As Filed with the Securities and Exchange Commission on April 25, 2001
Registration Nos. 33-52383 and 33-58348
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENTS NOS. 7 AND 8
ON
FORM S-2 TO FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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JEFFERSON SMURFIT CORPORATION (U.S.)
(FORMERLY CONTAINER CORPORATION OF AMERICA)
(Exact name of Registrant as specified in its charter)
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36-2041256
Delaware (I.R.S. Employer Identification
(State or other jurisdiction of Number)
incorporation or organization) Vice President And Chief Financial
150 North Michigan Avenue Officer
Chicago, Illinois 60601 Chicago, Illinois 60601
(312) 346-6600 (312) 346-6600
(Address, Including Zip Code, and (Name, Address, Including Zip Code,
Telephone and Telephone
Number, Including Area Code, of Number, Including Area Code, of Agent
Registrant's Principal Executive For Service)
Offices)
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JSCE, INC.
(Exact Name of Co-Registrant as Specified in Its Charter)
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Delaware 37-1337160
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
150 North Michigan Avenue Patrick J. Moore
Chicago, Illinois 60601 Vice President And Chief Financial
(312) 346-6600 Officer
(Address, Including Zip Code, and Chicago, Illinois 60601
Telephone (312) 346-6600
Number, Including Area Code, of (Name, Address, Including Zip Code,
Co-registrant's Principal Executive and Telephone
Offices) Number, Including Area Code, of Agent
For Service)
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Copies to:
Joseph A. Walsh, Jr. John R. Ettinger
Steven J. Gavin Leonard Kreynin
Winston & Strawn Davis Polk & Wardwell
35 West Wacker Drive, Chicago, 450 Lexington Avenue, New York, New
Illinois 60601 York 10017
(312) 558-5600 (212) 450-4000
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Approximate date of commencement of proposed sale to public: From time to
time after the effective date of this Registration Statement.
Pursuant to Rule 429 under the Securities Act of 1933, as amended (the
"Securities Act"), the Prospectus included in these Post-Effective Amendments
relates to Registration Statement No. 33-52383 filed by the Registrant and
declared effective May 4, 1994 and Registration Statement No. 33-58348 filed by
the Registrant and declared effective April 6, 1993. These Post-Effective
Amendments consist of Post-Effective Amendment No. 7 to Registration Statement
No. 33-52383 and Post-Effective Amendment No. 8 to Registration Statement No.
33-58348 and shall become effective in accordance with Section 8(c) of the
Securities Act. The Prospectus included in the Post-Effective Amendments has
been prepared in accordance with the requirements of Form S-2 and is filed
pursuant to Rule 401 of the Securities Act. These post-effective amendments are
collectively referred to as "Post-Effective Amendments" and the registration
statements amended hereby are collectively referred to as the "Registration
Statements."
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If the registrant 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. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
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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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities or accept an offer to buy these securities until +
+this prospectus is delivered in final form. This prospectus is not an offer +
+to sell these securities and we are not soliciting offers to buy these +
+securities in any state where such offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
April 25, 2001
[INSERT JEFFERSON SMURFIT CORPORATION (U.S.) LOGO]
Jefferson Smurfit Corporation (U.S.)
JSCE, Inc.
$900,000,000
$300,000,000 11 1/4% Series A Senior Notes due 2004
$100,000,000 10 3/4% Series B Senior Notes due 2002
$500,000,000 9 3/4% 1993 Senior Notes due 2003
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JSCE, Inc. has unconditionally guaranteed the senior notes. The senior notes
and the guarantee of the senior notes are senior unsecured obligations of
Jefferson Smurfit Corporation (U.S.) and JSCE, Inc., respectively.
On April 4, 2001, Jefferson Smurfit Corporation (U.S.) called all of the Series
A Senior Notes for redemption on May 4, 2001. Neither the Series B Senior Notes
nor the 1993 Senior Notes are redeemable prior to maturity. Interest on the
Series A and Series B Senior Notes is paid on May 1 and November 1 of each
year. Interest on the 1993 Senior Notes is paid on April 1 and October 1 of
each year.
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Investing in these notes involves risk. See "Risk Factors" beginning on page 3.
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The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
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Morgan Stanley & Co. Incorporated and Morgan Stanley DW Inc. will use this
prospectus in connection with sales in market-making transactions. Morgan
Stanley & Co. Incorporated and Morgan Stanley DW Inc. may act as principal or
agent in such transactions.
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MORGAN STANLEY DEAN WITTER
, 2001
TABLE OF CONTENTS
Incorporation of Certain Documents by Reference........................... 1
Available Information..................................................... 1
Forward-Looking Statements................................................ 2
Risk Factors.............................................................. 3
Ratio of Earnings to Fixed Charges........................................ 9
Use of Proceeds........................................................... 9
Selected Consolidated Historical Financial Data........................... 10
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 11
Business.................................................................. 20
Description of Notes...................................................... 27
Market-Making Activities.................................................. 64
Legal Matters............................................................. 65
Experts................................................................... 65
Index To Financial Statements............................................. F-1
-i-
All references in this prospectus to "Company," "we," "us" or "our" mean
JSCE, Inc. ("JSCE") and its consolidated subsidiaries, including Jefferson
Smurfit Corporation (U.S.) ("JSC (U.S.)").
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, unless otherwise
indicated.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Securities and
Exchange Commission are hereby incorporated by reference in this prospectus:
. JSCE's Annual Report on Form 10-K for the fiscal year ended December 31,
2000, filed with the Commission on March 13, 2001, and
. All other reports filed by JSCE pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
since December 31, 2000 and prior to the termination of the offering of
the securities offered hereby.
Information incorporated by reference is considered to be part of this
prospectus. Any statement contained in a document incorporated by reference
will be modified or superseded to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated by
reference 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.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address: Jefferson Smurfit Corporation (U.S.),
Attention: Treasury Department, 8182 Maryland Avenue, St. Louis, Missouri
63105; telephone (314) 746-1200.
AVAILABLE INFORMATION
JSCE files annual, quarterly and current reports and other information with
the Securities and Exchange Commission. You may read and copy any reports,
statements or other information on file at the Commission's public reference
room in Washington, D.C. You can request copies of those documents upon payment
of a duplicating fee, by writing to the Commission.
We have filed a post-effective amendment on Form S-2 to a registration
statement on Form S-3 with the Commission. This prospectus, which forms a part
of that registration statement, does not contain all of the information
included in the registration statement. Certain information is omitted and you
should refer to the registration statement and its exhibits. With respect to
references made in this prospectus to any of our contracts or other documents,
such references are not necessarily complete and you should refer to the
exhibits attached to the registration statement for copies of the actual
contract or document. You may review a copy of the registration statement at
the Commission's public reference room at 450 Fifth Street, N.W., Washington,
D.C. and at the Commission's regional offices in Chicago, Illinois and New
York, New York. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. JSCE's Commission
filings and the registration statement can also be reviewed by accessing the
Commission's Internet site at http://www.sec.gov.
1
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
Section 17A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Exchange Act. When used in this prospectus, the words
"anticipates," "believes," "expects," "intends" and similar expressions
identify such forward-looking statements. Although we believe that such
statements are based on reasonable assumptions, these forward-looking
statements are subject to numerous factors, risks and uncertainties that could
cause actual outcomes and results to be materially different from those
projected. These factors, risks and uncertainties include, among others, the
following:
. the impact of general economic conditions where we do business;
. general industry conditions, including competition and product and raw
material prices;
. fluctuations in exchange rates and currency values;
. capital expenditure requirements;
. interest rates;
. legislative or regulatory requirements;
. fluctuation in energy prices;
. access to capital markets; and
. other factors described in this prospectus.
Our actual results, performance or achievement could differ materially from
those expressed in, or implied by, the forward-looking statements. No
assurances can be given that any of the events anticipated by the forward-
looking statements will occur or, if any of them do, what impact they will have
on our results of operations and financial condition.
2
RISK FACTORS
This prospectus includes "forward-looking statements" within the meaning of
Section 17A of the Securities Act and Section 21E of the Exchange Act
including, in particular, the statements about our plans, strategies and
prospects under the headings "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Although we believe that
our plans, intentions and expectations reflected in or suggested by such
forward-looking statements are reasonable, we can give no assurance that such
plans, intentions or expectations will be achieved. Important factors that
could cause actual results to differ materially from the forward-looking
statements we make in this prospectus are set forth below and elsewhere in this
prospectus. All forward-looking statements attributable to us or persons acting
on our behalf are qualified by the following cautionary statements.
Risk Factors Related to Our Business
The cyclicality of our industry could negatively impact our sales volume and
revenues and our ability to respond to competition or take advantage of
business opportunities.
Our operating results reflect the industry's general cyclical pattern. The
majority of our products are commodities subject to extreme price competition.
The industry in which we compete has had substantial overcapacity for several
years. Production overcapacity and weak demand for products causes the paper
industry to take downtime periodically to reduce inventory levels. In addition,
the industry is capital intensive, which leads to high fixed costs and
generally results in continued production as long as prices are sufficient to
cover marginal costs. These conditions have contributed to substantial price
competition and volatility in the industry. In the event of a recession, demand
and prices are likely to drop substantially. Increased production by our
competitors will also depress prices for our products. From time to time, we
have closed certain of our facilities or have taken downtime based on
prevailing market demand for our products and may continue to do so. Certain of
our competitors have also temporarily closed or reduced production at their
facilities, but can reopen and/or increase production capacity at any time.
Our sales and profitability have historically been more sensitive to price
changes than changes in volume. Future decreases in prices for our products
would adversely affect our operating results. These factors, coupled with our
highly leveraged financial position, may adversely impact our ability to
respond to competition and to other market conditions or to otherwise take
advantage of business opportunities.
Our industry is highly competitive and price fluctuations could diminish our
sales volume and revenues.
The paperboard and packaging products industries are highly competitive, and
no single company is dominant. Our competitors include large, vertically
integrated paperboard and packaging products companies and numerous smaller
companies. Because these products are globally traded commodities, the
industries in which we compete are particularly sensitive to price fluctuations
as well as other factors including innovation, design, quality and service,
with varying emphasis on these factors depending on the product line. To the
extent that one or more of our competitors become more successful with respect
to any key competitive factor, our business could be materially adversely
affected.
We can give no assurance that we will be able to maintain all or a
substantial majority of the sales volume to our customers, due in part to the
tendency of certain customers to diversify their suppliers.
Price fluctuations in raw materials and energy costs could adversely affect our
ability to obtain the materials needed to manufacture our products and could
adversely affect our manufacturing costs.
