean Water Act and would impose new requirements on air omissions
under the Clean Air Act. Pulp and paper manufacturers (including the Company)
have submitted extensive comments to the EPA on the proposed regulations in
support of the position that requirements under the proposed regulations are
unnecessarily complex, burdensome and environmentally unjustified. The EPA has
indicated that it may reopen the comment period on the proposed regulations in
September 1994 to allow review and comment on new data that the industry will
submit to the agency on the industry's air toxics emissions. It can not be
predicted at this time whether the EPA will modify the requirements in the final
regulations which are scheduled to be issued in 1996, with compliance required
within three years from such date. The Company is considering and evaluating the
potential impact of the rules, as proposed, on its operations and capital
expenditures over the next several years. Preliminary estimates indicate that
the Company could be required to make capital expenditures of $350-$450 million
during the period of 1996 through 1998 in order to meet the requirements of the
rules, as proposed. In addition, annual operating expenses would increase by as
much as $20 million beginning in 1998. In order to establish the estimated
capital expenditure range referenced above, the Company used assumptions least
favorable to the Company among the possible range of outcomes. The ultimate
financial impact of the regulations cannot be accurately estimated at this time
but will be affected by several factors, including the actual requirements
imposed under the final rule, advancements in control process technologies,
possible reconfiguration of mills and inflation.
In addition, the Company is from time to time subject to litigation and
governmental proceedings regarding environmental matters in which injunctive
and/or monetary relief is sought. The Company has been named as a PRP at a
number of sites which are the subject of remedial activity under CERCLA or
comparable state laws. Although the Company is subject to joint and several
liability imposed under Superfund, at most of the multi-PRP sites there are
organized groups of PRPs and costs are being
38
<PAGE>
shared among PRPs. Future environmental regulations, including the final
"cluster rules," may have an unpredictable adverse effect on the Company's
operations and earnings, but they are not expected to adversely affect the
Company's competitive position.
COMMON AND SERIES E CUMULATIVE PREFERRED STOCK --
CASH DIVIDENDS, MARKET AND PRICE RANGE
Due to limitations and restrictions imposed upon the Company under the 1989
Credit Agreement, the Company did not declare or pay a cash dividend on its
shares of common stock during the first half of 1994, for the year 1993 or in
the third and fourth quarter of 1992. Cash dividends paid per common share were
$.35 for 1992 and $.71 for 1991. Cash dividends paid per share on the Company's
$1.75 Series E Cumulative Convertible Exchangeable Preferred Stock (the "Series
E Cumulative Preferred Stock") were $.875 for 1993 and $1.28 for 1992. Due to a
restrictive provision in the Senior Subordinated Indenture dated March 15, 1992
(the "Senior Subordinated Indenture") relating to the Company's 10 3/4% Senior
Subordinated Notes due June 15, 1997, its 11% Senior Subordinated Notes due
August 15, 1999 and its 10 3/4% Senior Subordinated Debentures due April 1,
2002, the Board of Directors did not declare the scheduled August 15, 1993 or
November 15, 1993 quarterly dividend of $.4375 per share on the Series E
Cumulative Preferred Stock, nor was it then permitted to declare or pay future
dividends on the Series E Cumulative Preferred Stock until the Company generated
income, or effected certain sales of capital stock, to replenish the dividend
"pool" under various of its debt instruments. As of December 31, 1993,
accumulated unpaid dividends on the Series E Cumulative Preferred Stock amounted
to $4.0 million. As a result of the February 1994 Offerings, the dividend pool
under the Senior Subordinated Indenture was replenished from the sale of the
common shares. On March 28, 1994, the Company's Board of Directors declared both
a regular quarterly cash dividend of $.4375 per share and a cumulative cash
dividend of $1.3125 per share on the Company's Series E Cumulative Preferred
Stock. The cumulative cash dividend was paid on May 16, 1994 and satisfied all
accumulated dividends in arrears on the Series E Cumulative Preferred Stock. The
dividend pool does not enable the Company to pay currently further dividends on
the Series E Cumulative Preferred Stock. In the event the Company does not pay a
dividend on the Series E Cumulative Preferred Stock for six quarters, the
holders of the Series E Cumulative Preferred Stock would have the right to elect
two members to the Company's Board of Directors until the accumulated dividends
on such Series E Cumulative Preferred Stock have been declared and paid or set
apart for payment.
The Company's Common Stock and Series E Cumulative Preferred Stock are
traded on the New York Stock Exchange under the symbols "STO" and "STOPRE",
respectively. The quarterly and annual price ranges for the Company's Common
Stock and the Company's Series E Cumulative Preferred Stock were:
COMMON STOCK
<TABLE>
<CAPTION>
1994 1993 1992
-------------------- -------------------- --------------------
QUARTER HIGH LOW HIGH LOW HIGH LOW
- --------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1st.................................... $ 16.88 $ 9.63 $ 19.50 $ 12.63 $ 32.63 $ 24.50
2nd.................................... 16.63 12.25 14.00 6.38 29.38 22.50
3rd.................................... 9.25 6.50 25.38 14.38
4th.................................... 12.38 6.88 19.50 12.50
Year................................... 19.50 6.38 32.63 12.50
</TABLE>
39
<PAGE>
SERIES E CUMULATIVE PREFERRED STOCK
<TABLE>
<CAPTION>
1994 1993 1992
-------------------- -------------------- --------------------
QUARTER HIGH LOW HIGH LOW HIGH LOW
- --------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1st.................................... $ 19.50 $ 15.25 $ 20.50 $ 17.50 $ 26.75 $ 23.75
2nd.................................... 20.63 17.38 19.00 10.50 26.50 22.50
3rd.................................... 17.63 8.75 24.38 18.00
4th.................................... 15.75 9.63 20.50 16.88
Year................................... 20.50 8.75 26.75 16.88
</TABLE>
The 1992 amounts set forth in the table above have not been restated to
reflect the 2% common stock dividend paid by the Company on September 15, 1992.
There were approximately 7,032 common stockholders and 535 preferred
stockholders of record at December 31, 1993.
ACCOUNTING STANDARDS CHANGES
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"), which requires accrual accounting for the
estimated costs of providing certain benefits to former or inactive employees
and the employees' beneficiaries and dependents after employment but before
retirement. Upon adoption of SFAS 112, the Company recorded its catch-up
obligation (approximately $24 million) by recognizing a one-time, non-cash
charge of $14.2 million, net of income tax benefit, as a cumulative effect of an
accounting change in its 1994 first quarter Statement of Operations and Retained
Earnings (Accumulated Deficit).
40
<PAGE>
BUSINESS
GENERAL
The Company is a major international pulp and paper company engaged
principally in the production and sale of paper, packaging products, and market
pulp. The Company believes that it is the world's largest producer of unbleached
containerboard and kraft paper and the world's largest converter of those
products into corrugated containers and paper bags and sacks. The Company also
believes that it is one of the world's largest paper companies in terms of
annual tonnage, having produced approximately 7.5 million total tons of paper
and pulp in each of 1993 and 1992. The Company produced approximately 4.9
million and 5.0 million tons of unbleached containerboard and kraft paper in
1993 and 1992, respectively, which accounted for approximately 66% of its total
tonnage produced for both 1993 and 1992. The Company had net sales of
approximately $5.1 billion and $5.5 billion in 1993 and 1992, respectively.
The Company owns or has an interest in 135 manufacturing facilities in the
United States, 26 in Canada, 15 in Germany, six in France, two in Belgium and
one in each of the United Kingdom and the Netherlands. The facilities include 23
mills. The Company also maintains sales offices in the United States, Canada,
the United Kingdom, Germany, Belgium, France, Mexico, China and Japan, has a
forestry operation in Costa Rica and has a joint venture relationship in
Venezuela.
The Company is incorporated in Delaware and its Common Stock is listed on
the New York Stock Exchange. The Company's executive offices are located at 150
North Michigan Avenue, Chicago, Illinois 60601; telephone number (312) 346-6600.
PRODUCT PRICING AND INDUSTRY TRENDS
The markets for products sold by the Company are highly competitive and are
also sensitive to changes in industry capacity and cyclical changes in the
economy, both of which can significantly impact selling prices and thereby the
Company's profitability. From 1990 through the third quarter of 1993, the
Company experienced substantial declines in the pricing of most of its products.
Since November 1993, however, market conditions have improved, permitting the
Company to implement price increases for most of its products. Notwithstanding
these increases, prices remain below the historical high prices which were
achieved during the peak of the last industry cycle, particularly prices for
newsprint and market pulp. While product prices have increased since October
1993, the Company's production costs (including labor, fiber and energy), as
well as its interest expense, have increased since the last pricing peak in the
industry, increasing pressure on the Company's net margins on its products.
The Company's containerboard and corrugated container product lines, which
represent a substantial portion of the Company's net sales, had generally
experienced declining product prices from 1990 through the third quarter of
1993. However, the Company increased linerboard prices by $25 per ton in the
fourth quarter of 1993 and $30 per ton in the first quarter of 1994 and
concurrently increased corrugating medium prices by $25 per ton and by $40 per
ton, respectively. Following each of the containerboard increases, the Company
implemented corrugated container price increases. The Company implemented a
further $40 per ton increase in the price of linerboard and a $50 per ton
increase in corrugating medium effective July 1, 1994. The Company has also
announced a 9.5% price increase on corrugated containers effective July 25,
1994. Historically, suppliers, including the Company, have taken up to 90 days
to pass increased linerboard and corrugating medium prices through to corrugated
container customers. The Company converts more than 80% of its linerboard and
corrugating medium products into corrugated containers, making the achievement
of price increases in corrugated containers essential for the Company to realize
substantial financial benefit from linerboard and corrugating medium price
increases.
According to industry publications, immediately preceding the price increase
effective October 1, 1993, the reported transaction price for 42 lb. kraft
linerboard, the base grade of linerboard, was $300
41
<PAGE>
per ton and as of July 1, 1994, the reported transaction price for this base
grade was $385-395 per ton. According to industry publications, the reported
price for corrugating medium immediately preceding October 1, 1993 was $280 per
ton and $375-$385 per ton as of July 1, 1994.
The Company has also implemented price increases in kraft paper and kraft
paper converted products. The Company increased prices on retail bags and sacks
8% on each of April 1, May 1 and July 1, 1994. In addition, the Company has
announced a $50 per ton (approximately 8.6%) increase for kraft paper to become
effective August 1, 1994.
Pricing for market pulp has improved substantially in 1994. The Company has
increased prices for various grades of market pulp by up to $190 per metric
tonne since November 1993. According to industry publications, the reported
transaction price for SBHK was $370 per metric tonne as of the third quarter of
1993 and $500-570 per metric tonne as of the second quarter of 1994. The Company
has begun to implement a further price increase of $70 per metric tonne
(approximately 12.2%) effective July 1, 1994.
After further declines in the first quarter of 1994, pricing for newsprint
has also recently improved. The Company increased newsprint prices in the second
quarter of 1994 by $48 per metric tonne in the eastern markets of North America
and $41 per metric tonne in the western markets of North America and has
announced price increases of $41 per metric tonne in the eastern markets of
North America and $48 per metric tonne in the western markets of North America
in the third quarter of 1994. According to industry publications, the reported
transaction price for newsprint in the eastern markets of North America was $411
per metric tonne as of March 1, 1993 and $455 per metric tonne as of June 1,
1994. To date, uncoated groundwood papers have not achieved significant price
increases. However, a price increase for this product line has been announced
for the third quarter of 1994.
Although supply/demand balances appear favorable for most of the Company's
core products, there can be no assurance that announced price increases will be
achieved or that prices can be maintained at present levels.
Wood fiber and recycled fiber, the principal raw materials in the
manufacture of the Company's products, are purchased in highly competitive,
price sensitive markets. These raw materials have historically exhibited price
and demand cyclicality. In addition, the supply and price of wood fiber, in
particular, is dependent upon a variety of factors over which the Company has no
control, including environmental and conservation regulations, natural
disasters, such as forest fires and hurricanes, and weather. In addition, recent
increased demand for the Company's products has resulted in greater demand for
raw materials which has recently translated into higher raw material prices.
The Company purchases or cuts a variety of species of timber from which the
Company utilizes wood fiber depending upon the product being manufactured and
each mill's geographic location. Despite this diversification, wood fiber prices
have increased substantially in 1994. A decrease in the supply of wood fiber,
particularly in the Pacific Northwest and the southeastern United States due to
environmental considerations, has caused, and will likely continue to cause,
higher wood fiber costs in those regions. In addition, the increase in demand
for products manufactured in whole or in part from recycled fiber has caused a
shortage of recycled fiber, particularly OCC used in the manufacture of premium
priced recycled containerboard and related products. The Company's paperboard
and paper packaging products use a large volume of recycled fiber. In 1993, the
Company processed approximately 1.9 million tons of recycled fiber. The Company
used approximately 1.25 million tons of OCC in its products in 1993. The Company
believes that the cost of OCC has risen from $55 per ton at June 30, 1993 to
$125 per ton as of June 30, 1994. While the Company has not experienced any
significant difficulty in obtaining wood fiber and recycled fiber in economic
proximity to its mills, there can be no assurances that this will continue to be
the case for any or all of its mills. In addition, there can be no assurance
that all or any part of increased fiber costs can be passed along to consumers
of the Company's products directly or in a timely manner.
42
<PAGE>
FINANCIAL STRATEGY
In 1993, the Company adopted a financial plan designed to enhance the
Company's liquidity and improve its financial flexibility, which included
prepaying the near term scheduled amortizations under the 1989 Credit Agreement.
The financial plan was implemented in response to continuing net losses
resulting from depressed sales prices for the Company's products and the
Company's highly leveraged capital structure and related interest expense
associated with indebtedness incurred to finance the acquisition of Stone
Canada. As part of the financial plan, in 1993 the Company satisfied its
remaining 1993 and 1994 scheduled amortization obligations under the 1989 Credit
Agreement and repaid outstanding borrowings (a portion of which could
subsequently be reborrowed) under the revolving credit facility portion of the
1989 Credit Agreement with the proceeds from (i) the sale of $400 million
aggregate principal amount of additional Company indebtedness, (ii) the public
offering in Canada of approximately 25% of the common stock (Cdn. $231 million)
of Stone-Consolidated and the contemporaneous sale by Stone-Consolidated of Cdn.
$231 million principal amount of convertible subordinated debentures in Canada
and $225 million principal amount of senior secured notes in the U.S., and (iii)
the sale of $125 million of assets. In February 1994, the Company sold $710
million principal amount of 9 7/8% Senior Notes due 2001 and approximately 19
million shares of its common stock for gross proceeds of approximately $289
million from the sale of such common stock in the February 1994 Offerings. The
Company used the $962 million of net proceeds from the February 1994 Offerings
to (i) prepay scheduled amortizations under the 1989 Credit Agreement for all of
1995 and a portion of 1996 and 1997, (ii) redeem the Company's $98 million
principal amount of 13 5/8% Subordinated Notes due 1995, and (iii) repay
outstanding borrowings under the revolving credit facility portion of the 1989
Credit Agreement, a portion of which remained available for reborrowing
thereunder.
The Company is continuing to pursue its financial strategy of enhancing the
Company's liquidity and improving its financial flexibility. Concurrently with
the closing of this Offering, the Company will (i) repay all of the outstanding
indebtedness under and terminate the 1989 Credit Agreement, (ii) enter into the
Credit Agreement and (iii) merge Stone Savannah into a wholly owned subsidiary
of the Company and repay or acquire Stone Savannah's outstanding indebtedness,
common stock and preferred stock, each of which is conditioned upon the
successful completion of the other transactions (collectively, the "Related
Transactions"). The Credit Agreement will consist of a $250 million secured term
loan and a revolving credit facility under which $400 million (of which
borrowing availability will be reduced by any letter of credit commitments, of
which approximately $59 million will be outstanding at closing and less
approximately $ million of borrowings thereunder which will be drawn down as of
closing) will be available as of the closing. In connection with the Stone
Savannah merger, the Company will (i) repay indebtedness outstanding under and
terminate the Stone Savannah Credit Agreement, (ii) call for redemption the $130
million principal amount of Stone Savannah Notes at a redemption price equal to
107.0625% of principal amount, (iii) repurchase the 72,346 outstanding shares of
common stock of Stone Savannah not owned by the Company, and (iv) call for
redemption or otherwise acquire the 425,243 outstanding shares of Stone Savannah
Preferred not owned by the Company for approximately $51.5 million (including
redemption premium and accrued and unpaid dividends). The completion of this
Offering, together with the Related Transactions, will extend the scheduled
amortization obligations and final maturities of more than $1 billion of the
Company's indebtedness, improve the Company's liquidity by replacing its current
$166 million revolving credit facility commitments with $400 million of
revolving credit commitments (of which borrowing availability will be reduced by
any letter of credit commitments, of which approximately $59 million will be
outstanding at closing, and less approximately $ million of borrowings
thereunder which will be drawn down as of closing) and improve the Company's
financial flexibility through entering into the Credit Agreement.
43
<PAGE>
OPERATIONS
The following table presents actual annual mill production capacity of the
Company at December 31, 1993 and at December 31, 1992:
<TABLE>
<CAPTION>
PAPERBOARD AND
PAPER WHITE PAPER
PACKAGING AND PULP TOTAL
-------------- -------------- --------------
1993 1992 1993 1992 1993 1992
------ ------ ------ ------ ------ ------
(IN THOUSANDS OF SHORT TONS)(A)
<S> <C> <C> <C> <C> <C> <C>
United States.............................................. 4,583 4,572 853 847 5,436 5,419
Canada..................................................... 429 436 2,176 1,783 2,605 2,219
Europe..................................................... 314 310 307 306 621 616
Other...................................................... -- 58 -- -- -- 58
------ ------ ------ ------ ------ ------
5,326 5,376 3,336 2,936 8,662 8,312
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
<FN>
- ------------------------
(a) Includes 25% of production capacity of the Celgar mill, 49% of the Titan
mill at December 31, 1992 and 100% of Seminole and Stone Savannah mills and
100% of Stone-Consolidated.
</TABLE>
PAPERBOARD AND PAPER PACKAGING
The Company believes that its integrated unbleached paperboard and paper
packaging business is the largest in the world with 16 mills and 136 converting
plants located throughout the United States and Canada and in Europe. The major
products in this business are containerboard and corrugated containers, which
are primarily sold to a broad range of manufacturers of consumable and durable
goods; kraft paper and paper bags and sacks, which are primarily sold to
supermarket chains, retailers of consumer products and, in the case of multiwall
shipping sacks, to the agricultural, chemical and cement industries; and
boxboard and folding cartons, which are sold to manufacturers of consumable
goods and other box manufacturers. The unbleached packaging business of the
Company has an annual capacity of approximately 5.3 million tons and is more
than 80% integrated. In 1993, total sales for the paperboard and paper packaging
business of the Company were approximately $3.8 billion, or approximately 75% of
total consolidated sales.
The paperboard and packaging business requires a large volume of recycled
fiber for its paperboard and paper packaging business. In 1993, the Company
processed 1.25 million tons of recycled fiber. Recycled fiber is obtained from a
variety of sources through Paper Recycling International L.P. ("PRI"), a fifty
percent-owned joint venture. PRI is paid a fee by the Company for procuring
recycled fiber. See "Fiber Supply."
CONTAINERBOARD AND CORRUGATED SHIPPING CONTAINERS. The Company believes it
is the world's largest producer of containerboard, of which more than 80% is
converted by the Company into corrugated shipping containers. The Company's
total sales of corrugated shipping containers in 1993 were $2.2 billion.
The Company's mills produce containerboard, including unbleached kraft
linerboard, recycled linerboard, medium and paper. Containerboard tons produced
and converted for the last three years were:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(SHORT TONS IN THOUSANDS)
<S> <C> <C> <C>
Containerboard
Production................................................. 4,388.1 4,424.4 4,330.9
Converted.................................................. 3,709.5 3,649.5 3,488.1
</TABLE>
Containerboard is produced at the Company's mills located in Snowflake,
Arizona; Jacksonville, Florida; Panama City, Florida; Port Wentworth, Georgia;
Hoya, Germany; Hodge, Louisiana; Missoula, Montana; New Richmond (Chaleurs),
Quebec; Florence, South Carolina and Hopewell, Virginia. Corrugating medium is
produced at the Company's mills located in Uncasville, Connecticut; Hoya,
Germany;
44
<PAGE>
Viersen, Germany; Hodge, Louisiana; Ontonagon, Michigan; Bathurst, New
Brunswick; Coshocton, Ohio and York, Pennsylvania. The Jacksonville, Florida
linerboard mill is owned by Seminole, a 99% owned subsidiary of the Company.
Seminole is not expected to be permitted to provide funds to the Company from
its cash generated from operations, if any, because of restrictions in the terms
of certain of Seminole's debt instruments.
The Company's containerboard and corrugated container operations are more
than 80% integrated and the Company believes this integration enhances its
ability to respond quickly and efficiently to customers and to fill orders on
short lead times. The Company believes it is the largest producer of corrugated
shipping containers in the U.S., with more than 100 board converting operations.
Corrugated shipping containers, manufactured from containerboard in converting
plants, are used to ship such diverse products as home appliances, electric
motors, small machinery, grocery products, produce, books, tobacco and
furniture, and for many other applications. The Company stresses the value-added
aspects of its corrugated containers, such as labeling and multi-color graphics,
to differentiate its products and respond to customer requirements. The
Company's container plants serve local customers and large national accounts and
are located in the United States, Belgium, Canada, France and Germany, generally
in or near large metropolitan areas. Corrugated shipping containers sales volume
for 1993, 1992 and 1991 were 52.5, 51.7, and 49.2 billion square feet
respectively.
KRAFT PAPER AND BAGS AND SACKS. The Company also has a highly integrated
kraft paper and converted product operation and is a net buyer of kraft paper
from third parties. The Company operates 18 kraft and paper converting
facilities, which shipped approximately 613 thousand tons and 689 thousand tons
of paper bags and sacks nationwide in 1993 and 1992, respectively. The Company
believes it is among the largest producers of grocery bags and sacks. Kraft
paper volume produced and converted for the last three years was:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
(TONS IN THOUSANDS)
<S> <C> <C> <C>
Kraft Paper
Production....................................................... 499.8 563.2 534.8
Converted........................................................ 644.7 723.9 739.7
</TABLE>
The Company produces kraft paper and recycled paper for conversion into bags
and sacks at its mills in Snowflake, Arizona; Hodge, Louisiana; Florence, South
Carolina; and the Seminole mill in Jacksonville, Florida.
Grocery bags and sacks are sold primarily to supermarket chains and
merchandise bags are sold to retailers of consumer products. Multiwall shipping
sacks, considered a premium product, are sold to the agricultural, chemical and
cement industries, among other industries. The Company's total sales of bags and
sacks in 1993 were $579.3 million. Sales volumes for bags and sacks for 1993,
1992 and 1991 were 612.9, 688.6, and 734.6 thousand tons respectively.
WHITE PAPER AND PULP:
The Company believes that, together with its 75% owned consolidated
subsidiary, Stone-Consolidated, it is the largest producer of uncoated
groundwood paper in North America and the fourth largest producer of newsprint
in North America. Stone-Consolidated, a Canadian corporation and a consolidated
subsidiary of the Company, owns all of the Canadian and United Kingdom newsprint
and uncoated groundwood paper assets of the Company. The restrictive terms of
Stone-Consolidated's indebtedness at this time are unlikely to permit
Stone-Consolidated to provide funds to the Company from its excess cash flow, if
any. Stone-Consolidated owns three newsprint mills (two in Canada and one in the
United Kingdom) and two uncoated groundwood paper mills in Canada. The Company
owns a newsprint mill in Snowflake, Arizona, the production of which is marketed
by Stone-Consolidated on a commission basis. The Company and Stone-Consolidated
have the capacity to produce 1.4 million tons of newsprint and 500,000 tons of
uncoated groundwood paper annually. Newsprint is marketed to
45
<PAGE>
newspaper publishers and commercial printers. Uncoated groundwood paper is sold
for use primarily in newspaper inserts, retail store advertising fliers,
magazines, telephone directories and as computer paper.
The Company believes it has a major market position in North America in the
production of market pulp. The Company owns and operates five market pulp mills
in North America, including Celgar mill in Castlegar, British Columbia in which
the Company has a 25% interest. These mills have the capacity to produce 1.5
million tons of market pulp annually and produced 733.2 thousand tons in 1993
(including 25% of the production at the Celgar mill). The geographic diversity
of the Company's mills enables the Company to offer its customers a product mix
of bleached northern hardwood and bleached southern softwood pulp. Market pulp
is sold to manufacturer of paper products, including fine papers, photographic
papers, tissue and newsprint.
In 1993, total sales for the white paper and pulp business of the Company
(which includes Stone-Consolidated sales) were approximately $965 million, or
approximately 19% of total consolidated sales.
NEWSPRINT. Stone-Consolidated owns and operates two fully integrated
newsprint mills located in Shawinigan (Belgo mill) and Ville de La Baie (Port
Alfred mill), Quebec and a third newsprint mill located in Ellesmere Port
(Bridgewater mill), United Kingdom. The Company owns and operates a fully
integrated newsprint mill in Snowflake, Arizona. Smaller quantities of newsprint
are also produced on other machines located at the Grand-Mere (Laurentide) and
Trois-Rivieres (Wayagamack) mills. In 1993, the Company produced approximately
1.3 million tons of newsprint. The Company's revenues from the sale of newsprint
in 1993 (including 100% of Stone-Consolidated) were approximately $526.9
million. Newsprint is primarily purchased by newspaper publishers and commercial
printers.
The newsprint produced by the Company contain a significant percentage of
recycled fibre from deinked pulp using flotation de-inking technology ("FDI")
technology. Management believes that the ability to produce newsprint with
recycled content has become an important competitive factor. Management
anticipates that the demand for newsprint with recycled content will continue to
grow as a result of further legislative activity and customer preferences,
although at a slower rate than in recent years. While an increasing number of
producers are gaining the ability to supply newsprint with recycled content,
management believes its deinking facilities and the relative proximity of the
mills to reliable sources of waste paper from urban centers will give the
Company a competitive advantage with customers who demand newsprint with
recycled content, although there can be no assurances that the Company will be
able to maintain such a competitive advantage.
UNCOATED GROUNDWOOD PAPERS. The Company's principal uncoated groundwood
paper production facilities include five paper machines located at the
Grand-Mere (Laurentide) and Trois-Rivieres (Wayagamack), Quebec mills; smaller
quantities of uncoated groundwood papers are also produced on other machines
located at the Ellesmere Port (Bridgewater) and Shawinigan (Belgo) mills. The
Company produced approximately 461.0 thousand tons of uncoated groundwood papers
in 1993. All uncoated groundwood production facilities are owned by
Stone-Consolidated. The Company's net capacity increased in both 1991 and 1992
as a result of the introduction and ramping up of a new paper machine at the
Laurentide mill. The Company had revenues from the sale of uncoated groundwood
papers of approximately $243.3 million in 1993. The Company's operating margins
on the sale of uncoated groundwood papers are significantly higher than for
newsprint.
In 1993, the Company produced approximately 461,000 tons of uncoated
groundwood papers. Uncoated groundwood papers are manufactured using production
processes similar to those used for newsprint but are generally of higher
quality and command higher prices and higher operating margins.
The principal grades of uncoated groundwood papers manufactured and sold by
the Company are directory papers, rotogravure and offset papers used in
newspaper inserts, retail store advertising fliers, Sunday magazines and other
periodicals, bulky book papers used for mass circulation paperback novels and
form papers for use in the manufacture of computer printout and other business
forms. During 1993, the Company's production of uncoated groundwood papers
consisted of 69% rotogravure
46
<PAGE>
and offset papers, 21% directory papers, 8% bulky book papers and 2% forms
papers. Major customers for rotogravure and offset papers include major
retailers, publishers of Sunday magazines and other periodicals and major
commercial printers. Major customers for directory papers include telephone
companies and independent publishers of telephone directories and large
commercial printers.
MARKET PULP. The Company owns and operates five market pulp mills in North
America including mill operations in Panama City, Florida; Port Wentworth,
Georgia; Bathurst, New Brunswick; Portage-du-Fort, Quebec and Trois-Rivieres,
Quebec and at its 25% owned operation in Castlegar, British Columbia. Total
sales of market pulp (including 25% of the Celgar mill) approximated $187.3
million in 1993.
The Company has invested substantial sums to increase the production
capacity of market pulp. In 1992, the addition of market pulp capacity was
completed at the Company's Port Wentworth mill. The cost of the project was
approximately $425 million. In addition, the Celgar mill was completely rebuilt
and approximately doubled in capacity at a cost of approximately Cdn.$693
million.
FIBER SUPPLY:
Wood fiber, particularly from wood chips, and waste paper constitute the
basic raw materials for linerboard, corrugating medium, unbleached kraft paper,
newsprint, uncoated groundwood paper and market pulp. Wood fiber resources are
available within economic proximity of the mills and the Company has not
experienced any significant difficulty in obtaining such resources, although
environmental concerns in the Pacific Northwest (including the designation of
the spotted owl as a threatened species) have reduced the supply of wood in that
region. Consistent with its strategy to obtain long-term wood fiber sources
without the costs associated with land ownership, the Company sold approximately
329 thousand acres of timberland during the years 1988 through 1992. This
acreage had been owned by Southwest Forest Industries, Inc., now named Stone
Southwest, Inc., which was acquired by the Company in 1987. At December 31,
1993, the Company had approximately 11 thousand and 339 thousand acres of
private fee timberland in the United States and Canada, respectively. The
Company assists certain landowners in the southeastern United States in managing
approximately 2.0 million acres of timberland.
Recycled fiber, one of the Company's principal raw material components along
with wood fiber, must be purchased in a price sensitive market. The Company
believes that the demand for recycled fiber will increase and expects that the
cost of purchasing recycled fiber will also increase as a result of increased
demand and market conditions. As a result of the recognition of greater recycled
fiber utilization in the United States, the Company and WMX Technologies, Inc.
(formerly Waste Management Corporation) have formed PRI, which assists the
Company in the procurement of waste fiber.
MARKETS AND COMPETITION
The major markets in which the Company sells its principal products are
highly competitive. Its products compete with similar products manufactured by
others and, in some instances, with products manufactured from other materials.
Areas of competition include price, innovation, quality and service.
The Company's products and the raw materials needed to manufacture those
products have historically exhibited price and demand cyclicality. Cyclical
economic factors such as growth in the economy generally, interest rates,
unemployment levels and fluctuations in currency exchange rates have had a
significant impact on prices and sales of the Company's products. The
availability and cost of wood fiber, including wood chips, and waste paper may
be subject to substantial variation, depending upon economic, political and
conservation considerations.
The Company's business is not dependent upon a single customer or upon a
small number of major customers. The loss of any one customer would not have a
material adverse effect on the Company.
Backlogs are not a significant factor in the industry in which the Company
operates; most orders placed with the Company are for delivery within 60 days or
less.
47
<PAGE>
The Company owns patents, licenses, trademarks and tradenames on products.
The loss of any patent, license, trademark and tradename would not have a
material adverse effect on the Company's operations.
EMPLOYEES
As of December 31, 1993, the Company had approximately 29,000 employees, of
whom approximately 21,100 were employees of U.S. operations and the remainder
were employees of foreign operations. Of those in the United States,
approximately 12,300 are union employees.
LEGAL PROCEEDINGS
In November 1988, the Legal Environmental Assistance Foundation ("LEAF")
filed a citizens suit in the U.S. District Court for the Northern District of
Florida against the Board of County Commissioners of Bay County, Florida (the
"County") pursuant to Section 505 of the federal Clean Water Act. The Company's
Panama City, Florida mill is one of the parties which contracts to utilize the
County's wastewater treatment facility. The suit sought declaratory and
injunctive relief in connection with alleged violations by the County of its
wastewater treatment facility's National Pollutant Discharge Elimination
Standards ("NPDES") discharge permit conditions. In September 1990, LEAF amended
its complaint to include a request for an unspecified amount of penalties as
provided by statute. If any penalties are ultimately assessed or agreed to by
the County in this matter, the Company anticipates that the County would claim
an undetermined portion of such penalties as the liability of the Company
pursuant to the warranty and indemnification language contained in a March 20,
1979 Water Treatment and Disposal Service agreement between the County and
Southwest Forest Industries, Inc., the Company's predecessor in interest. On
March 9, 1993, the Court issued its Order granting the County's Motion For
Summary Judgment. In its Order, the Court concluded that the suit was moot
because LEAF's amended complaint requesting civil penalties was filed after the
County had brought its facilities into compliance with the applicable permit
limits. On February 14, 1994, the district court's decision was affirmed by the
U.S. Court of Appeals for the Eleventh Circuit. On July 15, 1994, the Eleventh
Circuit entered an order denying LEAF's motion for a petition for rehearing.
On October 27, 1992, the Florida Department of Environmental Regulation
("DER") filed a civil complaint in the Fourteenth Judicial Circuit Court of Bay
County, Florida against the Company seeking injunctive relief, an unspecified
amount of fines and civil penalties, and other relief based on alleged
groundwater contamination at the Company's Panama City, Florida pulp and paper
mill site. In addition, the complaint alleges operation of a solid waste
facility without a permit and discrepancies in hazardous waste shipping
manifests. Because of uncertainties in the interpretation and application for
DER's rules, it is premature to assess the Company's potential liability, if
any, in the event of an adverse ruling. At the parties' request, the case has
been placed in abeyance pending the conclusion of a related administrative
proceeding petitioned by the Company following DER's proposal to deny the
Company a permit renewal to continue operating its wastewater pretreatment
facility at the mill site. The administrative proceeding has been referred to a
hearing officer for an evidentiary hearing on the consolidated issues of
compliance with a prior consent order, denial of the permit renewal, completion
of a contamination assessment and denial of a sodium exemption. As of July 19,
1994, the hearing officer had postponed the evidentiary hearing pending
settlement negotiations between the parties. The Company intends to vigorously
assert its entitlement to the permit renewal and to defend against the
groundwater contamination and unpermitted facility allegations.
In November 1990, the EPA announced its decision to list two bodies of water
in Arizona, Dry Lake and Twin Lakes, as "waters of the United States" impacted
by toxic pollutant discharges under Section 304(l) of the federal Clean Water
Act. These bodies of water have been used by the Company's Snowflake, Arizona
pulp and paper mill for the evaporation of its process wastewater. The EPA is
preparing a draft consent decree to resolve the alleged past unpermitted
discharges which will include the EPA's proposal that the Company pay civil
penalties in the amount of $900,000. The Company has vigorously disputed the
application of the Clean Water Act to these two privately owned evaporation
ponds. The Company has proposed to the EPA a plan to convert its Snowflake,
Arizona mill's wastewater
48
<PAGE>
management system to a tree farm irrigation system. The EPA has indicated an
interest in this proposal and discussions are ongoing. It is premature to
predict either the outcome of the negotiations with the EPA or the amount of
penalties which will eventually be assessed.
By letter dated January 4, 1994, the Company was advised by the Water
Management Division of the EPA, Region 9 that the EPA was seeking penalties in
the amount of $125,000 for violations of discharge limits and monitoring
requirements of the applicable NPDES permit at the Company's Flagstaff, Arizona
Sawmill during the period from January 1990 through December 1992. The Company
is investigating the matter and intends to negotiate with the EPA a reduced
penalty amount. The EPA has advised that if a prompt settlement cannot be
reached it will refer the matter to the Department of Justice for the filing of
a civil suit.
On April 20, 1994, Carolina Power & Light ("CP&L") commenced proceedings
against the Company before the Federal Energy Regulatory Commission ("FERC")
(the "FERC Proceeding") and in the United States District Court for the Eastern
District of North Carolina (the "Federal Court Action"). Both proceedings relate
to the Company's electric cogeneration facility located at its Florence, South
Carolina plant (the "Facility") and the Company's Electric Power Purchase
Agreement (the "Agreement") with CP&L. Prior to the filing of the proceedings,
the Company and CP&L had been in discussions relating to a transaction involving
the Facility and the Agreement.
In the FERC Proceeding, CP&L alleges that the Facility lost its qualifying
facility ("QF") certification under the Public Utility Regulatory Policy Act of
1978 on August 13, 1991, when the Agreement pursuant to which CP&L purchases
electricity generated by the Facility was amended to reflect the Company's
election under the Agreement to switch to a "buy-all/sell-all mode of
operation." As a result, CP&L alleges the Company became a "public utility" on
August 13, 1991 subject to FERC regulation under the Federal Power Act. CP&L has
also requested the FERC to determine the just and reasonable rate for sales of
electric energy and capacity from the Facility since August 13, 1991 and to
order the Company to refund any amounts paid in excess of that rate, plus
interest and penalties.
In its answer filed with the FERC on June 2, 1994, the Company stated that
its power sales to CP&L fully complied with the FERC's regulations. The Company
also requested the FERC to waive compliance with any applicable FERC regulations
in the event that the FERC should determine, contrary to the Company's position,
that the Company has not complied with the FERC's regulations in any respect. If
the FERC were to determine that the Company had become a "public utility," the
Company's issuance of securities and incurrence of debt after the date that it
became a "public utility" would become subject to the jurisdiction and approval
of the FERC unless the FERC granted a waiver. In the absence of such a waiver,
certain other activities and contracts of the Company after such date could also
become subject to additional federal and state regulatory requirements, and
defaults might be created under certain existing agreements. Based on past
administrative practice of the FERC in granting waivers of certain other
regulations, the Company believes that it is likely that such a waiver would be
granted by the FERC in the event that such a waiver became necessary. However,
the FERC Proceeding is in its preliminary stages and no assurance can be
provided as to the timing of the FERC's decision or the outcome.
In the Federal Court Action, CP&L has requested declaratory judgments that
sales of electric energy and capacity under the Agreement since August 13, 1991
are subject to a just and reasonable rate to be determined by FERC and that the
Agreement has been terminated as a result of the Company's failure to maintain
the Facility's QF status and the invalidity of the Agreement's rate provisions.
CP&L has also sought damages for breach of contract and for purchases in excess
of the just and reasonable rate to be determined by the FERC. On June 9, 1994,
the Company moved to dismiss CP&L's Federal Court Action on the principal
grounds that any proceedings in the United States District Court are premature
unless and until the FERC issues a final order with respect to the cogeneration
facility's QF status.
The Company intends to contest these actions vigorously. Due to the pendency
of the litigation, the Company has postponed a previously disclosed possible
transaction related to the Facility and the Agreement.
49
<PAGE>
The Company is involved in contractual disputes, administrative and legal
proceedings and investigations of various types. Although any litigation,
proceeding or investigation has an element of uncertainty, the Company believes
that the outcome of any proceeding, lawsuit or claim which is pending or
threatened, or all of them combined, would not have a material adverse effect on
its consolidated financial position or results of operations.
For additional information relating to the Company see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations," "-- Investing Activities" and "-- Environmental Issues"
and the Notes to the Consolidated Financial Statements, "Note 2 -- Subsequent
Events," pages F-20 - F-21, "Note 3 --Acquisitions/Mergers/Dispositions," page
F-21, "Note 4 -- Public Offering of Subsidiary Stock," pages F-21 - F-22, "Note
16 -- Related Party Transactions," page F-43 - F-44 and "Note 19 -- Segment
Information," pages F-47 - F-50.
50
<PAGE>
PROPERTIES
The Company, including its subsidiaries and affiliates, maintains
manufacturing facilities and sales offices throughout North America, continental
Europe and the United Kingdom, as well as sales offices in Japan and China. A
listing of such worldwide facilities as of December 31, 1993 is provided on
pages 52 - 53 of this Prospectus.
The approximate annual production capacity of the Company's mills is
summarized in the following table:
<TABLE>
<CAPTION>
PAPERBOARD
AND PAPER WHITE PAPER
PACKAGING AND PULP TOTAL
------------ ------------ ------------
DECEMBER 31,
----------------------------------------
1993 1992 1993 1992 1993 1992
----- ----- ----- ----- ----- -----
(IN THOUSANDS OF SHORT TONS)
<S> <C> <C> <C> <C> <C> <C>
United States (1).......................................... 4,583 4,572 853 847 5,436 5,419
Canada (2)(3).............................................. 429 436 2,176 1,783 2,605 2,219
Europe (3)................................................. 314 310 307 306 621 616
Other (4).................................................. -- 58 -- -- -- 58
----- ----- ----- ----- ----- -----
5,326 5,376 3,336 2,936 8,662 8,312
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
<FN>
- ------------------------
(1) Includes 100% of Seminole and Stone Savannah mills.
(2) Includes 25% of the Celgar mill.
(3) Includes 100% of Stone-Consolidated.
(4) Includes 49% of the Titan mill at December 31, 1992.
</TABLE>
All mills and converting facilities are owned, or partially owned through
investments in other companies, by the Company, except for 45 converting plants
in the United States, which are leased.
The Company owns certain properties that have been mortgaged or otherwise
encumbered. These properties include 12 paper mills, 9 bag plants and 45
corrugated container plants, including those subject to a leasehold mortgage.
The Company's properties and facilities are properly equipped with machinery
suitable for their use. Such facilities and related equipment are well
maintained and adequate for the Company's current operations.
For additional information relating to the Company's properties for the year
ended December 31, 1993 see the Notes to the Consolidated Financial Statements,
"Note 3 -- Acquisitions/Mergers/Dispositions," pages F-21, "Note 4 -- Public
Offering of Subsidiary Stock," pages F-21 - F-22, "Note 10 -- Long-term Debt,"
pages F-30 - F-38 and "Note 13 -- Long-term Leases," pages F-39 - F-40.
51
<PAGE>
WORLDWIDE FACILITIES
UNITED STATES
ALABAMA
Birmingham-
ARIZONA
EagarV
Glendale-
Phoenixt
SnowflakeZ
SnowflakeZ
THE APACHE
RAILWAY
COMPANY
ARKANSAS
Jacksonvillet
(LITTLE ROCK)
Little Rock-
Rogers-
CALIFORNIA
City of Industry-
(LOS ANGELES)
Fullerton-
Happy CampV
Los Angelest
Salinas-
San Jose-
Santa Fe Springs--
COLORADO
Denver-
South ForkV
CONNECTICUT
Portland-
Torrington-
UncasvilleZ
FLORIDA
Cantonmentt
(PENSACOLA)
GracevilleV
JacksonvilleZ
Panama CityZ
Yuleet
Orlando-
PACKAGING SYSTEMS
Jacksonville-
PREPRINT
GEORGIA
Atlanta---
Port WentworthZ
AtlantaZ
TECHNOLOGY AND
ENGINEERING CENTER
ILLINOIS
Bedford Park-
(CHICAGO)
Bloomington-
Cameo-
(CHICAGO)
Danville-
*Herrin-
Joliet-
Naperville-
(CHICAGO)
North Chicago-
Plainfieldt
Quincyt
*Ziont
Burr RidgeZ
TECHNOLOGY AND
ENGINEERING CENTER
Oakbrook-
MARKETING AND
TECHNICAL CENTER
INDIANA
Columbus-
Indianapolis-
Mishawaka-
South Bend-
IOWA
Des Moines-t
Keokuk-
Sioux City-
KANSAS
Kansas City-
KENTUCKY
Louisville-t
LOUISIANA
Arcadiat
HodgetZ
New Orleans-
MARYLAND
Savaget
(BALTIMORE)
MASSACHUSETTS
Mansfield-
Westfield-
MICHIGAN
Detroit-
Grand Rapidst
OntonagonZ
Melvindale-
(DETROIT)
MINNESOTA
Minneapolis-
Rochester-
St. Cloud-
St. Paul-
Minneapolis-
PREPRINT
MISSISSIPPI
Jackson-
Tupelo--
MISSOURI
Blue Springs-
Kansas Cityt
Liberty-
(KANSAS CITY)
Springfield-
St. Joseph-
St. Louis-
MONTANA
MissoulaZ
NEBRASKA
Omaha-
NEW JERSEY
Elizabetht
Teterboro-
NEW MEXICO
ReserveV
NEW YORK
Buffalo-
NORTH CAROLINA
Charlotte-
Lexington-
Raleigh-
NORTH DAKOTA
Fargo-
OHIO
Cincinnati-
CoshoctonZ
Jefferson-
Mansfield-
Marietta-
New Philadelphiat
OKLAHOMA
Oklahoma City-
Sand Springs-
(TULSA)
OREGON
AlbanyV
Grants PassV
MedfordV
SpringfieldV
White CityV
PENNSYLVANIA
Philadelphia--
Williamsport-
YorkZ
SOUTH CAROLINA
Columbia-V
FlorenceZ
Fountain Inn-
OrangeburgV
SOUTH DAKOTA
Sioux Falls-
TENNESSEE
Chattanooga-
Collierville-
(MEMPHIS)
Nashville-
52
<PAGE>
WORLDWIDE FACILITIES
TEXAS
Dallas-
El Paso--.
Grand Prairie-
(DALLAS)
Houston-
Temple-
Tyler-
UTAH
Salt Lake Cityt
Salt Lake Cityt
BAG PACKAGING SYSTEMS
VIRGINIA
HopewellZ
Martinsville-
Richmond--t
WEST VIRGINIA
Wellsburgt
WISCONSIN
Beloit-
Germantown-
(MILWAUKEE)
Nennah-
CANADA
ALBERTA
*Calgary-
*Edmonton-
BRITISH COLUMBIA
*CastlegarZ
*New Westminster-
MANITOBA
*Winnipeg-
NEW BRUNSWICK
BathurstZV
*Saint John-
NOVA SCOTIA
*Dartmouth-
ONTARIO
*Etobicoke-
*Guelph-
*Pembroke-
*Rexdale-
*Whitby-
QUEBEC
ChibougamauV
Grand-MereZ
La BaieZ
Portage-du-FortZ
RobervalV
Saint-FulgenceV
*Saint-Laurent-
ShawiniganZ
Trois-RivieresZ
*Ville Monte-Royal-
RESEARCH CENTER
SASKATCHEWAN
*Regina-
GERMANY
*Augsburg.
*Bremen.
Dusseldorf-
*Frankfurt.
Germersheim-
Hamburg-
*Heppenheim.
HoyaZ
Julich-
Lauenburg-
Lubbecke-
Neuburg-
Platting-
ViersenZ
Waren-
HAMBURG
INSTITUTE FOR
PACKAGE AND
CORPORATE DESIGN
UNITED
KINGDOM
Ellesmere PortZ
NETHERLANDS
*Sneek.
BELGIUM
Ghlin-
Grand-Bigard-
FRANCE
*Bordeaux.
*Cholet.
Molieres-Sur-Ceze-
Nimes-
*Soissons.
*Strasbourg.
COSTA RICA
Palmar NorteV
San JoseV
ADMINISTRATIVE
OFFICE
VENEZUELA
*Puerto OrdazV
ADMINISTRATIVE OFFICE
CORPORATE HEADQUARTERS
Chicago, Illinois
FAR EAST OFFICES
Beijing, China
Tokyo, Japan
STONE CONTAINER
JAPAN COMPANY,
LTD.
<TABLE>
<C> <S>
- Corrugated Container
Z Paperboard/Paper/Pulp
t Bag
V Forest Products
. Folding Carton
*affiliates
</TABLE>
53
<PAGE>
MANAGEMENT
INFORMATION AS TO DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors of the Company and their
beneficial ownership of Common Stock as of March 1, 1994.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
YEAR FIRST COMMON STOCK
ELECTED A BENEFICIALLY PERCENT OF COMMON
NAME PRINCIPAL OCCUPATION DIRECTOR OWNED(C) STOCK OUTSTANDING
- --------------------------- -------------------------------------------- ----------- ------------ -----------------
<S> <C> <C> <C> <C>
Richard A. Giesen*++ Chairman of the Board & Chief Executive 1974 12,717 (a)
Officer of Continere Corporation
James J. Glasser++ Chairman of the Board, President and Chief 1986 10,200 (a)
Executive Officer of GATX Corporation
George D. Kennedy+# Chairman of the Board of Mallinckrodt Group 1989 1,020 (a)
Inc. formerly IMCERA Group Inc.
Howard C. Miller, Jr.*+ Consultant 1981 2,066 (a)
John D. Nichols+# Chairman of the Board and Chief Executive 1989 2,040 (a)
Officer of Illinois Tool Works Inc.
Jerry K. Pearlman*+++ Chairman of the Board and Chief Executive 1984 3,672 (a)
Officer of Zenith Electronics Corporation
Richard J. Raskin Attorney 1983 575,448 (a)(b)
Alan Stone* Senior Vice President 1969 1,062,143 1.2 %(b)
Avery J. Stone President of IDC Management 1969 906,415 1.0 %(b)
Ira N. Stone Senior Vice President 1969 1,004,296 1.1 %(b)
James H. Stone* President of Stone Management Corporation 1969 563,377 (a)(b)
Roger W. Stone* Chairman of the Board, President and Chief 1969 1,715,127 1.9 %(b)
Executive Officer
<FN>
- ------------------------
* Member of the Executive Committee
+ Member of the Audit Committee
++ Member of the Compensation Committee
# Member of the Nominating Committee
(a) Does not exceed one percent (1%) of the outstanding stock.
(b) There is included in the stock beneficially owned in the foregoing table,
Common Stock owned by spouses and associates, except those associates
separately listed in the table, beneficial ownership of which is
disclaimed. See footnote (b) under "Security Ownership by Certain
Beneficial Owners and Management -- Security Ownership by Management".
(c) Each person has sole voting and investment power with respect to the shares
listed.
</TABLE>
54
<PAGE>
The following information indicates the principal occupation and employment
for the directors and executive officers for the last five years, unless
otherwise indicated.
DIRECTORS:
RICHARD A. GIESEN, born October 7, 1929, is Chairman of the Board and Chief
Executive Officer of Continere Corporation, a packaging distribution company.
Mr. Giesen is a director of GATX Corporation and Continere Corporation.
JAMES J. GLASSER, born June 5, 1934, is Chairman of the Board, President and
Chief Executive Officer of GATX Corporation, a leasing and financial services
company. Mr. Glasser is a director of General American Transportation
Corporation, GATX Leasing Corporation, The B.F. Goodrich Company, Harris
Bankcorp, Inc., Harris Trust & Savings Bank, and Bank of Montreal.
GEORGE D. KENNEDY, born May 30, 1926, is Chairman of the Board of
Mallinckrodt Group Inc. formerly IMCERA Group Inc., a diversified health care
company. Mr. Kennedy is a director of Illinois Tool Works Inc., Kemper
Corporation, Kemper National Insurance Co., Brunswick Corporation, American
National Can Corporation, Scottsman Industries, Inc., and Medical Care America,
Inc.
HOWARD C. MILLER, JR., born September 2, 1926, is a consultant in private
practice, consulting in general business matters. Mr. Miller is a director of
Automobile Protection Corporation.
JOHN D. NICHOLS, born September 20, 1930, is Chairman of the Board and Chief
Executive Officer of Illinois Tool Works Inc., a diversified manufacturing
company. Mr. Nichols is a director of Philip Morris Companies, Inc., Household
International, Inc. and Rockwell International Corporation.
JERRY K. PEARLMAN, born March 27, 1939, is Chairman of the Board and Chief
Executive Officer of Zenith Electronics Corporation, a manufacturer of consumer
electronics and cable television products. Mr. Pearlman is a director of First
Chicago Corporation and The First National Bank of Chicago.
RICHARD J. RASKIN, born April 4, 1945, is an attorney in private practice
with the law firm of Richard J. Raskin, Attorney at Law. See Footnote (b) under
"Security Ownership by Certain Beneficial Owners and Management -- Security
Ownership by Management".
ALAN STONE, born February 5, 1928, Senior Vice President, Purchasing and
Transportation; is responsible for corporate purchasing and transportation. See
Footnote (b) under "Security Ownership by Certain Beneficial Owners and
Management -- Security Ownership by Management".
AVERY J. STONE, born November 7, 1932, is President of IDC Management Co., a
management and investment company. See Footnote (b) under "Security Ownership by
Certain Beneficial Owners and Management -- Security Ownership by Management".
IRA N. STONE, born February 4, 1932, Senior Vice President since 1991, is
responsible for Corporate Marketing, Communication and Public Affairs. See
Footnote (b) under "Security Ownership by Certain Beneficial Owners and
Management -- Security Ownership by Management".
JAMES H. STONE, born March 4, 1939, is President of Stone Management
Corporation, a management consulting firm (not affiliated with the Company). Mr.
Stone is a director of Fullerton Metals Company. See Footnote (b) under
"Security Ownership by Certain Beneficial Owners and Management -- Security
Ownership by Management".
ROGER W. STONE, born February 16, 1935, is Chairman of the Board, President
and Chief Executive Officer. Mr. Stone is a director of First Chicago
Corporation, The First National Bank of Chicago, Continere Corporation,
McDonald's Corporation, Morton International, Inc., Stone-Consolidated
Corporation, and Option Care, Inc. See Footnote (b) under "Security Ownership by
Certain Beneficial Owners and Management -- Security Ownership by Management".
55
<PAGE>
OTHER EXECUTIVE OFFICERS:
ARNOLD F. BROOKSTONE, born April 8, 1930, Executive Vice President, Chief
Financial and Planning Officer since 1991. Previously, Mr. Brookstone was Senior
Vice President, Chief Financial and Planning Officer. Mr. Brookstone is a
director of Stone-Consolidated Corporation, Continere Corporation, Donnelly
Corporation, MFRI, Inc., and Rembrandt Funds.
JAMES DOUGHAN, born November 9, 1933, President and Chief Executive Officer
of Stone-Consolidated Corporation since 1993. Previously, Mr. Doughan was
Executive Vice President, Containerboard and Paper and Pulp Marketing and Sales.
Mr. Doughan is a director of Stone-Consolidated Corporation.
MORTY ROSENKRANZ, born February 21, 1928, Executive Vice President,
Administration since 1993. Previously, Mr. Rosenkranz was Executive Vice
President North American Integrated Packaging.
JOHN D. BENCE, born June 18, 1932, Senior Vice President, European Packaging
Operations, joined the Company in December 1988 and was elected Vice President
in March 1989 and Senior Vice President in January 1991.
THOMAS W. CADDEN, SR., born September 4, 1933, Senior Vice President and
General Manager Industrial and Retail Packaging since 1993. Previously, Mr.
Cadden was Senior Vice President and General Manager of the Corrugated Container
Division.
THOMAS P. CUTILLETTA, born July 5, 1943, Senior Vice President and Corporate
Controller, is the Company's Chief Accounting Officer. Mr. Cutilletta was
elected Senior Vice President in January 1991.
HAROLD E. GREGG, born May 17, 1929, Senior Vice President since 1993 working
on special projects for the Chairman of the Board. Previously Mr. Gregg was
Senior Vice President Marketing and Corporate Sales.
GERALD M. FREEMAN, born April 18, 1937, Senior Vice President and General
Manager, Forest Products Division since 1987, is responsible for the operations
of that division.
JAMES B. HEIDER, born July 27, 1943, Senior Vice President and General
Manager, Containerboard and Paper Division since December, 1988.
MATTHEW S. KAPLAN, born March 13, 1957, Senior Vice President and General
Manager, Corrugated Container Division, since June, 1993. Previously, Mr. Kaplan
was Vice President and General Manager, Retail Bag Division. Mr. Kaplan is the
son-in-law of Roger W. Stone.
WILLIAM J. KLAISLE, born September 13, 1941, Vice President Corporate
Development since April 1993. Previously, Mr. Klaisle was Vice President,
Corporate Marketing and Communications.
LESLIE T. LEDERER, born July 20, 1948, Vice President, Secretary and Counsel
since 1987.
MICHAEL B. WHEELER, born February 15, 1945, Vice President since 1984 and
Treasurer and Assistant Secretary since 1981.
MEETINGS AND COMMITTEES OF DIRECTORS
The Audit Committee of the Board meets, as necessary, to receive and review
the results of the audits of the Company's books and records performed by the
independent auditors, to review matters relating to internal auditing,
accounting policies, procedures and adjustments, and to participate in the
selection of independent auditors for the following year.
The Compensation Committee of the Board meets, as necessary, to review the
Company's programs for the development of management personnel and to consider
recommendations and proposals to be made to the Board on directors' fees and
management compensation.
The Nominating Committee of the Board meets, as necessary, to seek out,
review the qualifications of, and propose to the Board, nominees for election as
directors. The Company's By-Laws provide, in general, that any stockholder
entitled to vote in the election of directors generally may nominate one or more
persons for election as directors at a meeting of stockholders at which
directors are to be elected
56
<PAGE>
only if written notice of such stockholder's intent to make such nomination has
been received by the Secretary of the Company not less than 60 nor more than 90
days prior to such meeting. The By-Laws further specify the requirements of such
notice.
The Executive Committee of the Board exercises the power and authority of
the Board of Directors as may be necessary during intervals between meetings of
the Board of Directors, subject to such limitations as are provided by law, the
Company's By-Laws or resolutions of the Board of Directors.
Non-employee directors receive an annual retainer of $25,000 for their
services plus $1,000 per meeting for attendance at Board and Board Committee
meetings. In addition, the Chairman of the Audit Committee and the Chairman of
the Compensation Committee receive an additional $3,000 per year retainer. Under
the Company's unfunded deferred director fee plans, a director may elect to
defer payment of his director's fees so that payment would be made in ten equal
annual installments commencing in the year following the director's retirement
from the Board of Directors plus earnings on the deferred amounts. In addition,
it is the policy of the Company to appoint a director with ten or more years
service as a director to be a consultant to the Company for a period of five
years after retirement from the Board, at an annual fee based upon the
director's retainer in effect at the date of retirement.
CERTAIN TRANSACTIONS
During 1984, the Company loaned to Mr. James Doughan, President & Chief
Executive Officer of Stone-Consolidated the amount of $347,250 in connection
with Mr. Doughan's relocation to Chicago upon his assuming his duties with the
Company. Mr. Doughan subsequently repaid a portion of such loan; the outstanding
balance as of March 1, 1994 was $275,000. During 1988, the Company made a loan
to Mr. James B. Heider, Senior Vice President and General Manager,
Containerboard and Paper Division, in the amount of $320,000 in connection with
his move to Chicago. Mr. Heider has subsequently repaid a portion of such loan;
the outstanding balance as of March 1, 1994 was $250,000. Such loans bear no
interest and are repayable on demand by the Company. The interest rate imputed
on such loans was 4.98% during 1993.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Roger W. Stone, Chairman of the Board, President and Chief Executive Officer
of the Company, serves as a director of Continere Corporation, whose Chairman
and Chief Executive Officer, Richard A. Giesen, serves on the Compensation
Committee of the Company.
