AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 11, 1996
REGISTRATION NO. 33-52383
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JEFFERSON SMURFIT CORPORATION (U.S.)
(FORMERLY CONTAINER CORPORATION OF AMERICA)
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
DELAWARE 36-2659288
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
JEFFERSON SMURFIT CENTRE JOHN R. FUNKE
8182 MARYLAND AVENUE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
ST. LOUIS, MISSOURI 63105 8182 MARYLAND AVENUE
(314) 746-1100 ST. LOUIS, MISSOURI 63105
(314) 746-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
AREA CODE, OF CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
JSCE, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
DELAWARE 37-1337160
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
JEFFERSON SMURFIT CENTRE JOHN R. FUNKE
8182 MARYLAND AVENUE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
ST. LOUIS, MISSOURI 63105 8182 MARYLAND AVENUE
(314) 746-1100 ST. LOUIS, MISSOURI 63105
(314) 746-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
AREA CODE, OF CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
LOU R. KLING, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933
check the following box. [x]
If either of the co-registrants elects to deliver its latest annual report
to security holders, or a complete and legible facsimile thereof, pursuant to
Item 11(a)(1) of this Form, check the following box. [ ]
------------------------
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
JEFFERSON SMURFIT CORPORATION (U.S.)
JSCE, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
FORM S-2 PART I ITEM PROSPECTUS LOCATION OR CAPTION
- --------------------------------------------------------------------- ------------------------------------------
1. Forepart of the Registration Statement and Outside Front Cover
Page of Prospectus........................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus........ Inside Front Cover Page; Additional
Information
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges................................................ Prospectus Summary; Risk Factors; Selected
Historical Financial Data
4. Use of Proceeds................................................ *
5. Determination of Offering Price................................ *
6. Dilution....................................................... *
7. Selling Security Holders....................................... *
8. Plan of Distribution........................................... *
9. Description of Securities to be Registered..................... Prospectus Summary; Description of the
Senior Notes; Certain Federal Income Tax
Considerations
10. Interests of Named Experts and Counsel......................... Legal Matters; Experts
11. Information with Respect to the Co-Registrants................. Outside Front Cover Page; Prospectus
Summary; Risk Factors; Recapitalization
Plan; Capitalization; Selected
Historical Financial Data; Management's
Discussion and Analysis of Results of
Operations and Financial Condition;
Business; Management; Security Ownership
of Certain Beneficial Owners; Certain
Transactions; Description of Certain
Indebtedness; Certain Federal Income Tax
Considerations; Description of the
Senior Notes; Index to Financial
Statements
12. Incorporation of Certain Information by Reference.............. Incorporation of Certain Documents by
Reference; Additional Information
13. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................... *
- ------------
* Not applicable.
PROSPECTUS
$400,000,000
[LOGO]
JEFFERSON SMURFIT CORPORATION (U.S.)
$300,000,000 11 1/4% SERIES A SENIOR NOTES DUE 2004
$100,000,000 10 3/4% SERIES B SENIOR NOTES DUE 2002
-------------------
UNCONDITIONALLY GUARANTEED ON A SENIOR BASIS BY
JSCE, INC.
-------------------
INTEREST ON THE SERIES A SENIOR NOTES PAYABLE MAY 1 AND NOVEMBER 1
INTEREST ON THE SERIES B SENIOR NOTES PAYABLE MAY 1 AND NOVEMBER 1
-------------------
THE SERIES A SENIOR NOTES WILL BE REDEEMABLE AT THE OPTION OF JSC(U.S.), IN
WHOLE OR IN PART, ANY TIME ON OR AFTER MAY 1, 1999, INITIALLY AT 105.625% OF
THEIR PRINCIPAL AMOUNT, PLUS ACCRUED INTEREST, DECLINING TO 100% OF THEIR
PRINCIPAL AMOUNT, PLUS ACCRUED INTEREST, ON OR AFTER MAY 1, 2001. IN
ADDITION, JSC(U.S.) MAY REDEEM, AT ANY TIME PRIOR TO MAY 1, 1997, UP
TO $100 MILLION AGGREGATE PRINCIPAL AMOUNT OF THE SERIES A SENIOR
NOTES, AT A REDEMPTION PRICE OF 110% OF THEIR PRINCIPAL AMOUNT,
PLUS ACCRUED INTEREST, WITH THE NET CASH PROCEEDS FROM AN
ISSUANCE OF CAPITAL STOCK OF JSC(U.S.) OR JSCE OR ANY
PARENT OF JSC(U.S.) TO THE EXTENT THAT SUCH PROCEEDS
ARE CONTRIBUTED TO JSC(U.S.). THE SERIES B
SENIOR NOTES WILL NOT BE REDEEMABLE PRIOR TO
MATURITY.
-------------------
THE SERIES A SENIOR NOTES AND THE SERIES B SENIOR NOTES ARE SENIOR UNSECURED
OBLIGATIONS OF JSC(U.S.), AND THE GUARANTEES OF THE SERIES A SENIOR NOTES AND
THE SERIES B SENIOR NOTES ARE SENIOR UNSECURED OBLIGATIONS OF JSCE.
-------------------
SEE 'RISK FACTORS' FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
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.
-------------------
This Prospectus is to be used by Morgan Stanley & Co. Incorporated in
connection with offers and sales in market-making transactions at negotiated
prices related to prevailing market prices at the time of sale. Morgan Stanley &
Co. Incorporated may act as principal or agent in such transactions.
April 11, 1996
ADDITIONAL INFORMATION
JSCE, Inc. ('JSCE') is a wholly-owned subsidiary of Jefferson Smurfit
Corporation ('JSC'). JSC has no operations other than its investment in JSCE. On
December 31, 1994, Jefferson Smurfit Corporation (U.S.), a wholly-owned
subsidiary of JSC ('Old JSC(U.S.)'), merged (the 'Merger') into its wholly-owned
subsidiary, Container Corporation of America ('CCA'), with CCA surviving and
changing its name to Jefferson Smurfit Corporation (U.S.) ('JSC(U.S.)'). JSCE
owns a 100% equity interest in JSC(U.S.) and is the guarantor of JSC(U.S.)'s
11 1/4% Series A Senior Notes due 2004 (the 'Series A Senior Notes') and 10 3/4%
Series B Senior Notes due 2002 (the 'Series B Senior Notes' and, together with
the Series A Senior Notes, the 'Senior Notes'). JSCE has no operations other
than its investment in JSC (U.S.). JSC (U.S.) has extensive operations
throughout the United States.
Old JSC(U.S.) and CCA have filed with the Securities and Exchange
Commission (the 'Commission') a Registration Statement (which term shall
encompass any amendment thereto) on Form S-2 under the Securities Act of 1933
(the 'Securities Act'), with respect to the Senior Notes and the related
guarantees thereof. This Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto, to
which reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
JSCE is subject to the informational requirements of the Securities
Exchange Act of 1934 (the 'Exchange Act'), and in accordance therewith is
required to file reports and other information with the Commission. The
Registration Statement and the exhibits thereto filed by JSCE with the
Commission, as well as such reports and other information filed by JSCE with the
Commission, may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and should also be available for inspection and copying at the
regional offices of the Commission located in the Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
also be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The respective indentures pursuant to which the Senior Notes were issued
require JSCE to file with the Commission annual reports containing consolidated
financial statements and the related report of independent public accountants
and quarterly reports containing unaudited condensed consolidated financial
statements for the first three quarters of each fiscal year for so long as any
Series A Senior Notes or Series B Senior Notes, as the case may be, are
outstanding.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission are
hereby incorporated by reference in this Prospectus:
(1) JSCE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, filed with the Commission on March 8, 1996, and
(2) All other reports filed by JSCE pursuant to Section 13(a) or 15(d)
of the Exchange Act since December 31, 1995.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus
2
is delivered, upon written or oral request. Copies of this Prospectus, as
amended or supplemented from time to time, and any other documents (or parts of
documents) that constitute part of the Prospectus under Section 10(a) of the
Securities Act will also be provided without charge to each such person, upon
written or oral request. Requests should be directed to Jefferson Smurfit
Corporation, Attention: Charles A. Hinrichs, 8182 Maryland Avenue, St. Louis,
Missouri 63105; telephone (314) 746-1100.
No action has been or will be taken in any jurisdiction by JSC(U.S.), JSCE
or by the Underwriter that would permit a public offering of the Senior Notes or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by JSC(U.S.), JSCE and the
Underwriter to inform themselves about and to observe any restrictions as to the
offering of the Senior Notes and the distribution of this Prospectus.
In this Prospectus, references to 'dollar' and '$' are to United States
dollars, and the terms 'United States' and 'U.S.' mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction. All tons referenced are short tons.
------------------------
TABLE OF CONTENTS
PAGE
----
Additional Information......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
Prospectus Summary............................. 4
Risk Factors................................... 12
Recapitalization Plan.......................... 19
Capitalization................................. 21
Selected Historical Financial Data............. 23
Management's Discussion and Analysis of Results
of Operations and Financial Condition........ 24
Business....................................... 31
PAGE
----
Management..................................... 47
Security Ownership of Certain Beneficial Owners
and Management............................... 55
Certain Transactions........................... 56
Description of Certain Indebtedness............ 60
Description of the Senior Notes................ 65
Certain Federal Income Tax Considerations...... 93
Market-Making Activities of MS&Co. ............ 94
Legal Matters.................................. 94
Experts........................................ 94
Index to Financial Statements.................. F-1
3
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and the financial statements and notes thereto that appear elsewhere
in this Prospectus. The Senior Notes are obligations of JSC(U.S.),
unconditionally guaranteed on a senior basis by JSCE. As used in this
Prospectus, references to the 'Company' shall, as the context may require, refer
collectively to CCA and Jefferson Smurfit Corporation (U.S.) prior to the
Merger, or JSC, JSCE and JSC(U.S.). Capitalized terms not defined in this
Summary are defined elsewhere in this Prospectus.
THE COMPANY
The Company operates in two business segments. Paperboard/Packaging
Products and Newsprint. The Company believes it is one of the nation's largest
producers of paperboard and packaging products and is the largest producer of
recycled paperboard and recycled packaging products and the largest processor of
wasterpaper. In addition, the Company believes it is one of the nation's largest
producers of recycled newsprint.
The Company's Paperboard/Packaging Products segment includes a system of
paperboard mills that, in 1995, produced 1,905,000 tons of virgin and recycled
containerboard, 774,000 tons of coated and uncoated recycled boxboard and solid
bleached sulfate ('SBS') and 192,000 tons of recycled cylinderboard, which were
sold to the Company's own converting operations and to third parties. The
Company's converting operations consist of 51 corrugated container plants, 18
folding carton plants, and 22 industrial packaging plants located across the
country, with three plants located outside the U.S. In 1995, the Company's
container plants converted 1,925,000 tons of containerboard, an amount equal to
approximately 101.1% of the amount it produced, its folding carton plants
converted 529,000 tons of SBS, recycled boxboard and coated natural kraft, an
amount equal to approximately 68.3% of the amount it produced, and its
industrial packaging plants converted 148,000 tons of recycled cylinderboard, an
amount equal to approximately 77.2% of the amount it produced. The
paperboard/packaging products operations also include 14 consumer packaging
plants. The Company's Paperboard/Packaging Products segment contributed 90.5% of
the Company's net sales in 1995.
The Company's paperboard operations are supported by its reclamation
division, which processed or brokered 4.3 million tons of wastepaper in 1995,
and by its timber division which manages approximately one million acres of
owned or leased timberland located in close proximity to its virgin fiber mills.
The Company's Newsprint segment includes two newsprint mills in Oregon,
which produced 620,000 tons of recycled newsprint in 1995, and two facilities
that produce Cladwood'r', a construction material produced from newsprint and
wood by-products. The Company's newsprint mills are also supported by the
Company's reclamation division.
The predecessor to the Company was founded in 1974 when Jefferson Smurfit
Group plc ('JS Group'), a worldwide leader in the packaging products industry,
commenced operations in the United States by acquiring 40% of a small paperboard
and packaging products company. The remaining 60% of that company was acquired
in 1977, and in 1978 net sales were $43 million. The Company implemented a
strategy to build a fully integrated, broadly based, national packaging
business, primarily through acquisitions, including Alton Box Board Company in
1979, the paperboard and packaging divisions of Diamond International
Corporation in 1982, 80% of Smurfit Newsprint Corporation ('SNC') in 1986, and
50% of CCA in 1986. The Company financed its acquisitions by using leverage, and
in several cases, utilized joint venture financing whereby the Company
eventually obtained control of the acquired company. While no major acquisition
has been made since 1986, the Company has made 22 smaller acquisitions and
started up seven new facilities which had combined sales in 1995 of $403
million. JSC was formed in 1983 to consolidate the operations of the Company,
and today the Company ranks among the industry leaders in its two business
segments, Paperboard/Packaging Products and Newsprint. In 1995, the Company had
net sales of $4.1 billion, achieving a compound annual sales growth rate of
30.7% for the period since 1978.
4
The principal components of the Company's business strategy include the
following:
Maintain Focus on Recycled Products. The Company believes that it is
the largest processor of wastepaper, the largest producer of coated
recycled paperboard, the largest producer of recycled medium and one
of the largest producers of recycled newsprint in the United States.
The Company has historically utilized a significant amount of
recycled fiber in its products and has maintained a strategy to allow
it to supply all of the Company's recycled fiber needs for its paper
producing operations.
Focus on Cost Reduction. In 1993, the Company implemented a
company-wide cost reduction program designed to improve the cost
competitiveness of all the Company's operating facilities and staff
functions. Additionally, in 1993 the Company began a restructuring
program to improve the Company's long-term competitive position by,
among other things, realigning and consolidating various
manufacturing operations over the next two to three years. In
September 1993, the Company recorded pretax charges of $96 million to
implement its restructuring program.
Continue to Pursue Vertical Integration. The Company's integration
allows the Company to run its mills at higher operating rates during
industry downturns and protects the Company from potential regional
supply and demand imbalances for recycled fiber grades.
Continue Growth in Core Businesses. The Company intends to continue
its strategy of building its core Paperboard/Packaging Products
segment primarily by pursuing acquisitions and through capital
improvement programs.
Maintain Leading Market Positions. The Company's prominence in the
United States packaging industry provides the Company certain
advantages in marketing its products, including excellent customer
visibility and recognition as a quality producer, which has enabled
the Company to enter into strategic alliances with select large
national account customers. The Company's broad range of packaging
products provides a single source option to supply all of a
customer's packaging needs.
Improve Financial Profile. Since the 1989 recapitalization of JSC,
the Company has pursued a strategy designed to reduce its financial
risk profile. During this period, the Company has accessed various
capital markets through several transactions, resulting in improved
financial flexibility. The Recapitalization Plan (as defined below)
improved the Company's operating and financial flexibility by
reducing the level and overall cost of its debt, extending maturities
of indebtedness, increasing stockholders' equity and increasing its
access to capital markets. The Company intends to further improve its
balance sheet over the next few years through debt reduction.
All of the outstanding shares of capital stock of JSCE are owned by JSC.
Prior to the consummation of the Recapitalization Plan (as defined in
' -- Recapitalization Plan'), 50% of the common stock of JSC was owned directly,
and by an indirect subsidiary of, Smurfit International B.V. ('SIBV'), an
indirect wholly-owned subsidiary of JS Group, a public corporation organized
under the laws of the Republic of Ireland, 39.7% was beneficially owned by The
Morgan Stanley Leveraged Equity Fund II, L.P., a Delaware limited partnership
investment fund formed to make investments in industrial and other companies
('MSLEF II') and the other MSLEF II Associated Entities (as defined in 'Certain
Transactions -- General'), and 10.3% was beneficially owned by certain other
investors. MSLEF II is an affiliate of Morgan Stanley & Co. Incorporated
('MS&Co.'), the Underwriter.
As of March 31, 1996, SIBV beneficially owned approximately 46.5%, MSLEF II
and the other MSLEF II Associated Entities beneficially owned in the aggregate
approximately 28.7%, and all other stockholders (including public stockholders)
beneficially owned approximately 24.8% of the outstanding shares of common stock
of JSC. See 'Security Ownership of Certain Beneficial Owners' and 'Certain
Transactions'.
5
The following chart illustrates the corporate structure of JSC, JSCE and
JSC(U.S.), and the indebtedness of such corporations following the consummation
of the Recapitalization Plan.
[GRAPHIC REPRESENTATION of the corporate structure and principal assets and
indebtedness of Jefferson Smurfit Corporation ('JSC'), JSCE, Inc. ('JSCE') and
Jefferson Smurfit Corporation (U.S.) ('JSC(U.S.)'), illustrating that: (i) the
principal assets of JSC include 100% of the stock of JSCE, (ii) the principal
assets of JSCE include 100% of the stock of JSC(U.S.), (iii) the principal
assets of JSC(U.S.) include paper mills, converting facilities, timberland,
other operating assets and 100% of the stock of SNC, (iv) JSCE's indebtedness
consists of Senior Obligations* (Guarantees of JSC(U.S.) debt under the New
Revolving Credit Facility, Tranche A Term Loan, Tranche B Term Loan, Senior
Notes and 1993 Notes) and (v) JSC(U.S.)'s indebtedness consists of Senior
Obligations* (New Revolving Credit Facility, Tranche A Term Loan, Tranche B
Term Loan, Senior Notes and 1993 Notes) and other indebtedness**. The asterisks
relate to the two footnotes following the graphic representation.]
- ------------
* Includes those obligations (other than intercompany indebtedness) that rank
equally with each other senior obligation listed (except that certain of
such obligations, but not all, are secured).
** A limited-purpose subsidiary of the Company has certain borrowings pursuant
to the Company's accounts receivable securitization program. See 'Description
of Certain Indebtedness -- Securitization' and 'Management's Discussion and
Analysis of Results of Operations and Financial Condition -- Liquidity and
Capital Resources'.
6
RECAPITALIZATION PLAN
In 1994 the Company completed a recapitalization plan (the
'Recapitalization Plan') to repay or refinance a substantial portion of its
indebtedness in order to improve operating and financial flexibility by reducing
the level and overall cost of its debt, extending maturities of indebtedness,
increasing stockholders' equity and increasing its access to capital markets. On
a pro forma basis, giving effect to the Recapitalization Plan as if it had
occurred on January 1, 1994, the aggregate savings in interest expense for the
year ended December 31, 1994 would have been $48 million (of which $53 million
represents cash interest expense, offset by increased deferred debt amortization
of $5 million), resulting in income before extraordinary items of $42 million
and a loss of $15 million for 1994.
The Recapitalization Plan included the following primary components:
(i) (a) The offering (the 'Debt Offerings') by JSC(U.S.) pursuant
to this Prospectus of $300 million aggregate principal amount of
Series A Senior Notes and $100 million aggregate principal amount
of Series B Senior Notes;
(b) The offering by JSC of 19,250,000 shares of common stock
of JSC (after giving effect to the Reclassification (as defined in
'Recapitalization Plan -- Reclassification and Related
Transactions'), the 'JSC Common Stock') through an offering within
the United States and Canada and an offering outside the United
States and Canada (the 'Equity Offerings'). The Equity Offerings
and the Debt Offerings are collectively referred to herein as the
'1994 Offerings';
(c) The purchase by SIBV of shares of JSC Common Stock for an
aggregate purchase price of $150 million (the 'SIBV Investment');
(d) The entering into of a new credit agreement by JSC(U.S.)
(the '1994 Credit Agreement') consisting of a $450 million
revolving credit facility (the 'New Revolving Credit Facility'), a
$900 million delayed term loan (the 'Tranche A Term Loan') and a
$300 million initial term loan (the 'Tranche B Term Loan' and,
together with the Tranche A Term Loan, the 'New Term Loans').
(ii) The application of the net proceeds of the Equity Offerings and
the SIBV Investment and a portion of the net proceeds of the Debt
Offerings, together with borrowings under the 1994 Credit Agreement, to
refinance (the 'Bank Debt Refinancing') all of the Company's indebtedness
outstanding under (a) the Second Amended and Restated Credit Agreement,
dated as of November 9, 1989, among the Company, the lenders which are
parties thereto, Bankers Trust Company as agent and Chemical Bank and Bank
of America National Trust and Savings Association as co-agents (the '1989
Credit Agreement'); (b) the Amended and Restated Note Purchase Agreement,
dated as of December 14, 1989, among the Company, and the purchasers of the
senior secured notes (the 'Secured Notes') issued thereunder (the 'Secured
Note Purchase Agreement'), and (c) the Loan and Note Purchase Agreement,
dated as of August 26, 1992, among the Company, the lenders which are party
thereto, Chemical Bank as agent and the managing agents and collateral
trustee which are party thereto (the '1992 Credit Agreement' and, together
with the 1989 Credit Agreement, the 'Old Bank Facilities').
(iii) The application, on December 1, 1994, of borrowings, including
borrowings under the 1994 Credit Agreement, used to redeem the Company's
(a) 13 1/2% Senior Subordinated Notes due 1999 (the 'Senior Subordinated
Notes'), (b) 14% Subordinated Debentures due 2001 (the 'Subordinated
Debentures') and (c) 15 1/2% Junior Subordinated Accrual Debentures due
2004 (the 'Junior Accrual Debentures' and, together with the Senior
Subordinated Notes and the Subordinated Debentures, the 'Subordinated
Debt'). Such redemption, including the payment of accrued and unpaid
interest on the Junior Accrual Debentures as of December 1, 1994, is herein
referred to as the 'Subordinated Debt Refinancing'.
7
SOURCES AND USES
The following table sets forth the sources and uses of funds which were
used to effect the Recapitalization Plan:
($ MILLIONS)
------------
Sources of Funds
The Debt Offerings(a)................................................................. $ 400
The Equity Offerings(a)............................................................... 250
SIBV Investment....................................................................... 150
New Revolving Credit Facility(b)...................................................... 30
New Term Loans........................................................................ 1,200
------------
Total............................................................................ $2,030
------------
------------
Uses of Funds
Prepayment of debt under Old Bank Facilities.......................................... $ 810
Prepayment of Secured Notes........................................................... 271
Redemption of Subordinated Debt(c).................................................... 844
Fees and expenses(d).................................................................. 105
------------
Total............................................................................ $2,030
------------
------------
- ------------
(a) Without deducting estimated underwriting discounts and commissions and
expenses.
(b) The amount shown is net of available cash. The maximum amount available
under such facility is $450 million, with up to $150 million of such amount
being available for letters of credit. At December 31, 1995, borrowings of
$55 million and letters of credit of $94 million were outstanding under
such facility. See also footnotes (a) and (c)
(c) Represents the outstanding principal amount and redemption premiums paid on
the Senior Subordinated Notes and the Subordinated Debentures, and the
estimated accreted value, including accrued and unpaid interest, of the
Junior Accrual Debentures as of December 1, 1994.
(d) Expenses include fees and expenses relating to the Bank Debt Refinancing,
commissions and underwriting discounts relating to the Debt Offerings and
the Equity Offerings, respectively, and reimbursement of certain fees and
expenses of SIBV incurred in connection with the Recapitalization Plan. See
'Certain Transactions -- Other Transactions'. There were no underwriting
discounts or commissions on the sale of JSC Common Stock pursuant to the
SIBV Investment.
The Company obtained certain consents and waivers which were necessary for
it to consummate the Recapitalization Plan, consisting, among others, of the
consent of (i) the holders of a majority in aggregate principal amount of
JSC(U.S.)'s 9 3/4% Senior Notes due 2003 (the '1993 Notes') outstanding, (ii)
60% of the holders of the outstanding aggregate principal amount of Secured
Notes and (iii) certain parties under the Company's $230 million 1991 trade
receivables securitization program (the '1991 Securitization') (collectively,
the 'Consents and Waivers'). For more information concerning the Consents and
Waivers, see 'Recapitalization Plan -- Consents and Waivers'.
For more information concerning the Recapitalization Plan, see
'Recapitalization Plan'.
8
THE OFFERINGS
Issuer.................................... Jefferson Smurfit Corporation (U.S.).
Securities Offered/Interest Rate.......... $300,000,000 aggregate principal amount of 11 1/4% Series A Senior
Notes due 2004 and $100,000,000 aggregate principal amount of 10 3/4%
Series B Senior Notes due 2002.
Interest Payment Dates.................... May 1 and November 1.
Maturity.................................. May 1, 2004 for the Series A Senior Notes and May 1, 2002 for the
Series B Senior Notes.
Redemption................................ The Series A Senior Notes may be redeemed at the option of JSC(U.S.),
in whole or in part, at any time on or after May 1, 1999, initially
at 105.625% of their principal amount and declining to 100% of such
principal amount on or after May 1, 2001, in each case plus accrued
interest. In addition, at the option of JSC(U.S.) at any time prior
to May 1, 1997, JSC(U.S.) may redeem up to $100 million aggregate
principal amount at maturity of the Series A Senior Notes with the
Net Cash Proceeds from the issuance of Capital Stock (other than
Redeemable Stock) of JSC(U.S.) or JSCE or any parent of JSC(U.S.) to
the extent that the proceeds are contributed to JSC(U.S.) or used to
acquire Capital Stock of JSC(U.S.) (other than Redeemable Stock) in a
single transaction or a series of related transactions (other than
the Equity Offerings or an issuance to a Subsidiary), at a redemption
price of 110% of the principal amount thereof, plus accrued interest.
The Series B Senior Notes will not be redeemable prior to maturity.
Ranking................................... The Senior Notes are senior unsecured obligations of JSC(U.S.) and
rank pari passu with the other senior indebtedness of JSC(U.S.),
including, without limitation, JSC(U.S.)'s obligations under the 1994
Credit Agreement and the 1993 Notes. JSC(U.S.)'s obligations under
the 1994 Credit Agreement, but not the Senior Notes or the 1993
Notes, are secured by liens on substantially all of the assets of
JSC(U.S.) and its subsidiaries with the exception of cash and cash
equivalents and trade receivables. As of December 31, 1995, JSC(U.S.)
had outstanding approximately $2,192 million of senior indebtedness
(excluding intercompany indebtedness), of which approximately $1,284
million was secured indebtedness. The secured indebtedness will have
priority over the Senior Notes and the 1993 Notes with respect to the
assets securing such indebtedness. See 'Risk Factors -- Effect of
Secured Indebtedness on the Senior Notes; Ranking'.
Covenants................................. The indentures pursuant to which the Senior Notes were issued (the
'Indentures') contain certain covenants that, among other things,
limit the ability of JSC(U.S.) and its subsidiaries to incur
indebtedness, pay dividends and make other restricted payments,
engage in transactions with shareholders and affiliates, issue
capital stock, create liens, sell assets, engage in sale-leaseback
transactions, allow the imposition of restrictions on the ability of
Restricted Subsidiaries to pay dividends to JSC(U.S.), engage in
mergers and consolidations and make investments in unrestricted
subsidiaries. The limitations imposed by the covenants on JSC(U.S.)
and its
9
subsidiaries are subject to certain exceptions. See 'Description of
the Senior Notes -- Covenants'.
Put Option................................ Upon a Change of Control, JSC(U.S.) will make an offer to purchase
the Senior Notes at a purchase price equal to 101% of the principal
amount thereof, plus accrued interest. Certain transactions with
affiliates of the Company may not constitute a Change of Control. See
'Description of the Senior Notes -- Covenants -- Repurchase of Senior
Notes upon Change of Control'.
Guarantees................................ The payment of principal and interest on the Senior Notes is
unconditionally guaranteed on a senior unsecured basis by JSCE. Such
guarantee ranks pari passu with the other senior indebtedness of
JSCE, including, without limitation, JSCE's guarantees of JSC(U.S.)'s
obligations under the 1994 Credit Agreement) and JSCE's guarantees of
JSC(U.S.)'s obligations under the 1993 Notes. JSCE's guarantees under
the 1994 Credit Agreement, but not JSCE's guarantees of the Senior
Notes or the 1993 Notes, are secured by a pledge of all the capital
stock of JSC(U.S.) and liens on substantially all the assets of JSCE
and its subsidiaries with the exception of cash and cash equivalents
and trade receivables. As of December 31, 1995, JSCE had outstanding
approximately $2,192 million of senior indebtedness (including
indebtedness of JSC(U.S.)'s other consolidated subsidiaries but
excluding intercompany indebtedness), of which approximately $1,284
million was secured indebtedness. The secured indebtedness will have
priority over JSCE's guarantees of the Senior Notes and the 1993
Notes with respect to the assets securing such indebtedness. See
'Risk Factors -- Effect of Secured Indebtedness on the Senior Notes;
Ranking'. In the event that (i) a purchaser of capital stock of
JSC(U.S.) acquires a majority of the voting rights thereunder or (ii)
there occurs a merger or consolidation of JSC(U.S.) that results in
JSC(U.S.) having a parent other than JSCE and, at the time of and
after giving effect to such transactions, such purchaser or parent
satisfies certain minimum net worth and cash flow requirements, JSCE
will be released from its guarantee of the Senior Notes. Such sale,
merger or consolidation will be prohibited unless certain other
requirements are met, including that the purchaser or the entity
surviving such a merger or consolidation expressly assumes
JSC(U.S.)'s or JSCE's obligations, as the case may be, and that no
Event of Default (as defined below) occur or be continuing. See
'Description of the Senior Notes -- Consolidation, Merger and Sale of
Assets'.
For more complete information regarding the Senior Notes, see 'Description
of the Senior Notes'.
RISK FACTORS
For a discussion of certain factors that should be considered in evaluating
an investment in the Senior Notes, see 'Risk Factors'.
10
SUMMARY FINANCIAL DATA
The summary historical financial data presented below were derived from the
consolidated financial statements of the Company included elsewhere herein and
should be read in conjunction with 'Selected Historical Financial Data',
'Management's Discussion and Analysis of Results of Operations and Financial
Condition' and the consolidated financial statements included elsewhere in this
Prospectus.
HISTORICAL
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994(A) 1995
------ ------- ------
(IN MILLIONS, EXCEPT RATIOS
AND STATISTICAL DATA)
OPERATING RESULTS:
Net sales........................................................................................ $2,947 $3,233 $4,093
Restructuring and environmental and other charges................................................ 150
Income (loss) from operations.................................................................... (9) 291 630
Interest expense................................................................................. (254) (269 ) (234)
Income (loss) before extraordinary item and cumulative effect of accounting changes.............. (175) 12 247
Extraordinary item -- (loss) from early extinguishment of debt, net of income tax benefit........ (38) (55 ) (4)
Cumulative effect of accounting changes.......................................................... (16)
Net income (loss)................................................................................ (229) (43 ) 243
Ratio of earnings to fixed charges(b)............................................................ (c) 1.08 2.60
OTHER DATA:
Gross profit margin(d)........................................................................... 12.9% 15.9% 21.3%
Selling and administrative expenses as a percent of net sales.................................... 8.1 6.9 5.9
EBITDA(e)........................................................................................ $ 274 $ 426 $ 777
Ratio of EBITDA to interest expense.............................................................. 1.08x 1.58 x 3.32x
Capital investments and acquisitions............................................................. $ 117 $ 166 $ 188
Depreciation, depletion and amortization......................................................... 131 131 139
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.................................................................................. $ 40 $ 11 $ 47
Total assets..................................................................................... 2,597 2,759 2,783
Long-term debt, less current maturities.......................................................... 2,619 2,392 2,111
Stockholder's deficit............................................................................ (1,058) (730 ) (487)
STATISTICAL DATA:
Containerboard production (thousand tons)........................................................ 1,840 1,932 1,905
Boxboard and SBS production (thousand tons)...................................................... 744 767 774
Newsprint production (thousand tons)............................................................. 615 615 620
Corrugated shipping containers
sold (thousand tons)........................................................................... 1,936 2,013 1,909
Folding cartons sold (thousand tons)............................................................. 475 486 469
Fiber reclaimed and brokered (thousand tons)..................................................... 3,907 4,134 4,293
Timberland owned or leased (thousand acres)...................................................... 984 985 984
- ------------
(a) Had the Recapitalization occurred on January 1, 1994, interest expense for
the year ended December 31, 1994 would have been $221 million, resulting in
income before extraordinary item and cumulative effect of accounting
changes for the year ended December 31, 1994 of $42 million and a net loss
for the year ended December 31, 1994 of $15 million.
(b) For purposes of these calculations, earnings consist of income (loss)
before income taxes, equity in earnings (loss) of affiliates, minority
interests, extraordinary item and cumulative effect of accounting changes,
plus fixed charges. Fixed charges consist of interest on indebtedness,
amortization of deferred debt issuance costs and that portion of lease
rental expense considered to be representative of the interest factor
therein (deemed to be one-fourth of lease rental expense).
(c) For the year ended December 31, 1993, earnings were inadequate to cover
fixed charges by $264 million.
(d) Gross profit margin represents the excess of net sales over cost of goods
sold divided by net sales.
(e) EBITDA represents net income before interest expense, income taxes,
depreciation, depletion and amortization, equity in earnings (loss) of
affiliates, minority interests, extraordinary items and cumulative effect
of accounting changes and in 1993, restructuring and environmental and
other charges. The restructuring and environmental and other charges in
1993 included $43 million of expected asset writedowns and $107 million of
anticipated future cash expenditures. EBITDA is presented here, not as a
measure of operating results, but rather as a measure of the Company's debt
service ability.
11
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the securities offered by this Prospectus.
SUBSTANTIAL LEVERAGE
The Company has, on a consolidated basis, a substantial amount of debt. The
Company's long-term debt at December 31, 1995 was $2,111 million. The amount of
long-term indebtedness at such date on a historical basis is substantial
relative to the Company's stockholder's equity, which has been negative in
recent years due to the accounting treatment of the 1989 Transaction (as defined
in ' -- Recent Losses; Negative Stockholder's Equity') and recent net losses.
See ' -- Recent Losses; Negative Stockholder's Equity'. Although the
consummation of the Recapitalization Plan reduced the Company's consolidated
interest expense, the Company will remain obligated to make substantial interest
payments on its indebtedness. See 'Description of Certain Indebtedness'. For the
year ended December 31, 1995, the Company's ratio of earnings to fixed charges
was 2.60. See 'Capitalization'.
ABILITY TO SERVICE DEBT
The Company generally expects to fund its and its subsidiaries' debt
service obligations, capital expenditures and working capital requirements
through funds generated from operations and additional borrowings under the New
Revolving Credit Facility. At December 31, 1995 the Company had in the aggregate
approximately $301 million in unused borrowing capacity under the New Revolving
Credit Facility. See 'Capitalization'. In February 1995, the Company entered
into a $315 million accounts receivable securitization program (the '1995
Securitization') consisting of a $300 million receivables-backed commercial
paper program and a $15 million term loan. The proceeds of the 1995
Securitization were used to extinguish the Company's borrowings under the
Company's 1991 Securitization. See 'Management's Discussion and Analysis of
Results of Operations and Financial Condition -- Liquidity and Capital
Resources'.
The ability of the Company to meet its obligations and to comply with the
financial covenants contained in its indebtedness is largely dependent upon the
future performance of the Company, which will be subject to financial, business
and other factors affecting it. Many of these factors are beyond the Company's
control, such as the state of the economy, demand for and selling prices of its
products, costs of its raw materials and legislative factors and other factors
relating to its industry generally or to specific competitors. There can be no
assurance that the Company will generate sufficient cash flow to meet its
obligations under its indebtedness, which, as of December 31, 1995 includes
repayment obligations of $81 million in 1996, $142 million in 1997, $146 million
in 1998, $154 million in 1999 and $397 million in 2000. If the Company were
unable to generate sufficient cash flow or otherwise obtain funds necessary to
make required payments on its indebtedness, or if the Company fails to comply
with the various covenants in such indebtedness, it would be in default under
the terms thereof, which would permit the lenders thereunder to accelerate the
maturity of such indebtedness and could cause defaults under other indebtedness
of the Company or result in a bankruptcy of the Company. The Company made
payments of $264 million on its indebtedness during 1995, including prepayments
of $192 million on the New Term Loans. See 'Management's Discussion and Analysis
of Results of Operations and Financial Condition -- Liquidity and Capital
Resources' and 'Description of Certain Indebtedness'. In addition, if a 'Change
of Control' as defined in the 1994 Credit Agreement, the 1993 Notes or the
Senior Notes is deemed to have occurred, then the holders of such indebtedness
shall have the right to be repaid 101% of the principal amount of such
indebtedness plus accrued and unpaid interest thereon. See 'Description of
Certain Indebtedness'. The occurrence of a 'Change of Control' as so defined in
the newsprint supply agreement between the Company and The Times Mirror Company
could also result in The Times Mirror Company having certain rights under such
agreement. Similarly, the exercises of such rights could also trigger
cross-default or cross-acceleration provisions, and lead to the bankruptcy of
the Company.
12
RESTRICTIVE COVENANTS
The limitations contained in the agreements relating to the Company's
indebtedness, together with its highly leveraged position, as well as various
provisions in the agreements relating to the governance of the Company,
including the Stockholders Agreement and the Registration Rights Agreement (each
as defined below), could limit the ability of the Company to effect future debt
or equity financings and may otherwise restrict corporate activities, including
its ability to avoid defaults and to respond to market conditions, to provide
for capital expenditures beyond those permitted or to take advantage of business
opportunities. If the Company cannot generate sufficient cash flow from
operations to meet its obligations, then its indebtedness might have to be
refinanced. There can be no assurance that any such refinancing could be
effected successfully or on terms that are acceptable to the Company. In the
absence of such refinancing, the Company could be forced to dispose of assets in
order to make up for any shortfall in the payments due on its indebtedness under
circumstances that might not be favorable to realizing the best price for such
assets. Moreover, the lenders under the 1994 Credit Agreement generally have a
priority right to the proceeds of asset sales and certain sales of securities by
the Company. Further, there can be no assurance that any assets could be sold
quickly enough, or for amounts sufficient, to enable the Company to make any
such payments.
RECENT LOSSES; NEGATIVE STOCKHOLDER'S EQUITY
Although the Company has consistently generated substantial income from
operations, it has experienced, primarily as a result of interest expense
resulting from high leverage (see ' -- Substantial Leverage'), net losses during
the industry downcycle of the early 1990's. The Company was unable to generate
enough income from operations to offset the significant interest expense
resulting from its high leverage and, as a result, the Company had net losses
for the fiscal years ended December 31, 1994, 1993 and 1992 (see 'Selected
Historical Financial Data'). The worldwide economic recovery which began in 1994
has resulted in improvements in demand for the Company's products, and
significant price increases have been implemented during the second half of 1994
and the beginning of 1995, particularly for containerboard, corrugated shipping
containers and newsprint, three of the Company's most important products. As a
result of the pricing improvements and the Company's cost reduction efforts (see
'Business -- Business Strategy' and 'Management's Discussion and Analysis of
Results of Operations and Financial Condition'), the Company had net income of
$243 million in 1995.
The Company has had a deficit in stockholder's equity since 1989 when JSC
was organized to effect the acquisition of the publicly held shares of Old
JSC(U.S.) and the shares of CCA not then owned by Old JSC(U.S.), and the
recapitalization of such companies (the '1989 Transaction'), since such
transaction was treated as a recapitalization for financial accounting purposes.
On a historical basis, at December 31, 1995, the Company's stockholder's deficit
was $487 million. See 'Capitalization'.
EFFECT OF SECURED INDEBTEDNESS ON THE SENIOR NOTES; RANKING
The secured indebtedness will have priority over the Senior Notes with
respect to the assets securing such indebtedness. Although the Senior Notes (and
JSCE's guarantees thereof) rank pari passu with indebtedness outstanding under
the 1994 Credit Agreement (and the 1993 Notes), such bank debt (including all
guarantee obligations of JSCE in respect thereof) is secured by (i) a security
interest in substantially all of the assets, with the exception of cash and cash
equivalents and certain trade receivables, of JSC(U.S.), JSCE and their material
subsidiaries and (ii) a pledge of all of the capital stock of JSC(U.S.), JSCE
and each material subsidiary of JSC, JSCE and JSC(U.S.). See 'Description of
Certain Indebtedness -- The 1994 Credit Agreement'. The Senior Notes and JSCE's
guarantees thereof are unsecured and therefore do not have the benefit of such
collateral; that is, if an event of default occurs under the 1994 Credit
Agreement, the banks party thereto will have a priority right to the Company's
assets and may foreclose upon such collateral to the exclusion of the holders of
the Senior Notes, notwithstanding the existence of an event of default with
respect thereto. Accordingly, in such an event the Company's assets would first
be used to repay in full amounts outstanding under the 1994 Credit Agreement,
resulting in a portion of the Company's assets being unavailable to satisfy the
claims of holders of Senior Notes and other pari passu, unsecured indebtedness
(including the 1993
13
Notes). As of December 31, 1995, the Company had $1,284 million of secured
indebtedness outstanding, including indebtedness under the 1994 Credit
Agreement.
Subsidiaries of the Company may also in the future own assets, incur
indebtedness and liabilities or guarantee senior indebtedness other than the
Senior Notes provided that, if the aggregate amount of indebtedness guaranteed
by any Restricted Subsidiary (as defined in the indentures relating to the
Senior Notes) of the Company (other than SNC) exceeds $50 million, then the
indentures relating to the Senior Notes and the 1993 Notes require such
subsidiary to also guarantee the Senior Notes and the 1993 Notes. Such
guarantees will, however, be unsecured, whereas the guarantees of the
indebtedness under the 1994 Credit Agreement will be secured. Consequently, the
Senior Notes to the extent not so guaranteed will be effectively subordinated to
claims of creditors of such subsidiaries, including, in the case of SNC and,
subject to the foregoing proviso, other subsidiary guarantors, the banks that
are party to the 1994 Credit Agreement. As a result of the foregoing, in an
event of default, holders of Senior Notes may recover less, ratably, than the
banks that are party to the 1994 Credit Agreement and other secured creditors of
the Company or its subsidiaries.
PAYMENTS DUE ON COMPANY INDEBTEDNESS PRIOR TO MATURITY OF SENIOR NOTES;
REFINANCING RISKS
An aggregate of approximately $1,873 million and $1,168 million of senior
indebtedness (excluding intercompany indebtedness) matures prior to the Series A
Senior Notes and the Series B Senior Notes, respectively. Accordingly, the
Company will have to refinance or otherwise generate sufficient cash to repay a
substantial amount of indebtedness prior to the time the Senior Notes mature.
The Company's ability to do this will depend, in part, on the Company's
financial condition at the time and the covenants and other provisions in its
debt agreements. In this regard, it should be noted that the Company's ability
to incur new indebtedness will be quite limited by the terms of its outstanding
indebtedness.
In February 1995, the Company entered into the $315 million 1995
Securitization consisting of a $300 million receivables-backed commercial paper
program and a $15 million term loan. The proceeds of the 1995 Securitization
were used to extinguish the Company's borrowings under the 1991 Securitization.
PRICING
General. Most markets in which the Company competes are subject to
significant price fluctuations. The Company's sales and profitability have
historically been more sensitive to price changes than changes in volume, and
reductions in prices during 1991 through 1993 had an adverse impact on the
Company's results of operations. Although the Company has been successful in
implementing price increases in 1994 and 1995, future decreases in prices of the
magnitude experienced in 1993 for the Company's products would adversely affect
its operating results, and coupled with the highly leveraged financial position
of the Company, would adversely impact the Company's ability to respond to
competition and to other market conditions or to otherwise take advantage of
business opportunities.
Containerboard. The imbalance of supply and demand experienced in the early
1990's which resulted in lower prices and excess inventories for the
containerboard and corrugated shipping container products industry was corrected
by the end of the third quarter of 1993. Inventory levels had decreased
significantly and higher demand in 1994 and 1995 was met by a restoration of
operating rates to generally high levels. As market conditions improved, the
Company was able to implement significant price increases in 1994 and 1995.
Linerboard prices in 1993 were at a low of $280 per ton prior to the recovery
and, by April of 1995, had reached a record high of $535 per ton. Market
conditions began to weaken in the third quarter of 1995 and by April 1, 1996,
linerboard prices had softened to approximately $440 per ton. Price adjustments
have been implemented for corrugated shipping containers, corresponding with the
linerboard adjustments. See 'Business -- Industry Overview -- Paperboard'.
Newsprint. Newsprint markets were also depressed in the early 1990's.
Industry conditions began to improve in the second half of 1994 and prices
steadily increased during the second half of 1994 and 1995. Newsprint prices in
the second quarter of 1992 were at a low of $382 per ton prior to the recovery
14
and, by the end of 1995, had reached approximately $695 per ton. Market
conditions softened in the first quarter of 1996, but as of April 1, 1996, the
price was still approximately $695 per ton. See 'Business -- Industry
Overview -- Newsprint'.
COMPETITION
The paperboard and packaging products industries are highly competitive,
and no single company is dominant. The Company's competitors include large,
vertically integrated paperboard and packaging products companies and numerous
smaller companies. In recent years, there has been a trend toward consolidation
within the paperboard and packaging products industries, and the Company
believes that this trend is likely to continue. See 'Business -- Industry
Overview'. The primary competitive factors in the paperboard and packaging
products industries are price, design, quality and service, with varying
emphasis on these factors depending on the product line. To the extent that one
or more of the Company's competitors becomes more successful with respect to any
key competitive factor, the Company's business could be materially, adversely
affected. The market for the Newsprint segment is also highly competitive. See
'Business -- Competition'.
ENVIRONMENTAL MATTERS
Federal, state and local environmental requirements, particularly relating
to air and water quality, are a significant factor in the Company's business.
The Company faces potential environmental liability as a result of violations of
permit terms and similar authorizations that have occurred from time to time at
its facilities. In addition, the Company faces potential liability for 'response
costs' at various sites with respect to which the Company has received notice
that it may be a 'potentially responsible party' as well as for contamination of
certain Company-owned properties, under the Comprehensive Environmental
Response, Compensation and Liability Act, analogous state laws and other laws
concerning hazardous substance contamination. In 1993, the Company recorded a
pretax charge which included approximately $39 million related to environmental
matters, representing primarily asbestos and PCB removal, solid waste cleanup at
existing and former operating sites, and expenses for response costs at various
sites where the Company has received notice that it is a potentially responsible
party. During 1994 and 1995, the Company incurred $4 million and $9 million,
respectively, in cash expenditures related to these environmental matters. While
the Company believes that the charges it has recorded are adequate, there can be
no assurance that actual expenditures relating to such matters will not exceed
such charges over the period covered thereby. Similarly, while the Company
believes it is currently in compliance with all applicable environmental laws in
all material respects and has budgeted for future expenditures required to
maintain such compliance, unforeseen significant expenditures in connection with
such compliance could have an adverse effect on the Company's financial
condition. See 'Management's Discussion and Analysis of Results of Operations
and Financial Condition -- General -- Environmental Matters' and
'Business -- Environmental Matters'.