Wood fiber and recycled fiber, the principal raw materials used in the
manufacture of our products, are purchased in highly competitive, price
sensitive markets. These raw materials have historically exhibited price and
demand cyclicality. In particular, the supply and price of wood fiber depends
on a variety of factors over
3
which we have no control, including environmental and conservation regulations,
natural disasters and weather. A decrease in the supply of wood fiber has
caused, and likely will continue to cause, higher wood fiber costs in some of
the regions in which we procure wood. In addition, the increase in demand of
products manufactured, in whole or in part, from recycled fiber has caused an
occasional tightness in the supply of recycled fiber. It may also cause a
significant increase in the cost of such fiber used in the manufacture of
recycled containerboard and related products. Such costs are likely to continue
to fluctuate based upon demand/supply characteristics. While we have not
experienced any significant difficulty in obtaining wood fiber and recycled
fiber in economic proximity to our mills, we can give no assurance that this
will continue to be the case for any or all of our mills.
The cost of producing our products is sensitive to the price of energy.
Energy prices, in particular oil and natural gas, have increased significantly
over the past year, with a corresponding effect on our production costs. We can
give no assurance that energy prices will not remain at current rates or rise
to even higher levels, or that our production costs, competitive position and
results of operations will not be adversely affected thereby.
We may encounter difficulties arising from integrating acquisitions,
restructuring our operations or closing or disposing of facilities.
As part of our strategy of consolidation with rationalization, we have
completed acquisitions, closed higher cost facilities, sold non-core assets,
and otherwise restructured our operations to improve our cost competitiveness.
Some of these activities are ongoing and we cannot guarantee that any such
activities will not divert the attention of management, disrupt our ordinary
operations or those of our subsidiaries or otherwise adversely affect our
results of operations. Moreover, our production capacity or the actual amount
of products we produce may be reduced as a result of these activities.
Our substantial leverage may require us to seek additional sources of capital
to satisfy our capital needs.
We have a highly leveraged capital structure. As of December 31, 2000, we
had approximately $1,529 million of outstanding debt.
Our level of debt could have significant consequences for us, including the
following:
. we may be required to seek additional sources of capital, including
additional borrowings under our existing credit facilities, other
private or public debt or equity financings to service or refinance our
indebtedness, which borrowings may not be available on favorable terms;
. a substantial portion of our cash flow from operations will be necessary
to meet the payment of principal and interest on our indebtedness and
other obligations and will not be available for our working capital,
capital expenditures and other general corporate purposes;
. our level of debt could make us more vulnerable to economic downturns,
and reduce our operational and business flexibility in responding to
changing business and economic conditions and opportunities; and
. we will be more highly leveraged than some of our competitors, which may
place us at a competitive disadvantage.
In addition, borrowings under our credit agreements are at variable rates of
interest, which expose us to the risk of increased interest rates.
Factors beyond our control could hinder our ability to service our debt and
meet our operating requirements.
We have scheduled principal payments on our indebtedness of approximately
$10 million, $172 million and $771 million in 2001, 2002 and 2003,
respectively.
4
Our ability and our subsidiaries' ability to meet our obligations and to
comply with the financial covenants contained in our respective debt
instruments will largely depend on our and our subsidiaries' future
performance. Our performance will be subject to financial, business and other
factors affecting us. Many of these factors will be beyond our control, such
as:
. the state of the economy;
. the financial markets;
. demand for and selling prices of our products;
. costs of raw materials and energy; and
. legislation and other factors relating to the paperboard and packaging
products industries generally or to specific competitors.
If the net proceeds from borrowings or other financing sources and from
operating cash flows and any divestitures do not provide us with sufficient
liquidity to meet our operating and debt service requirements, we will be
required to pursue other alternatives to repay debt and improve liquidity. Such
alternatives may include:
. sales of assets;
. cost reductions;
. deferral of certain discretionary capital expenditures; and
. seeking amendments or waivers to our debt instruments.
We can give no assurance that such measures could be successfully completed
or would generate the liquidity required by us to operate our business and
service our obligations. If we
. are not able to generate sufficient cash flow or otherwise obtain funds
necessary to make required debt payments, or
. fail to comply with the various covenants in our various debt
instruments,
we would be in default under the terms of our various debt instruments, which
would permit our debtholders to accelerate the maturity of such debt and would
cause defaults under our other debt.
Restrictive covenants in our debt could limit our corporate activity.
Our ability to incur additional debt, and in certain cases refinance
outstanding debt, is significantly limited or restricted under the agreements
relating to our and our subsidiaries' existing debt. The agreements contain
covenants that restrict, among other things, our and our subsidiaries' ability
to:
. incur debt;
. pay dividends;
. repurchase or redeem capital stock;
. 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.
5
In addition, we are limited in our ability to move capital freely among us
and our subsidiaries. The limitations contained in such agreements, together
with our highly leveraged capital structure, could limit our ability to effect
future debt or equity financings. These limitations also may otherwise restrict
our corporate activities, including our ability to avoid defaults, provide for
capital expenditures, take advantage of business opportunities or respond to
market conditions.
We are subject to environmental regulations and liabilities that could weaken
our operating results.
Federal, state, provincial, foreign and local environmental requirements,
particularly those relating to air and water quality, are a significant factor
in our business. In the past we have had, and in the future may face,
environmental liability for the costs of remediating soil or groundwater that
is or was contaminated by us or a third party at various sites which are now or
were previously owned or operated by us. There also may be similar liability at
sites with respect to which either we have received, or in the future may
receive, notice that we may be a potentially responsible party and which are
the subject of cleanup activity under the Comprehensive Environmental Response,
Compensation and Liability Act, analogous state laws and other laws concerning
hazardous substance contamination.
We have incurred in the past, and may incur in the future, civil and
criminal fines and penalties relating to environmental matters and costs
relating to the damage of natural resources, lost property values and toxic
tort claims. We in the past have made significant expenditures to comply with
environmental regulations and expect to make significant expenditures in the
future. We have reserves based on current information to address environmental
liabilities. However, we could incur additional significant expenditures due to
changes in law or the discovery of new information, and those expenditures
could have a material adverse effect on our financial condition. In addition,
we are required to make significant environmental capital expenditures on an
annual basis. We expect those expenditures to increase significantly in the
next several years.
The United States Environmental Protection Agency has finalized parts of a
comprehensive rule governing the pulp, paper and paperboard industry, known as
the "Cluster Rule." In order to comply with those parts of the Cluster Rule
that have been finalized, we estimate that we may require the incurrence of up
to approximately $85 million in capital expenditures, the majority of which was
spent in 2000. We cannot predict the ultimate cost of complying with the parts
of the regulations that have been finalized, or with regulations that have not
yet been finalized, until we complete further engineering studies, and non-
final regulations are finalized. We can give no assurance that the foregoing
costs and liabilities, either individually or in the aggregate, will not have a
material adverse effect on our financial condition in the future.
Risk Factors Related to the Notes
Our substantial indebtedness could adversely affect our financial condition and
prevent us from fulfilling our obligations under the notes.
The following chart shows certain important credit statistics as of the date
or at the beginning of the period specified below.
At December
31, 2000
--------------
Total indebtedness........................................ $1,529 million
Stockholder's deficit..................................... $ (84) million
Debt to total capitalization ratio........................ 1.06x
Our substantial indebtedness could have important consequences to you. For
example, it could:
. make it more difficult for us to perform our obligations with respect to
these notes;
. increase our vulnerability to general adverse economic and industry
conditions;
6
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing amounts
available for working capital, capital expenditures and other general
corporate purposes;
. limit our flexibility in planning for, or reacting to changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our competitors that
have less debt; and
. limit, along with the financial and other restrictive covenants in our
debt instruments, among other things, our ability to borrow additional
funds.
Despite current indebtedness levels, we may still be able to incur
substantially more debt, which could further exacerbate the risks described
above.
We may be able to incur substantial additional indebtedness in the future.
The terms of the indentures for these notes do not fully prohibit us from doing
so. As of December 31, 2000, our credit facility and securitization program
permitted additional borrowings of up to approximately $586 million. If new
debt is added to our current debt levels, the related risks that we now face
could intensify. See "Selected Consolidated Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Notes" for a further description of our
additional borrowing ability.
Upon a change of control, you have a right to be repaid, but we may be unable
to raise the funds necessary to finance the change of control offer required by
the indenture.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding notes. However, it
is possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of these notes or that restrictions in
our other indebtedness will not allow such repurchase. In addition, certain
important corporate events, such as leveraged recapitalizations that would
increase the level of our indebtedness, would not constitute a "change of
control" under the indenture. See "Description of Notes--Repurchase of Notes
Upon Change of Control" for a further discussion of our obligation to
repurchase these notes upon a change of control.
Although your notes are referred to as "senior notes," they are effectively
subordinated to our secured indebtedness.
Our secured indebtedness has priority over these notes with respect to the
assets securing the secured indebtedness. Although these notes, the guarantee
and the indebtedness under our credit facility all constitute senior
indebtedness, the notes and guarantee are unsecured and are effectively
subordinated to the indebtedness under our secured credit facility. In the
event of a liquidation, reorganization, bankruptcy or similar proceeding
involving us, our assets which serve as collateral will be available to satisfy
the obligations under any secured indebtedness before any payments are made on
these notes. As of December 31, 2000, we had approximately $1,529 million of
indebtedness outstanding, of which approximately $615 million constituted
secured indebtedness.
Federal and state statutes allow courts, under specific circumstances, to void
indebtedness and guarantees thereof and require noteholders to return payments
received from debtors and guarantors.
Under federal bankruptcy and comparable provisions of state fraudulent
transfer laws, the notes and the guarantees could be voided or subordinated if,
at the time the indebtedness under the notes and the guarantees were incurred,
among other things, JSC (U.S.) or JSCE, as the case may be:
. was insolvent or was rendered insolvent by reason of the indebtedness
incurred and payments made in connection herewith;
7
. was engaged in a business or transaction for which our remaining assets
constituted unreasonably small capital; or
. intended to, or believed that we would, incur debts beyond our ability
to pay such debts as they matured.
The measure of insolvency for purposes of the fraudulent transfer laws vary
depending upon the law of the jurisdiction being applied. Generally, however, a
company would be considered insolvent if:
. the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets;
. if the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
. it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that the issuance of the notes and the guarantees
will not constitute fraudulent transfers. However, we cannot assure you that a
court passing on such issue would agree with our conclusions.
Significant stockholders of our parent, whose interests may conflict with your
interests, are able to significantly influence the vote on matters submitted to
a vote of holders of its common stock.