57
<PAGE>
SECURITY OWNERSHIP BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS
As of February 14, 1994, the following persons were known to the Company to
own beneficially more than 5% of the outstanding Common Stock of the Company:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENT OF COMMON
NAME AND ADDRESS BENEFICIALLY OWNED(1) STOCK OUTSTANDING
- ------------------------------------------------------------------ ----------------------- ---------------------
<S> <C> <C>
FMR Corp.......................................................... 10,184,373(2) 11.58%
82 Devonshire Street
Boston, MA 02109-3614
Sanford C. Bernstein & Co., Inc................................... 6,337,584 7.2 %
767 Fifth Avenue
New York, NY 10153
Reliance Financial Services Corp.................................. 4,761,904(3) 5.4 %
Park Avenue Plaza
55 East 52nd Street
New York, NY 10055
<FN>
- ------------------------
(1) Information with respect to beneficial ownership is based upon information
furnished by each owner.
(2) Includes (i) 5,350,817 shares resulting from the assumed conversion of
$61,802,000 principal amount of the Company's 8 7/8% Convertible Senior
Subordinated Notes due 2000, (ii) 7,949 shares resulting from the assumed
conversion of shares of the Company's $1.75 Series E Cumulative Convertible
Exchangeable Preferred Stock and (iii) 60,694 shares resulting from the
assumed conversion of $2,060,000 principal amount of the Company's 6.75%
Convertible Subordinated Debentures.
(3) All 4,761,904 shares are based upon the assumed conversion of the Company's
8 7/8% Convertible Senior Subordinated Notes due 2000.
</TABLE>
SECURITY OWNERSHIP BY MANAGEMENT
As of March 1, 1994, each of the executive officers named in the Summary
Compensation Table below, individually, and all directors and executive officers
as a group, beneficially owned the following shares of Common Stock of the
Company:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OF COMMON STOCK PERCENT OF
BENEFICIALLY COMMON STOCK
NAME OWNED OUTSTANDING
- ----------------------------------- --------------- ---------------
<S> <C> <C>
Arnold F. Brookstone............... 112,400 (a)
James Doughan...................... 49,296 (a)
James B. Heider.................... 44,795 (a)
Morty Rosenkranz................... 68,168 (a)
Roger W. Stone..................... 1,715,127 1.9 %(b)
All directors and executive
officers as a group............... 11,203,767 12.4 %(b)
<FN>
- ------------------------
(a) Does not exceed one percent (1%) of the outstanding stock.
(b) The shares of Common Stock owned by all directors and executive officers as
a group include those of Jerome H. Stone and Marvin N. Stone, each of whom
is a Founding Director and as such is, pursuant to the Company's By-Laws,
entitled to attend and participate at meetings of directors but have no
vote. Jerome H. Stone, Marvin N. Stone and Norman H. Stone (deceased) are
brothers. Alan Stone and Ira N. Stone are sons of Norman H. Stone. Avery J.
Stone and Roger W. Stone are sons of Marvin N. Stone. James H. Stone is the
son and Richard J. Raskin is the son-in-law of
</TABLE>
58
<PAGE>
<TABLE>
<S> <C>
Jerome H. Stone. Matthew S. Kaplan is the son-in-law of Roger W. Stone. The
members of the Stone family own an aggregate (but not as a group) of
approximately 13,000,000 shares of Common Stock (approximately 15% of the
outstanding shares).
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to, as well as the
value of stock awards earned by, the Company's Chief Executive Officer and the
Company's four other most highly compensated executive officers during the past
three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION --------------------------------------
--------------------------------- RESTRICTED STOCK LONG-TERM INCENTIVE
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1)(2) PLAN PAYOUTS(3)
- ----------------------------------------- --------- ----------- --------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
Roger W. Stone .......................... 1993 $ 730,000 -- $ 395,604 -0-
Chairman, President 1992 730,000 -- 389,360 172,150
Chief Executive Officer 1991 730,000 -- 381,547 177,000
Morty Rosenkranz ........................ 1993 410,000 -- 156,545 -0-
Executive Vice President 1992 391,250 -- 154,836 65,340
1991 363,250 -- 150,121 69,000
James Doughan ........................... 1993 373,000 -- 131,000 -0-
Executive Vice President 1992 358,000 -- 118,856 65,340
1991 341,750 -- 114,276 69,000
Arnold F. Brookstone .................... 1993 310,000 -- 113,004 -0-
Executive Vice President 1992 295,000 -- 104,295 61,270
1991 280,250 -- 99,774 69,000
James B. Heider ......................... 1993 275,000 -- 87,770 -0-
Senior Vice President 1992 253,250 -- 87,210 25,300
1991 225,500 -- 76,751 29,850
<FN>
- ------------------------
(1) Stock awards made under the Long-Term Incentive Plan do not vest until the
fifth anniversary of the award.
(2) Dividends on shares of restricted stock are paid at the same time and at
the same rate as dividends on all other shares of the Company's Common
Stock. The aggregate number as of December 31, 1993 and value as of the
date of the grant of each named executive's restricted stock holdings are
as follows: Mr. Stone, 119,081 shares, $2,332,807.25; Mr. Rosenkranz,
36,550 shares, $729,229.00; Mr. Doughan, 29,120 shares $598,140.25; Mr.
Brookstone, 24,671 shares, $510,369.75; Mr. Heider, 20,458 shares,
$370,071.50.
(3) Cash payouts under the Long-Term Incentive Plan reflected in this column
are on account of awards made and earned over the preceding five year
period.
</TABLE>
59
<PAGE>
LONG TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
The following table sets forth the long-term incentive plan performance unit
awards made to each of the named executives in 1993.
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
OTHER PERIOD NON-STOCK PRICE BASED PLANS(1)
UNTIL -----------------------------------
NUMBER OF MATURATION OR THRESHOLD TARGET MAXIMUM
NAME UNITS PAYOUT ($) ($) ($)
- ------------------------------------------------- ----------- --------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Roger W. Stone................................... 3956 5 years 197,800 395,600 593,400
Morty Rosenkranz................................. 1566 5 years 78,300 156,600 234,900
James Doughan.................................... 1197 5 years 59,850 119,700 179,550
Arnold F. Brookstone............................. 1048 5 years 52,400 104,800 157,200
James B. Heider.................................. 878 5 years 43,900 87,800 131,700
<FN>
- ------------------------
(1) Cash payout under the Company's Long-Term Incentive Plan.
</TABLE>
In addition to the restricted stock awards reflected in the Summary
Compensation Table, the Company's Long-Term Incentive Plan provides for
incentive awards to each named executive officer, in the form of performance
units, based upon the long-term performance of the Company. Such awards may be
earned upon the expiration of the five year period after the date of award to
the extent that the Company has achieved the designated performance goals for
such five-year performance cycle. Awards are granted each year based upon each
participant's level of responsibility and average salary mid-point level
projected as of the end of each five year performance cycle with awards ranging
from 40% to 100% of such salary mid-point. Performance unit awards are payable
in cash, if earned, upon the completion of each five year performance cycle. The
targeted performance goal for each performance cycle is realization by the
Company of a designated average corporate return on beginning equity. Cash
payments (from 0% to 150% of the performance unit award) are then determined by
the degree to which the Company attains or exceeds the targeted goal, ranging
from a minimum of 88% to a maximum of 133% of such goal. No cash payments will
be made if the Company does not achieve at least 88% of such goal. For example,
the cash payment, if any, to be paid to a participant under the plan will be in
an amount equal to (i) 100% of the value of the performance unit at the time of
its award if the Company attains the targeted goal at the end of the performance
cycle; (ii) 150% of such value if the Company attains 133% of such targeted
goal; (iii) 50% of such value if the Company attains 88% of such targeted goal,
or (iv) nothing, if the Company does not attain 88% of its targeted goal.
SALARIED EMPLOYEES RETIREMENT PLAN:
The Stone Container Corporation Salaried Employees Retirement Plan provides
for the payment of a monthly pension to retiring salaried employees equal to the
larger of (a) 1.67% of his or her average monthly compensation based on the
highest 60 consecutive months compensation (within the last 180 months) for each
year of service to a maximum of 30 years service, reduced by 3/4 of 1% of the
employee's covered compensation under social security or (b) 1% of such average
monthly compensation (not greater than $900) for each year of service. This
benefit is then reduced, if applicable, by the monthly retirement income that
could be provided on an actuarial equivalent basis from the employee's
participation in certain previously sponsored retirement plans of the Company.
Employees become vested for retirement income benefits after completion of 5
years of service or, if earlier, upon reaching age 65. The payment or accrual in
respect of any specified person is not and cannot readily be separately or
individually calculated by the actuaries for this defined benefit plan. Upon the
recommendation of the independent actuaries, the Company did not make a cash
contribution to the Plan for the year 1993. The following table shows the
estimated annual benefits payable upon retirement to persons in specified
remuneration and years-of-service classifications.
60
<PAGE>
PENSION PLAN TABLE
ILLUSTRATIVE PROJECTED ANNUAL RETIREMENT BENEFIT
FOR SELECTED REMUNERATION AND YEARS OF SERVICE CLASSIFICATIONS (A)
<TABLE>
<CAPTION>
YEARS OF SERVICE AT RETIREMENT
---------------------------------------------------------------
REMUNERATION (B) 15 20 25 30 35
- ---------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 100,000................... $ 25,050 33,400 41,750 50,100 50,100
150,000................... 37,575 50,100 62,625 75,150 75,150
200,000................... 50,100 66,800 83,500 100,200 100,200
250,000................... 62,625 83,500 104,375 125,250 125,250
300,000................... 75,150 100,200 125,250 150,300 150,300
400,000................... 100,200 133,600 167,000 200,400 200,400
600,000................... 150,300 200,400 250,500 300,600 300,600
800,000................... 200,400 267,200 334,000 400,800 400,800
1,000,000.................. 250,500 334,000 417,500 501,000 501,000
<FN>
- ------------------------
(a) Benefit shown would be reduced by 3/4 of 1% of the retiree's covered
compensation under social security while employed by the Company, as
defined in the Plan, and would be limited to the extent required by the
provisions of the Internal Revenue Code of 1986. Under federal law, an
employee's benefits under a qualified pension plan such as the Stone
Container Corporation Salaried Employees Retirement Plan are limited to
certain maximum amounts. The Company maintains the Stone Container
Corporation Excess Benefit Plan, which supplements the benefits of any
participant in the qualified pension plan by direct payment of a lump sum
or by an annuity, on an unfunded basis, of the amount by which any
participant's benefits under the pension plan are limited by law. The table
illustrates the amount of annual pension without regard to such limitations
for an employee retiring in 1994 calculated on a single life annuity basis.
(b) In estimating the annual benefit it is assumed that the five year average
monthly compensation is equal to 1993 earnings.
</TABLE>
The base compensation covered by the Plan includes salary and any bonus
earned. Since no bonuses were paid to the individuals named in the summary
compensation table for the years 1991, 1992 and 1993, the base compensation
covered by the Plan for those years is equal to the amounts set forth in the
Salary column of that table. The years of service as of January 1, 1994 for such
individuals are: 37.4 for Mr. Stone, 29.9 for Mr. Rosenkranz, 9.9 for Mr.
Doughan, 28.7 for Mr. Brookstone and 13.2 for Mr. Heider.
Mr. James Doughan, Executive Vice President of the Company, has entered into
an agreement with the Company whereby the Company has agreed to pay Mr. Doughan
a supplemental retirement benefit commencing when Mr. Doughan attains age 65.
The supplemental retirement benefit is computed by taking the difference between
$12,500 per month and the amount Mr. Doughan will receive from the Stone
Container Corporation Salaried Employees Retirement Plan and, if applicable, the
Stone Container Corporation Excess Benefit Plan at age 65. Such supplemental
monthly benefit will be payable to Mr. Doughan only in the event Mr. Doughan is
either an employee of the Company at age 65 or becomes disabled while employed.
In the event Mr. Doughan dies either while an employee of Stone or after
commencement of such supplemental monthly benefit, his surviving spouse will
receive 50% of such supplemental monthly benefit for the remainder of her life.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN CONTROL
ARRANGEMENTS
The Board of Directors has authorized management to execute continuity
contracts for corporate and divisional officers (other than Roger W. Stone) who,
with certain exceptions, have been employed by the Company for at least five
years, providing for continuation of salary, bonus (based upon the average bonus
for the last three calendar years) and certain fringe benefits, in the event of
involuntary termination of employment after a change in control, as defined in
such continuity contracts, of the Company.
61
<PAGE>
Payments under these contracts would continue until the earliest of three years
from the date of such officer's involuntary termination, age 70, death,
disability or an offer of comparable employment. The Company has entered into
such contracts with each of the individuals named in the cash compensation table
other than Mr. Stone. The amount of such payments to be received by the
individuals named in the Summary Compensation Table is dependent upon whether
such individual obtains employment elsewhere. Any amounts received by such
individual from other employment will offset the payment made pursuant to these
contracts.
The Company entered into consulting agreements in 1974 with each of Messrs.
Jerome H. Stone, Marvin N. Stone and Norman H. Stone (deceased), under which
each serves or was to serve as a consultant to the Company for a fee of $80,000
per annum during his lifetime and, should he die leaving a widow, $40,000 per
annum to such widow during her lifetime. Mr. Norman H. Stone died during 1985
and his widow receives the specified payments. The consulting fees are in
addition to the retirement benefits previously noted.
62
<PAGE>
CREDIT AGREEMENT
Concurrently with the closing of this Offering, it is contemplated that the
Company will repay the outstanding indebtedness under and terminate its existing
1989 Credit Agreement and enter into the Credit Agreement. The Credit Agreement
will consist of a $250 million senior secured term loan and a senior secured
revolving credit facility under which $400 million (of which borrowing
availability will be reduced by any letter of credit commitments, and less
approximately $ million of borrowings thereunder which will be drawn down as
of the closing) will be available at closing. Availability under the revolving
credit facility will be reduced by the approximately $59 million outstanding
letter of credit (the "Florence Letter of Credit") securing the variable rate
demand industrial revenue bonds issued by Florence County, South Carolina
relating to the Company's linerboard mill located in Florence County. Up to $50
million of the revolving credit facility will be available as a letter of credit
sub-facility (other than the Florence Letter of Credit). Any letters of credit
issued under the sub-facility will reduce borrowing availability under the
revolving credit facility. In addition, the banks under the revolving credit
facility will also provide a swingline sub-facility under which the Company may
make short-term borrowings of up to $25 million. Swingline loans will reduce
availability under the revolving credit facility on a dollar-for-dollar basis.
The Credit Agreement is expected generally to include terms, conditions,
representations and warranties, covenants, indemnities and events of default and
other provisions which are customary in such agreements. The following is a
summary of certain of the principal terms expected to be included in the Credit
Agreement. The terms and conditions of the Credit Agreement are subject to
negotiation, commitments from a lending group, the execution of definitive
documentation and closing (which is conditional upon the successful closing of
this Offering and the other Related Transactions).
MATURITIES AND MANDATORY PREPAYMENTS
The term loan under the Credit Agreement will mature on April 1, 2000.
Amounts outstanding under the term loan will amortize on a semi-annual basis
(April 1 and October 1) based upon the applicable percentage of the initial
principal amount of the term loan. Amortization amounts will be .5% of principal
amount for the period from April 1, 1995 through April 1, 1999, 47.5% on October
1, 1999 and 48.0% on April 1, 2000. The revolving credit facility will mature on
May 15, 1999 and the Florence Letter of Credit will also expire May 15, 1999.
Mandatory prepayments will be required under the term loan portion of the
Credit Agreement as follows: (i) 50% (subject to performance-related step downs
to 25%) of excess cash flow (excluding the first $50 million of excess cash flow
in each fiscal year); (ii) 100% of the net proceeds of (a) the issuance or
incurrence of additional indebtedness (excluding certain specified refinancings
and $200 million (the "Debt Basket") of other debt), and (b) certain
non-ordinary course asset sales (excluding the first $200 million (the "Asset
Debt Basket") of proceeds from such sales (other than sales of collateral
pledged to the lenders under the Credit Agreement (the "Bank Collateral") or the
Collateral, in each case for which substitute collateral is not provided). All
mandatory prepayments will be allocated entirely against the term loan
amortizations in inverse order of maturity. In addition, mandatory prepayments
from sales of Bank Collateral (unless substitute collateral has been provided)
will be allocated pro rata between the term loan and the revolving credit
facility, and, in the case of the revolving credit facility, will result in a
corresponding permanent commitment reduction.
At the Company's request, the holders of loans under the term loan, voting
individually, may waive their individual right to any mandatory prepayment, in
which case the amounts otherwise payable to such holders may be retained by the
Company and used for (i) general corporate purposes, (ii) capital expenditures
or investments in excess of annual limitations (without reducing permitted
basket amounts) and (iii) prepayment of publicly issued debt securities
("Permitted Uses").
The Company will also be permitted to voluntarily reduce the unutilized
portion of the revolving credit facility and voluntarily prepay the term loan,
with voluntary term loan prepayments to be applied against amortizations in
inverse order of maturity.
63
<PAGE>
INTEREST RATES
The Credit Agreement permits the Company to choose among various interest
rate options for the revolving credit facility, the swingline loans thereunder
and the term loan and to specify the interest rate period to which the interest
rate options are to apply, subject to certain parameters. The applicable
interest rates will be: (i) under the revolving credit facility (a) the higher
of Bankers Trust Company's prime rate and the Federal Funds Effective Rate plus
1/2 of 1% (the alternative base rate ("ABR")) plus 1 5/8% per annum or (b) the
London Interbank Offered Rate ("LIBOR"), as adjusted, plus 2 5/8% per annum;
(ii) under the swingline loan, ABR plus 1 5/8% per annum and (iii) under the
term loan, ABR plus 2 1/8% per annum or LIBOR plus 3 1/8% per annum. Upon
achievement of specified indebtedness ratios and interest coverage ratios, the
interest rate margins will be reduced. Additionally, the Company pays a 1/2%
commitment fee on the unused portions of the revolving credit facilities. The
Company will pay a fee on the outstanding letters of credit issued under the
revolving credit facility at a rate equal to the greater of (i) the spread over
LIBOR, as adjusted, applicable to the revolving credit facility MINUS 1/2% and
(ii) 1%.
SECURITY
All indebtedness under the Credit Agreement will be secured by a significant
portion of the assets of the Company. Loans under the Credit Agreement will be
secured by a mortgage on the following mills owned by the Company or its
subsidiaries:
COVENANTS
The Credit Agreement is expected to contain covenants that include, among
other things, requirements to maintain certain financial tests and ratios
(including an indebtedness ratio, a minimum interest coverage ratio and a
tangible net worth test) and certain restrictions and limitations, including
those on capital expenditures, changes in control, payment of dividends, sales
of assets, lease payments, investments (particularly in Stone-Consolidated,
Seminole and SVCP), additional borrowings, liens, repurchases or prepayment of
certain indebtedness, guarantees of indebtedness, mergers and purchases of stock
and assets. The Credit Agreement is also expected to contain cross-acceleration
provisions to the non-recourse debt of Stone-Consolidated, Seminole and SVCP.
64
<PAGE>
DESCRIPTION OF NOTES
The Senior Notes will be issued under an Indenture dated as of ,
1994 (the "Senior Note Indenture"), between the Company and The Bank of New
York, as trustee (the "Senior Note Trustee"). The First Mortgage Notes will be
issued under an Indenture dated as of , 1994 (the "First Mortgage Note
Indenture") to be entered into by the Company and Norwest Bank Minnesota, N.A.,
as trustee (the "First Mortgage Note Trustee"). The Senior Notes and First
Mortgage Notes are collectively referred to herein as the "Notes," the Senior
Note Indenture and the First Mortgage Note Indenture are referred to herein
individually as an "Indenture" and, collectively, as the "Indentures" and the
Senior Note Trustee and the First Mortgage Note Trustee are referred to herein
individually as the "Trustee" and, collectively, as the "Trustees."
The following summaries of certain provisions of the First Mortgage Notes
and the Senior Notes and the First Mortgage Note Indenture and the Senior Note
Indenture do not purport to be complete and are subject to, and are qualified in
their entirety by express reference to, all the provisions of the First Mortgage
Note Indenture and the Senior Note Indenture, including the definitions therein
of certain terms. A copy of each of the First Mortgage Note Indenture and the
Senior Note Indenture is filed as an exhibit to the Registration Statement of
which this Prospectus is a part. Certain capitalized terms herein are defined in
the Indentures.
GENERAL
The Senior Note Indenture limits the aggregate principal amount of Senior
Notes which may be issued thereunder to $250 million. The Senior Notes will
constitute a series of Debt Securities issuable under the Senior Note Indenture.
The First Mortgage Note Indenture limits the principal amount of First Mortgage
Notes issuable thereunder to $650 million.
The Senior Notes will be unsecured obligations of the Company.
The First Mortgage Notes will be secured by the Collateral. See "--
Additional First Mortgage Note Indenture Definitions."
The principal of, and any premium or interest on, the Notes will be payable,
and the Notes will be exchangeable and transfers thereof will be registrable, at
the respective Place of Payment set forth in the Indenture, provided that, at
the option of the Company, payment of interest may be made by check mailed to
the address of the person entitled thereto as it appears in the Security
Register relating to such Notes.
The Notes will be issued in United States dollars in fully registered form,
without coupons, in denominations of $1,000 or any integral multiple thereof. No
service charge will be made for any transfer or exchange of the Notes, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
RANKING
The Notes will rank PARI PASSU in right of payment with all existing and
future Senior Indebtedness (as defined) of the Company and senior in right of
payment and rights upon liquidation to all existing and future Subordinated
Indebtedness of the Company. After giving effect to the Offering and the Related
Transactions, the total outstanding Senior Indebtedness of the Company is
expected to be approximately $ .
A significant portion of the Company's assets will secure borrowings
outstanding under the Credit Agreement. See "Credit Agreement -- Security."
Likewise, the First Mortgage Notes are secured obligations of the Company. In
the event of the Company's insolvency or liquidation, the claims of the lenders
under the Credit Agreement would have to be satisfied out of the collateral
securing the Credit Agreement before any such assets would be available to pay
claims of holders of the Notes. Similarly, the holders of First Mortgage Notes
would have to be satisfied out of the Collateral under the First Mortgage Note
Indenture before any such assets would be available to pay claims of holders of
the Senior Notes. If the lenders under the Credit Agreement and/or the First
Mortgage Note Trustee under
65
<PAGE>
the First Mortgage Note Indenture should foreclose on their respective
collateral, no assurance can be given that there will be sufficient assets
available in the Company to pay amounts due on the First Mortgage Notes or the
Senior Notes, respectively.
The Notes are obligations exclusively of the Company. Because the operations
of the Company are currently conducted to a large extent by Subsidiaries, the
Company's cash flow and consequent ability to service debt, including the Notes,
are dependent, in part, upon the earnings of its Subsidiaries and the
distribution of those earnings or upon loans or other payments of funds by those
Subsidiaries to the Company. The Subsidiaries of the Company are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amount due pursuant to the Notes or to make any funds available therefor,
whether by dividends, loans or other payments. In addition, the payment of
dividends and the making of loans and advances to the Company by its
Subsidiaries may be subject to statutory or contractual restrictions (as well as
potential foreign tax withholding under certain circumstances), are contingent
upon the earnings of those subsidiaries and are subject to various business
considerations.
Any right of the Company to receive assets of any of its subsidiaries upon
their liquidation or reorganization (and the consequent right of the holders of
the Notes to participate in the distribution of or proceeds from those assets)
will be structurally subordinated to the claims of such Subsidiary's creditors
(including trade creditors and holders of debt issued by such subsidiary),
except to the extent that the Company is itself recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be subordinate
to any security interests in the assets of such subsidiary and any indebtedness
of such Subsidiary senior to that held by the Company. The 12 1/8% Subordinated
Debentures due September 15, 2001 of Stone Southwest, Inc., a significant wholly
owned Subsidiary of the Company, have been guaranteed on a subordinated basis by
the Company. At March 31, 1994, approximately $ million principal amount of
such 12 1/8% Subordinated Debentures due September 15, 2001 was outstanding.
PARTICULAR TERMS OF THE FIRST MORTGAGE NOTES
The First Mortgage Notes will mature on , . The
First Mortgage Notes are not redeemable at the option of the Company prior to
. Thereafter, the First Mortgage Notes may be redeemed at
the option of the Company, in whole or in part from time to time, on not less
than 30 days, nor more than 45 days, prior notice, mailed by first class mail to
the First Mortgage Note holders' last addresses as they shall appear in the note
register, at the following prices (expressed as percentages of the principal
amount of the First Mortgage Notes), if redeemed during the twelve months
beginning of the year indicated below, in each case together
with interest accrued to the Redemption Date:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- -------------
<S> <C>
............................................................................ %
............................................................................ %
</TABLE>
Selection of First Mortgage Notes for redemption will be made by the First
Mortgage Note Trustee, upon notice, substantially pro rata, by lot, or by any
other method that the First Mortgage Note Trustee considers fair and
appropriate. The First Mortgage Note Indenture provides that, if any First
Mortgage Note is to be redeemed in part only, the notice which relates to the
redemption of such First Mortgage Note shall state the portion of the principal
amount to be redeemed, and shall state that on or after the Redemption Date,
upon surrender of such First Mortgage Note, a new First Mortgage Note or First
Mortgage Notes in principal amount equal to the unredeemed portion thereof will
be issued.
The First Mortgage Notes will bear interest at the rate per annum shown on
the cover page of this Prospectus from the date of original issuance of the
First Mortgage Notes. Interest on the First Mortgage Notes will be payable
semi-annually on and of each year,
commencing , 1995, to the Holders in whose names the Notes
are registered at the close of business on the preceding and
respectively.
66
<PAGE>
In the event that the Company is required but unable to make a Deficiency
Offer, the Reset Rate on the First Mortgage Notes will be the greater of (x) the
initial Interest Rate and (y) the sum of (A) basis points and (B) the higher
of the Year Treasury Rate and the Year Treasury Rate.
ADDITIONAL FIRST MORTGAGE NOTE COVENANTS
LIMITATION ON LIENS ON COLLATERAL. Under the terms of the First Mortgage
Note Indenture, the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, (a) incur or suffer to exist any Lien
upon any of the Collateral other than Permitted Collateral Liens, (b) take any
action or omit to take any action with respect to the Collateral that might or
would have the result of affecting or impairing the security interests in the
Collateral under the First Mortgage Note Indenture and the Security Documents,
or (c) grant or suffer to exist any interest whatsoever in any of the Collateral
of any Person (other than the First Mortgage Note Trustee) other than Permitted
Collateral Liens.
LIMITATION ON COLLATERAL ASSET SALES. Under the terms of the First Mortgage
Note Indenture, the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, consummate or permit a Collateral Asset
Sale unless: (a) the Company receives consideration in respect of and
concurrently with such Collateral Asset Sale at least equal to the fair market
value of the relevant Collateral; (b) with respect to each such Collateral Asset
Sale, the Company delivers an Officers' Certificate to the First Mortgage Note
Trustee dated no more than 30 days prior to the date of consummation of the
relevant Collateral Asset Sale, certifying that (i) such sale complies with
clause (a) above, (ii) the fair market value of the Collateral being sold was
determined in good faith by the Board of Directors of the Company, including a
majority of the Independent Directors (whose determination was based on the
opinion of a qualified Independent Appraiser or Independent Financial Adviser
prepared contemporaneously with such Collateral Asset Sale and which opinion
will be evidenced by an Opinion Letter of the Independent Appraiser or
Independent Financial Adviser and attached to the Officers' Certificate), as
evidenced by copies of the resolutions of the Board of Directors of the Company,
indicating the requisite approval by the Independent Directors and the Board of
Directors, adopted in respect of and concurrently with such Collateral Asset
Sale; (c) 100% of such consideration is in cash or Cash Equivalents; (d) the Net
Proceeds therefrom shall be paid directly by the purchaser thereof to the First
Mortgage Note Trustee and deposited into the Cash Collateral Account pending
application in accordance with clause (f) below; (e) the Company takes such
other actions, at its sole expense, as shall be required to permit the First
Mortgage Note Trustee to release the Collateral being sold from the Lien of the
First Mortgage Note Indenture and the Security Documents and to ensure that the
First Mortgage Note Trustee has from the date of such deposit a first ranking
Lien (subject to Permitted Collateral Liens) on such Net Proceeds in the Cash
Collateral Account pursuant to the terms of the First Mortgage Note Indenture
and the Security Documents; and (f) the Company, within twelve months from the
date of consummation of a Collateral Asset Sale, applies all of the Net Proceeds
therefrom for the following purposes, individually or in combination, (i) to
purchase or otherwise invest in Replacement Collateral or (ii) to make a First
Mortgage Note Offer; provided that, in the event that the Company enters into a
binding commitment to purchase or otherwise invest in Replacement Collateral
pursuant to the foregoing clause (f)(i) within such twelve month period, the
Company will have twenty-four months from the date of consummation of such
Collateral Asset Sale to consummate such purchase or investment, which shall be
completed with due diligence.
Under the terms of the First Mortgage Note Indenture, the Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, suffer or permit a Collateral Loss Event or Partial Collateral Loss
unless: (a) the Net Proceeds therefrom are paid directly by the party providing
such Net Proceeds to the First Mortgage Note Trustee and deposited in the Cash
Collateral Account, (b) the Company takes such actions, at its sole expense, as
shall be required to ensure that the First Mortgage Note Trustee has from the
date of such deposit a first ranking Lien (subject to Permitted Collateral
Liens) on such Net Proceeds in the Cash Collateral Account pursuant to the terms
of the First Mortgage Note Indenture and the Security Documents and (c) the
Company, within twelve months of receipt of the Net Proceeds therefrom, applies
all the Net Proceeds received therefrom for the following purposes, individually
or in combination: (i) in the case of a Collateral Loss Event, to purchase or
otherwise invest in
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Replacement Collateral; (ii) in the case of a Collateral Loss Event, to Restore
the relevant Collateral; or (iii) to make a First Mortgage Note Offer; provided
that, in the event that the Company enters into a binding commitment to purchase
or otherwise invest in Replacement Collateral pursuant to the foregoing clause
(c)(i) or to Restore the relevant Collateral pursuant to the foregoing clause
(c)(ii) within twelve months of receipt of such Net Proceeds, the Company will
have twenty-four months from the date of such receipt to consummate or complete
such purchase, investment or Restoration, which shall be carried out with due
diligence.
Under the terms of the First Mortgage Note Indenture, in the event that the
Company decides pursuant to clause (f)(i) of the first paragraph of this
covenant or clause (c)(i) of the second paragraph of this covenant to apply any
portion of the Net Proceeds from a Collateral Asset Sale or Collateral Loss
Event, respectively, to purchase or otherwise invest in Replacement Collateral,
(i) the Company shall deliver an Officers' Certificate to the First Mortgage
Note Trustee dated no more than 30 days prior to the date of consummation of the
relevant purchase of or investment in Replacement Collateral, certifying that
the purchase price for the amount of the investment in Replacement Collateral
does not exceed the fair market value of such Replacement Collateral as
determined in good faith by the Board of Directors of the Company, including a
majority of the Independent Directors (whose determination was based on the
opinion of a qualified Independent Appraiser or Independent Financial Adviser
prepared contemporaneously with such consummation of the purchase of or
investment in the Replacement Collateral and which opinion will be evidenced by
an Opinion Letter of the Independent Appraiser or Independent Financial Adviser
attached to the Officers' Certificate), as evidenced by copies of the
resolutions of the Board of Directors, indicating the requisite approval of the
Independent Directors, adopted in respect of and concurrently with the purchase
or investment in such Replacement Collateral; and (ii) the Company shall take
such actions, at its sole expense, as shall be required to permit the First
Mortgage Note Trustee to release such Net Proceeds from the Lien of the First
Mortgage Note Indenture and the Security Documents and to ensure that the First
Mortgage Note Trustee has, from the date of such purchase or investment, a first
ranking Lien (subject to Permitted Collateral Liens) on such Replacement
Collateral pursuant to the terms of the First Mortgage Note Indenture and the
Security Documents. Any Restoration of any Collateral shall be carried out in
accordance with the procedures set forth in the First Mortgage Note Indenture.
Notwithstanding the foregoing, the Company may defer a First Mortgage Note
Offer until such time as the Excess Proceeds exceed $25 million (30 days from
which time the Company must make a First Mortgage Note Offer), provided that (a)
the Company provides written notice to the First Mortgage Note Trustee of such
deferred application of Excess Proceeds, (b) all Excess Proceeds are deposited
and remain on deposit in the Cash Collateral Account pending a First Mortgage
Note Offer and (c) any First Mortgage Note Offer shall include all Excess
Proceeds on deposit in the Cash Collateral Account on the date of such First
Mortgage Note Offer, regardless of whether the Excess Proceeds exceed $25
million at such time. All amounts remaining after the completion of any First
Mortgage Note Offer shall remain in the Cash Collateral Account subject to the
Lien of the First Mortgage Note Indenture and the Security Documents. The
Company may use such amounts to purchase or otherwise invest in Replacement
Collateral securing the First Mortgage Notes on the basis described in the
previous paragraph at any time and from time to time.
Under the terms of the First Mortgage Note Indenture, within 30 days of any
decision by the Company to make a First Mortgage Note Offer or of the date upon
which the Excess Proceeds exceed $25 million, the Company, or the First Mortgage
Note Trustee at the Company's request, will mail or cause to be mailed to all
Holders of First Mortgage Notes a notice of the First Mortgage Note Offer and of
the Holders' rights resulting therefrom. Such notice will contain all
instructions and materials necessary to enable Holders of First Mortgage Notes
to tender their First Mortgage Notes to the Company.
CERTAIN OTHER COVENANTS WITH RESPECT TO THE COLLATERAL. The First Mortgage
Note Indenture also contains certain covenants of the Company to protect the
Collateral, including, for example, covenants to maintain title to the
Collateral, execute supplemental documents as required to perfect the Liens,
refrain from impairing the Collateral, notify the First Mortgage Note Trustee
with respect to leases related
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to any of the Collateral Properties, pay all taxes and assessments, ensure
compliance in all material respects with Environmental Laws, maintain insurance
coverage on the Collateral, maintain all material licenses and permits required
to own and operate the Collateral Properties and preserve the Liens created
under the First Mortgage Note Indenture and the Security Documents.
PARTICULAR TERMS OF THE SENIOR NOTES
The Senior Notes will mature on , . The Senior Notes are not
redeemable at the option of the Company prior to .
Thereafter, the Senior Notes may be redeemed at the option of the Company, in
whole or in part from time to time on not less than 30 days, nor more than 45
days, prior notice, mailed by first class mail to the Senior Note holders' last
addresses as they shall appear in the note register, at the following prices
(expressed as percentages of the principal amount of the Senior Notes), if
redeemed during the twelve months beginning of the year
indicated below, in each case together with interest accrued to the Redemption
Date:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- -------------
<S> <C>
............................................................................ %
............................................................................ %
</TABLE>
Selection of Senior Notes for redemption will be made by the Senior Note
Trustee, upon notice, substantially pro rata, by lot, or by any other method
that the Senior Note Trustee considers fair and appropriate. The Senior Note
indenture provides that, if any Senior Note is to be redeemed in part only, the
notice which relates to the redemption of such Senior Note shall state the
portion of the principal amount to be redeemed, and shall state that on or after
the Redemption Date, upon surrender of such Senior Note, a new Senior Note or
Senior Notes in principal amount equal to the unredeemed portion thereof will be
issued.
The Senior Notes will bear interest at the rate per annum shown on the cover
page of this Prospectus from the date of original issuance of the Senior Notes.
Interest on the Senior Notes will be payable semi-annually on
and of each year, commencing
, 1995, to the Holders in whose names the Notes are
registered at the close of business on the preceding and
respectively.
In the event that the Company is required but unable to make a Deficiency
Offer, the Reset Rate on the Senior Notes will be the greater of (x) the Initial
Interest Rate and (y) the sum of (A) basis points and (B) the higher of the
Year Treasury Rate and the Year Treasury Rate.
COMMON TERMS OF THE FIRST MORTGAGE NOTES AND THE SENIOR NOTES
THE TERMS AND PROVISIONS OF THE INDENTURES ARE SUBSTANTIALLY IDENTICAL,
EXCEPT THAT THE FIRST MORTGAGE NOTE INDENTURE CONTAINS ADDITIONAL TERMS AND
PROVISIONS RELATING TO THE COLLATERAL SECURING THE FIRST MORTGAGE NOTES AS
DESCRIBED IN "-- ADDITIONAL FIRST MORTGAGE NOTE COVENANTS" AND "-- ADDITIONAL
FIRST MORTGAGE NOTE INDENTURE DEFINITIONS." SET FORTH BELOW IS A DESCRIPTION OF
THE COMMON TERMS OF THE NOTES. IN THIS SECTION, THE TERM "INDENTURE" REFERS TO
THE FIRST MORTGAGE NOTE INDENTURE OR THE SENIOR NOTE INDENTURE, AS THE CASE MAY
BE, AND THE TERM "NOTES" REFERS TO THE FIRST MORTGAGE NOTES OR THE SENIOR NOTES,
AS APPLICABLE.
In addition to the Senior Notes offered hereby, the Company has also issued
$150 million principal amount of its 12 5/8% Senior Notes due July 15, 1998,
$240 million principal amount of its 11 7/8% Senior Notes due December 1, 1998
and $710 million principal amount of its 9 7/8% Senior Notes due February 1,
2001 under its Indenture dated November 1, 1991, as amended and supplemented
(the "1991 Indenture"), between the Company and The Bank of New York, as
trustee.
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CERTAIN COVENANTS
MAINTENANCE OF SUBORDINATED CAPITAL BASE
The Indenture provides that, subject to the exception described in the third
following paragraph, in the event that the Company's Subordinated Capital Base
is less than $1 billion (the "Minimum Subordinated Capital Base") as at the end
of each of any two consecutive fiscal quarters (the last day of the second such
fiscal quarter, a "Deficiency Date"), then, with respect to the Notes, the
Company shall, no later than 60 days after the Deficiency Date (105 days if a
Deficiency Date is also the end of the Company's fiscal year), make an offer to
all Holders of Notes to purchase (a "Deficiency Offer") 10% of the principal
amount of Notes originally issued, or such lesser amount as may be Outstanding
at the time such Deficiency Offer is made (the "Deficiency Offer Amount"), at a
purchase price equal to 100% of principal amount, plus accrued and unpaid
interest to the Deficiency Payment Date (as defined below). Thereafter,
semiannually the Company shall make like Deficiency Offers for the then
applicable Deficiency Offer Amount of Notes until the Company's Subordinated
Capital Base as at the end of any subsequent fiscal quarter shall be equal to or
greater than the Minimum Subordinated Capital Base. Notwithstanding the
foregoing, after any specified Deficiency Date, the last day of any subsequent
fiscal quarter shall not constitute a Deficiency Date (giving rise to an
additional obligation under the first sentence of this paragraph) unless the
Company's Subordinated Capital Base was equal to or greater than the Minimum
Subordinated Capital Base as at the end of a fiscal quarter that followed such
specified Deficiency Date and preceded such subsequent quarter.
Within 60 days (105 days if the Deficiency Date is also the end of the
Company's fiscal year) following a Deficiency Date, the Company shall mail a
notice to each Holder of Notes in respect of the Deficiency Offer (which notice
shall contain all instructions and materials necessary to enable such Holders to
tender Notes). Notes tendered pursuant to a Deficiency Offer will be accepted
for payment, in amounts as set forth below, on the date which shall be 20
Business Days from the date such notice is mailed or, if acceptance for payment
and payment is not then lawful, on the earliest subsequent Business Day on which
acceptance for payment and payment is then lawful (a "Deficiency Payment Date").
On a Deficiency Payment Date, the Company shall accept for payment Notes or
portions thereof tendered pursuant to the Deficiency Offer in an aggregate
principal amount equal to the Deficiency Offer Amount or such lesser principal
amount of such Notes as shall have been tendered, and deposit with the Paying
Agent money sufficient to pay the purchase price of all such Notes or portions
thereof so accepted. If the aggregate principal amount of such Notes tendered
exceeds the Deficiency Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis to the nearest $1,000 of principal amount. The
Paying Agent shall promptly mail or deliver to Holders of Notes so accepted
payment in amounts equal to the purchase prices therefor, and the Company shall
execute and the Trustee shall promptly authenticate and mail or make available
for delivery to such Holders new Notes equal in principal amounts to, any
unpurchased portion of Notes surrendered. The Company will publicly announce the
results of the Deficiency Offer.
Notwithstanding the foregoing, in the event that (1) the making of a
Deficiency Offer by the Company or (2) the purchase of Notes by the Company in
respect of a Deficiency Offer would constitute a default (with the giving of
notice, the passage of time or both) with respect to any Specified Bank Debt at
the time outstanding in an aggregate principal amount greater than $25 million,
then, in lieu of the making of a Deficiency Offer in the circumstances set forth
above, (i) the interest rate on the Notes shall be reset as of the first day of
the second fiscal quarter following the Deficiency Date (the "Reset Date") to a
rate per annum (the "Reset Rate") specified above under the headings
"Description of Notes -- Particular Terms of the Senior Notes" and "Description
of Notes -- Particular Terms of the First Mortgage Notes," respectively, (ii) on
the first Interest Payment Date following the Reset Date, the interest rate on
the Notes as reset on the Reset Date, shall increase by 50 basis points, and
(iii) the interest rate on the Notes shall further increase by an additional 50
basis points on each succeeding Interest Payment Date. Notwithstanding the
foregoing, in no event shall the interest rate on the Notes at any time exceed
the initial interest rate as set forth on the face of such Note (with respect to
each such Note, the "Initial
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Interest Rate") by more than 200 basis points. If the Company's Subordinated
Capital Base falls below $1 billion, it is probable that the Company would also
be in default under certain covenants expected to be contained in the Credit
Agreement.
Once the interest rate on the Notes has been reset as set forth above, if
the Company's Subordinated Capital Base is equal to or greater than the Minimum
Subordinated Capital Base as of the last day of any fiscal quarter subsequent to
the Deficiency Date, interest on the Notes shall return to the Initial Interest
Rate effective as of the first day of the second following fiscal quarter;
PROVIDED, HOWEVER, that the interest rate on the Notes shall again be adjusted
as set forth above if the Company's Subordinated Capital Base shall thereafter
be less than the Minimum Subordinated Capital Base as at the last day of each of
any two consecutive subsequent fiscal quarters and if the making of a Deficiency
Offer or the purchase of Notes by the Company in respect of a Deficiency Offer
would, at such time, constitute a default (with the giving of notice, passage of
time or both) with respect to any Specified Bank Debt at the time outstanding in
an aggregate principal amount greater than $25 million.
The Company shall notify the Trustee of the Reset Rate not later than two
Business Days after the Reset Date in the circumstances set forth in the second
preceding paragraph. Not later than five Business Days after the Trustee has
received such notice from the Company, the Trustee shall mail to each Holder of
Notes such notice setting forth the Reset Rate. The Company shall notify the
Trustee and the Holders of Notes promptly when the interest rate on the Notes
returns to the Initial Interest Rate as set forth above.
With respect to any Deficiency Offer, the Company intends to comply with the
requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, if then
applicable.
LIMITATION ON FUTURE INCURRENCE OF INDEBTEDNESS
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, incur, create, assume, guarantee or in any other
manner become directly or indirectly liable with respect to or responsible for
the payment of, any Indebtedness, except: (1) Permitted Indebtedness; and (2)
Indebtedness of the Company if at the time thereof and after giving effect
thereto the Consolidated Interest Coverage Ratio of the Company, on a pro forma
basis for the four most recent quarters, taken as a whole (giving effect to (i)
such Indebtedness and (ii) the effect on the Consolidated Cash Flow Available
for Fixed Charges of the Company for the then four most recent full fiscal
quarters, taken as a whole, as a result of any acquisition of a Person acquired
by the Company or any Restricted Subsidiary with the proceeds of such
Indebtedness), would be greater than 1.75 to 1. Without limiting the foregoing,
the Company shall not, and shall not permit any Restricted Subsidiary to,
guarantee, or in any other manner become directly or indirectly liable with
respect to or responsible for the payment of, Indebtedness of any Unrestricted
Subsidiary in an amount greater than, for all guaranties and undertakings of
responsibility by the Company and its Restricted Subsidiaries, 20% of the
aggregate amount of Indebtedness of such Unrestricted Subsidiary.
DIVIDEND RESTRICTIONS
The Indenture provides that the Company will not, and will not permit any
Subsidiary of the Company to, directly or indirectly, (1) declare or pay any
dividend or make any distribution, in cash or otherwise, in respect of any
shares of Capital Stock of the Company or to the holders of Capital Stock of the
Company as such (other than dividends or distributions payable in shares of
Capital Stock of the Company, other than Redeemable Stock) or (2) purchase,
redeem or otherwise acquire or retire for value any of the Capital Stock of the
Company or options, warrants or other rights to acquire any such Capital Stock,
other than acquisitions of Capital Stock or such options, warrants or other
rights by any Subsidiary of the Company from the Company (any such transaction
included in clause (1) or (2), a "Restricted Payment") if (i) at the time of
such Restricted Payment and after giving effect thereto, (a) an Event of Default
shall have occurred and be continuing or (b) the Consolidated Net Worth of the
Company shall be less than $750 million; or if (ii) after giving effect to such
Restricted Payment, the aggregate amount expended subsequent to November 1,
1991, for all such Restricted Payments (the amount of any Restricted Payment, if
other than cash, to be the fair market value of such payment as
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determined by the Board of Directors of the Company, whose reasonable
determination shall be conclusive and evidenced by a Board Resolution) would
exceed the algebraic sum of (w) a number calculated as follows: (A) if the
aggregate Consolidated Net Income of the Company earned on a cumulative basis
during the period subsequent to September 30, 1991 through the end of the last
fiscal quarter that is prior to the declaration of any such dividend or
distribution or the giving of notice of such purchase, redemption or other
acquisition or retirement and for which such financial information is then
available, is a positive number, then 100% of such positive number, and (B) if
the aggregate Consolidated Net Income of the Company earned on a cumulative
basis during the period subsequent to September 30, 1991 through the end of the
last fiscal quarter that is prior to the declaration of any such dividend or
distribution or the giving of notice of such purchase, redemption or other
acquisition or retirement and for which such financial information is then
available, is a negative number, then 100% of such negative number, (x) the
aggregate net cash proceeds received by the Company from the issuance and sale,
other than to a Subsidiary of the Company, subsequent to November 1, 1991, of
Capital Stock (including Capital Stock issued upon the conversion of, or in
exchange for, securities other than Capital Stock and options, warrants or other
rights to acquire Capital Stock, but excluding Redeemable Stock, (y) the
aggregate net cash proceeds received by the Company from the issuance and sale,
other than to a Subsidiary of the Company, of Indebtedness of the Company that
is converted into Capital Stock of the Company subsequent to November 1, 1991,
and (z) $300 million; PROVIDED, HOWEVER, that the retirement of any shares of
the Company's Capital Stock by exchange for, or out of the proceeds of the
substantially concurrent sale of, other shares of Capital Stock of the Company
other than Redeemable Stock shall not constitute a Restricted Payment. If all of
the conditions to the declaration of a dividend or distribution that are
described above are satisfied at the time such dividend or distribution is
declared, then such dividend or distribution may be paid or made within sixty
days after such declaration even if the payment of such dividend, the making of
such distribution or the declaration thereof would not have been permitted at
any time after such declaration.
LIMITATION ON FUTURE LIENS AND GUARANTIES
Pursuant to the terms of the Indenture, if the Company or any Subsidiary
shall create, incur, assume or suffer to exist any Lien upon any of the assets
of the Company or a Subsidiary of the Company (whether such assets are owned at
November 1, 1991 or thereafter acquired) as a security for (1) any Indebtedness
or other obligation (whether unconditional or contingent) of the Company that
ranks PARI PASSU with the Notes or any Indebtedness or other obligation (whether
unconditional or contingent) of a Subsidiary of the Company, the Company will
secure or will cause such Subsidiary to guarantee and secure the Outstanding
Notes equally and ratably with (or, at the option of the Company, prior to) such
Indebtedness or other obligation, so long as such Indebtedness or other
obligation shall be so secured, or (2) any Subordinated Indebtedness, the
Company will secure the Outstanding Notes prior to such Subordinated
Indebtedness, so long as such Subordinated Indebtedness shall be so secured;
PROVIDED, HOWEVER, that this covenant does not apply in the case of Permitted
Liens or Liens granted by any Unrestricted Subsidiary to secure Indebtedness or
other obligations of itself or of any Person other than the Company and its
Restricted Subsidiaries.
In addition, pursuant to the terms of the Indenture, the Company will not
guarantee the Indebtedness of any Subsidiary and will not permit any Subsidiary
(including Stone Savannah and Seminole) to guarantee (i) any Indebtedness of the
Company that ranks PARI PASSU with the Notes (ii) any Indebtedness of a
Subsidiary of the Company or (iii) any Subordinated Indebtedness; PROVIDED,
HOWEVER, that this paragraph does not apply to (1) any guaranty by a Subsidiary
if such Subsidiary also guarantees the Notes on a PARI PASSU basis with respect
to guaranties of Indebtedness described in clauses (i) and (ii) and on a senior
basis with respect to guaranties of Indebtedness described in clause (iii); (2)
any guaranty existing on November 1, 1991 or any extension or renewal of such
guaranty to the extent such extension or renewal is for the same or a lesser
amount; (3) any guaranty which constitutes Indebtedness permitted by clause (v)
or (vi) of the definition of Permitted Indebtedness granted by a Person
permitted to incur such Indebtedness; (4) any guaranty by the Company of
Indebtedness of a Restricted Subsidiary, PROVIDED that (A) incurrence of such
Indebtedness of the Restricted Subsidiary is not
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prohibited by the Indenture and (B) (x) such guaranty constitutes Indebtedness
of the Company incurred as Permitted Indebtedness pursuant to clause (vii) or
(viii) of the definition of Permitted Indebtedness (it being understood that,
for purposes of determining Permitted Indebtedness, any such guaranty shall be
deemed to constitute Indebtedness separate from, and, in addition to,
Indebtedness of a Restricted Subsidiary which is so guaranteed) or (y)
immediately prior to and (on a pro forma basis) after granting such guaranty,
the Company would be permitted to incur an additional dollar of Indebtedness
(not constituting Permitted Indebtedness) under the restrictions described in
"Limitation on Future Incurrence of Indebtedness" above; (5) any guaranty by an
Unrestricted Subsidiary of Indebtedness or other obligations of any Person other
than the Company and its Restricted Subsidiaries; (6) any guaranty by the
Company or any Subsidiary (including Stone Savannah and Seminole) of
Indebtedness or other obligations constituting Indebtedness permitted by clause
(i)(a) of the definition of Permitted Indebtedness in a principal amount not
exceeding the principal amount outstanding or committed under the Credit
Agreements (including any letter of credit facility, but without duplication
with respect to commitments for loans the use of proceeds of which is restricted
to repayment of other Indebtedness under the Credit Agreements) as of November
1, 1991 plus $250 million and less the proceeds from the sale of all
Indebtedness under the 1991 Indenture issued from time to time that are applied
to repay Indebtedness under the Credit Agreements); (7) any guaranty by the
Company of Indebtedness of any Restricted Subsidiary outstanding on November 1,
1991 which is not subordinated to any Indebtedness of such Restricted
Subsidiary, and any renewal extension or refinancing of such Indebtedness
permitted by the Indenture; (8) any guaranty by the Company of Indebtedness of
any Restricted Subsidiary that is organized under the laws of a jurisdiction
other than the United States or any subdivision thereof, PROVIDED that the
incurrence of such Indebtedness of such Restricted Subsidiary is not prohibited
by the Indenture; (9) any guaranty by a Restricted Subsidiary that is organized
under the laws of a jurisdiction other than the United States or any subdivision
thereof of the Indebtedness of any of its Subsidiaries that is a Restricted
Subsidiary and that is organized under the laws of a jurisdiction other than the
United States or any subdivision thereof, PROVIDED that incurrence of such
Indebtedness of such Restricted Subsidiary is not prohibited by the Indenture;
(10) any guaranty by the Company or a Subsidiary of Indebtedness or other
obligations in a principal amount not exceeding $250,000; (11) any guaranty in
the form of an endorsement of negotiable instruments for deposit or collection
and similar transactions; (12) any guaranty arising under or in connection with
performance bonds, indemnity bonds, surety bonds or commercial letters of credit
not exceeding $25 million in aggregate principal amount from time to time
outstanding; (13) any guaranty by a Subsidiary of Indebtedness or other
obligations of another Subsidiary in effect at the time of such guarantor
becoming a Subsidiary and not created in contemplation thereof; or (14) any
guaranty by the Company or a Restricted Subsidiary of any Interest Swap
Obligation, Currency Agreement or Commodities Agreement relating to Indebtedness
that is guaranteed pursuant to another clause of this paragraph.
LIMITATION ON ASSET DISPOSITIONS
The Indenture provides that so long as any of the Notes are Outstanding, (i)
the Company will not, and will not permit any Restricted Subsidiary to, make any
Asset Disposition unless the Company (or the Restricted Subsidiary, as the case
may be) receives consideration at the time of such Asset Disposition at least
equal to the fair market value for the assets sold or otherwise disposed of
(which shall be determined in good faith (x) in the case of dispositions of
assets having a fair market value of $10 million or more, by the Board of
Directors of the Company, whose reasonable determination shall be conclusive and
evidenced by a Board Resolution, or (y) in the case of dispositions of assets
having a fair market value of less than $10 million but not less than $5
million, an officer of the Company, whose reasonable determination shall be
conclusive and evidenced by a certificate of such officer) and (ii) the Company
will apply the aggregate net proceeds in excess of $300 million received by the
Company or any Restricted Subsidiary from all Asset Dispositions occurring
subsequent to November 1, 1991 (but excluding for purposes of this clause (ii),
whether before or after the receipt of net proceeds in excess of $300 million,
(1) the net proceeds of any Asset Disposition or series of related Asset
Dispositions where the net proceeds are less than $5 million and (2) the first
$25 million of net proceeds in each fiscal year without taking into account any
amount excluded pursuant to (1)) as follows: (a) to the payment or
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prepayment of any Senior Indebtedness within six months of such Asset
Disposition, or (b) to investment in the business of the Company and its
Restricted Subsidiaries (including, without limitation, by acquiring equity,
other than Redeemable Stock, of the transferee of such Asset Disposition) within
six months of such Asset Disposition or, if such investment is with respect to a
project to be completed within a period greater than six months from such Asset
Disposition, then within the period of time necessary to complete such project;
PROVIDED, HOWEVER, that (x) in the case of applications contemplated by clause
(b), the Board of Directors has, within such six-month period, adopted in good
faith a resolution committing such excess proceeds to such investment, (y)
except as provided in the next sentence, none of such excess proceeds shall be
used to make any Restricted Payment or any payment in respect of Subordinated
Indebtedness and (z) to the extent not applied in accordance with clauses (a) or
(b) above, or if after being so applied there remain excess net proceeds in an
amount greater than $10 million, the Company shall make a pro rata offer to all
Holders to purchase Notes at 100% of principal amount, plus accrued and unpaid
interest to the Asset Disposition Payment Date (as defined below), up to an
aggregate principal amount equal to such excess net proceeds (the "Asset
Disposition Offer Amount"). If after being applied in accordance with clauses
(a), (b) and (z) above there remain excess net proceeds, the Company will apply
such excess net proceeds to the general corporate purposes of the Company or any
Subsidiary of the Company. An offer to purchase Notes required to be made
pursuant to this covenant is an "Asset Disposition Offer" and the date on which
the purchase of Notes relating to any such Asset Disposition Offer is to be made
is an "Asset Disposition Payment Date."
Notwithstanding the foregoing, to the extent the Company or any of its
Restricted Subsidiaries receives securities or other non-cash property or assets
as proceeds of an Asset Disposition (other than equity in the transferee not
constituting Redeemable Stock), the Company shall not be required to make any
application required by the preceding paragraph until it receives cash proceeds
from a sale, repayment, exchange, redemption or retirement of or extraordinary
dividend or return of capital on such non-cash property, except that if and to
the extent the sum of all cash proceeds plus the fair market value of equity
(other than Redeemable Stock) in the transferee of such Asset Disposition
received at the time of such Asset Disposition is less than 70% of the fair
market value of the total proceeds of such Asset Disposition (with such fair
market value determined and evidenced in the same manner as stated in clause (i)
of the preceding paragraph), the amount of such deficiency (the "Deficiency
Amount") shall be applied as required by the preceding paragraph as if received
at the time of the Asset Disposition. Any amounts deferred pursuant to the
preceding sentence shall be applied in accordance with the preceding paragraph
when cash proceeds are thereafter received from a sale, repayment, exchange,
redemption or retirement of or extraordinary dividend or return of capital on
such non-cash property; PROVIDED, HOWEVER, that the Company shall not be
required to apply with respect to any equity interest in a transferee an amount
exceeding the fair market value attributable to such equity interest at the time
of the Asset Disposition; and PROVIDED, FURTHER, that if a Deficiency Amount was
applied pursuant to the exception contained in the preceding sentence, then once
the cumulative amount of applications made pursuant to the preceding paragraph
and this paragraph (including any Deficiency Amount) equals 100% of the fair
market value of the total proceeds of the Asset Disposition at the time of such
Asset Disposition, cash proceeds thereafter received from a sale, repayment,
exchange, redemption or retirement of or extraordinary dividend or return of
capital on such non-cash property shall not be required to be applied in
accordance with the preceding paragraph except to the extent such cash proceeds
exceed the Deficiency Amount.
Notice of an Asset Disposition Offer shall be mailed on behalf of the
Company by the Trustee to all Holders of Notes at their last registered
addresses not less than 30 days nor more than 60 days before the Asset
Disposition Payment Date, which shall be a date not more than 210 days after the
Asset Disposition giving rise to such Asset Disposition Offer. The Asset
Disposition Offer shall remain open from the time of the mailing of such notice
until not more than 5 Business Days before the Asset Disposition Payment Date.