POTENTIAL FRAUDULENT CONVEYANCE LIABILITY
Various laws enacted for the protection of creditors may have applied to
the Company's incurrence of indebtedness and the making of certain payments in
connection with the 1989 Transaction, debt under the 1989 Credit Agreement and
the Secured Notes, and Old JSC(U.S.)'s guarantees thereof. Such state and
federal fraudulent transfer laws may also apply to refinancings of such debt,
including the issuance by the Company of the Senior Notes and the 1994 Notes,
the entering into and incurrence of debt under the 1994 Credit Agreement,
guarantees by the Company and its subsidiaries thereof and the application of
the proceeds thereof. If a court in a lawsuit by an unpaid creditor or
representative of creditors of the Company, such as a trustee in bankruptcy or
the Company as debtor in possession, were to find that, at the time of the 1989
Transaction, the Company (a) was insolvent or was rendered insolvent by reason
of the 1989 Transaction or the indebtedness incurred and payments made in
connection therewith, (b) was engaged in a business or transaction for which the
assets remaining with the Company constituted unreasonably small capital, (c)
intended to, or believed that it would, incur debts beyond its ability to pay as
such debts matured or (d) intended to hinder, delay or defraud its creditors,
such court could, under state or federal fraudulent transfer law, avoid the
Senior Notes or
15
such other indebtedness (including under the 1994 Notes and the 1994 Credit
Agreement) and order that all payments made by the Company with respect thereto
be returned to it or to a fund for the benefit of its creditors. Such court
could also subordinate the Senior Notes or such other indebtedness (including
under the 1994 Notes and the 1994 Credit Agreement) or the guarantees thereof to
all existing and future indebtedness of the Company. Such avoidance or
subordination would result in an event of default under the 1994 Credit
Agreement.
The measure of insolvency for purposes of the foregoing would vary
depending upon the law of the jurisdiction being applied. Generally, however, a
company would be considered insolvent if the sum of such company's debts were
greater than all of such company's property at a fair valuation or if the
present fair saleable value of such company's assets were less than the amount
that would be required to pay its probable liability on its existing debts
(including contingent liabilities) as they become absolute and matured.
Accordingly, the Company does not believe that the fact that its liabilities
exceed the book value of its assets, as reflected on its balance sheet (which is
not based on fair saleable value or fair value), would be a significant factor
in any fraudulent conveyance analysis.
The Company believed at the time of the 1989 Transaction and continues to
believe today, that at the time of the 1989 Transaction, and after giving effect
thereto, the Company did not come within any of the clauses (a) through (d)
above and that therefore the incurrence of indebtedness under the Senior Notes
or such other indebtedness (including under the 1994 Notes and the 1994 Credit
Agreement) will not constitute fraudulent transfers. These beliefs were (and
are) based on management's analysis of, among other things, (i) internal cash
flow projections, (ii) the Company's historical financial information and (iii)
valuations of assets and liabilities of the Company. There can be no assurance,
however, that a court passing on such questions would agree with the Company's
analysis.
CONTROL BY PRINCIPAL STOCKHOLDERS
General. Since the completion of the Equity Offerings, SIBV, MSLEF II and
the MSLEF II Associated Entities, acting together have been, by reason of their
ownership of JSC Common Stock, able to control the vote on all matters submitted
to a vote of holders of JSC Common Stock. In this regard, JSC, SIBV, the MSLEF
II Associated Entities and certain other entities have entered into a
Stockholders Agreement (the 'Stockholders Agreement'), which became effective as
of the completion of the Equity Offerings and which contains, among other
things, provisions for various corporate governance matters, including the
election as directors and the appointment as officers of certain designees of
SIBV or MSLEF II. Pursuant to the Stockholders Agreement, each of SIBV and MSLEF
II have the right to elect one-half of the Company's Board of Directors. See
'Management -- Provisions of Stockholders Agreement Pertaining to Management'
and 'Certain Transactions -- Stockholders Agreement'. The presence of SIBV and,
until they dispose of their shares (see below), the MSLEF II Associated
Entities, as controlling stockholders, is also likely to deter a potential
acquirer from making a tender offer or otherwise attempting to obtain control of
JSC, even if such events might be favorable to JSC's stockholders.
SIBV. SIBV, which owns its JSC Common Stock directly and through an
indirect wholly-owned subsidiary, is itself an indirect wholly-owned subsidiary
of JS Group, an international paperboard and packaging corporation organized
under the laws of the Republic of Ireland. JS Group stock is listed on the
London and Dublin Stock Exchanges and its American Depositary Shares are listed
on the New York Stock Exchange. It is the largest industrial corporation in
Ireland. JS Group and its subsidiaries have a number of operations similar to
those of the Company, although for the most part outside the United States other
than their newsprint operations. Accordingly, JS Group's interests with respect
to various business decisions of JSC and the Company may conflict with the
interests of JSC and the Company. See 'Certain Transactions -- Stockholders
Agreement -- Transactions with Affiliates; Other Businesses'.
MSLEF II. Under the Stockholders Agreement, sales or other dispositions by
the MS Holders (as defined in the Stockholders Agreement and which term includes
the MSLEF II Associated Entities) (including distributions to the partners of
MSLEF II) could result in SIBV no longer being limited by such agreement to
electing only one-half of JSC's Board of Directors. In addition, such sales or
other dispositions could result in JSC and SIBV no longer being required to
obtain the approval of two
16
directors who are designees of MSLEF II for JSC and the Company to engage in
certain activities, for which such approval is otherwise required by the
Stockholders Agreement. See 'Management -- Provisions of Stockholders Agreement
Pertaining to Management'. Furthermore, MSLEF II has the right at any time to
waive any of the provisions of the Stockholders Agreement, to agree to the early
termination thereof or to fail to exercise any of its rights thereunder.
No Obligation to Invest. Although SIBV and the MSLEF II Associated Entities
have in the past made additional investments in JSC and the Company, they are
not obligated to do so in the future. Investors should not assume or expect that
either or both of such stockholders or their affiliates will invest additional
capital, whether in the form of debt or equity, in the future, particularly in
light of the intention of the MSLEF II Associated Entities to dispose of their
shares of JSC Common Stock and the fact that SIBV's ability to make such
investments is subject to limitations contained in agreements relating to
indebtedness of SIBV and its affiliates.
TAX NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1995, the Company and the other members of its
consolidated group had aggregate net operating loss ('NOL') carryforwards of
approximately $98 million for federal income tax purposes. These carryforwards,
if not utilized to offset taxable income in future periods, will expire in 2009.
If JSC experiences an 'ownership change' within the meaning of Section 382
of the Internal Revenue Code of 1986, as amended (the 'Code'), the Company's
ability to use NOL carryforwards existing at such time to offset its taxable
income, if any, generated in taxable periods after the ownership change would be
subject to an annual limitation (the 'Section 382 Limitation'). The amount of
NOL carryforwards which may be utilized on an annual basis following an
ownership change generally would be equal to the product of the value of the
outstanding stock of JSC immediately prior to the ownership change (reduced by
certain contributions to JSC's capital made in the two years prior to the
ownership change) multiplied by the 'long-term tax-exempt rate', which is
determined monthly and is 5.31% for April, 1996.
Although the Company does not believe that JSC experienced an ownership
change upon or following consummation of the Equity Offerings, it is possible
that future events which are beyond the control of the Company and JSC (such as
transfers of JSC Common Stock by certain stockholders) or certain stock
issuances or other actions by JSC or the Company, could cause JSC to experience
an ownership change. By way of example and without limitation, a sale by MSLEF
II of a substantial amount of JSC Common Stock, when combined with prior owner
shifts in the three years preceding the sale by MSLEF II, would likely result in
an ownership change. No assurances can be given whether or when such events will
occur.
If JSC experienced an ownership change at a time at which the value of JSC
Common Stock was equal to $11.00 per share (the closing price on March 22, 1996,
as reported on the Nasdaq Stock Market), the Section 382 Limitation would be
approximately $43 million using a 'long-term tax exempt rate' of 5.31%.
Depending on the circumstances, such an ownership change could significantly
restrict the Company's ability to utilize NOLs existing at such time to offset
subsequent taxable income. Accordingly, due to uncertainty as to whether an
ownership change will occur in the future, prospective purchasers of Senior
Notes should not assume the unrestricted availability of currently existing or
future NOL carryforwards in making their investment decisions.
TERMS OF THE SENIOR NOTES
The indentures pursuant to which the Senior Notes were issued contain
covenants that restrict, among other things, the ability of the Company and its
subsidiaries to incur indebtedness, pay dividends, engage in transactions with
stockholders and affiliates, issue capital stock, create liens, sell assets,
engage in mergers and consolidations and make investments in unrestricted
subsidiaries. The covenants are the result of negotiation among the Company and
the Underwriter, and although the covenants are generally designed to protect
the Senior Noteholders from actions that could result in significant credit
deterioration, the covenants (like covenants in other similar indebtedness) are
subject
17
to various exceptions which are generally designed to allow the Company to
continue to operate its business without undue restraint and, therefore, are not
total prohibitions with respect to the proscribed activities. For example, the
Company could incur additional indebtedness that is secured or that is pari
passu with the Senior Notes in the future if it were able to satisfy the
financial ratios required by the covenant restricting debt issuance. For a
description of such exceptions, See 'Description of the Senior Notes'.
The terms of the Senior Notes generally can be amended or modified with the
consent of the holders of a majority in aggregate principal amount of Senior
Notes then outstanding. While certain provisions related primarily to payment
cannot be modified absent the consent of each holder affected thereby, such
majority approval extends to many significant matters, including, for example,
the waiver of an Event of Default.
TRADING MARKET FOR THE SENIOR NOTES
The Senior Notes are not listed for trading on any securities exchange or
on any automated dealer quotation system. MS&Co. currently makes a market in the
Senior Notes. However, MS&Co. is not obligated to make a market for the Senior
Notes and may discontinue or suspend such market-making at any time without
notice. Accordingly, no assurance can be given as to the liquidity of, or the
trading market for, the Senior Notes. Further, the liquidity of, and trading
market for, the Senior Notes may be adversely affected by declines and
volatility in the market for high yield securities generally as well as any
changes in the Company's financial performance or prospects.
18
RECAPITALIZATION PLAN
In 1994 the Company completed the Recapitalization Plan to repay or
refinance a substantial portion of its indebtedness in order to improve
operating and financial flexibility by reducing the level and overall cost of
its debt, extending maturities of indebtedness, increasing stockholders' equity
and increasing its access to capital markets. The Company implemented the
Recapitalization Plan at that time to take advantage of favorable conditions in
the capital markets. The Recapitalization Plan included the following primary
components in addition to others described below: (i) the Debt Offerings, (ii)
the Equity Offerings, (iii) the SIBV Investment, (iv) the Bank Debt Refinancing
and (v) the Subordinated Debt Refinancing.
SOURCES AND USES
The following table sets forth the sources and uses of funds used to effect
the Recapitalization Plan:
($ MILLIONS)
Sources of Funds
The Debt Offerings(a)............................................................. $ 400
The Equity Offerings(a)........................................................... 250
SIBV Investment................................................................... 150
New Revolving Credit Facility(b).................................................. 30
Tranche A Term Loan............................................................... 900
Tranche B Term Loan............................................................... 300
-------
Total........................................................................ $2,030
-------
-------
Uses of Funds
Prepayment of debt under 1989 Credit Agreement.................................... $ 609
Prepayment of debt under 1992 Credit Agreement.................................... 201
Prepayment of Secured Notes....................................................... 271
Redemption of Senior Subordinated Notes(c)........................................ 374
Redemption of Subordinated Debentures(c).......................................... 321
Redemption of Junior Accrual Debentures(d)........................................ 149
Fees and expenses(e).............................................................. 105
-------
Total........................................................................ $2,030
-------
-------
- ------------
(a) Without deducting estimated underwriting discounts and commissions and
expenses.
(b) The amount shown is net of available cash. The maximum amount available
under such facility is $450 million, with up to $150 million of such amount
being available for letters of credit. At December 31, 1995 borrowings of
$55 million and letters of credit of approximately $94 million were
outstanding under such facility. See also footnotes (a) and (d).
(c) Represents the outstanding principal amount and redemption premiums paid on
such securities. Aggregate redemption premiums for the Senior Subordinated
Notes and the Subordinated Debentures were $24 million and $21 million,
respectively.
(d) Represents the estimated accreted value of the Junior Accrual Debentures as
of December 1, 1994, and includes accrued and unpaid interest payable as of
such date.
(e) Expenses include fees and expenses relating to the Bank Debt Refinancing,
commissions and underwriting discounts relating to the Debt Offerings and
the Equity Offerings, respectively, and reimbursement of certain fees and
expenses of SIBV incurred in connection with the Recapitalization Plan. See
'Certain Transactions -- Other Transactions'. There were no underwriting
discounts or commissions on the sale of JSC Common Stock pursuant to the
SIBV Investment.
DEBT OFFERINGS
Concurrently with the Equity Offerings, JSC(U.S.) offered the Senior Notes
in the Debt Offerings. The Senior Notes are general unsecured obligations of
JSC(U.S.), guaranteed by JSCE, and rank pari passu in right of payment with all
other senior indebtedness of JSC(U.S.). For a description of certain terms of
the Senior Notes see 'Description of the Senior Notes'.
EQUITY OFFERINGS
Concurrently with the Debt Offerings, JSC offered 15,400,000 shares of JSC
Common Stock initially in the United States and Canada and 3,850,000 shares of
JSC Common Stock initially outside the United States and Canada.
19
SALE OF STOCK TO SIBV
SIBV purchased from JSC pursuant to the SIBV Investment 11,538,462 shares
of JSC Common Stock for an aggregate purchase price of $150 million. JSC and
SIBV entered into a subscription agreement (the 'Subscription Agreement') which,
among other things, provides for the SIBV Investment. Following the consummation
of the Equity Offerings and the SIBV Investment, SIBV, directly and indirectly
through a wholly owned subsidiary, beneficially owned 46.5% of the outstanding
shares of JSC Common Stock. See 'Security Ownership of Certain Beneficial
Owners'. In addition, the Subscription Agreement provides that SIBV shall have
certain contractual preemptive rights which generally allow SIBV to maintain its
percentage ownership of JSC Common Stock.
BANK DEBT REFINANCING
As part of the Recapitalization Plan, the Company entered into the 1994
Credit Agreement. Substantially concurrently with the consummation of the 1994
Offerings, the Company used borrowings under the 1994 Credit Agreement, the net
proceeds of the Equity Offerings and the SIBV Investment and a portion of the
net proceeds of the Debt Offerings contributed to it by JSC, to refinance its
indebtedness outstanding under the Old Bank Facilities and Secured Notes. See
'Description of Certain Indebtedness -- The 1994 Credit Agreement'.
RECLASSIFICATION AND RELATED TRANSACTIONS
Prior to the consummation of the Equity Offerings, the capital stock of JSC
consisted of four classes of outstanding common stock (Class A, Class B, Class C
and Class D) and a fifth class of common stock (Class E) reserved for issuance
upon the exercise of outstanding options. Prior to the consummation of the
Equity Offerings, the only outstanding shares of voting stock of JSC were the
shares of Class A common stock (all outstanding shares of which were directly
and indirectly owned by SIBV) and Class B common stock (all outstanding shares
of which were owned by MSLEF II). Immediately prior to the consummation of the
Equity Offerings, a reclassification (the 'Reclassification') occurred, pursuant
to which JSC's five classes of common stock were converted into one class, on a
basis of ten shares of JSC Common Stock for each share of stock outstanding of
each of the old classes. Following the Reclassification, JSC's only class of
common stock was the JSC Common Stock, 80,200,000 shares of which were
outstanding immediately prior to the Equity Offerings and the SIBV Investment.
The Company, pursuant to the Substitution Transaction (as defined below),
merged Old JSC(U.S.) into CCA. Prior to the merger of Old JSC(U.S.) into CCA,
JSC interposed JSCE, a new wholly-owned subsidiary between it and Old JSC(U.S.),
which would own all of the capital stock of Old JSC(U.S.) prior to such merger,
and all of the capital stock of JSC(U.S.) after such merger. See 'Description of
Certain Indebtedness -- Substitution Transaction'.
STOCKHOLDERS AGREEMENT; CHARTER AND BY-LAW AMENDMENTS
Subsequent to the 1989 Transaction and prior to the Equity Offerings, the
Company operated pursuant to the terms of an organization agreement (the
'Organization Agreement'), which, among other things, provided for the election
of directors, the selection of officers and the day-to-day management of JSC and
the Company. In connection with the Recapitalization Plan, (i) the Organization
Agreement was terminated upon the closing of the Equity Offerings and, at such
time, the Stockholders Agreement among JSC, SIBV, the MSLEF II Associated
Entities and certain other entities, became effective and (ii) the certificates
of incorporation and by-laws of each of JSC, Old JSC(U.S.) and CCA were amended.
See 'Management -- Directors', 'Management -- Provisions of Stockholders
Agreement Pertaining to Management' and 'Certain Transactions -- Stockholders
Agreement' for a description of the Stockholders Agreement.
20
SUBORDINATED DEBT REFINANCING
On December 1, 1994, CCA used available proceeds of the Debt Offerings,
remaining borrowings under the Tranche A Term Loan and borrowings under the New
Revolving Credit Facility to effect the Subordinated Debt Refinancing, which
consisted of the redemption of the Senior Subordinated Notes, the Subordinated
Debentures and the Junior Accrual Debentures and the payment of accrued and
unpaid interest on the Junior Accrual Debentures as of December 1, 1994.
CONSENTS AND WAIVERS
The Company was required to obtain the Consents and Waivers under, among
other things, the Senior Notes, the Secured Notes and the 1991 Securitization in
order to consummate the Recapitalization Plan. The Company obtained the Consents
and Waivers.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1995. This table should be read in conjunction with
the historical consolidated statements of operations and balance sheet of the
Company included elsewhere in this Prospectus.
DECEMBER 31,
1995
-------------
(IN MILLIONS)
Short-term debt (represents current maturities of long-term debt).................................. $ 81
------------
Long-term debt:
New Revolving Credit Facility(a)(b)........................................................... $ 55
Tranche A Term Loan(a)........................................................................ 647
Tranche B Term Loan(a)........................................................................ 235
Senior Notes(c)............................................................................... 400
1993 Notes(d)................................................................................. 500
Securitization Loans.......................................................................... 217
Other senior indebtedness..................................................................... 57
------------
Total long-term debt.......................................................................... 2,111
------------
Stockholder's deficit:
Additional paid-in capital and common stock................................................... 1,102
Retained deficit.............................................................................. (1,589)
------------
Total stockholder's deficit................................................................... (487)
------------
Total capitalization..................................................................... $ 1,624
------------
------------
- ------------
(a) For further information about the New Revolving Credit Facility, the
Tranche A Term Loan and the Tranche B Term Loan, see 'Description of
Certain Indebtedness -- The 1994 Credit Agreement'.
(b) Represents funds utilized under such revolving credit facilities. The
maximum amount available under each of the New Revolving Credit Facility
(including the amount which was drawn down upon consummation of the
Recapitalization Plan) is $450 million (with up to $150 million of such
amount being available for letters of credit). At December 31, 1995
borrowings of $55 million and letters of credit of approximately $94
million were outstanding under the New Revolving Credit Facility.
(c) For further information about the Senior Notes, see 'Description of Senior
Notes'.
(d) For further information about the 1993 Notes, see 'Description of Certain
Indebtedness -- Terms of the 1993 Notes'.
21
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company as of and for the years ended December 31, 1991, 1992, 1993, 1994 and
1995. This data should be read in conjunction with 'Management's Discussion and
Analysis of Results of Operations and Financial Condition' and the consolidated
financial statements of the Company and the related notes included elsewhere in
this Prospectus. The selected consolidated financial data of the Company
presented under the captions Operating Results and Balance Sheet Data, with the
exception of the ratio of earnings to fixed charges, were derived from the
consolidated financial statements of the Company, which were audited by
independent auditors.
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1991 1992 1993 1994(a) 1995
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT RATIOS AND STATISTICAL DATA)
OPERATING RESULTS:
Net sales.............. $2,940 $2,998 $2,947 $3,233 $4,093
Cost of goods sold..... 2,407 2,495 2,567 2,719 3,222
Selling and
administrative
expenses............. 225 231 239 223 241
Restructuring charge... 96
Environmental and other
charges.............. 54
------ ------ ------ ------ ------
Income (loss) from
operations........... 308 272 (9) 291 630
Interest expense....... (335) (300) (254) (269) (234)
Other, net(b).......... (40) 4 5 6 7
------ ------ ------ ------ ------
Income (loss) before
income taxes,
extraordinary item
and cumulative effect
of accounting
changes.............. (67) (24) (258) 28 403
Provision for (benefit
from) income taxes... 10 10 (83) 16 156
------ ------ ------ ------ ------
Income (loss) before
extraordinary item
and cumulative effect
of accounting
changes.............. (77) (34) (175) 12 247
Extraordinary item:
Loss from early
extinguishment of
debt, net of income
tax benefit........ (50) (38) (55) (4)
Cumulative effect of
accounting changes... (16)
------ ------ ------ ------ ------
Net income (loss)...... $ (77) $ (84) $ (229) $ (43) $ 243
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of earnings to
fixed charges(c)..... (d) (d) (d) 1.08 2.60
------ ------ ------ ------ ------
------ ------ ------ ------ ------
OTHER DATA:
Gross profit
margin(e)............ 18.1% 16.8% 12.9% 15.9% 21.3%
Selling and
administrative
expenses as a percent
of net sales......... 7.7 7.7 8.1 6.9 5.9
EBITDA(f).............. $ 441 $ 408 $ 274 $ 426 $ 777
Ratio of EBITDA to
interest expense..... 1.32x 1.36x 1.08x 1.58x 3.32x
Capital investments and
acquisitions......... $ 129 $ 104 $ 117 $ 166 $ 188
Depreciation, depletion
and amortization..... 130 135 131 131 139
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital........ $ 77 $ 106 $ 40 $ 11 $ 47
Property, plant,
equipment and
timberland, net...... 1,526 1,497 1,636 1,686 1,714
Total assets........... 2,460 2,436 2,597 2,759 2,783
Long-term debt, less
current maturities... 2,650 2,503 2,619 2,392 2,111
Deferred income taxes,
less current
portion.............. 158 160 232 208 328
Stockholder's
deficit.............. (977) (829) (1,058) (730) (487)
STATISTICAL DATA:
Containerboard
production (thousand
tons)................ 1,830 1,918 1,840 1,932 1,905
Boxboard and SBS
production (thousand
tons)................ 726 745 744 767 774
Newsprint production
(thousand tons)...... 614 615 615 615 620
Corrugated shipping
containers sold
(thousand tons)...... 1,768 1,871 1,936 2,013 1,909
Folding cartons sold
(thousand tons)...... 482 487 475 486 469
Fiber reclaimed and
brokered (thousand
tons)................ 3,666 3,846 3,907 4,134 4,293
Timberland owned or
leased (thousand
acres)............... 978 978 984 985 984
(footnotes on next page)
22
(footnotes from previous page)
(a) Had the Recapitalization occurred on January 1, 1994, interest expense for
the year ended December 31, 1994 would have been $221 million, resulting in
income before extraordinary item and cumulative effect of accounting charges
for the year ended December 31, 1994 of $42 million and a net loss for the
year ended December 31, 1994 of $15 million.
(b) Other, net includes equity in earnings (loss) of affiliates and in 1991,
includes after-tax charges of $29 million and $7 million for the write-off
of the Company's equity investments in Temboard and PCL, respectively.
(c) For purposes of these calculations, earnings consist of income (loss) before
income taxes, equity in earnings (loss) of affiliates, minority interests
and extraordinary item and cumulative effect of accounting changes, plus
fixed charges. Fixed charges consist of interest on indebtedness,
amortization of deferred debt issuance costs and that portion of lease
rental expense considered to be representative of the interest factor
therein (deemed to be one-fourth of lease rental expense).
(d) For the years ended December 31, 1991, 1992 and 1993, earnings were
inadequate to cover fixed charges by $26 million, $31 million and $264
million, respectively.
(e) Gross profit margin represents the excess of net sales over cost of goods
sold divided by net sales.
(f) EBITDA represents net income before interest expense, income taxes,
depreciation, depletion and amortization, equity in earnings (loss) of
affiliates, minority interests, extraordinary items and cumulative effect of
accounting changes and in 1993, a restructuring charge and environmental and
other charges. The restructuring and environmental and other charges in 1993
included $43 million of expected asset writedowns and $107 million of
anticipated future cash expenditures. EBITDA is presented here, not as a
measure of operating results, but rather as a measure of the Company's debt
service ability.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with
the selected historical financial data and the historical consolidated financial
statements of the Company. Except as otherwise indicated, the following
discussion relates solely to historical results.
GENERAL
Market conditions and demand for containerboard, corrugated shipping
containers and newsprint, three of the Company's most important products, are
generally subject to cyclical changes in the economy and changes in industry
capacity, both of which can significantly impact selling prices and the
Company's profitability.
Containerboard markets, which were depressed in the early 1990's, began to
recover in late 1993 and the strong growth in the U.S. economy in the second
half of 1994 and the first half of 1995 propelled containerboard prices through
a series of rapid increases. Linerboard prices in 1993 were at a low of $280/ton
prior to the recovery and, by April of 1995, had reached a record high of
$535/ton. Market conditions were strong until the third quarter of 1995, when
the economy began to weaken, causing excess inventories in the industry. Many
paper companies, including the Company, took downtime at paper mills during the
fourth quarter of 1995 in response to the slowdown in the economy. Linerboard
prices softened by the end of 1995 to $490/ton, but were still high compared to
historical levels.
Newsprint markets were also depressed in the early 1990's. Demand for
newsprint began to improve in the second half of 1994 and prices steadily
increased during the second half of 1994 and 1995.
Increases in demand for recycled paperboard products and recycled newsprint
during 1994 and 1995 created unprecedented demand for reclaimed fiber, causing
shortages of this material and prices escalated at a dramatic rate. While the
effect of the reclaimed fiber price increases is favorable to the Company's
reclamation products division, it is unfavorable to the Company overall because
reclaimed fiber is a key raw material for certain of its paper mills. The demand
for and price of reclaimed fiber dropped dramatically in the fourth quarter of
1995 as a result of the significant downtime taken by containerboard mills
throughout the country. Although reclaimed fiber prices are currently low in
comparison to the record highs reached earlier in 1995, the Company believes it
is likely that the cost of reclaimed fiber will increase again in 1996. The
Company does not, however, anticipate any significant problems satisfying its
need for this material in the foreseeable future.
RESULTS OF OPERATIONS
1994 1993
1995 -------------------- --------------------
-------------------- INCOME INCOME
INCOME (LOSS) (LOSS)
NET FROM NET FROM NET FROM
SEGMENT DATA SALES OPERATIONS SALES OPERATIONS SALES OPERATIONS
------ ---------- ------ ---------- ------ ----------
(IN MILLIONS)
Paperboard/Packaging Products................... $3,706 $604 $2,974 $308 $2,699 $ 13
Newsprint....................................... 387 26 259 (17) 248 (22)
------ ---------- ------ ---------- ------ -----
Total...................................... $4,093 $630 $3,233 $291 $2,947 $ (9)
------ ---------- ------ ---------- ------ -----
------ ---------- ------ ---------- ------ -----
1995 COMPARED TO 1994
Price recovery coupled with productivity gains and cost reduction programs
implemented in recent years provided record sales and earnings for the Company
in 1995. Net sales were $4.1 billion, an
24
increase of 26.6% over 1994 and income from operations was $630 million, more
than double the 1994 amount. Increases (decreases) in sales for each of the
Company's segments are discussed below.
1995 COMPARED TO 1994
---------------------------------
PAPERBOARD/
PACKAGING
PRODUCTS NEWSPRINT TOTAL
----------- --------- -----
(IN MILLIONS)
Increase (decrease) due to:
Sales prices and product mix...................................... $ 749 $ 130 $ 879
Sales volume...................................................... (22) (2) (24)
Acquisitions and new facilities................................... 9 9
Sold or closed facilities......................................... (4) (4)
----------- --------- -----
Total net sales increase..................................... $ 732 $ 128 $ 860
----------- --------- -----
----------- --------- -----
Paperboard/Packaging Products Segment Sales
Net sales of the Paperboard/Packaging Products segment increased 24.6%
compared to 1994, to $3.71 billion, primarily as a result of sales prices and
product mix.
Net sales of containerboard and corrugated shipping containers increased
25.9% compared to 1994, to $1.96 billion. Corrugated shipping container prices
increased 28.0% on average compared to 1994. In view of the reduced demand in
the second half of 1995, several of the Company's containerboard mills took
downtime in order to reduce inventories. As a result of this downtime, shipments
of containerboard in 1995 were down 2.0% compared to 1994. Shipments of
corrugated shipping containers were down 4.2% compared to 1994.
Net sales of recycled boxboard, SBS and folding cartons increased 9.6%
compared to 1994, to $916 million. Recycled boxboard prices were increased
during the first half of 1995 to cover higher reclaimed fiber cost, but declined
later in the year in response to lower reclaimed fiber cost. On average, prices
of recycled boxboard and SBS rose 19.4% and 18.9%, respectively, compared to
1994. Folding carton prices increased 9.4% on average compared to 1994.
Shipments of recycled boxboard and SBS decreased 2.1% and shipments of folding
cartons decreased by 2.8% compared to 1994.
Net sales for the reclamation and timber products operations increased
74.7% compared to 1994, to $503 million, due primarily to escalating prices of
reclaimed fiber. Reclaimed fiber prices were higher by 62.0% on average compared
to 1994 and shipments increased 4.1% compared to 1994.
Net sales of recycled cylinderboard and industrial packaging increased
18.3% compared to 1994, to $155 million, due primarily to higher prices. Net
sales of consumer packaging increased 6.0% compared to 1994, to $176 million.
Newsprint Segment Sales
Net sales of the Newsprint segment increased 49.4% compared to 1994, to
$387 million, primarily as a result of sales prices and product mix.
Costs and Expenses
Cost of goods sold as a percent of net sales declined from 82.5% in 1994 to
77.6% in 1995 in the Paperboard/Packaging Products segment and declined from
102.2% in 1994 to 89.5% in 1995 in the Newsprint segment. Selling and
administrative expenses as a percent of net sales declined for both segments
from 6.9% in 1994 to 5.9% in 1995. The sales price increases implemented during
1995 were the primary reason for the improvements in each of cost of goods sold
and selling and administrative expenses as a percent of net sales.
In 1993, the Company recorded a pretax charge of $96 million for a
restructuring program (the 'Restructuring Program') to improve its long-term
competitive position. The Restructuring Program provided for plant closures,
asset write-downs, reductions in workforce, relocation of employees and
consolidation of certain plant operations, expected to be completed over an
approximate three year
25
period. Major activities relating to the Restructuring Program in 1995 included
the sale of a corrugated shipping container plant in August and the shutdown in
September of the East mill in Monroe, Michigan, which produced approximately
50,000 tons per year of recycled cylinderboard. Since 1993, the Company has
written down the assets of closed facilities and other nonproductive assets
totalling $35 million and made cash expenditures of $33 million relating to the
Restructuring Program. Proceeds of $5 million from sale of fixed assets and
asset transfers to other plants of $2 million were used to offset additional
expenses and anticipated expenses related to shutdowns. The remaining balance of
the restructuring liability, the majority of which is for anticipated cash
expenditures in 1996, will continue to be funded through operations. Based on
expenditures to date and those anticipated by the original plan, no significant
adjustment to the reserve balance is expected at this time.
The Company decreased its weighted average discount rate in measuring its
pension obligations from 8.5% to 7.25% and its rate of increase in compensation
levels from 5.0% to 4.0% at December 31, 1995. The net effect of changing these
assumptions was the primary reason for the increase in projected benefit
obligations. In addition, the Company changed its expected long-term rate of
return on assets from 10.0% to 9.5% at December 31, 1995. The net effect of
these changes is expected to increase pension cost in 1996 by approximately $14
million.
In the fourth quarter of 1995, the Company recorded a pretax charge
totalling $25 million related to product quality matters and failure to follow
proper manufacturing and internal procedures in an immaterial non-core product
line. The Company is continuing to further evaluate this issue and expects to
conclude its review during the second fiscal quarter. Based upon the information
currently available to management, the Company believes the reserve is adequate
but intends to reevaluate the adequacy of the reserve at the conclusion of its
review.
Interest expense for 1995 declined $35 million compared to 1994 due
primarily to lower average debt levels outstanding and lower effective interest
rates. The lower average interest rate in 1995 resulted primarily from the
retirement in December 1994 of the Company's high yield subordinated debt in
conjunction with the Recapitalization Plan.
The Company will adopt Statement of Financial Accounting Standards ('SFAS')
No. 121, 'Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of', in the first quarter of 1996. Based on current
circumstances, the Company does not believe the effect of such adoption will be
material.
The provision for income taxes in 1995 was $156 million compared to $16
million in 1994. The Company's effective tax rate of 38.7% in 1995 was
substantially lower than the 1994 effective tax rate of 57.1%, primarily due to
the effect of permanent differences from applying purchase accounting. The
Company has net operating loss carryforwards for federal income tax purposes of
approximately $98 million (expiring in the year 2009), none of which are
available for utilization against alternative minimum taxes. Federal income tax
returns for 1989 through 1991 are currently under examination. While the
ultimate results of such examination cannot be predicted with certainty, the
Company's management believes that the examination will not have a material
adverse effect on its consolidated financial condition or results of operations.
26
1994 COMPARED TO 1993
Results for 1994 reflected increased demand for the Company's products. Net
sales of $3.2 billion for 1994 were up 9.7% compared to 1993. Increases
(decreases) in sales for each of the Company's segments are discussed below.
1994 COMPARED TO 1993
---------------------------------
PAPERBOARD/
PACKAGING
PRODUCTS NEWSPRINT TOTAL
----------- --------- -----
(IN MILLIONS)
Increase (decrease) due to:
Sales price and product mix...................................... $ 185 $11 $ 196
Sales volume..................................................... 199 199
Acquisitions and new facilities.................................. 5 5
Closed facilities................................................ (114) (114)
----------- --- -----
Total net sales increase.................................... $ 275 $11 $ 286
----------- --- -----
----------- --- -----
Paperboard/Packaging Products Segment Sales
Net sales in the Paperboard/Packaging Products segment for 1994 increased
10.2% compared to 1993, to $2.97 billion. The increase was due to higher sales
prices and increased sales volume. Sales growth for this segment was mitigated
by the shutdown of several operating facilities in late 1993 and early 1994,
including a coated recycled boxboard mill, five converting plants and two
reclamation products facilities in connection with the Company's Restructuring
Program.
Net sales of containerboard and corrugated shipping containers increased
12.5% compared to 1993, to $1.55 billion. Containerboard prices increased from
approximately $300/ton at the end of 1993 to $435/ton in October 1994.
Corrugated shipping container prices increased 4.7% on average compared to 1993.
Shipments of containerboard and corrugated shipping containers were higher in
1994 compared to 1993 by 3.9% and 4.7%, respectively.
Net sales of recycled boxboard, SBS and folding cartons decreased 2.6%
compared to 1993, to $836 million. On average, recycled boxboard prices were
comparable to 1993, but SBS prices, although rising in the second half of 1994,
were 4.8% lower on average compared to 1993. Folding carton prices were lower on
average by 2.2% in 1994 compared to 1993. Shipments of folding cartons increased
by 1.8% compared to 1993, but shipments of recycled boxboard decreased 10.0%,
due primarily to the recycled boxboard mill shutdown referred to above.
Shipments of SBS increased 6.8% compared to 1993.
Net sales for the reclamation and timber products operations increased
74.5% compared to 1993, to $288 million, due primarily to higher prices for
reclaimed fiber. Reclaimed fiber prices in 1994 were higher by 62.9% on average
compared to 1993 and shipments increased 5.8% compared to 1993.
Net sales of recycled cylinderboard and industrial packaging increased 0.8%
compared to 1993, to $131 million and net sales of consumer packaging increased
0.6% compared to 1993 to $166 million.
Newsprint Segment Sales
Net sales in the Newsprint segment for 1994 increased $11 million, up 4.4%
compared to 1993, to $259 million. The increase was due primarily to higher
sales prices in the second half of 1994.
Costs and Expenses
Costs and expenses in both segments in 1994 were favorably impacted by cost
reduction initiatives and by the Restructuring Program. Cost of goods sold as a
percent of net sales in the Paperboard/Packaging Products segment declined from
85.6% in 1993 to 82.5% in 1994, primarily as a result of higher sales prices and
improved capacity utilization. Cost of goods sold as a percent of net sales in
the Newsprint segment improved modestly from 102.8% in 1993 to 102.2% in 1994,
primarily as a result of higher sales prices. Selling and administrative
expenses as a percent of net sales declined from 8.1% in 1993 to 6.9% in 1994 as
a result of higher sales prices.
27
The Company increased its weighted average discount rate in measuring its
pension obligations from 7.6% to 8.5% and its rate of increase in compensation
levels from 4.0% to 5.0% at December 31, 1994. The net effect of changing these
assumptions was the primary reason for the decrease in projected benefit
obligations and the changes decreased pension cost in 1995 by approximately $5
million.
Average debt levels outstanding decreased in 1994 as a result of the
Recapitalization Plan, however, interest expense of $269 million for 1994
increased 5.9% compared to 1993 due to the impact of higher effective interest
rates in 1994.
The tax provision for 1994 was $16 million compared to a tax benefit for
1993 of $83 million. The Company's effective tax rate for 1994 was higher than
the U.S. Federal statutory tax rate due to several factors, the most significant
of which was the effect of permanent differences between book and tax
accounting.
The Company recorded an extraordinary loss from the early extinguishment of
debt (net of income tax benefits) amounting to $55 million in 1994 and $38
million in 1993. The Company adopted SFAS No. 112 'Employers' Accounting for
Postemployment Benefits' in 1994, the effect of which was not material.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was significantly higher in 1995
compared to 1994 due primarily to the higher earnings level. Net cash provided
by operating activities of $411 million and excess cash at the end of 1994 was
used primarily to fund capital investments and acquisitions of $188 million and
to reduce debt by $264 million.
The ratio of current assets to current liabilities was 1.1 at December 31,
1995 compared to 1.0 at December 31, 1994. Accounts receivable were higher at
December 31, 1995, primarily as a result of significantly higher product
pricing. Accounts payable were lower at December 31, 1995, primarily as a result
of lower fiber cost at the end of 1995 compared to 1994.
In February 1995, JSC (U.S.) entered into the $315 million 1995
Securitization consisting of a $300 million trade receivables-backed commercial
paper program and a $15 million term loan, which matures in December 1999.
Proceeds of the 1995 Securitization were used to extinguish JSC (U.S.)'s
borrowings under the 1991 Securitization and for general corporate purposes.
Interest rates on borrowings under the 1995 Securitization are at a variable
rate (5.78% at December 31, 1995).
In conjunction with the Recapitalization Plan, the Company entered into the
1994 Credit Agreement consisting of the New Revolving Credit Facility, the
Tranche A Term Loan and the Tranche B Term Loan. In October 1995, the 1994
Credit Agreement was amended to reduce the interest rates payable on the New
Revolving Credit Facility and the Tranche A Term Loan. Net debt reduction for
1995 included $64 million of mandatory and $192 million of optional payments in
respect of the Tranche A and Tranche B Term Loans. The Company recorded an
extraordinary loss from the early extinguishment of debt (net of income tax
benefits) amounting to $4 million in 1995. In January 1996, the 1994 Credit
Agreement was amended to give greater flexibility to the Company in applying
optional prepayments toward installments due within the next twelve months.
The 1994 Credit Agreement contains various business and financial covenants
including, among other things, (i) limitations on dividends, redemptions and
repurchases of capital stock, (ii) limitations on the incurrence of
indebtedness, liens, leases and sale-leaseback transactions, (iii) limitations
on capital expenditures, (iv) maintenance of minimum levels of consolidated
earnings before depreciation, interest, taxes and amortization and (v)
maintenance of minimum interest coverage ratios. Such restrictions, together
with the highly leveraged position of the Company, could restrict corporate
activities, including the Company's ability to respond to market conditions, to
provide for unanticipated capital expenditures or to take advantage of business
opportunities.
The 1994 Credit Agreement imposes an annual limit on future capital
expenditures of $150 million. The capital spending limit is subject to increase
in any year by an amount equal to the Company's portion of excess cash flow and
an amount up to $75 million if the prior year's spending was less than the
maximum amount allowed. The Company has a carryover of approximately $66 million
for 1996.
28
Because the Company has invested heavily in its core businesses in prior years,
management believes the annual limitation for capital expenditures does not
impair its plans for maintenance, expansion and continued modernization of its
facilities.
Capital investments and acquisitions in 1995 include $154 million of
property and timberland additions and $34 million of investments in affiliates
and acquisitions. The investments in affiliates primarily include (i) the
purchase of the 20% minority interest of SNC previously owned by The Times
Mirror Company, the primary assets of which are two mills located near Portland,
Oregon producing approximately 620,000 tons of newsprint annually, and (ii) a
joint venture, the primary asset of which is a linerboard mill near Shanghai,
China.
The Company expects internally generated cash flows and existing financing
resources will be sufficient for the next several years to meet its needs to pay
interest, amortize term loans and fund capital expenditures. Scheduled payments
due in 1996 and 1997 under the 1994 Credit Agreement are $62 million and $133
million, with increasing amounts thereafter. Capital expenditures for 1996 are
estimated to be comparable to 1995. The Company expects to use any excess cash
provided by operations to make further debt reductions. At December 31, 1995,
the Company had $301 million of unused borrowing capacity under its 1994 Credit
Agreement and $95 million of unused borrowing capacity under the 1995
Securitization subject to JSC (U.S.)'s level of eligible accounts receivable.
The Company's earnings are significantly affected by the amount of interest
on its indebtedness. The Company enters into interest rate swap, cap and option
agreements to manage interest rate exposure on its indebtedness. Management's
objective is to protect the Company from interest rate volatility and reduce or
cap interest expense within acceptable levels of risk. Periodic amounts to be
paid or received under interest rate swap and cap agreements are accrued and
recognized as adjustments to interest expense. Premiums paid on cap agreements
are included in interest payable and amortized to interest expense over the life
of the agreements. The Company amends existing agreements or enters into
agreements with offsetting effects when necessary to change its net position. In
1995, interest rate swap agreements with a notional value of $925 million
expired and a cap agreement with a notional amount of $100 million was
terminated. Also in 1995, the Company entered into an interest rate swap
agreement with a notional amount of $100 million. The table below shows interest
rate swap agreements outstanding at December 31, 1995, the related maturities
for the years thereafter and the contracted pay and receive rates for such
agreements.
INTEREST INTEREST RATE
RATE SWAPS AT SWAP MATURITIES
DECEMBER 31, ----------------
(IN MILLIONS) 1995 1996 1997
------------- ----- -----
Pay fixed interest rate swaps....................................... $483 $(150) $(333)
Pay rate....................................................... 6.519% 6.519% 6.645%
Receive rate................................................... 5.797%
The Company has a cap agreement with a notional amount of $100 million,
which matures in 1996, on variable rate debt which limits the Company's interest
payments to a range of 5.5 - 7.0% on the notional amount.
ENVIRONMENTAL MATTERS
In 1993, the Company recorded a provision of $54 million, of which $39
million relates to environmental matters, representing asbestos and PCB removal,
solid waste cleanup at existing and former operating sites, and expenses for
response costs at various sites where the Company has received notice that it is
a potentially responsible party ('PRP'). The Company made payments of $9 million
and $4 million related to PRP sites and other environmental cleanup in 1995 and
1994, respectively. The Company, as well as other companies in the industry,
faces potential environmental liability related to various sites at which wastes
have allegedly been deposited. The Company has received notice that it is or may
be a PRP at a number of federal and state sites (the 'Sites') where remedial
action may be required. Because the laws that govern the cleanup of waste
disposal sites have been construed to authorize joint and several liability,
government agencies or other parties could seek to recover all
29
response costs for any Site from any one of the PRPs for such Site, including
the Company, despite the involvement of other PRPs. Although the Company is
unable to estimate the aggregate response costs in connection with the
remediation of all Sites, if the Company were held jointly and severally liable
for all response costs at some or all of the Sites, it would have a material
adverse effect on the financial condition and results of operations of the
Company. However, joint and several liability generally has not in the past been
imposed on PRPs, and, based on such past practice, the Company's past experience
and the financial conditions of other PRPs with respect to the Sites, the
Company does not expect to be held jointly and severally liable for all response
costs at any Site. Liability at waste disposal sites is typically shared with
other PRPs and costs generally are allocated according to relative volumes of
waste deposited. At most Sites, the waste attributed to the Company is a very
small portion of the total waste deposited at the Site (generally significantly
less than 1%). There are approximately ten Sites where final settlement has not
been reached and where the Company's potential liability is expected to exceed
de minimis levels. Accordingly, the Company believes that its estimated total
probable liability for response costs at the Sites was adequately reserved at
December 31, 1995. Further, the estimate takes into consideration the number of
other PRPs at each site, the identity, and financial position of such parties,
in light of the joint and several nature of the liability, but does not take
into account possible insurance coverage or other similar reimbursement.
EFFECTS OF INFLATION
With the exception of recycled fiber, the moderate level of inflation
during the past few years has not had a material impact on the Company's
financial position or operating results. The Company uses the last-in, first-out
method of accounting for approximately 80% of its inventories. Under this
method, the cost of products sold reported in the financial statements
approximates current cost and thus reduces the distortion in reported income due
to increasing costs.