As of December 31, 2000, approximately 29% of the common stock of our parent
company, Smurfit-Stone Container Corporation ("Smurfit-Stone"), was owned by
Smurfit International B.V. ("SIBV"), an affiliate of Jefferson Smurfit Group
plc ("JS Group"), and certain other entities. These entities are able to
significantly influence the vote on all matters submitted to a vote of Smurfit-
Stone's stockholders. The interests of these entities could conflict with your
interests. The presence of the significant stockholders may also deter a
potential acquiror from making a tender offer or otherwise attempting to obtain
control of Smurfit-Stone.
The notes are not listed for trading on any securities exchange and we cannot
assure you that a trading market for the notes will continue.
The notes are not listed for trading on any securities exchange or on any
automated dealer quotation system. Morgan Stanley & Co. Incorporated currently
makes a market in the notes. However, Morgan Stanley is not obligated to make a
market for the notes and may discontinue or suspend such market-making at any
time without notice at its sole discretion. Accordingly, no assurance can be
given as to the liquidity of, or the trading market for, the notes. Further,
the liquidity of, and trading market for, the notes may be adversely affected
by declines and volatility in the market for debt securities generally as well
as any changes in our financial performance or prospects.
8
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges:
Year Ended December 31,
--------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Ratio of earnings to fixed charges..................... 1.61 (a) (a) 2.89 2.38
- --------
(a) For the years ended December 31, 1997 and 1998, respectively, earnings were
inadequate to cover fixed charges by $27 million and $281 million,
respectively.
For purposes of these calculations, earnings consist of income (loss) from
continuing operations before income taxes, minority interests and extraordinary
items 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 factors therein (deemed to be one-fourth of
lease rental expense). Amounts exclude the discontinued operations of our
Newsprint division.
Statements describing the computation of the above ratios are exhibits to
the registration statement of which this prospectus is a part.
USE OF PROCEEDS
We will not receive any proceeds from sales by Morgan Stanley & Co.
Incorporated and Morgan Stanley DW Inc. (collectively, "Morgan Stanley") of the
notes.
9
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated financial data as of
and for the years ended December 31, 1996, 1997, 1998, 1999 and 2000. This data
should be read in conjunction with "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and our consolidated financial
statements and the related notes included elsewhere in this prospectus. The
selected consolidated financial data presented under the captions "Summary of
Operations" and "Other Financial Data" was derived from our consolidated
financial statements, which were audited by independent auditors.
Year Ended December 31,
-------------------------------------------
1996 1997 1998 1999(a) 2000
------- ------- ------- ------- -------
(in millions, except statistical data)
Summary of Operations (b)
Net sales (c)..................... $ 3,218 $ 3,060 $ 3,155 $ 3,413 $ 3,867
Income (loss) from operations
(d).............................. 333 176 (78) 226 342
Income (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting change................ 80 (19) (171) 276 146
Discontinued operations, net of
income tax provision............. 37 20 27 6 6
Net income (loss)................. 112 1 (160) 272 151
Other Financial Data
Net cash provided by operating
activities....................... $ 380 $ 88 $ 117 $ 103 $ 247
Net cash provided by (used for)
investing activities............. (133) (175) (595) 829 (129)
Net cash provided by (used for)
financing activities............. (262) 87 484 (939) (108)
Depreciation, depletion and
amortization..................... 125 127 134 134 120
Capital investments and
acquisitions..................... 129 191 265 69 116
Working capital, net.............. 34 71 145 41 104
Property, plant, equipment and
timberland, net.................. 1,720 1,788 1,760 1,309 1,262
Total assets...................... 2,688 2,771 3,174 2,736 2,667
Long-term debt.................... 1,944 2,040 2,570 1,636 1,529
Stockholder's deficit............. (375) (374) (538) (235) (84)
Statistical Data (tons in
thousands)
Containerboard production (tons).. 2,061 2,024 1,978 1,592 1,433
Solid bleached sulfate production
(tons)........................... 189 190 185 189 190
Coated boxboard production
(tons)........................... 538 585 582 581 590
Uncoated boxboard production
(tons)........................... 213 176 175 165 169
Corrugated containers sold
(billion sq. ft.)................ 30.0 31.7 29.9 29.1 28.7
Folding cartons sold (tons)....... 449 463 507 549 561
Fiber reclaimed and brokered
(tons)........................... 4,464 4,832 5,155 6,560 6,768
Number of employees............... 15,800 15,800 15,000 14,400 14,100
- --------
(a) We recorded a pretax gain of $407 million on the sale of our timberlands in
1999.
(b) Our subsidiary, Smurfit Newsprint, completed its exit from the newsprint
business in May 2000. Accordingly, the newsprint operations are presented
as a discontinued operation for all periods.
(c) Net sales for all periods have been restated to comply with the Emerging
Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling
Fees and Costs." Previously, we recognized shipping and handling costs as a
reduction to net sales. Shipping and handling costs are now included in
cost of goods sold. The effect of this reclassification increased net sales
and cost of goods sold from previously reported amounts by $109 million in
1996, $103 million in 1997, $112 million in 1998 and $118 million in 1999.
The reclassification had no effect on income from operations.
(d) In connection with the 1998 merger with Stone Container, we recorded pretax
charges of $310 million in the fourth quarter of 1998, including $257
million of restructuring charges, $30 million for settlement of our
Cladwood(R) litigation and $23 million of merger-related costs. We recorded
an additional restructuring charge of $9 million in 1999 in connection with
the merger.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Market conditions and demand for containerboard and corrugated containers,
our primary products, have historically been subject to cyclical changes in the
economy and changes in industry capacity, both of which can significantly
impact selling prices and our profitability.
Market conditions were generally weak in 1997 and 1998 due primarily to
excess capacity within the industry. During the second half of 1998, the
containerboard industry took market related downtime, resulting in a
significant reduction in inventory levels. In addition, several paper
companies, including JSCE, permanently shut down paper mill operations
approximating 6% of industry capacity. The balance between supply and demand
for containerboard improved as a result of the shutdowns and inventories were
reduced. Corrugated container shipments for the industry were strong in 1999,
increasing approximately 2% compared to 1998. As a result of these
developments, linerboard prices rose $90 per ton in 1999, and increased an
additional $50 per ton in February 2000. Domestic economic growth slowed in the
second half of 2000. This slowdown, in addition to a weak export market,
exerted downward pressure on containerboard demand. In order to maintain a
balance between supply and demand, the industry took extensive market related
downtime in 2000. In January 2001, sluggish corrugated demand resulted in a $15
per ton decline in linerboard pricing to $465 per ton. We do not expect a
recovery in demand for corrugated containers until the U.S. economy
strengthens.
Market conditions in the folding carton and boxboard mill industry, which
were weak in 1998, strengthened in the second half of 1999 and continued to
improve in 2000. With demand improving, sales price increases were implemented
in the fourth quarter of 1999 and the second quarter of 2000. On average,
prices were higher in 2000 compared to 1999. Industry shipments of folding
cartons in 2000 increased 3% compared to 1999 although mill operating rates and
production were lower.
Wood fiber and reclaimed fiber are the principal raw materials used in the
manufacture of our products. Demand for reclaimed fiber, which was weak in
1998, grew stronger in 1999 primarily as a result of strong export demand.
Reclaimed fiber prices rose in 1999, but declined in the second half of 2000
due primarily to lower demand brought about by the extensive market related
downtime taken by containerboard mills as described above. The price of old
corrugated containers, commonly known as OCC, the principal grade used in
recycled containerboard mills, was higher in 2000 compared to 1999 by
approximately 8%. Wood fiber prices declined 4% in 2000 compared to 1999.
Recent Developments
On April 24, 2001, Smurfit-Stone released information regarding its
financial performance for the first quarter of this year. Income before
extraordinary item was $19 million (or $.07 per diluted share) for the quarter,
a decrease of $21 million or approximately 53% compared to the first quarter of
2000. Results for the quarter included an after-tax gain of $4 million related
to an asset sale. Net income available to holders of Smurfit-Stone's common
stock, after extraordinary item, was $12 million (or $.05 per share). Sales for
the quarter increased to $2.2 billion, compared to $2 billion for the first
quarter of 2000. Our results for the quarter ended March 31, 2001 will be
available in our Quarterly Report on Form 10-Q, to be filed with the Commission
on or before May 15, 2001.
Merger and Restructuring
On November 18, 1998, a wholly-owned subsidiary of Smurfit-Stone merged with
Stone Container. In connection with the merger, we restructured our operations.
The most significant elements of the restructuring for Jefferson Smurfit (U.S.)
included the permanent closure of three paper mills, having approximately
700,000 tons of containerboard capacity, and eight additional facilities.
During the fourth quarter of 1998, we recorded pretax charges of $257 million
for restructuring costs and $23 million for merger-related costs. The
restructuring charge included, among other things, adjustments to fair value of
property, plant and equipment
11
associated with the permanent closure of certain facilities and establishment
of liabilities for the termination of certain employees and long-term
commitments. As part of our continuing evaluation of all areas of our business
in connection with the merger, we recorded an additional restructuring charge
of $9 million in 1999.
The restructuring of our operations in connection with the merger was
completed in 2000. Annualized synergy savings in excess of $350 million have
been achieved by Smurfit-Stone primarily as a result of optimization of the
combined manufacturing systems of Jefferson Smurfit (U.S.) and Stone Container,
purchasing leverage and reduction of selling and administrative costs.
Since the merger date, through December 31, 2000, JSCE has incurred
approximately $48 million (68%) of the planned cash expenditures to close
facilities and to pay severance and other exit liabilities. The exit
liabilities remaining as of December 31, 2000 consisted of $23 million of
anticipated cash expenditures. Future cash outlays, principally for long-term
commitments, are anticipated to be $4 million in 2001, $3 million in 2002 and
$16 million thereafter. The remaining cash expenditures will continue to be
funded through operations as originally planned.
Results of Operations
Recent Results
We expect earnings for the first quarter of 2001 to fall significantly from
the levels in the third and fourth quarters of 2000. The shortfall is due to
lower demand for corrugated packaging resulting from the weakening economy. We
expect to continue taking economic downtime in containerboard in order to
manage inventory levels. Downtime in the first quarter of 2001 will exceed the
39,000 tons taken in the fourth quarter of 2000. Product pricing remains stable
in the face of the poor demand, following the $15 per ton decline in
containerboard in January. We do not expect a recovery in demand for corrugated
packaging until the U.S. economy strengthens.