On the Asset Disposition Payment Date, the Company shall accept for payment
Notes or portions thereof tendered pursuant to the Asset Disposition Offer in an
aggregate principal amount equal to the
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Asset Disposition Offer Amount or such lesser amount of Notes as shall have been
tendered, and deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted. If the aggregate principal
amount of Notes tendered exceeds the Asset Disposition Offer Amount, the Company
shall select the Debt Securities to be purchased on a pro rata basis to the
nearest $1,000 of principal amount. The Paying Agent shall promptly mail or
deliver to Holders of Notes so accepted payment in an amount equal to the
purchase price, and the Company shall execute and the Trustee shall promptly
authenticate and mail or make available for delivery to such Holders a new Note
and equal in principal amount to any unpurchased portion of the Note
surrendered. The Company will publicly announce the results of the Asset
Disposition Offer.
With respect to any Asset Disposition Offer, the Company intends to comply
with the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, if
applicable.
RESTRICTIONS ON MERGERS AND CONSOLIDATIONS AND SALES OF ASSETS
The Indenture provides that the Company shall not consolidate with, merge
with or into any other corporation (whether or not the Company shall be the
surviving corporation), or sell, assign, transfer or lease all or substantially
all of its properties and assets as an entirety or substantially as an entirety
to any Person or group of affiliated Persons, in one transaction or a series of
related transactions, unless: (1) either the Company shall be the continuing
Person or the Person (if other than the Company) formed by such consolidation or
with which or into which the Company is merged or the Person (or group of
affiliated Persons) to which all or substantially all the properties and assets
of the Company are sold, assigned, transferred or leased is a corporation (or
constitute corporations) organized under the laws of the United States or any
State thereof or the District of Columbia and expressly assumes, by an indenture
supplemental to the Indenture, all the obligations of the Company under the
Notes and the Indenture; (2) immediately before and after giving effect to such
transaction, no Event of Default, and no Default, with respect to the Notes
shall have occurred and be continuing; (3) immediately after giving effect to
such transaction on a pro forma basis, but prior to any purchase accounting
adjustments resulting from the transaction, the Consolidated Net Worth of the
Company (or of the surviving, consolidated or transferee entity if the Company
is not continuing, treating such entity as the Company for purposes of
determining Consolidated Net Worth) shall be at least equal to the Consolidated
Net Worth of the Company immediately before such transaction; (4) immediately
after giving effect to such transaction the Company (or the surviving,
consolidated or transferee entity if the Company is not continuing, but treating
such entity as the Company for purposes of making such determination) would be
permitted to incur an additional dollar of Indebtedness (not constituting
Permitted Indebtedness) immediately prior to such transaction under the covenant
contained in the Indenture restricting the incurrence of Indebtedness; PROVIDED,
HOWEVER, that this clause (4) shall be inapplicable if (a) such transaction
would result in the occurrence of a Change of Control or (b) immediately prior
to giving effect to such transaction, the Company would not be permitted to
incur an additional dollar of Indebtedness (not constituting Permitted
Indebtedness) under such covenant, and immediately after giving effect to such
transaction on a pro forma basis (but prior to any purchase accounting
adjustments resulting from the transaction), the Consolidated Interest Coverage
Ratio of the Company (or the surviving, consolidated or transferee entity if the
Company is not continuing, treating such entity as the Company for purposes of
determining the Consolidated Interest Coverage Ratio) shall be at least equal to
the Consolidated Interest Coverage Ratio of the Company immediately before such
transaction; and (5) the Company shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture comply with
the Indenture. Notwithstanding the foregoing, if clause (4) of the preceding
sentence is inapplicable by reason of clause (b) of the proviso thereto, and at
the date three months after the consummation of such transaction the rating
ascribed to the Notes by Standard and Poor's Corporation or Moody's Investors
Service, Inc. shall be lower than the rating ascribed to the Debt Securities of
any series prior to the public announcement of such transaction,
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then the Company shall make an offer for the Notes at the same price and
following the same procedures and obligations as required with respect to a
Change of Control (as if such date three months after the giving effect to such
transaction were the "Change of Control Date"). See "Limitation on Future
Incurrence of Indebtedness" above and "Change of Control" below.
If, upon any consolidation or merger, or upon any sale, assignment, transfer
or lease, as provided in the preceding paragraph, any material property of the
Company or any Restricted Subsidiary or any shares of Capital Stock or
Indebtedness of any Restricted Subsidiary, owned immediately prior thereto,
would thereupon become subject to any Lien securing any indebtedness for
borrowed money of, or guaranteed by, such other corporation or Person (other
than any Permitted Lien), the Company, prior to such consolidation, merger,
sale, assignment, transfer or lease, will secure the due and punctual payment of
the principal of, and premium, if any, and interest on the Notes then
Outstanding (together with, if the Company shall so determine, any other
indebtedness of, or guaranteed by, the Company or any Restricted Subsidiary and
then existing or thereafter created) equally and ratably with (or, at the option
of the Company, prior to) the Indebtedness secured by such Lien.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (the "Change of Control Date")
and subject to the requirements of the next succeeding sentence, each Holder
shall have the right to require that the Company repurchase such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at a
purchase price equal to 101% of the aggregate principal amount of such Notes
plus accrued and unpaid interest, if any, to the date of such repurchase. If
such repurchase would constitute an event of default under Specified Bank Debt,
then, prior to giving the notice to Holders provided below, the Indenture
requires the Company to (1) repay in full in cash such Specified Bank Debt or
(2) obtain the requisite consent of holders of such Specified Bank Debt to
permit the repurchase of Notes without giving rise to an event of default under
such Specified Bank Debt.
After giving effect to the Offerings and the Related Transactions,
approximately $ million of Specified Bank Debt is expected to be outstanding.
Promptly upon satisfaction of either one of the obligations described above,
Company shall mail a notice to each Holder of Notes in respect of the Change of
Control Offer (which notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes). All Notes tendered will be
accepted for payment on a date (the "Change of Control Payment Date") which
shall be no earlier than 30 days nor later than 40 days from the date such
notice is mailed, but in any event prior to the date on which any Subordinated
Indebtedness is paid pursuant to the terms of a provision similar to the Change
of Control Offer covenant.
On the Change of Control Payment Date, the Company shall accept for payment
Notes or portions thereof tendered pursuant to the Change of Control Offer, and
deposit with the Paying Agent money sufficient to pay the purchase price of all
Notes or portions thereof so accepted. The Paying Agent shall promptly mail or
deliver to the Holder of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail or make
available for delivery to such Holder a new Note and equal in principal amount
to, any unpurchased portion of the Note surrendered. The Company will publicly
announce the results of the Change of Control Offer.
Whether a Change of Control has occurred depends entirely on the
accumulation of Common Stock of the Company and on certain changes in the
composition of the Company's Board of Directors. As a result, the Company can
enter into certain highly leveraged transactions, including certain
recapitalizations, mergers or stock repurchases, that would not result in the
application of the Change of Control provisions. Because the definitions of
"Change of Control" and "Acquiring Person" exclude the Company, any Subsidiary
of the Company and certain members of the Stone family, certain transactions in
which such entities and persons participate as beneficial owners of Common Stock
(including, among
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others, a leveraged buyout or recapitalization) would not constitute a Change of
Control. With respect to any Change of Control Offer, the Company intends to
comply with the requirements of Section 14(e) and Rule 14e-1 under the Exchange
Act, if then applicable.
RANKING OF NOTES
The payment of the principal of, interest on and any other amounts due on
Subordinated Indebtedness will be subordinated in right of payment to the prior
payment in full of the Senior Notes and the First Mortgage Notes. The Senior
Notes and the First Mortgage Notes are senior to the Company's $150 million
aggregate principal amount of 10 3/4% Senior Subordinated Notes due June 15,
1997, $125 million aggregate principal amount of 11% Senior Subordinated Notes
due August 15, 1999, $230 million aggregate principal amount of 11 1/2% Senior
Subordinated Notes due September 1, 1999, $200 million aggregate principal
amount of 10 3/4% Senior Subordinated Debentures due April 1, 2002, $250 million
aggregate principal amount of 8 7/8% Convertible Senior Subordinated Notes due
July 15, 2000 and $115 million aggregate principal amount of 6 3/4% Convertible
Subordinated Debentures due February 15, 2007.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following are Events of Default under the Indenture: (1) failure to pay
interest on any Note when due, continued for 30 days; (2) failure to pay the
principal of (or premium, if any, on) any Note when due and payable at Maturity,
upon redemption, upon repurchase pursuant to a Deficiency Offer as described
under "Maintenance of Subordinated Capital Base" above, pursuant to an Asset
Disposition Offer as described under "Change of Control" above or otherwise; (3)
failure to observe or perform any other covenant, warranty or agreement
contained in the Note or in the Indenture continued for a period of 60 days
after notice has been given to the Company by the Trustee or Holders of at least
25% in aggregate principal amount of the Outstanding Notes; (4) failure to pay
at final maturity, or acceleration of, Indebtedness of the Company having an
aggregate principal amount of not less than $25 million (or, if less, the least
amount contained in any similar provision of an instrument governing any
outstanding Subordinated Indebtedness of the Company, but in no event less than
$10 million), unless cured within 15 days after notice has been given to the
Company by the Trustee or Holders of at least 25% in aggregate principal amount
of the Outstanding Notes; (5) the entering against the Company of one or more
judgments or decrees involving an aggregate liability of $25 million or more
unless vacated, discharged, satisfied or stayed within 30 days of the entering
of such judgments or decrees; and (6) certain events of bankruptcy, insolvency
or reorganization relating to the Company.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default give the Holders of Notes notice
of all uncured Defaults or Events of Default known to it (the term "Default" to
include the events specified above without grace or notice); PROVIDED, HOWEVER,
that, except in the case of an Event of Default or a Default in payment on any
Note, the Trustee shall be protected in withholding such notice if and so long
as the board of directors, the executive committee or directors or responsible
officers of the Trustee in good faith determine that the withholding of such
notice is in the interest of the Holders of Notes.
If an Event of Default (other than due to event of bankruptcy, insolvency or
reorganization) occurs and is continuing, the Trustee or the Holders of at least
25% in aggregate principal amount of the Outstanding Notes by notice in writing
to the Company (and to the Trustee if given by the Holders of at least 25% in
aggregate amount of Notes), may declare the unpaid principal of and accrued
interest to the date of acceleration on all the Outstanding Notes to be due and
payable immediately and, upon any such declaration, the Notes shall become
immediately due and payable.
If an Event of Default occurs due to bankruptcy, insolvency or
reorganization, all unpaid principal (without premium) of and accrued interest
on the Outstanding Notes ipso facto becomes immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder of any
Notes.
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Any such declaration with respect to Notes may be annulled and past Events
of Default and Defaults (except, unless theretofore cured, an Event of Default
or a Default, in payment of principal of or interest on the Notes) may be waived
by the Holders of a majority of the principal amount of the Outstanding Notes
upon the conditions provided in the Indenture.
The Indenture provides that the Company will periodically file statements
with the Trustee regarding compliance by the Company with certain of the
covenants thereof and specifying any Event of Default or Defaults in performing
such covenants of which the signers may have knowledge.
MODIFICATION OF INDENTURES; WAIVER
The Indenture may be modified by the Company and the Trustee without the
consent of any Holders with respect to certain matters, including (i) to cure
any ambiguity, defect or inconsistency or to correct or supplement any provision
which may be inconsistent with any other provision of the Indenture and (ii) to
make any change that does not materially adversely affect the interests of any
Holder of Notes. In addition, under the Indenture, certain rights and
obligations of the Company and the rights of Holders of the Notes may be
modified by the Company and the Trustee with the written consent of the Holders
of at least a majority in principal amount of the Outstanding Notes; but no
extension of the maturity of any Notes, reduction in the interest rate or
extension of the time for payment of interest, change in the optional redemption
or repurchase provisions in a manner adverse to any Holder of Notes, other
modification in the terms of payment of the principal of or interest on any
Notes or reduction of the percentage required for modification, will be
effective against any Holder of any Notes of any series without his consent.
The Holders of a majority in principal amount of the Outstanding Notes may
on behalf of the Holders of all Notes waive, insofar as that series is
concerned, compliance by the Company with certain restrictive covenants of the
Indenture. The Holders of not less than a majority in principal amount of the
Outstanding Notes may on behalf of the Holders of all Notes waive any past Event
of Default or Default under the Indenture, except an Event of Default or a
Default in the payment of the principal of or premium, if any, or any interest
on any Notes or in respect of a provision which under the Indenture cannot be
modified or amended without the consent of the Holder of each Outstanding Note.
SATISFACTION AND DISCHARGE OF INDENTURES; DEFEASANCE
The Company may terminate its substantive obligations in respect of the
Notes by delivering all Outstanding Notes to the Trustee for cancellation and
paying all sums payable by it on account of principal of and interest on all
Notes. The Company may terminate its substantive obligations in respect of the
Notes (except for its obligations to pay the principal of (and premium, if any,
on) and the interest on the Notes) by (i) depositing with the Trustee under the
terms of an irrevocable trust agreement, money or United States Government
Obligations sufficient to pay all remaining indebtedness on the Notes, (ii)
delivering to the Trustee either an Opinion of Counsel or a ruling directed to
the Trustee from the Internal Revenue Service to the effect that the Holders of
the Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and termination of obligations, and (iii)
complying with certain other requirements set forth in the Indenture. In
addition, the Company may terminate all of its substantive obligations in
respect of the Notes (including its obligations to pay the principal of (and
premium, if any, on) and interest on the Notes) by (i) depositing with the
Trustee under the terms of an irrevocable trust agreement, money or United
States Government Obligations sufficient to pay all remaining indebtedness on
the Notes, (ii) delivering to the Trustee either a ruling directed to the
Trustee from the Internal Revenue Service to the effect that the Holders of the
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such deposit and termination of obligations or an Opinion of
Counsel, based upon such a ruling or a change in the applicable federal tax law
since the date of the Indenture, to such effect, and (iii) complying with
certain other requirements set forth in the Indenture.
THE TRUSTEES
The Bank of New York will be the Trustee under the Senior Notes Indenture.
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The Company maintains normal commercial banking relations with The Bank of
New York, which may also a lender under the Credit Agreement and which is the
trustee under other indentures of the Company.
Norwest Bank Minnesota, N.A. will be the Trustee under the First Mortgage
Notes Indenture. Norwest Bank Minnesota is the trustee under other indentures of
the Company.
CERTAIN DEFINITIONS
For purposes of the Indenture, certain defined terms have the following
meanings:
"ACQUIRING PERSON" means any Person or group (as defined in Section 13(d)(3)
of the Exchange Act) who or which, together with all affiliates and associates
(as defined in Rule 12b-2 under the Exchange Act), becomes the beneficial owner
of shares of Common Stock of the Company having more than 50% of the total
number of votes that may be cast for the election of directors of the Company;
PROVIDED, HOWEVER, that an Acquiring Person shall not include (i) the Company,
(ii) any Subsidiary of the Company, (iii) any employee benefit plan of the
Company or any Subsidiary of the Company or any entity holding Common Stock of
the Company for or pursuant to the terms of any such plan, (iv) any descendant
of Joseph Stone or the spouse of any such descendant, the estate of any such
descendant or the spouse of any such descendant, any trust or other arrangement
for the benefit of any such descendant or the spouse of any such descendant or
any charitable organization established by any such descendant or the spouse of
any such descendant (collectively, the "Stone Family"), or (v) any group which
includes any member or members of the Stone Family and a majority of the Common
Stock of the Company held by such group is beneficially owned by such member or
members. Notwithstanding the foregoing, no Person shall become an "Acquiring
Person" as the result of an acquisition of Common Stock by the Company which, by
reducing the number of shares outstanding, increases the proportionate number of
shares beneficially owned by such Person to more than 50% or more of the Common
Stock of the Company then outstanding; PROVIDED, HOWEVER, that if a Person shall
become the beneficial owner of more than 50% or more of the Common Stock of the
Company then outstanding by reason of share purchases by the Company and shall,
after such share purchases by the Company, become the beneficial owner of any
additional shares of Common Stock of the Company, then such Person shall be
deemed to be an "Acquiring Person."
"ASSET DISPOSITION" means any sale, transfer or other disposition of (i)
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares) or (ii) property or assets of the Company or any Restricted
Subsidiary (other than a sale, transfer or other disposition of Receivables and
other assets or property described in clause (vi) of the definition of Permitted
Liens pursuant to a Receivables sale constituting Indebtedness pursuant to
clause (ii) of the definition thereof); PROVIDED, HOWEVER, that an Asset
Disposition shall not include any sale, transfer or other disposition by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary or by
the Company to a Restricted Subsidiary, any sale, transfer or other disposition
of defaulted Receivables for collection or any sale, transfer or other
disposition in the ordinary course of business, but shall include any sale,
transfer or other disposition by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary of the shares, property or assets referred to in clauses
(i) and (ii). The designation by the Company of a Subsidiary of the Company as
an "Unrestricted Subsidiary" shall constitute an Asset Disposition of such
Subsidiary's property and assets net of its liabilities, unless the transfer of
property and assets to such Subsidiary has previously constituted an Asset
Disposition.
"CHANGE OF CONTROL" means any event by which (i) an Acquiring Person has
become such or (ii) Continuing Directors cease to comprise a majority of the
members of the Board of Directors of the Company.
"CONSOLIDATED AMORTIZATION EXPENSE" means, for any period, the amortization
expense of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
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"CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" means, for any period,
(a) the sum of the amounts for such period of (i) Consolidated Net Income, (ii)
Consolidated Interest Expense, (iii) Consolidated Income Tax Expense, (iv)
Consolidated Depreciation Expense, (v) Consolidated Amortization Expense and
(vi) other non-cash items reducing Consolidated Net Income, MINUS (b) non-cash
items increasing Consolidated Net Income, all as determined on a consolidated
basis for the Company and its Restricted Subsidiaries in accordance with GAAP.
"CONSOLIDATED DEPRECIATION EXPENSE" means, for any period, the depreciation
expense of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED FREE CASH FLOW" means, for any period, (a) the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Depreciation Expense and (iii) Consolidated Amortization Expense, MINUS (b) the
sum of (i) Restricted Payments (as defined under the subsection entitled
"Dividend Restrictions" above) during such period, (ii) net reduction during
such period in Indebtedness of the Company and its Restricted Subsidiaries
(other than as a result of Asset Dispositions) and (iii) the excess (but not the
deficit) of capital expenditures of the Company and its Restricted Subsidiaries
for such period not financed pursuant to clause (vi) of the definition of
Permitted Indebtedness over Consolidated Depreciation Expense.
"CONSOLIDATED INCOME TAX EXPENSE" means, for any period, the aggregate of
the income tax expense of the Company and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST COVERAGE RATIO" means, for any period, the ratio of
(i) Consolidated Cash Flow Available for Fixed Charges to (ii) Consolidated
Interest Expense.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the interest expense
(including the interest component of all Capitalized Lease Obligations and the
earned discount or yield with respect to a Receivables purchase constituting
Indebtedness) of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP; PROVIDED, HOWEVER,
that, with respect to revolving credit, revolving Receivables purchases or other
similar arrangements, the interest expense in respect thereof for any period
shall be as follows: (1) in respect of (a) revolving credit facilities under the
Credit Agreements and (b) revolving credit, revolving Receivables purchases or
other similar arrangements the use of the proceeds of which is restricted solely
to the payment of Indebtedness of the Company or any Restricted Subsidiary, the
interest expense attributable to the principal amounts outstanding thereunder
during such period, in accordance with the terms thereof; and (2) in respect of
all other revolving credit, revolving Receivables purchases and other similar
arrangements, the pro forma interest expense attributable to all amounts
committed during such period under such revolving credit, revolving Receivables
purchases or other similar arrangements, whether or not such amounts were
actually outstanding during such period, in accordance with the terms thereof,
in each case on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of
the Company and its Restricted Subsidiaries on a consolidated basis for such
period taken as a single accounting period, determined in accordance with GAAP;
PROVIDED, HOWEVER, that: (a) there shall be excluded therefrom (i) the net
income (or loss) of any Person which is not a Restricted Subsidiary, except to
the extent of the amount of dividends or other distributions actually paid in
cash or tangible property or tangible assets (such property or assets to be
valued at their fair market value net of any obligations secured thereby) to the
Company or any of its Restricted Subsidiaries by such Person during such period,
(ii) except to the extent includible pursuant to the foregoing clause (i), the
net income (or loss) of any Person accrued prior to the date it becomes a
Restricted Subsidiary or is merged into or consolidated with the Company or any
of its Restricted Subsidiaries or that Person's property or assets are acquired
by the Company or any of its Restricted Subsidiaries, (iii) the net income of
any Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that income
is not at the time permitted by operation of the terms of its charter or any
agreement, instrument,
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judgment, decree, order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary (other than any restrictions contained in the
instruments relating to the 12 1/8% Subordinated Debentures due September 15,
2001 of Stone Southwest, Inc.) and (iv) the excess (but not the deficit), if
any, of (x) any gain which must be treated as an extraordinary item under GAAP
or any gain realized upon the sale or other disposition of any asset that is not
sold in the ordinary course of business or of any Capital Stock of a Restricted
Subsidiary over (y) any loss which must be treated as an extraordinary item
under GAAP or any loss realized upon the sale or other disposition of any asset
that is not sold in the ordinary course of business or of any Capital Stock of a
Restricted Subsidiary; and (b) there shall be included therein the amount of
cash realized by the Company or any of its Restricted Subsidiaries during such
period on account of dividends or other distributions theretofore paid in other
than cash or tangible property or tangible assets by a Person which is not a
Restricted Subsidiary.
"CONSOLIDATED NET WORTH" means the amount which at any date of
determination, in conformity with GAAP consistently applied, would be set forth
under the caption "stockholders' equity" (or any like caption) on the
consolidated balance sheet of the Company and its Restricted Subsidiaries,
exclusive of amounts attributable to Redeemable Stock. If the Company has
changed one or more of the accounting principles used in the preparation of its
financial statements because of a change mandated by the Financial Accounting
Standards Board or its successor, then Consolidated Net Worth shall mean the
Consolidated Net Worth the Company would have had if the Company had continued
to use those generally accepted accounting principles employed on November 1,
1991.
"CONTINENTAL GUARANTY" means the Guaranty dated as of October 7, 1983
between The Continental Group, Inc. and the Company, as amended from time to
time.
"CONTINUING DIRECTOR" means any member of the Board of Directors, while such
person is a member of such Board of Directors, who is not an Acquiring Person,
or an affiliate or associate of an Acquiring Person or a representative of an
Acquiring Person or of any such affiliate or associate and who (a) was a member
of the Board of Directors prior to November 1, 1991, or (b) subsequently became
or becomes a member of such Board of Directors and whose nomination for election
or election to such Board of Directors is recommended or approved by resolution
of a majority of the Continuing Directors or who is included as a nominee in a
proxy statement of the Company distributed when a majority of such Board of
Directors consists of Continuing Directors.
"CREDIT AGREEMENTS" means (i) the credit agreement, dated as of March 1,
1989, by and among the Company, the financial institutions signatory thereto,
Bankers Trust Company, as agent for such financial institutions, and Citibank,
N.A., Manufacturers Hanover Trust Company (now Chemical Bank) and The First
National Bank of Chicago, as co-agents for such financial institutions, as
amended, modified, refinanced or extended from time to time (the "U.S. Credit
Agreement"), (ii) the credit agreement, dated as of March 1, 1989, by and among
Stone-Consolidated Inc., the financial institutions signatory thereto, Bankers
Trust Company, as agent for such financial institutions, and Citibank, N.A.,
Manufacturers Hanover Trust Company (now Chemical Bank) and The First National
Bank of Chicago, as co-agents for such financial institutions, as amended,
modified, refinanced, or extended from time to time (the "Canadian Credit
Agreement") and (iii) the revolving credit agreement, dated as of March 1, 1989,
by and among Stone-Consolidated Inc., the financial institutions signatory
thereto, BT Bank of Canada, as administrative agent, The Bank of Nova Scotia, as
payment agent, and Bankers Trust Company, as collateral agent, as amended,
modified, refinanced or extended from time to time (the "Canadian Revolver").
"GAAP" means generally accepted accounting principles, as in effect as of
November 1, 1991 in the United States of America, 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
is approved by a significant segment of the accounting profession.
"INDEBTEDNESS" means (without duplication), with respect to any Person, (i)
any obligation of such Person to pay the principal of, premium, if any, interest
on, penalties, reimbursement or indemnification
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amounts, fees, expenses or other amounts relating to any indebtedness, and any
other liability, contingent or otherwise, of such Person (A) for borrowed money
or the deferred purchase price of property or services (excluding trade payables
and payables, indebtedness, obligations and other liabilities of the Company to
any Restricted Subsidiary or of any Restricted Subsidiary to the Company or to
any other Restricted Subsidiary), whether or not the recourse of the lender is
to the whole of the assets of such Person or only to a portion thereof; (B) for
any letter of credit for the account of such Person supporting other obligations
of such Person described in this definition; or (C) for the payment of money
relating to a Capitalized Lease Obligation; (ii) the unrecovered investment of a
purchaser (other than the Company or any of its Restricted Subsidiaries) of such
Person's Receivables pursuant to a Receivables purchase facility or otherwise
(whether or not characterized as a sale of such Receivables or a secured loan,
but excluding any disposition of Receivables in connection with a disposition of
fixed assets or a business of such Person and any disposition of defaulted
Receivables for collection), together with any obligation of such Person to pay
any discount, interest, fees, indemnification amounts, penalties, recourse on
account of the uncollectability of Receivables, expenses or other amounts in
connection therewith; (iii) any obligation of another Person (other than a
Restricted Subsidiary of such Person) of the kind described in the preceding
clause (i) or (ii), which the Person has guaranteed or which is otherwise its
legal liability; (iv) any obligation of another Person (other than a Restricted
Subsidiary of such Person) of the kind described in the preceding clause (i) or
(ii) secured by a Lien to which the property or assets of such Person are
subject, whether or not the obligation secured thereby shall have been assumed
by or shall otherwise be such Person's legal liability; and (v) any renewals,
extensions or refundings of any of the foregoing described in any of the
preceding clauses (i), (ii), (iii) and (iv). The "amount" or "principal amount"
of Indebtedness of any Person at any date, as used herein, shall be the
outstanding principal amount at such date of all unconditional Indebtedness, the
maximum principal amount of any contingent Indebtedness or the unrecovered
purchaser's investment in a sale of Receivables, in each case at such date and
without taking into account any premium, interest, penalties, reimbursement or
indemnification amounts, fees, expenses or other amounts (other than principal
or unrecovered purchaser's investment) in respect thereof; PROVIDED, HOWEVER,
that (y) with respect to Indebtedness described in clause (iv) above, the amount
of Indebtedness shall be the lesser of (a) the amount of the Indebtedness of
such other Person that is secured by the property or assets of such Person and
(b) the fair market value of the property or assets securing such Indebtedness,
and (z) with respect to revolving credit, revolving Receivables purchases or
other similar arrangements, the amount of Indebtedness thereunder shall be as
follows: (a) in respect of (1) revolving credit facilities under the Credit
Agreements and (2) commitments under other revolving credit, revolving
Receivables purchases or other similar arrangements the use of the proceeds of
which is restricted primarily to the payment of Indebtedness of the Company or
any Restricted Subsidiary permitted by the Indenture the principal amounts
outstanding thereunder at such date; and (b) in respect of commitments under all
other revolving credit, revolving Receivables purchases and other similar
arrangements, the amounts of such commitments as of the date of determination.
"ORDINARY COURSE OF BUSINESS LIENS" means, with respect to any person,
(i) Liens for taxes, assessments, governmental charges, levies or claims
not yet delinquent or being contested in good faith;
(ii) statutory Liens of landlords, carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the ordinary
course of business (including the construction of facilities) or deposits to
obtain the release of such Liens;
(iii) Liens in connection with workers' compensation, unemployment insurance
and other similar legislation;
(iv) zoning restrictions, licenses, easements, rights-of-way and other
similar charges or encumbrances or restrictions not interfering in any material
respect with the business of such Person or any of its Subsidiaries;
(v) Liens securing such Person's obligations with respect to commercial
letters of credit;
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(vi) Liens to secure public or statutory obligations of such Person;
(vii) judgment and attachment Liens against such Person not giving rise to a
Default under the Notes or Liens created by or existing from any litigation or
legal proceeding against such Person which is currently being contested in good
faith by such Person in appropriate proceedings;
(viii) leases or subleases granted to other Persons or existing on property
acquired by such Persons;
(ix) Liens encumbering property or assets of such Person under construction
arising from progress or partial payments;
(x) Liens encumbering customary initial deposits and margin accounts and
other Liens securing obligations arising out of Interest Swap Obligations,
Currency Agreements and Commodities Agreements, in each case of the type
typically securing such obligations; PROVIDED, HOWEVER, that if such Interest
Swap Obligations, Currency Agreements and Commodities Agreements relate to
Indebtedness not incurred in violation of the Indenture, such Lien may also
cover the property and assets securing the indebtedness to which such Interest
Swap Obligations, Currency Agreements and Commodities Agreements relate;
(xi) Liens encumbering deposits made to secure obligations arising from
public, statutory, regulatory, contractual or warranty requirements or
obligations of such Person or its Subsidiaries (not constituting Indebtedness);
(xii) Liens arising from filing UCC financing statements regarding leases or
consignments;
(xiii) purchase money Liens securing payables (not constituting Indebtedness)
arising from the purchase by such Person or any of its Affiliates of any
equipment or goods in the ordinary course of business;
(xiv) Liens arising out of consignment or similar arrangement for the sale of
goods entered into by such Person or any of its Subsidiaries in the ordinary
course of business;
(xv) Liens in the ordinary course of business granted by such Person to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, or progress payments, performance and
return-of-money bonds and other similar obligations (not constituting
Indebtedness);
(xvi) Liens in favor of collecting banks constituting a right of set-off,
revocation, refund or chargeback with respect to money or instruments of the
Company or any Subsidiary on deposit with or in the possession of such bank; and
(xvii) Liens in favor of customs and revenue authorities.
"PERMITTED EXISTING INDEBTEDNESS OF AN ACQUIRED PERSON" means Indebtedness
of any Person (which may be assumed or guaranteed by, or may otherwise become
the legal liability of, the Company or any Restricted Subsidiary with or into
which such Person is merged or consolidated) existing at the time such Person
becomes a Restricted Subsidiary, or is merged with or into or consolidated with
the Company or one of its Restricted Subsidiaries, so long as such Indebtedness
was not created in anticipation of or as a result of such Person becoming a
Restricted Subsidiary or of such merger or consolidation, and any Indebtedness
to the extent exchanged for, or the net proceeds of which are used to refinance,
redeem or defease, such Indebtedness (or any extension, renewal or refinancing
thereof), or to finance any costs incurred in connection with such exchange,
refinancing, redemption or defeasance; PROVIDED, HOWEVER, that the proceeds of
such Indebtedness shall be used to so refinance, redeem or defease the
Indebtedness within 12 months of the incurrence of such subsequent Indebtedness.
"PERMITTED INDEBTEDNESS" means (i)(a) any Indebtedness in a principal amount
not exceeding the principal amount outstanding or committed under the Credit
Agreements (including any letter of credit
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facility, but without duplication with respect to commitments for loans the use
of proceeds of which is restricted to repayment of other Indebtedness under the
Credit Agreements) as of November 1, 1991 (approximately $2.52 billion), PLUS
$250 million, and less the proceeds from the sale of all Indebtedness under the
1991 Indenture issued from time to time that are applied to repay Indebtedness
under the Credit Agreements; (b) any Indebtedness in a principal amount not
exceeding 80% of the aggregate face amount of Receivables of the Company and its
Restricted Subsidiaries (measured as of the latest date as of which information
regarding Receivables is available) and constituting Indebtedness described in
clause (ii) of the definition of Indebtedness or outstanding pursuant to any
other revolving credit facility; and (c) any Indebtedness under the 1991
Indenture the proceeds of which shall be used to repay Indebtedness under the
Credit Agreements within five Business Days after any such issuance (and any
subsequent Indebtedness the proceeds of which are used to refinance such
Indebtedness); PROVIDED, HOWEVER, that:
(1) the aggregate principal amount permitted to be outstanding under clause
(a) shall be reduced by the aggregate amount of any subsequent repayments or
prepayments of any Senior Indebtedness (other than the Indebtedness under the
1991 Indenture) out of the proceeds of Asset Dispositions as described under
"LIMITATION ON ASSET DISPOSITIONS" above and, thereafter, shall be increased if,
at the end of the fourth consecutive complete fiscal quarter after the initial
reduction pursuant to this clause (1) or at any anniversary of the end of such
fourth fiscal quarter, the Consolidated Free Cash Flow of the Company for the
preceding four quarters has been zero or greater, in which event the amount of
the increase shall be the amount by which the consolidated capital expenditures
of the Company and its Restricted Subsidiaries not financed by Indebtedness
referred to in clause (vi) of this definition during such four-quarter period
exceeds Consolidated Depreciation Expense for such period (provided any such
increase shall be made only to the extent all such reductions occurring prior to
the four fiscal quarters for which such calculation of Consolidated Free Cash
Flow has been made exceed all prior increases pursuant to this clause (1));
(2) (A) the aggregate amount permitted to be incurred under clause (a) shall
be reduced by (x) the principal amount outstanding under the Credit Agreements
on November 1, 1991 net of subsequent reductions thereof, and (B) the aggregate
amount permitted to be incurred under clause (b) shall be reduced by the
principal amount outstanding under the Pledge and Administration Agreement,
dated as of August 15, 1991, between Stone Financial Corporation and Castlewood
Funding Corporation (the "Castlewood Agreement") on the date of the Indenture
net of subsequent reductions thereof;
(3) the Permitted Indebtedness contemplated by this clause (i) may be
incurred by the Company and, in the case of Permitted Indebtedness constituting
Indebtedness under clause (ii) of the definition of Indebtedness, by the Company
or any Restricted Subsidiary; and
(4) any Restricted Subsidiary in the Stone-Consolidated Group may incur,
assume or guarantee any Indebtedness under clauses (i)(a) and (i)(b) above: (A)
under any revolving credit facilities of Restricted Subsidiaries in the
Stone-Consolidated Group entered into pursuant to this clause (i) for which the
aggregate amount committed thereunder does not exceed an amount equal to (x) the
aggregate amount committed as of November 1, 1991 under the revolving credit
facility of the Stone-Consolidated Group (the "Canadian Revolver") contained in
the Credit Agreements, PLUS (y) an amount not exceeding $200 million to finance
increases after November 1, 1991 in the working capital of Restricted
Subsidiaries in the Stone-Consolidated Group, LESS (z) the principal amount
outstanding on November 1, 1991 under the Canadian Revolver (net of subsequent
reductions thereof), (B) as to which an officer of the Company shall have
determined in good faith (which determination shall be evidenced by a
certificate of such officer) that such Indebtedness is for a bona fide business
purpose of such Restricted Subsidiary and that during the term of such
Indebtedness the taxable income (before deduction of interest expense) against
which the interest expense for such Indebtedness can be deducted is not
reasonably anticipated to be significantly less than the aggregate interest
expense which can be deducted against such taxable income or (C) which is
currently outstanding under the term loan facility of the U.S. Credit Agreement,
such Indebtedness incurred, assumed or guaranteed under this clause (C) to be in
a principal amount not exceeding (x) the principal amount outstanding as of
November 1, 1991
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under the term loan facility under the U.S. Credit Agreement LESS (y) the
proceeds from the sale of all Indebtedness issued under the 1991 Indenture from
time to time that are applied to repay such term loan facility;
(ii) Permitted Subordinated Indebtedness;
(iii) Permitted Refinancing Indebtedness;
(iv) Permitted Stone-Consolidated Indebtedness;
(v) Permitted Existing Indebtedness of an Acquired Person;
(vi) Indebtedness incurred for the purpose of acquiring Capital Stock of
another Person, assets comprising a business or line of business or intangible
assets or acquiring, constructing or improving fixed assets, in each case
related primarily to, or used in connection with, the paper or forest products
businesses and which (a) constitutes all or a portion of (but not more than) the
purchase price of such Capital Stock or assets (such purchase price including
any Indebtedness assumed or repaid in connection with such purchase) or the cost
of construction or improvement of such assets (together with any transaction
costs relating to such purchase, construction or improvement), (b) is incurred
prior to, at the time of or within 270 days after the acquisition, construction
or improvement of such assets for the purpose of financing the purchase price of
such Capital Stock or assets or the cost of construction or improvement thereof
(together with any transaction costs relating to such purchase, construction or
improvement) and (c) is the direct or guaranteed obligation of any of (1) the
Company, (2) a Restricted Subsidiary formed for the purpose of acquiring such
Capital Stock or assets (and having no material assets other than assets to be
used for such acquisition), (3) any Person comprised within the acquired assets
or (4) in the case of the construction or improvement of fixed assets, the
Restricted Subsidiary which will own such assets, or any extension, renewal or
refinancing of such Indebtedness; PROVIDED, HOWEVER, that the amount so
extended, renewed or refinanced shall not exceed the principal amount
outstanding on the date of such extension, renewal or refinancing, PLUS costs
incurred in connection with any such extension, renewal or refinancing (it being
understood that any fixed assets included within capital expenditures which
increased Indebtedness permitted under clause (i) of the definition of Permitted
Indebtedness pursuant to clause (1) to the proviso to such clause may not be
financed pursuant to this clause (vi));
(vii) Indebtedness in an aggregate principal amount not to exceed $300
million at any one time outstanding; PROVIDED, HOWEVER, that no Restricted
Subsidiary may incur Indebtedness under this clause (vii) to the extent that
after the incurrence of such Indebtedness the sum (without duplication) of (x)
all Indebtedness of Restricted Subsidiaries incurred under this clause (vii),
PLUS (y) Indebtedness and other obligations then secured pursuant to clause
(xii) of the definition of Permitted Liens, PLUS (z) the amount of Indebtedness
that was not incurred pursuant to clause (i)(b) of this definition and is
secured pursuant to clause (vi) of the definition of Permitted Liens shall
exceed $300 million;
(viii) Indebtedness of the Company in an aggregate principal amount not to
exceed $250 million at any one time outstanding;
(ix) any Interest Swap Obligations, Currency Agreements or Commodities
Agreements relating to Indebtedness that was not incurred in violation of the
terms of the Indenture; and
(x) Indebtedness to finance an increase in the working capital of any Person
or Persons that (a) are organized under the laws of a jurisdiction other than
the United States or any subdivision thereof and (b) became Restricted
Subsidiaries after November 1, 1991; PROVIDED, HOWEVER, that Indebtedness
pursuant to this clause (x) is the obligation of the Company or such Person or
Persons.
"PERMITTED LIENS" means, with respect to any Person,
(i) Ordinary Course of Business Liens;
(ii) Liens upon property or assets acquired or constructed by such Person or
any Affiliate after November 1, 1991 constituting improvements after November 1,
1991 to property or assets; PROVIDED,
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HOWEVER, that (a) any such Lien is created solely for the purpose of securing
Indebtedness representing, or incurred to finance or refinance, the purchase
price (such purpose price including any Indebtedness assumed or repaid in
connection with such purchase) or cost of construction of the property or assets
subject thereto or of such improvement, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such purchase price or
cost (together with any transaction costs relating to such purchase,
construction or improvement), (c) such Lien does not extend to or cover any
other property or assets other than such property, assets, improvement and any
other improvements thereon (or, in the case of any construction or improvement,
any substantially unimproved real property on which the property is constructed
or the improvement is located) and (d) the occurrence of such Indebtedness is
permitted by clause (vi) of the definition of Permitted Indebtedness;
(iii) Liens securing obligations with respect to letters of credit (other
than commercial letters of credit) to the extent the obligations supported by
such letters of credit may be secured without violating the limitation on liens
described under "Limitation on Future Liens and Guaranties;"
(iv) Liens covering property subject to any Capitalized Lease Obligation or
other lease which was not entered into in violation of the Indenture securing
the interest of the lessor or other Person under such Capitalized Lease
Obligation or other lease;
(v) Liens securing obligations to a trustee pursuant to the compensation and
indemnity provisions of any indenture (including the Indenture) and Liens
securing obligations to a trustee or agent with respect to collateral for any
Indebtedness;
(vi) Liens created in connection with a disposition of Receivables (whether
or not characterized as a sale of such Receivables or a secured loan) not
prohibited by the Indenture on (a) such Receivables, (b) collateral securing
such Receivables, (c) goods or services, the sale, lease or furnishing of which
gave rise to such Receivables, (d) books and records relating to such
Receivables, (e) agreements or arrangements supporting or securing such
Receivables and (f) incidental property and assets relating to any of the
foregoing; PROVIDED, HOWEVER, that the aggregate amount at any time of
Indebtedness that is secured pursuant to this clause (vi) and was not incurred
pursuant to clause (i)(b) of the definition of Permitted Indebtedness, shall at
no time exceed (x) $300 million LESS (y) the sum of Indebtedness and other
obligations then secured pursuant to clause (xii) of this definition PLUS the
then outstanding principal amount of Indebtedness of Restricted Subsidiaries
incurred under clause (vii) of the definition of Permitted Indebtedness (and not
secured pursuant to this clause (vi) or such clause (xii));
(vii) Liens upon property or assets of the Company created in substitution
and exchange for a Permitted Lien upon other property or assets of the Company
or any of its Subsidiaries and Liens upon property or assets of any Subsidiaries
of the Company created in substitution and exchange for a Permitted Lien upon
other property or assets of any Subsidiaries of the Company; PROVIDED,
HOWEVER,that (a) such Permitted Lien is released contemporaneously with the
creation of the Lien in substitution therefor, (b) the fair market value of the
property or assets with respect to the Lien so released is substantially the
same as the fair market value of the property or assets subject to the Lien
created in substitution therefor and (c) no Lien may be placed on property or
assets of the Company or a Restricted Subsidiary in substitution and exchange
for a Lien upon property or assets of an Unrestricted Subsidiary;
(viii) Liens upon property or assets of a Subsidiary of a Person securing
Indebtedness of such Person or of such Subsidiary, which Liens are created in
substitution and exchange for an outstanding pledge by such Person of a majority
of the Capital Stock of such Subsidiary for the purpose of securing such
Indebtedness (or a guaranty in respect thereof); PROVIDED, HOWEVER, that if the
property and assets of such Subsidiary to be subjected to such Liens have a fair
market value in excess of $25 million, such Subsidiary shall have guaranteed the
obligations of the Company in respect of the Notes if requested by the Trustee,
such Subsidiary shall have waived all its rights of subrogation and
reimbursement from the Company in connection with such guaranty;
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(ix) Liens upon any property or assets (a) existing at the time of
acquisition thereof by the Company
or any Subsidiary, (b) of a Person existing at the time such Person is merged
with or into or consolidated with the Company or any Subsidiary of the Company
or existing at the time of a sale or transfer of any such property or assets of
such Person to the Company or any Subsidiary of the Company or (c) of a Person
existing at the time such Person becomes a Subsidiary of the Company; PROVIDED,
HOWEVER, that such Liens shall not have been created in contemplation of such
sale, merger, consolidation, transfer or acquisition;
(x) Liens existing at November 1, 1991;
(xi) (a) Liens upon any property or assets of the Company and its Restricted
Subsidiaries securing Indebtedness under the Credit Agreements in a principal
amount not exceeding the principal amount outstanding or committed under the
Credit Agreements (including any letter of credit facility, but without
duplication with respect to commitments for loans the use of proceeds of which
is restricted to repayment of other Indebtedness under the Credit Agreements) as
of November 1, 1991 LESS (y) the proceeds from the sale of all Indebtedness
under the 1991 Indenture applied to repay Indebtedness under the Credit
Agreements and PLUS (z) $250 million and (b) Liens securing Indebtedness
permitted by clause (i) of the definition of Permitted Indebtedness upon
property or assets that as of November 1, 1991 secured the Credit Agreements or
the Castlewood Agreement;
(xii) Liens securing Indebtedness or other obligations of the Company and its
Restricted Subsidiaries not to exceed an aggregate principal amount of $350
million LESS, at any time, the sum of (y) the then outstanding principal amount
of Indebtedness of Restricted Subsidiaries incurred under clause (vii) of the
definition of Permitted Indebtedness (and not secured pursuant to this clause
(xii) or clause (vi) of this definition) PLUS (z) the amount of Indebtedness
secured pursuant to clause (vi) of this definition and not incurred pursuant to
clause (i)(b) of the definition of Permitted Indebtedness;
(xiii) Liens upon property or assets of a Subsidiary securing Indebtedness or
other obligations owing to the Company;
(xiv) Liens on proceeds of any property or assets subject to a Lien permitted
by the other clauses of this definition;
(xv) any equal and ratable Lien that is granted pursuant to the Continental
Guaranty and that relates to a Lien that otherwise constitutes a Permitted Lien;
(xvi) Liens on property or assets used to defease Indebtedness that was not
incurred in violation of the Indenture;
(xvii) Liens on property or assets of any Restricted Subsidiary organized
under the laws of a jurisdiction other than the United States or any subdivision
thereof securing Indebtedness of such Restricted Subsidiary outstanding as of
November 1, 1991 (or any extension, renewal or refinancing thereof); and
(xviii) any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part of any Lien referred to in the
foregoing clauses (i) through (xvii) (covering the same property and assets as
such Lien);
PROVIDED, HOWEVER, that no Lien described in any of the foregoing clauses other
than clause (xi)(a) shall encumber the rights of the Company with respect to
Indebtedness, obligations and other liabilities owed to the Company by any
Restricted Subsidiary or to any Restricted Subsidiary by the Company or another
Restricted Subsidiary.
"PERMITTED REFINANCING INDEBTEDNESS" means Indebtedness of (i) the Company
to the extent exchanged for, or the net proceeds of which are used to refinance,
redeem or defease, Indebtedness of the Company or any Restricted Subsidiary (or
any extension, renewal or refinancing thereof) outstanding at the time of
incurrence of such subsequent Indebtedness, or to finance any costs incurred in
connection with any such exchange, refinancing, redemption or defeasance, (ii) a
Restricted Subsidiary to the extent exchanged for, or the net proceeds of which
are used to refinance, redeem or defease, Indebtedness of such Restricted
Subsidiary (or any extension, renewal or refinancing thereof) outstanding at the
time of incurrence of such subsequent Indebtedness, or to finance any costs
incurred in
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connection with any such exchange, refinancing, redemption or defeasance, or
(iii) the Company or a Restricted Subsidiary to the extent exchanged for, or the
net proceeds of which are used to refinance, redeem or defease, any then
outstanding industrial revenue or development bonds that were outstanding at
November 1, 1991 (or any extension, renewal or refinancing thereof), or to
finance any costs incurred in connection with such exchange, refinancing or
defeasance; PROVIDED, HOWEVER, that, in the case of (i) (ii) or (iii), the
proceeds of such Indebtedness shall be used to so refinance, redeem or defease
the Indebtedness within 12 months of the incurrence of such subsequent
Indebtedness; and PROVIDED, FURTHER, that the only Indebtedness which may be
subject to exchange, refinancing, redemption or defeasance pursuant to clause
(i), (ii) or (iii) of this definition shall be Indebtedness outstanding as of
November 1, 1991 (other than Indebtedness under the Credit Agreements,
Subordinated Indebtedness and Indebtedness under lines of credit) or any
extension, renewal or refinancing thereof, and Indebtedness that is incurred
after November 1, 1991 (other than solely as Permitted Indebtedness).
"PERMITTED STONE-CONSOLIDATED INDEBTEDNESS" means Indebtedness of the
Company or a Restricted Subsidiary in the Stone-Consolidated Group outstanding
pursuant to lines of credit in an aggregate principal amount not to exceed U.S.
$100 million (of which not more than Canadian $60 million, or such greater
amount as may be determined and evidenced in the manner specified in clause
(4)(B) to the proviso to clause (i) of the definition of Permitted Indebtedness,
may be owed by Restricted Subsidiaries in the Stone-Consolidated Group) at any
one time outstanding or pursuant to any extension, renewal or refinancing of
such outstanding amount PLUS any costs incurred in connection with any such
extension, renewal or refinancing; PROVIDED, HOWEVER, that the aggregate
principal amount permitted to be incurred under this definition shall be reduced
by the principal amount under lines of credit outstanding on November 1, 1991
net of subsequent repayments or reductions thereof.
"PERMITTED SUBORDINATED INDEBTEDNESS" means (i) Subordinated Indebtedness of
the Company to the extent exchanged for, or the net proceeds of which are used
to refinance, redeem or defease, then outstanding Subordinated Indebtedness of
the Company that was outstanding at November 1, 1991 (or any extension, renewal
or refinancing thereof), or to finance any costs incurred in connection with any
such exchange, refinancing, redemption or defeasance; PROVIDED, HOWEVER, that
(a) such Subordinated Indebtedness does not have a shorter weighted average life
than that then remaining for, or a maturity earlier than that of, the
Indebtedness so exchanged, refinanced, redeemed or defeased, except that in the
case of any exchange, such Subordinated Indebtedness may have a maturity that is
earlier (but not more than six months earlier) than that of the Indebtedness so
exchanged, provided that the Subordinated Indebtedness shall have the same or a
longer weighted average life than that then remaining for the Indebtedness so
exchanged and (b) in the case of refinancings, redemptions or defeasances, the
proceeds of such Subordinated Indebtedness shall be used to so refinance,
redeem, or defease the Indebtedness within 12 months of the incurrence of such
subsequent Subordinated Indebtedness; and (ii) Indebtedness of the Company in an
aggregate principal amount not to exceed $250 million at any one time
outstanding, so long as such Indebtedness (a) constitutes Subordinated
Indebtedness and (b) does not have a weighted average life that is shorter than
that then remaining for the Notes then Outstanding or a maturity that is earlier
than the latest maturity of the Notes then Outstanding.
"RECEIVABLES" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money.
"REDEEMABLE STOCK" means, with respect to any Person, any Capital Stock that
by its terms or otherwise is required to be redeemed or purchased by such Person
or any of its Subsidiaries prior to 30 days after the maturity date of the Notes
then Outstanding, or is redeemable or subject to mandatory purchase or similar
put rights at the option of the Holder thereof at any time prior to 30 days
after the latest maturity date of the Debt Securities of any series then
Outstanding, or any security which is convertible or exchangeable into a
security which has such provisions.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
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"SENIOR INDEBTEDNESS" means the principal of, interest on and other amounts
due on (i) Indebtedness of the Company, whether outstanding on November 1, 1991
or thereafter created, incurred, assumed or guaranteed by the Company prior to
the date hereof in compliance with the 1991 Indenture and thereafter, in
compliance with the Indenture, (ii) obligations of the Company related to the
termination of Interest Swap Obligations, Currency Agreements or Commodities
Agreements pertaining to Indebtedness described under clause (i) above and (iii)
principal of or interest on the Notes. Notwithstanding anything to the contrary
in the foregoing, Senior Indebtedness shall not include: (a) Subordinated
Indebtedness, (b) Indebtedness of or amounts owed by the Company for
compensation to employees, for goods or materials purchased in the ordinary
course of business or for services or (c) Indebtedness of the Company to a
Subsidiary of the Company.
"SPECIFIED BANK DEBT" means (i) all Indebtedness and other monetary
obligations owing as of November 1, 1991 or thereafter by the Company under the
Credit Agreements and the Company's guaranty of any Indebtedness or other
monetary obligation of any of its Subsidiaries under the Credit Agreements or
any credit facilities with the banks signatory to the Credit Agreements (or with
banks affiliated with such banks) so long as such facilities are related to the
Credit Agreements (the "Guaranteed Related Bank Facilities"); and (ii)
Indebtedness owing as of November 1, 1991 or thereafter to banks or other
financial institutions under credit facilities which may in the future
refinance, refund, replace, supplement or succeed (regardless of any gaps in
time) the Credit Agreements or Guaranteed Related Bank Facilities (including
extensions and restructurings and the inclusion of additional or different or
substitute lenders), so long as (a) the aggregate principal amount outstanding
(including available amounts under committed revolving credit or similar working
capital facilities, letter of credit facilities and other commitments to provide
credit) of such Indebtedness is at least equal to the principal of all
Indebtedness under the 1991 Indenture then Outstanding (it being understood that
Indebtedness described in clause (i) above and issues of Indebtedness having a
principal amount lower than set forth in clause (b) below shall not be included
in this amount), (b) Indebtedness outstanding under each particular credit
facility has a principal amount outstanding (including available amounts under
committed revolving credit or similar working capital facilities, letter of
credit facilities and other commitments to provide credit) of at least $25
million and (c) such Indebtedness constitutes Senior Indebtedness.
"STONE-CONSOLIDATED GROUP" means Stone-Consolidated Inc. (now Stone
Container (Canada) Inc.) and its Subsidiaries existing as of November 1, 1991.
"SUBORDINATED CAPITAL BASE" means the sum of (i) the Consolidated Net Worth
and (ii) to the extent not included in clause (i) above, the amounts (without
duplication) relating to (a) the principal amount of Subordinated Indebtedness
incurred after November 1, 1991 which is unsecured and which does not have at
the time of incurrence of such Subordinated Indebtedness a weighted average life
that is shorter than the weighted average life remaining for the Notes then
Outstanding or a maturity that is earlier than the latest maturity of the Notes
then Outstanding; (b) redeemable stock of the Company that does not constitute
Redeemable Stock and (c) the principal amount of the 12 1/8% Subordinated
Debenture due September 15, 2001 of the Stone Southwest, Inc. the 10 3/4% Senior
Subordinated Notes due June 15, 1997, the 11% Senior Subordinated Notes due
August 15, 1999, the 11 1/2% Senior Subordinated Notes due September 1, 1999,
the 10 3/4% Senior Subordinated Debentures due April 1, 2002, the 8 7/8%
Convertible Senior Subordinated Notes due July 15, 2000 and the 6 3/4%
Convertible Subordinated Debentures due February 15, 2007 of the Company (the
"Subordinated Debt") or any Subordinated Indebtedness exchanged for, or the net
proceeds of which are used to refinance, redeem or defease, such Subordinated
Debt pursuant to clause (ii) of the definition of "Permitted Indebtedness,"
that, in the case of clauses (a), (b) and (c), as at the date of determination,
in conformity with GAAP consistently applied, would be set forth on the
consolidated balance sheet of the Company and its Restricted Subsidiaries.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company (whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed or guaranteed by the Company) which, pursuant to the terms of the
instrument creating or evidencing the same, is subordinate to the Notes in right
of payment or in rights upon liquidation.
89
<PAGE>
"SUBSIDIARY" means, with respect to any Person, (i) any corporation of which
at least a majority in interest of the outstanding Capital Stock having by the
terms thereof voting power under ordinary circumstances to elect directors of
such corporation, irrespective of whether or not at the time stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency, is at the time, directly or
indirectly, owned or controlled by such Person, or by one or more corporations a
majority in interest of such stock of which is similarly owned or controlled, or
by such Person and one or more other corporations a majority in interest of such
stock of which is similarly owned or controlled or (ii) any other Person (other
than a corporation) in which such Person, directly or indirectly, at the date of
determination thereof, has at least a majority equity ownership interest;
PROVIDED, HOWEVER, that, with respect to the Company, for purposes of the
Indenture (other than the covenant referred to in the second paragraph of
"Limitation on Future Liens and Guaranties" above), "Subsidiary" shall not
include Stone Savannah or Seminole, each a Delaware corporation.
"UNRESTRICTED SUBSIDIARY" means a Subsidiary of the Company which has been
designated as an "Unrestricted Subsidiary" for purposes of the Indenture by the
Company and (a) at least 20% of whose common stock is held by one or more
Persons (other than the Company and its Affiliates) which acquired such common
stock in a bona fide transaction for fair value and (b) at least 10% of whose
total capitalization at the time of designation is in the form of common stock
or at least 15% of the fair market value of whose assets at such time shall have
been contributed by such Person. An Unrestricted Subsidiary may be designated to
be a Restricted Subsidiary only if, at the time of such designation, all
Indebtedness and Liens of such Subsidiary could be incurred under the Indenture.
ADDITIONAL FIRST MORTGAGE NOTE INDENTURE DEFINITIONS
"CASH COLLATERAL ACCOUNT" means one or more accounts forming part of the
Trust Estate in the sole dominion and control of the First Mortgage Note Trustee
into which certain funds are required to be deposited by or on behalf of the
Company under the terms of the First Mortgage Note Indenture and the Security
Documents.
"COLLATERAL" means the Collateral Properties, the Cash Collateral Account
and all other property that from time to time secures the First Mortgage Notes
pursuant to the First Mortgage Note Indenture and the Security Documents.
"COLLATERAL ASSET SALE" means any direct or indirect sale, conveyance,
lease, sale-leaseback, transfer or other disposition, including, without
limitation, by means of a merger, consolidation or similar transaction (each, a
"Disposition"), or a series of related Dispositions by the Company or any of its
Restricted Subsidiaries involving the Collateral, other than (a) the sale of
machinery, equipment, furniture, apparatus, tools or implements or other similar
property that may be defective or may have become worn out or obsolete or no
longer used or useful in the operation of the Collateral Properties, the
aggregate fair market value of which does not exceed U.S. $ million in any
year; (b) the sale of equipment that has been replaced by equipment of
substantially equal value in an alteration or improvement made at one of the
Collateral Properties; (c) the use by the First Mortgage Note Trustee of amounts
on deposit in the Cash Collateral Account in accordance with the "Limitation on
Collateral Asset Sales" covenant or the provisions under "The Collateral --
Possession, Use and Release of the Collateral;" and (d) a Disposition permitted
pursuant to the "Restrictions on Mergers and Consolidations and Sales of Assets"
covenants. A Collateral Asset Sale shall not include a Condemnation Event (as
defined) or Casualty Event (as defined) involving any Collateral.
"COLLATERAL LOSS EVENT" means a Condemnation Event or Casualty Event
involving an actual or constructive total loss or agreed or compromised actual
or constructive total loss of all or substantially all of any Collateral
Property.
"COLLATERAL PROPERTIES" means , and all mills, plants and related
property constituting Replacement Collateral.
"EXCESS PROCEEDS" means, on any date, the aggregate amount of Net Proceeds
from Collateral Asset Sales and Collateral Loss Events consummated or occurring
after the Issue Date which have not
90
<PAGE>
been previously (a) used to purchase or invest in Replacement Collateral or
Restore Collateral in accordance with the "Limitation on Collateral Asset Sales"
covenant or (b) included as part of a First Mortgage Note Offer, provided that
no such Net Proceeds will constitute Excess Proceeds until the later of twelve
months from the date of consummation of the relevant Collateral Asset Sale or
receipt of the Net Proceeds from the relevant Collateral Loss Event and such
longer period during which such Net Proceeds may be used to purchase or invest
in Replacement Collateral or Restore Collateral to the extent permitted by the
"Limitation on Collateral Asset Sales" covenant.