30
BUSINESS
GENERAL
The predecessor to the Company was founded in 1974 when JS Group, a
worldwide leader in the packaging products industry, commenced operations in the
United States by acquiring 40% of a small paperboard and packaging products
company. The remaining 60% of that company was acquired by JS Group in 1977, and
in 1978 net sales were $43 million. The Company implemented a strategy to build
a fully integrated, broadly based, national packaging business, primarily
through acquisitions, including Alton Box Board Company in 1979, the paperboard
and packaging divisions of Diamond International Corporation in 1982, 80% of SNC
in 1986 and 50% of CCA in 1986. The Company financed its acquisitions by using
leverage and, in several cases, utilized joint venture financing whereby the
Company eventually obtained control of the acquired company. While no major
acquisition has been made since 1986, the Company has made 22 smaller
acquisitions and started up seven new facilities which had combined sales in
1995 of $403 million. JSC was formed in 1983 to consolidate the operations of
the Company, and today the Company ranks among the industry leaders in its two
business segments, Paperboard/Packaging Products and Newsprint. In 1995, the
Company had net sales of $4.1 billion, achieving a compound annual sales growth
rate of 30.7% for the period since 1978.
The Company believes it is one of the nation's largest producers of
paperboard and packaging products and is the largest producer of recycled
paperboard and recycled packaging products and the largest processor of
wastepaper. In 1995, the Company's system of paperboard mills produced 1,905,000
tons of virgin and recycled containerboard, 774,000 tons of coated and uncoated
recycled boxboard and SBS and 192,000 tons of recycled cylinderboard, which were
sold to the Company's own converting operations or to third parties. The
Company's converting operations consist of 51 corrugated container plants, 18
folding carton plants, and 22 industrial packaging plants located across the
country, with three plants located outside the U.S. In 1995, the Company's
container plants converted 1,925,000 tons of containerboard, an amount equal to
approximately 101.1% of the amount it produced, its folding carton plants
converted 529,000 tons of SBS, recycled boxboard and coated natural kraft, an
amount equal to approximately 68.3% of the amount it produced, and its
industrial packaging plants converted 148,000 tons of recycled cylinderboard, an
amount equal to approximately 77.2% of the amount it produced. The
paperboard/packaging products operations also include 14 consumer packaging
plants. The Company's Paperboard/Packaging Products segment contributed 90.5% of
the Company's net sales in 1995.
The Company's paperboard operations are supported by its reclamation
division, which processed or brokered 4.3 million tons of wastepaper in 1995,
and by its timber division which manages approximately one million acres of
owned or leased timberland located in close proximity to its virgin fiber mills.
In addition, the Company believes it is one of the nation's largest
producers of recycled newsprint. The Company's Newsprint segment includes two
newsprint mills in Oregon, which produced 620,000 tons of recycled newsprint in
1995, and two facilities that produce Cladwood'r', a construction material
produced from newsprint and wood by-products. The Company's newsprint mills are
also supported by the Company's reclamation division.
DEVELOPMENT OF BUSINESS
Since its founding in 1974, the Company has followed a strategy to build a
broadly based packaging business, primarily through acquisitions. The Company's
acquisitions were principally motivated by opportunities to expand productive
capacity, both geographically and into new product lines, further integrate its
operations and broaden its existing product lines and customer base. The Company
has sought to improve the productivity of plants and operations acquired by it.
The most significant acquisitions were:
1979 -- Acquired 51% of Alton Box Board Company; the remaining 49% was
acquired in 1981. Alton's containerboard and industrial packaging
businesses consisted of fully integrated containerboard and paperboard
operations. The Alton acquisition significantly enhanced the Company's
presence in the midwest and expanded its operations to the southeast. In
addition,
31
the Alton acquisition expanded the Company's product lines to include
folding cartons and industrial packaging and provided a network of
reclamation facilities which supplied wastepaper to the Company's recycled
mills. Alton owned a kraft linerboard mill and a recycled medium mill, two
recycled cylinderboard mills, 32 converting facilities and nine recycled
wastepaper plants. Alton's total annual paperboard production at the date
of acquisition was 471,775 tons, as compared to 620,248 tons in 1995.
1982 -- Acquired 50% of the paperboard and packaging divisions of Diamond
International Corporation through a joint venture; the remaining 50% was
acquired in 1983. In addition to expanding the Company's existing product
lines and customer base, the Diamond acquisition added new product lines,
including labels and other consumer packaging, and a related business
which produced rotogravure cylinders for use on printing presses used
extensively by the folding carton industry. Diamond owned two coated
recyled boxboard mills, which provided the Company with an integrated
source of recycled boxboard for use in its folding carton plants, as well
as three folding carton plants, three shipping container plants and three
consumer packaging plants. Diamond's operations were located primarily in
the midwest. Diamond's annual coated recycled boxboard production,
exclusive of a mill recently shut down, at the date of acquisition was
74,494 tons, as compared to 113,854 tons in 1995.
1986 -- Acquired 80% of SNC, formerly Publishers Paper Company. The
remaining 20% was acquired in 1995. The SNC acquisition extended the
Company's product line to include newsprint and also expanded the
Company's reclamation operations to the west coast. The SNC acquisition
consisted of two newsprint mills and two Cladwood'r' manufacturing plants,
all of which are located in Oregon. SNC's annual newsprint production at
the date of acquisition was 592,804 tons, as compared to 620,302 tons in
1995.
1986 -- Acquired 50% of CCA through a joint venture with The Morgan
Stanley Leveraged Equity Fund, L.P.; the remaining 50% was acquired in
1989. The total CCA acquisition cost was $1,130 million, which was
financed with $1,060 million of debt and $70 million of preferred and
common equity. The CCA acquisition substantially enhanced the Company's
production capacity and further integrated the Company's operations. It
also expanded its paperboard and packaging operations to the west coast,
which enabled the Company to compete on a national level and broaden its
customer base. The CCA acquisition consisted primarily of nine paperboard
mills, 40 converting plants and five reclamation facilities as well as
approximately 1,000,000 acres of owned or leased timberlands. CCA's
operations are located throughout the United States. CCA's total annual
paperboard production at the date of acquisition was 1,760,039 tons, as
compared to 2,063,511 tons in 1995.
INDUSTRY OVERVIEW
PAPERBOARD
General
Paperboard is a general term used to describe certain heavyweight grades of
paper primarily used for packaging products. Paperboard is produced from four
basic types of pulp: (i) unbleached kraft; (ii) bleached kraft; (iii) recycled
and (iv) semi-chemical. Unbleached kraft, bleached kraft and semi-chemical
paperboards are produced primarily from wood pulp. Recycled paperboard is
produced primarily from wastepaper. Recycled paperboard demand has grown at a
more rapid rate than virgin grades based primarily on its increased quality and
rising environmental awareness by consumers.
Paperboard is classified by three major end-uses: (i) containerboard, (ii)
boxboard and (iii) other paperboard. Containerboard primarily includes
linerboard and corrugating medium, the components of corrugated boxes used in
the transportation of manufactured goods. Boxboard includes folding carton
stock, setup boxboard and food board. Folding cartons, the major segment of
boxboard, are used to package a wide range of consumer products such as health
and beauty products, dry cereals and soap powders. Folding cartons are often
clay-coated for better printability and consumer appeal. Other
32
paperboard includes paperboard used in a number of industrial applications:
fiber drums, composite cans, spiral tubes, cores, gypsum wallboard liner and box
partitions.
According to the American Forest & Paper Association (the 'AFPA'), the
following table represents 1995 containerboard and boxboard production in the
United States.
%
--------------------------------------------------
UNBLEACHED BLEACHED
END-USE PRODUCTION(1) % OF TOTAL KRAFT KRAFT RECYCLED SEMICHEMICAL
- ----------------------------------- ------------- ---------- ---------- -------- -------- ------------
(TONS IN
THOUSANDS)
Containerboard..................... 28,747 77% 61 1 19 19
Boxboard........................... 8,429 23 17 46 37 --
------------- ---
37,176 100%
------------- ---
------------- ---
- ------------
(1) Excludes approximately 2.9 million export containerboard tons and 1.5
million export boxboard tons.
Containerboard
Demand. Total containerboard production (including exports) grew from 21.9
million tons in 1985 to 31.6 million tons in 1995 (consisting of 28.7 million
tons of domestic production and 2.9 million tons of exports) for a compound
annual growth rate ('Rate') of 3.7%. From 1985-1995, containerboard produced
from recycled paperboard grew at a much faster rate than unbleached kraft,
experiencing a 12.4% Rate. Containerboard demand is highly cyclical and
fluctuates with the general level of economic activity.
[GRAPHIC REPRESENTATION of the relationship between the change in Gross Domestic
Product ('GDP') and the change in containerboard production from 1985 to 1995.
For each year during the period 1985-1995, the annual percentage change in GDP
was 3.7%, 3.0%, 2.9%, 3.8%, 3.4%, 1.3%, (1.0)%, 2.7%, 2.2%, 3.5% and 2.1%,
respectively. During the same period, the annual percentage change in
containerboard production was (3.7)%, 8.4%, 7.1%, 1.8%, 1.1%, 3.7%, 2.2%, 4.2%,
1.8%, 6.3% and 1.3%, respectively. The source of the containerboard production
data is the American Forest and Paper Association.]
Overall, containerboard demand is a function of the level of corrugated box
shipments from box converting plants and, to some extent, the level of
containerboard inventories on hand. Corrugated box demand was very strong in
1994 and the first quarter of 1995. Box shipments in the first quarter of 1995
exceeded the corresponding 1994 period by 6.5%, but then weakened and shipments
for the balance of the year fell below the corresponding 1994 period by 3.0%.
Box plant containerboard inventory levels reached a high in 1995 of 2.95 million
tons on June 30 (5.1 weeks of supply) compared to 1.98 million
33
tons on December 31, 1994 (3.4 weeks of supply). Box plant inventory levels were
at 2.58 million tons on December 31, 1995 (4.8 weeks of supply). Containerboard
mill production followed this demand pattern in 1995, with strong shipments to
box converting plants in the first part of the year and then falling off later
in the year. Containerboard demand was also hampered in 1995 by a decrease in
exports. Resource Information Systems, Inc. ('RISI'), a well known industry
consultant, projects domestic containerboard production to grow to 30.3 million
tons by 1998, a 2.4% Rate from 1995. RISI projects containerboard exports to
grow at a 6.0% Rate from 1995 to 1998.
Supply. From 1985 to 1995 total U.S. containerboard capacity grew from 24.3
million tons to 33.9 million tons, a 3.4% Rate. In 1995, capacity utilization in
the industry was 93.4%. From 1985 to 1995, capacity utilization reached a high
of 98.6% in 1994 and a low of 90.3% in 1985. The lower industry operating rate
of 93.4% in 1995 was due to the large amount of downtime taken by many
containerboard producers late in the year in order to reduce the high levels of
inventory which occurred in the industry in the second half of 1995.
According to the AFPA, producers plan to add approximately 3.5 million tons
of containerboard capacity in 1995-1998. Approximately 2.8 million tons, or 81%
of the added capacity, will be recycled linerboard and corrugating medium. The
following graph reflects the historical relationship between containerboard
capacity utilization and linerboard prices, the predominant grade for
containerboard products.
[GRAPHIC REPRESENTATION of the relationship between the containerboard capacity
utilization and fiberboard prices from 1985 to 1995. For each year during the
period 1985-1995, annual containerboard capacity utilization was 90.3%, 95.2%,
97.8%, 95.4%, 94.6%, 95.1%, 95.2%, 95.6%, 94.4%, 98.6% and 93.4%, respectively.
For each year during the same period, unbleached Kraft linerboard prices per
short ton (42 lb. Eastern Market) were $274, $295, $361, $403, $405, $378,
$336, $345, $298, $397 and $523, respectively (prices reflect the average of the
four quarter-end prices). The source of the containerboard capacity utilization
data is the American Forest and Paper Association. The source of the
linerboard prices is the Pulp and Paper North American Factbook.]
Pricing. Pricing historically has been correlated with the levels of
industry capacity utilization, demand for corrugated shipping containers and
cyclical changes in the economy. Containerboard markets, which were depressed in
the early 1990's, began to recover in late 1993 and the strong growth in the
U.S. economy in the second half of 1994 and the first half of 1995 propelled
containerboard prices through a series of rapid increases. The Company was able
to implement significant price increases during this time. Linerboard prices in
1993 were at a low of approximately $280 - $290 per ton prior to the recovery
and, by April of 1995, had reached a record high of $535 per ton. Market
conditions were strong until the third quarter of 1995, when the economy began
to weaken, causing excess inventories in the industry. Many paper companies,
including the Company, took downtime at paper mills during the fourth quarter of
1995 in response to the slowdown in the economy. Linerboard prices began to
weaken
34
in the third quarter of 1995 and by April 1, 1996, linerboard prices had
softened to approximately $440 per ton.
Boxboard
Demand. Total boxboard production (including exports) grew to 10.0 million
tons in 1995 from 6.9 million tons in 1985, representing a 3.7% Rate.
Traditionally, recycled and SBS have been by far the largest segments of
boxboard production, representing 37% and 46%, respectively in 1995. During 1985
to 1995, recycled boxboard grew at a 2.4% Rate, SBS boxboard grew at a 2.1% Rate
and unbleached kraft, starting from a much smaller base, grew at a 5.9% Rate.
Like containerboard, boxboard demand tends to fluctuate with the general level
of economic activity. During the late 1980s, the use of clay coated recycled
boxboard as a substitute for SBS boxboard increased based on its improved
quality, heightened environmental awareness by consumers and increased demand by
customers for less expensive packaging alternatives. RISI projects both recycled
boxboard production and SBS production to decrease at a 0.8% Rate from 1995 to
1998.
Supply. From 1985 to 1995 total boxboard capacity grew from 7.9 million
tons to 10.5 million tons, a 2.8% Rate. SBS folding boxboard grew at a 2.3%
Rate, reaching 5.1 million tons by 1995, while recycled folding boxboard grew to
3.4 million tons by 1995, a 1.5% Rate.
[GRAPHIC REPRESENTATION of the level of boxboard capacity utilization from 1985
to 1995. For each year during the period 1985-1995, annual boxboard capacity
utilization was 87.5%, 89.5%, 90.2%, 92.2%, 92.8%, 90.7%, 93.5%, 92.6%, 95.1%,
98.3% and 95.3%, respectively. The source of this data is the American Forest
and Paper Association.]
According to the AFPA, 0.6 million tons of boxboard capacity will be added
between 1995 - 1998. Unbleached boxboard accounts for 67%, recycled boxboard
accounts for 24% and SBS accounts for 9% of announced capacity additions.
Pricing. While general boxboard pricing levels are dependent on the overall
balance of supply and demand, relative pricing of different grades of boxboard
is affected by the substitutability of one grade for another in various customer
applications. For example, although the clay coated recycled demand and supply
situation is positive for the upcoming years, clay coated recycled prices are
influenced by SBS prices. In recent years, SBS prices have declined at a greater
percentage than clay coated recycled, so that on a yield basis, there is not
currently a significant price differential between the two. Future price growth
in some grades of SBS may be tempered by recent and projected capacity
increases.
35
NEWSPRINT
General. Newsprint is an uncoated paper used in newspaper production.
Virgin newsprint is manufactured primarily from mechanical or groundwood pulps.
The bulk of North American virgin newsprint capacity is located in Canada and
the majority of recycled newsprint capacity is located in the U.S. because of
the close proximity of wastepaper collection sites. In recent years, the
majority of U.S. state legislatures have enacted recycled content laws requiring
newspaper publishers to use newsprint containing various percentages of recycled
fiber.
Demand. According to the AFPA, the total U.S. newsprint production in 1995
remained flat, compared to 1994, with 7.0 million tons being produced. Canadian
production was 10.2 million tons in 1995, compared to 10.3 million tons in 1994.
From 1985 to 1995, North American newsprint production grew at a 1.2% Rate.
Newsprint demand is dependent on the general level of newspaper advertising.
RISI estimates North American newsprint shipments will remain flat or decline
slightly through 1998.
According to RISI, North American production is also influenced by the
export levels to major newsprint consuming regions such as Western Europe and
Asia. Export shipments in 1995 decreased 6% compared to 1994.
Supply. According to the AFPA, North American newsprint capacity was 17.8
million tons in 1995, reflecting a 0.8% Rate since 1985. Capacity utilization
was at relatively low levels during the early 1990's as large growth in capacity
coincided with a decline in newsprint demand, which led to lower rates for North
American mills overall. Capacity utilization from 1985 to 1995 is shown in the
table below:
[GRAPHIC REPRESENTATION of the level of newsprint capacity utilization in the
United States and Canada from 1985 to 1995. For each year during the period
1985-1995, U.S. newsprint capacity utilization was 93.8%, 97.0%, 97.3%, 97.8%,
96.7%, 97.3%, 97.0%, 97.0%, 98.0%, 96.6% and 95.8%, respectively. For each year
during this same period, Canadian newsprint capacity utilization was 91.4%,
93.4%, 97.4%, 98.9%, 96.3%, 89.9%, 87.0%, 88.9%, 95.1%, 96.1% and 96.6%,
respectively. The source of these figures is the American Forest and Paper
Association.]
According to the AFPA, North American newsprint capacity will decline
slightly through 1998 because no new mills or machines are planned during this
period and capacity gains resulting from rebuilds of existing machines and
miscellaneous improvements will be offset by the reallocation of capacity in
several mills to produce groundwood and specialty papers rather than newsprint.
Several new recycled newsprint mills have been announced recently in Western
Europe and Asia, and such mills are expected to affect future exports by North
American producers.
Pricing. Newsprint is a commodity paper grade with pricing largely a
function of capacity utilization. During the last cycle, west coast prices were
at a low of $382 per ton in the second quarter of 1992. With demand for
newsprint strengthening in 1994 and 1995, the Company successfully
36
implemented price increases totaling $290 per ton, and the west coast price in
the fourth quarter of 1995 was $695 per ton. Market conditions softened in the
first quarter of 1996, but as of April 1, 1996, the price was still $695 per
ton.
BUSINESS STRATEGY
The principal components of the Company's business strategy include the
following:
MAINTAIN FOCUS ON RECYCLED PRODUCTS
The Company believes it is the largest processor of wastepaper, the largest
producer of coated recycled paperboard, the largest producer of recycled medium
and one of the largest producers of recycled newsprint in the U.S. The Company
has historically utilized a significant amount of recycled fiber in its products
and has maintained a strategy to allow it to supply all of the Company's
recycled fiber needs for its paper producing operations. There are several
advantages to this strategy. First, recycled products are gaining in popularity
with customers as a result of increased environmental awareness and improved
quality, making them more competitive with products made from virgin fiber.
Second, the Company's national operations allow it to minimize costs of
transporting wastepaper to its mills. Third, as the largest collector of
wastepaper in the world, the Company's reclamation division has access to
wastepaper supplies throughout the country. With its supply network well in
place, the Company believes it has sufficient sources of supply to meet the
needs of its recycled mills, during periods of unprecedented demand such as
occurred in 1994 and the first quarter of 1995.
The following chart indicates the significant percentage of recycled
paperboard produced and consumed by the Company's operations.
1993 1994 1995
----- ----- -----
(TONS IN THOUSANDS)
Total paperboard produced by the Company............................. 2,790 2,908 2,870
Percent recycled................................................ 45.9% 45.6% 45.9%
Total paperboard consumed by the Company............................. 2,607 2,689 2,603
Percent recycled................................................ 36.6% 35.5% 37.3%
FOCUS ON COST REDUCTION
The Company continuously strives to reduce operating costs on a system-wide
basis through the implementation of cost reduction programs. In 1993, the
Company initiated the Cost-Reduction Initiatives and the Restructuring Program.
The Cost-Reduction Initiatives are a systematic Company-wide effort
designed to improve the cost competitiveness of all the Company's operating
facilities and staff functions. The Cost-Reduction Initiatives focus on reducing
costs and other measures, including:
Productivity improvements to reduce variable unit cost at production
facilities and to increase volume.
Identification of approximately $100 million of high return, quick payback
capital projects for which spending was accelerated.
Reduction in fiber cost by substituting cheaper grades of waste fiber.
Reduction in cost of materials generated through a Company-wide council
which negotiates large national purchasing activities.
Reductions in personnel cost through a Company-wide freeze on compensation
for salaried employees in 1994 and reductions in workforce.
Reduction in waste cost in the manufacturing process.
Increased focus on specialty niche businesses which are less commodity
oriented and carry pricing premiums.
37
The Company implemented the Restructuring Program in September 1993 to
improve the Company's long-term competitive position. The Restructuring Program
includes plant closures, reductions in workforce, and the realignment and
consolidation of various manufacturing operations over an approximately two to
three year period. The Restructuring Program has reduced production cost,
employee expense and depreciation charges. The Company closed certain high cost
operating facilities, including a coated recycled boxboard mill and five
converting plants, in January 1994. While future benefits of the Restructuring
Program are uncertain, the operating losses in 1993 for the plants shut down in
1994, 1995 and those contemplated in the future were $31 million. While the
Company believes that it realized financial benefits in 1994 and 1995 from the
closure of these plants, and that it will realize such benefits in future
periods, no assurances can be given in this regard.
CONTINUE TO PURSUE VERTICAL INTEGRATION
The Company's operations are vertically integrated in that the Company uses
significant amounts of timber harvested from its timberlands and wastepaper
provided by its reclamation operations in the manufacture of paperboard and
newsprint, and converts its production of paperboard into shipping containers,
folding cartons, papertubes and other products. The Company also exchanges a
significant amount of containerboard with other major companies in the industry.
These exchanges are generally used when shipment from the Company's mills would
not be freight cost efficient or when container plants require a certain grade
of containerboard not manufactured by the Company.
The Company's integration allows it to run its mills at higher operating
rates during industry downturns and protects the Company from potential regional
supply and demand imbalances for recycled fiber grades.
The following table illustrates the balance between the Company's
production and consumption levels for its core businesses for the last three
years.
1993 1994 1995
----- ----- -----
(TONS IN THOUSANDS)
Wastepaper
Collected by reclamation division................................................... 3,907 4,134 4,293
Consumed by paperboard and newsprint mills.......................................... 1,905 1,910 1,868
Containerboard
Produced by containerboard mills.................................................... 1,840 1,932 1,905
Consumed by container plants........................................................ 1,942 2,018 1,925
SBS and Recycled Boxboard
Produced by SBS and recycled boxboard mills......................................... 744 767 773
Consumed by folding carton plants................................................... 542 543 529
CONTINUE GROWTH IN CORE BUSINESSES
The Company has built its core businesses through selective acquisitions of
existing businesses and ongoing capital improvements.
Over the years, the Company's acquisition strategy has accomplished several
objectives, including (i) geographic expansion of its operations, (ii) growth of
its recycling capacity and expertise, (iii) expansion of its product lines in
order to satisfy most of the packaging needs of large national and multinational
customers, (iv) expansion of its operations into related products which can be
successfully marketed to existing customers as well as into related products to
which the Company can apply its papermaking expertise, and (v) integration of
its operations. The Company intends to continue its current strategy by
exploring potential acquisitions and pursuing those which meet its business
objectives.
38
MAINTAIN LEADING MARKET POSITIONS
The Company believes it is one of the most broadly based paperboard
packaging producers in the United States. The Company has achieved this status
through its selective acquisitions and its ongoing capital improvements program.
The Company believes it maintains significant U.S. market positions including
the following:
largest producer of recycled paperboard
largest producer of folding cartons
largest producer of coated recycled boxboard
largest processor of wastepaper
one of the largest producers of mottled white linerboard
largest producer of recycled content newsprint
fourth largest producer of corrugated shipping containers
largest producer of recycled medium
fifth largest producer of containerboard
The Company believes that its size, as evidenced by its leading U.S. market
positions, provides certain advantages in marketing its products. The Company's
prominence in the U.S. packaging industry gives it excellent customer
visibility. The Company is well recognized by its customers as a quality
producer and has recently entered into strategic alliances with select large,
national account customers to supply packaging. In addition, the Company's broad
range of packaging products provides a single source option, whereby all of the
customers' packaging needs can be satisfied by the Company.
IMPROVE FINANCIAL PROFILE TO GROW CORE BUSINESSES
The Company has continuously pursued a strategy designed to reduce its
financial risk profile. The Company has accessed various capital markets through
several transactions, resulting in improved financial flexibility.
In 1993, in order to improve operating and financial flexibility, JSC(U.S.)
issued $500 million aggregate principal amount of Senior Notes, the proceeds of
which were used to repay $100 million of revolving credit indebtedness and an
aggregate of $388 million of term loan indebtedness under its existing credit
agreements. As a result of such refinancing, the Company successfully extended
maturities of its indebtedness and improved its liquidity.
The Recapitalization Plan further improved operating and financial
flexibility by reducing the level and overall cost of the Company's debt,
extending maturities of indebtedness, increasing stockholder's equity and
increasing its access to capital markets.
In 1995, the Company refinanced its accounts receivable securitization and
increased the size to $315 million. The term of the program is 57 months and the
Company has the option to extend the maturity after the second anniversary,
subject to the approval of a percentage of the lenders. Initial proceeds of $207
million were raised by a AAA rated liquidity facility and a BBB rated term loan.
The liquidity facility was subsequently refunded with the proceeds of an A1/D1
rated commercial paper issue.
The Company intends to further improve its balance sheet over the next few
years through debt reduction.
PRODUCTS
PAPERBOARD/PACKAGING PRODUCTS SEGMENT
Containerboard And Corrugated Shipping Containers. The Company's
containerboard operations are highly integrated and the Company believes this
integration enhances its ability to respond quickly
39
and efficiently to customers and to fill orders on short lead times. Tons of
containerboard produced and converted for the last three years were:
1993 1994 1995
----- ----- -----
(TONS IN THOUSANDS)
Containerboard
Production................................................................ 1,840 1,932 1,905
Consumption............................................................... 1,942 2,018 1,925
The Company's mills produce a full line of containerboard, including
unbleached kraft linerboard, mottled white linerboard and recycled medium.
The Company believes it is one of the nation's largest producers of mottled
white linerboard, the largest producer of recycled medium and the fifth largest
producer of containerboard. Unbleached kraft linerboard is produced at the
Company's mills located in Fernandina Beach and Jacksonville, Florida and
mottled white linerboard is produced at its Brewton, Alabama mill. Recycled
medium is produced at the Company's mills located in Alton, Illinois, Carthage,
Indiana, Circleville, Ohio and Los Angeles, California. In 1995, the Company
produced 1,057,000, 316,000 and 532,000 tons of unbleached kraft linerboard,
mottled white linerboard and recycled medium, respectively. The Company's sales
of containerboard in 1995 were $1,054 million (including $559 million of
intracompany sales). Sales of containerboard to the Company's container plants
are at market prices.
The Company believes it is the fourth largest producer of corrugated
shipping containers in the U.S. 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, including point
of purchase displays. 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
51 container plants serve local customers and large national accounts and are
located nationwide, generally in or near large metropolitan areas. The Company's
total sales of corrugated shipping containers in 1995 were $1,570 million
(including $109 million of intracompany sales). Total corrugated shipping
container sales volumes for 1993, 1994 and 1995 were 29,394, 30,822 and 29,382
million square feet, respectively.
Recycled Boxboard, SBS And Folding Cartons. The Company's recycled
boxboard, SBS and folding carton operations are also integrated. Tons of
recycled boxboard and SBS produced and converted for the last three years were:
1993 1994 1995
---- ---- ----
(TONS IN THOUSANDS)
Recycled Boxboard and SBS
Production.................................................................... 744 767 773
Consumption................................................................... 542 543 529
The Company's mills produce recycled coated and uncoated boxboard and SBS.
The Company believes it is the nation's largest producer of coated recycled
boxboard, made from 100 percent recycled fiber, which offers comparable quality
to virgin boxboard for most applications. The Company also believes that its
premium-priced SBS offers a high quality product for packaging applications.
Coated recycled boxboard is produced at the Company's mills located in
Middletown, Ohio, Philadelphia, Pennsylvania, Santa Clara, California and
Wabash, Indiana. The Company produces uncoated recycled boxboard at its Los
Angeles, California mill and SBS at its Brewton, Alabama mill. The Company
believes its coated recycled boxboard, known as MASTERCOAT'r', is recognized in
the industry for its high quality and extensive range of grades and calipers.
The Brewton machine produces four basic grades of SBS including MASTERPRINT'r',
which is ideally suited for converting into folding cartons and related end
uses, MASTERSEAL'r' and MASTERVAC'r', which are used for visual carded packaging
that facilitates merchandising at the point of sale, and MASTERWITE'r', which is
designed for intricately printed and die-cut greeting cards and other specialty
uses. The table above excludes production of approximately 85,000 tons in 1993
from the Lockland, Ohio boxboard mill that was closed in January 1994. In 1995,
the Company produced 595,000 and 178,000 tons of recycled boxboard and
40
SBS respectively. The Company's total sales of recycled boxboard and SBS in 1995
were $461 million (including $231 million of intracompany sales).
The Company's folding carton plants offer a broad range of converting
capabilities, including web and sheet litho, rotogravure and flexo printing and
a full line of structural and design graphics services. The Company's 18
facilities convert recycled boxboard and SBS into folding cartons. Folding
cartons are used primarily to protect customers' products while providing point
of purchase advertising. The Company makes folding cartons for a wide variety of
applications, including food and fast foods, detergents, paper products,
beverages, health and beauty aids and other consumer products. Customers range
from small local accounts to large national and multinational accounts. The
Company's folding carton plants are located nationwide, generally in or near
large metropolitan areas. The Company's sales of folding cartons in 1995 were
$686 million (none of which were intracompany sales). Folding carton sales
volumes for 1993, 1994 and 1995 were 475,000, 486,000 and 469,000 tons,
respectively.
The Company has focused its capital expenditures in these operations and
its marketing activities to support a strategy of enhancing product quality as
it relates to packaging graphics, increasing flexibility while reducing customer
lead time and assisting customers in innovative package designs.
The Company provides marketing consultation and research activities through
its Design and Market Research (DMR) center. It provides customers with graphic
and product design tailored to the specific technical requirements of
lithographic, rotogravure and flexographic printing, as well as photography for
packaging, sales promotion concepts, and point of purchase displays.
Recycled Cylinderboard And Industrial Packaging. The Company's recycled
cylinderboard and industrial packaging operations are also integrated. Tons of
recycled cylinderboard produced and converted for the last three years were:
1993 1994 1995
---- ---- ----
(TONS IN THOUSANDS)
Recycled Cylinderboard
Production.................................................................... 157 166 164
Consumption................................................................... 123 128 148
The Company's recycled cylinderboard mills are located in Cedartown,
Georgia, Lafayette, Indiana, Monroe, Michigan and Tacoma, Washington. The table
above excludes production of approximately 49,000, 43,000 and 28,000 tons in
1993, 1994 and 1995 from a cylinderboard mill located in Monroe, Michigan that
was closed in September 1995. In 1995, total sales of recycled cylinderboard
were $80 million (including $34 million of intracompany sales).
The Company's 22 industrial packaging plants convert recycled
cylinderboard, including a portion of the recycled cylinderboard produced by the
Company, into papertubes and cores. Papertubes and cores are used primarily for
paper, film and foil, yarn carriers and other textile products and furniture
components. The Company also produces solid fiber partitions for the
pharmaceutical, electronics, glass, cosmetics and plastics industries. In
addition, the Company produces a patented self-locking partition especially
suited for automated packaging and product protection. Also, the Company
manufactures corrugated pallets that are made entirely from corrugated
components and are lightweight yet extremely strong and are fully recyclable.
The Company's industrial packaging sales in 1995 were $114 million (including $5
million in intracompany sales).
Consumer Packaging. The Company manufactures a wide variety of products at
its 14 consumer products facilities. These products include flexible packaging,
paper and metallized paper labels and labels that are heat transferred to
plastic containers for a wide range of industrial and consumer product
applications. The contract packaging plants provide a wide variety of custom
contract packaging services including cartoning, bagging, liquid- or
powder-filling and high-speed overwrapping. Fragranced advertising products and
related specialty items are produced by the scented products facility. The
Company produces high-quality rotogravure cylinders and has a full-service
organization experienced in the production of color separations and lithographic
film for the commercial printing, advertising and packaging industries. Total
sales of consumer packaging products and services in 1995 were $191 million
(including $15 million of intracompany sales).
41
Reclamation Operations; Fiber Resources And Timber Products. The raw
materials essential to the Company's business are reclaimed fiber and virgin
wood fiber. The Brewton, Circleville, Jacksonville and Fernandina mills use
primarily wood fibers, while the other paperboard mills use reclaimed fiber
exclusively. The newsprint mills use approximately 47% wood fiber and 53%
reclaimed fiber.
The Company believes it is the nation's largest processor of wastepaper.
The use of recycled products in the Company's operations begins with its
reclamation division which operates 27 facilities that collect, sort, grade and
bale wastepaper, as well as collect aluminum and glass. The reclamation division
also operates a nationwide brokerage system whereby it purchases and resells
wastepaper (including wastepaper for use in its recycled fiber mills) on a
regional and national contract basis. Such contracts provide bulk purchasing,
resulting in lower prices and cleaner wastepaper. The reclamation division
provides valuable fiber resources to both the paperboard and newsprint segments
of the Company as well as to other producers. Many of the reclamation facilities
are located in close proximity to the Company's recycled paperboard and
newsprint mills, assuring availability of supply, when needed, with minimal
shipping costs. Total sales of recycled materials in 1995 were $736 million
(including $292 million of intracompany sales).
In 1995, the Company processed 4.3 million tons of wastepaper. The amount
of wastepaper collected and the proportions sold internally and externally by
the Company's reclamation division for the last three years were:
1993 1994 1995
----- ----- -----
(TONS IN THOUSANDS)
Wastepaper collected by Reclamation Division................................... 3,907 4,134 4,293
Percent sold internally................................................... 48.8% 45.5% 43.1%
Percent sold to third parties............................................. 51.2% 54.5% 56.9%
While there has been unprecedented demand for reclaimed fiber during 1994
and 1995, the Company does not anticipate any significant problems satisfying
its need for this material in the foreseeable future. During 1995, the
wastepaper which was reclaimed by the Company's reclamation plants and brokerage
operations satisfied all of the Company's mill requirements for reclaimed fiber.
The Company's timber division manages approximately one million acres of
owned and leased timberland. In 1995, approximately 59% of the timber harvested
by the Company was used in its Jacksonville, Fernandina and Brewton Mills. The
Company harvested 893,000 cords of timber which would satisfy approximately 35%
of the Company's requirements for wood fibers. The Company's wood fiber
requirements not satisfied internally are purchased on the open market or under
long-term contracts. In the past, the Company has not experienced difficulty
obtaining an adequate supply of wood through its own operations or open market
purchases. The Company is not aware of any circumstances that would adversely
affect its ability to satisfy its wood requirements in the foreseeable future.
In recent years, a shortage of wood fiber in the spotted owl regions in the
Northwest has resulted in increases in the cost of virgin wood fiber. In 1995,
the Company's total sales of timber products were $260 million (including $201
million of intracompany sales).
NEWSPRINT MILLS
Newsprint Mills. The Company believes it is the largest producer of
recycled content newsprint and the fourth largest producer overall of newsprint
in the United States. The Company's newsprint mills are located in Newberg and
Oregon City, Oregon. During 1993, 1994 and 1995, the Company produced 615,000,
615,000 and 620,000 tons of newsprint, respectively. In 1995, total sales of
newsprint were $361 million (none of which were intracompany sales).
For the past three years, an average of approximately 55% of the Company's
newsprint production has been sold to The Times Mirror Company ('Times Mirror')
pursuant to a long-term newsprint agreement (the 'Newsprint Agreement') entered
into in connection with the Company's acquisition of SNC stock in February 1986.
Under the terms of the Newsprint Agreement, the Company supplies newsprint to
Times Mirror generally at prevailing West Coast market prices. Sales of
newsprint to Times Mirror in 1995 amounted to $189 million.
42
Cladwood'r'. Cladwood'r' is a wood composite panel used by the housing
industry, manufactured from sawmill shavings and other wood residuals and
overlaid with recycled newsprint. The Company has two Cladwood'r' plants located
in Oregon. Total sales for Cladwood'r' in 1995 were $26 million (none of which
were intracompany sales).
MARKETING
The marketing strategy for the Company's mills is to maximize sales of
products to manufacturers located within an economical shipping area. The
strategy in the converting plants focuses on both specialty products tailored to
fit customers' needs and high volume sales of commodity products. The Company
also seeks to broaden the customer base for each of its segments rather than to
concentrate on only a few accounts for each plant. These objectives have led to
decentralization of marketing efforts, such that each plant has its own sales
force, and many have product design engineers, who are in close contact with
customers to respond to their specific needs. National sales offices are also
maintained for customers who purchase through a centralized purchasing office.
National account business may be allocated to more than one plant because of
production capacity and equipment requirements.
COMPETITION
The paperboard and packaging products markets as well as the newsprint
markets are highly competitive and are comprised of many participants. Although
no single company is dominant, the Company does face significant competitors in
each of its businesses. The Company's competitors include large vertically
integrated companies as well as numerous smaller companies. The industries in
which the Company competes are particularly sensitive to price fluctuations as
well as other competitive factors including design, quality and service, with
varying emphasis on these factors depending on product line.
BACKLOG
Demand for the Company's major product lines is relatively constant
throughout the year and seasonal fluctuations in marketing, production,
shipments and inventories are not significant. The Company does not have a
significant backlog of orders, as most orders are placed for delivery within 30
days.
RESEARCH AND DEVELOPMENT
The Company's research and development center uses state-of-the-art
technology to assist all levels of the manufacturing and sales process from raw
materials supply through finished packaging performance. Research programs have
provided improvements in coatings and barriers, stiffeners, inks and printing.
The technical staff conducts basic, applied and diagnostic research, develops
processes and products and provides a wide range of other technical services.
The Company actively pursues applications for patents on new inventions and
designs and attempts to protect its patents against infringement. Nevertheless,
the Company believes that its success and growth are dependent on the quality of
its products and its relationships with its customers, rather than on the extent
of its patent protection. The Company holds or is licensed to use certain
patents, but does not consider that the successful continuation of any important
phase of its business is dependent upon such patents.
EMPLOYEES
The Company had approximately 16,200 employees at December 31, 1995, of
which approximately 10,900 employees (67%), are represented by collective
bargaining units. The expiration date of union contracts for the Company's major
facilities are as follows: the Oregon City mill, expiring March 1997; the
Brewton mill, expiring October 1997; the Fernandina mill, expiring June 1998; a
group of 11 properties, including 4 paper mills and 7 corrugated container
plants, expiring June 1998; the
43
Jacksonville mill, expiring June 1999; the Alton mill, expiring June 2000 and
the Newberg mill, expiring March 2002. The Company believes that its employee
relations are generally good and is currently in the process of bargaining with
unions representing production employees at a number of its other operations.
PROPERTIES
The Company's properties at December 31, 1995 are summarized in the table
below. Approximately 58% of the Company's investment in property, plant and
equipment is represented by its paperboard and newsprint mills.
NUMBER
OF STATE
FACILITIES LOCATIONS
---------- ---------
Paperboard mills:
Containerboard mills......................................................... 7 6
Boxboard mills............................................................... 4 4
Cylinderboard mills.......................................................... 4 4
Newsprint mills................................................................... 2 1
Reclamation plants................................................................ 27 12
Converting facilities:
Corrugated container plants.................................................. 51 21
Folding carton plants........................................................ 18 10
Industrial packaging plants.................................................. 22 14
Consumer packaging plants......................................................... 14 8
Cladwood'r' plants................................................................ 2 1
Wood product plants............................................................... 1 1
---
Total................................................................... 152 28
--- --
--- --
In addition to its manufacturing facilities, the Company owns and leases
approximately 758,000 acres and 226,000 acres of timberland, respectively, and
also operates wood harvesting facilities.
LEGAL PROCEEDINGS
LITIGATION
In June 1993, the Company filed suit against Otis B. Ingram, as executor of
the estate of Naomi M. Ingram, and Ingram-LeGrand Lumber Company in the United
States District Court, Middle District of Georgia, seeking declaratory and
injunctive relief and damages in excess of $3 million arising out of the
defendants' alleged breach and anticipatory repudiation of certain timber
purchase agreements and timber management agreements between the Company and
such parties dated November 22, 1967 pertaining to approximately 30,000 acres of
property in Georgia (the 'Agreements'). The defendants filed an answer and
counterclaim seeking damages in excess of $14 million based on allegations that
the Company breached the Agreements and failed to pay for timber allegedly
stolen or otherwise removed from the property by the Company or third parties. A
jury trial commenced in October 1995 and the case was subsequently settled
before completion of the trial.
The Company is a defendant in a number of other lawsuits which have arisen
in the normal course of business. While any litigation has an element of
uncertainty, the management of the Company believes that the outcome of such
suits will not have a material adverse effect on its financial condition or
results of operations.
ENVIRONMENTAL MATTERS
Federal, state and local environmental requirements, particularly relating
to air and water quality, are a significant factor in the Company's business.
The Company employs processes in the manufacture of pulp, paperboard and other
products, resulting in various discharges and emissions that are subject to
44
numerous federal, state and local environmental control statutes, regulations
and ordinances. The Company operates and expects to operate under permits and
similar authorizations from various governmental authorities that regulate such
discharges and emissions.
Occasional violations of permit terms have occurred from time to time at
the Company's facilities, resulting in administrative actions, legal proceedings
or consent decrees and similar arrangements. Pending proceedings include the
following:
SWEET HOME, OREGON
On May 11, 1995, the United States Environmental Protection Agency
('EPA') executed a search warrant at the Sweet Home, Oregon manufacturing
facility of SNC, at which Cladwood'r', a wood composite panel manufactured
from sawmill shavings, is produced. According to the search warrant, the
U.S. Attorney's office for the District of Oregon and the EPA are
investigating whether this facility violated the Clean Water Act or other
federal laws in connection with its waste water discharges. The Company has
been advised that the government has presented, or intends to present,
evidence to a grand jury in connection with the investigation. SNC and
certain of its employees could be charged, and SNC could be assessed
significant fines and penalties if an indictment and conviction follows as
a result of the grand jury proceeding.
DUVAL COUNTY, FLORIDA
In March 1992, the Company entered into an administrative consent
order with the Florida Department of Environmental Regulation to carry out
any necessary assessment and remediation of Company-owned property in Duval
County, Florida that was formerly the site of a sawmill that dipped lumber
into a chemical solution. Assessment data with respect to this site
indicates soil and groundwater contamination that will likely require
nonroutine remediation. Management believes that the probable costs of this
site, taken alone or with potential costs at other Company-owned properties
where some contamination has been found, will not have a material adverse
effect on its financial condition or results of operations.
JACKSONVILLE, FLORIDA
In October 1994, the Company voluntarily reported possible
noncompliance with certain provisions of its construction/operation permit
at its D-Graphics labels plant located in Jacksonville, Florida to state
and local environmental authorities, and subsequently entered into a
settlement agreement with such authorities to resolve all civil and
administrative issues regarding this matter. The Company has recently been
advised by the United States Department of Justice that it will not pursue
any criminal action against the Company in connection with this matter.
The Company also faces potential liability as a result of releases, or
threatened releases, of hazardous substances into the environment from various
sites owned and operated by third parties at which Company-generated wastes have
allegedly been deposited. Generators of hazardous substances sent to off-site
disposal locations at which environmental problems exist, as well as the owners
of those sites and certain other classes of persons (generally referred to as
'potentially responsible parties' or 'PRPs'), are, in most instances, subject to
joint and several liability for response costs for the investigation and
remediation of such sites under the Comprehensive Environmental Response,
Compensation and Liability Act ('CERCLA') and analogous state laws, regardless
of fault or the legality of original disposal. The Company has received notice
that it is or may be a PRP at a number of federal and/or state sites where
remedial action may be required, and as a result may have joint and several
liability for cleanup costs at such sites. However, liability of CERCLA sites is
typically shared with the other PRPs and costs are commonly allocated according
to relative amounts of waste deposited. Because the Company's relative
percentage of waste deposited at a majority of these sites is quite small,
management of the Company believes that its probable liability under CERCLA,
taken on a case by case basis or in the aggregate, will not have a material
adverse effect on its financial condition or operations. Pending CERCLA
proceedings include the following:
45
MIAMI COUNTY, OHIO SITE
In 1995, pursuant to a consent decree previously entered into with the
United States, the Company paid $3.1 million in satisfaction of its alleged
and/or potential liability for past and future response costs under CERCLA
in connection with a site in Miami County, Ohio and, pursuant to a second
consent decree with the United States, paid $1.2 million in settlement of a
cause of action previously commenced by the government against the Company
for alleged failures to properly respond to document and information
requests by the EPA with respect to such site. A criminal inquiry was
commenced in 1993 relating to the Company's responses to the EPA's document
and information requests, and it is uncertain whether any criminal action
will be forthcoming.
MONTEREY PARK, CALIFORNIA SITE
The Company has paid approximately $768,000 pursuant to two partial
consent decrees entered into in 1990 and 1991 with respect to cleanup
obligations at the Operating Industries site in Monterey Park, California.
It is anticipated that there will be further remedial measures beyond those
covered by these partial settlements.
BALTIMORE, MARYLAND SITE
The Company entered into a consent decree and settlement agreement in
full settlement of its obligations in connection with a superfund site in
Baltimore, Maryland. The Company paid approximately $171,000 in 1995 as
part of this settlement, and may be required to pay an additional amount up
to approximately $80,000 for future cleanup costs.
In addition to other federal and state laws regarding hazardous substance
contamination at sites owned or operated by the Company, the New Jersey
Industrial Site Recovery Act ('ISRA') requires that a 'negative declaration' or
a 'cleanup plan' be filed and approved by the New Jersey Department of
Environmental Protection and Energy ('DEPE') as a precondition to the 'transfer'
of an 'industrial establishment'. The ISRA regulations provide that a transferor
may close a transaction prior to the DEPE's approval of a negative declaration
if the transferor enters into an administrative consent order with the DEPE. The
Company is currently a signatory to administrative consent orders with respect
to two formerly leased or owned industrial establishments and to a facility that
was sold in 1995 and received a negative declaration with respect thereto.
Management believes that any requirements that may be imposed by the DEPE with
respect to these sites will not have a materially adverse effect on the
financial condition or results of operations of the Company.
The Company's paperboard and newsprint mills are large consumers of energy,
using either natural gas or coal. Approximately 68% of the Company's total
paperboard tonnage is produced by mills which have coal-fired boilers. The cost
of energy is dependent, in part, on environmental regulations concerning sulfur
dioxide and particulate emissions.