Segment Data for 2000, 1999 and 1998
2000 1999 1998
-------------- -------------- --------------
Net Profit/ Net Profit/ Net Profit/
Sales (Loss) Sales (Loss) Sales (Loss)
------ ------- ------ ------- ------ -------
(in millions)
Containerboard and corrugated
containers....................... $2,033 $ 220 $1,818 $ 195 $1,776 $ 135
Consumer packaging................ 1,017 99 951 91 912 103
Reclamation....................... 605 26 452 17 275 4
Other operations.................. 212 13 192 16 192 12
------ ----- ------ ----- ------ -----
Total operations.............. $3,867 358 $3,413 319 $3,155 254
====== ====== ======
Restructuring charges............. (9) (257)
Interest expense, net............. (103) (175) (196)
Other, net........................ (10) 327 (80)
----- ----- -----
Income (loss) from continuing
operations before income taxes,
extraordinary item and cumulative
effect of accounting change...... $ 245 $ 462 $(279)
===== ===== =====
Other, net includes corporate expenses, intracompany profit elimination and
LIFO expense, goodwill amortization, corporate charges to segments for working
capital interest, gains or losses on asset sales and other expenses not
allocated to segments.
12
2000 compared to 1999
Improvements in containerboard and other markets in 2000 were the primary
reasons for the increases in net sales and operating profits. Net sales
increased 13% compared to 1999 and operating profits increased 12%. Other, net,
which included a $407 million gain on sale of assets in 1999, declined by $337
million. Other, net was favorably impacted by lower intracompany profit
elimination and LIFO expense and an expense in 1999 of $26 million related to
the cashless exercise of Smurfit-Stone stock options under the Jefferson
Smurfit Corporation stock option plan. Interest expense, net decreased by $72
million compared to 1999 due to lower levels of debt outstanding. The increases
(decreases) in net sales for each of our segments are shown in the chart below.
Income (loss) from continuing operations before income taxes, extraordinary
item and cumulative effect of accounting change declined compared to last year
due primarily to the gain recorded in 1999 on the sale of assets. Net income in
2000 was $151 million compared to $272 million in 1999.
2000 Compared to 1999
-----------------------------------------------------
Containerboard
& Corrugated Consumer Other
Containers Packaging Reclamation Operations Total
-------------- --------- ----------- ---------- -----
(in millions)
Increase (decrease) in
net sales due to:
Sales prices and
product mix.......... $263 $55 $104 $17 $439
Sales volume.......... 18 15 70 3 106
Closed facilities..... (66) (4) (21) (91)
---- --- ---- --- ----
Net increase............ $215 $66 $153 $20 $454
==== === ==== === ====
Containerboard and Corrugated Containers Segment
Net sales for 2000 increased by 12% compared to last year and profits
improved by $25 million to $220 million. Market conditions were stronger in the
first half of the year, enabling us to implement a linerboard price increase on
February 1, followed by corresponding price increases for corrugated
containers. Although shipments grew weaker as the year progressed, we were able
to maintain the price increases achieved earlier in the year. On average,
corrugated container prices improved 16% compared to last year and linerboard
was higher by 17%. Solid bleached sulfate prices also increased during the year
and, on average, were 6% higher than last year.
Production of containerboard declined 10% compared to 1999 and corrugated
container shipments declined 1%. The containerboard volume declined as a result
of higher levels of market related downtime. Corrugated container sales volume
decreased as a result of plant closures and weaker demand in the second half of
the year. Solid bleached sulfate production increased 1% compared to last year.
Profits increased due to the higher average sales prices, although market
related downtime and higher cost of energy and fiber partially offset the sales
price improvements. Cost of goods sold as a percent of net sales increased from
82% in 1999 to 83% in 2000 due primarily to the increased market related
downtime and the sale of our timberland operations.
Consumer Packaging Segment
Net sales for 2000 increased by 7% compared to 1999 due to higher sales
prices and an increase in shipments. For the year, on average, coated boxboard
sales prices were 8% higher than 1999 and folding carton sales prices were 6%
higher. Uncoated boxboard sales prices were 10% higher than 1999. Sales volume
of folding cartons increased 2% compared to 1999. Production of coated boxboard
increased 2% compared to 1999 and production of uncoated boxboard increased 7%.
13
Profits improved 9% compared to last year due primarily to the improvement
in sales prices. An increase in reclaimed fiber cost and higher energy cost
partially offset the improvement in pricing. Profits in the label operations
declined compared to last year due to competitive pricing and increases in raw
material cost. Cost of goods sold as a percent of net sales was 83% in 2000,
unchanged from 1999.
Reclamation Segment
Net sales for 2000 increased 34% compared to 1999 due to higher sales prices
and an increase in third party shipments. Demand for OCC was strong in the
first half of 2000, but weakened in the second half as more paper mills took
downtime to manage their inventories. Prices were higher in the first half of
the year as a result of the strong demand. On average for 2000, OCC prices
increased 8% and old newsprint prices increased 47% compared to last year. An
increase in the cost of reclaimed fiber partially offset the improvement in
sales price. Profits increased $9 million compared to 1999 due primarily to the
higher sales prices and volume and lower employee compensation cost. Cost of
goods sold as a percent of net sales increased from 89% in 1999 to 91% in 2000
due primarily to the higher cost of reclaimed fiber.
Other Operations
Net sales for 2000 increased 10% compared to 1999 due primarily to higher
sales prices. Profits in 2000 declined $3 million to $13 million compared to
1999 due primarily to lower sales volume.
Costs and Expenses
Cost of goods sold in the Consolidated Statements of Operations for 2000 as
a percent of net sales of 84% was comparable to 1999. The favorable effects of
higher sales prices, lower intracompany profit elimination and LIFO expense
were offset by the higher cost of energy and reclaimed fiber and the effects of
the higher level of market related downtime in 2000.
Selling and administrative expenses as a percent of net sales declined from
9% in 1999 to 7% in 2000, primarily as a result of the higher sales prices in
2000.
Interest expense, net in 2000 declined compared to 1999 due primarily to
lower average outstanding debt levels. The overall average effective interest
rate for 2000 was higher than 1999 by 0.4%. Interest expense, net for 2000
included $57 million of interest income earned on our intercompany loan to
Smurfit-Stone compared to $52 million earned in 1999.
Other, net in the Consolidated Statements of Operations for 2000 declined
$405 million due primarily to a gain of $407 million recorded in 1999 on the
sale of our timberlands.
The effective income tax rate in 2000 differed from the federal statutory
tax rate due to several factors, the most significant of which was state income
taxes. For information concerning income taxes, see Liquidity and Capital
Resources and Note 7 of the Notes to Consolidated Financial Statements.
Discontinued Operations
In February 1999, we adopted a formal plan to sell the operating assets of
our subsidiary, Smurfit Newsprint. Accordingly, the newsprint operations of
Smurfit Newsprint were accounted for as a discontinued operation for all
periods presented in the Consolidated Statements of Operations. In November
1999, we sold our Newberg, Oregon newsprint mill for approximately $211
million. In May 2000, we transferred ownership of the Oregon City, Oregon
newsprint mill to a third party, thereby completing our exit from the newsprint
business. We received no proceeds from the transfer. The 1999 results of
discontinued operations included the realized gain on the sale of the Newberg
mill, an expected loss on the transfer of the Oregon City mill, the actual
results from the measurement date through December 31, 1999 and the estimated
losses on the Oregon
14
City mill through the expected disposition date. In 2000, we recorded a $6
million after-tax gain to reflect adjustments to estimates made in 1999 on
disposition of discontinued operations.
1999 compared to 1998
Net sales for 1999 were higher than 1998 by 8% due primarily to higher sales
volumes and improvements in sales prices. Operating profits for 1999 were $65
million higher than 1998 due primarily to the higher sales prices. Other, net
in 1999 improved $407 million compared to 1998 due primarily to gains recorded
on sale of assets. Other, net in 1999 included higher intracompany profit
elimination and LIFO expense compared to 1998 and $26 million of expense
related to the cashless exercise of Smurfit-Stone stock options under the
Jefferson Smurfit Corporation stock option plan. Other, net in 1998 included
$30 million for the class action settlement of certain litigation and $23
million of other merger-related cost. The increases (decreases) in net sales
for each of our segments are shown in the chart below.
The improvement in income from continuing operations before income taxes,
extraordinary item and cumulative effect of accounting change of $741 million
was due primarily to higher operating profits, lower restructuring charges and
the gain on sale of assets. Net income in 1999 was $272 million compared to a
net loss of $160 million in 1998.
1999 Compared to 1998
-----------------------------------------------------
Containerboard
& Corrugated Consumer Other
Containers Packaging Reclamation Operations Total
-------------- --------- ----------- ---------- -----
(In millions)
Increase (decrease) in
net sales due to:
Sales prices and
product mix.......... $ 74 $(13) $ 35 $(4) $ 92
Sales volume.......... 48 52 160 4 264
1998 acquisition...... 26 26
Closed facilities..... (106) (18) (124)
----- ---- ---- --- -----
Net increase............ $ 42 $ 39 $177 $ 0 $ 258
===== ==== ==== === =====
Containerboard and Corrugated Containers Segment
Net sales for 1999 increased by 2% compared to 1998. The benefit from the
improvement in sales prices was partially offset by plant closures resulting
from the Stone Container merger. Profits in 1999 improved by $60 million
compared to 1998 due primarily to the higher sales prices and the effects of
the merger. We were able to implement two price increases for containerboard in
1999, totaling $90 per ton for linerboard and $130 per ton for medium. On
average, linerboard and corrugated container prices increased 8% and 9%,
respectively, compared to 1998. The increase in corrugated prices reflects the
price increases implemented and our strategy to rationalize customer mix. Solid
bleached sulfate prices were lower than 1998 by 3%.
Containerboard production of 1,592,000 tons in 1999 declined compared to
1998 due primarily to the permanent shutdown of three Jefferson Smurfit (U.S.)
containerboard mills. Production for 1999 was favorably impacted by the
acquisition of a containerboard machine from Jefferson Smurfit Group plc in
November 1998. Production of solid bleached sulfate was higher than 1998 by 2%.
Corrugated container sales volume declined compared to 1998 by 4% due primarily
to plant closures and the rationalization of customer mix. Cost of goods sold
as a percent of net sales decreased from 86% in 1998 to 82% in 1999 due
primarily to higher sales prices, plant shutdowns and cost saving initiatives
undertaken in connection with the merger.
Consumer Packaging Segment
Net sales for 1999 increased by 4% compared to 1998 while profits decreased
by $12 million. The sales increase was due primarily to higher sales volume of
folding cartons, which increased by 9% compared to
15
1998. Production of coated boxboard was comparable to 1998. On average, coated
boxboard sales prices were lower than 1998 by 9% and folding carton sales
prices were comparable to 1998. Production of uncoated boxboard decreased 8%
and, on average, uncoated boxboard sales prices declined 8% compared to 1998.