"INDEPENDENT APPRAISER" means an appraisal firm that is nationally
recognized in the United States that (i) does not have any direct financial
interest in the Company or any of its Subsidiaries, the First Mortgage Note
Trustee or in any Affiliate of any of them, and (ii) is not connected with the
Company or any of its Subsidiaries, the First Mortgage Note Trustee or any such
Affiliate as an employee, associate or Affiliate.
"INDEPENDENT DIRECTOR"means, in respect of any transaction involving the
Company, a director of the Company who is in fact independent of the transaction
other than (a) a director who is a party to such transaction, or (b) a director
who is an officer, employee, associate or Affiliate (or is related by blood or
marriage and who is in fact independent of any such Person) of a party to such
transaction or who is an officer, employee, director or associate of an
Affiliate of the Company (other than the Company and its Subsidiaries), or (c) a
director who is an officer, employee or associate of the Company or its
Subsidiaries.
"INDEPENDENT FINANCIAL ADVISER" means an investment banking firm that is
nationally recognized in the United States that (i) does not have any direct
financial interest in the Company, any Subsidiary or the First Mortgage Note
Trustee or in any Affiliate of any of them, and (ii) is not connected with the
Company, a Subsidiary or the First Mortgage Note Trustee or any such Affiliate
as an employee, associate or Affiliate.
"NET PROCEEDS" means those proceeds received by the Company or any of its
Restricted Subsidiaries in connection with a Collateral Asset Sale,Collateral
Loss Event or Partial Collateral Loss Event consisting of (a) the sum of cash
and Cash Equivalents (including any amounts of insurance, condemnation or other
proceeds (other than proceeds from business interruption insurance) received in
connection with a Collateral Loss Event or Partial Colleteral Loss Event and any
cash and Cash Equivalents received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received (provided that any amounts not paid at the closing for a Collateral
Asset Sale shall not be included for purposes of determining whether the Company
has received fair market value for the Collateral sold), but excluding any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to the relevant Property (as
defined)) therefrom, MINUS (b) all accounting, legal, title, recording and tax
expenses, commissions and other fees and expenses incurred, and all federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, directly as a consequence of such Collateral Asset Sale or
Collateral Loss Event and net of all payments made on any Indebtedness which is
secured by a Permitted Collateral Lien on the Property subject to such
Collateral Asset Sale or Collateral Loss Event, which must be paid in accordance
with the terms of such Permitted Collateral Lien or under applicable law.
"PARTIAL COLLATERAL LOSS EVENT" means a Condemnation Event or Casualty Event
involving an actual or constructive or agreed or compromised actual loss of a
substantial part of the Collateral Property, but less than all or substantially
all of the Collateral Property.
"PERMITTED COLLATERAL LIENS" means:
(i) Liens securing the First Mortgage Notes arising under the First
Mortgage Note Indenture or the Security Documents;
91
<PAGE>
(ii) Liens for taxes or governmental assessments, charges, levies or claims
not yet delinquent or for which a bond has been posted in an amount equal to the
contested amount (including potential interest and penalties thereon);
(iii) statutory Liens of landlords, carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the ordinary
course of business of ownership and operation of the Collateral Properties
relating to obligations not yet delinquent or being contested in good faith by
appropriate proceedings and to which appropriate reserves or other provisions
have been made in accordance with GAAP.
(iv) Liens on a Collateral Property in connection with workers'
compensation, unemployment insurance and other similar legislation, surety or
appeal bonds, performance bonds or other obligations of a like nature (in each
case, not constituting Indebtedness) arising in the ordinary course of business
with respect to the ownership and operation of such Collateral Property;
(v) zoning restrictions, licenses, easements, rights-of-way, title defects
and other similar charges or encumbrances or restrictions affecting a Collateral
Property not interfering in any material respect with the ordinary operation of
a Collateral Property or materially and adversely affecting the value or resale
of a Collateral Property; and
(vi) assignments, leases or subleases at a Collateral Property not
interfering in any material respect with the operation of such Collateral
Property or materially and adversely affecting the value or resale of the
Collateral.
"REPLACEMENT COLLATERAL" means, at any relevant date in connection with a
Collateral Asset Sale or Collateral Loss Event, assets to be used in the pulp
and paper business as conducted by the Company at such date other than the
Collateral, which on such date, (a) constitute similar assets to Collateral
disposed of or destroyed (and do not constitute Capital Stock of any Person),
(b) are acquired by the Company at a purchase price which does not exceed the
fair market value of such Replacement Collateral (as determined, in the case of
each of (a) and (b), in good faith by a majority of the Board of Directors,
including a majority of the Independent Directors, on the basis of the written
opinion of a qualified Independent Appraiser or Independent Financial Adviser
prepared contemporaneously with such purchase) and made available to the First
Mortgage Note Trustee, and (c) are free and clear of all Liens other than
Permitted Collateral Liens.
"RESTORATION" or "RESTORE" means the physical repair, restoration or
rebuilding of all or any portion of the Collateral following any Casualty Event
or Condemnation.
92
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Company and Salomon Brothers Inc, BT
Securities Corporation, Morgan Stanley & Co. Incorporated, Kidder, Peabody & Co.
Incorporated and Bear, Stearns & Co. Inc. (the "Underwriters"), the Company has
agreed to sell to the Underwriters, and the Underwriters have severally agreed
to purchase, the respective principal amounts of the First Mortgage Notes and
Senior Notes set forth opposite their names below. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters will be obligated to purchase all
of the Notes if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
----------------------------------------------------
FIRST MORTGAGE
UNDERWRITER NOTES SENIOR NOTES TOTAL
- -------------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Salomon Brothers Inc.............................. $ $ $
BT Securities Corporation.........................
Morgan Stanley & Co. Incorporated.................
Kidder, Peabody & Co. Incorporated................
Bear, Stearns & Co. Inc...........................
---------------- ---------------- ----------------
Total......................................... $ 650,000,000 $ 250,000,000 $ 900,000,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the First Mortgage Notes and Senior Notes directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession of 0. % and 0. %,
respectively, of the principal amount of the First Mortgage Notes and Senior
Notes. The Underwriters may allow and such dealers may reallow a concession not
in excess of 0. % and 0. %, respectively, of the principal amount of the First
Mortgage Notes and Senior Notes on sales to certain other dealers. After the
initial offering, the public offering prices and concessions to dealers may be
changed.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including certain liabilities under the Securities Act of 1933, as
amended (the "Act").
The Notes are new issues of securities with no established trading market.
The Company has been advised by certain of the Underwriters that they intend to
make a market in the First Mortgage Notes and/ or Senior Notes, but none of such
Underwriters is obligated to do so and may discontinue such market making at any
time without notice. No assurance can be given as to the development or
liquidity of any trading market for the First Mortgage Notes and/or Senior
Notes.
The Company has agreed that, for a period of thirty days from the date of
the issuance of the Notes, without the consent of Salomon Brothers Inc, acting
on behalf of the Underwriters, neither the Company nor any subsidiary of the
Company (except in limited circumstances) will (i) file with the Securities and
Exchange Commission (the "Commission") or publicly announce its intent to file
any registration statement under the Act or pre-effective amendment to any
registration statement under the Act relating to debt securities (other than
industrial development bonds and the Stone Financial Corporation offering or
(ii) enter into any agreement for or consummate the sale of, or publicly
announce its intent to sell, any debt securities (other than the Notes, the
industrial development bonds and the Stone Financial Corporation offering).
Certain of the Underwriters from time to time perform investment banking and
other financial advisory services for the Company for which they receive
customary compensation.
Bankers Trust Company ("Bankers Trust"), an affiliate of BT Securities
Corporation, is the agent and a lender under the 1989 Credit Agreement and is
expected to be the agent and a lender under the Credit Agreement. In its
capacity as lender under the 1989 Credit Agreement, Bankers Trust will receive
its pro
93
<PAGE>
rata share of the net proceeds of the sale of the Notes hereunder used to repay
indebtedness under the 1989 Credit Agreement. See "Use of Proceeds." Bankers
Trust is also the indenture trustee for the Company's 11 1/2% Senior
Subordinated Notes due September 1, 1999.
An affiliate of Kidder, Peabody & Co., Incorporated is a lender to
Stone-Consolidated pursuant to a revolving credit facility.
EXPERTS
The financial statements as of December 31, 1993 and 1992 and for each of
the three years in the period ended December 31, 1993 included in this
Prospectus have been so included in reliance on the report (which contains an
explanatory paragraph referring to certain liquidity matters discussed in Notes
11 and 18 to the Company's financial statements) of Price Waterhouse,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Leslie T. Lederer, Vice President, Secretary and Counsel of the Company (who
owns 20,047 shares of Common Stock) and by Sidley & Austin, Chicago, Illinois.
Certain legal matters will be passed upon for the Underwriters by Cleary,
Gottlieb, Steen & Hamilton, New York, New York.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 13th Floor,
Seven World Trade Center, New York, New York 10048. Copies of such materials may
be obtained from the Public Reference Branch of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, such
reports, proxy statements and other information can be inspected at the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which
exchange the Common Stock of the Company is listed.
The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-1 under the Act with respect to the Securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, as permitted by the rules and regulations of the
Commission. For further information pertaining to the Company and the Securities
offered hereby, reference is made to the Registration Statement and the exhibits
thereto, which may be examined without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies thereof may be obtained from the Public Reference Branch of the
Commission upon payment at prescribed rates.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, on the written or oral request of such
person made to the Company, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents unless such exhibits are specifically
incorporated by reference therein. Requests for such copies should be directed
to: Investor Relations Department, Stone Container Corporation, 150 North
Michigan Avenue, Chicago, Illinois 60601; telephone number (312) 346-6600.
94
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
ITEM: PAGE
- ----------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Financial Statements -- Three Months Ended March 31, 1994 and March 31, 1993
(unaudited):
Consolidated Statements of Operations.................................................................... F-2
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Cash Flows.................................................................... F-4
Notes to the Consolidated Financial Statements........................................................... F-5
Financial Statements -- Years Ended December 31, 1993, December 31, 1992 and December 31, 1991:
Report of Independent Accountants........................................................................ F-13
Consolidated Statements of Operations.................................................................... F-14
Consolidated Balance Sheets.............................................................................. F-15
Consolidated Statements of Cash Flows.................................................................... F-16
Consolidated Statements of Stockholders' Equity.......................................................... F-17
Notes to the Consolidated Financial Statements........................................................... F-18
Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1993 (unaudited).................................................................. F-53
</TABLE>
F-1
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1994 1993
---------- ----------
(IN MILLIONS EXCEPT
PER SHARE)
<S> <C> <C>
Net sales................................................................................ $ 1,290.8 $ 1,306.3
Operating costs and expenses:
Cost of products sold.................................................................... 1,067.1 1,070.3
Selling, general and administrative expenses............................................. 133.5 136.0
Depreciation and amortization............................................................ 89.3 87.1
Equity loss from affiliates.............................................................. 4.2 1.8
Other operating (income) expense -- net.................................................. (4.9) .6
---------- ----------
1,289.2 1,295.8
---------- ----------
Income from operations................................................................... 1.6 10.5
Interest expense......................................................................... (113.5) (102.2)
Other, net............................................................................... (9.2) 2.8
---------- ----------
Loss before income taxes, minority interest, extraordinary loss and cumulative effects of
accounting changes...................................................................... (121.1) (88.9)
Credit for income taxes.................................................................. (40.0) (26.8)
Minority interest........................................................................ 2.2 (.6)
---------- ----------
Loss before extraordinary loss and cumulative effects of accounting changes.............. (78.9) (62.7)
Extraordinary loss from early extinguishment of debt (net of $9.8 income tax benefit).... (16.8) --
Cumulative effect of change in accounting for postemployment benefits (net of $9.5 income
tax benefit)............................................................................ (14.2) --
Cumulative effect of change in accounting for postretirement benefits (net of $23.3
income tax benefit)..................................................................... -- (39.5)
---------- ----------
Net loss................................................................................. (109.9) (102.2)
Preferred stock dividends................................................................ (2.0) (2.0)
---------- ----------
Net loss applicable to common shares..................................................... (111.9) (104.2)
---------- ----------
Retained earnings, beginning of period................................................... 101.6 496.0
Net loss................................................................................. (109.9) (102.2)
Cash dividends on preferred stock........................................................ -- (2.0)
Unrealized loss on marketable equity security (net of $4.9 income tax benefit)........... (9.0) --
---------- ----------
Retained earnings (accumulated deficit), end of period................................... $ (17.3) $ 391.8
---------- ----------
---------- ----------
Per share of common stock:
Loss before extraordinary loss and cumulative effects of accounting changes............ $ (.99) $ (.91)
Extraordinary loss from early extinguishment of debt................................... (.21) --
Cumulative effect of change in accounting for postemployment benefits.................. (.17) --
Cumulative effect of change in accounting for postretirement benefits -- (.56)
---------- ----------
Net loss................................................................................. $ (1.37) $ (1.47)
---------- ----------
---------- ----------
Cash dividends........................................................................... $ -- $ --
---------- ----------
---------- ----------
Common shares and common share equivalents outstanding (weighted average, in millions)... 81.5 71.1
---------- ----------
---------- ----------
<FN>
- ------------------------
Unaudited; subject to year-end audit
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
---------- --------------
(IN MILLIONS)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 179.1 $ 247.4
Accounts and notes receivable (less allowances of $19.8 and $19.3).................. 681.9 622.3
Inventories......................................................................... 695.5 719.4
Other............................................................................... 204.4 164.1
---------- --------------
Total current assets.......................................................... 1,760.9 1,753.2
---------- --------------
Property, plant and equipment....................................................... 5,197.0 5,240.7
Accumulated depreciation and amortization........................................... (1,901.7) (1,854.3)
---------- --------------
Property, plant and equipment -- net.......................................... 3,295.3 3,386.4
Timberlands......................................................................... 86.0 83.9
Goodwill............................................................................ 877.4 910.5
Other............................................................................... 686.2 702.7
---------- --------------
Total assets.................................................................. $ 6,705.8 $ 6,836.7
---------- --------------
---------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of senior and subordinated long-term debt........................ $ 17.0 $ 22.6
Current maturities of non-recourse debt of consolidated affiliates.................. 279.7 290.5
Accounts payable.................................................................... 271.1 297.1
Income taxes........................................................................ 45.8 47.6
Accrued and other current liabilities............................................... 303.0 285.7
---------- --------------
Total current liabilities..................................................... 916.6 943.5
---------- --------------
Senior long-term debt............................................................... 2,265.9 2,338.0
Subordinated debt................................................................... 1,159.6 1,257.8
Non-recourse debt of consolidated affiliates........................................ 659.8 672.6
Other long-term liabilities......................................................... 312.3 270.3
Deferred taxes...................................................................... 402.8 470.6
Redeemable preferred stock of consolidated affiliate................................ 42.3 42.3
Minority interest................................................................... 223.0 234.5
Commitments and contingencies.......................................................
Stockholders' equity:
Series E preferred stock............................................................ 115.0 115.0
Common stock (90.4 and 71.2 shares outstanding)..................................... 853.0 574.3
Retained earnings (accumulated deficit)............................................. (17.3) 101.6
Foreign currency translation adjustment............................................. (220.5) (179.0)
Unamortized expense of restricted stock plan........................................ (6.7) (4.8)
---------- --------------
Total stockholders' equity.................................................... 723.5 607.1
---------- --------------
Total liabilities and stockholders' equity.................................... $ 6,705.8 $ 6,836.7
---------- --------------
---------- --------------
<FN>
- ------------------------
* Unaudited; subject to year-end audit
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1994 1993
--------- ---------
(IN MILLIONS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................................... $ (109.9) $ (102.2)
Adjustments to reconcile net loss to net cash used in operating activities:
Extraordinary loss from early extinguishment of debt...................................... 16.8 --
Cumulative effect of change in accounting for postemployment benefits..................... 14.2 --
Cumulative effect of change in accounting for postretirement benefits..................... -- 39.5
Depreciation and amortization............................................................. 89.3 87.1
Deferred taxes............................................................................ (43.2) (28.9)
Foreign currency transaction losses....................................................... 15.2 1.5
Other -- net.............................................................................. (26.0) 7.9
Changes in current assets and liabilities -- net of adjustments for a divestiture:
Increase in accounts and notes receivable -- net........................................ (62.3) (40.3)
Decrease (increase) in inventories...................................................... 15.7 (.3)
Increase in other current assets........................................................ (18.8) (18.2)
Increase (decrease) in accounts payable and other current liabilities................... (5.2) 19.1
--------- ---------
Net cash used in operating activities....................................................... (114.2) (34.8)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings.................................................................................. 721.2 94.0
Payments made on debt....................................................................... (897.1) (11.5)
Payments by consolidated affiliates on non-recourse debt.................................... (19.2) --
Proceeds from issuance of common stock, net................................................. 276.3 --
Funding of letter of credit................................................................. (22.3) --
Cash dividends.............................................................................. -- (2.0)
--------- ---------
Net cash provided by financing activities................................................... 58.9 80.5
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................................................ (17.7) (29.4)
Proceeds from sales of assets............................................................... 7.5 2.0
Other -- net................................................................................ (1.3) (11.4)
--------- ---------
Net cash used in investing activities....................................................... (11.5) (38.8)
--------- ---------
Effect of exchange rate changes on cash..................................................... (1.5) --
--------- ---------
Net increase (decrease) in cash and cash equivalents........................................ (68.3) 6.9
Cash and cash equivalents, beginning of period.............................................. 247.4 58.9
--------- ---------
Cash and cash equivalents, end of period.................................................... $ 179.1 $ 65.8
--------- ---------
--------- ---------
</TABLE>
- ------------------------
See Note 11 regarding non-cash investing and financing activities and
supplemental cash flow information.
Unaudited; subject to year-end audit
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission for Form 10-Q, the financial statements, footnote disclosures and
other information normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed.
These financial statements, footnote disclosures and other information should be
read in conjunction with the financial statements and the notes thereto included
in Stone Container Corporation's (the "Company's") consolidated financial
statements for the year ended December 31, 1993 included herein. In the opinion
of the Company, the accompanying unaudited consolidated financial statements
contain all adjustments necessary to fairly present the Company's financial
position as of March 31, 1994 and the results of operations and cash flows for
the three month periods ended March 31, 1994 and 1993.
NOTE 2: RESTATEMENTS
Certain prior year amounts in the Company's Consolidated Statements of
Operations and Retained Earnings and Consolidated Statements of Cash Flows have
been restated to conform with the current year presentation.
NOTE 3: ADOPTION OF NEW ACCOUNTING STANDARDS
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"), which requires accrual accounting for the estimated
costs of providing certain benefits to former or inactive employees and the
employees' beneficiaries and dependents after employment but before retirement.
Upon adoption of SFAS 112, the Company recorded its catch-up obligation
(approximately $24 million) by recognizing a one-time, non-cash charge of $14.2
million, net of income tax benefit, as a cumulative effect of an accounting
change in its 1994 first quarter Statement of Operations and Retained Earnings.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"), the Company, at March 31, 1994 recorded a $9 million
charge directly to stockholders' equity to reflect an unrealized loss on an
investment in an equity security, net of income tax benefit. The aggregate fair
value and carrying value of the investment in the equity security at March 31,
1994 was approximately $7 million and $20 million, respectively.
NOTE 4: MILL DIGESTER RUPTURE
On April 13, 1994 a digester ruptured at the Company's pulp and paperboard
mill in Panama City, Fla. The Company currently estimates that the mill's
linerboard production facilities will be shut down for a total of approximately
23 weeks and bleached market pulp production facilities will be shut down for a
total of approximately 18 weeks. These shutdowns will result in production
outages of approximately 138,000 tons of linerboard and 107,000 tons of bleached
market pulp. Aside from deductibles, the Company expects insurance proceeds to
cover both property damage and business interruption claims.
NOTE 5: FINANCING ACTIVITIES
On February 3, 1994, under the Company's $1 billion shelf registration, the
Company sold $710 million principal amount of 9 7/8 percent Senior Notes due
February 1, 2001 and 16.5 million shares of common stock for an additional
$251.6 million at $15.25 per common share. On February 17, 1994, the
underwriters elected to exercise their option to sell an additional 2.47 million
shares of common stock for an additional $37.7 million, also at $15.25 per
common share (collectively, with the February 3, 1994 offering, the "February
1994 Offerings"). The net proceeds from the February 1994 Offerings of
approximately $962 million were used to (i) prepay approximately $652 million of
the 1995, 1996 and 1997 scheduled amortization under the Company's bank credit
agreements which includes two term loan facilities, two revolving credit
facilities and an additional term loan (the "1989 Credit Agreement")
F-5
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5: FINANCING ACTIVITIES (CONTINUED)
including the ratable amortization payment under the revolving credit facilities
which had the effect of reducing the total commitments thereunder to
approximately $168 million; (ii) redeem the Company's 13 5/8 percent
Subordinated Notes due 1995 at a price equal to par, approximately $98 million
principal amount, plus accrued interest to the redemption date; (iii) repay
approximately $136 million of the outstanding borrowings under the Company's
revolving credit facilities without reducing the commitments thereunder; and
(iv) provide liquidity in the form of cash. The 9 7/8 percent Senior Notes are
redeemable by the Company on and after February 1, 1999. Interest is payable
semi-annually on February 1 and August 1, commencing August 1, 1994.
In the first quarter of 1994, the Company wrote-off $16.8 million of
unamortized debt issuance costs, net of income tax benefit, as a result of the
debt prepayments mentioned above. Such write-off is reflected as an
extraordinary loss from the early extinguishment of debt in the Company's
Statement of Operations and Retained Earnings for the three months ended March
31, 1994.
Due to the pendency of the litigation described in "Business -- Legal
Proceedings," the Company has postponed a previously disclosed possible
transaction related to the energy supply agreement at its Florence, South
Carolina mill.
NOTE 6: CREDIT AGREEMENT AMENDMENTS/LIQUIDITY MATTERS
The Company and its bank group have amended the Company's 1989 Credit
Agreement several times during the past three years. Such amendments provided
among other things, greater financial flexibility and/or relief from certain
financial covenants. In some instances, certain restrictions and limitations
applicable to the 1989 Credit Agreement were tightened. There can be no
assurance that future covenant relief will not be required or, if such relief is
requested by the Company, that it will be obtained from the banks' lenders.
The most recent amendment, which was executed in February of 1994 and became
effective upon the completion of the February 1994 Offerings, as discussed in
Note 5, provided, among other things, for the following:
(i) Permitted the Company to apply up to $200 million of net proceeds
from the 1994 Offerings, which increased liquidity, as repayment of
borrowings under the revolving credit facilities of the 1989 Credit
Agreement without reducing the commitments thereunder and, to the extent no
balance was outstanding under the revolving credit facilities, permitted the
Company to retain the balance of such $200 million of proceeds in cash.
(ii) Permitted the Company to redeem the Company's 13% Subordinated
Notes maturing on June 1, 1995 from the proceeds received from the February
1994 Offerings at a price equal to par, approximately $98 million principal
amount, plus accrued interest to the redemption date.
(iii) Amended the required levels of EBITDA (as defined in the 1989
Credit Agreement) for certain specified periods to the following:
<TABLE>
<CAPTION>
PERIODS EBITDA
- -------------------------------------------------------------------- --------------
<S> <C>
For the three months ended March 31, 1994........................... $ 20 million
For the six months ended June 30, 1994.............................. $ 55 million
For the nine months ended September 30, 1994........................ $111 million
For the twelve months ended December 31, 1994....................... $180 million
For the twelve months ended March 31, 1995.......................... $226 million
</TABLE>
F-6
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: CREDIT AGREEMENT AMENDMENTS/LIQUIDITY MATTERS (CONTINUED)
The required level of EBITDA is scheduled to increase for each rolling four
quarter period thereafter until December 31, 1996, when the EBITDA for the
twelve months ended December 31, 1996 is required to be $822 million.
(iv) Reset to zero as of January 1, 1994 the dividend pool under the
1989 Credit Agreement which permits payment of dividends on the Company's
capital stock and modifies the components used in calculating the ongoing
balance in the dividend pool. Effective January 1, 1994, dividend payments
on the Company's common stock and on certain preferred stock issues cannot
exceed the sum of (i) 75 percent of the consolidated net income (as defined
in the 1989 Credit Agreement) of the Company from January 1, 1994 to the
date of payment of such dividends, minus (ii) 100 percent of the
consolidated net loss, (as defined in the 1989 Credit Agreement), of the
Company from January 1, 1994 to the date of payment of such dividends, plus
(iii) 100 percent of any net cash proceeds from sales of common stock or
certain preferred stock of the Company from January 1, 1994 to any date of
payment of such dividends (excluding the proceeds from the 1994 Offerings
for which no dividend credit was received by the Company). Additionally, the
restriction in the Credit Agreement with respect to dividends on Series E
Cumulative Convertible Exchangeable Preferred Stock (the "Series E
Cumulative Preferred Stock") was amended to mirror the dividend restriction
in the Company's Senior Subordinated Indenture dated as of March 15, 1992.
(v) Replaced the existing cross-default provisions relating to
obligations of $10 million or more of the Company's separately financed
subsidiaries, Seminole Kraft Corporation ("Seminole") and Stone Savannah
Pulp and Paper Corporation ("Stone Savannah"), with cross-acceleration
provisions.
(vi) Replaced the current prohibition of investments in Stone Venepal
Consolidated Pulp Inc. with restrictions substantially similar to the
restrictions applicable to the Company's subsidiaries, Stone Savannah and
Seminole.
(vii) Maintains the monthly indebtedness ratio requirement, as defined in
the 1989 Credit Agreement, at no higher than: 81.5 percent as of the end of
each month from December 31, 1993 and ending prior to March 31, 1995 and 81
percent as of the end of each month from March 31, 1995 and ending prior to
June 30, 1995. The indebtedness ratio requirement is scheduled to
periodically decrease thereafter (from 80 percent on June 30, 1995) until
February 28, 1997, when the ratio limitation is required to be 68 percent.
(viii) Maintains the Consolidated Tangible Net Worth requirement (CTNW)
(as defined in the 1989 Credit Agreement) at equal to or greater than 50
percent of the highest CTNW for any quarter since the inception of the 1989
Credit Agreement.
There can be no assurance that the Company will be able to achieve and
maintain compliance with the prescribed financial ratio tests or other
requirements of its 1989 Credit Agreement. Failure to achieve or maintain
compliance with such financial ratio tests or other requirements under the 1989
Credit Agreement, in the absence of a waiver or amendment, would result in an
event of default and could lead to the acceleration of the obligations under the
1989 Credit Agreement. The Company has successfully sought and received waivers
and amendments to its 1989 Credit Agreement on various occasions since entering
into the 1989 Credit Agreement. If further waivers or amendments are requested
by the Company, there can be no assurance that the Company's bank lenders will
again grant such requests. The failure to obtain any such waivers or amendments
would reduce the Company's flexibility to respond to adverse industry conditions
and could have a material adverse effect on the Company.
F-7
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: CREDIT AGREEMENT AMENDMENTS/LIQUIDITY MATTERS (CONTINUED)
The Company has entered into separate output purchase agreements with
Seminole and Stone Savannah which require the Company to purchase Seminole's
linerboard production at fixed prices until certain production levels are met
(which levels were met at June 3, 1994) and Stone Savannah's linerboard and
market pulp production at fixed prices until December 1994 and November 1995,
respectively. After such dates, the Company is required to purchase the
respective production at market prices for the remaining terms of these
agreements. While the fixed prices in effect at March 31, 1994 were higher than
market prices at such date, the price differentials have not had, nor are they
expected to have, a significant impact on the Company's results of operations or
financial position. However, at the time that the fixed price provisions of the
output purchase agreements terminate, such subsidiaries may need to undertake
additional measures to meet their debt service requirements (including
covenants), including obtaining additional sources of funds or liquidity,
postponing or restructuring of debt service payments or refinancing the
indebtedness. In the event that such measures are required and are not
successful, and such indebtedness is accelerated by the respective lenders to
Stone Savannah or Seminole, the lenders to the Company under the 1989 Credit
Agreement and various other of its debt instruments would be entitled to
accelerate the indebtedness owed by the Company.
Due to industry conditions and interest costs as a result of the Company's
highly leveraged capital structure, the Company had incurred net losses in each
of the last three years and for the first quarter of 1994 and expects to incur a
net loss for the second quarter of 1994. Such net losses have significantly
impaired the Company's liquidity and available sources of liquidity and would
continue to adversely affect the Company until further significant product price
improvement is achieved.
The Company improved its liquidity and financial flexibility through the
completion of the February 1994 Offerings. Notwithstanding these improvements in
the Company's liquidity and financial flexibility, unless the Company achieves
substantial price increases beyond those realized during the 1994 first quarter,
the Company will continue to incur net losses and negative cash flows from
operating activities. Without such sustained substantial price increases, the
Company may exhaust all or substantially all of its cash resources and borrowing
availability under the existing revolving credit facilities. In such event, the
Company would be required to pursue other alternatives to improve liquidity,
including further cost reductions, sales of assets, the deferral of certain
capital expenditures, obtaining additional sources of funds or liquidity or
pursuing the possible restructuring of its indebtedness. There can be no
assurance that such measures, if required, would generate the liquidity required
by the Company to operate its business and service its indebtedness. As
currently scheduled, beginning in 1996 and continuing thereafter, the Company
will be required to make significant amortization payments on its existing
indebtedness which would require the Company to raise sufficient funds from
operations or other sources or refinance or restructure maturing indebtedness.
No assurance can be given that the Company will be able to generate or raise
such funds.
F-8
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7: INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
----------- --------------
(IN MILLIONS)
<S> <C> <C>
Raw materials and supplies........................................ $ 310.4 $ 333.8
Paperstock*....................................................... 268.3 284.2
Work in process................................................... 20.1 16.8
Finished products -- converting facilities........................ 111.5 99.5
----------- -------
710.3 734.3
Excess of current cost over LIFO inventory value.................. (14.8) (14.9)
----------- -------
Total inventories................................................. $ 695.5 $ 719.4
----------- -------
----------- -------
<FN>
- ------------------------
* Includes linerboard, corrugated medium, kraft paper, newsprint, market pulp
and groundwood paper.
</TABLE>
At March 31, 1994 and December 31, 1993, the percentage of total inventories
costed by the LIFO, FIFO and average cost methods were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1994 DECEMBER 31, 1993
--------------- -------------------
<S> <C> <C>
LIFO.............................................................. 41% 44%
FIFO.............................................................. 8% 6%
Average Costs..................................................... 51% 50%
</TABLE>
NOTE 8: CURRENT MATURITIES OF LONG-TERM DEBT
Current maturities of long-term debt at March 31, 1994 and December 31, 1993
consisted of the following components:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
----------- --------------
(IN MILLIONS)
<S> <C> <C>
Senior debt....................................................... $ 17.0 $ 17.7
Subordinated debt................................................. -- 4.9
Non-recourse debt of consolidated affiliates...................... 279.7 290.5
----------- -------
Total current maturities of long-term debt........................ $ 296.7 $ 313.1
----------- -------
----------- -------
</TABLE>
The 1989 Credit Agreement limit in certain specific circumstances any
further investments by the Company in Stone-Consolidated, Seminole and Stone
Savannah. Stone Savannah has incurred substantial indebtedness in connection
with project financing and is significantly leveraged. As of March 31, 1994,
Stone Savannah had $391.7 million in outstanding indebtedness (including $258.0
million in secured indebtedness owed to bank lenders). Emerging Issues Task
Force Issue No. 86-30, "Classification of Obligations When a Violation is Waived
by the Creditor," requires a company to reclassify long-term debt as current
when a covenant violation has occurred at the balance sheet date or would have
occurred absent a loan modification and it is probable that the borrower will
not be able to comply with the same covenant at measurement dates that are
within the next twelve months. In November 1993, Stone Savannah received a
waiver of its fixed-charges-coverage covenant requirement as of December 31,
1993 and March 31, 1994. Management has prepared projections that indicate that
Stone Savannah will not be in compliance with this covenant as of June 30, 1994.
Consequently, approximately $224.2 million and $237.9 million of Stone Savannah
debt that otherwise would have been classified as long-term has been classified
as current in the March 31, 1994 and December 31, 1993 consolidated
F-9
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED)
balance sheets, respectively. Stone Savannah has received from its lenders
waivers of the appropriate financial covenants through September 29, 1994.
Failure to obtain covenant relief beyond September 29, 1994 would result in a
default under Stone Savannah's credit agreement and other indebtedness and, if
any such indebtedness was accelerated by the holders thereof, the lenders to the
Company under the 1989 Credit Agreement and various other of the Company's debt
instruments would be entitled to accelerate the indebtedness owed by the
Company.
NOTE 9: SUMMARY FINANCIAL INFORMATION FOR STONE SOUTHWEST CORPORATION
Shown below is consolidated, summarized financial information for Stone
Southwest, Inc. (formerly known as Southwest Forest Industries, Inc.). The
summarized financial information for Stone Southwest, Inc. does not include
purchase accounting adjustments or the impact of the debt incurred to finance
the acquisition of Stone Southwest, Inc.:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1994 1993
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Net sales.................................................................................... $ 425.1 $ 437.7
Cost of products sold and depreciation....................................................... 369.6 355.2
Income (loss) before cumulative effects of accounting changes................................ (3.4) 5.6
Cumulative effect of change in accounting for postemployment benefits (net of $2.5 income tax
benefit).................................................................................... (3.9) --
Cumulative effect of change in accounting for postretirement benefits (net of $5.2 income tax
benefit).................................................................................... -- (8.3)
Net loss..................................................................................... (7.4) (2.7)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
---------- --------------
(IN MILLIONS)
<S> <C> <C>
Current assets........................................................................ $ 334.4 $ 360.9
Noncurrent assets*.................................................................... 1,607.0 1,600.5
Current liabilities................................................................... 130.9 141.3
Noncurrent liabilities and obligations................................................ 393.5 395.8
<FN>
- ------------------------
* Includes $874.0 and $857.4 due from the Company at March 31, 1994 and December
31, 1993, respectively.
</TABLE>
F-10
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: SEGMENT INFORMATION
Financial information by business segment is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31, 1994
---------------------------
INCOME (LOSS) MARCH 31, 1993
BEFORE INCOME ---------------------------
TAXES, MINORITY INCOME (LOSS)
INTEREST, BEFORE INCOME
EXTRAORDINARY TAXES, MINORITY
LOSS AND INTEREST AND
CUMULATIVE CUMULATIVE
EFFECT OF AN EFFECT OF AN
TOTAL ACCOUNTING TOTAL ACCOUNTING
SALES CHANGE SALES CHANGE(A)
---------- --------------- ---------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Paperboard and paper packaging............... $ 954.0 $ 52.5 $ 973.0 $ 62.4
White paper and pulp......................... 260.7 (38.3) 254.0 (43.8)
Other........................................ 88.6 11.7 92.7 13.6
Intersegment................................. (12.5) -- (13.4) --
---------- ------- ---------- -------
1,290.8 25.9 1,306.3 32.2
Interest expense............................. (113.5 ) (102.2 )
Foreign currency transaction adjustments..... (15.2 ) (1.5 )
General corporate and miscellaneous (net).... (18.3 ) (17.4 )
---------- ------- ---------- -------
Total........................................ $ 1,290.8 $ (121.1 ) $ 1,306.3 $ (88.9 )
---------- ------- ---------- -------
---------- ------- ---------- -------
</TABLE>
Financial information by geographic region is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31, 1994
---------------------------
INCOME (LOSS) MARCH 31, 1993
BEFORE INCOME ---------------------------
TAXES, MINORITY INCOME (LOSS)
INTEREST, BEFORE INCOME
EXTRAORDINARY TAXES, MINORITY
LOSS AND INTEREST AND
CUMULATIVE CUMULATIVE
EFFECT OF AN EFFECT OF AN
TOTAL ACCOUNTING TOTAL ACCOUNTING
SALES CHANGE SALES CHANGE(A)
---------- --------------- ---------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
United States................................ $ 951.8 $ 39.4 $ 924.8 45.2
Canada....................................... 206.6 (14.7) 191.0 (16.9)
Europe....................................... 141.4 1.2 198.8 3.9
---------- ------- ---------- -------
1,299.8 25.9 1,314.6 32.2
Interest expense............................. (113.5) (102.2)
Foreign currency transaction adjustments..... (15.2) (1.5)
General corporate and miscellaneous (net).... (18.3) (17.4)
Inter-area eliminations...................... (9.0) -- (8.3) --
---------- ------- ---------- -------
Total........................................ $ 1,290.8 $ (121.1 ) $ 1,306.3 $ (88.9 )
---------- ------- ---------- -------
---------- ------- ---------- -------
<FN>
- ------------------------
(a) Adjusted to conform to current financial statement presentation.
</TABLE>
F-11
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11: ADDITIONAL CASH FLOW STATEMENT INFORMATION
The Company's non-cash investing and financing activities and cash payments
for interest and income taxes were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1994 1993
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Non-cash investing and financing activities:
Unrealized loss on an investment in an equity security (net of income tax
benefit).......................................................................... $ 9.0 $ --
Note receivable received from sale of assets....................................... 1.3 --
Preferred stock dividends issued by a consolidated affiliate....................... -- 1.4
Capital lease obligations incurred................................................. -- .2
Cash paid during the periods for:
Interest (net of capitalization)................................................... $ 98.8 $ 96.0
Income taxes (net of refunds)...................................................... 3.0 5.8
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Stone Container Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements
of operations, of cash flows and of stockholders' equity present fairly, in all
material respects, the financial position of Stone Container Corporation and its
subsidiaries at December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 11 to the consolidated financial statements, the Company's
liquidity has been adversely affected by the net losses incurred in the past
three years. Recent financings and other transactions have improved liquidity;
however, improvements in cash flows from operations eventually will be
necessary. In addition, as discussed in Note 18, two of the Company's
subsidiaries may need to undertake additional measures to meet their separate
debt service requirements.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its methods of accounting for income taxes and for postretirement
benefits other than pensions effective January 1, 1992 and 1993, respectively.
PRICE WATERHOUSE
Chicago, Illinois
March 23, 1994
F-13
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C>
SALES
Net sales.................................................................. $ 5,059.6 $ 5,520.7 $ 5,384.3
---------- ---------- ----------
OPERATING COSTS AND EXPENSES
Cost of products sold...................................................... 4,223.5 4,473.7 4,287.2
Selling, general and administrative expenses............................... 512.2 543.5 522.8
Depreciation and amortization.............................................. 346.8 329.2 273.5
Equity (income) loss from affiliates....................................... 11.7 5.3 (1.1)
Other net operating (income) expense....................................... 4.7 12.8 (62.8)
---------- ---------- ----------
5,098.9 5,364.5 5,019.6
---------- ---------- ----------
Income (loss) from operations.............................................. (39.3) 156.2 364.7
Interest expense........................................................... (426.7) (386.1) (397.4)
Other, net................................................................. (.9) .6 14.7
---------- ---------- ----------
Loss before income taxes and cumulative effects of accounting changes...... (466.9) (229.3) (18.0)
Provision (credit) for income taxes........................................ (147.7) (59.4) 31.1
---------- ---------- ----------
NET LOSS
Loss before cumulative effects of accounting changes....................... (319.2) (169.9) (49.1)
Cumulative effect of change in accounting for postretirement benefits (net
of income taxes of $23.3)................................................. (39.5) -- --
Cumulative effect of change in accounting for income taxes................. -- (99.5) --
---------- ---------- ----------
Net loss..................................................................... (358.7) (269.4) (49.1)
Preferred stock dividends.................................................... (8.1) (6.9) --
---------- ---------- ----------
Net loss applicable to common shares......................................... $ (366.8) $ (276.3) $ (49.1)
---------- ---------- ----------
---------- ---------- ----------
NET LOSS PER COMMON SHARE*
Loss before cumulative effects of accounting changes....................... (4.59) (2.49) (.78)
Cumulative effect of change in accounting for postretirement benefits...... (.56) -- --
Cumulative effect of change in accounting for income taxes................. -- (1.40) --
---------- ---------- ----------
Net loss per common share.................................................... $ (5.15) $ (3.89) $ (.78)
---------- ---------- ----------
---------- ---------- ----------
<FN>
- ------------------------
* Amounts per common share have been adjusted for the 2 percent common stock
dividend issued September 15, 1992.
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1992
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................. $ 247.4 $ 58.9
Accounts and notes receivable (less allowances of $19.3).............................. 622.3 688.1
Inventories........................................................................... 719.4 785.3
Other................................................................................. 164.1 169.5
----------- -----------
Total current assets............................................................ 1,753.2 1,701.8
----------- -----------
Property, plant and equipment......................................................... 5,240.7 5,365.1
Accumulated depreciation and amortization............................................. (1,854.3) (1,661.9)
----------- -----------
Property, plant and equipment -- net............................................ 3,386.4 3,703.2
Timberlands........................................................................... 83.9 69.4
Goodwill.............................................................................. 910.5 983.5
Other................................................................................. 702.7 569.1
----------- -----------
Total assets.................................................................... $ 6,836.7 $ 7,027.0
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable......................................................................... $ -- $ 33.0
Current maturities of senior and subordinated long-term debt.......................... 22.6 144.7
Current maturities of non-recourse debt of consolidated affiliates.................... 290.5 40.1
Accounts payable...................................................................... 297.1 364.2
Income taxes.......................................................................... 47.6 62.2
Accrued and other current liabilities................................................. 285.7 300.6
----------- -----------
Total current liabilities....................................................... 943.5 944.8
----------- -----------
Senior long-term debt................................................................. 2,338.0 2,511.1
Subordinated debt..................................................................... 1,257.8 1,019.2
Non-recourse debt of consolidated affiliates.......................................... 672.6 574.8
Other long-term liabilities........................................................... 270.3 152.7
Deferred taxes........................................................................ 470.6 685.2
Redeemable preferred stock of consolidated affiliate.................................. 42.3 36.3
Minority interest..................................................................... 234.5 .2
Commitments and contingencies (Note 18)...............................................
Stockholders' equity:
Series E preferred stock.............................................................. 115.0 115.0
Common stock (71.2 and 71.0 shares outstanding)....................................... 574.3 645.7
Retained earnings..................................................................... 101.6 496.0
Foreign currency translation adjustment............................................... (179.0) (149.3)
Unamortized expense of restricted stock plan.......................................... (4.8) (4.7)
----------- -----------
Total stockholders' equity...................................................... 607.1 1,102.7
----------- -----------
Total liabilities and stockholders' equity...................................... $ 6,836.7 $ 7,027.0
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-15
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................................................ $ (358.7) $ (269.4) $ (49.1)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Cumulative effect of change in accounting for postretirement benefits......... 39.5 -- --
Cumulative effect of change in accounting for income taxes.................... -- 99.5 --
Depreciation and amortization................................................. 346.8 329.2 273.5
Deferred taxes................................................................ (133.9) (67.5) 21.6
Foreign currency transaction losses (gains)................................... 11.8 15.0 (4.9)
Payment on settlement of interest rate swaps.................................. (33.0) -- --
Other -- net.................................................................. (89.3) 60.6 12.3
Changes in current assets and liabilities -- net of adjustments for divestitures
and an acquisition:
Decrease (increase) in accounts and notes receivable -- net................... 44.9 (66.6) 33.5
Decrease (increase) in inventories............................................ 28.9 10.5 (60.4)
Decrease (increase) in other current assets................................... (9.3) 9.2 (75.2)
Increase (decrease) in accounts payable and other current liabilities......... (60.4) (34.9) 59.2
--------- --------- ---------
Net cash provided by (used in) operating activities........................... (212.7) 85.6 210.5
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings...................................................................... 611.4 1,024.8 753.0
Payments made on debt........................................................... (698.1) (912.4) (795.9)
Non-recourse borrowings of consolidated affiliates.............................. 400.6 40.0 155.5
Payments by consolidated affiliates on non-recourse debt........................ (55.0) (10.4) (34.4)
Proceeds from issuance of preferred stock....................................... -- 111.0 --
Proceeds from issuance of common stock.......................................... -- .1 176.0
Proceeds from issuance of common stock of a consolidated subsidiary............. 161.8 -- --
Proceeds from the settlement of cross currency swaps............................ 67.9 -- --
Cash dividends.................................................................. (4.0) (30.7) (44.7)
--------- --------- ---------
Net cash provided by financing activities..................................... 484.6 222.4 209.5
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures:
Funded by project financings.................................................. (14.6) (79.1) (219.8)
Other......................................................................... (135.1) (202.3) (210.3)
--------- --------- ---------
Total capital expenditures.................................................. (149.7) (281.4) (430.1)
--------- --------- ---------
Payments made for businesses acquired........................................... (.1) (27.2) (18.8)
Proceeds from sales of assets................................................... 106.0 9.5 22.1
Other -- net.................................................................... (40.7) (10.7) 13.7
--------- --------- ---------
Net cash used in investing activities......................................... (84.5) (309.8) (413.1)
--------- --------- ---------
Effect of exchange rate changes on cash......................................... 1.1 (3.4) 3.3
--------- --------- ---------
NET CASH FLOWS
Net increase (decrease) in cash and cash equivalents............................ 188.5 (5.2) 10.2
Cash and cash equivalents, beginning of period.................................. 58.9 64.1 53.9
--------- --------- ---------
Cash and cash equivalents, end of period........................................ $ 247.4 $ 58.9 $ 64.1
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
See Note 5 regarding non-cash financing and investing activities and
supplemental cash flow
information.
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1993 1992 1991
---------------------- ----------------------- -----------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
--------- ----------- ---------- ----------- ---------- -----------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK
Balance at January 1............................. $ 115.0 4.6 $ -- -- $ -- --
Issuance of preferred stock:
Public offering................................ -- -- 115.0 4.6 -- --
--------- --- ---------- --- ---------- ---
Balance at December 31........................... 115.0 4.6 115.0 4.6 -- --
--------- --- ---------- --- ---------- ---
--- --- ---
COMMON STOCK
Balance at January 1............................. 645.7 71.0 613.2 69.5 435.7 60.0
Issuance of common stock:
Public offering................................ -- -- -- -- 174.7 9.2
Exercise of stock options...................... -- -- .1 -- .1 --
Restricted stock plan.......................... 2.9 .2 2.8 .1 2.7 .3
Preferred stock conversion..................... .1 -- -- -- -- --
2 percent common stock dividend................ -- -- 29.6 1.4 -- --
Public offering of subsidiary stock............ (74.4) -- -- -- -- --
--------- --- ---------- --- ---------- ---
Balance at December 31........................... 574.3 71.2 645.7 71.0 613.2 69.5
--------- --- ---------- --- ---------- ---
--- --- ---
RETAINED EARNINGS
Balance at January 1............................. 496.0 832.8 926.7
Net loss......................................... (358.7) (269.4) (49.1)
Cash dividends:
Common stock*.................................. -- (24.8) (44.7)
Preferred stock*............................... (4.0) (5.9) --
2 percent common stock dividend.................. -- (29.6) --
Minimum pension liability in excess of
unrecognized prior service cost................. (31.7) (7.1) (.1)
--------- ---------- ----------
Balance at December 31........................... 101.6 496.0 832.8
--------- ---------- ----------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at January 1............................. (149.3) 95.5 101.5
Aggregate adjustment from translation of foreign
currency statements............................. (29.7) (244.8) (6.0)
--------- ---------- ----------
Balance at December 31........................... (179.0) (149.3) 95.5
--------- ---------- ----------
UNAMORTIZED EXPENSE OF RESTRICTED STOCK PLAN
Balance at January 1............................. (4.7) (4.0) (3.4)
Issuance of shares............................... (2.9) (2.8) (2.7)
Amortization of expense.......................... 2.8 2.1 2.1
--------- ---------- ----------
Balance at December 31........................... (4.8) (4.7) (4.0)
--------- ---------- ----------
Total stockholders' equity at December 31........ $ 607.1 $ 1,102.7 $ 1,537.5
--------- ---------- ----------
--------- ---------- ----------
<FN>
- ------------------------
* Cash dividends paid on common stock, adjusted for the 2 percent stock dividend
issued September 15, 1992, were $.35 per share in 1992 and $.71 per share in
1991. No cash dividends on common stock were paid in 1993. Cash dividends paid
on preferred stock were $.875 per share in 1993 and $1.28 per share in 1992.
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and all subsidiaries that are more than 50 percent owned. The Company's
subsidiary Cartomills, S.A. ("Cartomills") was also accounted for as a
consolidated subsidiary beginning October 31, 1990 upon the Company's
acquisition of 30 percent of the outstanding common stock of Cartomills. In
1992, the Company purchased the remaining 70 percent of the common stock of
Cartomills. All significant intercompany accounts and transactions have been
eliminated. Investments in non-consolidated affiliated companies are primarily
accounted for by the equity method.
PER SHARE DATA:
Net loss per common share is computed by dividing net loss applicable to
common shares by the weighted average number of common shares outstanding during
each year. The weighted average number of common shares outstanding was
71,162,646 in 1993, 70,986,564 in 1992 and 63,206,529 in 1991. Common stock
equivalent shares, issuable upon exercise of outstanding stock options, are
included in these calculations when they would have a dilutive effect on the per
share amounts. All amounts per common share and the weighted average number of
common shares outstanding have been adjusted for the 2 percent common stock
dividend issued September 15, 1992. Fully diluted earnings per share is not
disclosed because of the anti-dilutive effect of the Company's convertible
securities.
RECLASSIFICATIONS:
Certain prior year amounts have been restated to conform with the current
year presentation in the Consolidated Statements of Operations, the Consolidated
Balance Sheets and the Consolidated Statements of Cash Flows.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid short-term investments with original
maturities of three months or less to be cash equivalents and, therefore,
includes such investments as cash and cash equivalents in its financial
statements.
INVENTORIES:
Inventories are stated at the lower of cost or market. The primary methods
used to determine inventory costs are the first-in-first-out ("FIFO") method,
the last-in-first-out ("LIFO") method and the average cost method.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION:
Property, plant and equipment is stated at cost. Expenditures for
maintenance and repairs are charged to income as incurred. Additions,
improvements and major replacements are capitalized. The cost and accumulated
depreciation related to assets sold or retired are removed from the accounts and
any gain or loss is credited or charged to income.
For financial reporting purposes, depreciation and amortization is primarily
provided on the straight-line method over the estimated useful lives of
depreciable assets, or over the duration of the leases for capitalized leases,
based on the following annual rates:
<TABLE>
<CAPTION>
TYPE OF ASSET RATES
- ------------------------------------------------------------------------------- -------------
<S> <C>
Machinery and equipment........................................................ 5% to 33%
Buildings and leasehold improvements........................................... 2% to 10%
Land improvements.............................................................. 4% to 7%
</TABLE>
F-18
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TIMBERLANDS:
Timberlands are stated at cost less accumulated cost of timber harvested.
The Company amortizes its private fee timber costs over the estimated total
fiber that will be available during the estimated growth cycle. Cost of non-fee
timber harvested is determined on the basis of timber removal rates and the
estimated volume of recoverable timber. The Company capitalizes interest costs
related to pre-merchantable timber.
INCOME TAXES:
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
required a change from the deferred method to the liability method of accounting
for income taxes. In connection with the adoption of SFAS 109, the Company
recorded a one-time, non-cash after-tax charge to its first quarter 1992
earnings of $99.5 million or $1.40 per share of common stock. This adjustment is
reported as a cumulative effect of a change in accounting principles in the
Company's Statements of Operations. Under the liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. SFAS 109
requires that assets and liabilities acquired in a business combination
accounted for under the purchase method of accounting be recorded at their gross
fair values, with a separate deferred tax balance recorded for the related tax
effects. Accordingly, effective with the adoption of SFAS 109, the Company's
property, plant and equipment increased by $331 million, resulting in increased
annual depreciation expense of approximately $28 million which is offset by
comparable reductions in deferred income tax expense as the related taxable
temporary differences reverse. The impact of the adoption of SFAS 109 on the
deferred income tax accounts as of January 1, 1992 was an increase in the
deferred tax liability of approximately $500 million and an increase in the
current deferred tax asset of approximately $18 million. Financial statements
for years prior to 1992 have not been restated.
GOODWILL AND OTHER ASSETS:
Goodwill is amortized on a straight-line basis over 40 years, and is
recorded net of accumulated amortization of approximately $129 million and $107
million at December 31, 1993 and 1992, respectively. The Company assesses at
each balance sheet date whether there has been a permanent impairment in the
value of goodwill. This is accomplished by determining whether projected
undiscounted future cash flows from operations exceed the net book value of
goodwill as of the assessment date. Such projections reflect price, volume and
cost assumptions. Additional factors considered by management in the preparation
of the projections and in assessing the value of goodwill include the effects of
obsolescence, demand, competition and other pertinent economic factors and
trends and prospects that may have an impact on the value or remaining useful
life of goodwill. Deferred debt issuance costs are amortized over the expected
life of the related debt using the interest method. Start-up costs on major
projects were capitalized and amortized over a ten-year period prior to October
1, 1993. Effective October 1, 1993, the Company changed its estimate of the
useful life of deferred start-up costs to a five-year period. The effect of this
change in estimate was to increase depreciation and amortization expense by
approximately $3.1 million and decrease net income by $2.0 million or $.02 per
common share. Other long-term assets include $80 million and $73 million of
unamortized deferred start-up costs at December 31, 1993 and 1992, respectively.
PUBLIC OFFERING OF SUBSIDIARY STOCK:
When the sale of subsidiary stock takes the form of a direct sale of its
unissued shares, the Company records the difference relating to the carrying
amount per share and the offering price per share as an adjustment to common
stock in those instances in which the Company has determined that the difference
does not represent a permanent impairment.
F-19
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION:
The functional currency for the Company's foreign operations is the
applicable local currency. Accordingly, assets and liabilities are translated at
the exchange rate in effect at the balance sheet date and income and expenses
are translated at average exchange rates prevailing during the year. Translation
gains or losses are accumulated as a separate component of stockholders' equity
entitled Foreign Currency Translation Adjustment. Foreign currency transaction
gains or losses are credited or charged to income. These transaction gains or
losses arise primarily from the translation of monetary assets and liabilities
that are denominated in a currency other than the local currency.
FOREIGN CURRENCY AND INTEREST RATE HEDGES:
The Company utilizes various financial instruments to hedge its foreign
currency and interest rate exposures. Premiums received and fees paid on the
financial instruments are deferred and amortized over the period of the
agreements. Gains and losses on the instruments are used to offset the effects
of foreign exchange and interest rate fluctuations in the Statements of
Operations.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions" ("SFAS 106"), which required the Company to change from the
pay-as-you-go (cash) method to the accrual method of accounting for such
postretirement benefits (primarily health care and life insurance). Upon
adoption of SFAS 106, the Company recorded its catch-up accumulated
postretirement benefit obligation (approximately $62.8 million) by recognizing a
one-time, non-cash charge of $39.5 million, net of income taxes, as a cumulative
effect of an accounting change in its 1993 first quarter Statement of
Operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"), which requires accrual accounting for the
estimated costs of providing certain benefits to former or inactive employees
and the employees' beneficiaries and dependents after employment but before
retirement. The Company intends to adopt SFAS 112 by recognizing the catch-up
obligation for its worldwide operations as a cumulative effect of an accounting
change effective January 1, 1994 in the 1994 first quarter Statement of
Operations. The one-time, non-cash charge will be approximately $14 million, net
of income taxes.
NOTE 2 -- SUBSEQUENT EVENTS
On February 3, 1994, under the Company's $1 billion shelf registration, the
Company sold $710 million principal amount of 9 7/8 percent Senior Notes due
February 1, 2001 and 16.5 million shares of common stock for an additional
$251.6 million at $15.25 per common share. On February 17, 1994, the
underwriters elected to exercise their option to sell an additional 2.47 million
shares of common stock for an additional $37.7 million, also at $15.25 per
common share in the February 1994 Offerings. The net proceeds from the February
1994 Offerings of approximately $962 million were used to (i) prepay
approximately $652 million of the 1995, 1996 and 1997 required amortization
under the 1989 Credit Agreement including the ratable amortization payment under
the revolving credit facilities which had the effect of reducing the total
commitments thereunder to approximately $168 million; (ii) redeem the Company's
13 5/8 percent Subordinated Notes due 1995 at a price equal to par,
approximately $98 million principal amount, plus accrued interest to the
redemption date; (iii) repay approximately $136 million of the outstanding
borrowings under the Company's revolving credit facilities without reducing the
commitments thereunder; and (iv) provide liquidity in the form of cash. Had the
issuance of the common shares
F-20
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUBSEQUENT EVENTS (CONTINUED)
occurred on January 1, 1993, the Company's weighted average number of common
shares outstanding would have been 84,270,232 and the net loss per common share
would have been $4.35 for the year ended December 31, 1993.
NOTE 3 -- ACQUISITIONS/MERGERS/DISPOSITIONS
In December 1993, the Company sold two of its short-line railroads in a
transaction in which the Company has guaranteed to contract minimum railroad
services which will provide freight revenues to the railroads over a 10 year
period. The transaction has been accounted for as a financing and accordingly,
had no impact on the Company's 1993 net loss. The Company received proceeds of
approximately $28 million, of which approximately $19 million was used to repay
commitments under the 1989 Credit Agreement.
Also in December 1993, the Company sold its 49 percent equity interest in
Titan. The net proceeds were used to repay commitments under the 1989 Credit
Agreement and for repayment of borrowings under its revolving credit facilities
without reducing commitments thereunder. The sale resulted in a pre-tax gain of
approximately $35.4 million.
On May 6, 1993, the Company's wholly-owned German subsidiary, Europa Carton
A.G., ("Europa Carton"), completed a joint venture with Financiere Carton Papier
(FCP), a French company, to merge the folding carton operations of Europa Carton
with those of FCP ("FCP Group"). Under the joint venture, FCP Group is owned
equally by Europa Carton and the shareholders of FCP immediately prior to the
merger. The Company's investment in the joint venture is being accounted for
under the equity method of accounting.