Because various pollution control standards are subject to change, it is
not possible at this time to predict the amount of capital expenditures that
will ultimately be required to comply with future standards. In particular, the
EPA has proposed a comprehensive rule governing the pulp, paper and paperboard
industry, which could require substantial expenditures to achieve compliance on
the part of the Company. For the past three years, the Company has spent an
average of approximately $10 million annually on capital expenditures for
environmental purposes. Further sums may be required in the future, although, in
the opinion of management, such expenditures will not have a material effect on
its financial condition or results of operations. The anticipated spending for
such capital projects for fiscal 1996 is approximately $30 million. Since the
Company's competitors are, or will be, subject to comparable pollution control
standards, including the proposed rule discussed above, if implemented,
management is of the opinion that compliance with future pollution standards
will not adversely affect the Company's competitive position.
46
MANAGEMENT
DIRECTORS
The following table sets forth the names and ages of the directors of the
Company.
NAME AGE
- ------------------------------------------------------------------------------ ---
Michael W. J. Smurfit......................................................... 59
Howard E. Kilroy.............................................................. 60
James E. Terrill.............................................................. 62
James R. Thompson............................................................. 59
Donald P. Brennan............................................................. 55
Alan E. Goldberg.............................................................. 41
David R. Ramsay............................................................... 32
G. Thompson Hutton............................................................ 41
The Board of Directors currently consists of eight directors. The directors
are classified into three groups: three directors having terms expiring in 1996
(Messrs. Kilroy, Goldberg and Thompson), two directors having terms expiring in
1997 (Messrs. Smurfit and Brennan) and three directors having terms expiring in
1998 (Messrs. Terrill, Ramsay and Hutton).
EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the
executive officers of the Company.
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------------------------
Michael W. J. Smurfit............ 59 Chairman of the Board and Director
James E. Terrill................. 62 President, Chief Executive Officer and Director
Richard W. Graham................ 61 Senior Vice President
James P. Davis................... 40 Vice President and General Manager -- Consumer Packaging
Division
John R. Funke.................... 54 Vice President and Chief Financial Officer
Richard J. Golden................ 54 Vice President -- Purchasing
Michael F. Harrington............ 55 Vice President -- Personnel and Human Resources
Charles A. Hinrichs.............. 42 Vice President and Treasurer
F. Scott Macfarlane.............. 50 Vice President and General Manager -- Folding Carton and
Boxboard Mill Division
Edward F. McCallum............... 61 Vice President and General Manager -- Container Division
Lyle L. Meyer.................... 59 Vice President
Patrick J. Moore................. 41 Vice President and General Manager -- Industrial Packaging
Division
David C. Stevens................. 61 Vice President and General Manager -- Reclamation Division
Truman L. Sturdevant............. 61 Vice President and General Manager of SNC
Michael E. Tierney............... 47 Vice President, General Counsel and Secretary
Richard K. Volland............... 57 Vice President -- Physical Distribution
William N. Wandmacher............ 53 Vice President and General Manager -- Containerboard Mill
Division
Gary L. West..................... 53 Vice President -- Sales and Marketing
BIOGRAPHIES
Donald P. Brennan has been a Director of the Company since 1989. Mr.
Brennan is an Advisory Director of MS&Co. He was Managing Director of MS&Co.
from 1984 to February 1996, responsible for MS&Co.'s Merchant Banking Division.
Mr. Brennan serves as Director of Fort Howard Corporation and SITA
Telecommunications Holdings N.V.
47
James P. Davis was appointed Vice President and General Manager -- Consumer
Packaging Division in November 1995. He served as Division Director of
Operations from August 1995 to November 1995. Prior to that time, he held
various management positions in the Container Division since joining the Company
in 1977.
John R. Funke has been Vice President and Chief Financial Officer since
April 1989 and was Corporate Controller and Secretary from 1982 to April 1989.
Alan E. Goldberg has been a Director of the Company since 1989. Mr.
Goldberg joined MS&Co. in 1979 and has been a member of MS&Co.'s Merchant
Banking Division since its formation in 1985 and a Managing Director of MS&Co.
since 1988. Mr. Goldberg is a Director and a Vice Chairman of Morgan Stanley
Leveraged Equity Fund II, Inc. ('MSLEF II, Inc.') and Morgan Stanley Capital
Partners III, Inc. ('MSCP III, Inc.'). Mr. Goldberg also serves as Director of
Amerin Guaranty Corporation, CIMIC Holdings Limited, Centre Cat Limited,
Hamilton Services Limited and Risk Management Solutions, Inc.
Richard J. Golden has been Vice President -- Purchasing since January 1985
and was Director of Corporate Purchasing from October 1981 to January 1985. In
January 1994, he was assigned responsibility for world-wide purchasing for JS
Group.
Richard W. Graham was appointed Senior Vice President in February 1994. He
served as Vice President and General Manager -- Folding Carton and Boxboard Mill
Division from February 1991 to January 1994. Mr. Graham was Vice President and
General Manager -- Folding Carton Division from October 1986 to February 1991.
Michael F. Harrington was appointed Vice President -- Personnel and Human
Resources in January 1992. Prior to joining the Company, he was Corporate
Director of Labor Relations/Safety and Health with Boise Cascade Corporation for
more than 5 years.
Charles A. Hinrichs was appointed Vice President and Treasurer in April
1995. Prior to joining the Company, he was employed by The Boatmen's National
Bank of St. Louis for 13 years where most recently he was Senior Vice President
and Chief Credit Officer.
G. Thompson Hutton was elected to the Board of Directors in December 1994.
Mr. Hutton has been President and Chief Executive Officer of Risk Management
Solutions, Inc., an information services company based in Menlo Park,
California, since 1991. Prior to that he was a management consultant with
McKinsey & Company, Inc. from 1986 to 1991. He also serves as a Trustee of
Colorado Outward Bound School.
Howard E. Kilroy has been a Director of the Company since 1989. Mr. Kilroy
was Chief Operations Director of JS Group from 1978 until March 1995 and
President of JS Group from October 1986 until March 1995. He was a member of the
Supervisory Board of SIBV from January 1978 to January 1992. He was Senior Vice
President of the Company for over 5 years. He retired from his executive
positions with JS Group and the Company at the end of March 1995, but remains a
Director of JS Group and the Company. In addition, he is Governor (Chairman) of
Bank of Ireland and a Director of CRH plc.
F. Scott Macfarlane was appointed Vice President and General
Manager -- Folding Carton and Boxboard Mill Division in November 1995. He served
as Vice President and General Manager of the Folding Carton Division from
December 1993 to November 1995. Since joining the Company in 1971, he has held
increasingly responsible positions within the Folding Carton Division.
Edward F. McCallum has been Vice President and General Manager -- Container
Division since October 1992. He served as Vice President and General Manager of
the Industrial Packaging Division from January 1991 to October 1992. Prior to
that time, he served in various positions in the Container Division since
joining the Company in 1971.
Lyle L. Meyer has been Vice President since April 1989. He served as
President of Smurfit Pension and Insurance Services Company ('SPISCO') from 1982
until 1992, when SPISCO was merged into the Company.
Patrick J. Moore has been Vice President and General Manager -- Industrial
Packaging Division since December 1994. He served as Vice President and
Treasurer from February 1993 to December
48
1994 and was Treasurer from October 1990 to February 1993. Prior to joining the
Company in 1987 as Assistant Treasurer, Mr. Moore was with Continental Bank in
Chicago where he served in various corporate lending, international banking and
administrative capacities.
David R. Ramsay has been a Director of the Company since 1989. Mr. Ramsay
joined MS&Co. in 1989 and is a Vice President of MS&Co.'s Merchant Banking
Division. Mr. Ramsay also serves as a Director of ARM Financial Group Inc.,
Integrity Life Insurance Company, National Integrity Life Insurance Company,
Consolidated Hydro, Inc., Hamilton Services Limited, Risk Management Solutions,
Inc. and PSF Finance Holdings, Inc.
Michael W. J. Smurfit has been Chairman and Chief Executive Officer of JS
Group since 1977. Dr. Smurfit has been Chairman of the Board of the Company
since 1989. He was Chief Executive Officer of the Company prior to July 1990.
David C. Stevens has been Vice President and General Manager -- Reclamation
Division since January 1993. He joined the Company in 1987 as General Sales
Manager and was named Vice President later that year. He held various management
positions with International Paper and was President of Mead Container Division
prior to joining the Company.
Truman L. Sturdevant has been Vice President and General Manager of SNC
since August 1990. Mr. Sturdevant joined the Company in 1984 as Vice President
and General Manager of the Oregon City newsprint mill.
James E. Terrill was named a Director and President and Chief Executive
Officer in February 1994. He served as Executive Vice President -- Operations
from August 1990 to February 1994. He also served as Executive Vice President of
SNC from February 1993 to February 1994 and was President of SNC from February
1986 to February 1993.
James R. Thompson was elected to the Board of Directors in July 1994. He is
Chairman of Winston & Strawn, a law firm that regularly represents the Company
on numerous matters. He served as Governor of the State of Illinois from 1977 to
1991. Mr. Thompson also serves as a Director of FMC Corporation, the Chicago
Board of Trade, International Advisory Council of the Bank of Montreal, Prime
Retail, Inc., Pechiney International, Wackenhut Corrections Corporation,
Hollinger International, Inc. and Union Pacific Resources, Inc.
Michael E. Tierney has been Vice President, General Counsel and Secretary
since January 1993. He served previously as Senior Counsel and Assistant
Secretary since joining the Company in 1987.
Richard K. Volland has been Vice President -- Physical Distribution since
1978.
William N. Wandmacher has been Vice President and General
Manager -- Containerboard Mill Division since January 1993. He served as
Division Vice President -- Medium Mills from October 1986 to January 1993. Since
joining the Company in 1966, he has held increasingly responsible positions in
production, plant management and planning, both domestic and foreign.
Gary L. West has been Vice President -- Sales and Marketing since December
1994. He was Vice President and General Manager -- Industrial Packaging Division
from October 1992 to December 1994. He served as Vice President -- Converting
and Marketing for the Industrial Packaging Division from January 1991 to October
1992. Prior to that time, he held various management positions in the Container
and Consumer Packaging divisions since joining the Company in 1980.
PROVISIONS OF STOCKHOLDERS AGREEMENT PERTAINING TO MANAGEMENT
The Stockholders Agreement provides that SIBV and the MS Holders (as
defined in the Stockholders Agreement and which term includes the MSLEF II
Associated Entities and, with respect to certain of their shares, includes the
Direct Investors (as defined below)) shall vote their shares of JSC Common Stock
subject to the Stockholders Agreement to elect as directors of JSC (a) four
individuals selected by SIBV (each, an 'SIBV Nominee') one of whom shall be the
Chief Executive Officer and one of whom shall not be affiliated with SIBV or the
Company (an 'SIBV Unaffiliated Director') and (b) four individuals selected by
MSLEF II (each, a 'MSLEF II Nominee'), one of whom shall not be affiliated with
MSLEF II or the Company (a 'MSLEF II Unaffiliated Director'), if (i) the MS
Holders collectively own more than 10% of the outstanding JSC Common Stock or
SIBV owns less than 25% of
49
the outstanding JSC Common Stock and certain of the MS Holders shall not have
collectively received, without duplication, the Initial Return (as defined
below) ('Tier 1') or (ii) the MS Holders collectively own 30% or more of the
outstanding JSC Common Stock or the MS Holders collectively own a greater number
of voting shares than SIBV and certain of the MS Holders shall have collectively
received the Initial Return ('Tier 2'); provided, however, that in the event
that the MS Holders collectively own 7 1/2% or more and less than 30% of the
outstanding JSC Common Stock and certain of them shall have collectively
received the Initial Return, then SIBV shall not be required to have one of its
nominees be an SIBV Unaffiliated Director and the four MSLEF II Nominees shall
include two MSLEF II Unaffiliated Directors; provided, further, that in the
event that the MS Holders collectively own 6% or more but less than 7 1/2% of
the outstanding JSC Common Stock and certain of them shall have collectively
received the Initial Return, then SIBV shall nominate four SIBV Nominees (one of
whom shall be the Chief Executive Officer), MSLEF II shall nominate two MSLEF II
Nominees and JSC's Board of Directors shall nominate two persons to the Board of
Directors who shall not be affiliated with SIBV or MSLEF II and who shall be
reasonably acceptable to MSLEF II and SIBV. Unless MSLEF II determines
otherwise, MSLEF II Nominees, except MSLEF II Unaffiliated Directors, shall be
Managing Directors, Principals or Vice Presidents of MS&Co. The Stockholders
Agreement defines 'Initial Return' to mean the receipt, as dividends or as a
result of sales of shares of JSC Common Stock, of $320 million in cash or
certain other property (or a combination thereof) collectively by the MSLEF II
Associated Entities and their affiliates. The Initial Return shall include
amounts received by partners of MSLEF II and Equity Investors (as defined
below), whether or not such partners are MS Holders, by reason of distributions
in respect of, or repurchases of all or a portion of, partnership interests in
such partnerships (and shares which MSLEF II or Equity Investors distributes to
its partners will be deemed to have been sold at the closing sales price per
share for the last trading day prior to the date such distribution is made).
Calculations made for purposes of the foregoing shall not give effect to shares
of JSC Common Stock purchased after the date of the closing of the 1994
Offerings (other than shares of JSC Common Stock acquired by MS Holders or by
SIBV in certain limited circumstances, including shares acquired by the MSLEF II
Associated Entities upon distributions in respect of, or repurchases of all or a
portion of, partnership interests in MSLEF II or Equity Investors and shares
acquired by SIBV pursuant to the preemptive rights set forth in the Subscription
Agreement). In addition, notwithstanding the termination of the Stockholders
Agreement, upon the MS Holders ceasing to own six percent or more of the JSC
Common Stock, so long as MSLEF II and MSLEF II, Inc. and its affiliates own JSC
Common Stock with a market value of at least $25 million, MSLEF II shall be
entitled to designate, and SIBV shall, upon request, vote its shares of JSC
Common Stock subject to the Stockholders Agreement for the election of, one
nominee to the Board of Directors of JSC (who need not be a MSLEF II
Unaffiliated Director).
Pursuant to the terms of the Stockholders Agreement, SIBV and MSLEF II each
became entitled to designate four nominees to JSC's Board of Directors upon the
consummation of the Recapitalization Plan. Such designees include, in the case
of SIBV, Michael W. J. Smurfit, Howard E. Kilroy, James E. Terrill and James R.
Thompson and, in the case of MSLEF II, Donald P. Brennan, Alan E. Goldberg,
David R. Ramsay and G. Thompson Hutton. See ' -- Directors'. Pursuant to the
Stockholders Agreement, SIBV and MSLEF II have agreed to ensure the Board of
Directors will consist of only eight directors (unless they otherwise agree). In
addition, the Investors (as defined in the Stockholders Agreement and which term
includes SIBV, the MSLEF II Associated Entities and the Direct Investors) have
agreed pursuant to the Stockholders Agreement to use their best efforts to cause
their respective nominees to resign from JSC's Board of Directors and to cause
the remaining Directors, subject to their fiduciary duties, to fill the
resulting vacancies, if and to the extent changes in directors are necessary in
order to reflect the Board representation contemplated by the Stockholders
Agreement.
Pursuant to the Stockholders Agreement, the Board of Directors of JSC has
all powers and duties and the full discretion to manage and conduct the business
and affairs of JSC as may be conferred or imposed upon a board of directors
pursuant to Section 141 of the Delaware General Corporation Law; provided,
however, that if the MS Holders' collective ownership of JSC Common Stock shall
be in Tier 1 or Tier 2, approval of certain specified actions shall require
approval of (a) the sum of one and a majority of the entire Board of Directors
of the Company present at a meeting of the Board of Directors (the 'Required
Majority') and (b) two directors who are SIBV Nominees and two directors
50
who are MSLEF II Nominees. Without limiting the foregoing, unless the MS Holders
collectively own 6% or more but less than 7 1/2% of the JSC Common Stock during
any period when JSC's Board of Directors does not consist of eight members (or
such greater number of members as may be agreed to by SIBV, MSLEF II and JSC)
then all actions of the Board of Directors shall require approval of at least
one director who is an SIBV Nominee and one director who is a MSLEF II Nominee.
The specified corporate actions that must be approved by a Required Majority
include the amendment of the certificate of incorporation or by-laws of JSC or
any of its subsidiaries (except as contemplated by this Prospectus); the
issuance, sale, purchase or redemption of securities of JSC or any of its
subsidiaries (other than, in the case of any issuance or sale, to JSC or any
direct or indirect wholly-owned subsidiary of JSC and other than pursuant to the
Subscription Agreement); the establishment of and appointments to the Audit
Committee of JSC's Board of Directors; sales of assets or investments in, or
certain transactions with, JS Group or its affiliates in excess of a specified
amount or any other person in excess of other specified amounts, in each case
subject to certain limited exceptions; certain mergers, consolidations,
dissolutions or liquidations of JSC or any of its subsidiaries; the filing of a
petition in bankruptcy; the setting aside, declaration or making of any payment
or distribution by way of dividend or otherwise to the stockholders of JSC or
any of its subsidiaries, except for any such payments or distributions made or
to be made to JSC or any of its direct or indirect wholly-owned subsidiaries;
the incurrence of certain new indebtedness, the creation of certain liens or
guarantees, the institution, termination or settlement of material litigation,
the surrender of property or rights, making certain investments, commitments,
capital expenditures or donations, in each case in excess of certain specified
amounts; entering into any lease (other than a capitalized lease) of any assets
of JSC located in any one place having a book value in excess of a specified
amount; the entering into any agreement or material transaction between JSC and
a director or officer of JSC, JSC(U.S.), JS Group, SIBV or MSLEF II or their
affiliates; the replacement of the independent accountants for JSC or any of its
subsidiaries or modification of significant accounting methods; the amendment or
termination of JSC's 1992 Stock Option Plan (except as contemplated by this
Prospectus); except as provided in the Stockholders Agreement, the election or
removal of directors and officers of JSC(U.S.); the increase or decrease of the
number of directors comprising JSC's Board of Directors; and any decision
regarding registration of any securities, except as provided in the Registration
Rights Agreement.
Upon consummation of the 1994 Offerings, the Board of Directors of JSC was
divided into three classes of directors serving staggered three-year terms.
Pursuant to the Stockholders Agreement, SIBV and MSLEF II shall use their best
efforts to cause their respective designees to JSC's Board of Directors to elect
directors to the Board of Directors of JSC(U.S.) in an analogous manner unless
they otherwise agree. The directors of JSC and JSC(U.S.) are the same
individuals.
COMMITTEES
The Board of Directors of JSC has appointed an Audit Committee, a
Compensation Committee and an Appointment Committee. The functions of these
committees and the members of the Board serving on such committees are set forth
below.
The Audit Committee is responsible for making recommendations to the Board
of Directors of JSC regarding the independent auditors to be appointed for the
Company, meeting with the independent auditors, the manager of internal audit
and other corporate officers to review matters relating to corporate financial
reporting and accounting procedures and policies, adequacy of financial,
accounting and operating controls and the scope of the audits of the independent
auditors and internal auditors and reviewing and reporting on the results of
such audits to the Board of Directors of JSC. The members of the Audit Committee
are Messrs. Kilroy, Goldberg and Thompson.
The Compensation Committee is responsible for administering stock-based
compensation programs (including the Company's 1992 Stock Option Plan and the
Management Incentive Plan) for all participants in such programs and determining
other compensation (including fringe benefits) of the Chief Financial Officer of
the Company, officers and employees of the Company who are directors of the
Company (other than the Chief Executive Officer) and all officers and employees
of the Company whose principal employer is JS Group (including Dr. Smurfit). The
Board of Directors is responsible for
51
approving awards under any nonstock-based programs. The members of the
Compensation Committee are Messrs. Brennan, Goldberg and Ramsay.
The Appointment Committee is responsible for determining the compensation
(including fringe benefits but excluding compensation awarded pursuant to
executive compensation programs) of those officers of the Company whose
compensation is not determined by the Compensation Committee. The members of the
Appointment Committee are Dr. Smurfit and Messrs. Kilroy, Terrill and Goldberg.
Mr. Terrill abstains from votes concerning his own compensation.
DIRECTOR COMPENSATION
Each non-employee director receives as compensation for serving on the
Board of Directors of JSC, an annual fee of $35,000, plus a fee of $2,000 for
attendance at each meeting which is in excess of four meetings per year and
travel expenses in connection with attendance at such meetings. Directors who
are employees of the Company do not receive any additional compensation by
reason of their membership on, or attendance at, meetings of the Board. In 1995,
the Board of Directors of JSC held five meetings.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company (the 'Named Executive Officers') during 1995.
LONG TERM
COMPENSATION
-----------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ---------- ----------
---------------------------------------------------- SECURITIES LTIP
1997 OTHER ANNUAL UNDERLYING PAYOUTS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) BONUS($)(a) COMPENSATION($) OPTIONS(#) ($)(b)
- -------------------------------- ---- --------- -------- ----------- --------------- ---------- ----------
James E. Terrill, President and
Chief Executive Officer....... 1995 $ 800,000 $623,919 $ 0 $54,445 0 $ 0
1994 678,333 251,029 1,000,000 52,471 319,000 346,604
1993 440,000 0 0 17,318 0 0
Michael W. J. Smurfit, Chairman
of the Board.................. 1995 834,000 650,437 0 30,000 0 0
1994 834,000 299,084 0 30,000 0 1,964,088
1993 832,369 0 0 30,000 0 0
Richard W. Graham, Senior Vice
President..................... 1995 405,000 315,931 0 12,115 10,000 0
1994 378,667 110,876 475,000 9,270 9,000 173,302
1993 337,000 0 0 5,215 0 0
John R. Funke, Vice President
and Chief Financial Officer... 1995 315,000 245,632 0 28,753 0 0
1994 300,000 107,584 500,000 28,599 29,000 231,069
1993 300,000 0 0 13,163 0 0
Edward F. McCallum, Vice
President and General
Manager -- Container
Division...................... 1995 270,000 115,550 0 46,304 5,000 0
1994 250,000 98,758 375,000 44,770 0 86,651
1993 250,000 86,169 0 17,597 0 0
ALL OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)(c)
- -------------------------------- ------------
James E. Terrill, President and
Chief Executive Officer....... $ 35,907
26,235
19,545
Michael W. J. Smurfit, Chairman
of the Board.................. 16,956
11,922
16,775
Richard W. Graham, Senior Vice
President..................... 13,601
9,937
10,817
John R. Funke, Vice President
and Chief Financial Officer... 12,663
10,779
10,167
Edward F. McCallum, Vice
President and General
Manager -- Container
Division...................... 14,564
7,257
12,522
- ------------
(a) Amounts awarded in 1994 pursuant to JSC's 1994 Long-Term Incentive Plan.
These awards are not due and payable until April 30, 1997 and may be
subject to forfeiture if the executive's employment is terminated, other
than for death or disability, prior to such date.
(b) Aggregate long-term incentive payment of $7.67 million was made in 1994
prior to consummation of the Equity Offerings to a number of JSC's and its
affiliates' officers, including the Named Executive Officers and officers
of JS Group and its affiliates. These amounts represent deferred settlement
of the cancellation in 1992 of the Company's 1990 Long-Term Management
Incentive Plan. The amount paid to the officers of JS Group and its
affiliates (exclusive of Dr. Smurfit) was $1.69 million.
(c) Amounts shown under 'All Other Compensation' for 1995 include a $3,500
Company contribution to JSC's Savings Plan for each Named Executive Officer
(other than Dr. Smurfit) and JSC-paid split-dollar term life insurance
premiums for Dr. Smurfit ($16,956 and Messrs. Terrill ($32,407), Graham
($10,101), Funke ($6,996), and McCallum ($11,064). Mr. Funke also had
reportable (above 120% of the applicable federal long-term rate) earnings
equal to $2,167, credited to his account under JSC's Deferred Compensation
Capital Enhancement Plan.
52
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning stock options granted
to the Named Executive Officers during 1995.
OPTION GRANTS IN 1995
POTENTIAL
REALIZABLE VALUE
AT ANNUAL RATES OF
STOCK
NUMBER OF PRICE APPRECIATION
SECURITIES % OF TOTAL FOR OPTION
UNDERLYING OPTIONS GRANTED EXERCISE OR TERM($)(1)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION -------------------
NAME GRANTED IN FISCAL YEAR ($ PER SHARE) DATE 5% 10%
- ------------------------------------- ---------- --------------- ------------- ---------- -------- --------
James E. Terrill..................... 0 N/A N/A N/A N/A N/A
Michael W. J. Smurfit................ 0 N/A N/A N/A N/A N/A
Richard W. Graham.................... 10,000 7.1% 17.625 2/8/2007 140,270 376,898
John R. Funke........................ 0 N/A N/A N/A N/A N/A
Edward F. McCallum................... 5,000 3.5 17.625 2/8/2007 70,135 188,449
- ------------
(1) The dollar amounts under these columns are the result of calculations at 5%
and 10% rates, as set by the Commission's executive compensation disclosure
rules. Actual gains, if any, on stock option exercises depend on future
performance of JSC Common Stock and overall stock market conditions. No
assurance can be made that the amounts reflected in these columns will be
achieved.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table summarizes the exercise of options and the value of
options held by the Named Executive Officers as of the end of 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND FISCAL YEAR-END OPTION VALUE
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT JANUARY 1, OPTIONS AT JANUARY 1,
SHARES 1996(#) 1996($)(1)
ACQUIRED ON VALUE ---------------------------------- -------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ----------- ----------- -------------- ------------------- -------------- ----------------
James E. Terrill................. 0 N/A 18,100 481,900 0 0
Michael W. J. Smurfit............ 0 N/A 102,600 923,400 0 0
Richard W. Graham................ 0 N/A 9,100 100,900 0 0
John R. Funke.................... 0 N/A 12,100 137,900 0 0
Edward F. McCallum............... 0 N/A 9,100 86,900 0 0
- ------------
(1) The closing market value of the JSC Common Stock on December 29, 1995 was
$9.50 per share. On that date, the exercise prices per share for outstanding
options held by the Named Executive Officers ranged from $10.00 to $17.63.
PENSION PLANS
SALARIED EMPLOYEES' PENSION PLAN AND SUPPLEMENTAL INCOME PENSION PLANS
JSC and its subsidiaries maintain a non-contributory pension plan for
salaried employees (the 'Pension Plan') and two non-contributory supplemental
income pension plans (the 'SIP I' and 'SIP II', together, the 'SIP Plans') for
certain key executive officers, under which benefits are determined by final
average earnings and years of credited service and are offset by a certain
portion of social security benefits. For purposes of the Pension Plan, final
average earnings equals the participant's average earnings for the five
consecutive highest-paid calendar years of the participant's last 10 years of
service, including overtime and certain bonuses, but excluding bonus payments
under the Management Incentive Plan, deferred or acquisition bonuses, fringe
benefits and certain other compensation. For purposes of each SIP, final average
earnings equals the participant's average earnings, including bonus
payments made under the Management Incentive Plan, for the five consecutive
highest-paid calendar
53
years of the participant's last 10 years of service. SIP I recognizes up to 20
years of credited service and SIP II recognizes up to 22.5 years of credited
service.
The pension benefits for the Named Executive Officers can be calculated
pursuant to the following table, which shows the total estimated single life
annuity payments that would be payable to the Named Executive Officers
participating in the Pension Plan and one of the SIP Plans after various years
of service at selected compensation levels. Payments under the SIP Plans are an
unsecured liability of JSC.
ANNUAL BENEFITS (SINGLE LIFE ANNUITY)
UPON FINAL RETIREMENT WITH FINAL YEARS OF SERVICE INDICATED
(PRIOR TO ADJUSTMENT FOR SOCIAL SECURITY)
-----------------------------------------------------------
SIP I PARTICIPANTS SIP II PARTICIPANTS
REMUNERATION ------------------ ------------------------------------
FINAL AVERAGE EARNINGS 20 YEARS 15 YEARS 20 YEARS 22.5 YEARS
- ------------------------------------------ ------------------ -------- -------- ----------
$ 200,000................................. $ 100,000 $ 60,000 $ 80,000 $ 90,000
400,000................................ 200,000 120,000 160,000 180,000
600,000................................ 300,000 180,000 240,000 270,000
800,000................................ 400,000 240,000 320,000 360,000
1,000,000................................ 500,000 300,000 400,000 450,000
1,200,000................................ 600,000 360,000 480,000 540,000
1,400,000................................ 700,000 420,000 560,000 630,000
1,600,000................................ 800,000 480,000 640,000 720,000
1,800,000................................ 900,000 540,000 720,000 810,000
2,000,000................................ 1,000,000 600,000 800,000 900,000
Dr. Smurfit participates in SIP I and has 40 years of credited service. SIP
II became effective January 1, 1993, and Mr. Terrill, Mr. Graham, Mr. Funke and
Mr. McCallum participate in such plan and have 24, 37, 19 and 25 years of
credited service, respectively. Current average earnings as of December 31, 1995
for each of the the Named Executive Officers are as follows: Dr. Smurfit
($1,069,000); Mr. Terrill ($673,000); Mr. Graham ($383,000); Mr. Funke
($353,000); and Mr. McCallum ($309,000).
APPOINTMENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following two members of the Appointment Committee are officers or
employees of the Company: Michael W. J. Smurfit and James E. Terrill.
54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding common stock of JSC(U.S.) is owned by JSCE, and all
of the outstanding common stock of JSCE is owned by JSC.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth certain information regarding the beneficial
ownership of JSC Common Stock by each person who is known to JSC to be the
beneficial owner of more than 5% of JSC's voting stock as of March 11, 1996.
Except as set forth below, the stockholders named below have sole voting and
investment power with respect to all shares of JSC Common Stock shown as being
beneficially owned by them.
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL JSC COMMON
BENEFICIAL OWNER OWNERSHIP STOCK
- --------------------------------------------------------------------------- ---------- ----------
SIBV ...................................................................... 51,638,462 46.5%
Smurfit International B.V.
Strawinskylaan 2001
Amsterdam 1077ZZ, The Netherlands
Attention: Rokin Corporate Services B.V.
MSLEF II Associated Entities .............................................. 31,800,000 28.7%
c/o Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas
New York, NY 10020
Attention: Alan E. Goldberg
Mellon Bank, N.A., as Trustee for First Plaza Group Trust(a) .............. 5,000,000 4.5%
One Mellon Bank Center
Pittsburgh, PA 15258
- ------------
(a) Amounts shown exclude shares of JSC Common Stock owned by MSLEF II, of
which First Plaza Group Trust is a limited partner. If MSLEF II were to
distribute its shares of JSC Common Stock to its partners, First Plaza
Group Trust would receive a number of shares based on its pro rata
ownership of MSLEF II.
SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth certain information regarding the beneficial
ownership of JSC Common Stock as of February 9, 1996 for (i) each of the
directors of JSC, (ii) each of the Named Executive Officers, and (iii) all
directors and executive officers of JSC as a group.
SHARES OF JSC COMMON STOCK
-----------------------------
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL JSC COMMON
BENEFICIAL OWNER OWNERSHIP(A)(B) STOCK(C)
- ----------------------------------------------------------------------- --------------- ----------
Michael W. J. Smurfit(d)............................................... 102,600 0.1%
Howard E. Kilroy(d).................................................... 42,300 --
James E. Terrill(d).................................................... 18,100 --
John R. Funke.......................................................... 16,900 --
Richard W. Graham...................................................... 9,100 --
Edward F. McCallum..................................................... 14,100 --
Donald P. Brennan(e)................................................... 0 --
Alan E. Goldberg(e).................................................... 0 --
David R. Ramsay(e)..................................................... 0 --
G. Thompson Hutton..................................................... 0 --
James R. Thompson...................................................... 510 --
All directors and executive officers as a group (24 persons)(d)(e)..... 265,910 0.2%
- ------------
(a) Shares shown as beneficially owned include the number of shares of JSC
Common Stock that executive officers have the right to acquire within 60
days after February 9, 1996 pursuant to exercisable options under JSC's
1992 Stock Option Plan.
(b) Shares shown exclude any shares that may be held by JSC's Savings Plan.
(footnotes continued on next page)
55
(footnotes continued from previous page)
(c) Based upon a total of 110,989,156 shares of JSC Common Stock issued and
outstanding on March 11, 1996.
(d) Excludes shares of JSC Common Stock owned by JS Group, which, through its
indirect wholly-owned subsidiary SIBV, owns 46.5% of JSC Common Stock. Dr.
Smurfit, Mr. Kilroy and Mr. Terrill own 6.0%, 0.9% and less than 0.1%,
respectively, of the outstanding shares of JS Group. Dr. Smurfit is an
officer and a director of JS Group and Mr. Kilroy is a director of JS
Group.
(e) Excludes shares of JSC Common Stock owned by the MSLEF II Associated
Entities.
The Company's obligations under the 1994 Credit Agreement are secured by,
among other things, the common stock of JSCE and the common stock of JSC(U.S.).
If an Event of Default occurs and is continuing under the 1994 Credit Agreement,
the banks will have the right to foreclose upon such stock.
CERTAIN TRANSACTIONS
Set forth below is a summary of certain agreements and arrangements entered
into by the Company and related parties in connection with the 1989 Transaction
(as defined below) the Recapitalization Plan, as well as other transactions
between the Company and related parties which have taken place during the
Company's most recently completed three fiscal years.
GENERAL
Prior to the consummation of the 1994 Offerings, SIBV and Smurfit
Packaging, and MSLEF II, each owned 50% of the voting common stock of JSC. MSLEF
II, MSLEF II, Inc., a Delaware corporation that is a wholly-owned subsidiary of
Morgan Stanley Group Inc. ('Morgan Stanley Group') and the general partner of
MSLEF II, SIBV/MS Equity Investors, L.P., a Delaware limited partnership the
general partner of which is a wholly-owned subsidiary of Morgan Stanley Group
('Equity Investors' and, together with MSLEF II and MSLEF II, Inc., the 'MSLEF
II Associated Entities'), First Plaza Group Trust, as trustee for certain
pension plans ('First Plaza'), Leeway & Co., as nominee for State Street Bank
and Trust Company, as trustee for a master pension trust ('Leeway' and, together
with First Plaza, the 'Direct Investors'), certain other investors and Smurfit
Packaging owned all of the non-voting stock of JSC.
The relationships among JSC(U.S.), JSC and certain JSC stockholders are set
forth in a number of agreements described below. The summary descriptions herein
of the terms of such agreements do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the provisions
of such agreements, which have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part. Capitalized terms not otherwise
defined below or elsewhere in this Prospectus have the meanings given to them in
such agreements. Any reference to either SIBV or MSLEF II in the following
descriptions of the Organization Agreement and the Stockholders Agreement or in
references to the terms of those agreements set forth in this Prospectus shall
be deemed to include their permitted transferees, unless the context indicates
otherwise.
THE ORGANIZATION AGREEMENT
As a result of the 1989 Transaction, Old JSC(U.S.) became a wholly-owned
subsidiary of JSC and CCA became an indirect wholly-owned subsidiary of JSC.
Subsequent to the 1989 Transaction, but prior to the consummation of the 1994
Offerings, the Company was operated pursuant to the terms of the Organization
Agreement, which had been amended on various occasions. The Organization
Agreement, among other things, provided generally for the election of directors,
the selection of officers and the day-to-day management of the Company.
In connection with the Recapitalization Plan, the Organization Agreement
was terminated upon the closing of the Equity Offerings and, at such time, the
Stockholders Agreement became effective among JSC, SIBV, the MSLEF II Associated
Entities and certain other entities.
The Organization Agreement also contained provisions whereby each of SIBV,
MSLEF II, MSLEF II, Inc., the Company and the holders of certain stock of JSC
would indemnify each other and related parties with respect to certain matters
arising under the Organization Agreement or the transactions contemplated
thereby, including losses resulting from a breach of the Organization Agreement.
In addition, the Company had also agreed to indemnify SIBV, MSLEF II, MSLEF II,
Inc. and certain
56
other parties against losses arising out of, among other things, (i) the conduct
and operation of the business of the Company, or (ii) any action or failure to
act by the Company. Further, SIBV had agreed to indemnify the Company and each
of its subsidiaries against all liability for taxes, charges, fees, levies or
other assessments imposed on such entities as a result of their not having
withheld tax upon the issuance or payment of a specified note to SIBV and the
transfer of certain assets to SIBV in connection with the 1989 Transaction. The
foregoing indemnification provisions survived the termination of the
Organization Agreement in connection with the Recapitalization Plan.
STOCKHOLDERS AGREEMENT
The Stockholders Agreement among JSC, SIBV, the MSLEF II Associated
Entities and certain other entities became effective upon the consummation of
the Equity Offerings. Pursuant to the Stockholders Agreement, dated as of May 3,
1994, among MSLEF III, SIBV, the Company and certain other parties, SIBV and the
MS Holders (as defined in the Stockholders Agreement) shall vote their shares of
JSC Common Stock subject to the Stockholders Agreement to elect as directors of
the Company a certain number of individuals selected by SIBV and a certain
number of individuals selected by MSLEF II, with such numbers varying depending
on the amount of JSC Common Stock collectively owned by the MS Holders, the
amount of JSC Common Stock owned by SIBV and the magnitude of the Initial Return
(as defined in the Stockholders Agreement) received by the MS Holders on their
investment of JSC Common Stock. Currently, the Company's Board of Directors
consists of four directors selected by MSLEF II (one of whom is not affiliated
with SIBV or the Company). Pursuant to the Stockholders Agreement, SIBV and
MSLEF II have agreed to ensure the Board of Directors will consist of only eight
directors (unless they otherwise agree). Depending on the amount of JSC Common
Stock collectively owned by the MS Holders and the magnitude of the Initial
Return received by the MS Holders on their investment of JSC Common Stock,
approval of certain specified actions of the Board shall require certain
approval as specified in the Stockholders Agreement.
DIRECTORS AND MANAGEMENT
For a description of certain provisions of the Stockholders Agreement which
relate to the management of the Company (including the election of directors of
the Company), see 'Management -- Provision of Stockholders Agreement Pertaining
to Management'.
TRANSACTIONS WITH AFFILIATES; OTHER BUSINESSES
The Stockholders Agreement specifically permits the Investors (and their
affiliates) to engage in transactions with the Company in addition to certain
specific transactions contemplated by the Stockholders Agreement, provided such
transactions (except for (i) transactions between any of JSC and JSC(U.S.), (ii)
the transactions contemplated by the Stockholders Agreement or by the
Organization Agreement, (iii) the transactions contemplated by the Operating
Agreement, dated as of April 30, 1992, as amended, between JSC(U.S.) and Smurfit
Paperboard, Inc. ('SPI'), or in the Rights Agreement, dated as of April 30,
1992, as amended, between JSC(U.S.), SPI and Chemical Bank as collateral agent
and assignee of Bankers Trust Company, (iv) the transactions contemplated by the
Registration Rights Agreement (as defined in ' -- Registration Rights
Agreement') or by the Subscription Agreement, and (v) the provisions of certain
other specified agreements) are fully and fairly disclosed, have fair and
equitable terms, are reasonably necessary and are treated as a commercial
arms-length transaction with an unrelated third party.
No Investor is prohibited from owning, operating or investing in any
business, regardless of whether such business is competitive with the Company,
nor is any Investor required to disclose its intention to make any such
investment to the other Investors or to advise the Company of the opportunity
presented by any such prospective investment.
TRANSFER AND ACQUISITION OF OWNERSHIP
In general, transfers of JSC Common Stock to entities affiliated with SIBV
or any MS Holder are not restricted. The Stockholders Agreement provides MS
Holders the right to 'tag along' pro rata upon
57
the transfer by SIBV of any JSC Common Stock, other than transfers to affiliates
and sales pursuant to a public offering registered under the Securities Act or
pursuant to Rule 144 under the Securities Act.
No MS Holder may, without SIBV's prior written consent, transfer shares of
JSC Common Stock to any non-affiliated person or group which, when taken
together with all other shares of JSC Common Stock then owned by such person or
group, represent more than ten percent of the JSC Common Stock then outstanding.
Transfers by MS Holders other than to affiliates, distributions to partners, or
to such ten percent holders are subject to certain rights of first offer and
rights of first refusal in favor of SIBV. Such transfers by MS Holders which are
subject to SIBV's right of first refusal may not be made to any competitor of
SIBV or JSC or their subsidiaries. SIBV and its affiliates have the right,
exercisable on or after August 26, 2002, to purchase all, but not less than all,
of the JSC Common Stock then owned by the MS Holders at a price equal to the
Fair Market Value (as defined in the Stockholders Agreement).
The terms of the Stockholders Agreement do not restrict the ability of
MSLEF II or Equity Investors to distribute, upon dissolution or otherwise,
shares of JSC Common Stock to their respective partners. Following any such
distribution, the partners of MSLEF II or Equity Investors, as the case may be
(other than Morgan Stanley Group or any controlled affiliate thereof) will not
be subject to the Stockholders Agreement. In addition, following any such
distribution, MSLEF II may, on behalf of its partners or the partners of Equity
Investors, include in a registration requested by it under the Registration
Rights Agreement shares of JSC Common Stock which have been distributed to its
partners. See ' -- Registration Rights Agreement'.
SIBV and its affiliates may not, without MSLEF II, Inc.'s prior written
consent, acquire beneficial ownership of more than 50% of JSC's outstanding
Common Stock through November 15, 1999 and beneficial ownership of more than 70%
of JSC's outstanding Common Stock from November 15, 1999 through November 15,
2001, except pursuant to the Stockholders Agreement, the Registration Rights
Agreement or the Subscription Agreement.
In general, if JS Group either does not, directly or indirectly, own a
majority of the voting stock of SIBV, or directly or indirectly, have the right
to appoint a majority of the directors and officers of SIBV, MSLEF II may, at
its option, terminate the Stockholders Agreement.
TERMINATION
The Stockholders Agreement shall terminate either upon mutual agreement of
JSC, SIBV and MSLEF II, or at the option of SIBV or MSLEF II as the case may be,
upon either the MS Holders collectively or SIBV and its affiliates,
respectively, ceasing to own six percent or more of JSC's outstanding Common
Stock. In addition, the provisions of the Stockholders Agreement which restrict
transfer of JSC Common Stock may be terminated, at the option of MSLEF II, upon
SIBV and its affiliates, collectively, having disposed of an aggregate number of
shares of JSC Common Stock which equals, as of the consummation of the most
recent disposition of JSC Common Stock by SIBV or any of its affiliates, at
least 25% of the total shares of JSC Common Stock then outstanding, and all
other provisions of the Stockholders Agreement may be terminated, at the option
of SIBV, if MSLEF II shall have exercised its option to terminate certain
provisions of the Stockholders Agreement as described in this sentence.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Registration Rights Agreement, dated as of May 3, 1994,
among MSLEF II, SIBV, the Company and certain other parties (the 'Registration
Rights Agreement'), each of MSLEF II and SIBV have certain rights, upon giving a
notice as provided in the Registration Rights Agreement, to cause the Company to
use its best efforts to register under the Securities Act the shares of JSC
Common Stock owned by MSLEF II (including its partners) and certain other
entities (including their affiliates) and certain shares of JSC Common Stock
owned by SIBV and its affiliates. Under the terms of the Registration Rights
Agreement, the Company may not effect a common stock registration for its own
account until the earlier of (i) such time as MSLEF II shall have effected two
demand registrations and (ii) July 31, 1996. The Registration Rights Agreement
contains customary terms and provisions with respect to, among other things,
registration procedures and certain rights to indemnification and
58
contribution granted by parties thereunder in connection with the registration
of JSC Common Stock subject to such agreement. In addition, the Company is
generally prohibited from 'piggybacking' and selling stock for its own account
in demand registrations except in the case of any registration requested by SIBV
and except in the case of any registration requested by MSLEF II after the
second completed registration for MSLEF II, in which event SIBV or MSLEF II, as
the case may be may require that any such securities which are 'piggybacked' be
offered and sold on the same terms as the securities offered by SIBV or MSLEF
II, as the case may be.
The Company will pay all registration expenses (other than underwriting
discounts and commissions) in connection with MSLEF II's first two completed
demand registrations, SIBV's two completed demand registrations and all
registrations made in connection with the Company's registration.
OTHER TRANSACTIONS
In connection with the Recapitalization Plan, JSC issued 19.25 million
shares of JSC Common Stock at an initial public offering price of $13.00 per
share and the Company issued and sold $400 million of senior notes pursuant to
the Debt Offerings. In its capacity as underwriter of the Equity Offerings and
Debt Offerings, MS&Co. received net discounts and commissions of $6 million and
$10 million, respectively, in 1994. The Company paid $1 million to SIBV for
legal fees incurred by SIBV in connection with the recapitalization plan in
1994.
In connection with its issuance of the Senior Notes, Old JSC(U.S.) entered
into an agreement with SIBV whereby SIBV committed to purchase up to $200
million aggregate principal amount of 11 1/2% Junior Subordinated Notes maturing
2005 (the 'Notes') to be issued by Old JSC(U.S.). Proceeds of the Notes were to
be used to repurchase or otherwise retire subordinated debt of Old JSC(U.S.).
The agreement was terminated upon the consummation of the Equity Offerings. In
accordance with the agreement, the Company paid $1 million to SIBV for letter of
credit fees incurred by SIBV in connection with this commitment, $1 million for
annual commitment fees of 1.375% on the undrawn principal amount and $1 million
for certain costs of SIBV associated with such commitments and the termination
thereof.
Net sales by the Company to JS Group, its subsidiaries and affiliates were
$44 million, $36 million and $18 million for the years ended December 31, 1995,
1994 and 1993, respectively. Net sales by JS Group, its subsidiaries and
affiliates to the Company were $108 million, $71 million and $49 million for the
years ended December 31, 1995, 1994 and 1993, respectively. Product sales to and
purchases from JS Group, its subsidiaries and affiliates were consummated on
terms generally similar to those prevailing with unrelated parties.
The Company provides certain subsidiaries and affiliates of JS Group with
general management and elective management services under separate management
services agreements. The services provided include, but are not limited to,
management information services, accounting, tax and internal auditing services,
financial management and treasury services, manufacturing and engineering
services, research and development services, employee benefit plan and
management services, purchasing services, transportation services and marketing
services. In consideration of general management services, the Company is paid a
negotiated fee which amounted to $1 million, $1 million and $2 million for 1995,
1994 and 1993, respectively. In consideration for elective services, the Company
received approximately $3 million, $3 million and $4 million in 1995, 1994 and
1993, respectively, for its cost of providing such services. In addition, the
Company paid JS Group and its affiliates $1 million in 1995, $1 million in 1994
and less than $1 million in 1993 for management services and certain other
services.