Profits declined compared to 1998 due primarily to the lower sales prices for
coated and uncoated boxboard and higher reclaimed fiber cost. Cost of goods
sold as a percent of net sales increased from 81% in 1998 to 83% in 1999 due
primarily to the effect of lower sales prices and higher reclaimed fiber costs.
Reclamation Segment
Net sales for 1999 increased 64% compared to 1998 due primarily to higher
sales volume resulting from the merger and higher sales prices. Compared to
1998, the average price of OCC increased approximately 11% and the total tons
of fiber reclaimed and brokered increased 27% due to the additional fiber
requirements resulting from the merger. Profits increased $13 million compared
to 1998 due primarily to higher sales prices. Cost of goods sold as a percent
of net sales for 1999 was comparable to 1998.
Other Operations
Other operations include specialty packaging and Cladwood(R) operations. Net
sales in 1999 were comparable to 1998 and profits increased by $4 million to
$16 million due primarily to the specialty packaging operations.
Costs and Expenses
Cost of goods sold for 1999 increased compared to 1998 due primarily to
costs associated with the increase in sales of the reclamation segment, the
addition of the paperboard machine in our Fernandina Beach, Florida paperboard
mill and higher LIFO expense. Cost of goods sold in 1999 was favorably impacted
by the plant closures in 1998. Overall cost of goods sold as a percent of net
sales in 1999 was comparable to 1998.
Selling and administrative expenses as a percent of net sales decreased from
10% in 1998 to 9% in 1999. Selling and administrative expenses for 1999
included expense of $26 million related to the cashless exercise of Smurfit-
Stone stock options under the Jefferson Smurfit Corporation stock option plan.
In 1998, we expensed $30 million for the class action settlement of certain
litigation and $23 million of other merger-related cost.
Interest expense, net in 1999 declined compared to 1998. Interest expense,
net includes interest income, which consists primarily of interest earned on
our intercompany loan made to Smurfit-Stone in November 1998 in connection with
the merger. Interest income was $52 million for 1999 compared to $6 million in
1998. While our average debt level for 1999 was higher compared to 1998 due
primarily to borrowings related to the merger, the higher level of interest
income more than offset the increase in interest expense. Our overall average
effective interest rate in 1999 was comparable to 1998.
Other, net for 1999 included a gain of $407 million on the sale of our
timberlands.
The effective income tax rate in 1999 differed from the federal statutory
tax rate due to several factors, the most significant of which was state income
taxes.
Liquidity and Capital Resources
General
In 2000, net cash provided by operating activities of $247 million and
proceeds of $8 million from the sale of assets were used to fund property
additions of $116 million, an increase in the intercompany loan to Smurfit-
Stone of $21 million and net debt payments of $108 million.
16
On November 15, 2000, pursuant to an Agreement and Plan of Merger among
Smurfit-Stone, SCC Merger Co. and Stone Container, approximately 4.6 million
shares of $1.75 Series E Preferred Stock of Stone Container were converted into
approximately 4.6 million shares of 7% Series A Cumulative Exchangeable
Redeemable Convertible Preferred Stock of Smurfit-Stone. In addition, a cash
payment of $6.4425 per share, totaling approximately $30 million, was made by
Smurfit-Stone to the holders of the Stone Container Preferred Stock. The cash
payment was equal to the accrued and unpaid dividends on each share of the
Stone Container Preferred Stock, less $0.12 per share to cover certain
transaction related expenses. Smurfit-Stone funded the approximately $30
million cash portion of the Preferred Stock exchange consideration through an
intercompany loan from us.
Financing Activities
On March 9, 2001, we amended the Jefferson Smurfit (U.S.) accounts
receivable securitization program to (1) reduce the total program size from
$315 million to $229 million and (2) extend the final maturity from February
2002 to February 2004.
Jefferson Smurfit (U.S.)'s bank credit facility contains various business
and financial covenants including, among other things, limitations on
dividends, redemptions and repurchases of capital stock, limitations on the
incurrence of indebtedness, limitations on capital expenditures and maintenance
of certain financial covenants. The bank credit facility also requires
prepayments if Jefferson Smurfit (U.S.) has excess cash flows, as defined, or
receives proceeds from certain asset sales, insurance or incurrence of certain
indebtedness. Jefferson Smurfit (U.S.) generated excess cash flow of
approximately $59 million in 2000. The obligations under the bank credit
facility are unconditionally guaranteed by us and certain of our subsidiaries.
The obligations under the bank credit facility are secured by a security
interest in substantially all of the assets of Jefferson Smurfit (U.S.). Such
restrictions, together with our highly leveraged position, could restrict our
corporate activities, including our ability to respond to market conditions, to
provide for unanticipated capital expenditures or to take advantage of business
opportunities.
We expect that internally generated cash flows and existing financing
resources will be sufficient for the next several years to meet our ordinary
course obligations, including debt service, restructuring payments,
expenditures under the Cluster Rule and capital expenditures. We intend to hold
capital expenditures below our annual depreciation levels for the next several
years. Scheduled debt payments are $10 million in 2001 and $172 million in
2002, with increasing amounts thereafter. We expect to use any excess cash
flows provided by operations to make further debt reductions. As of December
31, 2000, we had $498 million of unused borrowing capacity under the bank
credit facility and $88 million of unused borrowing capacity under our $315
million accounts receivable securitization program, subject to Jefferson
Smurfit (U.S.)'s level of eligible accounts receivable.
Income Tax Matters
At December 31, 2000, we had approximately $51 million of net operating loss
carryforwards for U.S. federal income tax purposes that expire in 2018 and 2019
with a tax value of $18 million, and approximately $20 million of net operating
loss carryforwards for state purposes that expire in the years 2001 through
2020. A valuation allowance of $10 million has been established for a portion
of these deferred tax assets. In addition, we had approximately $41 million of
alternative minimum tax credit carryforwards for U.S. federal income tax
purposes, which are available indefinitely.
Environmental Matters
Our operations are subject to extensive environmental regulation by federal,
state and local authorities in the United States. We have made, and expect to
continue to make, significant capital expenditures to comply with water, air,
solid and hazardous waste and other environmental laws and regulations. Capital
expenditures
17
for environmental control equipment and facilities were approximately $15
million in 1999 and $56 million in 2000. We anticipate that environmental
capital expenditures will approximate $14 million in 2001. The majority of the
expenditures in 2000 and 2001 relate to projects required to comply with the
Cluster Rule. In November 1997, the EPA issued the Cluster Rule, which made
existing requirements for discharge of wastewater under the Clean Water Act
more stringent and imposed new, more stringent requirements on air emissions
under the Clean Air Act for the pulp and paper industry. Although portions of
the Cluster Rule are still not fully promulgated, we currently believe we may
be required to make additional capital expenditures of up to $15 million during
the next several years in order to meet the requirements of the new
regulations. Also, additional operating expenses will be incurred as capital
installations required by the Cluster Rule are put into service.
In addition, we are from time to time subject to litigation and governmental
proceedings regarding environmental matters in which compliance action and
injunctive and/or monetary relief are sought. We have been named as a PRP at a
number of sites, which are the subject of remedial activity under CERCLA or
comparable state laws. Although we are subject to joint and several liability
imposed under CERCLA, at most of the multi-PRP sites there are organized groups
of PRPs and costs are being shared among PRPs. Payments related to cleanup at
existing and former operating sites and CERCLA sites were not material to our
liquidity during 2000. Future environmental regulations may have an
unpredictable adverse effect on our operations and earnings, but they are not
expected to adversely affect our competitive position.
Although capital expenditures for environmental control equipment and
facilities and compliance costs in future years will depend on engineering
studies and legislative and technological developments which cannot be
predicted at this time, such costs could increase as environmental regulations
become more stringent. Environmental expenditures include projects that, in
addition to meeting environmental concerns, may yield certain benefits to us in
the form of increased capacity and production cost savings. In addition to
capital expenditures for environmental control equipment and facilities, other
expenditures incurred to maintain environmental regulatory compliance
(including any remediation costs) represent ongoing costs to us.
Effects of Inflation
Although inflation has slowed in recent years, it is still a factor in the
economy and we continue to seek ways to mitigate its impact. In 2000, energy
resources were tight in certain areas of the United States and prices of
natural gas and purchased electricity escalated dramatically. Our paper mills
are large users of energy and we attempt to mitigate these cost increases
through hedging programs and supply contracts. With the exception of energy
costs, inflationary increases in operating costs have been moderate during the
last three years and have not had a material impact on our financial position
or operating results.
We use the last-in, first-out method of accounting for approximately 82% of
our inventories. Under this method, the cost of goods sold reported in the
financial statements approximates current cost and thus provides a closer
matching of revenue and expenses in periods of increasing costs. On the other
hand, depreciation charges represent the allocation of historical costs
incurred over past years and are significantly less than if they were based on
the current cost of productive capacity being consumed.
Prospective Accounting Standards
In 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which is
required to be adopted in the years beginning after June 15, 2000. We will
adopt Statement No. 133 effective January 1, 2001. The statement requires us to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
the derivatives will either be offset against the change in fair value of the
hedged assets, liabilities or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is
18
recognized in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings.
Based on our derivative positions at December 31, 2000, we estimate that
upon adoption, we will record an asset for the fair value of existing
derivatives of approximately $4 million and a corresponding reduction in cost
of goods sold.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our earnings and cash flows are significantly affected by the amount of
interest on our indebtedness. Our financing arrangements include both fixed and
variable rate debt in which changes in interest rates will impact the fixed and
variable debt differently. A change in the interest rate of fixed rate debt
will impact the fair value of the debt, whereas a change in the interest rate
on the variable rate debt will impact interest expense and cash flows.
Management's objective is to protect JSCE from interest rate volatility and
reduce or cap interest expense within acceptable levels of market risk. We may
periodically enter into interest rate swaps, caps or options to hedge interest
rate exposure and manage risk within company policy. We do not utilize
derivatives for speculative or trading purposes. Any derivative would be
specific to the debt instrument, contract or transaction, which would determine
the specifics of the hedge. There were no derivative contracts outstanding at
December 31, 2000.
The table below presents principal amounts by year of anticipated maturity
for our debt obligations and related average interest rates based on the
weighted average interest rates at the end of the period. Variable interest
rates disclosed do not attempt to project future interest rates. This
information should be read in conjunction with Note 5 of the Notes to
Consolidated Financial Statements.