During 1993, the Company increased its ownership in the common stock of
Stone Savannah from 90.2 percent to 92.8 percent through the purchase of an
additional 6,152 common shares and through the receipt of Series D Preferred
Stock as a dividend in kind on Stone Savannah's Series B Preferred Stock and the
election of its right to convert the Series D Preferred Stock into 198,438
common shares. The Company had previously increased its ownership in the common
stock of Stone Savannah from 50.0 percent to 90.2 percent by acquiring 321,502
shares during 1992 and 1991. Stone Savannah operates a linerboard and market
pulp mill in Port Wentworth, Georgia.
In October and November 1992, the Company purchased the remaining 70.0
percent of the common stock (12,600 shares) of Cartomills, a Belgian company
that operates two corrugated container plants.
In June 1992, the Company acquired an additional 45,666 shares of Seminole
common stock, thereby increasing its ownership in the common stock of Seminole
from 94.4 percent to 99.0 percent. The Company had previously increased its
ownership in the common stock of Seminole from 85.4 percent to 94.4 percent by
purchasing 90,000 shares during 1991. Seminole operates an unbleached recycled
linerboard and kraft paper mill in Jacksonville, Florida.
The Company also made a minor acquisition and a divestiture during the years
for which financial statements are presented which did not have a significant
impact on the Company's results of operations or financial condition.
NOTE 4 -- PUBLIC OFFERING OF SUBSIDIARY STOCK
In December 1993, Stone-Consolidated, a newly created Canadian subsidiary,
acquired the newsprint and uncoated groundwood papers business of Stone Canada
and sold $346.5 million of units in an initial public offering comprised of both
common stock and convertible subordinated debentures (the "Units Offering").
Each unit was priced at $2,100 and consisted of 100 shares of common stock at
$10.50 per share and $1,050 principal amount of convertible debentures. The
convertible subordinated
F-21
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- PUBLIC OFFERING OF SUBSIDIARY STOCK (CONTINUED)
debentures mature December 31, 2003, bear interest at an annual rate of 8
percent and are convertible beginning June 30, 1994, into 6.211 shares of common
stock for each Canadian $100 principal amount, representing a conversion price
of $12.08 per share. Concurrent with the initial public offering, Stone-
Consolidated sold $225 million of senior secured notes in a public offering in
the United States. The senior secured notes mature December 15, 2000 and bear
interest at an annual rate of 10.25 percent.
As a result of the Units Offering, 16.5 million shares of common stock,
representing 25.4 percent of the total shares outstanding of Stone-Consolidated,
were sold to the public, resulting in the recording in the Company's
Consolidated Balance Sheet of a minority interest liability of $236.7 million.
The Company used approximately $373 million of the net proceeds from the
sale of the Stone-Consolidated securities for repayment of commitments under its
1989 Credit Agreement and the remainder for general corporate purposes. As a
result of the Units Offering, the Company recorded a charge of $74.4 million to
common stock relating to the excess carrying value per common share over the
offering price per common share associated with the shares issued.
NOTE 5 -- ADDITIONAL CASH FLOW STATEMENT INFORMATION
The Company's non-cash investing and financing activities and cash payments
(receipts) for interest and income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Issuance of 2 percent common stock dividend.............................. $ -- $ 29.6 $ --
Conversion of notes receivable into investments in an affiliate.......... -- 7.3 --
Preferred stock dividends issued by a consolidated affiliate............. 6.0 5.1 4.4
Capital lease obligations incurred....................................... .3 4.3 --
Assumption of debt in connection with an acquisition..................... -- 3.8 --
Note payable issued in exchange for common shares of a consolidated
affiliate............................................................... -- 1.1 --
Exchange of non-recourse debt of consolidated affiliate.................. -- -- 12.5
Accrued liability converted to subordinated debt......................... -- -- 9.8
--------- --------- ---------
--------- --------- ---------
Cash paid (received) during the year for:
Interest (net of capitalization)....................................... $ 375.9 $ 355.6 $ 370.3
Income taxes (net of refunds).......................................... (11.7) (1.9) 14.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1993, the other-net component of net cash used in operating activities
included debt issuance costs of $84 million and an adjustment to remove the
effect of a $35 million gain from the sale of the Company's 49 percent equity
interest in Titan, partially offset by adjustments to remove the effects of
amortization of deferred debt issuance costs and a non-cash charge of $19
million pertaining to the writedown of certain decommissioned assets.
In 1992, the other-net component of net cash provided by operating
activities included $54 million of cash received from the sale of an energy
contract in October 1992.
F-22
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Raw materials and supplies..................................... $ 333.8 $ 345.9
Paperstock..................................................... 284.2 316.6
Work in process................................................ 16.8 22.2
Finished products.............................................. 99.5 119.3
--------- ---------
734.3 804.0
Excess of current cost over LIFO inventory value............... (14.9) (18.7)
--------- ---------
Total inventories.............................................. $ 719.4 $ 785.3
--------- ---------
--------- ---------
</TABLE>
At December 31, 1993 and 1992, the percentages of total inventories costed
by the LIFO, FIFO and average cost methods were as follows:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
LIFO.............................................................. 44% 42%
FIFO.............................................................. 6% 7%
Average Cost...................................................... 50% 51%
</TABLE>
NOTE 7 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1992
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Machinery and equipment................................... $ 4,398.7 $ 4,381.4
Buildings and leasehold improvements...................... 675.0 668.4
Land and land improvements................................ 103.0 105.7
Construction in progress.................................. 64.0 209.6
----------- -----------
Total property, plant and equipment....................... 5,240.7 5,365.1
Accumulated depreciation and amortization................. (1,854.3) (1,661.9)
----------- -----------
Total property, plant and equipment -- net................ $ 3,386.4 $ 3,703.2
----------- -----------
----------- -----------
</TABLE>
Property, plant and equipment includes capitalized leases of $70.3 million
and $71.8 million and related accumulated amortization of $24.2 million and
$19.8 million at December 31, 1993 and 1992, respectively.
NOTE 8 -- INCOME TAXES
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
required a change from the deferred method to the liability method of accounting
for income taxes. In connection with the adoption of SFAS 109, the Company
recorded a one-time, non-cash after-tax charge to its first quarter 1992
earnings of $99.5 million or $1.40 per share of common stock. This adjustment is
reported as a cumulative effect of a change in accounting principles in the
Company's Statements of Operations. Under the liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their
F-23
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- INCOME TAXES (CONTINUED)
respective tax bases. SFAS 109 requires that assets and liabilities acquired in
a business combination accounted for under the purchase method of accounting be
recorded at their gross fair values, with a separate deferred tax balance
recorded for the related tax effects.
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Currently payable (refundable):
Federal....................................................... $ (28.4) $ (24.7) $ (7.2)
State......................................................... 4.0 3.0 (3.1)
Foreign....................................................... 10.6 21.7 18.4
--------- --------- ---------
(13.8) -- 8.1
--------- --------- ---------
Deferred:
Federal....................................................... (45.4) 4.9 --
State......................................................... (31.3) (10.8) .9
Foreign....................................................... (57.2) (53.5) 22.1
--------- --------- ---------
(133.9) (59.4) 23.0
--------- --------- ---------
Total provision (credit) for income taxes....................... $ (147.7) $ (59.4) $ 31.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
The income tax (credit) at the federal statutory rate is reconciled to the
provision (credit) for income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax (credit) at federal statutory rate........... $ (163.4) $ (78.0) $ (6.1)
Additional taxes (credits) resulting from:
Non-deductible depreciation and amortization of intangibles... 9.5 9.5 27.2
Foreign statutory rate decreases.............................. (11.2) -- --
U.S. statutory rate increase.................................. 8.7 -- --
State income taxes, net of federal income tax effect.......... (17.7) (5.1) (1.4)
Foreign income taxed at rates in excess of U.S. statutory
rate......................................................... 4.3 6.1 10.0
Minimum taxes -- foreign jurisdictions........................ 3.6 4.6 4.3
Other -- net.................................................. 18.5 3.5 (2.9)
--------- --------- ---------
Provision (credit) for income taxes............................. $ (147.7) $ (59.4) $ 31.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-24
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- INCOME TAXES (CONTINUED)
The components of the net deferred tax liability as of December 31, 1993 and
1992 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Deferred tax assets:
Carryforwards............................................... $ 262.6 $ 125.9
Compensation-related accruals............................... 49.3 5.4
Reserves.................................................... 33.7 29.0
Deferred gain............................................... 26.2 20.3
Tax benefit transfers....................................... 8.8 12.7
Other....................................................... 11.6 18.4
--------- ---------
392.2 211.7
Valuation allowance........................................... (1.2) (1.2)
--------- ---------
Total deferred tax asset...................................... 391.0 210.5
Deferred tax liability:
Depreciation and amortization............................... (754.3) (779.5)
Start-up costs.............................................. (27.8) (27.9)
LIFO reserve................................................ (18.1) (8.1)
Pension..................................................... (12.5) (25.7)
Other....................................................... (35.2) (36.5)
--------- ---------
Total deferred tax liability.................................. (847.9) (877.7)
--------- ---------
Deferred tax liability -- net................................. $ (456.9) $ (667.2)
--------- ---------
--------- ---------
</TABLE>
During 1991, deferred taxes were provided for significant timing differences
between revenue and expenses for tax and financial statement purposes. Following
is a summary of the significant components of the deferred tax provision:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1991
---------------
(IN MILLIONS)
<S> <C>
Depreciation and amortization....................................... $ (2.4)
Acquisition related expenses........................................ (2.9)
Capitalized interest................................................ 12.4
Start-up costs...................................................... 7.2
Pension costs....................................................... (.2)
Other -- net........................................................ 8.9
-----
Deferred income tax provision..................................... $ 23.0
-----
-----
</TABLE>
The components of the loss before income taxes and cumulative effects of
accounting changes are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
United States....................................... $ (315.1) $ (74.1) $ (39.0)
Foreign............................................. (151.8) (155.2) 21.0
--------- --------- ---------
Loss before income taxes and cumulative effects of
accounting changes................................. $ (466.9) $ (229.3) $ (18.0)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-25
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- INCOME TAXES (CONTINUED)
As a result of certain acquisitions, the Company had, at December 31, 1993,
approximately $27 million of pre-acquisition net operating loss carryforwards
and approximately $5 million of investment tax credit carryforwards for federal
income tax purposes. To the extent not utilized, the carryforwards will expire
in the period commencing in the year 1996 and ending in the year 2004.
At December 31, 1993, Bridgewater Paper Company Ltd., which was acquired in
the 1989 Stone-Canada acquisition, had approximately $92 million of net
operating loss carryforwards for United Kingdom income tax purposes. These
losses are available indefinitely.
At December 31, 1993, the Company had approximately $252 million of net
operating loss carryforwards for U.S. tax purposes and, additionally,
approximately $236 million of net operating loss carryforwards for Canadian tax
purposes. To the extent not utilized, the U.S. net operating losses will expire
in 2007 and 2008 and the Canadian net operating losses will expire in 1998, 1999
and 2000. The Company also had approximately $11 million of alternative minimum
tax credit carryforwards for U.S. tax purposes which are available indefinitely.
NOTE 9 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company has contributory and noncontributory pension plans for the
benefit of most salaried and certain hourly employees. The funding policy for
the plans, with the exception of the Company's salaried supplemental unfunded
plans and the Company's German subsidiary's unfunded plan, is to annually
contribute the statutory required minimum. The salaried pension plans provide
benefits based on a formula which takes into account each participant's
estimated final average earnings. The hourly pension plans provide benefits
under a flat benefit formula. The salaried and hourly plans provide reduced
benefits for early retirement. The salaried plans take into account offsets for
governmental benefits.
Net pension expense for the combined pension plans includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period......................... $ 17.4 $ 17.2 $ 15.6
Interest cost on projected benefit obligations............................ 63.7 64.0 61.7
Actual return on plan assets.............................................. (91.9) (32.8) (86.5)
Net amortization and deferral............................................. 40.4 (26.6) 30.2
--------- --------- ---------
Net pension expense....................................................... $ 29.6 $ 21.8 $ 21.0
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-26
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The following table sets forth the funded status of the Company's pension
plans and the amounts recorded in the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
1993 1992
--------------------------------------- ---------------------------------------
ACCUMULATED ACCUMULATED
ASSETS EXCEED BENEFITS EXCEED ASSETS EXCEED BENEFITS EXCEED
ACCUMULATED BENEFITS ASSETS ACCUMULATED BENEFITS ASSETS
--------------------- ---------------- --------------------- ----------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits.............. $ (185.0) $ (498.8) $ (465.0) $ (116.9)
Non-vested benefits.......... (11.4) (37.9) (34.4) (6.3)
------- ------- ------- -------
Accumulated benefit
obligation.................. (196.4) (536.7) (499.4) (123.2)
Effect of increase in
compensation levels......... (23.2) (76.6) (75.0) (14.1)
------- ------- ------- -------
Projected benefit obligation
for service rendered through
December 31................... (219.6) (613.3) (574.4) (137.3)
Plan assets at fair value,
primarily stocks, bonds,
guaranteed investment
contracts, real estate and
mutual funds which invest in
listed stocks and bonds....... 219.0 395.3 518.7 49.8
------- ------- ------- -------
Excess of projected benefit
obligation over plan assets... (.6) (218.0) (55.7) (87.5)
Unrecognized prior service
cost.......................... 4.6 29.4 14.5 6.8
Unrecognized net actuarial
loss.......................... 39.4 127.3 96.1 5.6
Unrecognized net assets........ -- -- (9.9 ) --
Adjustment required to
recognize minimum liability... -- (92.4 ) -- (19.6 )
------- ------- ------- -------
Net prepaid (accrual).......... $ 43.4 $ (153.7 ) $ 45.0 $ (94.7 )
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 87,
"Employer's Accounting for Pensions," the Company has recorded an additional
minimum liability for underfunded plans representing the excess of the unfunded
accumulated benefit obligation over previously recorded liabilities. The
additional minimum liability at December 31, 1993 of $92.4 million is recorded
as a long-term liability with an offsetting intangible asset of $29.4 million
and a charge to stockholders' equity of $39.6 million,
F-27
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
net of a tax benefit of $23.4 million. Of this additional minimum liability,
$19.6 million was recorded as a long-term liability at December 31, 1992 with an
offsetting intangible asset of $6.7 million and a charge to stockholders' equity
of $7.9 million, net of a tax benefit of $5.0 million.
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations was 7.5 percent for all U.S. and German operations
and 8.0 percent for Canadian and United Kingdom operations and 4.0 percent,
respectively, for 1993 and 9.0 percent and 4.5 to 5.0 percent, respectively, for
1992. The expected long-term rate of return on assets was 11 percent for 1993
and 1992. The change in the weighted average discount rates during 1993 had the
effect of increasing the total projected benefit obligation at December 31, 1993
by $108.8 million and the change in the rate of increase in future compensation
levels in 1993 had the effect of decreasing the projected benefit obligation by
$19.3 million.
Certain domestic operations of the Company participate in various
multi-employer union-administered defined benefit pension plans that principally
cover production workers. Pension expense under these plans was $5.1 million for
1993 and 1992 and $4.7 million for 1991.
In addition to providing pension benefits, the Company provides certain
retiree health care and life insurance benefits covering substantially all U.S.
salaried and hourly employees and certain Canadian employees. Employees become
eligible for such benefits if they are fully vested in one of the Company's
pension plans when they retire from the Company and they begin to draw
retirement benefits upon termination of service. Such retiree health care costs
were expensed as the claims were paid through December 31, 1992. However, as
discussed in Note 1 -- "Summary of Significant Accounting Policies," effective
January 1, 1993, the Company adopted SFAS 106, which required the Company to
accrue for its obligation to pay such postretirement health care costs during
the employees' years of service, as opposed to when such costs are actually
paid. The effect of SFAS 106 on income from operations is not material.
In conjunction with the adoption, the Company, effective January 1, 1993,
implemented cost saving provisions designed to reduce certain postretirement
health care and life insurance costs. Among other things, these provisions
provide for a cap on the Company's share of certain health care costs. Such
provisions do not apply to current retirees and those active employees age 55
and over who were eligible to retire as of December 31, 1992. Accordingly, the
Company is generally responsible for 50 percent of the claims of such
individuals.
Net worldwide periodic postretirement benefit cost for 1993 included the
following components:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Service cost-benefits attributed to service during the period......... $ 1.0
Interest cost on accumulated postretirement benefit obligation........ 5.5
---
Net worldwide periodic postretirement benefit cost.................... $ 6.5
---
---
</TABLE>
Worldwide postretirement benefits costs for retired employees approximated
$4.7 million for 1992. Prior to 1992, the cost of providing such benefits for
retired employees was not readily separable from the cost of providing benefits
for active employees. On a combined basis, worldwide health care and life
insurance benefit cost for both active and retired employees approximated $76
million in 1991.
F-28
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The following table sets forth the components of the Company's accumulated
postretirement benefit obligation and the amount recorded in the Consolidated
Balance Sheet at December 31, 1993:
<TABLE>
<CAPTION>
U.S. FOREIGN TOTAL
--------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................ $ 19.0 $ 22.5 $ 41.5
Active employees -- fully eligible...................................... 15.3 3.0 18.3
Other active employees.................................................. 15.5 2.6 18.1
--------- ----- ---------
Total accumulated postretirement benefit obligation....................... 49.8 28.1 77.9
Unrecognized net loss..................................................... (12.6) (2.1) (14.7)
--------- ----- ---------
Postretirement benefit liability.......................................... $ 37.2 $ 26.0 $ 63.2
--------- ----- ---------
--------- ----- ---------
</TABLE>
The Company has not currently funded any of its accumulated postretirement
benefit obligation.
The discount rate used in determining the accumulated postretirement benefit
cost was 7.5 percent for U.S. and German operations and 8.0 percent for Canadian
and United Kingdom operations. The assumed health care cost trend rates for
substantially all employees used in measuring the accumulated postretirement
benefit obligation range from 7 percent to 15 percent decreasing to ultimate
rates of 5.5 percent to 8 percent. If the health care cost trend rate
assumptions were increased by 1 percent, the accumulated postretirement benefit
obligation at December 31, 1993 and the net periodic postretirement benefit cost
for the year ended December 31, 1993 would have increased by $6.5 million and
$0.6 million, respectively.
At December 31, 1993, the Company had approximately 8,300 retirees and
29,000 active employees of which approximately 3,000 and 21,100, respectively,
were employees of U.S. operations.
F-29
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
---------- ----------
(IN MILLIONS)
<S> <C> <C>
Senior debt:
Term loans (8.3% and 10.0% weighted average rates) payable $116.0 on March 31, 1995 and
in semi-annual installments of $116.7 on September 30, 1995, March 31 and September 30,
1996 and $411.6 on March 1, 1997........................................................ $ 877.7 $ 1,230.1
Additional term loan (6.3% and 7.0% weighted average rates) payable $38.7 on March 31,
1995 and in semi-annual installments of $39.0 on September 30, 1995 and March 31, 1996
and $38.9 on September 30, 1996 and $137.3 on March 1, 1997............................. 292.9 371.0
Revolving credit agreements (5.7% and 6.4% weighted average rates) due March 1, 1997..... 263.8 257.0
11.875% senior notes due December 1, 1998 (less unamortized discount of $1.1 and $1.3)... 238.9 238.7
12.625% senior notes due July 15, 1998................................................... 150.0 --
5.8% to 11.625% fixed rate utility systems and pollution control revenue bonds, payable
in varying annual sinking fund payments through the year 2010 and varying principal
payments through the year 2016 (less unamortized debt discount of $7.8 and $8.6)........ 203.5 206.2
Obligations under accounts receivable securitization programs (4.8% and 5.3% weighted
average rates) due September 15, 1995................................................... 232.4 261.8
4.0% to 7.96% term loans payable in varying amounts through 1999......................... 41.2 54.6
Obligations under capitalized leases..................................................... 11.2 23.1
Cartomills 8.50% to 10.75% loans payable in varying installments through the year 1997... 5.1 7.1
Cartomills (4.74% weighted average rate) loan payable in annual installments through the
year 1999............................................................................... 7.1 --
Floating rate revenue bonds (8.0% weighted average rates), payable in semi-annual
installments of $.12 through 1996....................................................... .7 .9
Other.................................................................................... 31.2 5.3
---------- ----------
2,355.7 2,655.8
Less: current maturities................................................................. (17.7) (144.7)
---------- ----------
Total senior long-term debt.............................................................. 2,338.0 2,511.1
---------- ----------
</TABLE>
F-30
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
---------- ----------
(IN MILLIONS)
Subordinated debt:
<S> <C> <C>
11.5% senior subordinated notes, payable in two annual sinking fund payments of $57.5
commencing September 1, 1997 and maturing on September 1, 1999 with a lump sum payment
of $115.0............................................................................... 230.0 230.0
10.75% senior subordinated debentures maturing on April 1, 2002, (less unamortized debt
discount of $.9)........................................................................ 199.1 199.1
8.875% convertible senior subordinated notes maturing on July 15, 2000 (less $1.5)....... 248.5 --
10.75% senior subordinated notes maturing on June 15, 1997............................... 150.0 150.0
11.0% senior subordinated notes maturing on August 15, 1999.............................. 125.0 125.0
6.75% convertible subordinated debentures with annual sinking fund payments of $11.5
commencing on February 15, 2002 and maturing on February 15, 2007 with a lump sum
payment of $57.5........................................................................ 115.0 115.0
13.625% subordinated notes maturing on June 1, 1995 (less unamortized debt discount of
$.2 and $.3)............................................................................ 98.1 98.0
12.125% subordinated debentures with annual sinking fund payments of $14.0 commencing on
September 15, 1996 and maturing in the year 2001 with a lump sum payment of $70.0
(including unamortized debt premium of $2.2 and $2.4 and net of $50.1 repurchased by the
Company)................................................................................ 92.1 92.3
Subordinated note bearing an incremental borrowing rate adjusted annually (10.0% and
11.1% average rates) payable on January 18, 1994........................................ 4.9 9.8
---------- ----------
1,262.7 1,019.2
Less: current maturities................................................................. (4.9) --
---------- ----------
Total subordinated debt.................................................................. 1,257.8 1,019.2
---------- ----------
</TABLE>
F-31
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
---------- ----------
(IN MILLIONS)
Non-recourse debt of consolidated affiliates:
<S> <C> <C>
Stone-Consolidated 10.25% senior secured notes due December 15, 2000..................... 225.0 --
Stone-Consolidated 8% convertible subordinated debentures maturing on December 31,
2003.................................................................................... 174.5 --
Stone Savannah obligation under a senior credit facility (8.4% and 8.8% weighted average
rates), payable in varying amounts through the year 1998................................ 268.9 297.0
Stone Savannah 5.375% to 10.25% fixed rate revenue bonds, payable in varying amounts
through the year 1997 and maturing in 2000 and 2010 (less unamortized debt discount of
$.2 and $.2)............................................................................ 4.7 4.9
Stone Savannah 14.125% senior subordinated notes due December 15, 2000 (less unamortized
debt discount of $1.0 and $1.1)......................................................... 129.0 128.9
Seminole obligation under a senior credit facility (6.4% and 6.8% weighted average
rates), payable in varying amounts from 1993 through the year 2000...................... 120.6 122.0
Seminole senior notes maturing on December 31, 1993 (interest rate of 14.0%)............. -- 15.0
Seminole obligation payable at 13.5% imputed interest rate (less unamortized debt
discount of $2.4 and $2.9).............................................................. 11.6 11.1
Seminole 13.5% subordinated notes due with annual sinking fund payments of $7.2 and
maturing on October 15, 1996 with a lump sum payment of $14.4........................... 28.8 36.0
---------- ----------
963.1 614.9
Less: current maturities................................................................. (290.5) (40.1)
---------- ----------
Total non-recourse debt of consolidated affiliates..................................... 672.6 574.8
---------- ----------
Total long-term debt..................................................................... $ 4,268.4 $ 4,105.1
---------- ----------
---------- ----------
</TABLE>
The 1989 Credit Agreement provided for a $400 million multiple-draw facility
(the "MDF") to supplement the revolving credit facility thereunder. The MDF had
substantially the same terms and conditions, including covenants, as the 1989
Credit Agreement. Proceeds of MDF borrowings (approximately $371 million) were
required to be used solely to repay regularly scheduled amortization of term
loans under the 1989 Credit Agreement. The Company cancelled the remaining
commitment under the MDF in 1991. On October 1, 1992, the $371 million
outstanding under the MDF was converted to an Additional Term Loan (the "ATL").
Borrowings under the ATL are collateralized by an equal and ratable lien on the
existing collateral under the 1989 Credit Agreement.
The 1989 Credit Agreement permit the Company to choose among various
interest rate options, to specify the portion of the borrowings to be covered by
specific interest rate options and to specify the interest rate period to which
the interest rate options are to apply, subject to certain parameters. As a
result of the February 1994 amendment, interest rate options available to the
Company under term loans, ATL and revolving credit borrowings under the 1989
Credit Agreement are (i) U.S. or Canadian prime rate plus a borrowing margin of
2 percent, (ii) CD rate plus a borrowing margin of 3 1/8 percent, (iii)
Eurodollar rate plus a borrowing margin of 3 percent and (iv) bankers'
acceptance rate plus a
F-32
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT (CONTINUED)
borrowing margin of 3 percent. Upon achievement of specified indebtedness ratios
and interest coverage ratios, the borrowing margins will be reduced.
Additionally, the Company pays a 3/8 percent commitment fee on the unused
portions of the revolving credit facilities. The weighted average rates as
reflected in the table do not include the effects of the amortization of
deferred debt issuance costs.
The 1989 Credit Agreement require that the Company hedge a portion of the
U.S. dollar-based borrowings to protect against increases in market interest
rates. Pursuant to that requirement, at December 31, 1993, the Company was a
party to an interest rate swap contract which had the effect of fixing the
interest rate at approximately 12.9 percent on $150 million of U.S. term loan
borrowings. The interest rate swap is scheduled to expire on March 22, 1994.
During 1993, the Company sold prior to their expiration date, certain of its
U.S. dollar denominated interest rate swaps and cross currency swaps associated
with the Credit Agreement borrowings of Stone-Canada. The net proceeds totaled
approximately $34.9 million, the substantial portion of which was used to repay
borrowings under the Company's revolving credit facilities.
At December 31, 1993, the $1.45 billion of borrowings and accrued interest
outstanding under the 1989 Credit Agreement and the ATL were secured by
property, plant and equipment with a net book value of $518.4 million and by
common stock of various subsidiaries of the Company representing net assets of
approximately $3.4 billion (including collateralized property, plant and
equipment with a net book value of $349.4 million) and by a lien on the
Company's inventories. Additionally, other loan agreements aggregating $646.0
million were collateralized by approximately $1.56 billion of property, plant
and equipment-net.
Emerging Issues Task Force Issue No. 86-30, "Classification of Obligations
When a Violation is Waived by the Creditor," requires a company to reclassify
long-term debt as current when a covenant violation has occurred at the balance
sheet date or would have occurred absent a loan modification and it is probable
that the borrower will not be able to comply with the same covenant at
measurement dates that are within the next twelve months. In November 1993,
Stone Savannah received a waiver of its fixed-charges-coverage covenant
requirement as of December 31, 1993 and March 31, 1994. Management has prepared
projections that indicate that upon the expiration of the waiver Stone Savannah
will not be in compliance with this covenant as of June 30, September 30, and
December 31, 1994. Consequently, approximately $237.9 million of Stone Savannah
debt that otherwise would have been classified as long-term has been classified
as current in the December 31, 1993 consolidated balance sheet. Stone Savannah
intends to seek, prior to June 10, 1994, appropriate financial covenant waivers
or amendments from its bank group, although no assurance can be given that such
waivers or amendments will be obtained. Any such failure to obtain covenant
relief would result in a default under Stone Savannah's credit agreement and
other indebtedness and, if any such indebtedness was accelerated by the holders
thereof, the lenders to the Company under the 1989 Credit Agreement and various
other of the Company's debt instruments will be entitled to accelerate the
indebtedness owed by the Company.
On July 6, 1993, the Company sold $150 million principal amount of 12 5/8
percent Senior Notes due July 15, 1998 (the "12 5/8 percent Senior Notes"). The
12 5/8 percent Senior Notes are not redeemable by the Company prior to maturity.
Interest is payable semi-annually on January 15 and July 15, commencing January
15, 1994.
Also on July 6, 1993, the Company sold, in a private transaction, $250
million principal amount of 8 7/8 percent Convertible Senior Subordinated Notes
due July 15, 2000 (the "8 7/8 percent Convertible Senior Subordinated Notes").
The Company filed a shelf registration statement registering the 8 7/8 percent
Convertible Senior Subordinated Notes for resale by the holders thereof, which
was declared effective August 13, 1993. The 8 7/8 percent Convertible Senior
Subordinated Notes are convertible, at the option of the holder, sixty days
following the date of original issuance and prior to maturity, into shares of
F-33
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT (CONTINUED)
the Company's common stock at a conversion price of $11.55 per share of common
stock, subject to adjustment in certain events. Additionally, the 8 7/8 percent
Convertible Senior Subordinated Notes are redeemable, at the option of the
Company, in whole or in part, on and after July 15, 1998. Interest is payable
semi-annually on January 15 and July 15, commencing January 15, 1994.
The net proceeds of approximately $386 million received from the sales of
the 12 5/8 percent Senior Notes and the 8 7/8 percent Convertible Senior
Subordinated Notes were used by the Company to repay borrowings, without a
reduction of commitments under the revolving credit facilities of its 1989
Credit Agreement, thereby restoring borrowing availability thereunder.
In December 1993, Stone-Consolidated sold $173.3 million of 8 percent
convertible subordinated debentures as part of the Units Offering. Concurrent
with the Units Offering, Stone-Consolidated sold $225 million of 10 1/4 percent
Senior Secured Notes maturing on December 15, 2000 in a public offering in the
United States. See Note 4 -- "Public Offering of Subsidiary Stock," for further
details.
On February 20, 1992, the Company sold $115 million principal amount of
6 3/4 percent Convertible Subordinated Debentures due February 15, 2007 (the
"6 3/4 percent Subordinated Debentures"). The 6 3/4 percent Subordinated
Debentures are convertible, at the option of the holder, at any time prior to
maturity, into shares of the Company's common stock at a conversion price of
$33.94 per share of common stock (adjusted for the 2 percent common stock
dividend issued September 15, 1992), subject to adjustment in certain events.
Additionally, the 6 3/4 percent Subordinated Debentures are redeemable at the
option of the Company, in whole or from time to time in part, on and after
February 16, 1996. Interest is payable semi-annually on February 15 and August
15, commencing August 15, 1992. The net proceeds from the sale of the 6 3/4
percent Subordinated Debentures were used to fully prepay the $59.5 million
sinking fund obligation due June 1, 1992, including accrued interest due
thereon, and to prepay $47.5 million of the $59.5 million sinking fund
obligation due June 1, 1993, including accrued interest due thereon, on the
Company's 13 5/8 percent Subordinated Notes.
On March 18, 1992, the Company sold $200 million principal amount of 10 3/4
percent Senior Subordinated Debentures due April 1, 2002 (the "10 3/4 percent
Senior Subordinated Debentures"). The 10 3/4 percent Senior Subordinated
Debentures are redeemable at the option of the Company, in whole or from time to
time in part, on and after April 1, 1997. Interest is payable semi-annually on
April 1 and October 1, commencing October 1, 1992. The net proceeds from these
debentures were used to fund future capital expenditures by the Company.
On June 25, 1992, the Company sold $150 million principal amount of 10 3/4
percent Senior Subordinated Notes due June 15, 1997 (the "10 3/4 percent Senior
Subordinated Notes"). The 10 3/4 percent Senior Subordinated Notes are
redeemable at the option of the Company, in whole or from time to time in part,
on and after June 15, 1995. Interest is payable semi-annually on June 15 and
December 15, commencing December 15, 1992. The net proceeds of approximately
$147 million from the issuance of these notes were used to fund a partial
redemption of the Company's 13 5/8 percent Subordinated Notes including accrued
interest due thereon.
On August 11, 1992, the Company sold $125 million principal amount of 11
percent Senior Subordinated Notes due August 15, 1999 (the "11 percent Senior
Subordinated Notes"). The 11 percent Senior Subordinated Notes are redeemable at
the option of the Company, in whole or from time to time in part, on and after
August 15, 1997. Interest is payable semi-annually on February 15 and August 15,
commencing February 15, 1993. The Company entered into a three-year interest
rate swap arrangement that has the effect of converting, for the first three
years, the fixed rate of interest on $100 million of the 11 percent Senior
Subordinated Notes into a floating interest rate. As a result of this swap
arrangement, the effective rate of interest for 1993 was 9.95 percent. While the
Company is exposed to credit loss on its
F-34
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT (CONTINUED)
interest rate swaps in the event of nonperformance by the counterparties to such
swaps, management believes that such nonperformance is unlikely to occur. The
Company used the net proceeds from the issuance of the 11 percent Senior
Subordinated Notes to partially repay approximately $102 million and $20
million, respectively, under its revolving credit facility and the March 1993
term loan amortization of its Credit Agreement.
In 1992, Stone Financial Corporation ("Stone Fin") extended the maturity
date of the $185 million three-year revolving credit facility used to purchase
the accounts receivable for the first tranche of the Company's accounts
receivable securitization program to September 15, 1995 from September 15, 1994.
Stone Fin has the option, subject to bank consent, to extend the maturity date
of its credit facility beyond September 15, 1995.
Various interest rate options (LIBOR plus 1 1/4 percent or Prime) are
available to Stone Fin under its credit facility. In accordance with the
provisions of this program, Stone Fin purchases (on an ongoing basis) certain of
the accounts receivable of Stone Delaware, Inc., Stone Corrugated, Inc., and
Stone Southwest, Inc., each of which is a wholly-owned subsidiary of the
Company. Such purchased accounts receivable are solely the assets of Stone Fin,
a wholly-owned but separate corporate entity of the Company, with its own
separate creditors. In the event of a liquidation of Stone Fin such creditors
would be entitled to satisfy their claims from Stone Fin's assets prior to any
distribution to the Company. At December 31, 1993 and 1992, the Company's
Consolidated Balance Sheets included $175.6 million and $160.3 million,
respectively of Stone Fin accounts receivable and $150.5 million and $146.3
million, respectively, of borrowings under the program.
On August 20, 1992, the Company completed the second tranche of its accounts
receivable securitization program through the sale of certain of its accounts
receivable to a newly formed wholly-owned subsidiary, Stone Fin II Receivables
Corporation ("Stone Fin II"). Stone Fin II purchased the accounts receivable
with proceeds from borrowings under a $180 million, three-year revolving credit
facility (due September 15, 1995) provided by South Shore Funding Corporation,
an unaffiliated financial organization. Stone Fin II has the option, subject to
bank consent, to extend the maturity date of its credit facility beyond
September 15, 1995.
Two interest rate options (LIBOR plus 1 1/4 percent or Prime) are available
to Stone Fin II under its credit facility. In accordance with the provisions of
this program, Stone Fin II purchases (on an ongoing basis) certain of the
accounts receivable of Stone Consolidated Newsprint, Inc., Stone Packaging
Corporation, Stone Southwest, Inc. and Stone Bag Corporation, each of which is a
wholly-owned subsidiary of the Company. Such purchased accounts receivable are
solely the assets of Stone Fin II, a wholly-owned but separate corporate entity
of the Company, with its own separate creditors. In the event of a liquidation
of Stone Fin II, such creditors would be entitled to satisfy their claims from
Stone Fin II's assets prior to any distribution to the Company. The initial net
proceeds of approximately $100 million from this transaction were used by the
Company to complete the prepayment of its March 31, 1993 term loan installment
and partially prepay approximately $57 million of its $175 million term loan
installment due September 30, 1993. Subsequent proceeds from this securitization
program were used for general corporate purposes. At December 31, 1993 and 1992,
the Company's Consolidated Balance Sheets included $124.4 million and $152.6
million, respectively, of Stone Fin II accounts receivable and $81.9 million and
$115.5 million, respectively, of borrowings under the program.
In August and October 1992, the Company refinanced, in two separate issues,
$30 million and $35 million of tax-exempt revenue bonds, respectively. The $30
million bonds bear interest at a rate of 7 7/8 percent and are due August 1,
2013. The $35 million bonds bear interest at a rate of 8 1/4 percent and are due
June 1, 2016.
F-35
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT (CONTINUED)
The following table provides, as of December 31, 1993, the actual and pro
forma amounts of long-term debt maturing during the next five years. The
maturities on a pro forma basis reflect the impact of the 1994 Offerings
discussed in Note 2 and the application of the net proceeds received therefrom,
as if such transaction had occurred as of December 31, 1993.
<TABLE>
<CAPTION>
AS ADJUSTED FOR
ACTUAL THE 1994 OFFERINGS
---------- ------------------
(IN MILLIONS)
<S> <C> <C>
1994......................................................... $ 308.4 $ 308.4
1995......................................................... 710.5 270.2
1996......................................................... 437.9 219.1
1997......................................................... 946.4 732.2
1998......................................................... 523.9 523.9
Thereafter................................................... 1,643.2 2,353.2
</TABLE>
The 1995 maturities include $232.4 million outstanding under Stone Fin's and
Stone Fin II's revolving credit facilities. Stone Fin and Stone Fin II have the
option, subject to bank consents, to extend or refinance such obligations beyond
1995.
Amounts payable under capitalized lease agreements are excluded from the
above tabulation. See Note 13 for capitalized lease maturities.
The 1989 Credit Agreement contains covenants that include, among other
things, requirements to maintain certain financial tests and ratios (including a
minimum current ratio, an indebtedness ratio, a minimum earnings before
interest, taxes, depreciation and amortization test ("EBITDA") and a tangible
net worth test) and certain restrictions and limitations, including those on
capital expenditures, changes in control, payment of dividends, sales of assets,
lease payments, investments, additional borrowings, mergers and purchases of
stock and assets. The 1989 Credit Agreement also contains cross-default
provisions relating to the non-recourse debt of its consolidated affiliate,
Stone-Consolidated Corporation, and cross-acceleration provisions relating to
the non-recourse debt of the consolidated affiliates, including Seminole and
Stone Savannah (see Note 18). Additionally, the Company's 1989 Credit Agreement
provides for mandatory prepayments from sales of certain assets, debt and equity
financings and excess cash flows. These prepayments along with voluntary
prepayments are to be applied ratably to reduce loan commitments under the 1989
Credit Agreement. The indebtedness under the 1989 Credit Agreement is secured by
a substantial portion of the assets of the Company.
The Company and its bank group have amended the Company's 1989 Credit
Agreement several times during the past three years. Such amendments provided
among other things, greater financial flexibility and/or relief from certain
financial covenants. In some instances, certain restrictions and limitations
applicable to the 1989 Credit Agreement were tightened. There can be no
assurance that future covenant relief will not be required or, if such relief is
requested by the Company, that it will be obtained from the banks' lenders.
The most recent amendment, which was executed in February of 1994 and became
effective upon the completion of the February 1994 Offerings, as discussed in
Note 2 -- "Subsequent Events," provided, among other things, for the following:
(i) Permitted the Company to apply up to $200 million of net proceeds
from the 1994 Offerings, which increased liquidity, as repayment of
borrowings under the revolving credit facilities of the 1989 Credit
Agreement without reducing the commitments thereunder and to the extent no
balance was outstanding under the revolving credit facilities, permitted the
Company to retain the balance of such $200 million of proceeds in cash.
F-36
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT (CONTINUED)
(ii) Permitted the Company to redeem the Company's 13 5/8 percent
Subordinated Notes maturing on June 1, 1995 from the proceeds received from
the February 1994 Offerings at a price equal to par, approximately $98
million principal amount, plus accrued interest to the redemption date.
(iii) Amended the required levels of EBITDA (as defined in the 1989
Credit Agreement) for certain specified periods to the following:
<TABLE>
<S> <C>
For the three months ended March 31, 1994..................... $20 million
For the six months ended June 30, 1994........................ $55 million
For the nine months ended September 30, 1994.................. $111 million
For the twelve months ended December 31, 1994................. $180 million
For the twelve months ended March 31, 1995.................... $226 million
</TABLE>
The required level of EBITDA is scheduled to increase for each rolling
four quarter period thereafter until December 31, 1996, when the EBITDA for
the twelve months ended December 31, 1996 is required to be $822 million.
(iv) Reset to zero as of January 1, 1994 the dividend pool under the
1989 Credit Agreement which permits payment of dividends on the Company's
capital stock and modifies the components used in calculating the ongoing
balance in the dividend pool. Effective January 1, 1994, dividend payments
on the Company's common stock and on certain preferred stock issues cannot
exceed the sum of (i) 75 percent of the consolidated net income (as defined
in the 1989 Credit Agreement) of the Company from January 1, 1994 to the
date of payment of such dividends, minus (ii) 100 percent of the
consolidated net loss, (as defined in the 1989 Credit Agreement), of the
Company from January 1, 1994 to the date of payment of such dividends, plus
(iii) 100 percent of any net cash proceeds from sales of common stock or
certain preferred stock of the Company from January 1, 1994 to any date of
payment of such dividends (excluding the proceeds from the 1994 Offerings
for which no dividend credit was received by the Company). Additionally, the
restriction with respect to dividends on Series E Cumulative Convertible
Exchangeable Preferred Stock (the "Series E Cumulative Preferred Stock") was
amended to mirror the dividend restriction in the Company's Senior
Subordinated Indenture dated as of March 15, 1992.
(v) Replaced the existing cross-default provisions relating to
obligations of $10 million or more of the Company's separately financed
subsidiaries, Seminole and Stone Savannah, with cross-acceleration
provisions.
(vi) Replaced the current prohibition of investments in Stone Venepal
Consolidated Pulp Inc. with restrictions substantially similar to the
restrictions applicable to the Company's subsidiaries, Stone Savannah and
Seminole.
(vii) Maintains the monthly indebtedness ratio requirement, as defined in
the 1989 Credit Agreement, to be no higher than: 81.5 percent as of the end
of each month from December 31, 1993 and ending prior to March 31, 1995 and
81 percent as of the end of each month from March 31, 1995 and ending prior
to June 30, 1995. The indebtedness ratio requirement is scheduled to
periodically decrease thereafter (from 80 percent on June 30, 1995) until
February 28, 1997, when the ratio limitation is required to be 68 percent.
(viii) Maintains the Consolidated Tangible Net Worth requirement (CTNW)
(as defined in the 1989 Credit Agreement) to be equal to or greater than 50
percent of the highest CTNW for any quarter since the inception of the 1989
Credit Agreement.
F-37
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LONG-TERM DEBT (CONTINUED)
Additionally, at various times during the year, the Company amended and
restated its 1989 Credit Agreement which provided, among other things to, (i)
extend the maturity of the revolving credit facilities from March 1, 1994 to
March 1, 1997 and reduce over a three-year period the revolving loan
commitments; (ii) revise various financial covenants to provide greater
financial flexibility to the Company; (iii) permit the Company to retain 25
percent of the net proceeds from future sales of equity securities (which could
be used to reduce revolving credit borrowings without reducing the commitments
thereunder); and (iv) permit the Company to retain 50 percent (maximum $100
million in the aggregate) of the net proceeds from any sale or disposition of
its investment in certain joint ventures or unconsolidated subsidiaries (which
could be used to reduce revolving credit borrowings without reducing the
commitments thereunder). As part of these amendments, the Company agreed (i) to
pay certain fees and higher interest rate margins and (ii) mortgage or pledge
additional collateral including a pledge of the Stone-Consolidated common stock
owned by the Company.
There can be no assurance that the Company will be able to achieve and
maintain compliance with the prescribed financial ratio tests or other
requirements of its 1989 Credit Agreement. Failure to achieve or maintain
compliance with such financial ratio tests or other requirements under the 1989
Credit Agreement, in the absence of a waiver or amendment, would result in an
event of default and could lead to the acceleration of the obligations under the
1989 Credit Agreement. The Company has successfully sought and received waivers
and amendments to its 1989 Credit Agreement on various occasions since entering
into the 1989 Credit Agreement. If further waivers or amendments are requested
by the Company, there can be no assurance that the Company's bank lenders will
again grant such requests. The failure to obtain any such waivers or amendments
would reduce the Company's flexibility to respond to adverse industry conditions
and could have a material adverse effect on the Company.
NOTE 11 -- LIQUIDITY MATTERS
The Company's liquidity and financial flexibility is adversely affected by
the net losses incurred during the past three years. Recently, the Company has
improved its liquidity and financial flexibility through the completion of the
February 1994 Offerings as discussed in Note 2 -- "Subsequent Events." At March
14, 1994 the Company had borrowing availability of $168.2 million under its
revolving credit facilities. Notwithstanding these improvements in the Company's
liquidity and financial flexibility, unless the Company achieves substantial
price increases beyond year-end levels, the Company will continue to incur net
losses and negative cash flows from operating activities. Without such sustained
substantial price increases, the Company may exhaust all or substantially all of
its cash resources and borrowing availability under the revolving credit
facilities. In such event, the Company would be required to pursue other
alternatives to improve liquidity, including further cost reductions, sales of
assets, the deferral of certain capital expenditures, obtaining additional
sources of funds or pursuing the possible restructuring of its indebtedness.
There can be no assurance that such measures, if required, would generate the
liquidity required by the Company to operate its business and service its
indebtedness. As currently scheduled, beginning in 1996 and continuing
thereafter, the Company will be required to make significant amortization
payments on its indebtedness which will require the Company to raise sufficient
cash from operations or other sources or refinance or restructure maturing
indebtedness. No assurance can be given that the Company will be able to
generate or raise such funds.
The Company, as part of its financial plan, had intended to sell an energy
supply agreement related to its Florence, South Carolina mill. Even though a
sale is still being investigated by the Company, the Company is no longer
pursuing the original transaction; however, the Company is currently
investigating alternative transactions.
F-38
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12 -- DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1993 and 1992, the carrying values of the Company's
financial instruments approximate their fair values, except as noted below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1993 1992
----------------------------- -----------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
----------------- ---------- ----------------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Notes receivable and long-term investments......... $ 134.9 $ 118.1 $ 65.5 $ 51.1
Senior debt........................................ 2,344.5 2,362.8 2,623.5 2,635.3
Subordinated debt.................................. 1,262.6 1,189.5 1,019.2 949.5
Non-recourse debt of consolidated affiliates....... 963.1 1,002.3 627.3 627.3
Standby letters of credit.......................... -- 76.1 -- 68.9
Currency and interest rate hedges in payable
position.......................................... 2.6 4.2 6.5 4.4
</TABLE>
The fair values of notes receivable and certain investments are based on
discounted future cash flows or the applicable quoted market price. The fair
value of the Company's debt is estimated based on the quoted market prices for
the same or similar issues. The fair value of letters of credit represent the
face amount of the letters of credit adjusted for current rates. The fair value
of interest rate swap agreements are obtained from dealer quotes. These values
represent the estimated amount the Company would pay to terminate agreements,
taking into consideration the current interest rate and market conditions.
NOTE 13 -- LONG-TERM LEASES
The Company leases certain of its facilities and equipment under leases
expiring through the year 2023.
Future minimum lease payments under capitalized leases and their present
value at December 31, 1993, and future minimum rental commitments (net of
sublease rental income and exclusive of real estate taxes and other expenses)
under operating leases having initial or remaining non-cancellable terms in
excess of one year, are reflected below:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
------------- -----------
(IN MILLIONS)
<S> <C> <C>
1994.................................................................. $ 5.6 $ 73.2
1995.................................................................. 2.7 64.0
1996.................................................................. 2.0 52.2
1997.................................................................. 1.2 45.3
1998.................................................................. .3 40.8
Thereafter............................................................ 2.0 148.6
----- -----------
Total minimum lease payments.......................................... 13.8 $ 424.1
-----------
-----------
Less: Imputed interest................................................ (2.6)
-----
Present value of future minimum lease payments........................ $ 11.2
-----
-----
</TABLE>
Approximately $2.8 million of the total present value of future minimum
capital lease payments relates to a Stone-Consolidated newsprint mill. Minimum
lease payments for capitalized leases have not been reduced by minimum sublease
rental income of $1.6 million due in the future under a non-cancellable lease.
F-39
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- LONG-TERM LEASES (CONTINUED)
Rent expense for operating leases, including leases having a duration of
less than one year, was approximately $83 million in 1993, $84 million in 1992
and $81 million in 1991.
NOTE 14 -- PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock, $.01 par
value, of which 4,600,000 shares are outstanding at December 31, 1993. Shares of
preferred stock can be issued in series with varying terms as determined by the
Board of Directors.
On February 20, 1992, the Company issued 4,600,000 shares of $1.75 Series E
Cumulative Preferred Stock at $25.00 per share. Dividends on the Series E
Cumulative Preferred Stock are payable quarterly when, as and if declared by the
Company's Board of Directors. The Series E Cumulative Preferred Stock is
convertible, at the option of the holder at any time, into shares of the
Company's common stock at a conversion price of $33.94 per share of common stock
(adjusted for the 2 percent common stock dividend issued September 15, 1992),
subject to adjustment under certain conditions. The Series E Cumulative
Preferred Stock may alternatively be exchanged, at the option of the Company, on
any dividend payment date commencing February 15, 1994, for the Company's 7
percent Convertible Subordinated Exchange Debentures due February 15, 2007 (the
"Exchange Debentures") in a principal amount equal to $25.00 per share of Series
E Cumulative Preferred Stock so exchanged. The Exchange Debentures would be
virtually identical to the 6 3/4 percent Subordinated Debentures, except that
the Exchange Debentures would bear interest at the rate of 7 percent per annum
and the interest payment dates would differ. Additionally, the Series E
Cumulative Preferred Stock is redeemable at the option of the Company, in whole
or from time to time in part, on and after February 16, 1996. The net proceeds
of $111 million from the sale of the Series E Cumulative Preferred Stock were
used to partially prepay the $175 million March 31, 1993 semi-annual term loan
amortization under the 1989 Credit Agreement.
The Company paid cash dividends during the first two quarters of 1993 on its
Series E Cumulative Preferred Stock. However, due to a restrictive provision in
the Senior Subordinated Indenture dated March 15, 1992 (the "Senior Subordinated
Indenture") relating to the Company's 10 3/4 percent Senior Subordinated Notes,
its 11 percent Senior Subordinated Notes and its 10 3/4 percent Senior
Subordinated Debentures, the Board of Directors did not declare the scheduled
August 15, 1993 or the November 15, 1993 quarterly dividend of $.4375 per share
on the Series E Cumulative Preferred Stock nor was it permitted to declare or
pay future dividends on the Series E Cumulative Preferred Stock until the
Company generated income, or effected certain sales of capital stock, to
replenish the dividend "pool" under various of its debt instruments. As of
December 31, 1993, accumulated dividends on the Series E Cumulative Preferred
Stock amounted to $4.0 million. As a result of the February 1994 Offerings, the
dividend pool under the Senior Subordinated Indenture was replenished from the
sale of the common shares. Pursuant to the most recent amendment to the
Company's 1989 Credit Agreement, the Company will be able, to the extent
declared by the Board of Directors, to pay dividends on the Series E Cumulative
Preferred Stock to the extent permitted under the Senior Subordinated Indenture.
In the event the Company does not pay a dividend on the Series E Cumulative
Preferred Stock for six quarters, the holders of the Series E Cumulative
Preferred Stock would have the right to elect two members to the Company's Board
of Directors until the accumulated dividends on such Series E Cumulative
Preferred Stock have been declared and paid or set apart for payment.
REDEEMABLE PREFERRED STOCK OF A CONSOLIDATED AFFILIATE:
The Company's Consolidated Balance Sheets include the Redeemable Series A
Preferred Stock (the "Series A Preferred Stock") of Stone Savannah. Stone
Savannah has authorized 650,000 shares of Series A Preferred Stock, of which
637,900 shares and 548,500 shares, having a total liquidation
F-40
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 -- PREFERRED STOCK (CONTINUED)
preference of $63.8 million and $54.9 million, were outstanding at December 31,
1993 and 1992, respectively. The Company owns one-third of the Series A
Preferred Stock and has eliminated such investment in consolidation.
The Series A Preferred Stock, $.01 par value, liquidation preference $100
per share, is cumulative with dividends of $15.375 per annum payable quarterly
when, as and if declared by Stone Savannah's Board of Directors. On or prior to
December 15, 1993, dividends are payable through the issuance of additional
shares of Series A Preferred Stock; thereafter, such dividends are payable in
cash. Stock dividends of approximately $6.0 million in 1993, $5.1 million in
1992 and $4.4 million in 1991, representing approximately 60,000 shares, 51,000
shares and 44,000 shares, respectively, have been distributed to shareholders
other than the Company. Commencing December 15, 2001, Stone Savannah is required
to redeem the Series A Preferred Stock at its liquidation preference in no less
than three annual installments. Additionally, upon the occurrence of certain
events, Stone Savannah may be required to redeem all of the Series A Preferred
Stock at prices declining annually to 100 percent of the liquidation preference
by December 15, 2001. The Series A Preferred Stock is solely the obligation of
Stone Savannah and is without recourse to the parent company.
SERIES F PREFERRED STOCK:
As a result of the agreement discussed in Note 18 between the Company and
Venezolana de Pulpa y Papel ("Venepal"), a Venezuelan pulp and paper company,
the Company has authorized 400,000 shares of 7 percent Series F Cumulative
Convertible Exchangeable Preferred Stock (the "Series F Preferred Stock"). The
Series F Preferred Stock, $.01 par value, liquidation preference $100 per share,
is cumulative with dividends of $7 per annum payable quarterly when, as and if
declared by the Company's Board of Directors and is convertible into shares of
the Company's common stock at a conversion price of $18.422, subject to
adjustment under certain conditions. The terms of the Series F Preferred Stock
are virtually identical to the Series E Preferred Stock, except for the
liquidation preference and the conversion rate. No shares of Series F Preferred
Stock have been issued to date.
NOTE 15 -- COMMON STOCK
The Company has authorized 200,000,000 shares of common stock, $.01 par
value, of which 71,174,587 shares were outstanding at December 31, 1993.
On September 15, 1992, the Company issued a 2 percent stock dividend to
common stockholders of record August 25, 1992. The stock dividend was effected
by the issuance of one share of common stock for every 50 shares of common stock
held. Accordingly, all amounts per common share and weighted average number of
common shares for all periods included in the consolidated financial statements
have been retroactively adjusted to reflect this stock dividend.
STOCK RIGHTS:
Each outstanding share of the Company's common stock carries a stock
purchase right ("Right"). Each Right entitles the holder to purchase from the
Company one one-hundredth of a share of Series D Junior Participating Preferred
Stock, par value $.01 per share, at a purchase price of $130 subject to
adjustment under certain circumstances. The Rights expire August 8, 1998 unless
extended or earlier redeemed by the Company.
The Rights will be exercisable only if a person or group, subject to certain
exceptions, acquires 15 percent or more of the Company's common stock or
announces a tender offer, the consummation of which would result in ownership by
such person or group of 15 percent or more of the Company's common stock. The
Company can redeem the Rights at the rate of $.01 per Right at any time before
the tenth business day (subject to extension) after a 15 percent position is
acquired.
F-41
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- COMMON STOCK (CONTINUED)
If the Company is acquired in a merger or other business combination
transaction, each Right will entitle its holder (other than the acquiring person
or group) to purchase, at the Right's then-current exercise price, a number of
the acquiring company's shares of common stock having a market value at that
time of twice the Right's then-current exercise price.
In addition, in the event that a 15 percent or greater stockholder acquires
the Company by means of a reverse merger in which the Company and its common
stock survive, or engages in self-dealing transactions with the Company, each
holder of a Right (other than the acquiring person or group) will be entitled to
purchase the number of shares of the Company's common stock having a market
value of twice the then-current exercise price of the Right.
STOCK OWNERSHIP AND OPTION PLANS:
In 1982, the Company adopted an Incentive Stock Option Plan under which
options are granted to key employees who are not participants in the Company's
Long-Term Incentive Program described below. This plan expired on March 21, 1992
and upon its expiration, the Board of Directors adopted a 1993 Plan, effective
January 1, 1993. The provisions under the 1993 Plan are similar to the 1982
Plan, with 1,530,000 shares of common stock authorized except that under the new
plan the Company may issue either incentive stock options or non-qualified stock
options. Options under these plans provide for the purchase of common shares at
prices not less than 100 percent of the market value of such shares on the date
of grant. The options are exercisable, in whole or in part, after one year but
no later than ten years from the date of the respective grant. No accounting
recognition is given to stock options until they are exercised, at which time
the option price received is credited to common stock.
F-42
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- COMMON STOCK (CONTINUED)
Transactions under the stock option plans are summarized as follows:
<TABLE>
<CAPTION>
OPTION PRICE
OPTION SHARES PER SHARE*
-------------- ---------------
<S> <C> <C>
Outstanding January 1, 1991................................... 574,833 $ 4.98-29.28
Granted..................................................... -- --
Exercised................................................... (9,998 ) 6.01-8.74
Cancelled................................................... -- --
-------------- ---------------
Outstanding December 31, 1991................................. 564,835 4.98-29.28
Granted..................................................... -- --
Exercised................................................... (22,950 ) 4.98-29.28
Adjustment for 2 percent stock dividend..................... 10,707 8.74-29.28
Cancelled................................................... (6,561 ) 6.01
-------------- ---------------
Outstanding December 31, 1992................................. 546,031 8.74-29.28
Granted..................................................... -- --
Exercised................................................... -- --
Cancelled................................................... -- --
-------------- ---------------
Outstanding December 31, 1993................................. 546,031 8.74-29.28
-------------- ---------------
Options exercisable at December 31,
1993........................................................ 546,031 8.74-29.29
1992........................................................ 546,031 8.74-29.28
Options available for grant at December 31,
1993........................................................ 1,530,000
1992........................................................ 1,530,000
<FN>
- ------------------------
*Adjusted for the 2 percent stock dividend issued September 15, 1992.
</TABLE>
Additionally, the Company's Long-Term Incentive Program provides for
contingent awards of restricted shares of common stock and cash to certain key
employees.The payment of the cash portion of the awards granted will depend on
the extent to which the Company has met certain long-term performance goals as
established by a committee of outside directors. The compensation related to
this program is amortized over the related five-year restricted periods. The
charge (credit) to compensation expense under this plan was $(1.2) million, $3.6
million and $4.7 million in 1993, 1992 and 1991, respectively. In 1993, prior
cash awards that were accrued have been deemed to be not payable due to the
financial results of the Company. Under this plan, 1,800,000 shares have been
reserved for issuance, of which 186,253, 120,834 and 238,546 shares were granted
in 1993, 1992 and 1991, respectively. At December 31, 1993, there were 951,761
shares available for grant.