In October 1991, an affiliate of JS Group completed a rebuild of the No. 2
paperboard machine owned by it, located in JSC(U.S.)'s Fernandina Beach, Florida
paperboard mill (the 'Fernandina Mill'). Pursuant to the Fernandina Operating
Agreement, JSC(U.S.) operates and manages the machine, which is owned by a
subsidiary of SIBV. As compensation to JSC(U.S.) for its services, the affiliate
of JS Group agreed to reimburse JSC(U.S.) for production and manufacturing costs
directly attributable to the No. 2 paperboard machine and to pay JSC(U.S.) a
portion of the indirect manufacturing, selling and administrative costs incurred
by JSC(U.S.) for the entire Fernandina Mill. The compensation is
59
determined by applying various formulas and agreed upon amounts to the subject
costs. The amounts reimbursed to JSC(U.S.) totaled $57 million, $54 million and
$62 million in 1995, 1994 and 1993, respectively.
On February 21, 1986, Old JSC(U.S.) purchased from Times Mirror 80% of the
issued and outstanding capital stock of SNC for approximately $132 million. In
connection with the purchase of the SNC capital stock, Old JSC(U.S.) and Times
Mirror entered into a shareholders agreement dated as of February 21, 1986. In
July 1995 JSC(U.S.) acquired the remaining 20% minority interest in SNC from
Times Mirror and such shareholders agreement was terminated.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a brief discussion of the basic terms of and the
instruments governing certain indebtedness of the Company. The following
discussion does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the instruments governing the respective
indebtedness, which instruments are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
THE 1994 CREDIT AGREEMENT
GENERAL
Pursuant to the 1994 Credit Agreement, the New Bank Facilities consist of
(i) the New Term Loans, consisting of two senior secured term loan facilities to
be provided to JSC(U.S.) in an aggregate principal amount of $1,200 million, to
be allocated between the Tranche A Term Loan in an aggregate principal amount of
$900 million and the Tranche B Term Loan in an aggregate principal amount of
$300 million and (ii) the New Revolving Credit Facility consisting of a seven
year senior secured revolving credit facility available to JSC(U.S.) in an
aggregate principal amount of $450 million, of which up to $150 million is
available as a letter of credit facility (the 'Letter of Credit Facility').
JSC(U.S.) has agreed to pay certain fees to Chemical in its capacity as the
administrative agent (in such capacity, the 'Agent') for its own account and for
the account of the other Lenders (as defined below) in connection with the New
Bank Facilities, payable as follows: (i) a commitment fee of between 1/4 of 1%
and 1/2 of 1% per annum (determined by reference to the consolidated leverage
ratio (the 'Consolidated Leverage Ratio') of JSC and its consolidated
subsidiaries) on the undrawn amount of the Tranche A Term Loan and the New
Revolving Credit Facility, accruing, with respect to each Lender, on the date of
acceptance of such Lender's commitment and (ii) with respect to each Lender
which has a commitment under the Tranche B Term Loan, (A) 1/2 of 1% per annum on
the amount of such commitment accruing for the period from and including the
date of acceptance of such Lender's commitment to but excluding May 11, 1994,
the date of the initial funding of the New Bank Facilities (the 'Closing Date')
or the earlier termination of such Lender's commitment and (B) between 1/4 of 1%
and 1/2 of 1% per annum (determined by reference to the Consolidated Leverage
Ratio) on the undrawn amount of such Lender's commitment, accruing from and
including the Closing Date. All such commitment fees were paid on the Closing
Date and, thereafter, are payable in arrears at the end of each quarter and upon
termination of any commitment. The fees payable in respect of letters of credit
provided under the New Revolving Credit Facility are in an amount equal to the
greater of (a) the margin in excess of the Adjusted LIBOR Rate applicable to the
New Revolving Credit Facility at such time minus 1/2 of 1% and (b) 1%. In
addition, a separate fronting fee shall be payable by JSC(U.S.) to the bank
issuing the letters of credit for its own account in an amount to be agreed. All
letter of credit fees shall be payable on the aggregate amount available under
outstanding letters of credit under the New Revolving Credit Facility, and shall
be payable in arrears at the end of each quarter and upon the termination of the
New Revolving Credit Facility. Chemical Securities Inc. ('CSI'), BT Securities
Corporation ('BTSC') and the Lenders shall receive such other fees as have been
separately agreed upon with CSI, BTSC, Chemical Bank ('Chemical') and Bankers
Trust Company ('Bankers Trust'). CSI and BTSC acted as arrangers for the New
Bank Facilities.
Pursuant to the amended and restated commitment letter dated February 10,
1994 (the 'Commitment Letter') among Chemical, CSI, Bankers Trust, BTSC, CCA and
Old JSC(U.S.), CCA and Old JSC(U.S.) agreed, regardless of whether the financing
agreements relating to the New Bank
60
Facilities are executed or the commitments to provide the New Bank Facilities
are terminated, to reimburse Chemical, Bankers Trust, CSI and BTSC for, among
other things, all of their respective out-of-pocket costs and expenses incurred
or sustained by such entities in connection with the transactions contemplated
by the Commitment Letter and to indemnify Chemical, Bankers Trust, CSI and BTSC,
and each director, officer, employee and affiliate thereof against certain
claims, damages, liabilities and expenses incurred or asserted in connection
with the transactions contemplated by the Commitment Letter. In addition to the
indemnity provided in the Commitment Letter, CCA and Old JSC(U.S.) agreed,
pursuant to the 1994 Credit Agreement, to indemnify, jointly and severally, the
Lenders, and each director, officer, employee and agent thereof, against certain
claims, damages, liabilities and expenses incurred or asserted in connection
with the transactions contemplated by the 1994 Credit Agreement.
The New Bank Facilities are provided pursuant to the terms and conditions
of the 1994 Credit Agreement among JSC, CCA, Old JSC(U.S.), the financial
institutions party thereto (the 'Lenders'), the managing agents named therein,
Chemical and Bankers Trust, as senior managing agents, Bankers Trust and the
other Lenders named therein as fronting banks and Chemical as administrative
agent and collateral agent.
Borrowings under the Tranche A Term Loan and under the Tranche B Loan on
the Closing Date were used, together with the proceeds of the Equity Offerings
and the SIBV Investment, borrowings under the New Revolving Credit Facility, and
a portion of the proceeds of the Debt Offerings, to consummate the Bank Debt
Refinancing. Borrowings under the Tranche A Term Loan were used after the
Closing Date to redeem the Subordinated Debt and pay accrued interest and the
applicable redemption premiums thereon. Borrowings under the New Revolving
Credit Facility are to be used for the sole purpose of providing working capital
for the Company and its subsidiaries and for other general corporate purposes.
The obligations under the 1994 Credit Agreement are unconditionally
guaranteed by JSC, JSCE and certain other existing and subsequently acquired or
organized material subsidiaries of the Company (each such entity providing such
a guaranty, a 'Guarantor'). The obligations of JSC(U.S.), JSCE, and such
guarantees, under the 1994 Credit Agreement (including all guarantee obligations
of JSCE in respect thereof) are secured, among other things, by a security
interest in substantially all of the assets of JSC(U.S.), JSCE and their
material subsidiaries, with the exception of cash and cash equivalents and trade
receivables of JSC(U.S.) and JSCE and their material subsidiaries sold to
Jefferson Smurfit Finance Corporation ('JSFC'), and by a pledge of all the
capital stock of JSC(U.S.), JSCE and each material subsidiary of JSC, JSCE and
JSC(U.S.).
The Tranche A Term Loan and the New Revolving Credit Facility will each
mature on April 30, 2001. The Tranche B Term Loan will mature on April 30, 2002.
Principal amounts paid through March 31, 1996 on the Tranche A and Tranche B
Term Loans were $253,500,000 and $84,500,000, respectively. The outstanding
principal amount of the New Term Loans as of March 31, 1996 is repayable as
shown below. Such repayments are made at the end of each six month period on
each October 31 and April 30 after the Closing Date.
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TOTAL
TRANCHE A TERM LOAN TRANCHE B TERM LOAN SEMI-ANNUAL
SEMI-ANNUAL PERIOD SEMI-ANNUAL AMOUNT SEMI-ANNUAL AMOUNT AMOUNT
- --------------------------------------------------- -------------------- -------------------- ------------
Scheduled principal repayments
April 30, 1996................................ $ 0 $ 0 $ 0
October 31, 1996.............................. 0 0 0
April 30, 1997................................ 61,155,404 725,592 61,880,996
October 31, 1997.............................. 69,891,892 725,589 70,617,481
April 30, 1998................................ 69,891,892 725,589 70,617,481
October 31, 1998.............................. 69,891,892 725,589 70,617,481
April 30, 1999................................ 69,891,892 725,589 70,617,481
October 31, 1999.............................. 69,891,892 7,981,481 77,873,373
April 30, 2000................................ 69,891,892 7,981,481 77,873,373
October 31, 2000.............................. 82,996,622 10,883,839 93,880,461
April 30, 2001................................ 82,996,622 10,883,839 93,880,461
October 31, 2001.............................. -- 87,070,706 87,070,706
April 30, 2002................................ -- 87,070,706 87,070,706
------------ ------------ ------------
$646,500,000 $215,500,000 $862,000,000
------------ ------------ ------------
------------ ------------ ------------
Voluntary reductions of the unutilized portion of the New Revolving Credit
Facility are permitted at any time. Pursuant to the 1994 Credit Agreement,
required prepayments on the New Bank Facilities are to be made in an amount
equal to (i) 75% of Excess Cash Flow (as defined in the 1994 Credit Agreement),
reducing to 50% of Excess Cash Flow upon the satisfaction of certain performance
tests set forth in the 1994 Credit Agreement, (ii) 100% of the net proceeds of
the issuance or incurrence of certain indebtedness (not including the Debt
Offerings), (iii) 100% of the net proceeds of certain non-ordinary course asset
sales, (iv) 100% of the net proceeds of certain condemnation or insurance
proceeds, and (v) 25% of the net proceeds of the issuance of any other equity
securities (other than the Equity Offerings and the exercise of management stock
options). Required prepayments will be allocated pro rata between the Tranche A
Term Loan and the Tranche B Term Loan, and will be applied pro rata against the
remaining scheduled amortization payments under each of the New Term Loans or,
if the New Term Loans have been fully repaid, to permanently reduce the then
existing commitments under the New Revolving Credit Facility.
Outstanding loans under the Tranche A Term Loan and the New Revolving
Credit Facility bear interest at rates selected at the option of JSC(U.S.) equal
to the ABR Rate (as defined below) plus a margin of between 0% and 1.5% per
annum (determined by reference to the Consolidated Leverage Ratio) or the
Adjusted LIBOR Rate (as defined below) plus a margin of between 1% and 2.50% per
annum (determined by reference to the Consolidated Leverage Ratio) (such rate
equal to 7.82% at December 31, 1995). Interest on outstanding loans under the
Tranche B Term Loan is payable at a rate per annum selected at the option of
JSC(U.S.), equal to the ABR Rate plus 2% per annum or the Adjusted LIBOR Rate
plus 3% per annum (8.91% at December 31, 1995). The Tranche A and Tranche B Term
Loans and the New Revolving Credit Facility may be prepaid at any time, in whole
or in part, at the option of JSC(U.S.).
'ABR Rate' shall mean the higher of (a) the rate which Chemical announces
from time to time as its prime lending rate, (b) 1/2 of 1% in excess of the
Federal Funds Rate and (c) 1% in excess of the base certificate of deposit rate
(defined as the secondary market rate for three month certificates of deposit,
as adjusted for assessments and statutory reserves).
'Adjusted LIBOR Rate' shall mean the London Interbank Offered Rate,
adjusted for statutory reserves at all times.
Interest based on the ABR Rate and the Adjusted LIBOR Rate shall be
determined based on the number of days elapsed over a 360 day year. Interest
based on the (i) ABR Rate shall be payable quarterly and (ii) Adjusted LIBOR
Rate shall be payable at the end of the applicable interest period but in any
event not less often than quarterly.
62
The 1994 Credit Agreement contains certain representations and warranties,
certain negative, affirmative and financial covenants, certain conditions and
certain events of default which are customarily required for similar financings,
in addition to other representations, warranties, covenants, conditions and
events of default appropriate to the specific transactions contemplated thereby.
Such covenants include restrictions and limitations of dividends, redemptions
and repurchases of capital stock, the incurrence of debt, liens, leases,
sale-leaseback transactions, capital expenditures, the issuance of stock,
transactions with affiliates, the making of loans, investments and certain
payments, and on mergers, acquisitions and asset sales, in each case subject to
certain exceptions. Furthermore, the Company is required to maintain compliance
with certain financial covenants, such as minimum levels of consolidated
earnings before depreciation, interest, taxes and amortization, and minimum
interest coverage ratios.
Events of default under the 1994 Credit Agreement include, among other
things, (i) failure to pay principal, interest, fees or other amounts when due;
(ii) violation of covenants; (iii) failure of any representation or warranty
made by the Company to the Lenders to be true in all material aspects; (iv)
cross default and cross acceleration with certain other indebtedness; (v)
'change of control'; (vi) certain events of bankruptcy; (vii) certain material
judgments; (viii) certain ERISA events; and (ix) the invalidity of the
guarantees of the indebtedness under the 1994 Credit Agreement or of the
security interests granted to the Lenders, in certain cases with appropriate
agreed upon grace periods.
The foregoing summary of the 1994 Credit Agreement is qualified in its
entirety by reference to such agreement, a copy of which has been filed with the
Commission as an exhibit to the Registration Statement of which this Prospectus
forms a part.
SECURITIZATION
In February 1995, the Company entered into the $315 million 1995
Securitization consisting of a $300 million receivables-backed commercial paper
program and a $15 million term loan. The proceeds of the 1995 Securitization
were used to extinguish the Company's borrowings under the 1991 Securitization.
See Note 4 to the Company's consolidated financial statements and
'Recapitalization Plan -- Consents and Waivers -- Securitization'.
TERMS OF 1993 NOTES
In April 1993, CCA offered the 1993 Notes. The 1993 Notes are unsecured
senior obligations of JSC(U.S.) and will mature April 1, 2003. The 1993 Notes
bear interest at 9.75% per annum. Interest is payable semiannually on April 1
and October 1 of each year. The 1993 Notes are not redeemable prior to maturity.
The 1993 Notes are senior unsecured obligations of JSC(U.S.), which rank
pari passu with the other senior indebtedness of JSC(U.S.), including, without
limitation, JSC(U.S.)'s obligations under the 1994 Credit Agreement and the
Senior Notes. JSC(U.S.)'s obligations under the 1994 Credit Agreement, but not
the 1993 Notes, are secured by liens on substantially all the assets of
JSC(U.S.) and its subsidiaries with the exception of cash and cash equivalents
and trade receivables. The secured indebtedness has priority over the 1993 Notes
with respect to the assets securing such indebtedness.
The indenture relating to the 1993 Notes (the '1993 Note Indenture')
contains certain covenants that, among other things, limit the ability of
JSC(U.S.) and its subsidiaries to incur indebtedness, pay dividends, engage in
transactions with stockholders and affiliates, issue capital stock, create
liens, sell assets, enter into sale-leaseback transactions, engage in mergers
and consolidations and make investments in unrestricted subsidiaries. The
limitations imposed by the covenants on JSC(U.S.) and its subsidiaries are
subject to certain exceptions.
Upon a Change of Control, JSC(U.S.) is required to make an offer to
purchase the 1993 Notes at a purchase price equal to 101% of the principal
amount thereof, plus accrued interest. Certain transactions with affiliates of
the Company may not constitute a Change of Control. 'Change of Control' is
defined to mean such time as (i)(a) a person or group, other than MSLEF II,
Morgan Stanley Group, SIBV, JS Group and any affiliate thereof, (collectively,
the 'Original Stockholders'), becomes the beneficial owner of more than 35% of
the total voting power of the then outstanding
63
voting stock of JSC(U.S.) or a parent of JSC(U.S.) and (b) the Original
Stockholders beneficially own, directly or indirectly, less than the then
outstanding voting stock of JSC(U.S.) or a parent of JSC(U.S.) beneficially
owned by such person or group; (ii)(a) a person or group, other than the
Original Stockholders, becomes the beneficial owner of more than 35% of the
total voting power of the then outstanding voting stock of JSC(U.S.), (b) the
Original Stockholders beneficially own, directly or indirectly, less than the
then outstanding voting stock of JSC(U.S.) beneficially owned by such person or
group and (c) JSC(U.S.) is a subsidiary of JSCE at the time that the later of
(a) and (b) above occurs.
The payment of principal and interest on the 1993 Notes is unconditionally
guaranteed on a senior basis by JSCE. Such guarantee ranks pari passu with the
other senior indebtedness of JSCE, including, without limitation, JSCE's
obligations under the 1994 Credit Agreement (including JSCE's guarantees of
JSC(U.S.)'s obligations thereunder) and JSCE's guarantee of JSC(U.S.)'s
obligations under the Senior Notes. JSCE's obligations under the 1994 Credit
Agreement, but not its guarantees of the 1993 Notes, are secured by liens on
substantially all the assets of JSCE and its subsidiaries with the exception of
cash and cash equivalents and trade receivables, and guaranteed by JSC(U.S.) and
certain of its subsidiaries. The secured indebtedness has priority over JSCE's
guarantees of the 1993 Notes with respect to the assets securing such
indebtedness. In the event that (i) a purchaser of capital stock of JSC(U.S.)
acquires a majority of the voting rights thereunder or (ii) there occurs a
merger or consolidation of JSC(U.S.) that results in JSC(U.S.) having a parent
other than JSCE and, at the time of and after giving effect to such transaction,
such purchaser or parent satisfies certain minimum net worth and cash flow
requirements, JSCE will be released from its guarantee of the 1993 Notes. Such
sale, merger or consolidation will be prohibited unless certain other
requirements are met, including that the purchaser or the entity surviving such
a merger or consolidation expressly assumes JSC(U.S.)'s or JSCE's obligations,
as the case may be, and that no Event of Default (as defined in the 1993 Note
Indenture) occur or be continuing.
MS&Co. acted as underwriter in connection with the original offering of the
1993 Notes and received an underwriting discount of $13 million in connection
therewith.
SUBSTITUTION TRANSACTION
In connection with the Substitution Transaction, JSC organized JSCE, a new
wholly-owned subsidiary of JSC, and JSCE became the owner of all of the
outstanding capital stock of Old JSC(U.S.). Pursuant to the Substitution
Transaction, JSC (i) caused JSCE to replace Old JSC(U.S.) as guarantor under the
indentures relating to CCA's public indebtedness (and under the 1994 Credit
Agreement) and to assume Old JSC(U.S.)'s other obligations thereunder, (ii)
amended such indentures so that references to Old JSC(U.S.) therein and in the
securities issued thereunder were changed to be JSCE (iii) caused Old JSC(U.S.)
to merge into CCA, with CCA succeeding to all of Old JSC(U.S.)'s assets and
liabilities (except that any guaranty of obligations of CCA by Old JSC(U.S.)
were extinguished) and (iv) caused CCA to change its name to JSC(U.S.). The
purpose of the Substitution Transaction was to maximize operating efficiencies
by combining JSC's two key operating subsidiaries into one entity and achieve
cost savings.
64
DESCRIPTION OF THE SENIOR NOTES
The Series A Senior Notes were issued under an Indenture (the 'Series A
Senior Note Indenture') among Old JSC(U.S.), CCA and NationsBank of Georgia,
National Association, as trustee. On December 31, 1995, The Bank of New York
(the 'Series A Senior Note Trustee') replaced NationsBank of Georgia, National
Association, as trustee. The Series B Senior Notes were issued under an
Indenture (the 'Series B Senior Note Indenture', and together with the Series A
Senior Note Indenture, the 'Indentures') among Old JSC(U.S.), CCA and
NationsBank of Georgia, National Association, as trustee. On December 31, 1995,
The Bank of New York (the 'Series B Senior Note Trustee', and together with the
Series A Senior Note Trustee, the 'Trustees') replaced NationsBank of Georgia,
National Association, as trustee. A copy of each of the Series A Senior Note
Indenture and the Series B Senior Note Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is available as
described under 'Additional Information'. Except as described under
' -- Optional Redemption' below or as otherwise indicated, this description
applies to both the Series A Senior Note Indenture and the Series B Senior Note
Indenture, and references to the 'Senior Notes' shall be to the Series A Senior
Notes or the Series B Senior Notes, as the case may be, or, if the context
requires, to both. The following summary of certain provisions of the Indentures
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indentures, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended. Wherever particular sections or defined
terms of the Indentures not otherwise defined herein are referred to, such
sections or defined terms shall be incorporated herein by reference.
GENERAL
Principal of, premium, if any, and interest on the Senior Notes is payable,
and the Senior Notes may be exchanged or transferred, at the office or agency of
JSC(U.S) in the Borough of Manhattan, The City of New York (which for the Series
A Senior Notes initially shall be the office or agency of the Series A Senior
Note Trustee, at 61 Broadway, Suite 1412, New York, New York 10006, and for the
Series B Senior Notes, initially shall be the office or agency of the Series B
Senior Note Trustee at 61 Broadway, Suite 1412, New York, New York 10006);
provided that, at the option of JSC(U.S.), payment of interest may be made by
check mailed to the address of the Holders as such address appears in the Senior
Notes Register. (Sections 2.01, 2.03 and 2.06)
The Senior Notes were issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000.
(Section 2.02) No service charge was made for any registration of transfer or
exchange of Senior Notes, but JSC(U.S.) may require payment of a sum sufficient
to cover any transfer tax or other similar governmental charge payable in
connection therewith. (Section 2.05)
TERMS OF THE SENIOR NOTES
The Senior Notes are unsecured senior obligations of JSC(U.S.), limited to
$300 million aggregate principal amount of Series A Senior Notes and $100
million aggregate principal amount of Series B Senior Notes, and will mature on
May 1, 2004 and May 1, 2002, respectively. Each Senior Note bears interest at
the rate per annum shown on the front cover of this Prospectus from May 11, 1994
or from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually (to the Holders of record at the close of
business on the April 15 or October 15 immediately preceding the Interest
Payment Date) on May 1 and November 1 of each year, commencing November 1, 1994.
OPTIONAL REDEMPTION
JSC(U.S.) may not redeem the Series B Senior Notes prior to maturity.
The Series A Senior Notes are redeemable, at JSC(U.S.)'s option, in whole
or in part, at any time on or after May 1, 1999 and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first class mail to
each Holder's last address as it appears in the Senior Notes Register, at the
65
following Redemption Prices (expressed as percentages of principal amount), plus
accrued interest, if any, to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date to receive interest due on
an Interest Payment Date that is on or prior to the Redemption Date), if
redeemed during the 12-month period commencing on May 1 of the years set forth
below:
REDEMPTION
YEAR PRICE
- ----------------------------------------------------------------------- ----------
1999................................................................... 105.625%
2000................................................................... 102.813%
and, on or after May 1, 2001, at 100% of principal amount. (Sections 11.01 and
11.04)
Notwithstanding the foregoing, at any time prior to May 1, 1997, JSC(U.S.)
may redeem up to $100 million in aggregate principal amount of the Series A
Senior Notes at a Redemption Price of 110% of the principal amount thereof plus
accrued interest to the Redemption Date, with the Net Cash Proceeds from the
issuance of Capital Stock (other than Redeemable Stock) of JSC(U.S.) (or any
entity of which it is a Subsidiary, including JSC and JSCE, to the extent such
Net Cash Proceeds are contributed to JSC(U.S.) or used to acquire Capital Stock
of JSC(U.S.) (other than Redeemable Stock)) in a single transaction or a series
of related transactions (other than the Equity Offerings or an issuance to a
Subsidiary).
Selection. In the case of any partial redemption, selection of the Series A
Senior Notes for redemption will be made by the Series A Senior Note Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Series A Senior Notes are listed or, if the Series A Senior
Notes are not listed on a national securities exchange, on a pro rata basis, by
lot or by such other method as the Series A Senior Note Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Series A
Senior Note of $1,000 in principal amount at maturity or less shall be redeemed
in part. If any Series A Senior Note is to be redeemed in part only, the notice
of redemption relating to such Series A Senior Note shall state the portion of
the principal amount thereof to be redeemed. A new Series A Senior Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Series A Senior
Note.
The Credit Agreement contains covenants prohibiting the optional redemption
of the Senior Notes. See 'Description of Certain Indebtedness -- The 1994 Credit
Agreement'.
RANKING
The Indebtedness evidenced by the Senior Notes ranks pari passu in right of
payment with all other senior indebtedness of JSC(U.S.), including, without
limitation, JSC(U.S.)'s obligations under the 1994 Credit Agreement and the 1993
Notes. JSCE's guarantee of the Senior Notes ranks pari passu in right of payment
with all other unsubordinated indebtedness of JSCE, including, without
limitation, JSCE's obligations under the 1994 Credit Agreement and JSCE's
guarantee of the 1993 Notes.
JSC(U.S.)'s obligations under the 1994 Credit Agreement and JSCE's
guarantees of such obligations are secured by pledges of substantially all of
the assets of JSC(U.S.), JSCE and their material subsidiaries with the exception
of cash and cash equivalents and trade receivables. JSC(U.S.)'s obligations
under the 1994 Credit Agreement, but not the Senior Notes, are guaranteed by
JSC, JSCE and certain subsidiaries of the Company, and the obligations of JSCE
and each such guaranteeing subsidiary are secured, among other things, by
substantially all of the assets of JSCE and such guaranteeing subsidiary, as the
case may be. The Senior Notes and JSCE's guarantee of the Senior Notes will be
effectively subordinated to such security interests and guarantees to the extent
of such security interests and guarantees. As of December 31, 1995, JSC(U.S.)
had outstanding approximately $2,192 million of senior indebtedness (excluding
intercompany indebtedness), of which approximately $1,284 million was secured
indebtedness. The secured indebtedness will have priority over the Senior Notes
with respect to the assets securing such indebtedness. See 'Risk
Factors -- Effect of Secured Indebtedness on the Senior Notes; Ranking' and
'Capitalization'.
66
GUARANTEE
JSC(U.S.)'s obligations under the Senior Notes are unconditionally
guaranteed by JSCE.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indentures. Reference is made to the
Indentures for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
'Acquired Indebtedness' is defined to mean Indebtedness of a Person
existing at the time such Person became a Subsidiary and not Incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary.
'Adjusted Consolidated Net Income' is defined to mean, for any period, the
aggregate net income (or loss) of any Person and its consolidated Subsidiaries
for such period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income (or loss) of such Person (other than net income
(or loss) attributable to a Subsidiary of such Person) in which any other Person
(other than such Person or any of its Subsidiaries) has a joint interest, except
to the extent of the amount of dividends or other distributions actually paid to
such Person or any of its Subsidiaries by such other Person during such period;
(ii) solely for the purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
'Limitation on Restricted Payments' covenant described below (and in such case,
except to the extent includable pursuant to clause (i) above), the net income
(or loss) of such Person accrued prior to the date it becomes a Subsidiary of
any other Person or is merged into or consolidated with such other Person or any
of its Subsidiaries or all or substantially all of the property and assets of
such Person are acquired by such other Person or any of its Subsidiaries; (iii)
the net income (or loss) of any Subsidiary (other than CCA) of any Person to the
extent that the declaration or payment of dividends or similar distributions by
such Subsidiary of such net income is not at the time permitted by the operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such Subsidiary;
(iv) any gains or losses (on an after-tax basis) attributable to Asset Sales;
(v) except for purposes of calculating the amount of Restricted Payments that
may be made pursuant to clause (C) of the first paragraph of the 'Limitation on
Restricted Payments' covenant described below, any amounts paid or accrued as
dividends on Preferred Stock of such Person or Preferred Stock of any Subsidiary
of such Person owned by Persons other than such Person and any of its
Subsidiaries; (vi) all extraordinary gains and extraordinary losses; and (vii)
all non-cash charges reducing net income of such Person that relate to stock
options or stock appreciation rights and all cash payments reducing net income
of such Person that relate to stock options or stock appreciation rights, to the
extent such cash payments are not made pursuant to clause (xi) of the
'Limitation on Restricted Payments' covenant; provided that, solely for the
purposes of calculating the Interest Coverage Ratio (and in such case, except to
the extent includable pursuant to clause (i) above), 'Adjusted Consolidated Net
Income' of JSCE shall include the amount of all cash dividends received by JSCE
or any Subsidiary of JSCE from an Unrestricted Subsidiary.
'Adjusted Consolidated Net Tangible Assets' is defined to mean the total
amount of assets of JSCE and its Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of JSCE and its Subsidiaries (excluding intercompany items)
and (ii) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all as set forth on the most
recently available consolidated balance sheet of JSCE and its Subsidiaries,
prepared in conformity with GAAP.
'Affiliate' is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, 'control'
(including, with correlative meanings, the terms 'controlling', 'controlled by',
and 'under common control with'), as applied to any Person, is defined to mean
the possession,
67
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise. For purposes of this definition, no Bank
nor any affiliate of any Bank shall be deemed to be an Affiliate of JSCE or any
of its Subsidiaries nor shall MS&Co. (or any affiliate thereof) be deemed an
Affiliate of JSCE or any of its Subsidiaries solely by reason of its ownership
of or right to vote any Indebtedness of JSCE or any of its Subsidiaries.
'Asset Acquisition' is defined to mean (i) an investment by JSCE or any of
its Subsidiaries in any other Person pursuant to which such Person shall become
a Subsidiary of JSCE or any of its Subsidiaries or shall be merged into or
consolidated with JSCE or any of its Subsidiaries or (ii) an acquisition by JSCE
or any of its Subsidiaries of the assets of any Person other than JSCE or any of
its Subsidiaries that constitute substantially all of a division or line of
business of such Person.
'Asset Disposition' is defined to mean the sale or other disposition by
JSCE or any of its Subsidiaries (other than to JSCE or another Subsidiary of
JSCE) of (i) all or substantially all of the Capital Stock of any Subsidiary of
JSCE or (ii) all or substantially all of the assets that constitute a division
or line of business of JSCE or any of its Subsidiaries.
'Asset Sale' is defined to mean, with respect to any Person, any sale,
transfer or other disposition (including by way of merger, consolidation or
sale-leaseback transactions) in one transaction or a series of related
transactions by such Person or any of its Subsidiaries to any Person other than
JSCE or any of its Subsidiaries of (i) all or any of the Capital Stock of any
Subsidiary of such Person (other than pursuant to a public offering of the
Capital Stock of CCA or JSCE pursuant to which at least 15% of the total issued
and outstanding Capital Stock of CCA or JSCE has been sold by means of an
effective registration statement under the Securities Act or sales, transfers or
other dispositions of Capital Stock of CCA or JSCE substantially concurrently
with or following such a public offering), (ii) all or substantially all of the
property and assets of an operating unit or business of such Person or any of
its Subsidiaries or (iii) any other property and assets of such Person or any of
its Subsidiaries outside the ordinary course of business of such Person or such
Subsidiary and, in each case, that is not governed by the provisions of the
Indenture applicable to Mergers, Consolidations and Sales of Assets (it being
acknowledged that JSCE and its Subsidiaries may dispose of equipment in the
ordinary course of their respective businesses); provided that sales or other
dispositions of inventory, receivables and other current assets shall not be
included within the meaning of 'Asset Sale.'
'Attributable Indebtedness' is defined to mean, when used in connection
with a sale-leaseback transaction referred to in the 'Limitation on
Sale-Leaseback Transactions' covenant, at any date of determination, the product
of (i) the net proceeds from such sale-leaseback transaction and (ii) a
fraction, the numerator of which is the number of full years of the term of the
lease relating to the property involved in such sale-leaseback transaction
(without regard to any options to renew or extend such term) remaining at the
date of the making of such computation and the denominator of which is the
number of full years of the term of such lease (without regard to any options to
renew or extend such term) measured from the first day of such term.
'Average Life' is defined to mean, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the product of (A) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(B) the amount of such principal payment by (ii) the sum of all such principal
payments.
'Banks' is defined to mean the lenders who are from time to time parties to
any Credit Agreement.
'Board of Directors' is defined to mean the Board of Directors of JSCE or
CCA, as the case may be, or any committee of such Board of Directors duly
authorized to act under the Indenture.
'Business Day' is defined to mean any day except a Saturday, Sunday or
other day on which commercial banks in The City of New York, or in the city of
the Corporate Trust Office of the Trustee, are authorized by law to close.
'Capital Stock' is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's
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capital stock, whether now outstanding or issued after the date of the
Indenture, including, without limitation, all Common Stock and Preferred Stock.
'Capitalized Lease' is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and 'Capitalized Lease Obligation' is defined to mean the rental obligations, as
aforesaid, under such lease.
'Change of Control' is defined to mean such time as (i) (a) a 'person' or
'group' (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act),
other than the Original Stockholders, becomes the 'beneficial owner' (as defined
in Rule 13d-3 under the Exchange Act) of more than 35% of the total voting power
of the then outstanding Voting Stock of JSC or a JSC Parent and (b) the Original
Stockholders beneficially own, directly or indirectly, less than the then
outstanding Voting Stock of JSC or a JSC Parent beneficially owned by such
'person' or 'group'; or (ii) (a) a 'person' or 'group' (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act), other than the Original
Stockholders, becomes the 'beneficial owner' (as defined in Rule 13d-3 under the
Exchange Act) of more than 35% of the total voting power of the then outstanding
Voting Stock of JSCE, (b) the Original Stockholders beneficially own, directly
or indirectly, less than the then outstanding Voting Stock of JSCE beneficially
owned by such 'person' or 'group' and (c) CCA is a Subsidiary of JSCE at the
time that the later of (a) and (b) above occurs.
'Closing Date' is defined to mean the date on which the Senior Notes are
originally issued under the Indentures.
'Common Stock' is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of the Indenture, including, without
limitation, all series and classes of such common stock.
'Consolidated EBITDA' is defined to mean, with respect to any Person for
any period, the sum of the amounts for such period of (i) Adjusted Consolidated
Net Income, (ii) Consolidated Interest Expense, (iii) income taxes (other than
income taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense,
(v) amortization expense and (vi) all other non-cash items reducing Adjusted
Consolidated Net Income, less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for such
Person and its Subsidiaries in conformity with GAAP; provided that, if a Person
has any Subsidiary that is not a Wholly Owned Subsidiary of such Person,
Consolidated EBITDA of such Person shall be reduced (to the extent not otherwise
reduced by GAAP) by an amount equal to (A) the Adjusted Consolidated Net Income
of such Subsidiary multiplied by (B) the quotient of (1) the number of shares of
outstanding Common Stock of such Subsidiary not owned on the last day of such
period by such Person or any Subsidiary of such Person divided by (2) the total
number of shares of outstanding Common Stock of such Subsidiary on the last day
of such period.
'Consolidated Interest Expense' is defined to mean, with respect to any
Person for any period, the aggregate amount of interest in respect of
Indebtedness (including amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation,
calculated in accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; the net costs associated with
Interest Rate Agreements; and Indebtedness that is Guaranteed by such Person)
and all but the principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by such
Person and its consolidated subsidiaries during such period; excluding, however,
(i) any amount of such interest of any Subsidiary of such Person if the net
income (or loss) of such Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income for such person pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income (or loss)
of such Subsidiary is excluded from the calculation of Adjusted Consolidated Net
Income for such Person pursuant to clause (iii) of the definition thereof) and
(ii) any premiums, fees and expenses (and any amortization thereof) payable in
connection with the 1989 Transaction, the 1992 Transaction, the 1993
Transaction, the issuance of the New Subordinated Notes and the applications of
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the proceeds thereof or the Recapitalization Plan, all as determined on a
consolidated basis in conformity with GAAP.
'Consolidated Net Worth' is defined to mean, at any date of determination,
shareholders' equity as set forth on the most recently available consolidated
balance sheet of JSCE and its Subsidiaries (which shall be as of a date not more
than 60 days prior to the date of such computation), less any amounts
attributable to Redeemable Stock or any equity security convertible into or
exchangeable for Indebtedness, the cost of treasury stock and the principal
amount of any promissory notes receivable from the sale of the Capital Stock of
JSCE or any Subsidiary of JSCE, each item to be determined in accordance with
GAAP (excluding the effects of foreign currency exchange adjustments under
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 52).
'Credit Agreement' is defined to mean the Credit Agreement, dated
approximately the Closing Date or the date of the Prospectus relating to the
sale of the Senior Notes, among JSCE, CCA, the guarantors party thereto and the
Banks party thereto, together with all other agreements, instruments and
documents executed or delivered pursuant thereto or in connection therewith
(including, without limitation, any promissory notes, Guarantees and security
documents), in each case, as such agreements, instruments and documents may be
amended (including, without limitation, any amendment and restatement thereof),
supplemented, extended, renewed, replaced or otherwise modified from time to
time, including, without limitation, any agreement increasing the amount of,
extending the maturity of, refinancing or otherwise restructuring (including,
but not limited to, by the inclusion of additional borrowers or guarantors
thereunder that are Subsidiaries of JSCE or by the requirement of additional
collateral or other credit enhancement to support the obligations thereunder)
all or any portion of the Indebtedness under such agreement or any successor
agreement or agreements; provided that, with respect to any agreement providing
for the refinancing of Indebtedness under any Credit Agreement, such agreement
shall be a Credit Agreement under the Indenture only if a notice to that effect
is delivered by JSCE to the Trustee and there shall be at any time no more than
two instruments that are Credit Agreements under the Indenture.
'Currency Agreement' is defined to mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect JSCE or any of its Subsidiaries against fluctuations in currency values
to or under which JSCE or any of its Subsidiaries is a party or a beneficiary on
the date of the Indenture or becomes a party or a beneficiary thereafter.
'Default' is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
'Existing Subordinated Debt Refinancing' is defined to mean the refinancing
of any or all of the Indebtedness represented by the Junior Accrued Debentures,
Senior Subordinated Notes and the Subordinated Debentures, including pursuant to
any Credit Agreement.
'Foreign Subsidiary' is defined to mean any Subsidiary of JSCE that (i)
derives more than 80% of its sales or net income from, or (ii) has more than 80%
of its assets located in, territories and jurisdictions outside the United
States of America (in each case determined on a consolidated basis in conformity
with GAAP).
'GAAP' is defined to mean generally accepted accounting principles in the
United States of America as in effect as of the date of the Indenture,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the Indenture shall be computed in
conformity with GAAP, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Indenture shall be made without giving effect to (i) the amortization of any
expenses incurred in connection with the 1989 Transaction, the 1992 Transaction,
the 1993 Transaction, the issuance of the New Subordinated Notes and the
application of the proceeds thereof or the Recapitalization Plan, (ii) except as
otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board
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Opinion Nos. 16 and 17 and (iii) any charges associated with the adoption of
Financial Accounting Standard Nos. 106 and 109.
'Guarantee' is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term 'Guarantee' shall not include endorsements for
collection or deposit in the ordinary course of business. The term 'Guarantee'
used as a verb has a corresponding meaning.
'Holder' or 'Noteholder' or 'Senior Notes Holder' is defined to mean the
registered holder of any Series A Senior Note or Series B Senior Note, as the
case may be.
'Incur' is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness; provided that neither the accrual of interest (whether such
interest is payable in cash or kind) nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness.
'Indebtedness' is defined to mean, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments (other than, in the case of JSCE
and its Subsidiaries, any non-negotiable notes of JSCE or its Subsidiaries
issued to its insurance carriers in lieu of maintenance of policy reserves in
connection with its workers' compensation and liability insurance programs),
(iii) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect thereto),
(iv) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, except Trade Payables, (v) all
obligations of such Person as lessee under Capitalized Leases, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; provided that the
amount of such Indebtedness shall be the lesser of (A) the fair market value of
such asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person
to the extent such Indebtedness is Guaranteed by such Person, (viii) all
obligations in respect of borrowed money under any Credit Agreement, the Secured
Notes and any Guarantees thereof and (ix) to the extent not otherwise included
in this definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability determined by such Person's board of directors,
in good faith, as reasonably likely to occur, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date, provided that the amount outstanding at any time of any Indebtedness
issued with original issue discount is the face amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP; and provided
further that Indebtedness shall not include (A) any liability for federal,
state, local or other taxes or (B) obligations of JSCE or its Restricted
Subsidiaries pursuant to Receivables Programs.
'Interest Coverage Ratio' is defined to mean, with respect to any Person on
any Transaction Date, the ratio of (i) the aggregate amount of Consolidated
EBITDA of such Person for the four fiscal quarters for which financial
information in respect thereof is available immediately prior to such
Transaction Date to (ii) the aggregate Consolidated Interest Expense of such
Person during such four fiscal quarters. In making the foregoing calculation,
(A) pro forma effect shall be given to (1) any
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Indebtedness Incurred subsequent to the end of the four-fiscal-quarter period
referred to in clause (i) and prior to the Transaction Date (other than
Indebtedness Incurred under a revolving credit or similar arrangement to the
extent of the commitment thereunder (or under any predecessor revolving credit
or similar arrangement) on the last day of such period), (2) any Indebtedness
Incurred during such period to the extent such Indebtedness is outstanding at
the Transaction Date and (3) any Indebtedness to be Incurred on the Transaction
Date, in each case as if such Indebtedness had been Incurred on the first day of
such four-fiscal-quarter period and after giving pro forma effect to the
application of the proceeds thereof as if such application had occurred on such
first day; (B) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma basis
and bearing a floating interest rate shall be computed as if the rate in effect
on the date of computation (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months) had been the applicable rate for the entire period;
(C) there shall be excluded from Consolidated Interest Expense any Consolidated
Interest Expense related to any amount of Indebtedness that was outstanding
during such four-fiscal-quarter period or thereafter but that is not outstanding
or is to be repaid on the Transaction Date, except for Consolidated Interest
Expense accrued (as adjusted pursuant to clause (B)) during such
four-fiscal-quarter period under a revolving credit or similar arrangement to
the extent of the commitment thereunder (or under any successor revolving credit
or similar arrangement) on the Transaction Date; (D) pro forma effect shall be
given to Asset Dispositions and Asset Acquisitions (including giving pro forma
effect to the application of proceeds of any Asset Disposition) that occur
during such four-fiscal-quarter period or thereafter and prior to the
Transaction Date as if they had occurred and such proceeds had been applied on
the first day of such four-fiscal-quarter period; (E) with respect to any such
four-fiscal-quarter period commencing prior to the Refinancing, the Refinancing
shall be deemed to have taken place on the first day of such period; and (F) pro
forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Subsidiary of
JSC or has been merged with or into JSCE or any Subsidiary of JSCE during the
four-fiscal-quarter period referred to above or subsequent to such period and
prior to the Transaction Date and that would have constituted Asset Dispositions
or Asset Acquisitions had such transactions occurred when such Person was a
Subsidiary of JSCE as if such asset dispositions or asset acquisitions were
Asset Dispositions or Asset Acquisitions that occurred on the first day of such
period; provided that to the extent that clause (D) or (F) of this sentence
requires that pro forma effect be given to an Asset Acquisition or an asset
acquisition, such pro forma calculation shall be based upon the four full fiscal
quarters immediately preceding the Transaction Date of the Person, or division
or line of business of the Person, that is acquired for which financial
information is available.
'Interest Rate Agreement' is defined to mean any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect JSCE or any of its Subsidiaries against
fluctuations in interest rates or obtain the benefits of floating interest rates
to or under which JSCE or any of its Subsidiaries is a party or a beneficiary on
the date of the Indenture or becomes a party or a beneficiary thereafter.
'Investment' is defined to mean any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of any Person or its Subsidiaries)
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by
any other Person. For purposes of the definition of 'Unrestricted Subsidiary'
and the 'Limitation on Restricted Payments' covenant described below, (i)
'Investment' shall include the fair market value of the net assets of any
Subsidiary of JSCE at the time that such Subsidiary of JSCE is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of JSCE and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined by the
Board of Directors in good faith.
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'JSC' is defined to mean Jefferson Smurfit Corporation, a Delaware
corporation.
'JSC Parent' is defined to mean any entity of which JSC is a direct or
indirect Subsidiary.
'Junior Accrual Debentures' is defined to mean CCA's 15 1/2% Junior
Subordinated Accrual Debentures due 2004.
'Lien' is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
'Net Cash Proceeds' is defined to mean, with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to JSCE or any Subsidiary of JSCE) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of JSCE and its Subsidiaries, taken as
a whole, (iii) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (A) is secured by a Lien
on the property or assets sold or (B) is required to be paid as a result of such
sale and (iv) appropriate amounts to be provided by JSCE or any Subsidiary of
JSCE as a reserve against any liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP.
'New Subordinated Notes' is defined to mean the 11 1/2% Junior Subordinated
Notes maturing 2005, in an aggregate amount not to exceed $200 million, of CCA
which SIBV had committed to purchase (which commitment terminates on the Closing
Date without any of such notes having been issued).
'1989 Transaction' is defined to mean the transaction in which (i) JSC
acquired the entire equity interest in Old JSC(U.S.), (ii) Old JSC(U.S.)
(through its ownership of JSC Enterprises) acquired the entire equity interest
in CCA, (iii) the MSLEF I Group received $500 million in respect of its shares
of CCA common stock, (iv) SIBV received $41.75 per share, or an aggregate of
approximately $1.25 billion, in respect of its shares of Old JSC(U.S.) stock and
(v) the public stockholders received $43 per share of Old JSC(U.S.) stock.
'1993 Transaction' is defined to mean the issuance and sale of an aggregate
principal amount of $500 million of 9 3/4% Senior Notes Due 2003, the repayment
of Indebtedness with the proceeds of such sale and the amendments (and consent
payments in respect thereof) to certain debt instruments, and the agreements
related thereto, that were effected in April 1993.
'1992 Stock Option Plan' is defined to mean the JSC 1992 Stock Option Plan,
as the same may be amended, supplemented or otherwise modified from time to
time.
'1992 Transaction' is defined to mean the purchase, in August 1992, by
certain stockholders of JSC of $232 million of Common Stock of JSC, the
contribution by JSC of such $232 million to CCA and the application by CCA of
such $232 million to repurchase Junior Accrual Debentures and repay other
subordinated Indebtedness of CCA.