Short and Long-Term Debt Outstanding as of December 31, 2000
There- Fair
2001 2002 2003 2004 2005 after Total Value
---- ---- ---- ---- ---- ------ ------ ------
(in millions)
Bank term loans and revolver
8.71% average interest rate
(variable)...................... $ $ 50 $ 50 $ 75 $126 $56 $ 357 $ 355
Accounts receivable
securitization
6.63% average interest rate
(variable)...................... 15 212 227 227
Senior notes
10.35% average interest rate
(fixed)......................... 100 500 287 887 893
Industrial revenue bonds
7.33% average interest rate
(fixed)......................... 4 24 28 28
Other............................ 10 7 5 1 1 6 30 30
--- ---- ---- ---- ---- --- ------ ------
Total debt................... $10 $172 $771 $363 $127 $86 $1,529 $1,533
=== ==== ==== ==== ==== === ====== ======
19
BUSINESS
General
JSCE, Inc., a Delaware corporation, is an integrated producer of
containerboard, corrugated containers and other packaging products. We conduct
all of our business operations through our wholly-owned subsidiary Jefferson
Smurfit Corporation (U.S.), a Delaware corporation. Jefferson Smurfit (U.S.)
has extensive operations throughout the United States. For the year ended
December 31, 2000, net sales were $3,867 million and net income was $151
million.
We are a wholly-owned subsidiary of Smurfit-Stone Container Corporation, a
Delaware corporation. Smurfit-Stone is a holding company with no business
operations of its own. Smurfit-Stone conducts its business operations through
two wholly-owned subsidiaries: JSCE and Stone Container Corporation, a Delaware
corporation. Our operations are organized by industry segments:
. containerboard and corrugated containers,
. consumer packaging and
. reclamation.
For a summary of revenues, profits, identifiable assets, capital
expenditures and depreciation, depletion and amortization for each of our
segments, see Note 14, "Business Segment Information" of the Notes to
Consolidated Financial Statements contained in this prospectus.
Products
Containerboard and Corrugated Containers Segment
Sales for the Containerboard and Corrugated Container segment in 2000 were
$2,080 million (including $47 million of intersegment sales). This segment
includes four paper mills, 46 container plants and a wood products plant
located in the United States, one container plant located in Mexico and one
container plant located in Puerto Rico. In addition, we own 63% of a medium
paper mill located in New Hampshire. The primary products of the Containerboard
and Corrugated Containers segment include:
. corrugated containers;
. containerboard; and
. solid bleached sulfate.
JSCE offers a full range of high quality corrugated containers designed to
protect, ship, store and display products and satisfy customers' merchandising
and distribution needs. Corrugated containers are sold to a broad range of
manufacturers of consumable goods. Corrugated containers are used to ship such
diverse products as home appliances, electric motors, small machinery, grocery
products, produce, computers, books, furniture and many other products. We
provide customers with innovative packaging solutions to advertise and sell
their products. JSCE, along with its affiliates, has the most complete line of
graphic capabilities in the industry, including flexographic and lithographic
preprint, colored and coated substrates, lithographic labels and high
resolution post print. In addition, we offer a complete line of retail ready,
point of purchase displays and a full line of specialty products, including
pizza boxes, corrugated clamshells for the food industry, Cordeck(R) recyclable
pallets and custom die-cut boxes to display packaged merchandise on the sales
floor. Our container plants serve local customers and large national accounts.
20
Production for the paper mills, including our proportionate share of the
affiliate mill, and sales volume for the corrugated container facilities for
the last three years were:
1998 1999 2000
----- ----- -----
Tons produced (in thousands)
Containerboard........................................ 1,978 1,592 1,433
Solid bleached sulfate................................ 185 189 190
Corrugated containers sold (in billion sq. ft.)......... 29.9 29.1 28.7
Our containerboard mills produce a full line of containerboard, which, for
2000, included 878,000 tons of unbleached kraft linerboard, 275,000 tons of
white top linerboard and 280,000 tons of recycled medium. The containerboard
mills and corrugated container operations are highly integrated, with the
majority of the containerboard production used internally by our corrugated
container operations or by Stone Container's corrugated container operations.
In 2000, the container plants consumed 1,876,000 tons of containerboard.
We also produce solid bleached sulfate, some of which is consumed internally
by the folding carton plants. In addition, another containerboard mill produces
uncoated recycled boxboard, which is consumed by consumer packaging plants.
Consumer Packaging Segment
Sales for the Consumer Packaging segment in 2000 were $1,043 million
(including $26 million of intersegment sales). This segment includes seven
paper mills, 17 folding carton plants and nine other converting plants located
in the United States. The primary products of our Consumer Packaging segment
include:
. folding cartons;
. coated recycled boxboard;
. uncoated recycled boxboard;
. paper, foil and heat transfer labels; and
. rotogravure cylinders.
Folding cartons are used primarily to protect customers' products, while
providing point of purchase advertising. We offer a full range of carton styles
appropriate to nearly all carton end uses. The folding carton plants offer
extensive converting capabilities, including sheet and web lithographic,
rotogravure and flexographic printing and laminating. The folding carton plants
also provide a full line of structural and graphic design services tailored to
specific technical requirements, as well as photography for packaging, sales
promotion concepts and point of purchase displays. Converting capabilities
include gluing, tray forming, windowing, waxing and laminating, plus other
specialties. The customer base is made up primarily of producers of packaged
foods, beverages, fast food, detergents, paper, pharmaceuticals and cosmetics.
Our customers range from local accounts to large national accounts.
All of our boxboard is made from 100 percent reclaimed fiber. Production for
the coated and uncoated boxboard mills and sales volume for the folding carton
facilities for the last three years were:
1998 1999 2000
---- ---- ----
Tons produced (in thousands)
Coated boxboard.......................................... 582 581 590
Uncoated boxboard........................................ 128 118 126
Folding cartons sold (tons, in thousands).................. 507 549 561
21
Our coated boxboard mills produce the broadest range of recycled grades in
the industry, including clay-coated newsback, kraftback and whiteback, as well
as waxable and laminated grades. The coated boxboard mills and folding carton
operations are highly integrated, with the majority of the coated boxboard
production used internally by the folding carton operations. In 2000, the
folding carton and lamination plants consumed 561,000 tons of recycled boxboard
and solid bleached sulfate, representing an integration level of approximately
68%.
Our uncoated boxboard production is used primarily in the manufacture of
paper tube and core products. Uncoated boxboard products include reclaimed
fiber drum stock, tube stock, bending chip, shoe boxboard, partitions and
electrostatic disapative board (PROTECH(R)).
We produce paper and metallized paper labels and DI-NA-CAL(R) heat transfer
labels which are used in a wide range of industrial and consumer product
applications. DI-NA-CAL(R) is a proprietary labeling system that applies high-
speed heat transfer labels to plastic containers. We also produce specialized
laminations of film, foil and paper and high-quality rotogravure cylinders. We
have a full-service organization experienced in the production of color
separations and lithographic film for the commercial printing, advertising and
packaging industries.
Reclamation Segment
Our reclamation operations procure fiber resources for Smurfit-Stone's paper
mills as well as for other producers. We operate reclamation facilities
throughout the United States that collect, sort, grade and bale recovered
paper. We also collect aluminum and glass. In addition, we operate a nationwide
brokerage system whereby we purchase and resell recovered paper to Smurfit-
Stone's recycled paper mills and other producers on a regional and national
contract basis. Brokerage contracts provide bulk purchasing, resulting in lower
prices and cleaner recovered paper. Many of the reclamation facilities are
located close to Smurfit-Stone's recycled paper mills, ensuring availability of
supply with minimal shipping costs. Domestic tons of recovered paper collected
for 2000, 1999 and 1998 were 6,768,000, 6,560,000 and 5,155,000, respectively.
Sales of recycled materials in 2000 were $726 million (including $121 million
of intersegment sales).
Other Non-reportable Segments
Specialty Packaging
We produce paper tubes and cores, solid fiber partitions and flexible
packaging products at 22 locations in the United States and one plant in
Canada. Paper tubes and cores are used primarily for paper, film and foil, yarn
carriers and other textile products and furniture components. Solid fiber
partitions are used by customers in the pharmaceutical, cosmetics, glass
container, automotive and medical supply industries. In addition, our contract
packaging plant provides custom contract packaging services, including
cartoning, bagging, liquid-filling or powder-filling and high-speed
overwrapping. In 2000, sales of specialty packaging products were $205 million
(including $9 million of intersegment sales).
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. Cladwood(R) is produced at two locations in Oregon. Sales
for Cladwood(R) in 2000 were $16 million.
Fiber Resources
Wood fiber and reclaimed fiber are the principal raw materials used in the
manufacture of our paper products. We satisfy the majority of our need for wood
fiber through purchases on the open market or under supply agreements. We
satisfy essentially all of our need for reclaimed fiber through our reclamation
operations and our nationwide brokerage system.
22
Wood fiber and reclaimed fiber are purchased in highly competitive, price-
sensitive markets, which have historically exhibited price and demand
cyclicality. Conservation regulations have caused, and will likely continue to
cause, a decrease in the supply of wood fiber and higher wood fiber costs in
some of the regions in which we procure wood fiber. Fluctuations in supply and
demand for reclaimed fiber have occasionally caused tight supplies of reclaimed
fiber and, at those times, we have experienced an increase in the cost of such
fiber. While we have not experienced any significant difficulty in satisfying
our need for wood fiber and reclaimed fiber, we can give no assurances that
this will continue to be the case for any or all of our mills.
Marketing
Our marketing strategy is to sell a broad range of paper-based packaging
products to marketers of industrial and consumer products. In managing the
marketing activities of our paperboard mills, we seek to meet the quality and
service needs of the customers at our package converting plants at the most
efficient cost, while balancing those needs against the demands of our open
market customers. Our converting plants focus on supplying both specialized
packaging with high value graphics that enhance a product's market appeal and
high volume sales of commodity products.
We seek to serve a broad customer base for each of our segments and as a
result serve thousands of accounts. Each plant has its own sales force and many
have product design engineers and other service professionals who are in close
contact with customers to respond to their specific needs. We complement our
local plants' marketing and service capabilities with regional and national
design and service capabilities. We also maintain national sales offices 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.
Our business is not dependent upon a single customer or upon a small number
of major customers. We do not believe the loss of any one customer would have a
materially adverse effect on our business.
Competition
The markets in which we sell our principal products are highly competitive
and comprised of many participants. Although no single company is dominant, we
do face significant competitors in each of our businesses. Our competitors
include large vertically integrated companies as well as numerous smaller
companies. The industries in which we compete are particularly sensitive to
price fluctuations brought about by shifts in industry capacity and other
cyclical industry conditions. Other competitive factors include design, quality
and service, with varying emphasis depending on product line.
Backlog
Demand for our major product lines is relatively constant throughout the
year and seasonal fluctuations in marketing, production, shipments and
inventories are not significant. Backlogs are not a significant factor in the
industry. We do not have a significant backlog of orders as most orders are
placed for delivery within 30 days.