NOTE 16 -- RELATED PARTY TRANSACTIONS
The Company sells linerboard and corrugating medium to MacMillan Bathurst, a
50 percent owned non-consolidated affiliate and to Titan, a 49 percent owned
non-consolidated affiliate. As discussed in Note 3, the Company sold its 49
percent interest in Titan in December 1993. Additionally, the Company purchases
market pulp from Stone Venepal Consolidated Pulp Inc. ("Stone Venepal
Consolidated"), a 50 percent owned non-consolidated affiliate of the Company.
Stone Venepal Consolidated owns 50 percent of the Celgar Pulp Company, which
operates a market pulp mill in British Columbia. The Company also sells boxboard
to FCP, a 50 percent owned non-consolidated affiliate. Transactions under all of
these agreements are primarily at market prices.
F-43
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 -- RELATED PARTY TRANSACTIONS (CONTINUED)
The following table summarizes the transactions between the Company and its
non-consolidated affiliates and the payable and receivable balances outstanding
at the end of each year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
MacMillan Bathurst:
Sales to........................................................ $ 77.4 $ 67.3 $ 79.4
Net receivable from............................................. 9.9 9.8 6.1
Titan:
Sales to........................................................ $ 18.3 $ 13.4 $ 16.1
Net receivable from............................................. (a) 12.8 14.3
Management fee from............................................. 1.0 1.0 .8
FCP Group:
Sales to........................................................ $ 4.3 (b) (b)
Stone Venepal Consolidated:
Purchases from.................................................. $ 1.4 $ .5 $ 1.1
Net payable to.................................................. .7 .2 --
<FN>
- ------------------------
(a) Not applicable as equity investment in Titan was sold in December 1993.
(b) Not applicable for 1992 and 1991 as FCP Group was formed in 1993.
</TABLE>
NOTE 17 -- ADDITIONAL INFORMATION RELATING TO THE CONSOLIDATED FINANCIAL
STATEMENTS
OTHER NET OPERATING (INCOME) EXPENSE:
The major components of other net operating (income) expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Writedown of decommissioned assets............................. $ 19.2 $ 4.0 $ 4.0
Gain from an involuntary conversion at a paper mill............ -- -- (17.5)
Loss on writedown of investments............................... 3.4 8.8 --
Gains on sales of investments or assets........................ (40.7) -- (7.4)
Loss from sale of business..................................... -- -- 1.5
Gain from settlement and termination of Canadian supply
contract...................................................... -- -- (41.8)
Writedown of certain receivables to net realizable value....... 14.2 -- --
Other.......................................................... 8.6 -- (1.6)
--------- --------- ---------
Total other net operating (income) expense..................... $ 4.7 $ 12.8 $ (62.8)
--------- --------- ---------
--------- --------- ---------
</TABLE>
INTEREST EXPENSE:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Total interest cost incurred.................................. $ 437.5 $ 433.5 $ 479.3
Interest capitalized.......................................... (10.8) (47.4) (81.9)
--------- --------- ---------
Interest expenses............................................. $ 426.7 $ 386.1 $ 397.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-44
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 -- ADDITIONAL INFORMATION RELATING TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE:
Selling, general and administrative expenses include provisions for doubtful
accounts and notes receivable of $12.2 million for 1993, $8.3 million for 1992
and $7.1 million for 1991.
OTHER, NET:
The major components of other, net are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Interest income................................................... $ 11.2 $ 11.5 $ 8.4
Dividend income................................................... .4 .8 1.0
Foreign currency transaction gains (losses)....................... (11.8) (15.0) 4.9
Minority interest expense......................................... (3.6) (5.3) (5.8)
Other............................................................. 2.9 8.6 6.2
--------- --------- ---------
Total other, net.................................................. $ (.9) $ .6 $ 14.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
INVESTMENTS IN NON-CONSOLIDATED AFFILIATES:
The Company had investments in non-consolidated affiliates of $107.2 million
and $131.9 million at December 31, 1993 and 1992, respectively. These amounts
are included in other long-term assets in the Company's Consolidated Balance
Sheets. See Note 16 for discussion of the transactions between the Company and
its major non-consolidated affiliates.
ACCRUED AND OTHER CURRENT LIABILITIES:
The major components of accrued and other current liabilities are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1993 1992
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Accrued interest........................................................... $ 68.2 $ 60.4
Accrued payroll, related taxes and employee benefits....................... 85.8 105.5
Other...................................................................... 131.7 134.7
--------- ---------
Total accrued and other current liabilities................................ $ 285.7 $ 300.6
--------- ---------
--------- ---------
</TABLE>
OTHER LONG-TERM LIABILITIES:
Included in other long-term liabilities at December 31, 1993 and 1992 is
approximately $52.3 million and $57.8 million, respectively, of deferred income
relating to the October 1992 sale of an energy contract at the Company's
Hopewell mill. This amount is being amortized over a 12 year period.
NOTE 18 -- COMMITMENTS AND CONTINGENCIES
At December 31, 1993, the Company, excluding Stone Savannah and Seminole,
had commitments outstanding for capital expenditures under purchase orders and
contracts of approximately $20.3 million of which $8.3 million relates to
Stone-Consolidated. Stone Savannah and Seminole had, at December 31, 1993,
commitments outstanding for capital expenditures of approximately $4.9 million
in the aggregate.
The Company has a 50 percent equity interest in Stone Venepal Consolidated
which in turn has a 50 percent undivided interest in the assets and liabilities
of a joint venture which owns the Celgar pulp
F-45
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
mill located at Castlegar, British Columbia. Venepal owns the other 50 percent
equity interest in Stone Venepal Consolidated. On February 12, 1991, Stone
Venepal Consolidated entered into a $350 million (Canadian) bank credit
agreement for the purpose of financing its 50 percent share of a major
improvement and expansion project at the Castlegar mill. Additionally, the
Company entered into a Completion Financing Agreement for the purpose of funding
part of the project costs that were incurred in excess of the primary borrowing
facility, up to a maximum of $50 million (Canadian) in the aggregate. At
December 31, 1993, the Company has paid $37.5 million (Canadian) under the
Completion Financing Agreement which is the maximum amount the Company has
determined it will be required to contribute.
On October 30, 1992, the Company and Venepal entered into an agreement
whereby Venepal's investment in the Celgar pulp mill, represented by Venepal's
ownership of 50 percent of the outstanding common stock of Stone Venepal
Consolidated can be exchanged for the Company's Series F Preferred Stock (see
Note 14). The exchange would occur at Venepal's option as a result of certain
specific conditions relating to the operations of the Celgar pulp mill. None of
these conditions as of December 31, 1993 have occurred that would trigger the
exchange. The Company may, at its option, elect to honor the contingent exchange
obligation with a cash payment to Venepal. Based upon Venepal's initial
investment in Stone Venepal Consolidated, 212,903 shares of Series F Preferred
Stock, liquidation preference $100 per share, would be issued in the event
Venepal elected its exchange option. Further, if the Series F Preferred shares
were converted to the Company's common stock at the conversion price of $18.422,
an additional 1,155,703 shares of common stock would be issued. Venepal's
interest in Stone Venepal Consolidated replaces the equity ownership formerly
held by Power Corporation of Canada.
The 1989 Credit Agreement limits in certain specific circumstances any
further investments by the Company in Stone-Consolidated Corporation, Seminole
and Stone Savannah. Stone Savannah and Seminole have incurred substantial
indebtedness in connection with project financings and are significantly
leveraged. As of December 31, 1993, Stone Savannah had $402.6 million in
outstanding indebtedness (including $268.9 million in secured indebtedness owed
to bank lenders) and Seminole had $161.0 million in outstanding indebtedness
(including $120.6 million in secured indebtedness owed to bank lenders). The
Company has entered into separate output purchase agreements with each of these
subsidiaries which require the Company to purchase Seminole's linerboard
production at fixed prices until no later than September 1, 1994 and Stone
Savannah's linerboard and market pulp production at fixed prices until December
1994 and November 1995, respectively. After such dates, the Company is required
to purchase the respective production at market prices for the remaining terms
of these agreements. While the fixed prices in effect at December 31, 1993 were
higher than market prices at such date, the price differentials have not had,
nor are they expected to have, a significant impact on the Company's results of
operations or financial position. However, at the time that the fixed price
provisions of the output purchase agreements terminate, such subsidiaries may
need to undertake additional measures to meet their debt service requirements
(including covenants), including obtaining additional sources of funds,
postponing or restructuring of debt service payments or refinancing the
indebtedness. In the event that such measures are required and are not
successful, and such indebtedness is accelerated by the respective lenders to
Stone Savannah or Seminole, the lenders to the Company under the 1989 Credit
Agreement and various other of its debt instruments would be entitled to
accelerate the indebtedness owed by the Company.
Under certain timber contracts, title passes as the timber is cut. These are
considered to be commitments and are not recorded until the timber is removed.
At December 31, 1993 commitments on such contracts, which run through 1997, were
approximately $16.8 million.
F-46
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company's operations are subject to extensive environmental regulation
by federal, state and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations. The Company has in
the past made significant capital expenditures to comply with water, air and
solid and hazardous waste regulations and expects to make significant
expenditures in the future. Capital expenditures for environmental control
equipment and facilities were approximately $28 million in 1993 and the Company
anticipates that 1994 and 1995 environmental capital expenditures will
approximate $71 million and $96 million, respectively. Included in these amounts
are capital expenditures for Stone-Consolidated which were approximately $5
million in 1993 and are anticipated to approximate $36 million in 1994 and $64
million in 1995. Although capital expenditures for environmental control
equipment and facilities and compliance costs in future years will depend on
legislative and technological developments which cannot be predicted at this
time, the Company anticipates that these costs are likely to increase as
environmental regulations become more stringent. Environmental control
expenditures include projects which, in addition to meeting environmental
concerns, yield certain benefits to the Company in the form of increased
capacity and production cost savings. In addition to capital expenditures for
environmental control equipment and facilities, other expenditures incurred to
maintain environmental regulatory compliance (including any remediation)
represent ongoing costs to the Company. On December 17, 1993, the Environmental
Protection Agency proposed regulations under the Clean Air Act and the Clean
Water Act for the pulp and paper industry, which if and when implemented, would
affect directly a number of the Company's facilities. Since the regulations have
only recently been proposed, the Company is currently unable to estimate the
nature or level of future expenditures that may be required to comply with such
regulations if the proposed regulations become final in some form. In addition,
the Company is from time to time subject to litigation and governmental
proceedings regarding environmental matters in which injunctive and/or monetary
relief is sought.
The Company has been named as a potentially responsible party ("PRP") at a
number of sites which are the subject of remedial activity under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA" or "Superfund") or comparable state laws. Although the Company is
subject to joint and several liability imposed under Superfund, at most of the
multi-PRP sites there are organized groups of PRPs and costs are being shared
among PRPs. Future environmental regulations, including the December 17, 1993
regulations, may have an unpredictable adverse effect on the Company's
operations and earnings, but they are not expected to adversely affect the
Company's competitive position.
The Company has entered into a purchase agreement with a certain party in
which the Company has agreed to purchase annually 90,000 tons of linerboard at
specified prices over a ten year period. Commencement of this agreement is
contingent upon the completion of a manufacturing facility by the other party.
Refer to Notes 10 and 13 for further discussion of the Company's debt,
hedging and lease commitments.
Additionally, the Company is involved in certain litigation primarily
arising in the normal course of business. In the opinion of management, the
Company's liability under any pending litigation would not materially affect its
financial condition or results of operations.
NOTE 19 -- SEGMENT INFORMATION
BUSINESS SEGMENTS:
The Company operates principally in two business segments. The paperboard
and paper packaging segment is comprised primarily of facilities that produce
containerboard, kraft paper, boxboard, corrugated containers and paper bags and
sacks. The white paper and pulp segment consists of
F-47
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 -- SEGMENT INFORMATION (CONTINUED)
facilities that manufacture and sell newsprint, groundwood paper and market
pulp. The Company has other operations, primarily consisting of wood products
operations, flexible packaging operations and railroad operations. Intersegment
sales are accounted for at transfer prices which approximate market prices.
Operating profit includes all costs and expenses directly related to the
segment involved. The corporate portion of operating profit includes corporate
general and administrative expenses and equity income (loss) of non-consolidated
affiliates.
Assets are assigned to segments based on use. Corporate assets primarily
consist of cash and cash equivalents, fixed assets, certain deferred charges and
investments in non-consolidated affiliates.
Financial information by business segment is summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------------- -------------- --------------
<S> <C> <C> <C>
) (IN MILLIONS
Sales:
Paperboard and paper packaging......................... $ 3,810.1 $ 4,185.7 $ 4,037.7
White paper and pulp................................... 965.0 1,078.3 1,115.8
Other.................................................. 330.6 303.0 275.3
Intersegment........................................... (46.1) (46.3) (44.5)
-------------- -------------- --------------
Total sales........................................ $ 5,059.6 $ 5,520.7 $ 5,384.3
-------------- -------------- --------------
-------------- -------------- --------------
Income (loss) before income taxes and cumulative
effects of accounting changes:
Paperboard and paper packaging......................... $ 206.4 $ 322.1 $ 355.8
White paper and pulp................................... (194.2) (87.0) 84.1
Other.................................................. 36.4 12.0 (6.0)
-------------- -------------- --------------
48.6 247.1 433.9
Interest expense....................................... (426.7) (386.1) (397.4)
Foreign currency transaction gains (losses)............ (11.8) (15.0) 4.9
General corporate...................................... (77.0)(1) (75.3)(1) (59.4)(1)
-------------- -------------- --------------
Loss before income taxes and cumulative effects of
accounting changes................................ $ (466.9) $ (229.3) $ (18.0)
-------------- -------------- --------------
-------------- -------------- --------------
Depreciation and amortization:
Paperboard and paper packaging......................... $ 179.5 $ 173.3 $ 154.5
White paper and pulp................................... 135.8 123.6 88.8
Other.................................................. 20.9 24.3 23.0
General corporate...................................... 10.6 8.0 7.2
-------------- -------------- --------------
Total depreciation and amortization................ $ 346.8 $ 329.2 $ 273.5
-------------- -------------- --------------
-------------- -------------- --------------
Assets:
Paperboard and paper packaging......................... $ 3,436.5 $ 3,516.3 $ 3,728.5
White paper and pulp................................... 2,632.8 2,763.4 2,459.9
Other.................................................. 344.6 379.6 383.4
General corporate...................................... 422.8(2) 367.7(2) 331.1(2)
-------------- -------------- --------------
Total assets....................................... $ 6,836.7 $ 7,027.0 $ 6,902.9
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-48
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 -- SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1993 1992 1991
-------------- -------------- --------------
Capital expenditures:
<S> <C> <C> <C>
Paperboard and paper packaging......................... $ 100.7 $ 177.1 $ 322.6
White paper and pulp................................... 44.2 98.6 100.6
Other.................................................. 1.5 4.8 4.4
General corporate...................................... 3.3 .9 2.5
-------------- -------------- --------------
Total capital expenditures......................... $ 149.7 $ 281.4 $ 430.1
-------------- -------------- --------------
-------------- -------------- --------------
<FN>
- ------------------------
(1) Includes equity in net income (loss) of non-consolidated vertically
integrated affiliates as follows: Paperboard and paper packaging segment --
$(5.2) in 1993, $(3.3) in 1992 and $2.4 in 1991; White paper and pulp
segment -- $(2.5) in 1993, $(2.7) in 1992 and $(1.5) in 1991; and other --
$(4.0) in 1993, $.7 in 1992 and $.2 in 1991.
(2) Includes investments in non-consolidated vertically integrated affiliates
as follows: Paperboard and paper packaging segment -- $33.6 in 1993, $42.2
in 1992 and $38.6 in 1991; White paper and pulp segment -- $27.8 in 1993,
$29.4 in 1992 and $26.2 in 1991; and other -- $45.8 in 1993, $2.2 in 1992
and $1.3 in 1991.
</TABLE>
GEOGRAPHIC SEGMENTS:
The chart below provides financial information for the Company's operations
based on the region in which the operations are located.
<TABLE>
<CAPTION>
INCOME (LOSS)
BEFORE INCOME
TAXES AND
CUMULATIVE
EFFECT OF AN
INTER-AREA ACCOUNTING
TRADE SALES SALES TOTAL SALES CHANGE ASSETS
------------ ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
) (IN MILLIONS
1993
United States............................. $ 3,678.2 $ 16.4 $ 3,694.6 $ 112.0 $ 3,256.8
Canada.................................... 756.2 16.9 773.1 (69.5) 2,374.8
Europe.................................... 625.2 1.7 626.9 6.1 782.3
------------ ----------- ----------- ------- --------------
5,059.6 35.0 5,094.6 48.6 6,413.9
Interest expense.......................... (426.7)
Foreign currency transaction losses....... (11.8)
General corporate......................... (77.0)(1) 422.8(2)
Inter-area eliminations................... (35.0) (35.0) --
------------ ----------- ----------- ------- --------------
Total..................................... $ 5,059.6 $ -- $ 5,059.6 $ (466.9 ) $ 6,836.7
------------ ----------- ----------- ------- --------------
------------ ----------- ----------- ------- --------------
</TABLE>
F-49
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 -- SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
INCOME (LOSS)
BEFORE INCOME
TAXES AND
CUMULATIVE
EFFECT OF AN
INTER-AREA ACCOUNTING
TRADE SALES SALES TOTAL SALES CHANGE ASSETS
------------ ----------- ----------- -------------- --------------
1992
<S> <C> <C> <C> <C> <C>
United States............................. $ 3,908.5 $ 28.9 $ 3,937.4 $ 300.3 $ 3,406.0
Canada.................................... 770.4 20.0 790.4 (97.3) 2,375.6
Europe.................................... 841.8 5.1 846.9 44.1 877.7
------------ ----------- ----------- ------- --------------
5,520.7 54.0 5,574.7 247.1 6,659.3
Interest expense.......................... (386.1)
Foreign currency transaction losses....... (15.0)
General corporate......................... (75.3)(1) 367.7(2)
Inter-area eliminations................... (54.0) (54.0) --
------------ ----------- ----------- ------- --------------
Total..................................... $ 5,520.7 $ -- $ 5,520.7 $ (229.3 ) $ 7,027.0
------------ ----------- ----------- ------- --------------
------------ ----------- ----------- ------- --------------
1991
United States............................. $ 3,700.0 $ 29.8 $ 3,729.8 $ 335.2 $ 3,277.5
Canada.................................... 870.6 24.6 895.2 13.8 2,389.8
Europe.................................... 813.7 -- 813.7 84.9 904.5
------------ ----------- ----------- ------- --------------
5,384.3 54.4 5,438.7 433.9 6,571.8
Interest expense.......................... (397.4 )
Foreign currency transaction gains........ 4.9
General corporate......................... (59.4 )(1) 331.1 (2)
Inter-area eliminations................... (54.4) (54.4) --
------------ ----------- ----------- ------- --------------
Total..................................... $ 5,384.3 $ -- $ 5,384.3 $ (18.0 ) $ 6,902.9
------------ ----------- ----------- ------- --------------
------------ ----------- ----------- ------- --------------
<FN>
- ------------------------
(1) Includes equity in net income (loss) of non-consolidated vertically
integrated affiliates as follows: United States -- $(1.0) in 1993, $(1.2)
in 1992 and $(.1) in 1991; Canada -- $(3.0) in 1993, $(3.0) in 1992 and
$(.6) in 1991; and other -- $(7.7) in 1993, $(1.1) in 1992 and $1.8 in
1991.
(2) Includes investments in non-consolidated vertically integrated affiliates
as follows: United States -- $ -- in 1993, $4.7 in 1992 and $1.2 in 1991;
Canada -- $63.0 in 1993, $68.7 in 1992 and $64.9 in 1991; and other --
$44.2 in 1993, $.4 in 1992 and $ -- in 1991.
</TABLE>
The Company's export sales from the United States were $341 million, $428
million and $330 million for 1993, 1992 and 1991, respectively.
F-50
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 -- SUMMARY OF QUARTERLY DATA (UNAUDITED)
The following table summarizes quarterly financial data for 1993 and 1992:
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------
FIRST(2) SECOND THIRD FOURTH(1) YEAR
---------- ---------- ---------- ---------- ----------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
1993
Net sales.......................................... $ 1,306.3 $ 1,267.6 $ 1,242.6 $ 1,243.1 $ 5,059.6
Cost of products sold.............................. 1,070.3 1,050.3 1,058.9 1,044.1 4,223.5
Depreciation and amortization...................... 87.1 88.8 81.2 89.7 346.8
Loss before cumulative effect of an accounting
change............................................ (62.7) (71.6) (99.2) (85.8) (319.2)
Cumulative effect of change in accounting for
postretirement benefits........................... (39.5) -- -- -- (39.5)
---------- ---------- ---------- ---------- ----------
Net loss........................................... (102.2) (71.6) (99.2) (85.8) (358.7)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Per share of common stock:
Loss before cumulative effect of an accounting
change.......................................... (.91 ) (1.03) (1.42) (1.23) (4.59)
Cumulative effect of change in accounting for
postretirement benefits......................... (.56) -- -- -- (.56)
Net loss......................................... (1.47) (1.03) (1.42) (1.23) (5.15)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash dividends per common share.................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
1992
Net sales.......................................... $ 1,354.3 $ 1,371.1 $ 1,464.6 $ 1,330.7 $ 5,520.7
Cost of products sold.............................. 1,084.2 1,107.8 1,193.3 1,088.4 4,473.7
Depreciation and amortization...................... 77.8 82.4 87.1 81.9 329.2
Loss before cumulative effect of an accounting
change............................................ (9.3) (40.7) (43.2) (76.7) (169.9)
Cumulative effect of change in accounting for
income taxes...................................... (99.5) -- -- -- (99.5)
---------- ---------- ---------- ---------- ----------
Net loss........................................... (108.8) (40.7) (43.2) (76.7) (269.4)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Per share of common stock:
Loss before cumulative effect of an accounting
change.......................................... (.15) (.60) (.64) (1.10) (2.49)
Cumulative effect of change in accounting for
income taxes.................................... (1.40) -- -- -- (1.40)
---------- ---------- ---------- ---------- ----------
Net loss......................................... (1.55) (.60) (.64) (1.10) (3.89)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash dividends per common share.................... .17 .18 -- -- .35
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
<FN>
- ------------------------
(1) The fourth quarter of 1993 includes a pre-tax gain of approximately $35.4
million from the sale of the Company's 49 percent equity interest in Titan
and a reduction in an accrual resulting from a change in the Company's
vacation pay policy which were partially offset by the writedown of the
carrying values of certain Company assets. The fourth quarter of 1992 was
unfavorably impacted by a roll-back of linerboard price increases which
resulted in the issuance of customer credits in the fourth quarter
pertaining to third quarter 1992 billings. Price increases are invoiced for
shipments on or after the effective date of the price increase. In certain
circumstances the Company, as a result of
</TABLE>
F-51
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 -- SUMMARY OF QUARTERLY DATA (UNAUDITED) (CONTINUED)
<TABLE>
<S> <C>
competitive pressures, may issue credits for the previously billed price
increases. When it becomes probable that a price increase will not be
successful or will be delayed, the Company accrues for possible credits to
be issued.
(2) The Company adopted SFAS 106 effective January 1, 1993 and SFAS 109
effective January 1, 1992.
(3) Amounts per common share have been adjusted for the 2 percent common stock
dividend issued September 15, 1992.
</TABLE>
F-52
<PAGE>
STONE CONTAINER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
Set forth below is the unaudited Pro Forma Condensed Consolidated Statement
of Operations of the Company for the year ended December 31, 1993. The unaudited
Pro Forma Condensed Consolidated Statement of Operations includes the historical
results of the Company and gives effect to the public offerings in December 1993
by Stone-Consolidated of Cdn. $231 million of its common stock, Cdn. $231
million of its 8% Convertible Unsecured Subordinated Debentures due 2003 and
$225 million of its 10.25% Senior Secured Notes due 2000 (the "Stone-
Consolidated Transaction") as if they had occurred as of January 1, 1993. The
pro formas further adjust for the 1994 sale of $710 million principal amount of
9 7/8% Senior Notes due February 1, 2001, 18.97 million shares of common stock
for $287.8 million at $15.25 per common share and for the Offering and the
Related Transactions (collectively, the "1994 Financings") as if they had
occurred as of January 1, 1993. The pro forma financial data do not purport to
be indicative of the Company's results of operations that would actually have
been obtained had the Stone-Consolidated Transaction and the 1994 Financings
been completed as of the date or for the period presented, or to project the
Company's results of operations at any future date or for any future period. The
unaudited pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable. The unaudited pro
forma financial data and accompanying notes should be read in conjunction with
the historical financial information of the Company, including the notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
YEAR ENDED ADJUSTMENTS ADJUSTMENTS
DECEMBER 31, STONE-CONSOLIDATED 1994
1993(1) TRANSACTION(2) FINANCINGS(3)
-------------- ----------------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales..................................................... $ 5,059.6 $ $
Operating costs and expenses:
Cost of products sold....................................... 4,223.5
Selling, general and administrative expenses................ 512.2
Depreciation and amortization............................... 346.8
Equity loss from affiliates................................. 11.7
Other net operating expense................................. 4.7
-------------- -----
5,098.9
-------------- -----
Loss from operations.......................................... (39.3)
Interest expense.............................................. (426.7) 21.7(a)
(43.8)(b)
Other, net.................................................... (.9) (1.9)(c)
9.3(d)
-------------- -----
Loss before income taxes and cumulative effect of an
accounting change............................................ (466.9) (14.7)
Credit for income taxes....................................... (147.7) (8.0)(e)
-------------- -----
Income (loss) before cumulative effect of an accounting
change....................................................... $ (319.2) $ (6.7)
-------------- -----
-------------- -----
Loss per share of common stock before cumulative effect of an
accounting change............................................ $ (4.59 )
--------------
--------------
Weighted average common shares outstanding (in millions)...... 71.2
--------------
--------------
<CAPTION>
PRO FORMA YEAR
ENDED
DECEMBER 31,
1993
--------------
<S> <C>
Net sales..................................................... $ 5,059.6
Operating costs and expenses:
Cost of products sold....................................... 4,223.5
Selling, general and administrative expenses................ 512.2
Depreciation and amortization............................... 346.8
Equity loss from affiliates................................. 11.7
Other net operating expense................................. 4.7
--------------
5,098.9
--------------
Loss from operations.......................................... (39.3)
Interest expense.............................................. (448.8)
Other, net.................................................... 6.5
--------------
Loss before income taxes and cumulative effect of an
accounting change............................................ (481.6)
Credit for income taxes....................................... (155.7)
--------------
Income (loss) before cumulative effect of an accounting
change....................................................... (325.9)
--------------
--------------
Loss per share of common stock before cumulative effect of an
accounting change............................................ $ (4.69 )
--------------
--------------
Weighted average common shares outstanding (in millions)...... 71.2
--------------
--------------
<FN>
- ------------------------------
(1) Basis of preparation:
The unaudited Pro Forma Condensed Consolidated Statement of Operations has
been prepared from and should be read in conjunction with the historical
consolidated financial statements of the Company included elsewhere in this
Prospectus.
The Pro Forma Condensed Consolidated Statement of Operations gives effect
to the following pro forma adjustments as of January 1, 1993 in Notes 2 and
3.
(2) Pro forma adjustments relating to the Stone-Consolidated Transaction:
(a) To record a reduction of historical interest expense and amortization of
deferred debt issuance costs of $21.7 million as a result of the assumed
repayment of certain 1989 Credit Agreement indebtedness. This adjustment
does not include the pro forma write-off of deferred debt issuance costs of
$7.8 million.
(b) To record pro forma interest expense and amortization of debt fees of
$38.7 million related to Stone-Consolidated's 10.25% Senior Secured
Notes due 2000 and 8% Convertible Unsecured Subordinated Debentures
due 2003 and to record amortization of the amendment fees of $5.1
million related to the Company's 1989 Credit Agreement.
(c) To increase the foreign exchange transaction losses by $1.9 million to
reflect the effects of foreign currency remeasurement pertaining to
Stone-Consolidated's U.S. dollar denominated 10.25% Senior Secured
Notes due 2000, partially offset by the reversal of the historical
foreign exchange transaction losses associated with the U.S. dollar
denominated debt that was repaid.
(d) To record the minority interest share of the net losses of
Stone-Consolidated of $9.3 million for the year ended December 31,
1993 based on the pro forma statement of operations of
Stone-Consolidated.
(e) To record the adjustment to income taxes of $8.0 million pertaining to
the interest expense adjustments described in Notes 2(a) and 2(b) and
for the foreign exchange transaction loss adjustment described in Note
2(c) using the applicable U.S. and Canadian statutory income tax rates
of 39.0% and 35.0%, respectively. The U.S. tax rates include the
effects of state income tax rates.
(3) Pro forma adjustments relating to the 1994 Financings:
</TABLE>
F-53
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 12
Company Profile................................ 20
Use of Proceeds................................ 21
Capitalization................................. 22
Selected Consolidated Financial Data........... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 24
Business....................................... 41
Properties..................................... 51
Management..................................... 54
Security Ownership By Certain Beneficial Owners
and Management................................ 58
Credit Agreement............................... 63
Description of Notes........................... 65
Underwriting................................... 93
Experts........................................ 94
Legal Matters.................................. 94
Available Information.......................... 94
Index to Financial Statements.................. F-1
</TABLE>
$650,000,000
% FIRST MORTGAGE NOTES DUE
$250,000,000
% SENIOR NOTES DUE
STONE CONTAINER
Z
CORPORATION
SALOMON BROTHERS INC
BT SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
KIDDER, PEABODY P CO.
INCORPORATED
BEAR, STEARNS & CO. INC.
PROSPECTUS
DATED , 1994
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth expenses in connection with the distribution
of the securities being registered, other than underwriting discounts and
commissions. All amounts are estimated, except for the SEC Filing Fee.
<TABLE>
<S> <C>
SEC Filing Fee......................................... $ 310,320
NASD Filing Fee........................................ $ 30,500
Trustees' charges...................................... 40,000*
Printing and engraving................................. 200,000*
Accounting Fees........................................ 75,000*
Legal Fees and Expense................................. 200,000*
Blue Sky Fees and Expenses............................. 15,000*
Miscellaneous.......................................... 14,180*
----------
Total........................................ $ 885,000*
----------
----------
<FN>
- ------------------------
*Estimated
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 145 ("Section 145") of the Delaware General
Corporation Law of the State of Delaware (the "Delaware GCL") which provides for
indemnification of directors and officers in certain circumstances.
In accordance with Section 102(b)(7) of the Delaware GCL, the Company's
Restated Certificate of Incorporation provides that directors shall not be
personally liable for monetary damages for breaches of their fiduciary duty as
directors except for (i) breaches of their duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (iii) under Section 174 of
the Delaware GCL (unlawful payment of dividends) or (iv) transactions from which
a director derives an improper personal benefit.
The Restated Certificate of Incorporation of the Company provides for
indemnification of directors and officers to the full extent provided by the
Delaware GCL, as amended from time to time. It states that the indemnification
provided therein shall not be deemed exclusive. The Company may maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company, or another corporation, partnership, joint venture, trust
or other enterprise against any expense, liability or loss, whether or not the
Company would have the power to indemnify him against such expense, liability or
loss, under the provisions of the Delaware GCL.
The Underwriting Agreements, forms of which have been filed as Exhibits 1(a)
and 1(b) to this Registration Statement, provide for indemnification of
directors and officers of the Company against certain liabilities. Similar
indemnification provisions were contained in underwriting agreements executed in
connection with prior offerings and sales of securities by the Company.
Pursuant to Section 145 and the Restated Certificate of Incorporation, the
Company maintains directors' and officers' liability insurance coverage.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On July 6, 1993, the Company sold $250 million principal amount of its
8 7/8% Convertible Senior Subordinated Notes due July 15, 2000 (the "Convertible
Notes"). The Company sold the Convertible Notes to Salomon Brothers Inc and BT
Securities Corporation (the "Initial Purchasers") pursuant to a Purchase
Agreement (the "Purchase Agreement") dated June 24, 1993. The sale of the
Convertible Notes was not registered under the Securities Act of 1933, as
amended (the "Act"), in reliance upon representations from the Initial
Purchasers and the exemption from registration under Section 4(2) of the
II-1
<PAGE>
Act. The Company sold the Convertible Notes to the Initial Purchasers at a price
equal to 99.355% of principal amount ($248,387,500) LESS a discount of 3.5%
($8,750,000), yielding net proceeds to the Company of $239,637,500 (95.855% of
principal amount).
The Initial Purchasers agreed in the Purchase Agreement to only offer the
Convertible Notes to purchasers who made appropriate representations that such
purchasers were Qualified Institutional Buyers in compliance with Rule 144A
under the Act in a sale exempt from the registration requirements of the Act.
The Company subsequently filed a registration statement on Form S-3 registering
the Convertible Notes (and the shares of Common Stock and Preferred Stock
Purchase Rights into which the Convertible Notes are convertible) for resale by
the holders thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ---------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement**
2 Asset Acquisition Agreement dated December 17, 1993 between Stone-Consolidated Inc. (now Stone
Container (Canada) Inc.) and Stone-Consolidated Corporation and intervened to by the Company, filed
as Exhibit 2 to the Company's Current Report on Form 8-K dated January 3, 1994, is hereby
incorporated by reference.
3(a) Restated Certificate of Incorporation of the Company.*
3(b) By-laws of the Company, as amended, March 28, 1994.*
4(a) Specimen certificate representing Common Stock, $.01 par value, filed as Exhibit 4(a) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1987, is hereby incorporated
by reference.
4(b) Specimen certificate representing the $1.75 Series E Cumulative Convertible Exchangeable Preferred
Stock, filed as Exhibit 4(g) to the Company's Registration Statement on Form S-3, Registration
Number 33-45374, filed February 6, 1992, is hereby incorporated by reference.
4(c) Rights Agreement, dated as of July 25, 1988, between the Company and The First National Bank of
Chicago, filed as Exhibit 1 to the Company's Registration Statement on Form 8-A dated July 27,
1988, is hereby incorporated by reference.
4(d) Amendment to Rights Agreement, dated as of July 23, 1990, between the Company and The First
National Bank of Chicago, filed as Exhibit 1A to the Company's Form 8 dated August 2, 1990 amending
the Company's Registration Statement on Form 8-A dated July 27, 1988, is hereby incorporated by
reference.
4(e) Credit Agreement, dated as of March 1, 1989 (the "Canadian Term Loan Agreement"), among Stone
Container Corporation of Canada (now Stone Container (Canada) Inc.), the Banks named therein,
Bankers Trust Company, as agent for such Banks, and Citibank, N.A., Manufacturers Hanover Trust
Company (now Chemical Bank) and The First National Bank of Chicago, as co-agents for such Banks,
filed as Exhibit 28(b) to the Company's Current Report on Form 8-K dated March 2, 1989, filed on
March 17, 1989, is hereby incorporated by reference.
4(f) Revolving Credit Agreement, dated as of March 1, 1989 (the "Canadian Revolver"), among Stone
Container Acquisition Corporation (now Stone Container (Canada) Inc.), the Banks named therein, BT
Bank of Canada, as administrative agent for such Banks, The Bank of Nova Scotia, as payment agent
for such Banks, and Bankers Trust Company, as collateral agent for such Banks, filed as Exhibit
28(d) to the Company's Current Report on Form 8-K dated March 2, 1989, filed on March 17, 1989, is
hereby incorporated by reference.
<FN>
- ------------------------
* Filed herewith
** To be filed by amendment
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ---------------------------------------------------------------------------------------------------
<C> <S>
4(g) Third Amended and Restated U.S. Credit Agreement, dated as of March 1, 1989 and re-executed as of
October 5, 1993 (the "U.S. Credit Agreement"), among the Company, the Banks named therein, Bankers
Trust Company, as agent for the Banks under the U.S. Credit Agreement, and Citibank, N.A.,
Manufacturers Hanover Trust Company (now Chemical Bank) and The First National Bank of Chicago, as
co-agents for the Banks under the U.S. Credit Agreement, filed as Exhibit 4(a) to the Company's
Current Report on Form 8-K, dated January 3, 1994, is hereby incorporated by reference.
4(h) First Amendment, Waiver and Consent dated as of December 29, 1993, among the Company, the financial
institutions named therein, Bankers Trust Company, as agent under the U.S. Credit Agreement,
Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover Trust Company) and The First
National Bank of Chicago, as co-agents under the U.S. Credit Agreement, filed as Exhibit 4(b) to
the Company's Current Report on Form 8-K, dated January 3, 1993, is hereby incorporated by
reference.
4(i) Second Amendment and Waiver dated as of January 24, 1994, among the Company, the financial
institutions named therein, Bankers Trust Company, as agent for the Banks under the U.S. Credit
Agreement, Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover Trust Company) and
The First National Bank of Chicago, as co-agents for the Banks under the U.S. Credit Agreement,
filed as Exhibit 4.1 to the Company's Current Report on Form 8-K, dated January 24, 1994, is hereby
incorporated by reference.
4(j) Indenture, dated as of September 15, 1986, relating to the 12 1/8% Subordinated Debentures due
September 15, 2001 of Stone Southwest Corporation (now Stone Southwest, Inc.), between Southwest
Forest Industries, Inc. and Bankers Trust Company, as Trustee, together with the First Supplemental
Indenture, dated as of September 1, 1987, among Stone Container Corporation, a Nevada corporation,
the Company and National Westminster Bank USA, as Trustee (which has been succeeded by Shawmut
Bank, N.A., as Trustee), and the Second Supplemental Indenture, dated as of December 14, 1987,
among Stone Southwest Corporation, the Company and National Westminster Bank USA, as Trustee (which
has been succeeded by Shawmut Bank, N.A., as Trustee), filed as Exhibit 4(i) to the Company's
Registration Statement on Form S-3, Registration Number 33-36218, filed on November 1, 1991, is
hereby incorporated by reference.
4(k) Indenture, dated as of September 1, 1989, between the Company and Bankers Trust Company, as
Trustee, relating to the Company's 11 1/2% Senior Subordinated Notes due September 1, 1999, filed
as Exhibit 4(n) to the Company's Registration Statement on Form S-3, Registration Number 33-46764,
filed March 27, 1992, is hereby incorporated by reference.
4(l) Indenture, dated as of February 15, 1992, between the Company and The Bank of New York, as Trustee,
relating to the Company's 6 3/4% Convertible Subordinated Debentures due February 15, 2007, filed
as Exhibit 4(p) to the Company's Registration Statement on Form S-3, Registration Number 33-45978,
filed on March 4, 1992, is hereby incorporated by reference.
4(m) Senior Subordinated Indenture, dated as of March 15, 1992, between the Company, and The Bank of New
York, as Trustee, filed as Exhibit 4(a) to the Company's Registration Statement Form S-3,
Registration Number 33-46764, filed on March 27, 1992, is hereby incorporated by reference.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ---------------------------------------------------------------------------------------------------
4(n) Indenture dated as of June 15, 1993 between the Company and Norwest Bank Minnesota, National
Association, as Trustee, relating to the Company's 8 7/8% Convertible Senior Subordinated Notes due
2000, filed as Exhibit 4(a) to the Company's Registration Statement on Form S-3, Registration
Number 33-66026, filed on July 15, 1993, is hereby incorporated by reference.
<C> <S>
4(o) Indenture, dated as of November 1, 1991, between the Company and The Bank of New York, as Trustee,
relating to the Company's Senior Debt Securities, filed as Exhibit 4(u) to the Company's
Registration Statement on Form S-3, Registration Number 33-45374, filed on January 29, 1992, is
hereby incorporated by reference.
4(p) First Supplemental Indenture dated as of June 23, 1993 between the Company and The Bank of New
York, as Trustee, relating to the Indenture, dated as of November 1, 1991, between the Company and
The Bank of New York, as Trustee, filed as Exhibit 4(aa) to the Company's Registration Statement on
Form S-3, Registration Number 33-66026, filed on July 15, 1993, is hereby incorporated by
reference.
4(q) Second Supplemental Indenture dated as of February 1, 1994 between the Company and the Bank of New
York, as Trustee, relating to the Indenture, dated as of November 1, 1991, as amended, filed as
Exhibit 4.2 to the Company's Current Report on Form 8-K, dated January 24, 1994, is hereby
incorporated herein by reference.
4(r) Indenture dated as of August 1, 1993 between the Company and Norwest Bank Minnesota, National
Association, as Trustee, relating to the Company's Senior Subordinated Debt Securities, filed as
Exhibit 4(a) to the Company's Form S-3 Registration Statement, Registration Number 33-49857, filed
July 30, 1993, is hereby incorporated by reference.
4(s) Form of Indenture relating to the First Mortgage Notes.**
4(t) Form of Indenture relating to the Senior Notes.**
4(u) Credit Agreement dated 1994, among the Company and .**
</TABLE>
Indentures with respect to other long-term debt, none of which exceeds 10%
of the total assets of the Company and its subsidiaries on a consolidated basis,
are not attached. (The Company agrees to furnish a copy of such documents to the
Commission upon request.)
<TABLE>
<C> <S>
4(v) Guaranty, dated October 7, 1983, between the Company and The Continental Group,
Inc., filed as Exhibit 4(h) to the Company's Registration Statement on Form
S-3, Registration Number 33-36218, filed on November 1, 1991, is hereby
incorporated by reference.
5 Opinion of Leslie T. Lederer, Vice President, Secretary and Counsel of the
Company.**
10(a) Management Incentive Plan, incorporated by reference to Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1980.
10(b) Unfunded Deferred Director Fee Plan, incorporated by reference to Exhibit 10(d)
to the Company's Annual Report on Form 10-K for the year ended December 31,
1981.
10(c) Form of "Stone Container Corporation Compensation Agreement" between the
Company and its directors that elect to participate, incorporated by reference
to Exhibit 10(e) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1988.
10(d) Stone Container Corporation 1982 Incentive Stock Option Plan, incorporated by
reference to Appendix A to the Prospectus included in the Company's Form S-8
Registration Statement, Registration Number 2-79221, effective September 27,
1982.
<FN>
- ------------------------
* Filed herewith
** To be filed by amendment
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ---------------------------------------------------------------------------------------------------
<C> <S>
10(e) Stone Container Corporation 1993 Stock Option Plan, incorporated by reference to Appendix A to the
Company's Proxy Statement dated as of April 10, 1992.
10(f) Stone Container Corporation Deferred Income Savings Plan, conformed to reflect amendment effective
as of January 1, 1990, incorporated by reference to Exhibit 4(i) to Company's Form S-8 Registration
Statement, Registration Number 33-33784, filed March 9, 1990.
10(g) Form of "Employee Continuity Agreement in the Event of a Change of Control" entered into with all
officers with 5 or more years of service with the Company, incorporated by reference to Exhibit
10(j) to the Company's Annual Report on Form 10-K for the year ended December 31, 1988.
10(h) Stone Container Corporation 1986 Long-Term Incentive Program, incorporated by reference to Exhibit
A to the Company's Proxy Statement dated as of April 5, 1985.
10(i) Stone Container Corporation 1992 Long-Term Incentive Program, incorporated by reference to Exhibit
A to the Company's Proxy Statement dated as of April 11, 1991.
10(j) Supplemental Retirement Income Agreement between Company and James Doughan dated as of February 10,
1989, incorporated by reference to Exhibit 10(q) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988.
12 Computation of Ratios of Earnings to Fixed Charges.*
21 Subsidiaries of the Company incorporated by reference to Exhibit 12 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993.
23(a) Consent of Price Waterhouse*
23(b) The consent of Leslie T. Lederer is contained in his opinion filed as Exhibit 5 to the Registration
Statement.
24 Powers of Attorney*
25(a) T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York relating
to the Senior Notes.**
25(b) T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Norwest Bank Minnesota, N.A.
relating to the First Mortgage Notes.**
<FN>
- ------------------------
* Filed herewith
** To be filed by amendment
</TABLE>
(b) Schedules
The following financial statement schedules which are not included in the
Prospectus appear on the following pages of the Registration Statement:
<TABLE>
<CAPTION>
PAGE SCHEDULE
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
S-1 Schedule V -- Property, Plant and Equipment
S-2 Schedule VI -- Accumulated Depreciation and Amortization of Property, Plant and Equipment
S-3 Schedule VIII -- Valuation and Qualifying Accounts and Reserves
S-3 Schedule IX -- Short-term Borrowings
S-3 Schedule X -- Supplementary Income Statement Information
S-4 Summarized Financial Information -- Stone Southwest, Inc.
</TABLE>
II-5
<PAGE>
ITEM 17. UNDERTAKINGS
The Company hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registration pursuant to the provisions described under Item 15 above or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company or 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 Company will, unless in
the opinion of its 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 Act and will
be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Chicago
and the State of Illinois on the 27th day of July, 1994.
STONE CONTAINER CORPORATION
By: _______/s/_LESLIE T. LEDERER______
Leslie T. Lederer
VICE PRESIDENT, SECRETARY AND
COUNSEL
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on July 27, 1994 by the following
persons in the capacities indicated:
<TABLE>
<C> <S>
Chairman of the Board, President and Chief
* Executive Officer and Director of (Principal
Roger W. Stone Executive Officer)
Executive Vice President -- Chief Financial
* and Planning Officer (Principal Financial
Arnold F. Brookstone Officer)
* Senior Vice President and Corporate Controller
Thomas P. Cutilletta (Principal Accounting Officer)
*
Richard A. Giesen Director
*
James J. Glasser Director
*
George D. Kennedy Director
*
Howard C. Miller, Jr. Director
*
John D. Nichols Director
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S>
*
Jerry K. Pearlman Director
*
Richard J. Raskin Director
*
Alan Stone Director
*
Avery Stone Director
*
Ira N. Stone Director
*
James H. Stone Director
By: /s/LESLIE T. LEDERER
Leslie T. Lederer
(ATTORNEY-IN-FACT)
</TABLE>
II-8
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT (A)
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN B COLUMN F
----------- COLUMN C -----------
COLUMN A BALANCE AT ----------- COLUMN D COLUMN E BALANCE AT
- --------------------------------------------- BEGINNING ADDITIONS ------------- ------------- END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS OTHER CHANGES PERIOD
- --------------------------------------------- ----------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1993:
Machinery and equipment.................... $ 4,381.4 $ 257.4 $ 31.7 $ (208.4) $ 4,398.7
Building and leasehold improvements........ 668.4 28.0 4.8 (16.6) 675.0
Land and land improvements................. 105.7 5.8 .8 (7.7) 103.0
Construction in progress................... 209.6 (141.5) .2 (3.9) 64.0
----------- ----------- ----- ------------- -----------
Total.................................... $ 5,365.1 $ 149.7 $ 37.5 $ (236.6)(B) $ 5,240.7
Timberlands................................ 72.5 24.5 6.9 (2.5)(D) 87.6
----------- ----------- ----- ------------- -----------
Total.................................... $ 5,437.6 $ 174.2 $ 44.4 $ (239.1) $ 5,328.3
----------- ----------- ----- ------------- -----------
----------- ----------- ----- ------------- -----------
For the year ended December 31, 1992:
Machinery and equipment.................... $ 3,548.8 $ 577.4 $ 13.0 $ 268.2 $ 4,381.4
Building and leasehold improvements........ 579.5 111.6 .4 (22.3) 668.4
Land and land improvements................. 67.3 9.9 .2 28.7 105.7
Construction in progress................... 631.0 (417.5) -- (3.9) 209.6
----------- ----------- ----- ------------- -----------
Total.................................... $ 4,826.6 $ 281.4 $ 13.6 $ 270.7 (C) $ 5,365.1
Timberlands................................ 52.2 22.0 9.9 8.2 (E) 72.5
----------- ----------- ----- ------------- -----------
Total.................................... $ 4,878.8 $ 303.4 $ 23.5 $ 278.9 $ 5,437.6
----------- ----------- ----- ------------- -----------
----------- ----------- ----- ------------- -----------
For the year ended December 31, 1991:
Machinery and equipment.................... $ 3,083.6 $ 523.0 $ 43.1 $ (14.7 ) $ 3,548.8
Building and leasehold improvements........ 549.3 44.8 7.1 (7.5 ) 579.5
Land and land improvements................. 65.3 1.3 2.1 2.8 67.3
Construction in progress................... 756.9 (139.0) .3 13.4 631.0
----------- ----------- ----- ------------- -----------
Total.................................... $ 4,455.1 $ 430.1 $ 52.6 $ (6.0 )(D) $ 4,826.6
Timberlands................................ 49.2 13.2 10.4 .2 (D) 52.2
----------- ----------- ----- ------------- -----------
Total.................................... $ 4,504.3 $ 443.3 $ 63.0 $ (5.8 ) $ 4,878.8
----------- ----------- ----- ------------- -----------
----------- ----------- ----- ------------- -----------
<FN>
- ------------------------
(A) Information relating to the rates used in computing annual depreciation and
amortization is incorporated by reference to the Notes to the Financial
Statements, included in this report, under Notes to the Consolidated
Financial Statements, "Note 1 -- Summary of Significant Accounting
Policies", pages F-18 -- F-20.
(B) Primarily represents the effects of foreign currency translation, the
write-off of certain decommissioned assets and the transfer of assets for
the Company's European folding carton operations which in the early part of
1993 was merged into a joint venture and accordingly is now accounted for
under the equity method.
(C) Primarily represents the effects of foreign currency translation, assets
purchased in the acquisition of Societe Emballages des Cevennes, S.A.,
write-up adjustments as a result of the adoption of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes," ("SFAS 109") as
of January 1, 1992 and reclassifications among property categories.
(D) Primarily represents the effects of foreign currency translation.
(E) Represents the effects of foreign currency translation and the adjustment
as a result of the adoption of SFAS 109.
</TABLE>
S-1
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ----------- COLUMN F
----------- ADDITIONS COLUMN E -----------
COLUMN A BALANCE AT CHARGED TO COLUMN D ------------- BALANCE AT
- ---------------------------------------------- BEGINNING COSTS AND ------------- OTHER END OF
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS CHANGES PERIOD
- ---------------------------------------------- ----------- ----------- ------------- ------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1993:
Machinery and equipment..................... $ 1,488.0 $ 267.3 $ 22.3 $ (80.1) $ 1,652.9
Building and leasehold improvements......... 160.3 31.6 3.0 (3.8) 185.1
Land and land improvements.................. 13.6 2.9 .2 -- 16.3
----------- ----------- ----- ------ -----------
Total..................................... 1,661.9 301.8 25.5 (83.9)(A) 1,854.3
Timberlands................................. 3.1 .6 -- -- 3.7
----------- ----------- ----- ------ -----------
Total..................................... $ 1,665.0 $ 302.4 $ 25.5 $ (83.9) $ 1,858.0
----------- ----------- ----- ------ -----------
----------- ----------- ----- ------ -----------
For the year ended December 31, 1992:
Machinery and equipment..................... $ 1,171.4 $ 263.3 $ 7.4 $ 60.7 $ 1,488.0
Building and leasehold improvements......... 126.4 33.0 .1 1.0 160.3
Land and land improvements.................. 8.6 2.4 .1 2.7 13.6
----------- ----------- ----- ------ -----------
Total..................................... 1,306.4 298.7 7.6 64.4(B) 1,661.9
Timberlands................................. 1.3 .7 -- 1.1(D) 3.1
----------- ----------- ----- ------ -----------
Total..................................... $ 1,307.7 $ 299.4 $ 7.6 $ 65.5 $ 1,665.0
----------- ----------- ----- ------ -----------
----------- ----------- ----- ------ -----------
For the year ended December 31, 1991:
Machinery and equipment..................... $ 988.5 $ 208.7 $ 19.0 $ (6.8) $ 1,171.4
Building and leasehold improvements......... 96.6 27.4 4.6 7.0 126.4
Land and land improvements.................. 6.0 2.1 .7 1.2 8.6
----------- ----------- ----- ------ -----------
Total..................................... 1,091.1 238.2 24.3 1.4(C) 1,306.4
Timberlands................................. .8 .5 -- -- 1.3
----------- ----------- ----- ------ -----------
Total..................................... $ 1,091.9 $ 238.7 $ 24.3 $ 1.4 $ 1,307.7
----------- ----------- ----- ------ -----------
----------- ----------- ----- ------ -----------
<FN>
- ------------------------
(A) Primarily represents the effects of foreign currency translation, the
write-off of certain decommissioned assets and the transfer of assets for
the Company's European folding carton operations which in the early part of
1993 was merged into a joint venture and accordingly is now accounted for
under the equity method.
(B) Primarily represents the effects of foreign currency translation, write-up
adjustments as a result of the adoption of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes," ("SFAS 109") as
of January 1, 1992 and reclassifications among property categories.
(C) Primarily represents the effects of foreign currency translation and
reclassifications among property categories.
(D) Represents the adjustment as a result of the adoption of SFAS 109.
</TABLE>
S-2
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ------------- COLUMN E
----------- ADDITIONS -----------
COLUMN A BALANCE AT CHARGED TO COLUMN D BALANCE AT
- ------------------------------------------------------------ BEGINNING COSTS AND ------------- END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------------------------ ----------- ------------- ------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and notes and sales returns
and allowances:
Year ended December 31, 1993.............................. $ 19.3 $ 29.2 $ 29.2 $ 19.3
Year ended December 31, 1992.............................. $ 15.6 $ 14.3 $ 10.6 $ 19.3
Year ended December 31, 1991.............................. $ 13.5 $ 13.0 $ 10.9 $ 15.6
</TABLE>
SCHEDULE IX -- SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
COLUMN F
COLUMN D COLUMN E -------------
COLUMN C ------------- ------------- WEIGHTED
COLUMN B ------------- MAXIMUM AVERAGE AVERAGE
COLUMN A ----------- WEIGHTED AMOUNT AMOUNT INTEREST
- ----------------------------------------------- BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE
CATEGORY OF AGGREGATE END INTEREST DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS OF PERIOD RATE PERIOD PERIOD PERIOD (A)
- ----------------------------------------------- ----------- ------------- ------------- ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Notes payable to banks:
Year ended December 31, 1993................. $ -- --% $ 34.0 $ 19.8 6.5%
Year ended December 31, 1992................. $ 33.0 8.1% $ 50.1 $ 37.1 8.0%
Year ended December 31, 1991................. $ 19.1 10.3% $ 19.3 $ 16.4 10.2%
<FN>
- ------------------------
(A) Weighted average interest rate for the year is determined by dividing the
average daily interest expense by the total average borrowings for the
year.
</TABLE>
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
COLUMN B
-------------------------------
CHARGED TO COSTS AND EXPENSES,
YEAR ENDED DECEMBER 31,
-------------------------------
COLUMN A 1993 1992 1991
- ----------------------------------------------------------------------------------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Maintenance and repairs............................................................ $ 385.5 $ 428.5 $ 399.8
</TABLE>
S-3
<PAGE>
STONE CONTAINER CORPORATE AND SUBSIDIARIES
SUMMARIZED FINANCIAL INFORMATION -- STONE SOUTHWEST, INC.
Shown below is consolidated, summarized financial information for Stone
Southwest, Inc. (formerly known as Southwest Forest Industries, Inc.). The
summarized financial information for Stone Southwest, Inc. ("Stone Southwest")
does not include purchase accounting adjustments or the impact of the debt
incurred to finance the acquisition of Stone Southwest:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales.................................................................... $ 1,660.1 $ 1,755.9 $ 1,860.9
Cost of products sold and depreciation....................................... 1,396.6 1,390.7 1,488.8
Income (loss) before cumulative effects of accounting changes................ (12.6) 57.7 46.8
Cumulative effect of change in accounting for postretirement benefits........ (8.3) -- --
Cumulative effect of change in accounting for income taxes................... -- (27.2) --
Net income (loss)............................................................ (20.8) 30.5 46.8
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
---------- ----------
<S> <C> <C> <C>
Current assets............................................................... $ 360.9 $ 357.1
Noncurrent assets*........................................................... 1,600.5 1,674.6
Current liabilities.......................................................... 141.3 212.7
Noncurrent liabilities and obligations....................................... 395.8 369.2
<FN>
- ------------------------
* Includes $857.4 and $915.8 due from the Company at December 31, 1993 and 1992,
respectively.
</TABLE>
S-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------------- ---------
<C> <S> <C>
1 Form of Underwriting Agreement**
2 Asset Acquisition Agreement dated December 17, 1993 between Stone-Consolidated Inc. (now
Stone Container (Canada) Inc.) and Stone-Consolidated Corporation and intervened to by
the Company, filed as Exhibit 2 to the Company's Current Report on Form 8-K dated January
3, 1994, is hereby incorporated by reference.
3(a) Restated Certificate of Incorporation of the Company.*
3(b) By-laws of the Company, as amended, March 28, 1994.*
</TABLE>
<TABLE>
<C> <S> <C>
4(a) Specimen certificate representing Common Stock, $.01 par value, filed as
Exhibit 4(a) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1987, is hereby incorporated by reference.
4(b) Specimen certificate representing the $1.75 Series E Cumulative
Convertible Exchangeable Preferred Stock, filed as Exhibit 4(g) to the
Company's Registration Statement on Form S-3, Registration Number
33-45374, filed February 6, 1992, is hereby incorporated by reference.
4(c) Rights Agreement, dated as of July 25, 1988, between the Company and The
First National Bank of Chicago, filed as Exhibit 1 to the Company's
Registration Statement on Form 8-A dated July 27, 1988, is hereby
incorporated by reference.
4(d) Amendment to Rights Agreement, dated as of July 23, 1990, between the
Company and The First National Bank of Chicago, filed as Exhibit 1A to
the Company's Form 8 dated August 2, 1990 amending the Company's
Registration Statement on Form 8-A dated July 27, 1988, is hereby
incorporated by reference.
4(e) Credit Agreement, dated as of March 1, 1989 (the "Canadian Term Loan
Agreement"), among Stone Container Corporation of Canada (now Stone
Container (Canada) Inc.), the Banks named therein, Bankers Trust
Company, as agent for such Banks, and Citibank, N.A., Manufacturers
Hanover Trust Company (now Chemical Bank) and The First National Bank
of Chicago, as co-agents for such Banks, filed as Exhibit 28(b) to the
Company's Current Report on Form 8-K dated March 2, 1989, filed on
March 17, 1989, is hereby incorporated by reference.