'Original Stockholders' is defined to mean, collectively, MSLEF II, Morgan
Stanley Group, SIBV, JS Group and any Affiliate of any such Person.
'Permitted Liens' is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; (ii) statutory Liens of landlords
and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or
other similar Liens arising in the
73
ordinary course of business and with respect to amounts not yet delinquent or
being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made; (iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security; (iv) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory or regulatory obligations,
bankers' acceptances, surety and appeal bonds, government contracts, performance
and return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of JSCE or any of
its Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon
real or tangible personal property acquired after the Closing Date; provided
that (a) such Lien is created solely for the purpose of securing Indebtedness
Incurred (1) to finance the cost (including the cost of improvement or
construction) of the item of property or assets subject thereto and such Lien is
created prior to, at the time of or within six months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property or (2) to refinance any Indebtedness previously so
secured, (b) the principal amount of the Indebtedness secured by such Lien does
not exceed 100% of such cost and (c) any such Lien shall not extend to or cover
any property or assets other than such item of property or assets and any
improvements on such item; (vii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of JSCE or any of
its Subsidiaries; (viii) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of JSCE or any of its
Subsidiaries relating to such property or assets; (ix) any interest or title of
a lessor in the property subject to any Capitalized Lease or Operating Lease;
provided that any sale-leaseback transaction related thereto complies with the
'Limitation on Sale-Leaseback Transactions' covenant; (x) Liens arising from
filing Uniform Commercial Code financing statements regarding leases; (xi) Liens
on property of, or on shares of stock or Indebtedness of, any corporation
existing at the time such corporation becomes, or becomes a part of, any
Restricted Subsidiary; (xii) Liens in favor of JSCE or any Restricted
Subsidiary; (xiii) Liens arising from the rendering of a final judgment or order
against JSCE or any Subsidiary of JSCE that does not give rise to an Event of
Default; (xiv) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (xv) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are either
within the general parameters customary in the industry and incurred in the
ordinary course of business or otherwise permitted under the terms of either of
the Credit Agreements, in each case securing Indebtedness under Interest Rate
Agreements, Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed to
protect JSCE or any of its Subsidiaries from fluctuations in the price of
commodities; (xvii) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by JSCE
or any of its Subsidiaries in the ordinary course of business in accordance with
the past practices of JSCE and its Subsidiaries prior to the Closing Date;
(xviii) Liens on or sales of receivables; and (xix) Liens securing any real
property or other assets of JSCE or any Restricted Subsidiary in favor of the
United States of America or any State thereof, or any department, agency,
instrumentality or political subdivision thereof, in connection with the
financing of industrial revenue bond facilities or any equipment or other
property designed primarily for the purpose of air or water pollution control;
provided that any such Lien on such facilities, equipment or other property
shall not apply to any other assets of JSCE or any Restricted Subsidiary.
'Person' is defined to mean an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
'Preferred Stock' is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's
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preferred or preference stock, whether now outstanding or issued after the date
of the Indenture, including, without limitation, all series and classes of such
preferred or preference stock.
'Principal Property' is defined to mean any manufacturing or processing
plant, warehouse or other building used by JSCE or any Restricted Subsidiary,
other than a plant, warehouse or other building that, in the good faith opinion
of the Board of Directors of JSCE as reflected in a Board Resolution, is not of
material importance to the business conducted by JSCE and its Restricted
Subsidiaries taken as a whole as of the date such Board Resolution is adopted.
'Recapitalization Plan' is defined to mean, collectively, the following
transactions: (i) the sale of the Senior Notes, (ii) the sale by JSC of JSC
Common Stock substantially concurrently with the transaction described in clause
(i), (iii) the SIBV Investment, (iv) the execution and delivery of the Credit
Agreement, (v) the application of the proceeds of the transactions described in
clauses (i) through (iv), (vi) the Existing Subordinated Debt Refinancing, (vii)
the obtaining of all consents and waivers necessary or determined by CCA, Old
JSC(U.S.) or JSC to be appropriate in connection with the foregoing, (viii) all
other transactions related to, or entered into in connection with, the foregoing
unless CCA determines that any such transaction should not be considered part of
the Recapitalization Plan and (ix) the payment and accrual of all fees and
expenses related to the foregoing.
'Receivables Programs' is defined to mean, with respect to any Person,
obligations of such Person or its Subsidiaries pursuant to accounts receivable
securitization programs, to the extent that the proceeds received pursuant to a
pledge, sale or other encumbrance of accounts receivable pursuant to such
programs do not exceed 91% of the total book value of such accounts receivable
(determined on a consolidated basis in accordance with GAAP as of the end of the
most recent fiscal quarter for which financial information is available), and
any extension, renewal, modification or replacement of such programs, including,
without limitation, any agreement increasing the amount of, extending the
maturity of, refinancing or otherwise restructuring all or any portion of the
obligations under such programs or any successor agreement or agreements.
'Redeemable Stock' is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Senior Notes, (ii) redeemable at the option
of the holder of such class or series of Capital Stock at any time prior to the
Stated Maturity of the Senior Notes, or (iii) convertible into or exchangeable
for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having
a scheduled maturity prior to the Stated Maturity of the Senior Notes; provided
that any Capital Stock that would not constitute Redeemable Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an 'asset sale'
or 'change of control' occurring prior to the Stated Maturity of the Senior
Notes shall not constitute Redeemable Stock if the 'asset sale' or 'change of
control' provisions applicable to such Capital Stock are no more favorable
(except with respect to any premium payable) to the holders of such Capital
Stock than the provisions contained in 'Limitation on Asset Sales' and
'Repurchase of Senior Notes upon Change of Control' covenants described below
and such Capital Stock specifically provides that such Person will not
repurchase or redeem any such stock pursuant to such provisions prior to such
Person's repurchase of such Senior Notes, as are required to be repurchased
pursuant to the 'Limitation on Asset Sales' and 'Repurchase of Senior Notes upon
Change of Control' covenants described below.
'Restricted Subsidiary' is defined to mean any Subsidiary of JSCE other
than an Unrestricted Subsidiary.
'Senior Subordinated Notes' is defined to mean CCA's 13 1/2% Senior
Subordinated Notes due 1999.
'SIBV Investment' is defined to mean the purchase by SIBV (or a corporate
affiliate thereof) of shares of JSC Common Stock, substantially concurrently
with the sale by CCA of the Senior Notes.
'Significant Subsidiary' is defined to mean, at any date of determination,
any Subsidiary of JSCE that, together with its Subsidiaries, (i) for the most
recent fiscal year of JSCE, accounted for more than 10% of the consolidated
revenues of JSCE or (ii) as of the end of such fiscal year, was the owner of
more than 10% of the consolidated assets of JSCE, all as set forth on the most
recently available consolidated financial statements of JSCE for such fiscal
year.
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'Smurfit Newsprint' is defined to mean Smurfit Newsprint Corporation, a
Delaware corporation.
'Stated Maturity' is defined to mean, (i) with respect to any debt
security, the date specified in such debt security as the fixed date on which
the final installment of principal of such debt security is due and payable and
(ii) with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
'Subordinated Debentures' is defined to mean CCA's 14% Subordinated
Debentures due 2001.
'Subsidiary' is defined to mean, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by JSCE or by one or
more other Subsidiaries of JSCE, or by such Person and one or more other
Subsidiaries of such Person; provided that, except as the term 'Subsidiary' is
used in the definition of 'Unrestricted Subsidiary' set forth below, an
Unrestricted Subsidiary shall not be deemed to be a Subsidiary of JSCE for
purposes of the Indenture.
'Times Mirror Agreement' is defined to mean the Shareholders Agreement,
dated February 21, 1986 between Old JSC(U.S.) and The Times Mirror Company, as
the same may at any time be amended, modified or supplemented.
'Trade Payables' is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
'Transaction Date' is defined to mean, with respect to the Incurrence of
any Indebtedness by JSCE or any of its Subsidiaries, the date such Indebtedness
is to be Incurred and, with respect to any Restricted Payment, the date such
Restricted Payment is to be made.
'Unrestricted Subsidiary' is defined to mean (i) any Subsidiary of JSCE
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors of JSCE in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of JSCE may
designate any Subsidiary of JSCE (including any newly acquired or newly formed
Subsidiary of JSCE) other than CCA to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, JSCE or any other Subsidiary of JSCE that is not a Subsidiary of the
Subsidiary to be so designated; provided that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, that such designation would be permitted under the
'Limitation on Restricted Payments' covenant described below. The Board of
Directors of JSCE may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of JSCE; provided that immediately after giving effect to such
designation (x) JSCE could Incur $1.00 of additional Indebtedness under the
first paragraph of the 'Limitation on Indebtedness' covenant described below and
(y) no Default or Event of Default shall have occurred and be continuing. Any
such designation by the Board of Directors of JSCE shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing provisions. Any Subsidiary of JSCE
may be designated as an Unrestricted Subsidiary (or not so designated) for
purposes of the Indenture without regard to whether such Subsidiary is so
designated (or not so designated) for purposes of any other agreement relating
to Indebtedness of JSCE or any of its Subsidiaries.
'Voting Stock' is defined to mean Capital Stock of any class or kind
ordinarily having the power to vote for the election of directors.
'Wholly Owned Subsidiary' is defined to mean, with respect to any Person,
any Subsidiary of such Person if all of the Common Stock or other similar equity
ownership interests (but not including Preferred Stock) in such Subsidiary
(other than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned directly or indirectly by such Person.
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COVENANTS
LIMITATION ON INDEBTEDNESS
Under the terms of the Indentures, JSCE shall not, and shall not permit any
Restricted Subsidiary to, Incur any Indebtedness unless, after giving effect to
the Incurrence of such Indebtedness and the receipt and application of the
proceeds therefrom, the Interest Coverage Ratio of JSCE would be greater than
(1) prior to July 1, 1994............................................................ 1.50:1,
(2) after June 30, 1994 and prior to July 1, 1995.................................... 1.75:1,
(3) after June 30, 1995.............................................................. 2.00:1.
Notwithstanding the foregoing, JSCE and any Restricted Subsidiary (except
as expressly provided below) may Incur each and all of the following: (i)
Indebtedness (A) of JSCE and CCA outstanding at any time in an aggregate
principal amount not to exceed the amount of outstanding Indebtedness and unused
commitments under the Credit Agreement on the Closing Date less any Indebtedness
Incurred pursuant to clause (iii) below to refinance or refund the Junior
Accrual Debentures, the Senior Subordinated Notes or the Subordinated
Debentures, (B) of JSCE and CCA outstanding at any time in an aggregate
principal amount not to exceed $275 million, (C) of JSC Enterprises, CCA
Enterprises and Smurfit Newsprint under any Credit Agreement outstanding at any
time in an aggregate principal amount not to exceed the amount of outstanding
Indebtedness and unused commitments under the Credit Agreement on the Closing
Date less, for purposes of determining cash borrowings under any Credit
Agreement by JSC Enterprises, CCA Enterprises and Smurfit Newsprint, (1) any
Indebtedness Incurred pursuant to clause (iii) below to refinance or refund the
Junior Accrual Debentures, the Senior Subordinated Notes or the Subordinated
Debentures and (2) the amount of Indebtedness Incurred under clause (i)(A) of
this paragraph, (D) of Restricted Subsidiaries of JSCE (other than CCA) in an
aggregate principal amount not to exceed $50 million at any one time
outstanding, and (E) consisting of Guarantees by Restricted Subsidiaries of JSCE
(other than CCA) of Indebtedness of JSCE and its Restricted Subsidiaries under
any Credit Agreement or any other Indebtedness of such Persons for borrowed
money; provided that any such Restricted Subsidiary that Guarantees such
Indebtedness under any Credit Agreement or any such other Indebtedness for
borrowed money shall fully and unconditionally Guarantee the Senior Notes on a
senior basis (to the same extent and for only so long as such Indebtedness under
any Credit Agreement or such other Indebtedness for borrowed money is Guaranteed
by such Restricted Subsidiary); provided further that (x) any such Guarantees of
Indebtedness subordinated to the Senior Notes will be subordinated to such
Subsidiary's Guarantee of the Senior Notes, if any, in a like manner and (y) for
purposes of this covenant, a Guarantee by a Restricted Subsidiary shall not be
deemed to exist, and Indebtedness shall not be deemed to have been Incurred by a
Restricted Subsidiary, solely by reason of one or more security interests in
assets of such Restricted Subsidiary having been granted pursuant to any Credit
Agreement; (ii) Indebtedness (A) of JSCE to any of its Restricted Subsidiaries
that is a Wholly Owned Subsidiary of JSCE, or of a Restricted Subsidiary to JSCE
or to any other Restricted Subsidiary that is a Wholly Owned Subsidiary of JSCE,
(B) of JSCE or any Restricted Subsidiary to Smurfit Newsprint or (C) of JSCE or
any Restricted Subsidiary to any Foreign Subsidiary in an aggregate principal
amount not to exceed $20 million at any one time outstanding; (iii) Indebtedness
issued in exchange for, or the net proceeds of which are used to refinance or
refund, outstanding Indebtedness of JSCE or any of its Restricted Subsidiaries,
other than Indebtedness Incurred under clauses (i)(A), (B) or (D), (ii)(C), (vi)
or (ix) of this paragraph and any refinancings thereof, in an amount (or, if
such new Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration thereof, with
an original issue price) not to exceed the amount so exchanged, refinanced or
refunded (plus premiums, accrued interest, fees and expenses); provided that
Indebtedness issued in exchange for, or the proceeds of which are used to
refinance or refund, the Senior Notes or JSCE's Guarantee thereof or other
Indebtedness of CCA or JSCE that is pari passu with, or subordinated in right of
payment to, the Senior Notes or JSCE's Guarantee thereof, as the case may be
(other than the Junior Accrual Debentures, Senior Subordinated Notes and the
Subordinated Debentures), shall only be permitted under this clause (iii) if (A)
in case the Indebtedness to be refinanced is subordinated in right of payment to
the Senior Notes or JSCE's Guarantee thereof, such new Indebtedness, by its
terms or by
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the terms of any agreement or instrument pursuant to which such new Indebtedness
is issued or remains outstanding, is expressly made subordinate in right of
payment to the Senior Notes or JSCE's Guarantee thereof, as the case may be, at
least to the extent that the Indebtedness to be refinanced is subordinated to
the Senior Notes or JSCE's Guarantee thereof, as the case may be, (B) in case
the Senior Notes are refinanced in part or the Indebtedness to be refinanced is
pari passu with, or subordinated in right of payment to, the Senior Notes or
JSCE's Guarantee thereof, such new Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, does not mature prior to six months after
the Stated Maturity of the Indebtedness to be refinanced (or, if earlier, six
months after the Stated Maturity of the Senior Notes) and the Average Life of
such new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced plus six months (or, if less, the remaining
Average Life of the Senior Notes plus six months), and (C) if the Indebtedness
to be refinanced is Indebtedness of JSCE or CCA, such new Indebtedness Incurred
pursuant to this clause (iii) may not be Indebtedness of any Restricted
Subsidiary of JSCE other than CCA; (iv) Indebtedness (A) in respect of
performance, surety or appeal bonds provided in the ordinary course of business,
(B) under Currency Agreements and Interest Rate Agreements; provided that, in
the case of Currency Agreements that relate to other Indebtedness, such Currency
Agreements do not increase the Indebtedness of JSCE or its Restricted
Subsidiaries outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of JSC or any Restricted Subsidiary of JSCE pursuant to such
agreements, in any case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary of JSCE, other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary of JSCE for the purpose of financing
such acquisition; (v) Indebtedness in respect of letters of credit and bankers'
acceptances Incurred in the ordinary course of business consistent with past
practice; (vi) Indebtedness of JSCE or CCA in an aggregate amount not to exceed
$100 million at any one time outstanding; provided that such Indebtedness, by
its terms or by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued or remains outstanding, (A) is expressly made subordinate
in right of payment to the Senior Notes or JSCE's Guarantee thereof, as the case
may be, (B) provides that no required payments of principal of such Indebtedness
by way of sinking fund, mandatory redemption or otherwise shall be made by JSCE
or CCA (including, without limitation, at the option of the holder thereof other
than an option given to a holder pursuant to an 'asset sale' or 'change of
control' provision that is no more favorable (except with respect to any premium
payable) to the holders of such Indebtedness than the provisions contained in
the 'Limitation on Asset Sales' and 'Repurchase of Senior Notes upon Change of
Control' covenants and such Indebtedness specifically provides that JSCE and CCA
will not repurchase or redeem such Indebtedness pursuant to such provisions
prior to CCA's repurchase of the Senior Notes required to be repurchased by CCA
under the 'Limitation on Asset Sales' and 'Repurchase of Senior Notes upon
Change of Control' covenants) at any time prior to the Stated Maturity of the
Senior Notes and (C) after giving effect to the Incurrence of such Indebtedness
and the application of the proceeds therefrom, JSCE's Interest Coverage Ratio
would be at least 1.25:1; (vii) Indebtedness of CCA or JSCE Incurred on or
before December 1, 1994, the proceeds of which are used to pay cash interest on
the Junior Accrual Debentures; (viii) Acquired Indebtedness, provided that, at
the time of the Incurrence thereof, JSCE could Incur at least $1.00 of
Indebtedness under the first paragraph of this 'Limitation on Indebtedness'
covenant, and refinancings thereof; provided that such refinancing Indebtedness
may not be Incurred by any Person other than JSCE, CCA or the Restricted
Subsidiary that is the obligor on such Acquired Indebtedness; (ix) Indebtedness
of JSCE or CCA Incurred to finance, directly or indirectly, capital expenditures
of JSCE and its Restricted Subsidiaries in an aggregate principal amount not to
exceed $75 million in each fiscal year of JSCE, and any refinancing of such
Indebtedness (including pursuant to any Capitalized Lease); provided that the
amount of Indebtedness which may be Incurred in any fiscal year of JSCE pursuant
to this clause (ix) shall be increased by the amount of Indebtedness (other than
refinancing Indebtedness) which could have been Incurred in the prior fiscal
year (including by reason of this proviso) of JSCE pursuant to this clause (ix)
but which was not so Incurred; and (x) Indebtedness represented by the
obligations of JSCE or CCA to repurchase shares, or cancel or repurchase options
to purchase shares, of JSC's, a JSC Parent's, JSCE's
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or CCA's Common Stock held by employees of JSC, JSCE or any of its Restricted
Subsidiaries as set forth in the agreements under which such employees purchase
or hold shares of JSC's, a JSC Parent's, JSCE's or CCA's Common Stock, as such
agreements may be amended; provided that such Indebtedness is subordinated to
the Senior Notes and JSCE's Guarantee thereof, as the case may be, and that no
payment of principal of such Indebtedness may be made while any Senior Notes are
outstanding.
Notwithstanding any other provision of this 'Limitation on Indebtedness'
covenant, (i) the maximum amount of Indebtedness that JSCE or any Restricted
Subsidiary may Incur pursuant to this 'Limitation on Indebtedness' covenant
shall not be deemed to be exceeded due solely to fluctuations in the exchange
rates of currencies, (ii) Indebtedness Incurred pursuant to the Credit Agreement
on the Closing Date (and after repaying the Indebtedness to be repaid pursuant
to the Recapitalization Plan (other than the Existing Subordinated Debt
Refinancing) and without giving effect to any exercise of any overallotment
option granted in connection with sales of JSC Common Stock pursuant to clause
(ii) of the definition of 'Recapitalization Plan' and the application of any
proceeds thereof), shall be treated as Incurred immediately after the Closing
Date pursuant to clause (i)(A) or (i)(C), as the case may be, of the second
paragraph of this 'Limitation on Indebtedness' covenant, (iii) for purposes of
calculating the amount of Indebtedness outstanding at any time under clause (i)
of the second paragraph of this 'Limitation on Indebtedness' covenant, no amount
of Indebtedness of JSCE or any Restricted Subsidiary outstanding on the Closing
Date, including the Senior Notes, shall be considered to be outstanding and (iv)
neither JSCE nor CCA may Incur any Indebtedness that is expressly subordinated
to any other Indebtedness of JSCE or CCA, as the case may be, unless such
Indebtedness, by its terms or the terms of any agreement or instrument pursuant
to which such Indebtedness is issued, is also expressly made subordinate to the
Senior Notes or JSCE's Guarantee of the Senior Notes, as the case may be, at
least to the extent that such Indebtedness is subordinated to such other
Indebtedness; provided that the limitation in clause (iv) above shall not apply
to distinctions between categories of unsubordinated Indebtedness which exist by
reason of (a) any liens or other encumbrances arising or created in respect of
some but not all unsubordinated Indebtedness, (b) intercreditor agreements
between holders of different classes of unsubordinated Indebtedness or (c)
different maturities or prepayment provisions.
For purposes of determining any particular amount of Indebtedness under
this 'Limitation on Indebtedness' covenant, (1) Indebtedness resulting from
security interests granted with respect to Indebtedness of JSCE or any
Restricted Subsidiary otherwise included in the determination of such particular
amount, and Guarantees (and security interests in respect thereof) of, or
obligations with respect to letters of credit supporting, Indebtedness otherwise
included in the determination of such particular amount shall not be included,
(2) any Liens granted pursuant to the equal and ratable provisions referred to
in the first paragraph or clause (i) of the second paragraph of the 'Limitation
on Liens' covenant shall not be treated as Indebtedness and (3) Indebtedness
permitted under this 'Limitation of Indebtedness' covenant need not be permitted
solely by reference to one provision permitting such Indebtedness but may be
permitted in part by reference to one such provision and in part by reference to
one or more other provisions of this covenant permitting such Indebtedness. For
purposes of determining compliance with this 'Limitation on Indebtedness'
covenant, (x) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described in the above clauses, JSCE,
in its sole discretion, shall classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of such
clauses and (y) the amount of Indebtedness issued at a price that is less than
the principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in conformity with GAAP. (Section 3.03)
LIMITATION ON RESTRICTED PAYMENTS
So long as any of the Senior Notes are outstanding, JSCE will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or
pay any dividend or make any distribution on its Capital Stock (other than
dividends or distributions payable solely in shares of its or such Restricted
Subsidiary's Capital Stock (other than Redeemable Stock) of the same class held
by such holders or in options, warrants or other rights to acquire such shares
of Capital Stock) held by Persons
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other than JSCE or any Restricted Subsidiary that is a Wholly Owned Subsidiary
of JSCE, (ii) purchase, redeem, retire or otherwise acquire for value any shares
of Capital Stock of JSC, a JSC Parent, JSCE or CCA (including options, warrants
or other rights to acquire such shares of Capital Stock) held by Persons other
than JSCE or any Restricted Subsidiary that is a Wholly Owned Subsidiary of
JSCE, (iii) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other voluntary acquisition or
retirement for value, of (1) Indebtedness of JSC or a JSC Parent, (2)
Indebtedness of CCA that is subordinated in right of payment to the Senior Notes
(other than the Senior Subordinated Notes, the Subordinated Debentures and the
Junior Accrual Debentures) or (3) Indebtedness of JSCE that is subordinated in
right of payment to JSCE's Guarantee of the Senior Notes (other than the
Guarantees of JSCE with respect to the Senior Subordinated Notes, the
Subordinated Debentures and the Junior Accrual Debentures), or (iv) make any
Investment in any Unrestricted Subsidiary (such payments or any other actions
described in clauses (i) through (iv) being collectively 'Restricted Payments')
if, at the time of, and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing, (B)
JSCE could not Incur at least $1.00 of Indebtedness under the first paragraph of
the 'Limitation on Indebtedness' covenant or (C) the aggregate amount expended
for all Restricted Payments (the amount so expended, if other than in cash, to
be determined in good faith by the Board of Directors of JSCE, whose
determination shall be conclusive and evidenced by a Board Resolution) after the
date of the Indenture shall exceed the sum of (1) 50% of the aggregate amount of
the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net
Income is a loss, minus 100% of such amount) of JSCE (determined by excluding
income resulting from the transfers of assets received by JSCE or a Restricted
Subsidiary from an Unrestricted Subsidiary) accrued on a cumulative basis during
the period (taken as one accounting period) beginning on the first day of the
month immediately following the Closing Date and ending on the last day of the
last fiscal quarter preceding the Transaction Date plus (2) the aggregate net
proceeds (including the fair market value of noncash proceeds as determined in
good faith by the Board of Directors of JSCE) received by JSCE or CCA from the
issuance and sale permitted by the Indenture of the Capital Stock of JSCE or CCA
(other than Redeemable Stock) to a Person who is not a Restricted Subsidiary of
JSCE or an Unrestricted Subsidiary of JSCE, including an issuance or sale
permitted by the Indenture for cash or other property upon the conversion of any
Indebtedness of JSCE or CCA subsequent to the Closing Date, or from the issuance
of any options, warrants or other rights to acquire Capital Stock of JSCE or CCA
(in each case, exclusive of any Redeemable Stock or any options, warrants or
other rights that are redeemable at the option of the holder, or are required to
be redeemed, prior to the Stated Maturity of the Senior Notes) plus all amounts
contributed to the capital of JSCE by JSC plus (3) an amount equal to the net
reduction in Investments in Unrestricted Subsidiaries (other than such
Investments made pursuant to clause (v) of the second paragraph of this
'Limitation on Restricted Payments' covenant) resulting from payments of
interest on Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to JSCE or any Restricted Subsidiary from
Unrestricted Subsidiaries, or from redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
'Investments'), not to exceed in the case of any Unrestricted Subsidiary the
amount of Investments previously made by JSCE or any Restricted Subsidiary in
such Unrestricted Subsidiary plus (4) $25 million.
The foregoing provision shall not take into account, and shall not be
violated by reason of: (i) the payment of any dividend within 60 days after the
date of declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance
or other acquisition or retirement for value of (A) Indebtedness of JSC or a JSC
Parent, (B) Indebtedness of CCA that is subordinated in right of payment to the
Senior Notes or (C) Indebtedness of JSCE that is subordinated in right of
payment to JSCE's Guarantee of the Senior Notes, including premium, if any, and
accrued and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iii) or (vi) of the second paragraph of the
'Limitation on Indebtedness' covenant; (iii) the payment of dividends on the
Capital Stock of JSCE or CCA, following any initial public offering of Capital
Stock of JSC provided for in the Recapitalization Plan, of up to 6% per annum of
the net proceeds received by JSCE or CCA, as the case may be, from JSC out of
the proceeds of (a) such public offering and (b) the SIBV Investment (net of
underwriting discounts and commissions, if any, but without deducting other fees
or expenses therefrom); (iv) the repurchase,
80
redemption or other acquisition of Capital Stock of JSC, a JSC Parent, JSCE or
CCA in exchange for, or out of the proceeds of a substantially concurrent
offering of, shares of Capital Stock (other than Redeemable Stock) of JSC, a JSC
Parent, JSCE or CCA; (v) the making of Investments in Unrestricted Subsidiaries
in an aggregate amount not to exceed $25 million in each fiscal year of JSCE;
(vi) the acquisition of (A) Indebtedness of JSC or a JSC Parent, (B)
Indebtedness of CCA which is subordinated in right of payment to the Senior
Notes or (C) Indebtedness of JSCE that is subordinated in right of payment to
JSCE's Guarantee of the Senior Notes in exchange for, or out of the proceeds of,
a substantially concurrent offering of, shares of the Capital Stock of JSC, a
JSC Parent, JSCE or CCA (other than Redeemable Stock); (vii) payments or
distributions pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Indenture applicable
to mergers, consolidations and transfers of all or substantially all of the
property and assets of JSCE or CCA; (viii) payments to JSC (A) in an aggregate
amount not to exceed $2 million per annum to cover the reasonable expenses of
JSC incurred in the ordinary course of business and (B) in an amount not to
exceed the amount believed in good faith by the Board of Directors of JSCE or
CCA, as the case may be, to be necessary or advisable for the payment of any
liability of JSC, JSCE and CCA in connection with federal, state, local or
foreign taxes; (ix) payments to JSC or any Restricted Subsidiary of JSCE in
respect of Indebtedness of JSCE or any Restricted Subsidiary of JSCE owed to
JSCE or another Restricted Subsidiary of JSCE; (x) distributions and payments
required to be made pursuant to the Times Mirror Agreement or distributions or
payments to JSC, to enable JSC to satisfy its payment obligations under the
Times Mirror Agreement; (xi) payments to Persons who are no longer Employees (as
defined in the 1992 Stock Option Plan) or the beneficiaries or estates of such
Persons, as a result of the purchase by JSC of options issued pursuant to the
1992 Stock Option Plan (or Common Stock issued upon the exercise of such
options) held by such Persons in accordance with the 1992 Stock Option Plan;
provided that such payments do not exceed $4 million in any fiscal year; or
payments or distributions to JSC to enable JSC to make any such payments; or
(xii) the payment of pro rata dividends to holders of Capital Stock of Smurfit
Newsprint; provided that, in the case of clauses (ii) through (vii), (xi) and
(xii), no Default or Event of Default shall have occurred and be continuing or
occur as a consequence of the actions or payments set forth therein. In
connection with any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of any security which is not Capital Stock
but which is convertible into or exchangeable for Capital Stock (including
options, warrants or other rights to purchase Capital Stock), such purchase,
repurchase, redemption, defeasance or other acquisition or retirement shall be
deemed covered by clause (iii) and not by clause (ii) of the first paragraph of
this 'Limitation on Restricted Payments' covenant if the Board of Directors of
JSCE makes a good faith determination that the value of the underlying Capital
Stock, less any consideration payable by the holder of such security in
connection with such conversion or exchange, is less than the value of the
referenced security. Notwithstanding the foregoing, any amounts paid pursuant to
clause (iii) of this second paragraph of this 'Limitation on Restricted
Payments' covenant shall reduce the amount available for Restricted Payments
under clause (C) of the first paragraph of this 'Limitation on Restricted
Payments' covenant.
Notwithstanding the foregoing, in the event of an issuance of Capital Stock
of CCA or JSCE (or JSC or a JSC Parent to the extent that the proceeds therefrom
are contributed to CCA) and (1) the repurchase, redemption or other acquisition
of Capital Stock out of the proceeds of such issuance as permitted by clause
(iv) above, or (2) the acquisition of Indebtedness that is subordinated in right
of payment to the Senior Notes, as permitted by clause (vi) above, then, in
calculating whether the conditions of clause (C) of the first paragraph of this
'Limitation on Restricted Payments' covenant have been met with respect to any
subsequent Restricted Payments, both the proceeds of such issuance and the
application of such proceeds shall be included under clause (C) of the first
paragraph of this 'Limitation on Restricted Payments' covenant. (Section 3.04)
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
So long as any of the Senior Notes are outstanding, JSCE will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary (other than CCA) to (i) pay
dividends or make any other distributions permitted by applicable law on any
Capital Stock of
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such Restricted Subsidiary owned by JSCE or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to JSCE or any other Restricted Subsidiary, (iii)
make loans or advances to JSCE or any other Restricted Subsidiary or (iv)
transfer, subject to certain exceptions, any of its property or assets to JSCE
or any other Restricted Subsidiary.
The foregoing provision shall not restrict or prohibit any encumbrances or
restrictions: (i) existing in any Credit Agreement, (ii) existing under the 1993
Notes, the Senior Subordinated Notes, the Subordinated Debentures, the Junior
Accrual Debentures, any indenture or agreement related to any of the foregoing
or any agreements in effect on the Closing Date or in any Indebtedness
containing any such encumbrance or restriction that is permitted pursuant to
clause (v) below or in any extensions, refinancings, renewals or replacements of
any of the foregoing; provided that the encumbrances and restrictions in any
such extensions, refinancings, renewals or replacements are not materially less
favorable taken as whole to the Holders than those encumbrances or restrictions
that are then in effect and that are being extended, refinanced, renewed or
replaced; (iii) existing under any Receivables Program or any other agreement
providing for the Incurrence of Indebtedness (or any exhibit, appendix or
schedule to such agreement or other agreement executed as a condition to the
execution of, funding under or pursuant to such agreement); provided that the
encumbrances and restrictions in any such agreement are not materially less
favorable taken as a whole to the Holders than those encumbrances and
restrictions contained in any Credit Agreement as of the Closing Date; (iv)
existing under or by reason of applicable law; (v) existing with respect to any
Person or the property or assets of such Person acquired by JSCE or any
Restricted Subsidiary and existing at the time of such acquisition, which
encumbrances or restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or assets of such
Person so acquired; (vi) in the case of clause (iv) of the first paragraph of
this 'Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries' covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of JSCE or any Restricted Subsidiary not otherwise
prohibited by the Indenture or (C) arising or agreed to in the ordinary course
of business and that do not, individually or in the aggregate, detract from the
value of property or assets of JSCE or any Restricted Subsidiary in any manner
material to JSCE and its Restricted Subsidiaries taken as a whole; or (vii) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary. Nothing
contained in this 'Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries' covenant shall prevent JSCE or any Restricted
Subsidiary from (1) entering into any agreement permitting or providing for the
incurrence of Liens otherwise permitted in the 'Limitation on Liens' covenant or
(2) restricting the sale or other disposition of property or assets of JSCE or
any of its Subsidiaries that secure Indebtedness of JSCE or any of its
Subsidiaries. (Section 3.05)
LIMITATION ON THE ISSUANCE OF CAPITAL STOCK OF JSCE AND RESTRICTED SUBSIDIARIES
Under the terms of the Indenture, JSCE will not and will not permit any
Restricted Subsidiary (other than CCA), directly or indirectly, to issue or sell
any shares of its Capital Stock (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to JSCE or another Restricted
Subsidiary that is a Wholly Owned Subsidiary of JSCE, (ii) if, immediately after
giving effect to such issuance or sale, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary for purposes of the Indenture, (iii)
if the Net Cash Proceeds from such issuance or sale are applied, to the extent
required to be applied, pursuant to the 'Limitation on Asset Sales' covenant or
if such issuance or sale does not constitute an 'Asset Sale,' (iv) issuances or
sales to foreign nationals of shares of the Capital Stock of Foreign
Subsidiaries, to the extent mandated by applicable foreign law, or (v) issuances
or sales of Capital Stock by JSCE to JSC. (Section 3.06)
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
Under the terms of the Indenture, JSCE will not, and will not permit any
Restricted Subsidiary of JSCE to, directly or indirectly, enter into, renew or
extend any transaction (including, without
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limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any holder (or any Affiliate of such holder) of
5% or more of any class of Capital Stock of JSC or with any Affiliate of JSCE,
except upon fair and reasonable terms no less favorable to JSCE or such
Restricted Subsidiary of JSCE than could be obtained, at the time of such
transaction or at the time of the execution of the agreement providing therefor,
in a comparable arm's-length transaction with a Person that is not such a holder
or an Affiliate.
The foregoing limitation does not limit, and shall not apply to: (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which JSCE or a Restricted Subsidiary delivers to
the Trustee a written opinion of a nationally recognized investment banking firm
or a nationally recognized accounting firm stating that the transaction is fair
or, in the case of an opinion of a nationally recognized accounting firm,
reasonable or fair to JSCE or such Restricted Subsidiary from a financial point
of view; (ii) any transaction among JSCE and any Restricted Subsidiaries or
among Restricted Subsidiaries; (iii) the payment of reasonable and customary
regular fees to directors of JSCE or any Restricted Subsidiary who are not
employees of JSCE or any Restricted Subsidiary; (iv) any payments or other
transactions pursuant to any tax-sharing agreement between JSCE, CCA and JSC or
any other Person with which JSCE is required or permitted to file a consolidated
tax return or with which JSCE is or could be part of a consolidated group for
tax purposes; (v) any Restricted Payments not prohibited by the 'Limitation on
Restricted Payments' covenant; (vi) the provisions of management, financial and
operational services by JSCE and its Subsidiaries to Affiliates of JSCE in which
JSCE or its Subsidiaries have Investments and the payment of compensation for
such services; provided, that the Board of Directors of JSCE has determined that
the provision of such services is in the best interests of JSCE and its
Subsidiaries; (vii) any transaction required by the Times Mirror Agreement; or
(viii) any transaction contemplated by the terms of the Recapitalization Plan.
(Section 3.07)
LIMITATION ON LIENS
Under the terms of the Indenture, JSCE will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on
any Principal Property, or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, without making effective provision for all of the Senior
Notes and all other amounts due under the Indenture to be directly secured
equally and ratably with (or prior to) the obligation or liability secured by
such Lien for so long as such Lien affects such Principal Property, shares of
Capital Stock or Indebtedness unless, after giving effect thereto, the aggregate
amount of any Indebtedness so secured, plus, the Attributable Indebtedness for
all sale-leaseback transactions restricted as described in the 'Limitation on
Sale-Leaseback Transactions' covenant, does not exceed 10% of Adjusted
Consolidated Net Tangible Assets.
The foregoing limitation does not apply to, and any computation of secured
Indebtedness under such limitation shall exclude: (i) Liens securing obligations
under (A) any Credit Agreement and (B) any Receivables Programs; (ii) other
Liens existing on the Closing Date; (iii) Liens securing Indebtedness of
Restricted Subsidiaries (other than Acquired Indebtedness and refinancings
thereof); (iv) Liens securing Indebtedness Incurred under clause (iv) or (v) of
the second paragraph of the 'Limitation on Indebtedness' covenant; (v) Liens
granted in connection with the extension, renewal or refinancing, in whole or in
part, of any Indebtedness described in clauses (i) through (iv) above; provided
that with respect to clauses (ii) and (iii) the amount of Indebtedness secured
by such Lien is not increased thereby; and provided further that the extension,
renewal or refinancing of Indebtedness of JSCE may not be secured by Liens on
assets of any Restricted Subsidiary (other than CCA) other than to the extent
the Indebtedness being extended, renewed or refinanced was at any time
previously secured by Liens on assets of such Restricted Subsidiary; (vi) Liens
with respect to Acquired Indebtedness permitted under clause (viii) of the
second paragraph of the 'Limitation on Indebtedness' covenant and permitted
refinancings thereof; provided that such Liens do not extend to or cover any
property or assets of JSCE or any Subsidiary of JSCE other than the property or
assets of the Subsidiary acquired; (vii) Liens securing the Senior Subordinated
Notes, the Subordinated Debentures, the Junior Accrual Debentures or the 1993
Notes, in each case to the extent required to be incurred pursuant to the terms
of the indentures governing such Indebtedness; or (viii) Permitted Liens.
(Section 3.08)
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LIMITATION ON SALE-LEASEBACK TRANSACTIONS
Under the terms of the Indenture, JSCE will not, and will not permit any
Restricted Subsidiary to, enter into any sale-leaseback transaction involving
any Principal Property, unless the aggregate amount of all Attributable
Indebtedness with respect to such transactions, plus all Indebtedness secured by
Liens on Principal Properties (excluding secured Indebtedness that is excluded
as described in the 'Limitation on Liens' covenant), does not exceed 10% of
Adjusted Consolidated Net Tangible Assets.
The foregoing restriction does not apply to, and any computation of
Attributable Indebtedness under such limitation shall exclude, any
sale-leaseback transaction if: (i) the lease is for a period, including renewal
rights, of not in excess of three years; (ii) the sale or transfer of the
Principal Property is entered into prior to, at the time of, or within 12 months
after the later of the acquisition of the Principal Property or the completion
of construction thereof; (iii) the lease secures or relates to industrial
revenue or pollution control bonds; (iv) the transaction is between JSCE and any
Restricted Subsidiary or between Restricted Subsidiaries; or (v) JSCE or such
Restricted Subsidiary, within 12 months after the sale of any Principal Property
is completed, applies an amount not less than the net proceeds received from
such sale to the retirement of unsubordinated Indebtedness, to Indebtedness of a
Restricted Subsidiary (other than CCA) or to the purchase of other property that
will constitute Principal Property or improvements thereto. (Section 3.09)
LIMITATION ON ASSET SALES
Under the terms of the Indenture, in the event and to the extent that the
Net Cash Proceeds received by JSC, JSCE or any of its Restricted Subsidiaries
from one or more Asset Sales occurring on or after the Closing Date in any
period of 12 consecutive months (other than Asset Sales by JSC, JSCE or any
Restricted Subsidiary to JSCE or another Restricted Subsidiary) exceed 10% of
Adjusted Consolidated Net Tangible Assets in any one fiscal year (determined as
of the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of JSCE has been prepared), then JSCE shall or shall
cause the relevant Restricted Subsidiary to (i) within 12 months (or, in the
case of Asset Sales of plants or facilities, 24 months) after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets in
any one fiscal year (determined as of the date closest to the commencement of
such 12-month period for which a balance sheet of JSCE and its Subsidiaries has
been prepared) (A) apply an amount equal to such excess Net Cash Proceeds to
repay unsubordinated Indebtedness of CCA or JSCE, make a dividend or
distribution to JSCE for application by JSCE to repay unsubordinated
Indebtedness of JSCE, or repay Indebtedness of any Restricted Subsidiary of
JSCE, in each case owing to a Person other than JSCE or any of its Restricted
Subsidiaries or (B) invest an equal amount, or the amount not so applied
pursuant to clause (A) (or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement), in property or assets
of a nature or type or which will be used in a business (or in a company having
property and assets of a nature or type, or engaged in a business) similar or
related to the nature or type of the property and assets of, or the business of,
JSCE and its Restricted Subsidiaries existing on the date of such Investment (as
determined in good faith by the Board of Directors of JSCE, whose determination
shall be conclusive and evidenced by a Board Resolution) and (ii) apply (no
later than the end of such 12-month period or 24-month period, as the case may
be, referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraphs of this
'Limitation on Asset Sales' covenant. The amount of such excess Net Cash
Proceeds required to be applied (or to be committed to be applied) during such
12-month period or 24-month period, as the case may be, as set forth in clause
(A) or (B) of the preceding sentence and neither applied nor committed to be
applied as set forth above by the end of such period shall constitute 'Excess
Proceeds.'
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $10 million, CCA must, not later than the fifteenth
Business Day of such month, make an offer (an 'Excess Proceeds Offer') to
purchase from the Holders of both the Series A Senior Notes and the Series B
Senior Notes on a pro rata basis an aggregate principal amount of Series A
Senior Notes and Series B Senior Notes equal to the Excess Proceeds on such
date, at a purchase price equal to 101% of the principal amount of
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such Series A Senior Notes and Series B Senior Notes, plus, in each case,
accrued interest (if any) to the date of purchase (the 'Excess Proceeds
Payment').
Notwithstanding the foregoing, (i) to the extent that any or all of the Net
Cash Proceeds of any Asset Sale are prohibited or delayed by applicable local
law from being repatriated to the United States of America, the portion of such
Net Cash Proceeds so affected will not be required to be applied pursuant to
this 'Limitation on Asset Sales' covenant but may be retained for so long, but
only for so long, as the applicable local law will not permit repatriation to
the United States of America (under the Indenture JSCE will agree to promptly
take or cause the relevant Restricted Subsidiary to promptly take all reasonable
actions required by the applicable local law and within JSCE's control to permit
such repatriation) and once such repatriation of any such affected Net Cash
Proceeds is permitted under the applicable local law, such repatriation will be
immediately effected and such repatriated Net Cash Proceeds will be applied in
the manner set forth in this 'Limitation on Asset Sales' covenant as if such
Asset Sale had occurred on the date of repatriation; and (ii) to the extent that
the Board of Directors of JSCE has determined in good faith that repatriation of
any or all of the Net Cash Proceeds would have an adverse tax or other
consequence to JSCE, the Net Cash Proceeds so affected may be retained outside
the United States of America for so long as such adverse tax or other
consequence would continue.
CCA shall commence an Excess Proceeds Offer by mailing a notice to the
Trustee and each Holder stating: (i) that the Excess Proceeds Offer is being
made pursuant to this 'Limitation on Asset Sales' covenant and that all Series A
Senior Notes and Series B Senior Notes validly tendered will be accepted for
payment on a pro rata basis; (ii) the purchase price and the date of purchase
(which shall be a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed) (the 'Excess Proceeds Payment Date'); (iii)
that any Senior Note not tendered will continue to accrue interest; (iv) that,
unless CCA defaults in the payment of the Excess Proceeds Payment, any Senior
Note accepted for payment pursuant to the Excess Proceeds Offer shall cease to
accrue interest after the Excess Proceeds Payment Date; (v) that Holders
electing to have a Senior Note purchased pursuant to the Excess Proceeds Offer
will be required to surrender the Senior Note together with the form entitled
'Option of the Holder to Elect Purchase' on the reverse side of the Senior Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Excess
Proceeds Payment Date; (vi) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Excess Proceeds Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Senior Notes delivered for purchase and a
statement that such Holder is withdrawing his election to have such Senior Notes
purchased; and (vii) that Holders whose Senior Notes are being purchased only in
part will be issued new Senior Notes equal in principal amount to the
unpurchased portion of the Senior Notes surrendered; provided that each Senior
Note purchased and each new Senior Note issued shall be in an original principal
amount of $1,000 or integral multiples thereof.
On the Excess Proceeds Payment Date, CCA shall (i) accept for payment on a
pro rata basis Series A Senior Notes and Series B Senior Notes or portions
thereof tendered pursuant to the Excess Proceeds Offer; (ii) deposit with the
Paying Agent money sufficient to pay the purchase price of all Senior Notes or
portions thereof so accepted; and (iii) deliver, or cause to be delivered, to
the relevant Trustee all Senior Notes or portions thereof so accepted together
with an Officers' Certificate specifying the Senior Notes or portions thereof
accepted for payment by CCA. The Paying Agent shall promptly mail to the Holders
of Senior Notes so accepted payment in an amount equal to the purchase price,
and the Trustee shall promptly authenticate and mail to such Holders a new
Senior Note equal in principal amount to any unpurchased portion of the Senior
Notes surrendered; provided that each Senior Notes purchased and each new Senior
Notes issued shall be in an original principal amount of $1,000 or integral
multiples thereof. CCA will publicly announce the results of the Excess Proceeds
Offer as soon as practicable after the Excess Proceeds Payment Date. For
purposes of this 'Limitation on Asset Sales' covenant, the Trustee shall act as
the Paying Agent.
CCA will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such
85
Excess Proceeds are received by CCA under this 'Limitation on Asset Sales'
covenant and CCA is required to repurchase Senior Notes as described above and
CCA may modify any of the foregoing provisions of this 'Limitation on Asset
Sales' covenant to the extent it is advised by independent counsel that such
modification is necessary or appropriate in order to ensure such compliance.