Research and Development
Our research and development center, located in Carol Stream, Illinois, uses
state-of-the-art technology to assist all levels of the manufacturing and sales
processes, from raw material 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.
We actively pursue applications for patents on new inventions and designs
and attempt to protect our patents against infringement. Nevertheless, we
believe our success and growth are more dependent on the
23
quality of our products and our relationships with customers, than on the
extent of our patent protection. We hold or are licensed to use certain
patents, licenses, trademarks and trade names on products. However, we do not
consider the successful continuation of any material aspect of our business to
be dependent upon such intellectual property.
Employees
We had approximately 14,100 employees at December 31, 2000, of which
approximately 13,900 were employees of U.S. operations. Of the domestic
employees, approximately 8,700 (63%) are represented by collective bargaining
units. The expiration dates of union contracts for our major paper mill
facilities are as follows:
. the Brewton, Alabama mill, expiring in October 2002 and
. the Fernandina Beach, Florida mill, expiring in June 2003.
We believe our employee relations are generally good. We are currently in
the process of bargaining with unions representing production employees at a
number of our operations. While the terms of these agreements may vary, we
believe the material terms of our collective bargaining agreements are
customary for the industry, the type of facility, the classification of the
employees and the geographic location covered by such agreements.
Properties
We maintain manufacturing facilities and sales offices throughout North
America. Our facilities are properly maintained and equipped with machinery
suitable for their use. Our manufacturing facilities as of December 31, 2000
are summarized below.
Number of
Facilities
------------------ State
Total Owned Leased Locations
----- ----- ------ ---------
United States
Paper mills...................................... 11 11 8
Corrugated container plants...................... 46 34 12 21
Consumer packaging plants........................ 26 20 6 11
Specialty packaging plants....................... 23 5 18 16
Reclamation plants............................... 26 17 9 15
Cladwood(R) plants............................... 2 2 1
Wood products plant.............................. 1 1 1
--- --- ---
Sub-total........................................ 135 90 45 30
Canada and Other North America
Corrugated container plants...................... 2 2 N/A
Specialty packaging plant........................ 1 1 N/A
Reclamation plant................................ 1 1 N/A
--- --- ---
Total.......................................... 139 93 46 N/A
The paper mills represent approximately 57% of our investment in property,
plant and equipment. The approximate annual tons of productive capacity of our
paper mills, including our proportionate share of the affiliate's productive
capacity, at December 31, 2000 were:
Annual
Capacity
--------------
(in thousands)
Containerboard............................................. 1,641
Solid bleached sulfate..................................... 200
Coated and uncoated boxboard............................... 782
-----
Total.................................................. 2,623
24
Litigation
Our subsidiary, Smurfit Newsprint Corporation, is a party to a Settlement
Agreement to implement a nationwide class action settlement of claims involving
Cladwood(R), a composite wood siding product manufactured by Smurfit Newsprint
that has been used primarily in the construction of manufactured or mobile
homes. The class action claimants alleged that Cladwood(R) siding on their
homes prematurely failed. The settlement was reached in connection with a class
action pending in King County, Washington and also resolved all other pending
class actions. Pursuant to the settlement, Smurfit Newsprint paid $20 million
into a settlement fund, plus up to approximately $6.5 million of administrative
costs, plaintiffs' attorneys' fees, and class representative payments. Smurfit
Newsprint retained a reversionary interest in a portion of the settlement fund
and, based on this interest, obtained a return of $10 million from the fund in
2000 in exchange for the posting of a letter of credit in the same amount. The
claims period is scheduled to expire in February 2002. We do not believe we
will incur liabilities in excess of the established reserves for this matter.
In 1998, seven putative class action complaints were filed in the United
States District Court for the Northern District of Illinois and in the United
States District Court for the Eastern District of Pennsylvania. These
complaints alleged that Stone Container reached agreements in restraint of
trade that affected the manufacture, sale and pricing of corrugated products in
violation of antitrust laws. The complaints have been amended to name several
other defendants, including Jefferson Smurfit (U.S.) and Smurfit-Stone. The
suits seek an unspecified amount of damages arising out of the sale of
corrugated products for the period from October 1, 1993 through March 31, 1995.
Under the provisions of the applicable statutes, any award of actual damages
could be trebled. The Federal Multidistrict Litigation Panel has ordered all of
the complaints to be transferred to and consolidated in the United States
District Court for the Eastern District of Pennsylvania. We believe we have
meritorious defenses and are vigorously defending these cases.
We are 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 us cannot
be predicted with certainty, our management believes the resolution of these
matters will not have a material adverse effect on our consolidated financial
condition or results of operations.
Environmental Compliance
Our operations are subject to extensive environmental regulation by federal,
state and local authorities. In the past, we have made significant capital
expenditures to comply with water, air, solid and hazardous waste and other
environmental laws and regulations. We expect to make significant expenditures
in the future for environmental compliance. Because various environmental
standards are subject to change, it is difficult to predict with certainty the
amount of capital expenditures that will ultimately be required to comply with
future standards.
In particular, the United States Environmental Protection Agency (EPA) has
finalized significant parts of its comprehensive rule governing the pulp, paper
and paperboard industry, known as the "Cluster Rule". Compliance with this rule
has required and will continue to require substantial expenditures. We have
spent approximately $70 million (of which approximately $55 million was spent
in 2000) for capital projects to comply with the initial portions of the
Cluster Rule and anticipate additional spending of approximately $13 million in
2001 to complete these projects. Additional portions of the Cluster Rule, some
of which are not yet finalized, could require up to $15 million in capital
expenditures over the next several years. The remaining cost of complying with
the regulations cannot be predicted with certainty until the remaining portions
of the Cluster Rule are finalized.
In addition to Cluster Rule compliance, we also anticipate additional
capital expenditures related to environmental compliance. Excluding the
spending on Cluster Rule projects described above, for the past three years, we
have spent an average of approximately $3 million annually on capital
expenditures for environmental purposes. Since our principal competitors are
subject to comparable environmental standards,
25
including the Cluster Rule, management is of the opinion, based on current
information, that compliance with environmental standards will not adversely
affect our competitive position.
Environmental Matters
Federal, state and local environmental requirements are a significant factor
in our business. We employ processes in the manufacture of paperboard and other
products, which result in various discharges, emissions, and wastes. These
processes are subject to numerous federal, state and local environmental laws
and regulations, including reporting and disclosure obligations. We operate and
expect to operate under permits and similar authorizations from various
governmental authorities that regulate such discharges, emissions, and wastes.
We also face 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 lawfulness of the original disposal. We have received notice that
we are or may be a PRP at a number of federal and/or state sites where response
action may be required and as a result may have joint and several liability for
cleanup costs at such sites. However, liability for CERCLA sites is typically
shared with other PRPs and costs are commonly allocated according to relative
amounts of waste deposited. Our relative percentage of waste deposited at a
majority of these sites is quite small. In addition to participating in the
remediation of sites owned by third parties, we have entered into consent
orders for the investigation and/or remediation of certain company-owned
properties.
Based on current information, we believe the probable costs of the potential
environmental enforcement matters discussed above, response costs under CERCLA
and similar state laws, and the remediation of owned property will not have a
material adverse effect on our financial condition or results of operations. We
believe that our liability for these matters was adequately reserved at
December 31, 2000.
26
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, "CCA" refers to
Container Corporation of America (the predecessor entity to JSC (U.S.)); "Old
JSC (U.S.)" refers to Jefferson Smurfit Corporation (U.S.) prior to its merger
with and into CCA; and "JSC" refers to Jefferson Smurfit Corporation, now known
as "Smurfit-Stone Container Corporation."
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 ("NationsBank"). The Series B Senior Notes
were issued under an Indenture (the "Series B Senior Note Indenture") among Old
JSC (U.S.), CCA and NationsBank, as trustee. The 1993 Senior Notes were issued
under an Indenture (the "1993 Senior Note Indenture" and together with the
Series A Senior Note Indenture and Series B Senior Note Indenture, the
"Indentures") among Old JSC (U.S.), CCA and NationsBank, as trustee. On
December 31, 1995, The Bank of New York (the "Series A Senior Note Trustee,"
the "Series B Senior Note Trustee" and the "1993 Senior Note Trustee") replaced
NationsBank, as trustee under the Indentures. Except as described under "--
Optional Redemption" below or as otherwise indicated, this description applies
to each Indenture, and references to the "notes" shall be to the Series A
Senior Notes, the Series B Senior Notes or the 1993 Senior Notes, as the case
may be, or, if the context requires, to all three.
The following description is a summary of the material provisions of the
Indentures. It does not restate those agreements in their entirety. We urge you
to read the Indentures because they, and not this description, define your
rights as holders of the notes. We have filed copies of the Indentures as
exhibits to the registration statement which includes this prospectus. 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 notes is payable, and the
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, shall be the office or agency of the Series A Senior Note Trustee at 61
Broadway, Suite 1412, New York, New York 10006, for the Series B Senior Notes,
shall be the office or agency of the Series B Senior Note Trustee at 61
Broadway, Suite 1412, New York, New York 10006, and for the 1993 Senior Notes,
shall be the office or agency of the 1993 Senior Note Trustee at 61 Broadway,
Suite 1412, New York, New York 10006); provided that, at our option, 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 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 notes,
but we 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 Notes
The Series A Senior Notes and Series B 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 note bears interest at the rate per annum shown on the front cover of this
prospectus 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.
27
The 1993 Senior Notes are unsecured senior obligations of JSC (U.S.),
limited to $500 million aggregate principal amount, and will mature on April 1,
2003. Each 1993 Senior Note bears interest at the rate per annum shown on the
front cover of this prospectus 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 March 15 or September 15
immediately preceding the Interest Payment Date) on April 1 and October 1 of
each year.
Optional Redemption
JSC (U.S.) may not redeem the Series B Senior Notes or the 1993 Senior Notes
prior to maturity.
On March 28, 2001, JSC (U.S.) amended the 1998 Credit Agreement to permit
the redemption of the Series A Senior Notes.
On April 4, 2001, JSC (U.S.) called all of the Series A Senior Notes for
redemption on May 4, 2001.
Ranking
The Indebtedness evidenced by the 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 1998 Credit Agreement. JSCE's
guarantee of the notes ranks pari passu in right of payment with all other
unsubordinated indebtedness of JSCE, including, without limitation, JSCE's
obligations under the 1998 Credit Agreement.