4(f) Revolving Credit Agreement, dated as of March 1, 1989 (the "Canadian
Revolver"), among Stone Container Acquisition Corporation (now Stone
Container (Canada) Inc.), the Banks named therein, BT Bank of Canada,
as administrative agent for such Banks, The Bank of Nova Scotia, as
payment agent for such Banks, and Bankers Trust Company, as collateral
agent for such Banks, filed as Exhibit 28(d) to the Company's Current
Report on Form 8-K dated March 2, 1989, filed on March 17, 1989, is
hereby incorporated by reference.
</TABLE>
- ------------------------
* Filed herewith
** To be filed by amendment
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ------------- ---------
<C> <S> <C> <S> <C>
4(g) Third Amended and Restated U.S. Credit Agreement, dated as of March 1, 1989 and
re-executed as of October 5, 1993 (the "U.S. Credit Agreement"), among the Company, the
Banks named therein, Bankers Trust Company, as agent for the Banks under the U.S. Credit
Agreement, and Citibank, N.A., Manufacturers Hanover Trust Company (now Chemical Bank)
and The First National Bank of Chicago, as co-agents for the Banks under the U.S. Credit
Agreement, filed as Exhibit 4(a) to the Company's Current Report on Form 8-K, dated
January 3, 1994, is hereby incorporated by reference.
4(h) First Amendment, Waiver and Consent dated as of December 29, 1993, among the Company, the
financial institutions named therein, Bankers Trust Company, as agent under the U.S.
Credit Agreement, Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover
Trust Company) and The First National Bank of Chicago, as co-agents under the U.S. Credit
Agreement, filed as Exhibit 4(b) to the Company's Current Report on Form 8-K, dated
January 3, 1993, is hereby incorporated by reference.
4(i) Second Amendment and Waiver dated as of January 24, 1994, among the Company, the financial
institutions named therein, Bankers Trust Company, as agent for the Banks under the U.S.
Credit Agreement, Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover
Trust Company) and The First National Bank of Chicago, as co-agents for the Banks under
the U.S. Credit Agreement, filed as Exhibit 4.1 to the Company's Current Report on Form
8-K, dated January 24, 1994, is hereby incorporated by reference.
4(j) Indenture, dated as of September 15, 1986, relating to the 12 1/8% Subordinated Debentures
due September 15, 2001 of Stone Southwest Corporation (now Stone Southwest, Inc.),
between Southwest Forest Industries, Inc. and Bankers Trust Company, as Trustee, together
with the First Supplemental Indenture, dated as of September 1, 1987, among Stone
Container Corporation, a Nevada corporation, the Company and National Westminster Bank
USA, as Trustee (which has been succeeded by Shawmut Bank, N.A., as Trustee), and the
Second Supplemental Indenture, dated as of December 14, 1987, among Stone Southwest
Corporation, the Company and National Westminster Bank USA, as Trustee (which has been
succeeded by Shawmut Bank, N.A., as Trustee), filed as Exhibit 4(i) to the Company's
Registration Statement on Form S-3, Registration Number 33-36218, filed on November 1,
1991, is hereby incorporated by reference.
4(k) Indenture, dated as of September 1, 1989, between the Company and Bankers Trust Company,
as Trustee, relating to the Company's 11 1/2% Senior Subordinated Notes due September 1,
1999, filed as Exhibit 4(n) to the Company's Registration Statement on Form S-3,
Registration Number 33-46764, filed March 27, 1992, is hereby incorporated by reference.
4(l) Indenture, dated as of February 15, 1992, between the Company and The Bank of New York, as
Trustee, relating to the Company's 6 3/4% Convertible Subordinated Debentures due
February 15, 2007, filed as Exhibit 4(p) to the Company's Registration Statement on Form
S-3, Registration Number 33-45978, filed on March 4, 1992, is hereby incorporated by
reference.
4(m) Senior Subordinated Indenture, dated as of March 15, 1992, between the Company, and The
Bank of New York, as Trustee, filed as Exhibit 4(a) to the Company's Registration
Statement Form S-3, Registration Number 33-46764, filed on March 27, 1992, is hereby
incorporated by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------------- ---------
4(n) Indenture dated as of June 15, 1993 between the Company and Norwest Bank Minnesota,
National Association, as Trustee, relating to the Company's 8 7/8% Convertible Senior
Subordinated Notes due 2000, filed as Exhibit 4(a) to the Company's Registration
Statement on Form S-3, Registration Number 33-66026, filed on July 15, 1993, is hereby
incorporated by reference.
<C> <S> <C> <S> <C>
4(o) Indenture, dated as of November 1, 1991, between the Company and The Bank of New York, as
Trustee, relating to the Company's Senior Debt Securities, filed as Exhibit 4(u) to the
Company's Registration Statement on Form S-3, Registration Number 33-45374, filed on
January 29, 1992, is hereby incorporated by reference.
4(p) First Supplemental Indenture dated as of June 23, 1993 between the Company and The Bank of
New York, as Trustee, relating to the Indenture, dated as of November 1, 1991, between
the Company and The Bank of New York, as Trustee, filed as Exhibit 4(aa) to the Company's
Registration Statement on Form S-3, Registration Number 33-66026, filed on July 15, 1993,
is hereby incorporated by reference.
4(q) Second Supplemental Indenture dated as of February 1, 1994 between the Company and the
Bank of New York, as Trustee, relating to the Indenture, dated as of November 1, 1991, as
amended, filed as Exhibit 4.2 to the Company's Current Report on Form 8-K, dated January
24, 1994, is hereby incorporated herein by reference.
4(r) Indenture dated as of August 1, 1993 between the Company and Norwest Bank Minnesota,
National Association, as Trustee, relating to the Company's Senior Subordinated Debt
Securities, filed as Exhibit 4(a) to the Company's Form S-3 Registration Statement,
Registration Number 33-49857, filed July 30, 1993, is hereby incorporated by reference.
4(s) Form of Indenture relating to the First Mortgage Notes.**
4(t) Form of Indenture relating to the Senior Notes.**
4(u) Credit Agreement dated 1994, among the Company and .**
</TABLE>
Indentures with respect to other long-term debt, none of which exceeds 10%
of the total assets of the Company and its subsidiaries on a consolidated basis,
are not attached. (The Company agrees to furnish a copy of such documents to the
Commission upon request.)
<TABLE>
<C> <S> <C>
4(v) Guaranty, dated October 7, 1983, between the Company and The Continental
Group, Inc., filed as Exhibit 4(h) to the Company's Registration
Statement on Form S-3, Registration Number 33-36218, filed on November
1, 1991, is hereby incorporated by reference.
5 Opinion of Leslie T. Lederer, Vice President, Secretary and Counsel of
the Company.**
10(a) Management Incentive Plan, incorporated by reference to Exhibit 10(b) to
the Company's Annual Report on Form 10-K for the year ended December
31, 1980.
</TABLE>
<TABLE>
<S> <S> <C>
10(b) Unfunded Deferred Director Fee Plan, incorporated by reference to
Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1981.
</TABLE>
- ------------------------
* Filed herewith
** To be filed by amendment
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ------------- ---------
<S> <S> <C> <S> <C>
10(c) Form of "Stone Container Corporation Compensation Agreement" between the Company and its
directors that elect to participate, incorporated by reference to Exhibit 10(e) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1988.
10(d) Stone Container Corporation 1982 Incentive Stock Option Plan, incorporated by reference to
Appendix A to the Prospectus included in the Company's Form S-8 Registration Statement,
Registration Number 2-79221, effective September 27, 1982.
10(e) Stone Container Corporation 1993 Stock Option Plan, incorporated by reference to Appendix
A to the Company's Proxy Statement dated as of April 10, 1992.
10(f) Stone Container Corporation Deferred Income Savings Plan, conformed to reflect amendment
effective as of January 1, 1990, incorporated by reference to Exhibit 4(i) to Company's
Form S-8 Registration Statement, Registration Number 33-33784, filed March 9, 1990.
10(g) Form of "Employee Continuity Agreement in the Event of a Change of Control" entered into
with all officers with 5 or more years of service with the Company, incorporated by
reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1988.
10(h) Stone Container Corporation 1986 Long-Term Incentive Program, incorporated by reference to
Exhibit A to the Company's Proxy Statement dated as of April 5, 1985.
10(i) Stone Container Corporation 1992 Long-Term Incentive Program, incorporated by reference to
Exhibit A to the Company's Proxy Statement dated as of April 11, 1991.
10(j) Supplemental Retirement Income Agreement between Company and James Doughan dated as of
February 10, 1989, incorporated by reference to Exhibit 10(q) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988.
12 Computation of Ratios of Earnings to Fixed Charges.*
21 Subsidiaries of the Company incorporated by reference to Exhibit 12 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
23(a) Consent of Price Waterhouse*
23(b) The consent of Leslie T. Lederer is contained in his opinion filed as Exhibit 5 to the
Registration Statement.
24 Powers of Attorney*
25(a) T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York
relating to the Senior Notes.**
25(b) T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Norwest Bank
Minnesota, N.A. relating to the First Mortgage Notes.**
</TABLE>
- ------------------------
* Filed herewith
** To be filed by amendment
<PAGE>
EXHIBIT 3(A)
RESTATED CERTIFICATE OF INCORPORATION
OF
STONE CONTAINER CORPORATION
_______________
Stone Container Corporation was originally incorporated under the name
"S.C.C. Merger Corporation" by filing its original certificate of incorporation
with the Secretary of State of the State of Delaware on April 14, 1987.
_______________
ARTICLE FIRST: The name of the corporation is Stone Container
Corporation.
ARTICLE SECOND: The address of the Corporation's registered office in
the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of the Corporation's
registered agent at such address is The Corporation Trust Company.
ARTICLE THIRD: The purpose of the Corporation shall be to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
ARTICLE FOURTH: The total number of shares of all classes of capital
stock which the Corporation shall have the authority to issue is 210,000,000
shares, consisting of:
10,000,000 shares of preferred stock of the par value of $.01 per
share ("Preferred Stock"); and
200,000,000 shares of common stock of the par value of $.01 per share
("Common Stock").
The designations, voting powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations or restrictions thereof, of such stock shall be as follows:
I
PREFERRED STOCK
The Board of Directors is expressly authorized to provide for the
issue of all or any shares of the Preferred Stock, in one or more series, and to
fix for each such series such voting powers, full or limited, or no voting
powers, and
<PAGE>
such designations, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions adopted by the
Board of Directors providing for the issue of such series (a "Preferred Stock
Designation") and as may be permitted by the General Corporation Law of the
State of Delaware. The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the voting
power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors (the "Voting
Stock"), voting together as a single class, without a separate vote of the
holders of the Preferred Stock, or any series thereof, unless a vote of any such
holders is required pursuant to any Preferred Stock Designation or by the
General Corporation Law of the State of Delaware.
Without limiting the authority of the Board of Directors to adopt
further Preferred Stock Designations from time to time, as of the date of this
Restated Certificate of Incorporation, the Corporation has authorized the
issuance of the following series of Preferred Stock with the designation, number
of shares, relative rights, preferences and limitations as follows:
A. SERIES D JUNIOR PARTICIPATING PREFERRED STOCK
Section 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series D Junior Participating Preferred Stock" (the
"Series D Preferred Stock") and the number of shares constituting the Series D
Preferred Stock shall be 2,000,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; PROVIDED, that no decrease
shall reduce the number of shares of Series D Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series D Preferred Stock.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series D Preferred Stock with respect to dividends, the holders of shares of
Series D Preferred Stock, in preference to the holders of Common Stock, par
value $.01 per share, of the Corporation, and of any other junior stock, shall
be entitled to receive, when, as and if declared by the Board of
-2-
<PAGE>
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the 15th day of March, June, September and December in each
year (each such date being referred to in this subpart IA as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series D Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (i) $1 or (ii) subject to the provision for adjustment hereinafter set forth,
100 times the aggregate per share amount of all cash dividends, and 100 times
the aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common Stock or
a subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series D Preferred Stock. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount to which holders of
shares of Series D Preferred Stock were entitled immediately prior to such event
under clause (ii) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series D Preferred Stock as provided in paragraph (a) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the
Series D Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series D Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from
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<PAGE>
the date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for determination of
holders of shares of Series D Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series D Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date
for the determination of holders of shares of Series D Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the payment
thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series D
Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Series D Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series D
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided in this subpart IA, in any other
Certificate of Designations creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series D Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(c) Except as set forth in this subpart IA, or as otherwise provided
by law, holders of Series D Preferred Stock
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shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth in this subpart IA) for taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series D Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series D Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series D Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series D Preferred Stock,
except dividends paid ratably on the Series D Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series D Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series D Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series D Preferred Stock, or any shares of stock ranking on a
parity with the Series D Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
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(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. REACQUIRED SHARES. Any shares of Series D Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth in this subpart IA or in any Certificate of Designations creating a series
of Preferred Stock or any similar stock or as otherwise required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (i) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series D
Preferred Stock unless, prior thereto, the holders of shares of Series D
Preferred Stock shall have received $1 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series D
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (ii) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series D Preferred Stock, except distributions made ratably on the Series D
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series D Preferred Stock were entitled immediately prior to
such event under the proviso in clause (i) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the
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<PAGE>
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series D Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series D Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. NO REDEMPTION. The shares of Series D Preferred Stock
shall not be redeemable.
Section 9. RANK. The Series D Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.
Section 10. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series D Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series D Preferred Stock, voting
together as a single class.
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<PAGE>
B. SERIES E CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
Section 1. DESIGNATION OF AMOUNT. The shares of such series
shall be designated as "Series E Cumulative Convertible Exchangeable Preferred
Stock" (the "Series E Preferred Stock") and the authorized number of shares
constituting such series shall be 4,600,000. The par value of the Series E
Preferred Stock shall be $.01 per share.
Section 2. DIVIDENDS.
(a) The holders of shares of the Series E Preferred Stock will be
entitled to receive, when, as and if declared by the Board of Directors out of
funds of the Corporation legally available therefor, cumulative cash dividends
on the shares of the Series E Preferred Stock at the rate of $1.75 per annum per
share, and no more, payable in equal quarterly installments on February 15, May
15, August 15, and November 15 in each year, commencing May 15, 1992. Such
dividends shall be cumulative from the date of original issue of each share of
the Series E Preferred Stock. Each such dividend shall be paid to the holders
of record of the shares of the Series E Preferred Stock as they appear on the
share register of the Corporation on such record date, not more than 30 days nor
less than 10 days preceding the dividend payment date thereof, as shall be fixed
by the Board of Directors or a duly authorized committee thereof. If a holder
converts a share or shares of the Series E Preferred Stock after the close of
business on the record date for a dividend and before the opening of business on
the payment date for such dividend, then, pursuant to Section 6 hereof, the
holder will be required to pay to the Corporation at the time of such conversion
the amount of such dividend.
(b) If dividends are not paid in full, or declared in full and sums
set apart for the payment thereof, upon the shares of the Series E Preferred
Stock and shares of any other Preferred Stock ranking on a parity as to
dividends with the Series E Preferred Stock, all dividends declared upon shares
of the Series E Preferred Stock and of any other Preferred Stock ranking on a
parity as to dividends shall be paid or declared PRO RATA so that in all cases
the amount of dividends paid or declared per share on the Series E Preferred
Stock and such other shares of Preferred Stock shall bear to each other the same
ratio that accumulated dividends per share, including dividends accrued or in
arrears, if any, on the shares of the Series E Preferred Stock and such other
shares of Preferred Stock bear to each other. Except as provided in the
preceding sentence, unless full cumulative dividends on the shares of the Series
E Preferred Stock have been paid or declared in full and sums set aside for the
payment thereof, no dividends (other than dividends in shares
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of the Common Stock or in shares of any other capital stock of the Corporation
ranking junior to the Series E Preferred Stock as to dividends) shall be paid or
declared and set aside for payment or other distribution made upon the
Corporation's Common Stock, par value $.01 per share, or any other capital stock
of the Corporation ranking junior to or on a parity with the Series E Preferred
Stock as to dividends, nor shall any shares of the Common Stock or shares of any
other capital stock of the Corporation ranking junior to or on a parity with the
Series E Preferred Stock as to dividends be redeemed, purchased or otherwise
acquired for any consideration (or any payment made to or available for a
sinking fund for the redemption of any such shares) by the Corporation or any
subsidiary of the Corporation (except by conversion into or exchange for shares
of capital stock of the Corporation ranking junior to the Series E Preferred
Stock as to dividends). Holders of shares of the Series E Preferred Stock shall
not be entitled to any dividends, whether payable in cash, property or shares of
capital stock, in excess of full accrued and cumulative dividends as herein
provided. No interest or sum of money in lieu of interest shall be payable in
respect of any dividend payment or payments on the shares of the Series E
Preferred Stock that may be in arrears.
The terms "accrued dividends," "dividends accrued" and "dividends in
arrears," whenever used in this subpart IB with reference to shares of Preferred
Stock shall be deemed to mean an amount which shall be equal to dividends
thereon at the annual dividend rates per share for the respective series from
the date or dates on which such dividends commence to accrue to the end of the
then current quarterly dividend period for such Preferred Stock (or, in the case
of redemption, to the date of redemption), less the amount of all dividends
paid, or declared in full and sums set aside for the payment thereof, upon such
shares of Preferred Stock.
(c) Dividends payable on the shares of the Series E Preferred Stock
for any period less than a full quarterly dividend period shall be computed on
the basis of a 360-day year of twelve 30-day months and the actual number of
days elapsed in the period for which payable.
Section 3. OPTIONAL REDEMPTION.
(a) The shares of the Series E Preferred Stock will be redeemable at
the option of the Corporation by resolution of its Board of Directors, in whole
or from time to time in part, at any time on or after February 16, 1996, subject
to the limitations set forth below, at the following redemption prices per share
plus, in each case, all dividends accrued and unpaid on the shares of the Series
E Preferred Stock up to the date fixed for redemption, upon giving notice as
provided hereinbelow:
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<TABLE>
<CAPTION>
If redeemed during
the twelve-month
period beginning
February 15, Price
- ----------------- -----
<S> <C>
1996 . . . . . . . . . . . . . . . . . $26.050
1997 . . . . . . . . . . . . . . . . . 25.875
1998 . . . . . . . . . . . . . . . . . 25.700
1999 . . . . . . . . . . . . . . . . . 25.525
2000 . . . . . . . . . . . . . . . . . 25.350
2001 . . . . . . . . . . . . . . . . . 25.175
2002 and thereafter . . . . . . . . . . 25.000
</TABLE>
(b) If less than all of the outstanding shares of the Series E
Preferred Stock are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors and the shares to be redeemed shall be
determined pro rata or by lot or in such other manner and subject to such
regulations as the Board of Directors in its sole discretion shall prescribe.
(c) At least 30 days but not more than 60 days prior to the date
fixed for the redemption of shares of the Series E Preferred Stock, a written
notice shall be mailed to each holder of record of shares of the Series E
Preferred Stock to be redeemed in a postage prepaid envelope addressed to such
holder at his post office address as shown on the records of the Corporation,
notifying such holder of the election of the Corporation to redeem such shares,
stating the date fixed for redemption thereof (the "Series E Redemption Date"),
and calling upon such holder to surrender to the Corporation on the Series E
Redemption Date at the place designated in such notice his certificate or
certificates representing the number of shares specified in such notice of
redemption. On or after the Series E Redemption Date each holder of shares of
the Series E Preferred Stock to be redeemed shall present and surrender his
certificate or certificates for such shares to the Corporation at the place
designated in such notice and thereupon the redemption price of such shares
shall be paid to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In case less than all the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Series E Redemption Date
(unless default shall be made by the Corporation in payment of the redemption
price), all dividends on the shares of the Series E Preferred Stock designated
for redemption in such notice shall cease to accrue, and all rights of the
holders thereof as stockholders of the Corporation, except the right to receive
the redemption price of such shares (including all accrued and unpaid dividends
up to the Series E Redemption Date) upon the surrender of certificates
representing the same, shall cease and terminate and such shares shall not
thereafter be transferred (except with
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the consent of the Corporation) on the books of the Corporation, and such shares
shall not be deemed to be outstanding for any purpose whatsoever. At its
election, the Corporation prior to the Series E Redemption Date may deposit the
redemption price (including all accrued and unpaid dividends up to the Series E
Redemption Date) of shares of the Series E Preferred Stock so called for
redemption in trust for the holders thereof with a bank or trust company (having
a capital surplus and undivided profits aggregating not less than $50,000,000)
in the Borough of Manhattan, City and State of New York, the City of Chicago,
State of Illinois, or in any other city in which the Corporation at the time
shall maintain a transfer agency with respect to such shares, in which case the
aforesaid notice to holders of shares of the Series E Preferred Stock to be
redeemed shall state the date of such deposit, shall specify the office of such
bank or trust company as the place of payment of the redemption price, and shall
call upon such holders to surrender the certificates representing such shares at
such place on or after the date fixed in such redemption notice (which shall not
be later than the Series E Redemption Date) against payment of the redemption
price (including all accrued and unpaid dividends up to the Series E Redemption
Date). Any interest accrued on such funds shall be paid to the Corporation from
time to time. Any moneys so deposited which shall remain unclaimed by the
holders of such shares of the Series E Preferred Stock at the end of two years
after the Series E Redemption Date shall be returned by such bank or trust
company to the Corporation.
(d) Shares of the Series E Preferred Stock redeemed, repurchased or
retired pursuant to the provisions of this Section 3 or surrendered to the
Corporation upon conversion or exchange shall thereupon be retired and may not
be reissued as shares of the Series E Preferred Stock but shall thereafter have
the status of authorized but unissued shares of the Preferred Stock, without
designation as to series until such shares are once more designated as part of a
particular series of the Preferred Stock.
Section 4. VOTING RIGHTS.
(a) Except as otherwise provided in Section 4(b), 7(b) or 9, or as
required by law, the holders of shares of the Series E Preferred Stock shall not
be entitled to vote on any matter on which the holders of any voting securities
of the Corporation shall be entitled to vote.
(b) In the event that the Corporation shall have failed to declare
and pay or set apart for payment in full the dividends accumulated on the
outstanding shares of the Series E Preferred Stock for any six quarterly
dividend payment periods, whether or not consecutive (a "Series E Preferential
Dividend Non-Payment"), the number of directors of the Corporation shall be
increased by two and the holders of outstanding shares of the Series E Preferred
Stock, voting together as a class with all
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other classes or series of preferred stock of the Corporation ranking junior to
or on a parity with the Series E Preferred Stock with respect to dividends and
then entitled to vote on the election of such additional directors, shall be
entitled to elect such additional directors until the full dividends accumulated
on all outstanding shares of the Series E Preferred Stock have been declared and
paid or set apart for payment. Upon the occurrence of a Series E Preferential
Dividend Non-Payment, the Board of Directors shall within a reasonable period
call a special meeting of the holders of shares of the Series E Preferred Stock
and all holders of other classes or series of Preferred Stock of the Corporation
ranking junior to or on a parity with the Series E Preferred Stock with respect
to the payment of dividends who are then entitled to vote on the election of
such additional directors for the purpose of electing the additional directors
provided by the foregoing provisions. If and when all accumulated dividends on
the shares of the Series E Preferred Stock have been declared and paid or set
aside for payment in full, the holders of shares of the Series E Preferred Stock
shall be divested of the special voting rights provided by this Section 4(b),
subject to revesting in the event of each and every subsequent Series E
Preferential Dividend Non-Payment. Upon termination of such special voting
rights attributable to all holders of shares of the Series E Preferred Stock and
shares of any other class or series of Preferred Stock of the Corporation
ranking junior to or on a parity with the Series E Preferred Stock with respect
to payment of dividends, the term of office of each director elected by the
holders of shares of the Series E Preferred Stock and such junior or parity
Preferred Stock (a "Preferred Stock Director") pursuant to such special voting
rights shall forthwith terminate and the number of directors constituting the
entire Board of Directors shall be reduced by the number of Preferred Stock
Directors. Any Preferred Stock Director may be removed by, and shall not be
removed otherwise than by, the vote of the holders of record of a majority of
the outstanding shares of the Series E Preferred Stock and all other series of
Preferred Stock ranking junior to or on a parity with the Series E Preferred
Stock with respect to the payment of dividends who were entitled to vote in such
Preferred Stock Director's election, voting as a separate class, at a meeting
called for such purpose. So long as a Series E Preferential Dividend
Non-Payment shall continue, any vacancy in the office of a Preferred Stock
Director may be filled by written consent of the Preferred Stock Director
remaining in office or, if none remains in office, by vote of the holders of
record of a majority of the outstanding shares of the Series E Preferred Stock
and all other series of Preferred Stock ranking junior to or on a parity with
the Series E Preferred Stock with respect to the payment of dividends who are
then entitled to vote in the election of such Preferred Stock Directors as
provided above. As long as the Series E Preferential Dividend Non-Payment shall
continue, holders of shares of the Series E Preferred Stock shall not, as such
stockholders, be entitled to vote on the election or removal
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of directors other than Preferred Stock Directors, but shall not be divested of
any other voting rights provided to such stockholders by law with respect to any
other matter to be acted upon by the stockholders of the Corporation.
Section 5. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of shares of the Series E Preferred Stock shall be entitled to receive,
in cash, out of the remaining net assets of the Corporation, the amount of
Twenty-Five Dollars ($25.00) for each share of the Series E Preferred Stock,
plus an amount equal to all dividends accrued and unpaid on each such share up
to the date fixed for distribution, before any distribution shall be made to the
holders of shares of the Common Stock or any other capital stock of the
Corporation ranking (as to any such distribution) junior to the Series E
Preferred Stock. If upon any liquidation, dissolution or winding up of the
Corporation, the assets distributable among the holders of shares of the Series
E Preferred Stock and all other classes and series of Preferred Stock ranking
(as to any such distribution) on a parity with the Series E Preferred Stock are
insufficient to permit the payment in full to the holders of all such shares of
all preferential amounts payable to all such holders, then the entire assets of
the Corporation thus distributable shall be distributed ratably among the
holders of the shares of the Series E Preferred Stock and such other classes and
series of Preferred Stock ranking (as to any such distribution) on a parity with
the Series E Preferred Stock in proportion to the respective amounts that would
be payable per share if such assets were sufficient to permit payment in full.
(b) For purposes of this Section 5, a distribution of assets in any
dissolution, winding up or liquidation shall not include (i) any consolidation
or merger of the Corporation with or into any other corporation, (ii) any
dissolution, liquidation, winding up or reorganization of the Corporation
immediately followed by reincorporation of another corporation or (iii) a sale
or other disposition of all or substantially all of the Corporation's assets to
another corporation; PROVIDED, HOWEVER, that, in each case, effective provision
is made in the certificate or incorporation of the resulting and surviving
corporation or otherwise for the protection of the rights of the holders of
shares of the Series E Preferred Stock.
(c) After the payment of the full preferential amounts provided for
in this subpart IB to the holders of shares of the Series E Preferred Stock or
funds necessary for such payment have been set aside in trust for the holders
thereof, such holders
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<PAGE>
shall be entitled to no other or further participation in the distribution of
the assets of the Corporation.
Section 6. CONVERSION.
(a) Holders of shares of the Series E Preferred Stock shall have the
right, exercisable at any time and from time to time, except in the case of
shares of the Series E Preferred Stock called for redemption or to be exchanged
for Series E Debentures (as described in Section 7 hereof), to convert all or
any such shares of the Series E Preferred Stock into shares of the Common Stock
(calculated as to each conversion to the nearest 1/100th of a share) at the
conversion price of $34.62 per share of the Common Stock (equivalent to a
conversion rate of .722 shares of the Common Stock for each share of the Series
E Preferred Stock so converted), subject to adjustment as described below. In
the case of shares of the Series E Preferred Stock called for redemption or to
be exchanged for Series E Debentures (as described in Section 7 hereof),
conversion rights will expire at the close of business on the last business day
preceding the Series E Redemption Date or the last business day preceding the
Series E Exchange Date (as hereinafter defined), as the case may be. Notice of
an optional redemption or exchange must be mailed not less than 30 days and not
more than 60 days prior to the Series E Redemption Date or Series E Exchange
Date, as the case may be. Upon conversion or exchange, no adjustment or payment
will be made for dividends or interest, but if any holder surrenders a share of
the Series E Preferred Stock for conversion after the close of business on the
record date for the payment of a dividend and prior to the opening of business
on the next dividend payment date, then, notwithstanding such conversion, the
dividend payable on such dividend payment date will be paid to the registered
holder of such share on such record date. In such event, such share, when
surrendered for conversion, must be accompanied by payment of an amount equal to
the dividend payable on such dividend payment date on the share so converted.
(b) Any holder of a share or shares of the Series E Preferred Stock
electing to convert such share or shares thereof shall deliver the certificate
or certificates therefor to the principal office of any transfer agent for the
Common Stock, with the form of notice of election to convert as the Corporation
shall prescribe fully completed and duly executed and (if so required by the
Corporation or any conversion agent) accompanied by instruments of transfer in
form satisfactory to the Corporation and to any conversion agent, duly executed
by the registered holder or his duly authorized attorney, and transfer taxes,
stamps or funds therefor or evidence of payment thereof if required pursuant to
Section 6(a) or 6(d) hereof. The conversion right with respect to any such
shares shall be deemed to have been exercised at the date upon which the
certificates therefor accompanied by such duly executed notice of election and
instruments of transfer and such taxes, stamps, funds, or
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<PAGE>
evidence of payment shall have been so delivered, and the person or persons
entitled to receive the shares of the Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of the Common Stock upon said date.
(c) No fractional shares of the Common Stock or scrip representing
fractional shares shall be issued upon conversion of shares of the Series E
Preferred Stock. If more than one share of the Series E Preferred Stock shall
be surrendered for conversion at one time by the same holder, the number of full
shares of the Common Stock which shall be issuable upon conversion thereof shall
be computed on the basis of the aggregate number of shares of the Series E
Preferred Stock so surrendered. Instead of any fractional shares of the Common
Stock which would otherwise be issuable upon conversion of any shares of the
Series E Preferred Stock, the Corporation shall pay a cash adjustment in respect
of such fraction in an amount equal to the same fraction of the closing price
for the Common Stock on the last business day preceding the date of conversion.
The closing price for such day shall be the last reported sales price regular
way or, in case no such reported sale takes place on such date, the average of
the reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange, or if the Common Stock is not listed or admitted to trading
on such Exchange, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, the closing sale price of the
Common Stock or in case no reported sale takes place, the average of the closing
bid and asked prices, on NASDAQ or any comparable system. If the Common Stock
is not quoted on NASDAQ or any comparable system, the Board of Directors shall
in good faith determine the current market price on the basis of such quotation
as it considers appropriate.
(d) If a holder converts a share or shares of the Series E Preferred
Stock, the Corporation shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of Common Stock upon the conversion. The holder,
however, shall pay to the Corporation the amount of any tax which is due (or
shall establish to the satisfaction of the Corporation payment thereof) if the
shares are to be issued in a name other than the name of such holder and shall
pay to the Corporation any amount required by the last sentence of Section 6(a)
hereof.
(e) The Corporation shall reserve and shall at all times have
reserved out of its authorized but unissued shares of the Common Stock enough
shares of the Common Stock to permit the conversion of the then outstanding
shares of the Series E Preferred Stock. All shares of Common Stock which may be
issued upon conversion of shares of the Series E Preferred Stock shall be
validly issued, fully paid and nonassessable. In order that the Corporation may
issue shares of the Common Stock upon
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<PAGE>
conversion of shares of the Series E Preferred Stock, the Corporation will
endeavor to comply with all applicable Federal and State securities laws and
will endeavor to list such shares of the Common Stock to be issued upon
conversion on each securities exchange on which the Common Stock is listed.
(f) The conversion rate in effect at any time shall be subject to
adjustment from time to time as follows:
(i) In case the Corporation shall (1) pay a dividend in shares of
the Common Stock to holders of the Common Stock, (2) make a
distribution in shares of the Common Stock to holders of the Common
Stock, (3) subdivide the outstanding shares of the Common Stock into a
greater number of shares of the Common Stock or (4) combine the
outstanding shares of the Common Stock into a smaller number of shares
of the Common Stock, the conversion rate immediately prior to such
action shall be adjusted so that the holder of any shares of the
Series E Preferred Stock thereafter surrendered for conversion shall
be entitled to receive the number of shares of the Common Stock which
he would have owned immediately following such action had such shares
of the Series E Preferred Stock been converted immediately prior
thereto. An adjustment made pursuant to this Section 6(f)(i) shall
become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision or combination.
(ii) In case the Corporation shall issue rights or warrants to
substantially all holders of the Common Stock entitling them (for a
period commencing no earlier than the record date for the
determination of holders of the Common Stock entitled to receive such
rights or warrants and expiring not more than 45 days after such
record date) to subscribe for or purchase shares of the Common Stock
(or securities convertible into shares of the Common Stock) at a price
per share less than the current market price (as determined pursuant
to Section 6(f)(iv)) of the Common Stock on such record date, the
number of shares of the Common Stock into which each share of the
Series E Preferred Stock shall be convertible shall be adjusted so
that the same shall be equal to the number determined by multiplying
the number of shares of the Common Stock into which such share of the
Series E Preferred Stock was convertible immediately prior to such
record date by a fraction of which the numerator shall be the number
of shares of the Common Stock outstanding on such record date plus the
number of additional shares of the Common Stock offered (or into which
the
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<PAGE>
convertible securities so offered are convertible), and of which the
denominator shall be the number of shares of the Common Stock
outstanding on such record date, plus the number of shares of the
Common Stock which the aggregate offering price of the offered shares
of the Common Stock (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current
market price. Such adjustments shall become effective immediately
after such record date.
(iii) In case the Corporation shall distribute to all holders of
the Common Stock shares of any class of capital stock other than the
Common Stock, evidences of indebtedness or other assets (other than
cash dividends out of current or retained earnings), or shall
distribute to substantially all holders of the Common Stock rights or
warrants to subscribe for securities (other than those referred to in
Section 6(f)(ii)), then in each such case the number of shares of the
Common Stock into which each share of the Series E Preferred Stock
shall be convertible shall be adjusted so that the same shall equal
the number determined by multiplying the number of shares of the
Common Stock into which such share of the Series E Preferred Stock was
convertible immediately prior to the date of such distribution by a
fraction of which the numerator shall be the current market price
(determined as provided in Section 6(f)(iv)) of the Common Stock on
the record date mentioned below, and of which the denominator shall be
such current market price of the Common Stock, less the then fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive evidence of such fair market value)
of the portion of the assets so distributed or of such subscription
rights or warrants applicable to one share of the Common Stock. Such
adjustment shall become effective immediately after the record date
for the determination of the holders of the Common Stock entitled to
receive such distribution. Notwithstanding the foregoing, in the
event that the Corporation shall distribute rights or warrants (other
than those referred to in Section 6(f)(ii)) ("Rights") pro rata to
holders of the Common Stock, the Corporation may, in lieu of making
any adjustment pursuant to this Section 6(f)(iii), make proper
provision so that each holder of a share of Series E Preferred Stock
who converts such share after the record date for such distribution
and prior to the expiration or redemption of the Rights shall be
entitled to receive upon such conversion, in addition to the shares of
the Common Stock issuable upon such conversion (the "Conversion
Shares"), a number of Rights to be determined as follows: (i) if such
conversion occurs on or prior to
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<PAGE>
the date for the distribution to the holders of Rights of separate
certificates evidencing such Rights (the "Distribution Date"), the
same number of Rights to which a holder of a number of shares of the
Common Stock equal to the number of Conversion Shares is entitled at
the time of such conversion in accordance with the terms and
provisions of and applicable to the Rights; and (ii) if such
conversion occurs after the Distribution Date, the same number of
Rights to which a holder of the number of shares of the Common Stock
into which a share of the Series E Preferred Stock so converted was
convertible immediately prior to the Distribution Date would have been
entitled on the Distribution Date in accordance with the terms and
provisions of and applicable to the Rights.
(iv) The current market price per share of the Common Stock on
any date shall be deemed to be the average of the daily closing prices
for thirty consecutive trading days commencing forty-five trading days
before the day in question. The closing price for each day shall be
the last reported sales price regular way or, in case no such reported
sale takes place on such date, the average of the reported closing bid
and asked prices regular way, in either case on the New York Stock
Exchange, or if the Common Stock is not listed or admitted to trading
on such Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the
closing sale price of the Common Stock, or in case no reported sale
takes place, the average of the closing bid and asked prices, on
NASDAQ or any comparable system, or if the Common Stock is not quoted
on NASDAQ or any comparable system, the closing sale price or, in case
no reported sale takes place, the average of the closing bid and asked
prices, as furnished by any two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation
for that purpose.
(v) In any case in which this Section 6 shall require that an
adjustment be made immediately following a record date, the
Corporation may elect to defer (but only until five business days
following the mailing of the notice described in Section 6(j)) issuing
to the holder of any share of the Series E Preferred Stock converted
after such record date the shares of the Common Stock and other
capital stock of the Corporation issuable upon such conversion over
and above the shares of the Common Stock and other capital stock of
the Corporation issuable upon such conversion only on the basis of the
conversion rate prior to
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<PAGE>
adjustment; and, in lieu of the shares the issuance of which is so
deferred, the Corporation shall issue or cause its transfer agents to
issue due bills or other appropriate evidence of the right to receive
such shares.
(g) No adjustment in the conversion rate shall be required until
cumulative adjustments result in a concomitant change of 1% or more of the
conversion price as existed prior to the last adjustment of the conversion rate;
PROVIDED, HOWEVER, that any adjustments which by reason of this Section 6(g) are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 6 shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case may be.
No adjustment to the conversion rate shall be made for cash dividends.
(h) In the event that, as a result of an adjustment made pursuant to
Section 6(f), the holder of any share of the Series E Preferred Stock thereafter
surrendered for conversion shall become entitled to receive any shares of
capital stock of the Corporation other than shares of the Common Stock,
thereafter the number of such other shares so receivable upon conversion of any
shares of the Series E Preferred Stock shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Section 6.
(i) The Corporation may make such increases in the conversion rate,
in addition to those required by Sections 6(f)(i), (ii) and (iii), as it
considers to be advisable in order that any event treated for Federal income tax
purposes as a dividend of stock or stock rights shall not be taxable to the
recipients thereof.
(j) Whenever the conversion rate is adjusted, the Corporation shall
promptly mail to all holders of record of shares of the Series E Preferred Stock
a notice of the adjustment.
(k) In the event that:
(i) the Corporation takes any action which would require an
adjustment in the conversion rate,
(ii) the Corporation consolidates or merges with, or transfers
all or substantially all of its assets to, another
corporation and stockholders of the Corporation must approve
the transaction, or
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<PAGE>
(iii) there is a dissolution or liquidation of the Corporation,
a holder of shares of the Series E Preferred Stock may wish to convert some or
all of such shares into shares of the Common Stock prior to the record date for,
or the effective date of, the transaction so that he may receive the rights,
warrants, securities or assets which a holder of shares of the Common Stock on
that date may receive. Therefore, the Corporation shall mail to holders of
shares of the Series E Preferred Stock a notice stating the proposed record or
effective date, as the case may be. The Corporation shall mail the notice at
least 10 days before such date; however, failure to mail such notice or any
defect therein shall not affect the validity of any transaction referred to in
clause (i), (ii) or (iii) of this Section 6(k).
(l) If any of the following shall occur, namely: (i) any
reclassification or change of outstanding shares of the Common Stock issuable
upon conversion of shares of the Series E Preferred Stock (other than a change
in par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), (ii) any consolidation
or merger to which the Corporation is a party other than a merger in which the
Corporation is the continuing corporation and which does not result in any
reclassification of, or change (other than a change in name, or par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of the Common
Stock or (iii) any sale or conveyance of all or substantially all of the
property or business of the Corporation as an entirety, then the Corporation, or
such successor or purchasing corporation, as the case may be, shall, as a
condition precedent to such reclassification, change, consolidation, merger,
sale or conveyance, provide in its certificate of incorporation or other charter
document that each share of the Series E Preferred Stock shall be convertible
into the kind and amount of shares of capital stock and other securities and
property (including cash) receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
the Common Stock deliverable upon conversion of such share of the Series E
Preferred Stock immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Such certificate of incorporation or
other charter document shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 6. The foregoing, however, shall not in any way affect the right a
holder of a share of the Series E Preferred Stock may otherwise have, pursuant
to clause (ii) of the last sentence of Section 6(f)(iii), to receive Rights upon
conversion of a share of the Series E Preferred Stock. If, in the case of any
such consolidation, merger, sale or conveyance, the stock or other securities
and property (including cash) receivable thereupon by a holder of the Common
Stock includes shares of
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<PAGE>
capital stock or other securities and property of a corporation other than the
successor or purchasing corporation, as the case may be, in such consolidation,
merger, sale or conveyance, then the certificate of incorporation or other
charter document of such other corporation shall contain such additional
provisions to protect the interests of the holders of shares of the Series E
Preferred Stock as the Board of Directors shall reasonably consider necessary by
reason of the foregoing. The provision of this Section 6(l) shall similarly
apply to successive consolidations, mergers, sales or conveyances.
Section 7. EXCHANGE.
(a) REQUIREMENTS OF EXCHANGE. At the Corporation's option, all, but
not less than all, of the then outstanding shares of the Series E Preferred
Stock may be exchanged on any dividend payment date commencing February 15,
1994, subject to certain conditions stated in the immediately following
sentence, for the Corporation's 7% Convertible Subordinated Exchange Debentures
due 2007 (the "Series E Debentures") to be issued pursuant to an indenture (the
"Series E Indenture") substantially in the form of Exhibit 4(d) to the
Corporation's Registration Statement on Form S-3 (Registration No. 33-45374), as
amended, declared effective by the Securities and Exchange Commission on
February 11, 1992, at an exchange rate of $25.00 principal amount of the Series
E Debentures for each share of the Series E Preferred Stock. Such exchange may
be made only if, at the time of exchange (i) the Series E Indenture shall have
been qualified under the Trust Indenture Act of 1939, as amended, (ii) there
shall be no dividend arrearage (including the dividend payable on the date of
exchange) on the shares of the Series E Preferred Stock, and (iii) no Event of
Default (as defined in the Series E Indenture) under the Series E Indenture
shall have occurred and be continuing. In the event that such exchange would
result in the issuance of a Series E Debenture in a principal amount which is
not an integral multiple of $1,000, the difference between such principal amount
and the highest integral multiple of $1,000 (which may be zero) which is less
than such principal amount shall be paid to the holder in cash.
(b) NOTICE OF EXCHANGE. The Corporation will mail to each holder of
record of shares of the Series E Preferred Stock written notice of its intention
to exchange not less than 30 nor more than 60 days prior to the date fixed for
the exchange (the "Series E Exchange Date"). Each such notice shall state: (i)
the Series E Exchange Date, (ii) the place or places where certificates for such
shares of the Series E Preferred Stock are to be surrendered for exchange into
Series E Debentures, and (iii) that dividends on the shares of the Series E
Preferred Stock to be exchanged will cease to accrue on such Series E Exchange
Date. Prior to giving notice of intention to exchange, the Corporation shall
execute and deliver to a bank or trust company selected by the Corporation, and
qualify under the Trust
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<PAGE>
Indenture Act of 1939, as amended, the Series E Indenture in substantially the
form filed as an exhibit to the Registration Statement referred to above with
such changes as may be required by law or usage. Except as may be otherwise
required by applicable law, the form of the Series E Indenture may not be
amended or supplemented before the Series E Exchange Date without the
affirmative vote or consent of the holders of two-thirds (2/3) of the
outstanding shares of the Series E Preferred Stock, except for those changes
which would not adversely affect the legal rights of the holders. The
Corporation will cause the Series E Debentures to be authenticated on the
dividend payment date on which the exchange is effective, and the Corporation
will pay interest on the Series E Debentures at the rate and on the dates
specified in such Series E Indenture from and after the Series E Exchange Date.
(c) RIGHTS AFTER SERIES E EXCHANGE DATE. If notice has been mailed
as aforesaid, from and after the Series E Exchange Date (unless default shall be
made by the Corporation in issuing Series E Debentures in exchange for, or in
making the final dividend payment on, the outstanding shares of the Series E
Preferred Stock on the Series E Exchange Date), dividends on the shares of the
Series E Preferred Stock shall cease to accrue, and such shares shall no longer
be deemed to be issued and outstanding, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the Series E Debentures) shall cease and terminate. Upon surrender
in accordance with said notice of the certificates for any shares of the Series
E Preferred Stock so exchanged (properly endorsed or assigned for transfer, if
the Corporation shall so require and the notice shall so state), such shares
shall be exchanged by the Corporation into Series E Debentures as aforesaid.
Dividends due on the quarterly dividend payment date on which the exchange is
effected will be mailed to holders in the regular course.
Section 8. RANKING. With regard to rights to receive dividends
and distributions upon dissolution of the Corporation, the Series E Preferred
Stock shall rank prior to Series D Junior Participating Preferred Stock of the
Corporation and the Common Stock.
Section 9. LIMITATIONS. In addition to any other rights provided
by applicable law, so long as any shares of the Series E Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote, or the
written consent as provided by law, of the holders of at least two-thirds (2/3)
of the outstanding shares of the Series E Preferred Stock, voting separately,
(a) create, authorize or issue any class or series of capital
stock ranking either as to payment of
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dividends or distribution of assets upon liquidation prior to the
Series E Preferred Stock; or
(b) change the preferences, rights or powers with respect to the
Series E Preferred Stock so as to affect the Series E Preferred Stock
adversely;
but (except as otherwise required by applicable law) nothing in this subpart IB
contained shall require such a vote or consent (i) in connection with any
increase in the total number of authorized shares of the Common Stock, or (ii)
in connection with the authorization or increase of any class or series of
shares ranking, as to dividends and in liquidation, junior to or on a parity
with the Series E Preferred Stock; PROVIDED, HOWEVER, that no such vote or
written consent of the holders of the shares of the Series E Preferred Stock
shall be required if, at or prior to the time when the issuance of any such
shares ranking prior to the Series E Preferred Stock is to be made or any such
change is to take effect, as the case may be, provision is made for the
redemption of all the then outstanding shares of the Series E Preferred Stock;
and PROVIDED, FURTHER, that the provisions of this Section 9 shall not in any
way limit the right and power of the Corporation to issue its currently
authorized but unissued shares or bonds, notes, mortgages, debentures, and other
obligations, and to incur indebtedness to banks and to other lenders.
Section 10. NO PREEMPTIVE RIGHTS. No holder of shares of the
Series E Preferred Stock will possess any preemptive rights to subscribe for or
acquire any unissued shares of capital stock of the Corporation (whether now or
hereafter authorized) or securities of the Corporation convertible into or
carrying a right to subscribe to or acquire shares of capital stock of the
Corporation.
C. SERIES F CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
Section 1. DESIGNATION OF AMOUNT. The shares of such series
shall be designated as "Series F Cumulative Convertible Exchangeable Preferred
Stock" (the "Series F Preferred Stock") and the authorized number of shares
constituting such series shall be 400,000. The par value of the Series F
Preferred Stock shall be $.01 per share.
Section 2. DIVIDENDS.
(a) The holders of shares of the Series F Preferred Stock will be
entitled to receive, when, as and if declared by the Board of Directors out of
funds of the Corporation legally available therefor, cumulative cash dividends
on the shares of the Series F Preferred Stock at the rate of $7.00 per annum per
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share, and no more, payable in equal quarterly installments on March 15, June
15, September 15, and December 15 in each year, commencing on the first dividend
date subsequent to the original issuance of the Series F Preferred Stock. Such
dividends shall be cumulative from the date of original issue of each share of
the Series F Preferred Stock. Each such dividend shall be paid to the holders
of record of the shares of the Series F Preferred Stock as they appear on the
share register of the Corporation on such record date, not more than 30 days nor
less than 10 days preceding the dividend payment date thereof, as shall be fixed
by the Board of Directors or a duly authorized committee thereof. If a holder
converts a share or shares of the Series F Preferred Stock after the close of
business on the record date for a dividend and before the opening of business on
the payment date for such dividend, then, pursuant to Section 6 hereof, the
holder will be required to pay to the Corporation at the time of such conversion
the amount of such dividend.
(b) If dividends are not paid in full, or declared in full and sums
set apart for the payment thereof, upon the shares of the Series F Preferred
Stock and shares of any other Preferred Stock ranking on a parity as to
dividends with the Series F Preferred Stock, all dividends declared upon shares
of the Series F Preferred Stock and of any other Preferred Stock ranking on a
parity as to dividends shall be paid or declared PRO RATA so that in all cases
the amount of dividends paid or declared per share on the Series F Preferred
Stock and such other shares of Preferred Stock shall bear to each other the same
ratio that accumulated dividends per share, including dividends accrued or in
arrears, if any, on the shares of the Series F Preferred Stock and such other
shares of Preferred Stock bear to each other. Except as provided in the
preceding sentence, unless full cumulative dividends on the shares of the Series
F Preferred Stock have been paid or declared in full and sums set aside for the
payment thereof, no dividends (other than dividends in shares of the Common
Stock or in shares of any other capital stock of the Corporation ranking junior
to the Series F Preferred Stock as to dividends) shall be paid or declared and
set aside for payment or other distribution made upon the Corporation's Common
Stock, par value $.01 per share, or any other capital stock of the Corporation
ranking junior to or on a parity with the Series F Preferred Stock as to
dividends, nor shall any shares of the Common Stock or shares of any other
capital stock of the Corporation ranking junior to or on a parity with the
Series F Preferred Stock as to dividends be redeemed, purchased or otherwise
acquired for any consideration (or any payment made to or available for a
sinking fund for the redemption of any such shares) by the Corporation or any
subsidiary of the Corporation (except by conversion into or exchange for shares
of capital stock of the Corporation ranking junior to the Series F Preferred
Stock as to dividends). Holders of shares of the Series F Preferred Stock shall
not be entitled to any dividends, whether payable in cash, property or shares of
capital stock, in excess
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of full accrued and cumulative dividends as in this subpart IC provided. No
interest or sum of money in lieu of interest shall be payable in respect of any
dividend payment or payments on the shares of the Series F Preferred Stock that
may be in arrears.
The terms "accrued dividends," "dividends accrued" and "dividends in
arrears," whenever used in this subpart IC with reference to shares of Preferred
Stock shall be deemed to mean an amount which shall be equal to dividends
thereon at the annual dividend rates per share for the respective series from
the date or dates on which such dividends commence to accrue to the end of the
then current quarterly dividend period for such Preferred Stock (or, in the case
of redemption, to the date of redemption), less the amount of all dividends
paid, or declared in full and sums set aside for the payment thereof, upon such
shares of Preferred Stock.
(c) Dividends payable on the shares of the Series F Preferred Stock
for any period less than a full quarterly dividend period shall be computed on
the basis of a 360-day year and the actual number of days elapsed in the period
for which payable.
Section 3. OPTIONAL REDEMPTION.
(a) The shares of the Series F Preferred Stock will be redeemable at
the option of the Corporation by resolution of its Board of Directors, in whole
or from time to time in part, at any time on or after the date which is 48
months after the original issuance, subject to the limitations set forth below,
at the following redemption prices per share plus, in each case, all dividends
accrued and unpaid on the shares of the Series F Preferred Stock up to the date
fixed for redemption, upon giving notice as provided hereinbelow:
If redeemed during the twelve-month period beginning after the date which is 48
months after the original issuance as follows:
<TABLE>
<CAPTION>
Price
-------
<S> <C>
after the 48th month up to and including the 60th month $104.20
after the 60th month up to and including the 72nd month 103.50
after the 72nd month up to and including the 84th month 102.80
after the 84th month up to and including the 96th month 102.10
after the 96th month up to and including the 108th month 101.40
after the 108th month up to and including the 120th month 100.70
after the 120th month and thereafter 100.00
</TABLE>
(b) If less than all of the outstanding shares of the Series F
Preferred Stock are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors and the shares to be redeemed shall be
determined pro rata or by lot
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or in such other manner and subject to such regulations as the Board of
Directors in its sole discretion shall prescribe.
(c) At least 30 days but not more than 60 days prior to the date
fixed for the redemption of shares of the Series F Preferred Stock, a written
notice shall be mailed to each holder of record of shares of the Series F
Preferred Stock to be redeemed in a postage prepaid envelope addressed to such
holder at his post office address as shown on the records of the Corporation,
notifying such holder of the election of the Corporation to redeem such shares,
stating the date fixed for redemption thereof (the "Series F Redemption Date"),
and calling upon such holder to surrender to the Corporation on the Series F
Redemption Date at the place designated in such notice his certificate or
certificates representing the number of shares specified in such notice of
redemption. On or after the Series F Redemption Date each holder of shares of
the Series F Preferred Stock to be redeemed shall present and surrender his
certificate or certificates for such shares to the Corporation at the place
designated in such notice and thereupon the redemption price of such shares
shall be paid to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In case less than all the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Series F Redemption Date
(unless default shall be made by the Corporation in payment of the redemption
price), all dividends on the shares of the Series F Preferred Stock designated
for redemption in such notice shall cease to accrue, and all rights of the
holders thereof as stockholders of the Corporation, except the right to receive
the redemption price of such shares (including all accrued and unpaid dividends
up to the Series F Redemption Date) upon the surrender of certificates
representing the same, shall cease and terminate and such shares shall not
thereafter be transferred (except with the consent of the Corporation) on the
books of the Corporation, and such shares shall not be deemed to be outstanding
for any purpose whatsoever. At its election, the Corporation prior to the
Series F Redemption Date may deposit the redemption price (including all accrued
and unpaid dividends up to the Series F Redemption Date) of shares of the Series
F Preferred Stock so called for redemption in trust for the holders thereof with
a bank or trust company (having a capital surplus and undivided profits
aggregating not less than $50,000,000) in the Borough of Manhattan, City and
State of New York, the City of Chicago, State of Illinois, or in any other city
in which the Corporation at the time shall maintain a transfer agency with
respect to such shares, in which case the aforesaid notice to holders of shares
of the Series F Preferred Stock to be redeemed shall state the date of such
deposit, shall specify the office of such bank or trust company as the place of
payment of the redemption price, and shall call upon such holders to surrender
the certificates representing such shares at such place on or after the date
fixed
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in such redemption notice (which shall not be later than the Series F Redemption
Date) against payment of the redemption price (including all accrued and unpaid
dividends up to the Series F Redemption Date). Any interest accrued on such
funds shall be paid to the Corporation from time to time. Any moneys so
deposited which shall remain unclaimed by the holders of such shares of the
Series F Preferred Stock at the end of two years after the Series F Redemption
Date shall be returned by such bank or trust company to the Corporation.
(d) Shares of the Series F Preferred Stock redeemed, repurchased or
retired pursuant to the provisions of this Section 3 or surrendered to the
Corporation upon conversion or exchange shall thereupon be retired and may not
be reissued as shares of the Series F Preferred Stock but shall thereafter have
the status of authorized but unissued shares of the Preferred Stock, without
designation as to series until such shares are once more designated as part of a
particular series of the Preferred Stock.
Section 4. VOTING RIGHTS.
(a) Except as otherwise provided in Section 4(b), 7(b) or 9, or as
required by law, the holders of shares of the Series F Preferred Stock shall not
be entitled to vote on any matter on which the holders of any voting securities
of the Corporation shall be entitled to vote.
(b) In the event that the Corporation shall have failed to declare
and pay or set apart for payment in full the dividends accumulated on the
outstanding shares of the Series F Preferred Stock for any six quarterly
dividend payment periods, whether or not consecutive (a "Series F Preferential
Dividend Non-Payment"), the number of directors of the Corporation shall be
increased by two and the holders of outstanding shares of the Series F Preferred
Stock, voting together as a class with all other classes or series of Preferred
Stock of the Corporation ranking junior to or on a parity with the Series F
Preferred Stock with respect to dividends and then entitled to vote on the
election of such additional directors, shall be entitled to elect such
additional directors until the full dividends accumulated on all outstanding
shares of the Series F Preferred Stock have been declared and paid or set apart
for payment. Upon the occurrence of a Series F Preferential Dividend
Non-Payment, the Board of Directors shall within a reasonable period call a
special meeting of the holders of shares of the Series F Preferred Stock and all
holders of other classes or series of Preferred Stock of the Corporation ranking
junior to or on a parity with the Series F Preferred Stock with respect to the
payment of dividends who are then entitled to vote on the election of such
additional directors for the purpose of electing the additional directors
provided by the foregoing provisions. If and when all accumulated dividends on
the shares of the Series F Preferred Stock have been declared and paid or set
aside for payment in
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full, the holders of shares of the Series F Preferred Stock shall be divested of
the special voting rights provided by this Section 4(b), subject to revesting in
the event of each and every subsequent Series F Preferential Dividend
Non-Payment. Upon termination of such special voting rights attributable to all
holders of shares of the Series F Preferred Stock and shares of any other class
or series of Preferred Stock of the Corporation ranking junior to or on a parity
with the Series F Preferred Stock with respect to payment of dividends, the term
of office of each director elected by the holders of shares of the Series F
Preferred Stock and such junior or parity Preferred Stock (a "Preferred Stock
Director") pursuant to such special voting rights shall forthwith terminate and
the number of directors constituting the entire Board of Directors shall be
reduced by the number of Preferred Stock Directors. Any Preferred Stock
Director may be removed by, and shall not be removed otherwise than by, the vote
of the holders of record of a majority of the outstanding shares of the Series F
Preferred Stock and all other series of Preferred Stock ranking junior to or on
a parity with the Series F Preferred Stock with respect to the payment of
dividends who were entitled to vote in such Preferred Stock Director's election,
voting as a separate class, at a meeting called for such purpose. So long as a
Series F Preferential Dividend Non-Payment shall continue, any vacancy in the
office of a Preferred Stock Director may be filled by written consent of the
Preferred Stock Director remaining in office or, if none remains in office, by
vote of the holders of record of a majority of the outstanding shares of the
Series F Preferred Stock and all other series of Preferred Stock ranking junior
to or on a parity with the Series F Preferred Stock with respect to the payment
of dividends who are then entitled to vote in the election of such Preferred
Stock Directors as provided above. As long as the Series F Preferential
Dividend Non-Payment shall continue, holders of shares of the Series F Preferred
Stock shall not, as such stockholders, be entitled to vote on the election or
removal of directors other than Preferred Stock Directors, but shall not be
divested of any other voting rights provided to such stockholders by law with
respect to any other matter to be acted upon by the stockholders of the
Corporation.