(Section 3.10)
REPURCHASE OF SENIOR NOTES UPON CHANGE OF CONTROL
(a) In the event of a Change of Control, each Holder shall have the right
to require the repurchase of its Senior Notes by CCA in cash pursuant to the
offer described below (the 'Change of Control Offer') at a purchase price equal
to 101% of the principal amount thereof, plus accrued interest (if any) to the
date of purchase (the 'Change of Control Payment'). Prior to the mailing of the
notice to Holders provided for in the succeeding paragraph, but in any event
within 30 days following any Change of Control, CCA covenants to (i) (A) repay
in full all unsubordinated Indebtedness of CCA or make a dividend or
distribution to JSCE for application by JSCE to repay in full all unsubordinated
Indebtedness of JSCE or (B) offer to repay in full all such unsubordinated
Indebtedness of either JSCE or CCA and to repay such unsubordinated Indebtedness
of each holder of such unsubordinated Indebtedness who has accepted such offer
or (ii) obtain the requisite consents, if any, under the instruments governing
any such unsubordinated Indebtedness of JSCE or CCA to permit the repurchase of
the Senior Notes as provided for in the succeeding paragraph. CCA shall first
comply with the covenant in the preceding sentence before it shall be required
to repurchase Senior Notes pursuant to this 'Repurchase of Senior Notes upon
Change of Control' covenant.
(b) Within 30 days of the Change of Control, CCA shall mail a notice to the
Trustee and each Holder stating: (i) that a Change of Control has occurred, that
the Change of Control Offer is being made pursuant to this 'Repurchase of Senior
Notes upon Change of Control' covenant and that all Senior Notes validly
tendered will be accepted for payment; (ii) the purchase price and the date of
purchase (which shall be a Business Day no earlier than 30 days nor later than
60 days from the date such notice is mailed) (the 'Change of Control Payment
Date'); (iii) that any Senior Notes not tendered will continue to accrue
interest; (iv) that, unless CCA defaults in the payment of the Change of Control
Payment, any Senior Notes accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest after the Change of Control Payment Date;
(v) that Holders electing to have any Senior Notes or portion thereof purchased
pursuant to the Change of Control Offer will be required to surrender such
Senior Notes, together with the form entitled 'Option of the Holder to Elect
Purchase' on the reverse side of such Senior Notes completed, to the Paying
Agent at the address specified in the notice prior to the close of business on
the Business Day immediately preceding the Change of Control Payment Date; (vi)
that Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of such Holder, the
principal amount of Senior Notes delivered for purchase and a statement that
such Holder is withdrawing his election to have such Senior Notes purchased; and
(vii) that Holders whose Senior Notes are being purchased only in part will be
issued new Senior Notes equal in principal amount to the unpurchased portion of
the Senior Notes surrendered; provided that each Senior Note purchased and each
new Senior Note issued shall be in an original principal amount of $1,000 or
integral multiples thereof.
(c) On the Change of Control Payment Date, CCA shall: (i) accept for
payment Senior Notes or portions thereof tendered pursuant to the Change of
Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Senior Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee, all Senior Notes or portions
thereof so accepted together with an Officers' Certificate specifying the Senior
Notes or portions thereof accepted for payment by CCA. The Paying Agent shall
promptly mail, to the Holders of Senior Notes so accepted, payment in an amount
equal to the purchase price, and the Trustee shall promptly authenticate and
mail to such Holders a new Senior Notes equal in principal amount to any
unpurchased portion of the Senior Notes surrendered; provided that each Senior
Notes purchased and each new Senior Note issued shall be in an original
principal amount of $1,000 or integral multiples thereof. CCA will publicly
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announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date. For purposes of this 'Repurchase of
Senior Notes upon Change of Control' covenant, the Trustee shall act as Paying
Agent.
(d) CCA will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs under
this 'Repurchase of Senior Notes upon Change of Control' covenant and CCA is
required to repurchase Senior Notes as described above and CCA may modify any of
the foregoing provisions of this 'Repurchase of Senior Notes upon Change of
Control' covenant to the extent it is advised by independent counsel that such
modification is necessary or appropriate in order to ensure such compliance.
(Section 3.18)
If CCA is unable to repay all of its unsubordinated Indebtedness and is
also unable to obtain the consents of its unsubordinated creditors (and/or of
the holders of other Indebtedness, if any, of CCA or JSCE outstanding at the
time of a Change of Control whose consent would be so required) to permit the
repurchase of Senior Notes either pursuant to clause (i)(B) or clause (ii) of
the first paragraph of the foregoing covenant, then CCA will have breached such
covenant. This breach will constitute an Event of Default under the Indenture if
it continues for a period of 30 consecutive days after written notice is given
to CCA by the Trustee or the holders of at least 25% in aggregate principal
amount of the Senior Notes outstanding. In addition, the failure by CCA to
repurchase Senior Notes at the conclusion of the Change of Control Offer will
constitute an Event of Default without any waiting period or notice
requirements. JSCE has guaranteed all payments due on the Senior Notes,
including those due by reason of the acceleration thereof following the
occurrence of an Event of Default. This obligation of JSCE is not subject to any
waiting period or notice requirement once such an acceleration has occurred; as
discussed above, however, in certain circumstances there are notice and waiting
period requirements that must be satisfied before CCA's breach of the above
covenant constitutes an Event of Default.
There can be no assurances that CCA (or JSCE) will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of the Senior Notes) required by the foregoing covenant
and similar provisions contained in the Senior Subordinated Notes, the
Subordinated Debentures, the Junior Accrual Debentures, any Credit Agreement (as
well as in any other indebtedness which might be outstanding at the time).
Although there is some variation in the definition of 'Change of Control' among
such different classes of debt, there is substantial overlap. In any event, the
above covenant requiring CCA to repurchase the Senior Notes will, unless the
consents referred to above are obtained, require CCA and JSCE to offer to repay
or repay all indebtedness outstanding under any Credit Agreement, and any other
indebtedness then outstanding which by its terms prohibits such repurchases of
the Senior Notes, either prior to or concurrently with such repurchases.
EVENTS OF DEFAULT
The following events will be defined as 'Events of Default' in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Senior Notes when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise; (b) default in the payment of interest on
any Senior Notes when the same becomes due and payable, and such default
continues for a period of 30 days; (c) JSCE or CCA defaults in the performance
of or breaches any other covenant or agreement of JSCE or CCA in the Indenture
or under the Senior Notes and such default or breach continues for a period of
30 consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount of the Series A Senior Notes and the Series B
Senior Notes then outstanding taken together as one class or, in the case of any
such default or breach under only one Indenture, 25% or more in aggregate
principal amount of the Series A Senior Notes or the Series B Senior Notes, as
the case may be, then outstanding; (d) there occurs with respect to any issue or
issues of Indebtedness of JSCE, CCA and/or one or more of their Significant
Subsidiaries having an outstanding principal amount of $50 million or more
individually or $100 million or more in the aggregate for all such issues of all
such Persons, whether such Indebtedness now exists or shall hereafter be
created, an event of default that has caused the holder thereof to declare such
Indebtedness to be
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due and payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration; (e) any final judgment or order (not
covered by insurance) for the payment of money in excess of $50 million
individually or $100 million in the aggregate for all such final judgments or
orders against all such Persons (treating any deductibles, self-insurance or
retention as not so covered) shall be rendered against JSCE, CCA or any of their
Significant Subsidiaries and shall not be paid or discharged, and there shall be
any period of 30 consecutive days following entry of the final judgment or order
in excess of $50 million individually or that causes the aggregate amount for
all such final judgments or orders outstanding and not paid or discharged
against all such Persons to exceed $100 million during which a stay of
enforcement of such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; (f) a court having jurisdiction in the
premises enters a decree or order for (i) relief in respect of JSCE, CCA or any
of their Significant Subsidiaries in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (ii)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of JSCE, CCA or any of their Significant
Subsidiaries or for all or substantially all of the property and assets of JSCE,
CCA or any of their Significant Subsidiaries or (iii) the winding up or
liquidation of the affairs of JSCE, CCA or any of their Significant Subsidiaries
and, in each case, such decree or order shall remain unstayed and in effect for
a period of 60 consecutive days; (g) JSCE, CCA or any of their Significant
Subsidiaries (i) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents to the
entry of an order for relief in an involuntary case under any such law, (ii)
consents to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of JSCE, CCA or
any of their Significant Subsidiaries or for all or substantially all of the
property and assets of JSCE, CCA or any of their Significant Subsidiaries or
(iii) effects any general assignment for the benefit of creditors; (h) JSCE, CCA
and/or one or more of their Significant Subsidiaries fails to make (i) at the
final (but not any interim) fixed maturity of any issue of Indebtedness a
principal payment of $50 million or more or (ii) at the final (but not any
interim) fixed maturity of more than one issue of such Indebtedness principal
payments aggregating $100 million or more and, in the case of clause (i), such
defaulted payment shall not have been made, waived or extended within 30 days of
the payment default and, in the case of clause (ii), all such defaulted payments
shall not have been made, waived or extended within 30 days of the payment
default that causes the amount described in clause (ii) to exceed $100 million;
or (i) the non-payment of any two or more items of Indebtedness of JSCE, CCA
and/or one or more of their Significant Subsidiaries that would constitute at
the time of such nonpayments, but for the individual amounts of such
Indebtedness, an Event of Default under clause (d) or clause (h) above, or both,
and which items of Indebtedness aggregate $100 million or more. (Section 5.01)
If an Event of Default (other than an Event of Default specified in clause
(f) or (g) above that occurs with respect to JSCE or CCA) occurs and is
continuing under both the Series A Senior Note Indenture and the Series B Senior
Note Indenture, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Series A Senior Notes and Series B Senior Notes then
outstanding taken together as one class or, in the case of any such Event of
Default which occurs and is continuing under only one Indenture, 25% in
aggregate principal amount of the Series A Senior Notes or the Series B Senior
Notes, as the case may be, then outstanding, by written notice to CCA (and to
the Trustee if such notice is given by the Holders (the 'Acceleration Notice')),
may, and the Trustee at the request of the Holders shall, declare the entire
unpaid principal of, premium, if any, and accrued interest on the Senior Notes
to be immediately due and payable. Upon a declaration of acceleration, such
principal of, premium, if any, and accrued interest shall be immediately due and
payable. In the event of a declaration of acceleration because an Event of
Default set forth in clause (d), (h) or (i) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default pursuant
to clause (d), (h) or (i) shall be remedied, cured by JSCE or CCA or waived by
the holders of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in clause
(f) or (g) above occurs with respect to JSCE or CCA, all unpaid principal of,
premium, if any, and accrued interest on the Senior Notes then outstanding shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder. The
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Holders of at least a majority in principal amount of the outstanding Series A
Senior Notes and Series B Senior Notes taken together as one class (or, in the
case of any default under the respective Indenture relating to the Series A
Senior Notes or the Series B Senior Notes, then a majority in principal amount
of the outstanding Series A Senior Notes or Series B Senior Notes, as the case
may be), by written notice to JSCE, CCA and to the Trustee, may waive all past
defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment of
the principal of, premium, if any, and interest on the Senior Notes that have
become due solely by such declaration of acceleration, have been cured or waived
and (ii) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction. (Section 5.02) For information as to the waiver
of defaults, see ' -- Modification and Waiver.'
As a result of the foregoing voting provisions relating to Events of
Default under the Indenture, Holders of Series B Senior Notes even if acting
unanimously may not be able to (i) declare a default under the Series B Senior
Note Indenture following a default in the performance of or any breach of
covenants or agreements of JSCE or CCA as set forth in clause (c) above, or (ii)
request acceleration of the principal of, premium, if any, and accrued interest
on, the Series B Senior Notes if an Event of Default occurs.
The Holders of at least a majority in aggregate principal amount of the
outstanding Senior Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Senior Notes not joining in the
giving of such direction. (Section 5.05) A Holder may not pursue any remedy with
respect to the Indenture or the Senior Notes unless: (i) the Holder gives the
Trustee written notice of a continuing Event of Default; (ii) the Holders of at
least 25% in aggregate principal amount of outstanding Senior Notes make a
written request to the Trustee to pursue the remedy; (iii) such Holder or
Holders offer the Trustee indemnity satisfactory to the Trustee against any
costs, liability or expense; (iv) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of indemnity; and (v)
during such 60-day period, the Holders of a majority in aggregate principal
amount of the outstanding Senior Notes do not give the Trustee a direction that
is inconsistent with the request. (Section 5.06) However, such limitations do
not apply to the right of any Holder of a Senior Note to receive payment of the
principal of, premium, if any, or interest on, such Senior Note or to bring suit
for the enforcement of any such payment, on or after the due date expressed in
the Senior Notes which right shall not be impaired or affected without the
consent of the Holder. (Section 5.07) For purposes of the foregoing paragraph,
actions that may be taken by Holders of at least a majority or 25% in aggregate
principal amount of the outstanding Senior Notes may only be taken by Holders of
at least a majority or 25% (as the case may be) in aggregate principal amount of
the Series A Senior Notes and the Series B Senior Notes taken together as one
class or, in the case of any remedy which relates solely to one Indenture or one
class of Senior Notes, by Holders of at least a majority or 25% (as the case may
be) in aggregate principal amount of the Series A Senior Notes or the Series B
Senior Notes, as the case may be. (Sections 5.04, 5.05 and 5.06)
The Indenture will require certain officers of JSCE and CCA to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of JSCE and CCA and their
Subsidiaries and JSCE's and CCA's and their Subsidiaries' performance under the
Indenture and that JSCE and CCA have fulfilled all obligations thereunder, or,
if there has been a default in the fulfillment of any such obligation,
specifying each such default and the nature and status thereof. JSCE and CCA
will also be obligated to notify the Trustee of any default or defaults in the
performance of any covenants or agreements under the Indenture. (Section 3.15)
CONSOLIDATION, MERGER AND SALE OF ASSETS
Neither JSCE nor CCA shall consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person (other than a
Restricted Subsidiary that is a Wholly Owned Subsidiary of JSCE with a positive
net worth; provided that, in
89
connection with any merger of JSCE or CCA with a Restricted Subsidiary that is a
Wholly Owned Subsidiary of JSCE, no consideration (other than common stock in
the surviving Person, JSCE or CCA) shall be issued or distributed to the
stockholders of JSCE) unless: (i) JSCE or CCA shall be the continuing Person, or
the Person (if other than JSCE or CCA) formed by such consolidation or into
which JSCE or CCA is merged or that acquired or leased such property and assets
of JSCE or CCA shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of JSCE or CCA, as the case may be, on all of
the Senior Notes and under the Indenture; (ii) immediately after giving effect
to such transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Interest Coverage Ratio of the continuing Person continuing as,
or becoming the successor, obligor on the Senior Notes or the Guarantee is at
least 1:1, or, if less, equal to the Interest Coverage Ratio of JSCE or CCA, as
the case may be, immediately prior to such transaction; provided that, if the
Interest Coverage Ratio of JSCE or CCA, as the case may be, before giving effect
to such transaction is within the range set forth in column (A) below, then the
pro forma Interest Coverage Ratio of the continuing Person becoming the
successor obligor of the Senior Notes shall be at least equal to the lesser of
(1) the ratio determined by multiplying the percentage set forth in column (B)
below by the Interest Coverage Ratio of JSCE or CCA, as the case may be, prior
to such transaction and (2) the ratio set forth in column (C) below:
(A) (B) (C)
- -------------------------------------------------------------------------------- --- ------
1.11:1 to 1.99:1................................................................ 90 % 1.5:1
2.00:1 to 2.99:1................................................................ 80 % 2.1:1
3.00:1 to 3.99:1................................................................ 70 % 2.4:1
4.00:1 or more.................................................................. 60 % 2.5:1
and provided further that, if the pro forma Interest Coverage Ratio of JSCE, CCA
or any Person becoming the successor obligor of the Senior Notes, as the case
may be, is 3:1 or more, the calculation in the preceding proviso shall be
inapplicable and such transaction shall be deemed to have complied with the
requirements of this clause (iii); (iv) immediately after giving effect to such
transaction on a pro forma basis, JSCE, CCA or any Person becoming the successor
obligor of the Senior Notes shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of JSCE or CCA, as the case may be,
immediately prior to such transaction; and (v) JSCE or CCA, as the case may be,
delivers to the Trustee an Officers' Certificate (attaching the arithmetic
computations to demonstrate compliance with clauses (iii) and (iv)) and Opinion
of Counsel, in each case stating that such consolidation, merger or transfer and
such supplemental indenture comply with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with (in no event, however, shall such Opinion of Counsel cover financial
ratios, the solvency of any Person or any other financial or statistical data or
information); provided, however, that clauses (iii) and (iv) above do not apply
if, in the good faith determination of the Board of Directors of JSCE or CCA, as
the case may be, whose determination shall be evidenced by a Board Resolution,
the principal purpose of such transaction is to change the state of
incorporation of JSCE or CCA, as the case may be; and provided further that any
such transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
JSCE shall be released from all of its obligations under its Guarantee of
the Senior Notes and the Indenture if the purchaser of Capital Stock of CCA
having a majority of the voting rights thereunder, or the parent of CCA (other
than JSCE) following a consolidation or merger of CCA, satisfies the
requirements of clauses (iii) and (iv) of the preceding sentence with respect to
JSCE.
Notwithstanding the foregoing, nothing in clause (ii), (iii), (iv) or (v)
above shall prevent the occurrence of (i) a merger or consolidation of JSCE and
CCA, or either of their respective successors, (ii) the sale of all or
substantially all of the assets of CCA to JSCE, (iii) the sale of all or
substantially all of the assets of JSCE to CCA or (iv) the assumption by JSCE of
the Indebtedness represented by the Senior Notes. (Section 4.01)
90
In the event (i) JSCE merges into CCA and (ii) in connection therewith a
direct or indirect Wholly Owned Subsidiary of JSC ('Interco'), of which CCA is
at such time a direct or indirect Wholly Owned Subsidiary, (x) guarantees the
obligations of CCA on the Senior Notes on the same terms and to the same extent
as JSCE had guaranteed such obligations prior to the aforesaid merger, and (y)
assumes all obligations of JSCE set forth in the Indenture (without giving
effect to the effect of the aforesaid merger on such obligations) (collectively,
the 'Substitution Transaction') then, notwithstanding anything to the contrary
in the Indenture, upon delivery of an Officers' Certificate to the effect that
the foregoing has occurred and the execution and delivery by CCA and Interco of
a supplemental indenture evidencing such merger and guarantee and assumption,
and without regard to the requirements set forth in clauses (i) through (v) of
the first paragraph under 'Consolidation, Merger and Sale of Assets', (a) all
references in the Indenture to 'CCA' shall continue to refer to CCA, as the
survivor in such merger, (b) all references to 'JSCE' and to 'JSCE's guarantee'
shall refer to Interco and to Interco's guarantee contemplated by clause (ii)
above, respectively; and (c) no breach or default under the Indenture shall be
deemed to have occurred solely by reason of the Substitution Transaction.
(Section 4.03)
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that JSCE and CCA will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Senior Notes on the 123rd day after the deposit referred to
below, and the provisions of the Indenture will no longer be in effect with
respect to the Senior Notes or JSCE's Guarantee of the Senior Notes (except for,
among other matters, certain obligations to register the transfer or exchange of
the Senior Notes, to replace stolen, lost or mutilated Senior Notes to maintain
paying agencies and to hold monies for payment in trust) if, among other things,
(A) CCA has deposited with the Trustee, in trust, money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
outstanding Senior Notes on the Stated Maturity of such payments in accordance
with the terms of the Indenture and the Senior Notes (B) JSCE or CCA has
delivered to the Trustee (i) either an Opinion of Counsel to the effect that
Holders will not recognize income, gain or loss for federal income tax purposes
as a result of CCA's exercise of its option under this 'Defeasance' provision
and will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which Opinion of Counsel must be
accompanied by a ruling of the Internal Revenue Service to the same effect
unless there has been a change in applicable federal income tax law after the
date of the Indenture such that a ruling is no longer required or a ruling
directed to the Trustee received from the Internal Revenue Service to the same
effect as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel
to the effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following the
deposit, the trust fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law, (C) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or lapse of time
or both would become an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which JSCE or CCA is a party or by which JSCE or CCA is bound, and (D) if at
such time the Senior Notes are listed on a national securities exchange, CCA has
delivered to the Trustee an Opinion of Counsel to the effect that the Senior
Notes will not be delisted as a result of such deposit, defeasance and
discharge. (Section 7.02)
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under 'Consolidation,
Merger and Sale of Assets' and all the covenants described herein under
'Covenants,' clause (c) under 'Events of Default with respect to such covenants
and clauses (iii) and (iv) under 'Consolidation, Merger and Sale of Assets,' and
clauses (d), (e), (h) and (i) under 'Events of Default' shall be deemed not to
be Events of Default, upon, among other things, the deposit with the Trustee, in
91
trust, of money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the outstanding Senior Notes on the Stated Maturity of
such payments in accordance with the terms of the Indenture and the Senior
Notes, the satisfaction of the provisions described in clauses (B)(ii), (C), and
(D) of the preceding paragraph and the delivery by CCA to the Trustee of an
Opinion of Counsel to the effect that, among other things, the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain covenants and Events of Default and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred. (Section 7.03)
Defeasance and Certain Other Events of Default. In the event CCA exercises
its option to omit compliance with certain covenants and provisions of the
Indenture with respect to the Senior Notes as described in the immediately
preceding paragraph and the Senior Notes are declared due and payable because of
the occurrence of an Event of Default that remains applicable, the amount of
money and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Senior Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Senior Notes at the
time of the acceleration resulting from such Event of Default. However, CCA will
remain liable for such payments and JSCE's Guarantee with respect to such
payments will remain in effect.
The Credit Agreement contains a covenant prohibiting defeasance of the
Senior Notes. See 'Description of Certain Indebtedness -- Terms of New Credit
Agreement'.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by JSCE, CCA and
the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Series A Senior Notes and Series B
Senior Notes taken together as one class or, in the case of any such
modification or amendment which affects only one class of Senior Notes, a
majority in aggregate principal amount of the outstanding Series A Senior Notes
or Series B Senior Notes, as the case may be, provided, however, that no such
modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Senior Note, (ii) reduce the principal amount of, or
premium, if any, or interest on, any Senior Note, (iii) change the place or
currency of payment of principal of, or premium, if any, or interest on, any
Senior Note, (iv) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption, on or
after the Redemption Date) of any Senior Note, (v) reduce the above-stated
percentage of outstanding Senior Notes, the consent of whose Holders is
necessary to modify or amend the Indenture, (vi) waive a default in the payment
of principal of, premium, if any, or interest on the Senior Notes, (vii) reduce
the percentage of aggregate principal amount of outstanding Senior Notes, the
consent of whose Holders is necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults, or (viii) release
JSCE from its Guarantee of the Senior Notes. The provisions requiring the
consent or approval of specified percentages of Holders of either class of
Senior Notes or both classes of Senior Notes jointly cannot be modified or
amended without the consent of a majority in aggregate principal amount of the
Holders of such class of Senior Notes or such two classes of Senior Notes
jointly, as the case may be. (Section 8.02)
To the extent that modifications and amendments of the Indenture may be
made with the consent of a majority in aggregate principal amount of the
outstanding Series A Senior Notes and Series B Senior Notes taken together as
one class, modifications and amendments of the Series B Senior Note Indenture
could be made without the consent of any Holder of Series B Senior Notes.
The Credit Agreement contains a covenant prohibiting JSCE or CCA from
consenting to any modification of the Indenture or waiver of any provision
thereof without the consent of a specified percentage of the lenders under the
Credit Agreement. See 'Description of Certain Indebtedness -- Terms of 1994
Credit Agreement'.
92
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Senior Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of JSCE or CCA in the Indenture, or in any of
the Senior Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, shareholder, officer, director,
employee or controlling person of JSCE or CCA or of any successor Person
thereof. Each Holder, by accepting the Senior Notes, waives and releases all
such liability. (Section 9.09)
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in such Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. (Section 6.01)
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of CCA or JSCE, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain federal income tax consequences
relevant to purchasers of the Senior Notes under currently applicable law. The
discussion does not cover all aspects of federal taxation that may be relevant
to particular purchasers, and does not address state, local, foreign or other
tax laws. Certain holders (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, taxpayers subject to the
alternative minimum tax and foreign persons) may be subject to special rules not
discussed below. PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX ADVISORS
AS TO THE PRECISE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX
CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF THE SENIOR NOTES.
Market Discount. The federal income tax treatment of the Senior Notes may
be affected by the market discount provisions of the Code. These rules generally
provide that a holder who purchases Senior Notes subsequent to their original
issuance for an amount which is less than their stated redemption price at
maturity (which in the case of the Senior Notes is their face amount) will be
considered to have purchased the Senior Notes at a 'market discount' equal to
the amount of such difference. Such a holder will generally be required to treat
any gain realized upon the disposition (including a disposition by gift) of such
Senior Notes as ordinary income to the extent of the market discount that is
treated as having accrued during the period such holder held such Senior Notes,
unless the holder elects to include such market discount in income on a current
basis. A holder of Senior Notes who has acquired the Senior Notes at a market
discount and who does not elect to include market discount in income on a
current basis may also be required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry the
Senior Notes until such holder disposes of such Senior Notes in a taxable
transaction.
Amortizable Bond Premium. If a holder purchases Senior Notes for an amount
that is greater than their stated redemption price at maturity, such holder will
be considered to have purchased such Senior Notes with 'amortizable bond
premium' equal in amount to such excess. Such a holder may elect (in accordance
with applicable Code provisions) to amortize such premium, using a constant
yield method over the remaining term of the Senior Notes, generally resulting in
an offset of amounts otherwise required to be included in income in respect of
such Senior Notes during any taxable year by the amortized amount of such excess
for such taxable year.
93
MARKET-MAKING ACTIVITIES OF MS&CO.
This Prospectus is to be used by MS&Co. in connection with offers and sales
of the Senior Notes in market-making transactions at negotiated prices related
to prevailing market prices at the time of sale. MS&Co. may act as principal or
agent in such transactions. MS&Co. has no obligation to make a market for the
Senior Notes and may discontinue or suspend its market-making activities at any
time without notice.
MS&Co. acted as underwriter in connection with the original offering of the
Senior Notes and received an underwriting discount of $10 million in connection
therewith.
As of March 31, 1996, affiliates of MS&Co. owned approximately 28.7% of the
outstanding shares of JSC Common Stock. See 'Security Ownership of Certain
Beneficial Owners'. Donald P. Brennan, Alan E. Goldberg, David R. Ramsay and G.
Thompson Hutton, directors of JSC, JSC(U.S.) and JSCE, are designees of MSLEF
II. For a description of certain transactions between JSC, JSC(U.S.), JSCE,
MSLEF II, MS&Co. and affiliates of MS&Co., see 'Certain Transactions'.
LEGAL MATTERS
The validity of the Senior Notes and the guarantees thereof have been
passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom, New York,
New York. Certain legal matters have been passed upon for the Underwriter by
Shearman & Sterling, New York, New York. Skadden, Arps, Slate, Meagher & Flom
also represented MSLEF II and JSC in connection with the 1989 Transaction,
certain transactions among JSC, CCA and certain of their security holders which
occurred in August 1992, the Recapitalization Plan and regularly represents
MS&Co. and MSLEF II on a variety of legal matters. Shearman & Sterling regularly
represents MSLEF II on a variety of legal matters.
EXPERTS
The consolidated financial statements of JSCE at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
appearing in this Prospectus and the Registration Statement of which this
Prospectus forms a part, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of JSCE appearing in JSCE's Annual
Report (Form 10-K) for the year ended December 31, 1995, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
94
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements of JSCE, Inc.:
Report of Independent Auditors................................................................. F-2
Consolidated Balance Sheets at December 31, 1995 and 1994...................................... F-3
For the Years Ended December 31, 1995, 1994 and 1993:
Consolidated Statements of Operations....................................................... F-4
Consolidated Statements of Stockholder's Deficit............................................ F-5
Consolidated Statements of Cash Flows....................................................... F-6
Notes to Consolidated Financial Statements..................................................... F-7
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors
JSCE, INC.
We have audited the accompanying consolidated balance sheets of JSCE, Inc.
as of December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholder's deficit and cash flows for each of the three years in
the period ended December 31, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 16(b) of the Registration
Statement. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of JSCE, Inc. at
December 31, 1995 and 1994, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1995
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 5 and Note 6 to the financial statements, in 1993, the
Company changed its method of accounting for income taxes and postretirement
benefits.
ERNST & YOUNG LLP
St. Louis, Missouri
January 24, 1996
F-2
JSCE, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
DECEMBER 31,
------------------
1995 1994
------- -------
ASSETS
Current assets
Cash and cash equivalents............................................................... $ 27 $ 62
Receivables, less allowances of $9 in 1995 and 1994..................................... 339 316
Inventories
Work-in-process and finished goods................................................. 85 87
Materials and supplies............................................................. 139 137
------- -------
224 224
Deferred income taxes................................................................... 45 38
Prepaid expenses and other current assets............................................... 9 7
------- -------
Total current assets.......................................................... 644 647
Net property, plant and equipment............................................................ 1,456 1,427
Timberland, less timber depletion............................................................ 258 259
Goodwill, less accumulated amortization of $42 in 1995 and $35 in 1994....................... 253 257
Other assets................................................................................. 172 169
------- -------
$ 2,783 $ 2,759
------- -------
------- -------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current maturities of long-term debt.................................................... $ 81 $ 50
Accounts payable........................................................................ 290 349
Accrued compensation and payroll taxes.................................................. 101 114
Interest payable........................................................................ 37 48
Other accrued liabilities............................................................... 88 75
------- -------
Total current liabilities..................................................... 597 636
Long-term debt, less current maturities...................................................... 2,111 2,392
Other long-term liabilities.................................................................. 234 253
Deferred income taxes........................................................................ 328 208
Stockholder's deficit
Common stock, par value $.01 per share;
1,000 shares authorized and outstanding
Additional paid-in capital.............................................................. 1,102 1,102
Retained earnings (deficit)............................................................. (1,589) (1,832)
------- -------
Total stockholder's deficit................................................... (487) (730)
------- -------
$ 2,783 $ 2,759
------- -------
------- -------
See notes to consolidated financial statements.
F-3
JSCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS)
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------ ------ ------
Net sales............................................................................ $4,093 $3,233 $2,947
Costs and expenses
Cost of goods sold.............................................................. 3,222 2,719 2,567
Selling and administrative expenses............................................. 241 223 239
Restructuring charge............................................................ 96
Environmental and other charges................................................. 54
------ ------ ------
Income (loss) from operations.............................................. 630 291 (9)
Other income (expense)
Interest expense................................................................ (234) (269) (254)
Other, net...................................................................... 7 6 5
------ ------ ------
Income (loss) before income taxes, extraordinary item and cumulative effect
of accounting changes.................................................... 403 28 (258)
Provision for (benefit from) income taxes............................................ 156 16 (83)
------ ------ ------
Income (loss) before extraordinary item and cumulative
effect of accounting changes............................................. 247 12 (175)
Extraordinary item
Loss from early extinguishment of debt, net of income
tax benefit of $2 in 1995, $34 in 1994 and $22 in 1993........................ (4) (55) (38)
Cumulative effect of accounting changes
Postretirement benefits, net of income tax benefit of $22....................... (37)
Income taxes.................................................................... 21
------ ------ ------
Net income (loss).......................................................... $ 243 $ (43) $ (229)
------ ------ ------
------ ------ ------
See notes to consolidated financial statements.
F-4
JSCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
(IN MILLIONS, EXCEPT SHARE DATA)
COMMON STOCK
-------------------
PAR NUMBER ADDITIONAL RETAINED
VALUE OF PAID-IN EARNINGS
$.01 SHARES CAPITAL (DEFICIT)
--------- ------ ---------- --------
Balance at January 1, 1993............................................ $ 1,000 $ 732 $(1,560)
Net loss.............................................................. (229)
--------- ------ ---------- -------
Balance at December 31, 1993.......................................... 1,000 732 (1,789)
Net loss.............................................................. (43)
Capital contribution, net of related expenses......................... 370
--------- ------ ---------- --------
Balance at December 31, 1994.......................................... 1,000 1,102 (1,832)
Net income............................................................ 243
--------- ------ ---------- -------
Balance at December 31, 1995.......................................... $ 1,000 $1,102 $(1,589)
--------- ------ ---------- -------
--------- ------ ---------- -------
See notes to consolidated financial statements.
F-5
JSCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
----- ------- -----
Cash flows from operating activities
Net income (loss)................................................................ $ 243 $ (43) $(229)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Extraordinary loss from early extinguishment of debt........................ 7 89 60
Cumulative effect of accounting changes
Postretirement benefits................................................ 59
Income taxes........................................................... (21)
Restructuring charge........................................................ 96
Environmental and other charges............................................. 54
Depreciation, depletion and amortization.................................... 139 131 131
Amortization of deferred debt issuance costs................................ 14 10 8
Deferred income taxes....................................................... 113 (21) (157)
Non-cash interest........................................................... 19 18
Non-cash employee benefit expense........................................... (7) (9) (13)
Change in current assets and liabilities, net of effects from acquisitions
Receivables............................................................ (22) (73) 1
Inventories............................................................ (4) 10 14
Prepaid expenses and other current assets.............................. (1) (1) 5
Accounts payable and accrued liabilities............................... (61) 42 26
Interest payable....................................................... (7) (7) 5
Income taxes........................................................... (1) 1 16
Other, net.................................................................. (2) 1 5
----- ------- -----
Net cash provided by operating activities........................................ 411 149 78
----- ------- -----
Cash flows from investing activities
Property additions............................................................... (130) (144) (97)
Timberland additions............................................................. (24) (19) (20)
Investments in affiliates and acquisitions....................................... (34) (3)
Proceeds from property and timberland disposals and sale of businesses........... 10 4 24
----- ------- -----
Net cash used for investing activities........................................... (178) (162) (93)
----- ------- -----
Cash flows from financing activities
Capital contribution, net of related expenses.................................... 370
Borrowings under bank credit facilities.......................................... 1,372
Borrowings under senior notes.................................................... 400 500
Net borrowings under accounts receivable securitization program.................. 35 6
Other increases in long-term debt................................................ 20 4 12
Payments of long-term debt and related premiums.................................. (284) (2,073) (479)
Deferred debt issuance costs..................................................... (4) (77) (25)
----- ------- -----
Net cash provided by (used for) financing activities............................. (268) 31 14
----- ------- -----
Increase (decrease) in cash and cash equivalents...................................... (35) 18 (1)
Cash and cash equivalents
Beginning of year................................................................ 62 44 45
----- ------- -----
End of year...................................................................... $ 27 $ 62 $ 44
----- ------- -----
----- ------- -----
See notes to consolidated financial statements.
F-6
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN MILLIONS)
1. BASIS OF PRESENTATION
JSCE, Inc. hereafter referred to as the 'Company' is a wholly-owned
subsidiary of Jefferson Smurfit Corporation ('JSC'). JSC has no operations other
than its investment in JSCE, Inc. On December 31, 1994 Jefferson Smurfit
Corporation (U.S.), a wholly-owned subsidiary of the Company, merged into its
wholly-owned subsidiary, Container Corporation of America ('CCA'), with CCA
surviving and changing its name to Jefferson Smurfit Corporation (U.S.) ('JSC
(U.S.)'). The Company has no operations other than its investment in JSC (U.S.).
In 1994, JSC contributed 100% of the common stock of JSC (U.S.) to the Company.
This transaction has been accounted for in a manner similar to a pooling of
interests, and accordingly, the consolidated financial statements for all
periods presented include the accounts of JSC (U.S.). Prior to May 4, 1994, JSC
had been named 'SIBV/MS Holdings' and JSC (U.S.) had been named 'Jefferson
Smurfit Corporation'. Prior to May 4, 1994, 50% of the voting stock of JSC was
owned by Smurfit Packaging Corporation ('SPC') and Smurfit Holdings B.V.
('SHBV'), indirect wholly-owned subsidiaries of Jefferson Smurfit Group plc ('JS
Group'), a public corporation organized under the laws of the Republic of
Ireland. The remaining 50% was owned by The Morgan Stanley Leveraged Equity Fund
II, L.P. ('MSLEF II') and certain other investors.
In 1994, JSC completed a recapitalization plan (the 'Recapitalization') to
repay and refinance a substantial portion of its indebtedness. In connection
with the Recapitalization, (i) JSC issued and sold 19,250,000 shares of common
stock pursuant to a registered public offering at an initial public offering
price of $13.00 per share, (ii) JS Group, through its wholly-owned subsidiary
Smurfit International B.V. ('SIBV'), purchased an additional 11,538,462 shares
of common stock for $150 million, and (iii) JSC (U.S.) issued and sold $300
million aggregate principal amount of unsecured 11.25% Series A Senior Notes due
2004 and $100 million aggregate principal amount of unsecured 10.75% Series B
Senior Notes due 2002 (the '1994 Senior Notes') pursuant to a registered public
offering.
The deficit in stockholder's equity is primarily due to JSC's 1989 purchase
of JSC (U.S.)'s common equity owned by JS Group and the acquisition by JSC
(U.S.) of its common equity owned by MSLEF I, which were accounted for as
purchases of treasury stock.
2. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: The Company's major operations are in paper products,
newsprint production, recycling, and consumer packaging. Paper product
operations procure virgin or recycled fiber and produce paperboard for
conversion into corrugated containers at the Company's own facilities and third
party converting operations. Paper product customers represent a diverse range
of industries including paperboard and paperboard packaging, wholesale trade,
retailing and agri-business. The Company's newsprint operations produce
newsprint from virgin or recycled fiber primarily for the newspaper industry.
Recycling collects wastepaper which is then resold to paper product operations
of the Company and third parties for conversion into boxboard, corrugated
containers, and other paper products. Consumer packaging produces labels and
flexible packaging for use in industrial, medical, and consumer product
applications. Customers and operations are principally located in the United
States. Credit is extended to customers based on an evaluation of their
financial condition.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries. Significant
intercompany accounts and transactions are eliminated in consolidation.
Cash Equivalents: The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents. At December
31, 1995, cash and cash equivalents of $27 million are pledged as collateral for
obligations associated with the accounts receivable securitization program (See
Note 4).
Revenue Recognition: Revenue is recognized at the time products are
shipped.
F-7
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
Inventories: Inventories are valued at the lower of cost or market,
principally under the last-in, first-out ('LIFO') method except for $54 million
in 1995 and $55 million in 1994 which are valued at the lower of average cost or
market. First-in, first-out costs (which approximate replacement costs) exceed
the LIFO value by $84 million and $58 million at December 31, 1995 and 1994,
respectively.
Property, Plant and Equipment: Property, plant and equipment are carried at
cost. Provisions for depreciation and amortization are made using straight-line
rates over the estimated useful lives of the related assets and the terms of the
applicable leases for leasehold improvements.
Timberland: The portion of the costs of timberland attributed to standing
timber is charged against income as timber is cut, at rates determined annually,
based on the relationship of unamortized timber costs to the estimated volume of
recoverable timber. The costs of seedlings and reforestation of timberland are
capitalized.
Deferred Debt Issuance Costs: Deferred debt issuance costs are amortized
over the terms of the respective debt obligations using the interest method.
Goodwill: The excess of cost over the fair value assigned to the net assets
acquired is recorded as goodwill and is being amortized using the straight-line
method over 40 years.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Interest Rate Swap and Cap Agreements: The Company enters into interest
rate swap and cap agreements to reduce the impact of interest rate fluctuations.
Swap agreements involve the exchange of fixed and floating rate interest
payments without the exchange of the underlying principal amount. Cap agreements
provide that the Company will receive a certain amount when short-term interest
rates exceed a threshold rate. Periodic amounts to be paid or received under
interest rate swap and cap agreements are accrued and recognized as adjustments
to interest expense. Premiums paid on cap agreements are included in interest
payable and amortized to interest expense over the life of the agreements. Gains
and losses realized upon settlement of these agreements are deferred and
amortized to interest expense over a period relevant to the agreement if the
underlying hedged instrument remains outstanding, or immediately if the
underlying hedged instrument is settled.
Recently Issued Accounting Standards: In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
('SFAS') No. 121, 'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of', which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are disposed of. The Company will
adopt SFAS No. 121 in the first quarter of 1996 and, based on current
circumstances, does not believe the effect of adoption will be material.
Reclassifications: Certain reclassifications of prior year presentations
have been made to conform to the 1995 presentation.
F-8
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consists of:
1995 1994
------ ------
Land................................................................................. $ 60 $ 60
Buildings and leasehold improvements................................................. 268 254
Machinery, fixtures and equipment.................................................... 1,815 1,696
------ ------
2,143 2,010
Less accumulated depreciation and amortization....................................... 753 657
------ ------
1,390 1,353
Construction in progress............................................................. 66 74
------ ------
Net property, plant and equipment............................................... $1,456 $1,427
------ ------
------ ------
4. LONG-TERM DEBT
Long-term debt at December 31 consists of:
1995 1994
------ ------
Tranche A term loan.................................................................. $ 708 $ 900
Tranche B term loan.................................................................. 236 300
Revolving loans...................................................................... 55 43
Accounts receivable securitization program loans..................................... 217 217
1994 series A senior notes........................................................... 300 300
1994 series B senior notes........................................................... 100 100
1993 senior notes.................................................................... 500 500
Other................................................................................ 76 82
------ ------
2,192 2,442
Less current portion................................................................. 81 50
------ ------
$2,111 $2,392
------ ------
------ ------
Aggregate annual maturities of long-term debt at December 31, 1995, for the
next five years are $81 million in 1996, $142 million in 1997, $146 million in
1998, $154 million in 1999, and $397 million in 2000.
1994 CREDIT AGREEMENT
In connection with the Recapitalization, JSC (U.S.) entered into a bank
credit facility (the '1994 Credit Agreement') which consists of a $450 million
revolving credit facility (the 'Revolving Credit Facility') of which up to $150
million may consist of letters of credit, a $900 million Tranche A Term Loan and
a $300 million Tranche B Term Loan. The Revolving Credit Facility matures in
2001. The Tranche A Term Loan matures in various installments through 2001. The
Tranche B Term Loan matures in various installments through 2002.
Outstanding loans under the Tranche A Term Loan and the Revolving Credit
Facility bear interest at rates selected at the option of JSC (U.S.) equal to
the alternate base rate ('ABR') plus .75% per annum or the adjusted LIBOR Rate
plus 1.75% per annum (7.82% at December 31, 1995). Interest on outstanding loans
under the Tranche B Term Loan is payable at a rate per annum selected at the
option of JSC (U.S.), equal to the prime rate plus 2% per annum or the adjusted
LIBOR Rate plus 3% per annum (8.91% at December 31, 1995). ABR is defined as the
highest of Chemical Bank's prime lending rate, 1/2 of 1% in excess of the
Federal Funds Rate or 1% in excess of the base certificate of deposit rate.
F-9
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
The Tranche A and Tranche B Term Loans and the Revolving Credit Facility may be
prepaid at any time, in whole or in part, at the option of JSC (U.S.).
A commitment fee of .375% per annum is assessed on the unused portion of
the Revolving Credit Facility. At December 31, 1995, the unused portion of this
facility, after giving consideration to outstanding letters of credit, was $301
million.
The obligations under the 1994 Credit Agreement are unconditionally
guaranteed by JSC, the Company and its subsidiaries and are secured by a
security interest in substantially all of the assets of JSC (U.S.) and its
material subsidiaries, with the exception of cash, cash equivalents and trade
receivables. The 1994 Credit Agreement is also secured by a pledge of all the
capital stock of each material subsidiary of JSC and by certain intercompany
notes.
The 1994 Credit Agreement contains various business and financial covenants
including, among other things, (i) limitations on dividends, redemptions and
repurchases of capital stock, (ii) limitations on the incurrence of
indebtedness, liens, leases and sale-leaseback transactions, (iii) limitations
on capital expenditures, (iv) maintenance of minimum levels of consolidated
earnings before depreciation, interest, taxes and amortization and (v)
maintenance of minimum interest coverage ratios. The 1994 Credit Agreement also
requires prepayments if JSC (U.S.) has excess cash flows, as defined, or
receives proceeds from: certain asset sales, insurance, issuance of equity
securities, or incurrence of certain indebtedness.
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM LOANS
During 1995, JSC (U.S.) entered into a $315 million accounts receivable
securitization program (the '1995 Securitization'). The proceeds of the 1995
Securitization were used to extinguish JSC (U.S.)'s borrowings of $230 million
under the 1991 Securitization Program. The 1995 Securitization provides for the
sale of certain of the Company's trade receivables to a wholly-owned, bankruptcy
remote, limited purpose subsidiary, Jefferson Smurfit Finance Corporation ('JS
Finance'), which finances its purchases of eligible JSC (U.S.) receivables
through the issuance of commercial paper or the proceeds of borrowings under a
revolving liquidity facility and a term loan. JS Finance borrowed $15 million
under the term loan, and may issue up to $300 million trade receivables-backed
commercial paper or borrow up to $300 million under a revolving liquidity
facility.
Under the 1995 Securitization, JS Finance has granted a security interest
in all its assets, principally cash and cash equivalents of $27 million and
trade accounts receivable of $217 million, at December 31, 1995. Interest rates
on borrowings under the 1995 Securitization are at a variable rate on the
remainder (5.78% at December 31, 1995). At December 31, 1995, $95 million was
available for additional borrowing, subject to JSC (U.S.)'s level of eligible
accounts receivable. Borrowings under the Securitization Program, which expires
December 1999, have been classified as long-term debt because of the Company's
intent to refinance this debt on a long-term basis and the availability of such
financing under the terms of the program.
1994 SENIOR NOTES
In connection with the Recapitalization, JSC (U.S.) issued and sold $300
million aggregate principal amount of unsecured 11.25% Series A Senior Notes due
2004 and $100 million aggregate principal amount of unsecured 10.75% Series B
Senior Notes due 2002. The Series A Senior Notes are redeemable in whole or in
part at the option of JSC (U.S.), at any time on or after May 1, 1999 with
premiums of 5.625% and 2.813% of the principal amount if redeemed during the
12-month periods commencing May 1, 1999 and 2000, respectively. In addition, up
to $100 million aggregate principal amount of Series A Senior Notes are
redeemable at 110% of the principal amount prior to May 1, 1997
F-10
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
in connection with certain stock issuances. The Series B Senior Notes are not
redeemable prior to maturity.
The 1994 Senior Notes, which are unconditionally guaranteed on a senior
basis by JSCE, Inc., rank pari passu with the 1994 Credit Agreement and the 1993
Senior Notes. The 1994 Senior Notes agreement contains business and financial
covenants which are less restrictive than those contained in the 1994 Credit
Agreement.
Holders of the 1994 Senior Notes have the right, subject to certain
limitations, to require JSC (U.S.) to repurchase their securities at 101% of the
principal amount plus accrued and unpaid interest, upon the occurrence of a
change of control or in certain events from proceeds of major asset sales, as
defined.
1993 SENIOR NOTES
In April 1993, JSC (U.S.) issued $500 million of unsecured 9.75% Senior
Notes (the '1993 Senior Notes') due 2003 which are not redeemable prior to
maturity. The 1993 Senior Notes, which are unconditionally guaranteed on a
senior basis by JSCE, Inc., rank pari passu with the 1994 Credit Agreement and
the 1994 Senior Notes. The 1993 Senior Notes agreement contains business and
financial covenants which are substantially less restrictive than those
contained in the 1994 Credit Agreement and substantially similar to those
contained in the 1994 Senior Notes agreement.
Holders of the 1993 Senior Notes have the right, subject to certain
limitations, to require JSC (U.S.) to repurchase their securities at 101% of the
principal amount plus accrued and unpaid interest, upon the occurrence of a
change in control or in certain events, from proceeds of major asset sales, as
defined.
OTHER DEBT
Other long-term debt at December 31, 1995, is payable in varying
installments through the year 2029. Interest rates on these obligations averaged
approximately 8.81% at December 31, 1995.
INTEREST RATE SWAP AND CAP AGREEMENTS
The Company utilizes interest rate swap and cap agreements to manage its
interest rate exposure on long-term debt. At December 31, 1995, the Company has
interest rate swap agreements with a notional amount of $483 million which
effectively fix (for remaining periods up to 2 years) the interest rate on
variable rate borrowings. The Company is currently paying a weighted average
fixed interest rate of 6.52% and receiving a weighted average variable interest
rate of 5.80%, calculated on the notional amount. In addition, the Company has a
cap agreement with a notional amount of $100 million (through 1996) on variable
rate debt which limits the Company's interest payments to a range of 5.5 - 7.0%
on the notional amount.
The Company is exposed to credit loss in the event of non-performance by
the other parties to the interest rate swap agreements. However, the Company
does not anticipate non-performance by the counterparties.
OTHER
Interest costs capitalized on construction projects in 1995, 1994, and 1993
totalled $4 million, $4 million, and $3 million, respectively. Interest payments
on all debt instruments for 1995, 1994, and 1993 were $228 million, $247
million, and $226 million, respectively.
F-11
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
5. INCOME TAXES
At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $98 million (expiring in the year
2009), none of which are available for utilization against alternative minimum
taxes.
Significant components of the Company's deferred tax assets and liabilities
at December 31 are as follows:
1995 1994
---- ----
Deferred tax liabilities:
Depreciation and depletion......................................................... $372 $365
Prepaid pension costs.............................................................. 34 31
Other.............................................................................. 118 107
---- ----
Total deferred tax liabilities................................................ 524 503
---- ----
Deferred tax assets:
Employee benefit plans............................................................. 127 120
Restructuring and other charges.................................................... 11 32
Net operating loss and tax credit carryforwards.................................... 71 163
Other.............................................................................. 43 43
---- ----
Total deferred tax assets..................................................... 252 358
Valuation allowance for deferred tax assets........................................ (11) (25)
---- ----
Net deferred tax assets....................................................... 241 333
---- ----
Net deferred tax liabilities.................................................. $283 $170
---- ----
---- ----
Provision for (benefit from) income taxes before extraordinary item and
cumulative effect of accounting changes were as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- -------- --------
Current
Federal........................................................... $ 38 $ 1 $ 28
State and local................................................... 4 2 2
------- -------- --------
42 3 30
Deferred
Federal........................................................... (12) 39 (54)
State and local................................................... 2 4 6
Net operating loss carryforwards.................................. 124 (30) (71)
------- -------- --------
114 13 (119)
Adjustment of deferred tax assets and liabilities for enacted tax rate
change............................................................... 6
------- -------- --------
$ 156 $ 16 $ (83)
------- -------- --------
------- -------- --------
The Company increased its deferred tax assets and liabilities in 1993 as a
result of legislation enacted during 1993 increasing the corporate federal
statutory tax rate from 34% to 35% effective January 1, 1993.
The federal income tax returns for 1989 through 1991 are currently under
examination. While the ultimate results of such examination cannot be predicted
with certainty, the Company's management believes that the examination will not
have a material adverse effect on its consolidated financial condition or
results of operations.
F-12
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
A reconciliation of the difference between the statutory federal income tax
rate and the effective income tax rate as a percentage of income (loss) before
income taxes, extraordinary item, and cumulative effect of accounting changes is
as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- -------- --------
U.S. Federal statutory rate............................................ 35.0% 35.0% (35.0)%
Adjustment of deferred tax assets and liabilities for enacted tax rate
change............................................................... 2.2
State and local taxes, net of federal tax benefit...................... 3.9 (4.8) (2.0)
Permanent differences from applying purchase accounting................ 3.2 23.7 3.5
Effect of valuation allowances on deferred tax assets, net of federal
benefit.............................................................. (3.4) 1.1 1.2
Other, net............................................................. 2.1 (2.1)
------- -------- --------
38.7% 57.1% (32.2)%
------- -------- --------
------- -------- --------
The Company made income tax payments of $41 million, $3 million, and $33
million, in 1995, 1994, and 1993, respectively.
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by SFAS
No. 109, 'Accounting for Income Taxes'.
The cumulative effect of adopting SFAS No. 109 as of January 1, 1993 was to
increase net income by $21 million. For 1993, application of SFAS No. 109
increased the pretax loss by $14 million because of increased depreciation
expense as a result of the requirement to report assets acquired in prior
business combinations at pretax amounts.
6. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company sponsors noncontributory defined benefit pension plans covering
substantially all employees not covered by multi-employer plans. Plans that
cover salaried and management employees provide pension benefits that are based
on the employee's five highest consecutive calendar years' compensation during
the last ten years of service. Plans covering non-salaried employees generally
provide benefits of stated amounts for each year of service. These plans provide
reduced benefits for early retirement. The Company's funding policy is to make
minimum annual contributions required by applicable regulations. The Company
also participates in several multi-employer pension plans, which provide defined
benefits to certain union employees.
Assumptions used in the accounting for the defined benefit plans were:
1995 1994 1993
----- ----- -----
Weighted average discount rate................................................. 7.25% 8.5% 7.6%
Rate of increase in compensation levels........................................ 4.0% 5.0% 4.0%
Expected long-term rate of return on assets.................................... 9.5% 10.0% 10.0%
F-13
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
The components of net pension income for the defined benefit plans and the
total contributions charged to pension expense for the multi-employer plans
follow:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- -------- --------
Defined benefit plans:
Service cost -- benefits earned during the period................. $ 13 $ 14 $ 13
Interest cost on projected benefit obligations.................... 59 54 54
Actual return on plan assets...................................... (155) (8) (91)
Net amortization and deferral..................................... 75 (71) 9
Multi-employer plans................................................... 2 2 2
----- ---- ----
Net pension income................................................ $ (6) $ (9) $(13)
----- ---- ----
----- ---- ----
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets at December 31 for the Company's and its
subsidiaries' defined benefit pension plans:
1995 1994
---- ----
Actuarial present value of benefit obligations:
Vested benefit obligations......................................................... $781 $632
---- ----
---- ----
Accumulated benefit obligations.................................................... $820 $670
---- ----
---- ----
Projected benefit obligations........................................................... $857 $700
Plan assets at fair value............................................................... 845 740
---- ----
Plan assets (less than) in excess of projected benefit obligations...................... (12) 40
Unrecognized net loss................................................................... 119 63
Unrecognized net asset at December 31, being recognized over 14 to 15 years............. (21) (25)
---- ----
Net pension asset....................................................................... $ 86 $ 78
---- ----
---- ----
Approximately 41% of plan assets at December 31, 1995 are invested in cash
equivalents or debt securities and 59% are invested in equity securities,
including common stock of JS Group having a market value of $78 million.
SAVINGS PLANS
The Company sponsors voluntary savings plans covering substantially all
salaried and certain hourly employees. The Company match, which is paid in JSC
stock, is 50% of each participant's contributions up to an annual maximum. The
Company's expense for the savings plans totalled $6 million, $5 million, and $5
million in 1995, 1994, and 1993, respectively.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides certain health care and life insurance benefits for
all salaried and certain hourly employees. The Company has various plans under
which the cost may be borne either by the Company, the employee or partially by
each party. The Company does not currently fund these plans. These benefits are
discretionary and are not a commitment to long-term benefit payments. The plans
were amended effective January 1, 1993 to allow employees who retire on or after
January 1, 1994 to become eligible for these benefits only if they retire after
age 60 while working for the Company.
Effective January 1, 1993, the Company adopted SFAS No. 106, 'Employers'
Accounting for Postretirement Benefits Other Than Pensions', which requires
companies to accrue the expected cost of retiree benefit payments, other than
pensions, during employees' active service period. The Company
F-14
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
elected to immediately recognize the accumulated liability, measured as of
January 1, 1993. The cumulative effect of this change in accounting principle
resulted in a charge of $37 million (net of income tax benefits of $22 million).
The Company had previously recorded an obligation of $36 million in connection
with prior business combinations.
The following table sets forth the accumulated postretirement benefit
obligation ('APBO') with respect to these benefits as of December 31:
1995 1994
---- ----
Retirees................................................................................. $ 56 $52
Active employees......................................................................... 38 34
---- ----
Total accumulated postretirement benefit obligation...................................... 94 86
Unrecognized net gain.................................................................... 6 13
---- ----
Accrued postretirement benefit cost...................................................... $100 $99
---- ----
---- ----
Net periodic postretirement benefit cost included the following components:
1995 1994
---- ----
Service cost -- benefits earned during the period......................................... $ 1 $ 2
Interest cost on accumulated postretirement benefit obligation............................ 7 7
Net amortization.......................................................................... (1) (1)
---- ----
Net periodic postretirement benefit cost.................................................. $ 7 $ 8
---- ----
---- ----
A weighted-average discount rate of 7.25% and 8.5% was used in determining
the APBO at December 31, 1995 and 1994, respectively. The weighted-average
annual assumed rate of increase in the per capita cost of covered benefits
('health care cost trend rate') was 9.5%, with an annual decline of 1% until the
rate reaches 4.25% in the year 2001. The effect of a 1% increase in the assumed
health care cost trend rate would increase the APBO as of December 31, 1995 by
$2 million and have no effect on the annual net periodic postretirement benefit
cost for 1995.
7. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH JS GROUP
Transactions with JS Group, its subsidiaries and affiliated companies were
as follows:
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------- -------- -------
Product sales............................................................ $ 44 $ 36 $18
Product and raw material purchases....................................... 108 71 49
Management services income............................................... 4 4 6
Charges from JS Group for services provided.............................. 1 1
Charges from JS Group for letter of credit, commitment fees and related
expenses............................................................... 3 3
Charges to JS Group for costs pertaining to the Fernandina No. 2
paperboard machine..................................................... 57 54 62
Receivables at December 31............................................... 3 4 2
Payables at December 31.................................................. 13 11 12
Product sales to and purchases from JS Group, its subsidiaries, and
affiliates are consummated on terms generally similar to those prevailing with
unrelated parties.
F-15
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
The Company provides certain subsidiaries and affiliates of JS Group with
general management and elective management services under separate Management
Services Agreements. In consideration for general management services, the
Company is paid a fee up to 2% of the subsidiaries' or affiliates' gross sales.
In consideration for elective services, the Company is reimbursed for its direct
cost of providing such services.
An affiliate of JS Group owns the No. 2 paperboard machine that is located
in the Company's Fernandina Beach, Florida paperboard mill (the 'Fernandina
Mill'). Pursuant to an operating agreement between the Company and the
affiliate, the Company operates and manages the No. 2 paperboard machine and is
compensated for its direct production and manufacturing costs and indirect
manufacturing, selling and administrative costs incurred by the Company for the
entire Fernandina Mill. The compensation is determined by applying various
formulas and agreed upon amounts to the subject costs. The amounts reimbursed to
the Company are reflected as reductions of cost of goods sold and selling and
administrative expenses in the accompanying consolidated statements of
operations.
TRANSACTIONS WITH TIMES MIRROR
In July 1995, under the terms of a shareholder agreement, JSC (U.S.)
acquired the remaining 20% minority interest of Smurfit Newsprint Corporation
('SNC') from The Times Mirror Company ('Times Mirror'). SNC supplies newsprint
to Times Mirror at amounts which approximate prevailing market prices under the
terms of a long-term agreement. The obligations of the Company and Times Mirror
to supply and purchase newsprint are wholly or partially terminable upon the
occurrence of certain defined events. Sales to Times Mirror for 1995, 1994, and
1993 were $189 million, $113 million, and $115 million, respectively.
TRANSACTIONS WITH MORGAN STANLEY & CO.
In connection with the Recapitalization, Morgan Stanley & Co., in its
capacity as underwriter of public equity and debt securities, received fees from
the Company of $16 million in 1994.
8. LEASES
The Company leases certain facilities and equipment for production, selling
and administrative purposes under operating leases. Future minimum lease
payments at December 31, 1995, required under operating leases that have initial
or remaining noncancelable lease terms in excess of one year are $29 million in
1996, $22 million in 1997, $15 million in 1998, $11 million in 1999, $9 million
in 2000 and $20 million thereafter.
Net rental expense was $48 million, $46 million, and $45 million for 1995,
1994, and 1993, respectively.
F-16
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
DECEMBER 31,
----------------------------------------
1995 1994
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
Assets
Cash and cash equivalents................................. $ 27 $ 27 $ 62 $ 62
Unrealized gain on interest rate swap agreements.......... 4
Liabilities
Long-term debt, including current maturities.............. 2,192 2,184 2,442 2,402
Unrealized loss on interest rate swap agreements.......... 5 8
Realized loss on interest rate swap agreements marked to
market.................................................. 4 4
The carrying amount of cash equivalents approximates fair value because of
the short maturity of those instruments. The fair value of the Company's
long-term debt is estimated based on the quoted market prices for the same or
similar issues or on the current rates offered to the Company for debt of the
same remaining maturities. The fair value of the interest rate swap agreements
is the estimated amount the Company would pay or receive, net of accrued
interest expense, to terminate the agreements at December 31, 1995 and 1994,
taking into account current interest rates and the current creditworthiness of
the swap counterparties.
10. RESTRUCTURING CHARGE
During 1993, the Company recorded a pretax charge of $96 million to
recognize the effects of a restructuring program designed to improve the
Company's long-term competitive position. Since 1993, the Company has written
down the assets of closed facilities and other nonproductive assets totalling
$35 million, and made cash expenditures of $33 million relating to direct
expenses associated with plant closures, reductions in workforce, realignment
and consolidation of various manufacturing operations. The remaining balance of
the restructuring liability at December 31, 1995 was $28 million, the majority
of which is expected to be paid in 1996. The restructuring program is proceeding
as originally planned, and no significant adjustment to the reserve is
anticipated at this time.
11. CONTINGENCIES
The Company's past and present operations include activities which are
subject to federal, state and local environmental requirements, particularly
relating to air and water quality. The Company faces potential environmental
liability as a result of violations of permit terms and similar authorizations
that have occurred from time to time at its facilities. The Company faces
potential liability for response costs at various sites with respect to which
the Company has received notice that it may be a potentially responsible party
('PRP') as well as contamination of certain Company-owned properties, under the
Comprehensive Environmental Response, Compensation and Liability Act concerning
hazardous substance contamination. In estimating its reserves for environmental
remediation and future costs, the Company's estimated liability reflects only
the Company's expected share. In determining the liability, the estimate takes
into consideration the number of other PRP's at each site, the identity and
financial condition of such parties and experience regarding similar matters. No
amounts have been recorded for potential recoveries from insurance carriers.
F-17
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
During 1993, the Company recorded a pretax charge of $54 million of which
$39 million represents asbestos and PCB removal, solid waste cleanup at existing
and former operating sites and expenses for response costs at various sites
where the Company has received notice that it is a potentially responsible
party. The Company made payments of $9 million and $4 million related to PRP
sites and other environmental cleanup in 1995 and 1994, respectively.
The Company is a defendant in a number of lawsuits and claims arising out
of the conduct of its business, including those related to environmental
matters. While the ultimate results of such suits or other proceedings against
the Company cannot be predicted with certainty, the management of the Company
believes that the resolution of these matters will not have a material adverse
effect on its consolidated financial condition or results of operation.
In the fourth quarter of 1995, the Company recorded a pretax charge
totalling $25 million related to product quality matters and failure to follow
proper manufacturing and internal procedures in an immaterial non-core product
line. The Company is continuing to further evaluate this issue and expects to
conclude its review during the second fiscal quarter. Based upon the information
currently available to management, the Company believes the reserve is adequate
but intends to reevaluate the adequacy of the reserve at the conclusion of its
review.
F-18
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
12. BUSINESS SEGMENT INFORMATION
The Company's principal lines of business are paperboard/packaging products
and newsprint. The paperboard/packaging products segment includes the
manufacture and distribution of containerboard, boxboard and cylinderboard,
corrugated containers, folding cartons, fiber partitions, spiral cores and
tubes, labels and flexible packaging. The newsprint segment includes the
manufacture and distribution of newsprint. A summary by business segment of net
sales, income (loss) from operations, identifiable assets, capital expenditures
and depreciation, depletion and amortization follows:
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------ ------ ------
Net sales
Paperboard/packaging products......................................... $3,706 $2,974 $2,699
Newsprint............................................................. 387 259 248
------ ------ ------
$4,093 $3,233 $2,947
------ ------ ------
------ ------ ------
Income (loss) from operations
Paperboard/packaging products......................................... $ 604 $ 308 $ 13
Newsprint............................................................. 26 (17) (22)
------ ------ ------
Total income (loss) from operations.............................. 630 291 (9)
Interest expense...................................................... (234) (269) (254)
Other, net............................................................ 7 6 5
------ ------ ------
Income (loss) before income taxes, extraordinary item and
cumulative effect of accounting changes........................ $ 403 $ 28 $ (258)
------ ------ ------
------ ------ ------
Identifiable assets
Paperboard/packaging products......................................... $2,294 $2,256 $2,153
Newsprint............................................................. 248 231 225
Corporate assets...................................................... 241 272 219
------ ------ ------
$2,783 $2,759 $2,597
------ ------ ------
------ ------ ------
Capital expenditures
Paperboard/packaging products......................................... $ 137 $ 146 $ 107
Newsprint............................................................. 17 17 10
------ ------ ------
$ 154 $ 163 $ 117
------ ------ ------
------ ------ ------
Depreciation, depletion and amortization
Paperboard/packaging products......................................... $ 122 $ 115 $ 115
Newsprint............................................................. 17 16 16
------ ------ ------
$ 139 $ 131 $ 131
------ ------ ------
------ ------ ------
Sales and transfers between segments are not material. Export sales are
less than 10% of total sales. Corporate assets consist principally of cash and
cash equivalents, deferred income taxes, deferred debt issuance costs and other
assets which are not specific to a segment.
F-19
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
13. SUMMARIZED FINANCIAL INFORMATION JSC (U.S.)
The following summarized financial information is presented for JSC (U.S.),
a wholly-owned subsidiary of JSCE, Inc. No separate financial statements are
presented for JSC (U.S.) because the financial statements of JSC (U.S.) are
identical to those of JSCE, Inc. JSC (U.S.) is the borrower under the 1994
Credit Agreement, the issuer of the 1994 Senior Notes and the 1993 Senior Notes.
These securities are guaranteed by JSCE, Inc.
Condensed Consolidated Balance Sheets
DECEMBER 31,
------------------
1995 1994
------- -------
Current assets..................................................................... $ 644 $ 647
Property, plant and equipment and timberlands, net................................. 1,714 1,686
Goodwill........................................................................... 253 257
Other assets....................................................................... 172 169
------- -------
Total assets.................................................................. $ 2,783 $ 2,759
------- -------
------- -------
Current liabilities................................................................ $ 597 $ 636
Long-term debt..................................................................... 2,111 2,392
Other liabilities.................................................................. 562 461
Stockholder's deficit
Common stock
Additional paid-in capital.................................................... 1,102 1,102
Retained earnings (deficit)................................................... (1,589) (1,832)
------- -------
Total stockholder's deficit.............................................. (487) (730)
------- -------
Total liabilities and stockholder's deficit................................... $ 2,783 $ 2,759
------- -------
------- -------
Condensed Consolidated Statements of Operations
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------ ------ ------
Net sales.................................................................. $4,093 $3,233 $2,947
Cost and expenses.......................................................... 3,463 2,942 2,956
Interest expense........................................................... 234 269 254
Other income (expense), net................................................ 7 6 5
------ ------ ------
Income (loss) before income taxes, extraordinary item and cumulative effect
of accounting changes.................................................... 403 28 (258)
Provision for (benefit from) income taxes.................................. 156 16 (83)
Extraordinary item
Loss from early extinguishment of debt, net of income tax benefits.... (4) (55) (38)
Cumulative effect of accounting changes
Postretirement benefits, net of income tax benefit.................... (37)
Income taxes.......................................................... 21
------ ------ ------
Net income (loss).......................................................... $ 243 $ (43) $ (229)
------ ------ ------
------ ------ ------
F-20
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
14. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1995
Net sales................................................... $ 986 $1,083 $1,051 $ 973
Gross profit................................................ 187 228 245 211
Income from operations...................................... 126 165 185 154
Income before extraordinary item............................ 39 66 77 65
Loss from early extinguishment of debt...................... (3) (1)
Net income.................................................. 39 66 74 64
1994
Net sales................................................... $ 728 $ 766 $ 858 $ 881
Gross profit................................................ 98 111 136 169
Income from operations...................................... 47 56 80 108
Income (loss) before extraordinary item..................... (12) (9) 6 27
Loss from early extinguishment of debt...................... (51) (4)
Net income (loss)........................................... (12) (60) 6 23
F-21
[Logo]
JEFFERSON SMURFIT CORPORATION (U.S.)
JSCE, INC.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all fees and expenses paid by CCA in
connection with the offering of the securities being registered hereby, other
than underwriting discounts and commissions. All of such expenses, except the
Securities and Exchange Commission registration fee and the National Association
of Securities Dealers, Inc. filing fees, have been estimated.
EXPENSES AMOUNT
- ---------------------------------------------------------------------------------------------------- ----------
Securities and Exchange Commission registration fee................................................. $ 206,897
National Association of Securities Dealers, Inc. filing fee......................................... 30,500
Blue Sky fees and expenses.......................................................................... 20,000
Printing and engraving expenses..................................................................... 325,000
Legal fees and expenses............................................................................. 400,000
Accounting fees and expenses........................................................................ 250,000
Miscellaneous....................................................................................... 7,603
----------
Total..................................................................................... $1,240,000
----------
----------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-Laws of the Co-Registrants provide, and following the consummation
of the Offerings will continue to provide, the Co-Registrants with the authority
to indemnify their directors, officers, employees and agents to the full extent
allowed by Delaware law. JSC maintains an insurance policy which provides
directors and officers of the Co-Registrants with coverage in connection with
certain events. In addition, the Co-Registrants have indemnified SIBV and MSLEF
II and certain related parties with respect to matters relating to their
business, pursuant to an organization agreement among such parties.
See Item 17 for the Co-Registrants' undertaking with respect to
indemnification.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
1.1* Underwriting Agreement.
1.2* Agreements, dated April 4, 1994, between JSC(U.S.) and A.G. Edwards & Sons, Inc., the
qualified independent underwriter.
3.1* Restated Certificate of Incorporation of JSC(U.S.).
3.2* Certificate of Incorporation of JSCE.
3.3* By-laws of JSC(U.S.).
3.4* By-laws of JSCE.
4.1 Indenture for the Series A Senior Notes (incorporated by reference to Exhibit 4.1 to JSC's
quarterly report on Form 10-Q for the quarter ended March 31, 1994).
4.2 Indenture for the Series B Senior Notes (incorporated by reference to Exhibit 4.2 to JSC's
quarterly report on Form 10-Q for the quarter ended March 31, 1994).
4.3 Indenture for the 1993 Notes (incorporated by reference to Exhibit 4.4 to JSC's
Registration Statement on Form S-1 (File No. 33-75520)).
4.4 First Supplemental Indenture to the 1993 Note Indenture (incorporated by reference to
Exhibit 4.5 to JSC's Registration Statement on Form S-1 (File No. 33-75520)).
4.5* Second Supplemental Indenture to the 1993 Note Indenture.
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom.
10.1 Second Amended and Restated Organization Agreement, dated as of August 26, 1992, among Old
JSC(U.S.), MSLEF II, Inc., SIBV, JSC and MSLEF II (incorporated by reference to Exhibit
10.1(d) to Old JSC(U.S.)/CCA quarterly report on Form 10-Q for the quarter ended September
30, 1992).
10.2 Stockholders Agreement among JSC, SIBV, MSLEF II and certain related entities
(incorporated by reference to Exhibit 10.2 to JSC's quarterly report on Form 10-Q for the
quarter ended March 31, 1994).
II-1
10.3 Registration Rights Agreement among JSC, MSLEF II and SIBV (incorporated by reference to
Exhibit 10.3 to JSC's quarterly report on Form 10-Q for the quarter ended March 31, 1994).
10.4 Subscription Agreement among JSC, Old JSC(U.S.) and SIBV (incorporated by reference to
Exhibit 10.4 to JSC's quarterly report on Form 10-Q for the quarter ended March 31, 1994).
10.5(a) Restated Newsprint Agreement, dated January 1, 1990, by and between SNC and The Times
Mirror Company (incorporated by reference to Exhibit 10.39 to Old JSC(U.S.)'s Annual
Report on Form 10-K for the fiscal year ended December 31, 1990). Portions of this exhibit
have been excluded pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
10.5(b) Amendment No. 1 to the Restated Newsprint Agreement (incorporated by reference to Exhibit
10.6(b) to JSC's Registration Statement on Form S-1 (File No. 33-75520)).
10.6 Operating Agreement, dated as of April 30, 1992, by and between Old JSC(U.S.)/CCA and
Smurfit Paperboard, Inc. (incorporated by reference to Exhibit 10.42 to Old
JSC(U.S.)'s/CCA quarterly report on Form 10-Q for the quarter ended March 31, 1992).
10.7 Deferred Compensation Agreement, dated January 1, 1979, between Old JSC(U.S.) and James B.
Malloy, as amended and effective November 10, 1983 (incorporated by reference to Exhibit
10(m) to Old JSC(U.S.)'s Registration Statement on Form S-1 (File No. 2-86554)).
10.8(a) Old JSC(U.S.) Deferred Compensation Capital Enhancement Plan (incorporated by reference to
Exhibit 10(r) to Old JSC(U.S.)'s quarterly report on Form 10-Q for the quarter ended
September 30, 1985).
10.8(b) Amendment No. 1 to the Deferred Compensation Capital Enhancement Plan (incorporated by
reference to Exhibit 10.37 to Old JSC(U.S.)/CCA's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989).
10.9(a) Old JSC(U.S.) Deferred Director's Fee Plan (incorporated by reference to Exhibit 10.33 to
Old JSC(U.S.)/CCA's Annual Report on Form 10-K for the fiscal year ended December 31,
1989).
10.9(b) Amendment No. 1 to Old JSC(U.S.) Deferred Director's Fee Plan (incorporated by reference
to Exhibit 10.34 to Old JSC(U.S.)/CCA's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
10.10 Jefferson Smurfit Corporation (U.S.) Management Incentive Plan (incorporated by reference
to Exhibit 10.10 to JSC's Annual Report on Form 10-K for the fiscal year ended December
31, 1995).
10.11 Jefferson Smurfit Corporation (U.S.) 1994 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.13 to JSCs' Registration Statement on Form S-1 (File No.
33-75520)).
10.12 Rights Agreement, dated as of April 30, 1992, among Old JSC(U.S.), CCA, Smurfit
Paperboard, Inc. and Bankers Trust Company, as collateral trustee (incorporated by
reference to Exhibit 10.43 to Old JSC(U.S.)/CCA's quarterly report on Form 10-Q for the
quarter ended March 31, 1992).
10.13(a) 1992 SIBV/MS Holdings, Inc. Stock Option Plan (incorporated by reference to Exhibit 10.48
to Old JSC(U.S.)/CCA's quarterly report on Form 10-Q for the quarter ended September 30,
1992).
10.13(b) Amendment No. 1 to 1992 SIBV/MS Holdings, Inc. Stock Option Plan (incorporated by
reference to Exhibit 10.16(b) to JSCs' Registration Statement on Form S-1 (File No.
33-75520)).
10.14 Credit Agreement, among Old JSC(U.S.), CCA and the banks party thereto (incorporated by
reference to Exhibit 10.1 to JSC's quarterly report on Form 10-Q for the quarter ended
March 31, 1994).
10.14(a) Consent and Amendment No. 1 dated as of February 23, 1995 to the Credit Agreement among
Old JSC(U.S.), CCA and the banks party thereto (incorporated by reference to Exhibit
10.14(a) to JSC's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.14(b) Waiver and Amendment No. 2 dated as of June 9, 1995 to the Credit Agreement among Old
JSC(U.S.), CCA and the banks party thereto (incorporated by reference to Exhibit 10.14(b)
to JSC's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
II-2
10.14(c) Waiver and Amendment No. 3 dated as of July 14, 1995 to the Credit Agreement among Old
JSC(U.S.), CCA and the banks party thereto (incorporated by reference to Exhibit 10.14(c)
to JSC's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.14(d) Amendment No. 4 dated as of October 16, 1995 to the Credit Agreement among Old JSC(U.S.),
CCA and the banks party thereto (incorporated by reference to Exhibit 10.14(d) to JSC's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.14(e) Amendment No. 5 dated as of January 31, 1996 to the Credit Agreement among Old JSC(U.S.),
CCA and the banks party thereto (incorporated by reference to Exhibit 10.14(e) to JSC's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.15(a) Term Loan Agreement dated as of February 23, 1995 among JSCF and Bank Brussels Lambert
(incorporated by reference to Exhibit 10.1 to JSC's quarterly report on Form 10-Q for the
quarter ended March 31, 1995).
10.15(b) Depositary and Issuing and Paying Agent Agreement (Series A Commercial Paper) dated as of
February 23, 1995 (incorporated by reference to Exhibit 10.2 to JSC's quarterly report on
Form 10-Q for the quarter ended March 31, 1995).
10.15(c) Depositary and Issuing and Paying Agent Agreement (Series B Commercial Paper) dated as of
February 23, 1995 (incorporated by reference to Exhibit 10.3 to JSC's quarterly report on
Form 10-Q for the quarter ended March 31, 1995).
10.15(d) Receivables Purchase and Sale Agreement dated as of February 23, 1995 among JSC(U.S.), as
the seller, JSC(U.S), as the initial servicer and JSCF as the purchaser (incorporated by
reference to Exhibit 10.4 to JSC's quarterly report on Form 10-Q for the quarter ended
March 31, 1995).
10.15(e) Termination and Reassignment Agreement dated as of March 3, 1995 among JSCF, JSC(U.S.),
Emerald Funding Corporation and Bankers Trust (incorporated by reference to Exhibit 10.5
to JSC's quarterly report on Form 10-Q for the quarter ended March 31, 1995).
10.15(f) Liquidity Agreement dated as of February 23, 1995 among JSCF, the banks party thereto,
Bankers Trust, as facility agent and Bankers Trust as collateral agent (incorporated by
reference to Exhibit 10.6 to JSC's quarterly report on Form 10-Q for the quarter ended
March 31, 1995).
10.15(g) Commercial Paper Dealer Agreement dated as of February 23, 1995 among BTSC, MS&Co.,
NationsBank Capital Markets, Inc., JSC(U.S.) and JSCF (incorporated by reference to
Exhibit 10.7 to JSC's quarterly report on Form 10-Q for the quarter ended March 31, 1995).
10.15(h) Addendum dated March 6, 1995 to Commercial Paper Dealer Agreement (incorporated by
reference to Exhibit 10.8 to JSC's quarterly report on Form 10-Q for the quarter ended
March 31, 1995).
12.1 Calculation of Historical Ratios of Earnings to Fixed Charges for JSCE.
12.2 Calculation of Historical Ratios of Earnings to Fixed Charges for JSC(U.S.).
23.1* Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1* Powers of Attorney.
25.1* Statement on Form T-1 of the eligibility of NationsBank of Georgia, National Association,
as Trustee under the Series A Senior Note Indenture and the Series B Senior Note
Indenture.
27.1 Financial Data Schedule of JSCE (incorporated by reference to Exhibit 27.1 to JSCE's
Annual Report on Form 10-K for the year ended December 31, 1995).
(b) ** Financial Statement Schedule:
Schedule II: Valuation and Qualifying Accounts for JSCE.
- ------------
* Previously filed.
** All other schedules specified under Regulation S-X for the Registrant have
been omitted because they are either not applicable, not required or because
the information required is included in the Financial Statements of the
Registrant or notes thereto.
II-3
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ('Securities Act') may be permitted to directors, officers and
controlling persons of the Co-Registrants pursuant to the foregoing provisions,
or otherwise, the Co-Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Co-Registrants of expenses incurred or paid by a director,
officer or controlling person of the Co-Registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Co-Registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by them is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Co-Registrants hereby undertake:
(1) That for purposes of determining any liability under the
Securities Act, 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 Co-Registrants 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.
(2) That for the purpose of determining any liability under the
Securities Act, 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.
(3) (a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(d) If the Co-Registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of Regulation S-X at the
start of any delayed offering or throughout a continuous offering.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
Post-Effective Amendment No. 2 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on April 11, 1996.
JEFFERSON SMURFIT CORPORATION (U.S.)
BY /S/ JOHN R. FUNKE
...................................
John R. Funke
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 2 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- ------------------
* Director, Chairman of the Board
.........................................
MICHAEL W. J. SMURFIT
* Director, President and Chief Executive
......................................... Officer (Principal Executive Officer)
JAMES E. TERRILL
/s/ JOHN R. FUNKE Vice President and Chief Financial Officer April 11, 1996
......................................... (Principal Financial and
JOHN R. FUNKE Accounting Officer)
* Director
.........................................
HOWARD E. KILROY
Director
.........................................
JAMES R. THOMPSON
* Director
.........................................
DONALD P. BRENNAN
* Director
.........................................
ALAN E. GOLDBERG
* Director
.........................................
DAVID R. RAMSAY
* Director
.........................................
G. THOMPSON HUTTON
*By /s/ JOHN R. FUNKE
..................................
JOHN R. FUNKE
ATTORNEY-IN-FACT
APRIL 11, 1996
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
Post-Effective Amendment No. 2 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on April 11, 1996.
JSCE, INC.
By /s/ JOHN R. FUNKE
...................................
John R. Funke
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 2 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- ------------------
* Director, Chairman of the Board
.........................................
MICHAEL W. J. SMURFIT
* Director, President and Chief Executive
......................................... Officer (Principal Executive Officer)
JAMES E. TERRILL
/s/ JOHN R. FUNKE Vice President and Chief Financial Officer April 11, 1996
......................................... (Principal Financial and
JOHN R. FUNKE Accounting Officer)
* Director
.........................................
HOWARD E. KILROY
Director
.........................................
JAMES R. THOMPSON
* Director
.........................................
DONALD P. BRENNAN
* Director
.........................................
ALAN E. GOLDBERG
* Director
.........................................
DAVID R. RAMSAY
* Director
.........................................
G. THOMPSON HUTTON
*By /s/ JOHN R. FUNKE
..................................
JOHN R. FUNKE
ATTORNEY-IN-FACT
APRIL 11, 1996
II-6
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as 'r'
EXHIBIT INDEX
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- -------- ------------------------------------------------------------------------------------- -------------------
1.1* Underwriting Agreement...............................................................
1.2* Agreements, dated April 4, 1994, between JSC(U.S.) and A.G. Edwards & Sons, Inc., the
qualified independent underwriter..................................................
3.1* Restated Certificate of Incorporation of JSC(U.S.)...................................
3.2* Certificate of Incorporation of JSCE.................................................
3.3* By-laws of JSC(U.S.).................................................................
3.4* By-laws of JSCE......................................................................
4.1 Indenture for the Series A Senior Notes (incorporated by reference to Exhibit 4.1 to
JSC's quarterly report on Form 10-Q for the quarter ended March 31, 1994)..........
4.2 Indenture for the Series B Senior Notes (incorporated by reference to Exhibit 4.2 to
JSC's quarterly report on Form 10-Q for the quarter ended March 31, 1994)..........
4.3 Indenture for the 1993 Notes (incorporated by reference to Exhibit 4.4 to JSC's
Registration Statement on Form S-1 (File No. 33-75520))............................
4.4 First Supplemental Indenture to the 1993 Note Indenture (incorporated by reference to
Exhibit 4.5 to JSC's Registration Statement on Form S-1 (File No. 33-75520)).......
4.5* Second Supplemental Indenture to the 1993 Note Indenture.............................
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom......................................
10.1 Second Amended and Restated Organization Agreement, dated as of August 26, 1992,
among Old JSC(U.S.), MSLEF II, Inc., SIBV, JSC and MSLEF II (incorporated by
reference to Exhibit 10.1(d) to Old JSC(U.S.)/CCA quarterly report on Form 10-Q for
the quarter ended September 30, 1992)..............................................
10.2 Stockholders Agreement among JSC, SIBV, MSLEF II and certain related entities
(incorporated by reference to Exhibit 10.2 to JSC's quarterly report on Form 10-Q
for the quarter ended March 31, 1994)..............................................
10.3 Registration Rights Agreement among JSC, MSLEF II and SIBV (incorporated by reference
to Exhibit 10.3 to JSC's quarterly report on Form 10-Q for the quarter ended March
31, 1994)..........................................................................
10.4 Subscription Agreement among JSC, Old JSC(U.S.) and SIBV (incorporated by reference
to Exhibit 10.4 to JSC's quarterly report on Form 10-Q for the quarter ended March
31, 1994)..........................................................................
10.5(a) Restated Newsprint Agreement, dated January 1, 1990, by and between SNC and The Times
Mirror Company (incorporated by reference to Exhibit 10.39 to Old JSC(U.S.)'s
Annual Report on Form 10-K for the fiscal year ended December 31, 1990). Portions
of this exhibit have been excluded pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended...................................................
10.5(b) Amendment No. 1 to the Restated Newsprint Agreement (incorporated by reference to
Exhibit 10.6(b) to JSC's Registration Statement on Form S-1 (File No. 33-75520))...
10.6 Operating Agreement, dated as of April 30, 1992, by and between Old JSC(U.S.)/CCA and
Smurfit Paperboard, Inc. (incorporated by reference to Exhibit 10.42 to Old
JSC(U.S.)'s/CCA quarterly report on Form 10-Q for the quarter ended March 31,
1992)..............................................................................
10.7 Deferred Compensation Agreement, dated January 1, 1979, between Old JSC(U.S.) and
James B. Malloy, as amended and effective November 10, 1983 (incorporated by
reference to Exhibit 10(m) to Old JSC(U.S.)'s Registration Statement on Form S-1
(File No. 2-86554))................................................................
10.8(a) Old JSC(U.S.) Deferred Compensation Capital Enhancement Plan (incorporated by
reference to Exhibit 10(r) to Old JSC(U.S.)'s quarterly report on Form 10-Q for the
quarter ended September 30, 1985)..................................................
10.8(b) Amendment No. 1 to the Deferred Compensation Capital Enhancement Plan (incorporated
by reference to Exhibit 10.37 to Old JSC(U.S.)/CCA's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989)...........................................
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- -------- ------------------------------------------------------------------------------------- -------------------
10.9(a) Old JSC(U.S.) Deferred Director's Fee Plan (incorporated by reference to Exhibit
10.33 to Old JSC(U.S.)/CCA's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989).................................................................
10.9(b) Amendment No. 1 to Old JSC(U.S.) Deferred Director's Fee Plan (incorporated by
reference to Exhibit 10.34 to Old JSC(U.S.)/CCA's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989)...........................................
10.10 Jefferson Smurfit Corporation (U.S.) Management Incentive Plan (incorporated by
reference to Exhibit 10.10 to JSC's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995)...........................................................
10.11 Jefferson Smurfit Corporation (U.S.) 1994 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.13 to JSCs' Registration Statement on Form S-1 (File No.
33-75520)).........................................................................
10.12 Rights Agreement, dated as of April 30, 1992, among Old JSC(U.S.), CCA, Smurfit
Paperboard, Inc. and Bankers Trust Company, as collateral trustee (incorporated by
reference to Exhibit 10.43 to Old JSC(U.S.)/CCA's quarterly report on Form 10-Q for
the quarter ended March 31, 1992)..................................................
10.13(a) 1992 SIBV/MS Holdings, Inc. Stock Option Plan (incorporated by reference to Exhibit
10.48 to Old JSC(U.S.)/CCA's quarterly report on Form 10-Q for the quarter ended
September 30, 1992)................................................................
10.13(b) Amendment No. 1 to 1992 SIBV/MS Holdings, Inc. Stock Option Plan (incorporated by
reference to Exhibit 10.16(b) to JSCs' Registration Statement on Form S-1 (File No.
33-75520)).........................................................................
10.14 Credit Agreement, among Old JSC(U.S.), CCA and the banks party thereto (incorporated
by reference to Exhibit 10.1 to JSC's quarterly report on Form 10-Q for the quarter
ended March 31, 1994)..............................................................
10.14(a) Consent and Amendment No. 1 dated as of February 23, 1995 to the Credit Agreement
among Old JSC(U.S.), CCA and the banks party thereto (incorporated by reference to
Exhibit 10.14(a) to JSC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).................................................................
10.14(b) Waiver and Amendment No. 2 dated as of June 9, 1995 to the Credit Agreement among Old
JSC(U.S.), CCA and the banks party thereto (incorporated by reference to Exhibit
10.14(b) to JSC's Annual Report on Form 10-K for the fiscal year ended December 31,
1995)..............................................................................
10.14(c) Waiver and Amendment No. 3 dated as of July 14, 1995 to the Credit Agreement among
Old JSC(U.S.), CCA and the banks party thereto (incorporated by reference to
Exhibit 10.14(c) to JSC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).................................................................
10.14(d) Amendment No. 4 dated as of October 16, 1995 to the Credit Agreement among Old
JSC(U.S.), CCA and the banks party thereto (incorporated by reference to Exhibit
10.14(d) to JSC's Annual Report on Form 10-K for the fiscal year ended December 31,
1995)..............................................................................
10.14(e) Amendment No. 5 dated as of January 31, 1996 to the Credit Agreement among Old
JSC(U.S.), CCA and the banks party thereto (incorporated by reference to Exhibit
10.14(e) to JSC's Annual Report on Form 10-K for the fiscal year ended December 31,
1995)..............................................................................
10.15(a) Term Loan Agreement dated as of February 23, 1995 among JSCF and Bank Brussels
Lambert (incorporated by reference to Exhibit 10.1 to JSC's quarterly report on
Form 10-Q for the quarter ended March 31, 1995)....................................
10.15(b) Depositary and Issuing and Paying Agent Agreement (Series A Commercial Paper) dated
as of February 23, 1995 (incorporated by reference to Exhibit 10.2 to JSC's
quarterly report on Form 10-Q for the quarter ended March 31, 1995)................
10.15(c) Depositary and Issuing and Paying Agent Agreement (Series B Commercial Paper) dated
as of February 23, 1995 (incorporated by reference to Exhibit 10.3 to JSC's
quarterly report on Form 10-Q for the quarter ended March 31, 1995)................
10.15(d) Receivables Purchase and Sale Agreement dated as of February 23, 1995 among
JSC(U.S.), as the seller, JSC(U.S), as the initial servicer and JSCF as the
purchaser (incorporated by reference to Exhibit 10.4 to JSC's quarterly report on
Form 10-Q for the quarter ended March 31, 1995)....................................
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- -------- ------------------------------------------------------------------------------------- -------------------
10.15(e) Termination and Reassignment Agreement dated as of March 3, 1995 among JSCF,
JSC(U.S.), Emerald Funding Corporation and Bankers Trust (incorporated by reference
to Exhibit 10.5 to JSC's quarterly report on Form 10-Q for the quarter ended March
31, 1995)..........................................................................
10.15(f) Liquidity Agreement dated as of February 23, 1995 among JSCF, the banks party
thereto, Bankers Trust, as facility agent and Bankers Trust as collateral agent
(incorporated by reference to Exhibit 10.6 to JSC's quarterly report on Form 10-Q
for the quarter ended March 31, 1995)..............................................
10.15(g) Commercial Paper Dealer Agreement dated as of February 23, 1995 among BTSC, MS&Co.,
NationsBank Capital Markets, Inc., JSC(U.S.) and JSCF (incorporated by reference to
Exhibit 10.7 to JSC's quarterly report on Form 10-Q for the quarter ended March 31,
1995)..............................................................................
10.15(h) Addendum dated March 6, 1995 to Commercial Paper Dealer Agreement (incorporated by
reference to Exhibit 10.8 to JSC's quarterly report on Form 10-Q for the quarter
ended March 31, 1995)..............................................................
12.1 Calculation of Historical Ratios of Earnings to Fixed Charges for JSCE...............
12.2 Calculation of Historical Ratios of Earnings to Fixed Charges for JSC(U.S.)..........
23.1* Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit 5.1)............
23.2 Consent of Ernst & Young LLP.........................................................
24.1* Powers of Attorney...................................................................
25.1* Statement on Form T-1 of the eligibility of NationsBank of Georgia, National
Association, as Trustee under the Series A Senior Note Indenture and the Series B
Senior Note Indenture..............................................................
27.1 Financial Data Schedule of JSCE (incorporated by reference to Exhibit 27.1 to JSCE's
Annual Report on Form 10-K for the year ended December 31, 1995)...................
(b) ** Financial Statement Schedule:
Schedule II: Valuation and Qualifying Accounts for JSCE.
- --------------
* Previously filed.
** All other schedules specified under Regulation S-X for the Registrant have
been omitted because they are either not applicable, not required or because
the information required is included in the Financial Statements of the
Registrant or notes thereto.