Section 5. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of shares of the Series F Preferred Stock shall be entitled to receive,
in cash, out of the remaining net assets of the Corporation, the amount of One
Hundred Dollars ($100.00) for each share of the Series F Preferred Stock, plus
an amount equal to all dividends accrued and unpaid on each such share up to the
date fixed for distribution, before any distribution shall be made to the
holders of shares of the Common Stock or any other capital stock
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of the Corporation ranking (as to any such distribution) junior to the Series F
Preferred Stock. If upon any liquidation, dissolution or winding up of the
Corporation, the assets distributable among the holders of shares of the Series
F Preferred Stock and all other classes and series of Preferred Stock ranking
(as to any such distribution) on a parity with the Series F Preferred Stock are
insufficient to permit the payment in full to the holders of all such shares of
all preferential amounts payable to all such holders, then the entire assets of
the Corporation thus distributable shall be distributed ratably among the
holders of the shares of the Series F Preferred Stock and such other classes and
series of Preferred Stock ranking (as to any such distribution) on a parity with
the Series F Preferred Stock in proportion to the respective amounts that would
be payable per share if such assets were sufficient to permit payment in full.
(b) For purposes of this Section 5, a distribution of assets in any
dissolution, winding up or liquidation shall not include (i) any consolidation
or merger of the Corporation with or into any other corporation, (ii) any
dissolution, liquidation, winding up or reorganization of the Corporation
immediately followed by reincorporation of another corporation or (iii) a sale
or other disposition of all or substantially all of the Corporation's assets to
another corporation; PROVIDED, HOWEVER, that, in each case, effective provision
is made in the certificate of incorporation of the resulting and surviving
corporation or otherwise for the protection of the rights of the holders of
shares of the Series F Preferred Stock.
(c) After the payment of the full preferential amounts provided for
in this subpart IC to the holders of shares of the Series F Preferred Stock or
funds necessary for such payment have been set aside in trust for the holders
thereof, such holders shall be entitled to no other or further participation in
the distribution of the assets of the Corporation.
Section 6. CONVERSION.
(a) Holders of shares of the Series F Preferred Stock shall have the
right, exercisable at any time and from time to time, except in the case of
shares of the Series F Preferred Stock called for redemption or to be exchanged
for Series F Debentures (as described in Section 7 hereof), to convert all or
any such shares of the Series F Preferred Stock into shares of the Common Stock
(calculated as to each conversion to the nearest 1/100th of a share) at a
conversion rate of 5.4283 shares of the Common Stock for each share of the
Series F Preferred Stock (equivalent to a conversion price of $18.422 per share
of the Common Stock), subject to adjustment as described below. In the case of
shares of the Series F Preferred Stock called for redemption or to be exchanged
for Series F Debentures (as described in Section 7 hereof), conversion rights
will expire at
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the close of business on the last business day preceding the Series F Redemption
Date or the last business day preceding the Series F Exchange Date (as
hereinafter defined), as the case may be. Notice of an optional redemption or
exchange must be mailed not less than 30 days and not more than 60 days prior to
the Series F Redemption Date or Series F Exchange Date, as the case may be.
Upon conversion or exchange, no adjustment or payment will be made for dividends
or interest, but if any holder surrenders a share of the Series F Preferred
Stock for conversion after the close of business on the record date for the
payment of a dividend and prior to the opening of business on the next dividend
payment date, then, notwithstanding such conversion, the dividend payable on
such dividend payment date will be paid to the registered holder of such share
on such record date. In such event, such share, when surrendered for
conversion, must be accompanied by payment of an amount equal to the dividend
payable on such dividend payment date on the share so converted.
(b) Any holder of a share or shares of the Series F Preferred Stock
electing to convert such share or shares thereof shall deliver the certificate
or certificates therefor to the principal office of any transfer agent for the
Common Stock, with the form of notice of election to convert as the Corporation
shall prescribe fully completed and duly executed and (if so required by the
Corporation or any conversion agent) accompanied by instruments of transfer in
form satisfactory to the Corporation and to any conversion agent, duly executed
by the registered holder or his duly authorized attorney, and transfer taxes,
stamps or funds therefor or evidence of payment thereof if required pursuant to
Section 6(a) or 6(d) hereof. The conversion right with respect to any such
shares shall be deemed to have been exercised at the date upon which the
certificates therefor accompanied by such duly executed notice of election and
instruments of transfer and such taxes, stamps, funds, or evidence of payment
shall have been so delivered, and the person or persons entitled to receive the
shares of the Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of the Common Stock
upon said date.
(c) No fractional shares of the Common Stock or scrip representing
fractional shares shall be issued upon conversion of shares of the Series F
Preferred Stock. If more than one share of the Series F Preferred Stock shall
be surrendered for conversion at one time by the same holder, the number of full
shares of the Common Stock which shall be issuable upon conversion thereof shall
be computed on the basis of the aggregate number of shares of the Series F
Preferred Stock so surrendered. Instead of any fractional shares of the Common
Stock which would otherwise be issuable upon conversion of any shares of the
Series F Preferred Stock, the Corporation shall pay a cash adjustment in respect
of such fraction in an amount equal to the same fraction of the closing price
for the Common Stock on
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the last business day preceding the date of conversion. The closing price for
such day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such date, the average of the reported closing bid
and asked prices regular way, in either case on the New York Stock Exchange, or
if the Common Stock is not listed or admitted to trading on such Exchange, on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if not listed or admitted to trading on any national
securities exchange, the closing sale price of the Common Stock or in case no
reported sale takes place, the average of the closing bid and asked prices, on
NASDAQ or any comparable system. If the Common Stock is not quoted on NASDAQ or
any comparable system, the Board of Directors shall in good faith determine the
current market price on the basis of such quotation as it considers appropriate.
(d) If a holder converts a share or shares of the Series F Preferred
Stock, the Corporation shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of Common Stock upon the conversion. The holder,
however, shall pay to the Corporation the amount of any tax which is due (or
shall establish to the satisfaction of the Corporation payment thereof) if the
shares are to be issued in a name other than the name of such holder and shall
pay to the Corporation any amount required by the last sentence of Section 6(a)
hereof.
(e) The Corporation shall reserve and shall at all times have
reserved out of its authorized but unissued shares of the Common Stock enough
shares of the Common Stock to permit the conversion of the then outstanding
shares of the Series F Preferred Stock. All shares of Common Stock which may be
issued upon conversion of shares of the Series F Preferred Stock shall be
validly issued, fully paid and nonassessable. In order that the Corporation may
issue shares of the Common Stock upon conversion of shares of the Series F
Preferred Stock, the Corporation will endeavor to comply with all applicable
Federal and State securities laws and will endeavor to list such shares of the
Common Stock to be issued upon conversion on each securities exchange on which
the Common Stock is listed.
(f) The conversion rate in effect at any time shall be subject to
adjustment from time to time as follows:
(i) In case the Corporation shall (1) pay a dividend in shares of
the Common Stock to holders of the Common Stock, (2) make a
distribution in shares of the Common Stock to holders of the Common
Stock, (3) subdivide the outstanding shares of the Common Stock into a
greater number of shares of the Common Stock or (4) combine the
outstanding shares of the Common Stock into a smaller number of shares
of the Common Stock, the conversion rate immediately prior to such
action shall be adjusted so that the holder of any shares of
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the Series F Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of the Common Stock
which he would have owned immediately following such action had such
shares of the Series F Preferred Stock been converted immediately
prior thereto. An adjustment made pursuant to this Section 6(f)(i)
shall become effective immediately after the record date in the case
of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination.
(ii) In case the Corporation shall issue rights or warrants to
substantially all holders of the Common Stock entitling them (for a
period commencing no earlier than the record date for the
determination of holders of the Common Stock entitled to receive such
rights or warrants and expiring not more than 45 days after such
record date) to subscribe for or purchase shares of the Common Stock
(or securities convertible into shares of the Common Stock) at a price
per share less than the current market price (as determined pursuant
to Section 6(f)(iv)) of the Common Stock on such record date, the
number of shares of the Common Stock into which each share of the
Series F Preferred Stock shall be convertible shall be adjusted so
that the same shall be equal to the number determined by multiplying
the number of shares of the Common Stock into which such share of the
Series F Preferred Stock was convertible immediately prior to such
record date by a fraction of which the numerator shall be the number
of shares of the Common Stock outstanding on such record date plus the
number of additional shares of the Common Stock offered (or into which
the convertible securities so offered are convertible), and of which
the denominator shall be the number of shares of the Common Stock
outstanding on such record date, plus the number of shares of the
Common Stock which the aggregate offering price of the offered shares
of the Common Stock (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current
market price. Such adjustments shall become effective immediately
after such record date.
(iii) In case the Corporation shall distribute to all holders of
the Common Stock shares of any class of capital stock other than the
Common Stock, evidences of indebtedness or other assets (other than
cash dividends out of current or retained earnings), or shall
distribute to substantially all holders of the Common Stock rights or
warrants to subscribe for securities (other than those referred to in
Section 6(f)(ii)), then in each such case the number of shares of the
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Common Stock into which each share of the Series F Preferred Stock
shall be convertible shall be adjusted so that the same shall equal
the number determined by multiplying the number of shares of the
Common Stock into which such share of the Series F Preferred Stock was
convertible immediately prior to the date of such distribution by a
fraction of which the numerator shall be the current market price
(determined as provided in Section 6(f)(iv)) of the Common Stock on
the record date mentioned below, and of which the denominator shall be
such current market price of the Common Stock, less the then fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive evidence of such fair market value)
of the portion of the assets so distributed or of such subscription
rights or warrants applicable to one share of the Common Stock. Such
adjustment shall become effective immediately after the record date
for the determination of the holders of the Common Stock entitled to
receive such distribution. Notwithstanding the foregoing, in the
event that the Corporation shall distribute rights or warrants (other
than those referred to in Section 6(f)(ii)) ("Rights") pro rata to
holders of the Common Stock, the Corporation may, in lieu of making
any adjustment pursuant to this Section 6(f)(iii), make proper
provision so that each holder of a share of Series F Preferred Stock
who converts such share after the record date for such distribution
and prior to the expiration or redemption of the Rights shall be
entitled to receive upon such conversion, in addition to the shares of
the Common Stock issuable upon such conversion (the "Conversion
Shares"), a number of Rights to be determined as follows: (i) if such
conversion occurs on or prior to the date for the distribution to the
holders of Rights of separate certificates evidencing such Rights (the
"Distribution Date"), the same number of Rights to which a holder of a
number of shares of the Common Stock equal to the number of Conversion
Shares is entitled at the time of such conversion in accordance with
the terms and provisions of and applicable to the Rights; and (ii) if
such conversion occurs after the Distribution Date, the same number of
Rights to which a holder of the number of shares of the Common Stock
into which a share of the Series F Preferred Stock so converted was
convertible immediately prior to the Distribution Date would have been
entitled on the Distribution Date in accordance with the terms and
provisions of and applicable to the Rights.
(iv) The current market price per share of the Common Stock on
any date shall be deemed to be the average of the daily closing prices
for thirty
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consecutive trading days commencing forty-five trading days before the
day in question. The closing price for each day shall be the last
reported sales price regular way or, in case no such reported sale
takes place on such date, the average of the reported closing bid and
asked prices regular way, in either case on the New York Stock
Exchange, or if the Common Stock is not listed or admitted to trading
on such Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the
closing sale price of the Common Stock, or in case no reported sale
takes place, the average of the closing bid and asked prices, on
NASDAQ or any comparable system, or if the Common Stock is not quoted
on NASDAQ or any comparable system, the closing sale price or, in case
no reported sale takes place, the average of the closing bid and asked
prices, as furnished by any two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation
for that purpose.
(v) In any case in which this Section 6 shall require that an
adjustment be made immediately following a record date, the
Corporation may elect to defer (but only until five business days
following the mailing of the notice described in Section 6(j)) issuing
to the holder of any share of the Series F Preferred Stock converted
after such record date the shares of the Common Stock and other
capital stock of the Corporation issuable upon such conversion over
and above the shares of the Common Stock and other capital stock of
the Corporation issuable upon such conversion only on the basis of the
conversion rate prior to adjustment; and, in lieu of the shares the
issuance of which is so deferred, the Corporation shall issue or cause
its transfer agents to issue due bills or other appropriate evidence
of the right to receive such shares.
(g) No adjustment in the conversion rate shall be required until
cumulative adjustments result in a concomitant change of 1% or more of the
conversion price as existed prior to the last adjustment of the conversion rate;
PROVIDED, HOWEVER, that any adjustments which by reason of this Section 6(g) are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 6 shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case may be.
No adjustment to the conversion rate shall be made for cash dividends.
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(h) In the event that, as a result of an adjustment made pursuant to
Section 6(f), the holder of any share of the Series F Preferred Stock thereafter
surrendered for conversion shall become entitled to receive any shares of
capital stock of the Corporation other than shares of the Common Stock,
thereafter the number of such other shares so receivable upon conversion of any
shares of the Series F Preferred Stock shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Section 6.
(i) The Corporation may make such increases in the conversion rate,
in addition to those required by Sections 6(f)(i), (ii) and (iii), as it
considers to be advisable in order that any event treated for Federal income tax
purposes as a dividend of stock or stock rights shall not be taxable to the
recipients thereof.
(j) Whenever the conversion rate is adjusted, the Corporation shall
promptly mail to all holders of record of shares of the Series F Preferred Stock
a notice of the adjustment.
(k) In the event that:
(i) the Corporation takes any action which would require an
adjustment in the conversion rate,
(ii) the Corporation consolidates or merges with, or transfers
all or substantially all of its assets to, another
corporation and stockholders of the Corporation must approve
the transaction, or
(iii) there is a dissolution or liquidation of the Corporation,
a holder of shares of the Series F Preferred Stock may wish to convert some or
all of such shares into shares of the Common Stock prior to the record date for,
or the effective date of, the transaction so that he may receive the rights,
warrants, securities or assets which a holder of shares of the Common Stock on
that date may receive. Therefore, the Corporation shall mail to holders of
shares of the Series F Preferred Stock a notice stating the proposed record or
effective date, as the case may be. The Corporation shall mail the notice at
least 10 days before such date; however, failure to mail such notice or any
defect therein shall not affect the validity of any transaction referred to in
clause (i), (ii) or (iii) of this Section 6(k).
(l) If any of the following shall occur, namely: (i) any
reclassification or change of outstanding shares of the Common Stock issuable
upon conversion of shares of the Series F
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Preferred Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), (ii) any consolidation or merger to which the Corporation is a
party other than a merger in which the Corporation is the continuing corporation
and which does not result in any reclassification of, or change (other than a
change in name, or par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination) in,
outstanding shares of the Common Stock or (iii) any sale or conveyance of all or
substantially all of the property or business of the Corporation as an entirety,
then the Corporation, or such successor or purchasing corporation, as the case
may be, shall, as a condition precedent to such reclassification, change,
consolidation, merger, sale or conveyance, provide in its certificate of
incorporation or other charter document that each share of the Series F
Preferred Stock shall be convertible into the kind and amount of shares of
capital stock and other securities and property (including cash) receivable upon
such reclassification, change, consolidation, merger, sale or conveyance by a
holder of the number of shares of the Common Stock deliverable upon conversion
of such share of the Series F Preferred Stock immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Such
certificate of incorporation or other charter document shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 6. The foregoing, however, shall not
in any way affect the right a holder of a share of the Series F Preferred Stock
may otherwise have, pursuant to clause (ii) of the last sentence of
Section 6(f)(iii), to receive Rights upon conversion of a share of the Series F
Preferred Stock. If, in the case of any such consolidation, merger, sale or
conveyance, the stock or other securities and property (including cash)
receivable thereupon by a holder of the Common Stock includes shares of capital
stock or other securities and property of a corporation other than the successor
or purchasing corporation, as the case may be, in such consolidation, merger,
sale or conveyance, then the certificate of incorporation or other charter
document of such other corporation shall contain such additional provisions to
protect the interests of the holders of shares of the Series F Preferred Stock
as the Board of Directors shall reasonably consider necessary by reason of the
foregoing. The provision of this Section 6(l) shall similarly apply to
successive consolidations, mergers, sales or conveyances.
Section 7. EXCHANGE.
(a) REQUIREMENTS OF EXCHANGE. At the Corporation's option and
provided that the Corporation and the holders of the shares of the Series F
Preferred Stock have agreed to the form of Series F Indenture (as hereinafter
referred to), all, but not less than all, of the then outstanding shares of the
Series F Preferred Stock may be exchanged on any dividend payment date at
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least two years subsequent to the original issuance of the Series F Preferred
Stock, subject to certain conditions stated in the immediately following
sentence, for the Corporation's 7% Convertible Subordinated Exchange Debentures
due ten years after the date of original issuance of the Series F Preferred
Stock (the "Series F Debentures") to be issued pursuant to an indenture (the
"Series F Indenture") in a form as agreed to by the Corporation and the holders
of the shares of the Series F Preferred Stock, at an exchange rate of $100.00
principal amount of the Series F Debentures for each share of the Series F
Preferred Stock. Such exchange may be made only if, at the time of exchange (i)
there shall be no dividend arrearage (including the dividend payable on the date
of exchange) on the shares of the Series F Preferred Stock, and (ii) no Event of
Default (as defined in the Series F Indenture) under the Series F Indenture
shall have occurred and be continuing. In the event that such exchange would
result in the issuance of a Series F Debenture in a principal amount which is
not an integral multiple of $1,000, the difference between such principal amount
and the highest integral multiple of $1,000 (which may be zero) which is less
than such principal amount shall be paid to the holder in cash.
(b) NOTICE OF EXCHANGE. The Corporation will mail to each holder of
record of shares of the Series F Preferred Stock written notice of its intention
to exchange not less than 30 nor more than 60 days prior to the date fixed for
the exchange (the "Series F Exchange Date"). Each such notice shall state: (i)
the Series F Exchange Date, (ii) the place or places where certificates for such
shares of the Series F Preferred Stock are to be surrendered for exchange into
Series F Debentures, and (iii) that dividends on the shares of the Series F
Preferred Stock to be exchanged will cease to accrue on such Series F Exchange
Date. Prior to giving notice of intention to exchange, the Corporation shall
execute and deliver to a bank or trust company selected by the Corporation, the
Series F Indenture. Except as may be otherwise required by applicable law, the
form of the Series F Indenture may not be amended or supplemented before the
Series F Exchange Date without the affirmative vote or consent of the holders of
two-thirds (2/3) of the outstanding shares of the Series F Preferred Stock,
except for those changes which would not adversely affect the legal rights of
the holders. The Corporation will cause the Series F Debentures to be
authenticated on the dividend payment date on which the exchange is effective,
and the Corporation will pay interest on the Series F Debentures at the rate and
on the dates specified in such Series F Indenture from and after the Series F
Exchange Date.
(c) RIGHTS AFTER SERIES F EXCHANGE DATE. If notice has been mailed
as aforesaid, from and after the Series F Exchange Date (unless default shall be
made by the Corporation in issuing Series F Debentures in exchange for, or in
making the final dividend payment on, the outstanding shares of the Series F
Preferred Stock on the Series F Exchange Date), dividends on the
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shares of the Series F Preferred Stock shall cease to accrue, and such shares
shall no longer be deemed to be issued and outstanding, and all rights of the
holders thereof as stockholders of the Corporation (except the right to receive
from the Corporation the Series F Debentures) shall cease and terminate. Upon
surrender in accordance with said notice of the certificates for any shares of
the Series F Preferred Stock so exchanged (properly endorsed or assigned for
transfer, if the Corporation shall so require and the notice shall so state),
such shares shall be exchanged by the Corporation into Series F Debentures as
aforesaid. Dividends due on the quarterly dividend payment date on which the
exchange is effected will be mailed to holders in the regular course.
Section 8. RANKING. With regard to rights to receive dividends
and distributions upon dissolution of the Corporation, the Series F Preferred
Stock shall rank prior to Series D Junior Participating Preferred Stock of the
Corporation and the Common Stock and on a parity with the Series E Preferred
Stock.
Section 9. LIMITATIONS. In addition to any other rights provided
by applicable law, so long as any shares of the Series F Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote, or the
written consent as provided by law, of the holders of at least two-thirds (2/3)
of the outstanding shares of the Series F Preferred Stock, voting separately,
(a) create, authorize or issue any class or series of capital
stock ranking either as to payment of dividends or distribution of
assets upon liquidation prior to the Series F Preferred Stock; or
(b) change the preferences, rights or powers with respect to the
Series F Preferred Stock so as to affect the Series F Preferred Stock
adversely;
but (except as otherwise required by applicable law) nothing in this subpart IC
contained shall require such a vote or consent (i) in connection with any
increase in the total number of authorized shares of the Common Stock, or (ii)
in connection with the authorization or increase of any class or series of
shares ranking, as to dividends and in liquidation, junior to or on a parity
with the Series F Preferred Stock; PROVIDED, HOWEVER, that no such vote or
written consent of the holders of the shares of the Series F Preferred Stock
shall be required if, at or prior to the time when the issuance of any such
shares ranking prior to the Series F Preferred Stock is to be made or any such
change is to take effect, as the case may be, provision is made for the
redemption of all the then outstanding shares of the Series F Preferred Stock;
and PROVIDED, FURTHER, that the provisions of this Section 9 shall not in any
way limit the right and power of
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the Corporation to issue its currently authorized but unissued shares or bonds,
notes, mortgages, debentures, and other obligations, and to incur indebtedness
to banks and to other lenders.
Section 10. NO PREEMPTIVE RIGHTS. No holder of shares of the
Series F Preferred Stock will possess any preemptive rights to subscribe for or
acquire any unissued shares of capital stock of the Corporation (whether now or
hereafter authorized) or securities of the Corporation convertible into or
carrying a right to subscribe to or acquire shares of capital stock of the
Corporation.
II.
COMMON STOCK
A. Subject to the preferential rights of the Preferred Stock, the
holders of the Common Stock shall be entitled to receive, to the extent
permitted by law, such dividends as may be declared from time to time by the
Board of Directors.
B. In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up of the Corporation, after
distribution in full of the preferential amount to be distributed to the holders
of shares of the Preferred Stock, holders of the Common Stock shall be entitled
to receive all the remaining assets of the Corporation of whatever kind
available for distribution to stockholders, ratably in proportion to the number
of shares of Common Stock held by them respectively.
C. In all elections for directors, each holder of Common Stock
entitled to vote thereat shall be entitled to as many votes as shall equal the
number of votes which such stockholder would be entitled to cast for the
election of directors with respect to such stockholder's shares of stock
multiplied by the number of directors to be elected, and such stockholder may
cast all of such votes for a single director or may distribute them among the
number to be voted for or for any two or more of them as such stockholder may
see fit.
III.
OTHER PROVISIONS
A. Subject to the protective conditions and restrictions, if any,
applicable to any outstanding class of Preferred Stock, any amendment to this
Restated Certificate of Incorporation which shall increase or decrease the
authorized capital stock of any class or classes may be adopted by the
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affirmative vote of the holders of a majority of the outstanding shares of the
voting stock of the Corporation.
B. No holder of Preferred Stock or Common Stock shall have any right
as such holder to purchase or subscribe for any security of the Corporation now
or hereafter authorized or issued. All such securities may be issued and
disposed of by the Board of Directors to such persons, firms, corporations and
associations for such lawful considerations, and on such terms, as the Board of
Directors in its discretion may determine, without first offering the same, or
any part thereof, to the holders of Preferred Stock or Common Stock.
ARTICLE FIFTH: Notwithstanding any other provisions of this Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the capital stock required by law,
this Restated Certificate of Incorporation or any Preferred Stock Designation,
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal this Article FIFTH.
The By-Laws of this Corporation shall be subject to alteration,
amendment or repeal, and new By-Laws adopted, (i) by the affirmative vote of the
holders of not less than sixty-six and two-thirds percent (66 2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock, voting
together as a single class, at any regular or special meeting of the
stockholders, or (ii) by the affirmative vote of not less than a majority of the
members of the Board of Directors at any meeting of the Board of Directors at
which there is a quorum present and voting.
ARTICLE SIXTH: The Corporation is to have perpetual existence.
ARTICLE SEVENTH: Election of directors need not be by written ballot
unless the By-Laws so provide.
ARTICLE EIGHTH: In addition to any other votes which may be required
pursuant to this Restated Certificate of Incorporation, the General Corporation
Law of the State of Delaware or otherwise, the affirmative vote of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of
the Voting Stock shall be required to authorize (a) any merger or consolidation
of the Corporation with or into any other corporation or (b) the sale in a
single transaction or series of related transactions by the Corporation or any
Subsidiary to an individual or entity (other than the Corporation or any
Subsidiary of the Corporation) of assets constituting all or
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substantially all of the assets of the Corporation and its Subsidiaries taken as
a whole; PROVIDED that the foregoing shall not apply to any merger or
consolidation described in clause (a) if the other party to the merger or
consolidation is a Subsidiary of the Corporation. For purposes of this Article
EIGHTH, "Subsidiary" is any corporation more than 50% of the voting securities
of which are owned directly or indirectly by the Corporation.
ARTICLE NINTH: Section 1. LIMITATION ON LIABILITY. A director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law of the State of Delaware, as so amended. Any repeal or modification of this
Section 1 by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
Section 2. INDEMNIFICATION AND INSURANCE.
(a) Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director, officer or employee of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered
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<PAGE>
by such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director, officer employee or agent and
shall inure to the benefit of his or her heirs, executors and administrators;
PROVIDED, HOWEVER, that except as provided in Section 2(b) of this Article NINTH
with respect to proceedings seeking to enforce rights to indemnification, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section 2 shall
be a contract right and shall include the right to be paid by the Corporation if
the expenses incurred in defending any such proceeding in advance of its final
disposition; PROVIDED, HOWEVER, that if the General Corporation Law of the State
of Delaware requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding shall be made only upon
delivery to the Corporation of an undertaking by or on behalf of such director
or officer to repay all amounts so advanced if it shall ultimately be determined
that such director or officer is not entitled to be indemnified under this
Section 2 or otherwise.
(b) If a claim under Section 2(a) of this Article NINTH is not paid
in full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or stockholders)
that the claimant has not met such applicable standard of conduct, shall
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be a defense to the action or create a presumption that the claimant has not met
the applicable standard of conduct.
(c) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Section 2 shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of this Restated Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
(d) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware.
(e) The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and rights to be
paid by the Corporation the expenses incurred in defending any proceeding in
advance of its final disposition, to any agent of the Corporation to the fullest
extent of the provisions of this Section 2 with respect to the indemnification
and advancement of expenses of directors, officers and employees of the
Corporation.
ARTICLE TENTH: In addition to any other considerations which the
Board of Directors may lawfully take into account, in determining whether to
take or to refrain from taking corporate action on any matter, including
proposing any matter to the stockholders of the Corporation, the Board of
Directors may take into account the interests of creditors, customers, employees
and other constituencies of the Corporation and its subsidiaries and the effect
upon communities in which the Corporation and its subsidiaries do business.
ARTICLE ELEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Restated Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter provided herein or by statute, and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Restated Certificate of
Incorporation in its present form or as amended are granted subject to the
rights reserved in this Article.
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<PAGE>
__________
This Restated Certificate of Incorporation was duly adopted by the
Board of Directors of the Corporation at its meeting duly held on March 28, 1994
in accordance with the provisions of Section 245 of the General Corporation Law
of the State of Delaware, as amended. This Restated Certificate of
Incorporation only restates and integrates and does not further amend the
provisions of the Corporation's Certificate of Incorporation as heretofore
amended or supplemented, and there is no discrepancy between those provisions
and the provisions of this Restated Certificate of Incorporation, EXCEPT THAT
(i) certain provisions of the original Certificate of Incorporation have been
omitted in accordance with Section 245 and (ii) certain definitions and headings
have been conformed throughout this Restated Certificate of Incorporation.
IN WITNESS WHEREOF, Stone Container Corporation has caused this
Restated Certificate of Incorporation to be signed by its Executive Vice
President - Chief Financial and Planning Officer and attested by its Secretary
this 11th day of July, 1994.
STONE CONTAINER CORPORATION
By:/s/ Arnold F. Brookstone
_________________________________
Arnold F. Brookstone
Executive Vice President-
Chief Financial and
Planning Officer
Attest:
/s/ Leslie T. Lederer
__________________________
Leslie T. Lederer
Secretary
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R3C94B11.URC
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<PAGE>
Exhibit 3(b)
BY-LAWS
OF
STONE CONTAINER CORPORATION
AS AMENDED AND IN EFFECT
MARCH 28, 1994
<PAGE>
BY-LAWS
OF
STONE CONTAINER CORPORATION
ARTICLE I
STOCKHOLDERS
Section 1.1 ANNUAL MEETING. The annual meeting of stockholders for
the election of directors and the transaction of such other business as may
properly come before it shall be held on the second Tuesday of May of each year,
or such other date, and at such time and place, within or without the State of
Delaware, as shall be determined by resolution of the Board of Directors. If the
day fixed for the annual meeting is a legal holiday, such meeting shall be held
on the next succeeding business day.
Except as otherwise provided by the laws of Delaware or the
Certificate of Incorporation of the Corporation, the only business which
properly shall be conducted at any annual meeting of stockholders shall (a)
have been specified in the written notice of the meeting (or any supplement
thereto) given as provided in Section 1.3, (b) be brought before the meeting by
or at the direction of the Board of Directors or the officer of the Corporation
presiding at the meeting or (c) have been specified in a written notice (a
"Stockholder Meeting Notice") given to the Corporation, in accordance with all
of the following requirements, by or on behalf of any stockholder who is
entitled to vote at such meeting. Each Stockholder Meeting Notice must be
delivered personally to, or be mailed to and received by, the Secretary of the
Corporation at the principal executive offices of the Corporation, in Chicago,
Illinois, not less than sixty nor more than ninety days prior to the annual
meeting; PROVIDED, HOWEVER, that in the event that less than seventy days'
notice or prior public disclosure of the date of the annual meeting is given or
made to stockholders, notice by the stockholder to be timely must be received
not later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made, whichever first occurs. Each Stockholder Meeting Notice
shall set forth: (a) a description of each item of business proposed to be
brought before the meeting and the reasons for conducting such business at the
annual meeting; (b) the name and record address of the stockholder proposing to
bring such item of business before the meeting; (c) the class and number of
shares of capital stock held of record, owned beneficially and represented by
proxy by such stockholder as of the record date for the meeting (if such date
shall then have been made publicly available) and as of the date of such
Stockholder Meeting Notice; and (d) such other information which would be
required to be included in a proxy statement filed with the Securities and
Exchange Commission if, with respect to any such item of business, such
stockholder were a participant in a solicitation subject to Section 14 of the
Securities Exchange Act of 1934, as amended. No business shall be brought before
any annual meeting of stockholders of the Corporation otherwise than as provided
in this Section 1.1; PROVIDED, HOWEVER, that nothing contained in this Section
1.1 shall be deemed to preclude discussion by any stockholder of any business
properly brought before the annual meeting. The officer of the Corporation
presiding at the annual meeting of stockholders shall, if the facts so warrant,
determine that business was not properly brought before the meeting in
accordance with the provisions of this Section 1.1 and, if such officer should
so determine, such officer shall so declare to the meeting and any such
business so determined to be not properly brought before the meeting shall not
be transacted.
Section 1.2 SPECIAL MEETING. Special meetings of stockholders may
only be called by the Board of Directors or the Chairman of the Board. Special
meetings of stockholders may be held at such places, within or without the State
of Delaware, as may be specified in the call of any meeting.
Section 1.3 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Written notice
of every meeting of stockholders stating the place, date, time and purposes
thereof, shall, except when otherwise required by the laws of the State of
Delaware, be mailed at least ten but not more than sixty days prior to the
meeting to each stockholder of record entitled to vote thereat. Any meeting at
which a quorum of stockholders is present, in person or by proxy, may adjourn
from time to time without notice other than announcement at such meeting until
its business is completed. At the adjourned meeting, the Corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than thirty days, or if after the adjournment a
new record date
<PAGE>
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 1.4. QUORUM. The holders of a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote,
present in person or by proxy, shall, except as otherwise provided by law,
constitute a quorum for the transaction of business at all meetings of
stockholders. If at any meeting a quorum is not present, the chairman of the
meeting or the holders of the majority of the voting power of the shares of
capital stock present or represented may adjourn the meeting from time to time
until a quorum is present. At the adjourned meeting, the Corporation may
transact any business that might have been transacted at the original meeting.
If the adjournment is for more than thirty days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. The stockholders present or represented at a duly called or held
meeting at which a quorum is present may continue to transact business until
final adjournment notwithstanding the withdrawal of enough stockholders to leave
less than a quorum.
Section 1.5 VOTING. (a) Except as otherwise provided in the
Certificate of Incorporation of the Corporation or these By-Laws, each holder of
capital stock entitled to vote at a stockholders' meeting shall, as to all
matters in respect of which such capital stock has voting rights, be entitled to
one vote in person or by written proxy for each share of capital stock owned of
record by him, but no proxy shall be voted or acted upon after three years from
its date unless the proxy provides for a longer period. No vote upon any matter
need be by ballot unless demanded by the holders of at least ten percent of the
voting power of the shares represented and entitled to vote at the meeting.
Except as provided in Section 1.5(b) of these By-Laws with respect to the
election of directors, all questions or matters shall be decided by a majority
of the votes cast, unless otherwise required by the laws of the State of
Delaware, the Certificate of Incorporation or these By-Laws.
(b) In all elections for directors, each stockholder entitled to vote
thereat shall be entitled to as many votes as shall equal the number of votes
which (except for this Section 1.5(b)) such stockholder would be entitled to
cast for the election of directors with respect to such stockholder's shares of
stock multiplied by the number of directors to be elected, and such stockholder
may cast all of such votes for a single director or may distribute them among
the number to be voted for or for any two or more of them as such stockholder
may see fit.
Section 1.6 CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. (a) Any
action required to be taken or which may be taken at any annual or special
meeting of stockholders of the Corporation may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Within three business days after receipt of the earliest dated
consent delivered to the Corporation in the manner provided in Section 228(c) of
the Delaware General Corporation Law or the determination by the Board of
Directors of the Corporation that the Corporation should seek corporate action
by written consent, as the case may be, the Secretary of the Corporation shall
engage nationally recognized independent inspectors of elections for the
purpose of performing a ministerial review of the validity of the consents and
revocations. The cost of retaining inspectors of election shall be borne by the
Corporation.
(c) Consents and revocations shall be delivered to the inspectors
upon receipt by the Corporation, any stockholder or stockholders soliciting
consents or soliciting revocations in opposition to action by consent proposed
by the Corporation ("Soliciting Stockholders"), proxy solicitors of the
Corporation or Soliciting Stockholders or other designated agents. As soon as
consents and revocations are received, the inspectors shall review the consents
and revocations and shall maintain a count of the number of valid and unrevoked
consents. The inspectors shall keep such count confidential and shall not reveal
the count to the Corporation, the Soliciting Stockholders, representatives of
the Corporation or the Soliciting Stockholders or any other entity. As soon as
practicable after the earlier of (i) sixty days after the date of the earliest
dated consent delivered to the Corporation in the manner provided in Section
228(c) of the Delaware General Corporation Law or (ii) a written request
therefor by the Corporation or Soliciting Stockholders, whichever is soliciting
consents, notice of which request shall be given to the party opposing the
solicitation of consents, if any, and which shall state that the Corporation or
Soliciting Stockholders, as the case may be, have a good faith belief that the
requisite number of valid and unrevoked consents to authorize or take the action
specified in the consents has been received in accordance with these By-Laws,
the
<PAGE>
inspectors shall issue a preliminary report to the Corporation and the
Soliciting Stockholders stating: (i) the number of valid consents; (ii) the
number of valid revocations; (iii) the number of valid and unrevoked consents;
(iv) the number of invalid consents; (v) the number of invalid revocations;
(vi) whether, based on their preliminary count, the requisite number of valid
and unrevoked consents has been obtained to authorize or take the action
specified in the consents.
(d) Unless the Corporation and the Soliciting Stockholders shall
agree to a shorter or longer period, the Corporation and the Soliciting
Stockholders shall have 48 hours to review the consents and revocations and to
advise the inspectors and the opposing party in writing as to whether they
intend to challenge the preliminary report of the inspectors. If no written
notice of an intention to challenge the preliminary report is received within
48 hours after the inspectors' issuance of the preliminary report, the
inspectors shall issue to the Corporation and the Soliciting Stockholders
their final report containing the information from the inspectors'
determination with respect to whether the requisite number of valid and
unrevoked consents was obtained to authorize or take the action specified in
the consents. If the Corporation or the Soliciting Stockholders issue written
notice of an intention to challenge the inspectors' preliminary report within
48 hours after the issuance of that report, a challenge session shall be
scheduled by the inspectors as promptly as practicable. A transcript of the
challenge session shall be recorded by a certified court reporter. Following
completion of the challenge session, the inspectors shall as promptly as
practicable issue their final report to the Soliciting Stockholders and the
Corporation, which report shall contain the information included in the
preliminary report, plus all changes in the vote totals as a result of the
challenge or otherwise and a certification of whether the requisite number of
valid and unrevoked consents was obtained to authorize or take the action
specified in the consents. A copy of the final report of the inspectors shall be
included in the book in which the proceedings of meetings of stockholders are
recorded.
(e) The Corporation shall give prompt notice to the stockholders of
the results of any consent solicitation or the taking of the corporate action
without a meeting by less than unanimous written consent.
Section 1.7 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of capital stock or for the purpose of any
other lawful action other than stockholder action by written consent, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty nor less than ten days before the date of such meeting, nor more
than sixty days prior to any such other action.
(b) If no record date is fixed:
(1) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(2) The record date for determining stockholders for any other
purpose other than stockholder action by written consent shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record
date for the adjourned meeting.
(d) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix, in advance, a record date, which shall not be more than
ten days after the date upon which the resolution fixing the record date is
adopted by the Board of Directors. Any stockholder or record seeking to have the
stockholders authorize or take corporate action by written consent shall, by
written notice to the Secretary of the Corporation and its principal executive
offices in Chicago, Illinois, request the Board of Directors to fix a record
date. The Board of Directors shall promptly, but in all events within ten days
after the date on which such a request is received, adopt a resolution fixing
the record date. If no record date has been fixed by the Board of Directors
within ten days after the date on which such request is received, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting,
<PAGE>
when no prior action by the Board of Directors is required by applicable law,
shall be the first day on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
applicable law, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close of
business on the date on which the Board of Directors adopts the resolution
taking such prior action.
ARTICLE II
DIRECTORS
Section 2.1 NUMBER, ELECTION AND TERM OF OFFICE OF DIRECTORS. The
Board of Directors of the Corporation shall consist of twelve directors, except
from time to time, such member shall be deemed, for all purposes of these By-
Laws and otherwise, increased or decreased (each such increase or decrease to
occur automatically without any action required by the Corporation, the Board of
Directors or the stockholders) to the extent required by the terms of any issued
and outstanding series of preferred stock of the Corporation. Each director
shall hold office until his successor is elected and qualified or until his
earlier resignation or removal. No director need be stockholder.
Section 2.2 RESIGNATION OR REMOVAL. Any director may resign by giving
written notice to the Board of Directors or the Chairman of the Board, any such
resignation shall take effect at the time of receipt of notice thereof or at any
later time specified therein, and, unless expressly required, acceptance of such
resignation shall not be necessary to make it effective. Except as otherwise
required by the laws of the State of Delaware, the Certificate of Incorporation
or in any Preferred Stock Designation (as defined in Article Fourth of the
Certificate of Incorporation), any director may be removed, with or without
cause, by the affirmative vote or consent of the holders of a majority of the
voting power of shares of capital stock issued and outstanding and entitled to
vote.
Section 2.3 VACANCIES. Except as otherwise required by the
Certificate of Incorporation or in any Preferred Stock Designation, any vacancy
occurring in the Board of Directors and any directorship to be filled by reason
of an increase in the number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by the stockholders. A
director elected to fill a vacancy shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Except as
otherwise required by the Certificate of Incorporation, when one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have the power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
Section 2.3 for the filling of other vacancies.
Section 2.4 PLACE OF MEETINGS. Meetings of the Board of Directors may
be held at such places, within or without the State of Delaware, as the Board of
Directors may from time to time determine or as may be specified in the call of
any meetings.
Section 2.5 REGULAR MEETINGS. A regular annual meeting of the Board
of Directors shall be held without call or notice immediately after and at the
same general place as the annual meeting of stockholders, for the purpose of
organizing the Board of Directors, electing officers and transacting any other
business that may properly come before the meeting. Additional regular meetings
of the Board of Directors may be held without call or notice at such place and
at such time as shall be fixed by resolution of the Board of Directors.
Section 2.6 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board of Directors or any two
directors then in office. Notice of special meetings either shall be mailed by
the Secretary to each director at least two days before the meeting or shall be
given personally or telegraphed or telecopied to each director by the Secretary
at least twenty-four hours before the meeting. Such notice shall set forth the
date, time and place of such meeting but need not, unless otherwise required by
law, state the purpose of the meeting.
<PAGE>
Section 2.7 QUORUM AND VOTING. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors unless otherwise provided by the laws of the State of Delaware, the
Certificate of Incorporation or these By-Laws. A majority of the directors
present at any meeting at which a quorum is present may adjourn the meeting to
any other date, time or place without further notice other than announcement at
the meeting. If at any meeting a quorum is not present, a majority of the
directors present may adjorn the meeting to any other date, time or place
without notice other than announcement at the meeting until a quorum is present.
Section 2.8 COMPENSATION. The directors shall be paid their
reasonable expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors and an annual retainer or salary for services as a director.
No such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
Section 2.9 TELEPHONIC MEETINGS. Members of the Board of Directors
may participate in a meeting of the Board of Directors by means of conference
telephone or other similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 2.9 shall constitute presence in person at such
meeting.
Section 2.10 RETIREMENT. No person shall be nominated or elected to
the office of director of the Corporation if he or she has attained, as of the
date of the annual or special meeting of stockholders at which he or she is to
be elected, the age of 70.
Section 2.11 HONORARY DIRECTORS. Mr. Marvin N. Stone and Mr. Jerome
H. Stone shall be honorary directors and, as such, shall be entitled to notice
of and to participate at meetings of directors, but shall have no vote.
Section 2.12 EXECUTIVE COMMITTEE. The Board of Directors may, in its
discretion by resolution passed by a majority of the Board of Directors,
designate an Executive Committee consisting of such number of directors as the
Board of Directors shall determine. The Executive Committee shall have and may
exercise all the authority of the Board of Directors in the management of the
Corporation with respect to any matter which may require action prior to, or
which in the opinion of the Executive Committee may be inconvenient,
inappropriate or undesirable to be postponed until, the next meeting of the
Board of Directors; PROVIDED, the Executive Committee shall have no authority
to obligate the Corporation to any expenditure or liability in excess of
$1,500,000 in respect of any one project or series of related projects unless in
furtherance of resolutions or actions previously adopted by the Board of
Directors; and FURTHER PROVIDED, the Executive Committee shall not have the
power or authority of the Board of Directors in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these By-Laws. Any member of the Board of Directors may request the
Chairman of the Executive Committee to call a meeting of the Executive Committee
with respect to a specified subject.
Section 2.13 OTHER COMMITTEES. The Board of Directors may from time
to time, in its discretion, by resolution passed by a majority of the Board of
Directors, designate, and appoint, other committees of one or more directors
which shall have and may exercise such lawfully delegable powers and duties
conferred or authorized by the resolutions of designation and appointment. The
Board shall have the power at any time to change the members of any such
committee, to fill vacancies, and to discharge any such committee.
Section 2.14 NOMINATIONS. Except as otherwise provided in the
Certificate of Incorporation or any Preferred Stock Designation relating to the
rights of the holder of any one or more classes or series of preferred stock
issued by the Corporation, acting separately by class or series, to elect, under
specified circumstances, directors at a meeting of stockholders, nominations for
the election of directors may be made by the Board of Directors or a committee
appointed by the Board of Directors or by any stockholder entitled to vote in
the election of directors generally. However, any stockholder entitled to vote
in the election of directors generally may nominate one or more persons for
election as directors at a meeting at which directors are to be elected only if
written notice of such stockholder's intent to make such nomination or
nominations has been delivered personally to, or been mailed to and received by,
the Secretary of the Corporation at the principal executive offices of the
Corporation in Chicago, Illinois, not less than sixty days nor more than ninety
days prior to the meeting; PROVIDED, HOWEVER, that, in the
<PAGE>
event that less than seventy days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the stockholder to be
timely must be received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. Each such notice shall
set forth: (i) the name and record address of the stockholder who intends to
make the nomination; (ii) the name, age, principal occupation or employment,
business address and residence address of the person or persons to be nominated;
(iii) the class and number of shares of capital stock held of record, owned
beneficially and represented by proxy by such stockholder and by the person or
persons to be nominated as of the record date for the meeting (if such date
shall then have been made publicly available) and the date of such notice; (iv)
a representation that the stockholder intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (v) a
description of all arrangements or understandings between such stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder; (vi) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the Securities Exchange Act of 1934, as amended, and the proxy rules
of the Securities and Exchange Commission; and (vii) the consent of each nominee
to serve as a director of the Corporation if so elected. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation. The officer of the
Corporation presiding at the meeting of stockholders shall, if the facts so
warrant, determine that a nomination was not made in accordance with the
provisions of this Section 2.14 and, if such officer should so determine, such
officer shall so declare to the meeting and the defective nomination shall be
disregarded. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in
these By-Laws.
ARTICLE III
OFFICERS
Section 3.1 NUMBER AND DESIGNATION. The officers of the Corporation
shall be a Chairman of the Board, a President, one or more Vice Presidents (the
number thereof to be determined by the Board of Directors and one or more of
whom may be designated as Executive Vice Presidents or Senior Vice Presidents),
a Secretary and a Treasurer, and such Assistant Secretaries, Assistant
Treasurers or other officers as may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person, except that
no one person may hold the offices of both Chairman of the Board and Secretary
nor both President and Secretary.
Section 3.2 ELECTION AND TERM OF OFFICE. The officers of the
Corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be.
Vacancies may be filled or new offices created and filled at any meeting of the
Board of Directors. Each officer shall hold office until his or her successor
shall have been duly elected and shall have qualified or until his or her
earlier resignation or removal.
Section 3.3 REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 3.4 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
Section 3.5 CHAIRMAN OF THE BOARD. The Chairman of the Board shall
be the chief executive officer of the Corporation and shall in general supervise
and control all of the business and affairs of the Corporation. The Chairman of
the Board may sign, alone or with the Secretary or any other proper officer of
the Corporation thereunto authorized by the Board of Directors, any deeds,
mortgages, bonds, contracts, or other instruments which the Board of Directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these By-
Laws to some other officer or agent of the Corporation, or shall be required by
law to be otherwise signed or executed, and in general he shall perform all
duties incident to
<PAGE>
the office of Chairman of the Board and such other duties as from time to time
may be prescribed by the Board of Directors. When present, he shall preside at
all meetings of the stockholders and of the Board of Directors.
Section 3.6 PRESIDENT. The President shall be the principal officer
of the Corporation, second only to the Chairman of the Board. In the absence of
the Chairman of the Board or in the event of his or her inability or refusal to
act as Chairman of the Board, the President shall perform the duties of the
Chairman of the Board and, when so acting, shall have all the powers of, and be
subject to all the restrictions upon, the Chairman of the Board. He or she may
sign, alone or with the Secretary or any other proper officer of the Corporation
thereunto authorized by the Board of Directors, any deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors has authorized to
be executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors, or by these By-Laws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed, and in general he shall perform all duties incident to the
office of President and such other duties as from time to time may be prescribed
by the Board of Directors or the Chairman of the Board.
Section 3.7 THE VICE PRESIDENTS. In the absence of the President or
in the event of his or her inability or refusal to act, the Vice President (or
in the event there by more than one Vice President, the Vice Presidents in the
order of their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions
upon the President. Any Vice President shall perform such duties as from time
to time may be assigned to him or her by the Chairman of the Board, the
President or by the Board of Directors.
Section 3.8 THE TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine. The
Treasurer shall have charge and custody of and be responsible for all funds and
securities of the Corporation, receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever, and deposit all such
moneys in the name of the Corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of Article
IV of these By-Laws. The Treasurer shall in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him or her by the Chairman of the Board, the President or by
the Board of Directors.
Section 3.9 THE SECRETARY. The Secretary shall: (a) keep the minutes
of the stockholders' and of the Board of Directors' meetings in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation; (d) keep
a register of the post office address of each stockholder which shall be
furnished to the Secretary by such stockholder; (e) have general charge of the
stock transfer books of the Corporation; and (f) in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him or her by the President or the Board of Directors.
Section 3.10 ASSISTANT TREASURERS AND SECRETARIES. The Assistant
Treasurers shall respectively, if required by the Board of Directors, give bonds
for the faithful discharge of their duties in such sums and with such sureties
as the Board of Directors shall determine. The Assistant Treasurers and
Assistant Secretaries, in general, shall perform such duties as shall be
assigned to them by the Treasurer or the Secretary, respectively, or by the
Chairman of the Board, the President or the Board of Directors.
Section 3.11 SALARIES. The salaries of the officers shall be fixed
from time to time by the Board of Directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the Corporation.
ARTICLE IV
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 4.1 CONTRACTS. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
<PAGE>
Section 4.2 LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in the name of the
Corporation unless authorized by a resolution of the Board of Directors. Such
authority may be general or confined to specific instances.
Section 4.3 CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for the payment of money issued in the name of the Corporation shall be signed
by such officers, employees or agents of the Corporation as shall from time to
time be designated by the Chairman of the Board, the President, the Vice
President-Finance or the Treasurer.
Section 4.4 DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as shall be designated from
time to time by the Chairman of the Board, the President, a Vice President or
the Treasurer; and such officers may designate any type of depository
arrangement (including but not limited to depository arrangements resulting in
net debits against the Corporation) as from time to time offered or available.
ARTICLE V
CERTIFICATES OF STOCK
The interest of each stockholder of the Corporation shall be evidenced
by certificates for shares of stock in such form as the Board of Directors may
from time to time prescribe. The shares of the stock of the Corporation shall
be transferred on the books of the Corporation by the holder thereof in person
or by his attorney, upon surrender for cancellation of certificates for the same
number of shares, with an assignment and power of transfer endorsed thereon or
attached thereto, duly executed, with such proof of the authenticity of the
signature as the Corporation or its agents may reasonably require.
The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution
prescribe, which resolution may permit all or any of the signatures on such
certificates to be in facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
January in each year and end on the thirty-first day of December in each year.
ARTICLE VII
OFFICES
The Corporation may have offices outside of the State of Delaware at
such places as shall be determined from time to time by the directors.
<PAGE>
ARTICLE VIII
INDEMNIFICATION
Section 8.1 GENERAL. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she or a person
of whom he or she is the legal representative is or was a director, officer or
employee of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the General Corporation Law of
the State of Delaware as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and
such indemnification shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit or his or
her heirs, executors and administrators; PROVIDED, HOWEVER, that except as
provided in Section 8.2 with respect to proceedings seeking to enforce rights
to indemnification, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred
in this Article VIII shall be a contract right and shall include the right to
be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; PROVIDED, HOWEVER, that if the
General Corporation Law of the State of Delaware requires, the payment of such
expenses incurred by a director of officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article VIII
or otherwise.
Section 8.2 EXPENSES. If a claim under Section 8.1 is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or stockholders)
that the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
Section 8.3 NON-EXCLUSIVE. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article VIII shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-Law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 8.4 INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power
<PAGE>
to indemnify such person against such expense, liability or loss under the
General Corporation Law of the State of Delaware.
Section 8.5 AGENTS. The Corporation may, to the extent authorized
from time to time by the Board of Directors, grant rights to indemnification,
and rights to be paid by the Corporation the expenses incurred in defending any
proceeding in advance of its final disposition, to any agent of the Corporation
to the fullest extent of the provisions of this Article VIII with respect to the
indemnification and advancement of expenses of directors, officers and employees
of the Corporation.
ARTICLE IX
AMENDMENTS
Except to the extent otherwise provided in the Certificate of
Incorporation, any Preferred Stock Designation or these By-Laws, these By-Laws
shall be subject to alteration, amendment or repeal, and new By-Laws may be
adopted (i) by the affirmative vote of the holders of not less than a majority
of the voting power of all of the outstanding shares of capital stock of the
Corporation then entitled to vote generally in the election of directors, voting
together as a single class, at any regular or special meeting of the
stockholders, or (ii) by the affirmative vote of not less than a majority of the
members of the Board of Directors at any meeting of the Board of Directors at
which there is a quorum present and voting; PROVIDED, that in the case of clause
(i), any alteration, amendment or repeal made with respect to, or the adoption
of a new By-Law inconsistent with, Section 1.5(b) of Article I of these By-Laws,
shall require the affirmative vote of the holders of not less than eighty
percent of the voting power of all of the outstanding shares of capital stock of
the Corporation then entitled to vote generally in the election of directors.
<PAGE>
EXHIBIT 12
STONE CONTAINER CORPORATION
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
(DOLLARS IN THOUSANDS) 1994 1993 1993 1992 1991 1990 1989
- ---------------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before extraordinary
loss and cumulative effects of
accounting changes............... $ (78,947) $ (62,715) $(319,185) $(169,910) $ (49,149) $ 95,420 $ 285,828
Income tax provision (credit)..... (39,953) (26,862) (147,700) (59,424) 31,106 92,786 195,201
Minority interest in consolidated
subsidiaries..................... (2,171) 574 3,572 5,319 5,799 5,863 821
Preferred stock dividend
requirements of majority owned
subsidiary....................... (1,648) (1,301) (5,629) (4,713) (5,826) (3,852) (2,810)
Undistributed (earnings) loss of
non-consolidated subsidiaries.... 4,177 1,839 13,260 6,009 5,360 (611) (226)
Capitalized interest.............. (792) (3,422) (10,779) (47,395) (81,926) (64,815) (56,820)
--------- --------- --------- --------- --------- --------- ---------
(119,334) (91,887) (466,461) (270,114) (94,636) 124,791 421,994
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Fixed charges:
Interest charges (expensed and
capitalized), amortization of
debt discount and debt fees on
all indebtedness............... 114,336 105,650 437,466 433,518 479,732 487,631 408,576
Interest cost portion of rental
expenses (33 1/3%)............. 6,817 6,944 27,463 27,822 26,890 25,379 20,666
Preferred stock dividend
requirements of majority owned
subsidiary.................... 1,648 1,301 5,629 4,713 5,826 3,852 2,810
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges......... 122,801 113,895 470,558 466,053 512,448 516,862 432,052
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings before income taxes,
undistributed (earnings) loss of
non-consolidated subsidiaries,
minority interest and fixed
charges (excluding capitalized
interest)........................ $ 3,467 $ 22,008 $ 4,097 $ 195,939 $ 417,812 $ 641,653 $ 854,046
--------- --------- --------- --------- --------- --------- ---------
Ratio of earnings to fixed
charges.......................... (A) (A) (B) (C) (D) 1.2 2.0
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<FN>
- ------------------------------
(A) The Company's earnings for the three months ended March 31, 1994 and 1993
were insufficient to cover fixed charges by $119.3 million and $91.9
million.
(B) The Company's earnings for the year ended December 31, 1993 were
insufficient to cover fixed charges by $466.5 million. Earnings for 1993
included a non-recurring pretax gain of $35.4 million from the sale of the
Company's 49 percent equity interest in Empaques de Carton Titan, S.A.
("Titan"). If such a non-recurring event had not occurred, earnings would
have been insufficient to cover fixed charges by $501.9 million.
(C) The Company's earnings for the year ended December 31, 1992 were
insufficient to cover fixed charges by $270.1 million.
(D) The Company's earnings for the year ended December 31, 1991 were
insufficient to cover fixed charges by $94.6 million. Earnings for 1991
included a non-recurring pretax gain of $41.8 million associated with the
settlement and termination of a Canadian supply contract and a
non-recurring pretax gain of $17.5 million relating to an involuntary
conversion at the Company's Missoula, Montana mill. If such nonrecurring
events had not occurred, earnings would have been insufficient to cover the
fixed charges by $153.9 million.
</TABLE>
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 23, 1994, relating
to the financial statements of Stone Container Corporation, which appears in
such Prospectus. We also consent to the application of such report to the
Supplemental Financial Information for the three years ended December 31, 1993
listed under Item 16(b) of this Registration Statement when such information is
read in conjunction with the financial statements referred to in our report. The
audits referred to in such report also included this information. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE
Chicago, Illinois
July 22, 1994
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 13th
day of July, 1994.
/s/ ROGER W. STONE
----------------------------
Roger W. Stone
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 22nd
day of July, 1994.
/s/ ARNOLD F. BROOKSTONE
----------------------------
Arnold F. Brookstone
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 22nd
day of July, 1994.
/s/ THOMAS P. CUTILLETTA
----------------------------
Thomas P. Cutilletta
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 15th
day of July, 1994.
/s/ RICHARD A. GIESEN
----------------------------
Richard A. Giesen
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 22nd
day of July, 1994.
/s/ JAMES J. GLASSER
----------------------------
James J. Glasser
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 22nd
day of July, 1994.
/s/ GEORGE D. KENNEDY
----------------------------
George D. Kennedy
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 14th
day of July, 1994.
/s/ HOWARD C. MILLER, JR.
----------------------------
Howard C. Miller, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 14th
day of July, 1994.
/s/ JOHN D. NICHOLS
----------------------------
John D. Nichols
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 14th
day of July, 1994.
/s/ JERRY K. PEARLMAN
----------------------------
Jerry K. Pearlman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 15th
day of July, 1994.
/s/ RICHARD J. RASKIN
----------------------------
Richard J. Raskin
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 14th
day of July, 1994.
/s/ ALAN STONE
----------------------------
Alan Stone
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 22nd
day of July, 1994.
/s/ AVERY STONE
----------------------------
Avery Stone
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 13th
day of July, 1994.
/s/ IRA N. STONE
----------------------------
Ira N. Stone
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Roger W. Stone, Arnold F. Brookstone and
Leslie T. Lederer, and each of them, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities to sign a registration statement on Form S-1 relating to debt
securities of Stone Container Corporation, and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any documents relating to the
qualification or registration under state Blue Sky or securities laws of such
securities, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes the undersigned might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or the
substitute or substitutes of said attorneys-in-fact and agents or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned this Power of Attorney this 14th
day of July, 1994.
/s/ JAMES H. STONE
----------------------------
James H. Stone