JSC (U.S.)'s obligations under the 1998 Credit Agreement and JSCE's
guarantees of such obligations are secured by pledges of substantially all of
our assets with the exception of cash and cash equivalents and trade
receivables. JSC (U.S.)'s obligations under the 1998 Credit Agreement, but not
the notes, are guaranteed by JSC, JSCE and certain of JSC's subsidiaries, 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 notes and JSCE's guarantee of
the notes will be effectively subordinated to such security interests and
guarantees to the extent of such security interests and guarantees. As of
December 31, 1999, JSC (U.S.) had outstanding approximately $1,636 million of
senior indebtedness (excluding intercompany indebtedness), of which
approximately $709 million was secured indebtedness. The secured indebtedness
will have priority over the notes with respect to the assets securing such
indebtedness. See "Risk Factors--Effective Subordination" for a further
discussion of security for the notes.
Guarantee
JSC (U.S.)'s obligations under the 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. Some definitions appear in
the 1993 Senior Note Indenture that do not appear in the other Indentures, and
vice versa. 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;
28
provided that the following items shall be excluded in computing Adjusted
Consolidated Net Income (without duplication):
(1) 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;
(2) 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
(1) 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;
(3) 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;
(4) any gains or losses (on an after-tax basis) attributable to Asset
Sales;
(5) 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;
(6) all extraordinary gains and extraordinary losses; and
(7) 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 (11) 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 (1) 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:
(1) All current liabilities of JSCE and its Subsidiaries (excluding
intercompany items); and
(2) 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, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether
29
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 Morgan
Stanley (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:
(1) 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
(2) 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:
(1) all or substantially all of the Capital Stock of any Subsidiary of
JSCE; or
(2) 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:
(1) 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);
(2) all or substantially all of the property and assets of an operating
unit or business of such Person or any of its Subsidiaries; or
(3) 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:
(1) the net proceeds from such sale-leaseback transaction; and
(2) 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.
30
"Average Life" is defined to mean, at any date of determination with respect
to any debt security, the quotient obtained by dividing:
(1) 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,
(2) 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 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:
(1)(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
(2)(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 respective series of
notes were 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.
31
"Consolidated EBITDA" is defined to mean, with respect to any Person for any
period, the sum of the amounts for such period of:
(1) Adjusted Consolidated Net Income;
(2) Consolidated Interest Expense;
(3) income taxes (other than income taxes (either positive or negative)
attributable to extraordinary and non-recurring gains or losses or
sales of assets);
(4) depreciation expense;
(5) amortization expense; and
(6) 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:
(1) the Adjusted Consolidated Net Income of such Subsidiary multiplied by
(2) the quotient of:
(a) 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
(b) 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,
(1) 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
(2) any premiums, fees and expenses (and any amortization thereof) payable
in connection with the 1989 Transaction, the 1992 Transaction, the 1993
Transaction (i.e., the Refinancing), the issuance of the New
Subordinated Notes and the applications of 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
32
foreign currency exchange adjustments under Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 52).
"Credit Agreement" is defined to mean either:
(1) the Credit Agreement, dated as of May 11, 1994, amended and restated as
of November 18, 1998, among JSC, JSCE, JSC (U.S.), The Chase Manhattan
Bank, Bankers Trust Company and the other lenders, as amended from time
to time (the "1998 Credit Agreement"); or
(2) any Credit Agreement which amends, supplements, extends, renews,
replaces, or otherwise modifies from time to time, including, without
limitation, any agreement increasing the amount of, extending the
maturity of, refinancing or otherwise restructuring all or any portion
of such agreement or agreements, provided that such agreement will be a
Credit Agreement under the Indenture only if a notice to that effect is
delivered to the Trustee and there shall be at any time no more than
two instruments that are Credit Agreements.
"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:
(1) derives more than 80% of its sales or net income from; or
(2) 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:
(1) the amortization of any expenses incurred in connection with the 1989
Transaction, the 1992 Transaction, the 1993 Transaction (i.e., the
Refinancing), the issuance of the New Subordinated Notes and the
application of the proceeds thereof or the Recapitalization Plan;
(2) except as otherwise provided, the amortization of any amounts required
or permitted by Accounting Principles Board Opinion Nos. 16 and 17; and
(3) 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:
(1) 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
33
agreement to keep-well, to purchase assets, goods, securities or
services, to take-or-pay, or to maintain financial statement conditions
or otherwise); or
(2) 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 or 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 "Securityholder" or "Senior Notes Holder" is
defined to mean the registered holder of any Series A Senior Note, Series B
Senior Note or 1993 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):
(1) all indebtedness of such Person for borrowed money;
(2) 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);
(3) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto);
(4) 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;
(5) all obligations of such Person as lessee under Capitalized Leases;
(6) 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;
(7) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person;
(8) all obligations in respect of borrowed money under any Credit
Agreement, the Secured Notes and any Guarantees thereof; and
(9) 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
34
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:
(1) 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
(2) 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:
(i) any Indebtedness Incurred subsequent to the end of the four-
fiscal-quarter period referred to in clause (1) 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);
(ii) any Indebtedness Incurred during such period to the extent such
Indebtedness is outstanding at the Transaction Date; and
(iii) 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
35
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:
(1) "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
(2) 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.
"JSC" is defined to mean Jefferson Smurfit Corporation, a Delaware
corporation, now known as Smurfit-Stone Container 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:
(1) brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale;
36
(2) 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;
(3) 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
(4) 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 Senior Notes", when used in reference to the 1993 Senior Notes, is
defined to mean the Series A Senior Notes and Series B Senior Notes and such
other debt securities that may be issued in substitution therefor (in whole or
in part) pursuant to clause (1) of the definition of "Recapitalization Plan",
in each case issued in connection with the Recapitalization Plan.
"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:
(1) JSC acquired the entire equity interest in Old JSC (U.S.);
(2) Old JSC (U.S.) (through its ownership of JSC Enterprises) acquired the
entire equity interest in CCA;
(3) the MSLEF I Group received $500 million in respect of its shares of CCA
common stock;
(4) 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
(5) the public stockholders received $43 per share of Old JSC (U.S.) stock.
"1993 Transaction" is defined to mean the issuance and sale of the 1993
Senior Notes, 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 (also referred to as the Refinancing).
"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.
37
"Permitted Liens" is defined to mean:
(1) 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;
(2) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other similar Liens arising in the
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;
(3) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security;
(4) 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);
(5) 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;
(6) 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:
(i) 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
(ii) 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;
(7) leases or subleases granted to others that do not materially interfere
with the ordinary course of business of JSCE or any of its
Subsidiaries;
(8) 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;
(9) 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;
(10) Liens arising from filing Uniform Commercial Code financing statements
regarding leases;
(11) 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;
38
(12) Liens in favor of JSCE or any Restricted Subsidiary;
(13) 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;
(14) 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;
(15) 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;
(16) 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 any Credit Agreement, in each
case securing Indebtedness under Interest Rate Agreements, Currency
Agreements and forward contracts, options, futures contracts, futures
options or similar agreements or arrangements designed to protect JSCE
or any of its Subsidiaries from fluctuations in the price of
commodities;
(17) 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;
(18) Liens on or sales of receivables; and
(19) 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 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 Closing Date" is defined to mean the date on which the
transactions described in clauses (1) through (4) of the definition of
"Recapitalization Plan" are consummated; provided that if such transactions do
not occur on the same date, "Recapitalization Closing Date" shall be defined to
mean the date designated as such by the Company.
"Recapitalization Plan" is defined to mean, collectively, the following
transactions:
(1) the sale of the Series A and Series B Senior Notes;
39
(2) the sale by JSC of JSC Common Stock substantially concurrently with the
transaction described in clause (1);
(3) the SIBV Investment substantially concurrently with the transaction
described in clause (1);
(4) the execution and delivery of the 1994 Credit Agreement;
(5) the application of the proceeds of the transactions described in
clauses (1) through (4);
(6) the Existing Subordinated Debt Refinancing;
(7) 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;
(8) 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
(9) 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:
(1) required to be redeemed prior to the Stated Maturity of the notes;
(2) 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 notes; or
(3) convertible into or exchangeable for Capital Stock referred to in
clause (1) or (2) above or Indebtedness having a scheduled maturity
prior to the Stated Maturity of the 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 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 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 notes, as are required to be repurchased pursuant to
the "Limitation on Asset Sales" and "Repurchase of Notes upon Change of
Control" covenants described below.
"Refinancing" is defined to mean the issuance and sale of the 1993 Senior
Notes, the repayment of Indebtedness under the credit agreements in effect in
1993 with the proceeds of such sale and the amendments (and consent payments in
respect thereof) to the credit agreements in effect in 1993 and the Secured
Notes, and the agreements related thereto, that were effected prior to, or at
approximately the same time as, the issuance and sale of the 1993 Senior Notes.
40
"Restricted Subsidiary" is defined to mean any Subsidiary of JSCE other
than an Unrestricted Subsidiary.
"Secured Notes" is defined to mean CCA's Senior Secured Floating Rate
Senior Notes due 1998 and the note purchase agreement relating thereto, as the
foregoing may be amended from time to time.
"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 Series A and Series B Senior Notes.
"Significant Subsidiary" is defined to mean, at any date of determination,
any Subsidiary of JSCE that, together with its Subsidiaries:
(1) for the most recent fiscal year of JSCE, accounted for more than 10% of
the consolidated revenues of JSCE; or
(2) 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.
"Smurfit Newsprint" is defined to mean Smurfit Newsprint Corporation, a
Delaware corporation.
"Stated Maturity" is defined to mean:
(1) 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
(2) 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.
"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:
(1) 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
(2) 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
41
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.
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
2.00:1.
Notwithstanding the foregoing, JSCE and any Restricted Subsidiary (except
as expressly provided below) may Incur each and all of the following:
(1) 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 1994 Credit Agreement on the Closing
Date less any Indebtedness Incurred pursuant to clause (3) below to
refinance or refund the Junior Accrual Debentures, the Senior
Subordinated Notes or the Subordinated Debentures (or, in the case
of the 1993 Senior Note Indenture, Indebtedness of JSCE and CCA
outstanding at any time in an aggregate principal amount not to
exceed the sum of (x) the amount of outstanding Indebtedness and
unused commitments under the 1994 Credit Agreement on the
Recapitalization Closing Date less any Indebtedness Incurred
pursuant to clause (3) below to refinance or refund the Junior
Accrual Debentures, the Senior Subordinated Notes or the
Subordinated Debentures and (y) the Indebtedness represented by the
New Senior Notes);
(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
42
outstanding Indebtedness and unused commitments under the 1994
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:
(i) any Indebtedness Incurred pursuant to clause (3) below to
refinance or refund the Junior Accrual Debentures, the Senior
Subordinated Notes or the Subordinated Debentures; and
(ii) the amount of Indebtedness Incurred under clause (1)(a) of this
paragraph (or, in the case of the 1993 Senior Note Indenture,
of JSC Enterprises, CCA Enterprises and Smurfit Newsprint under
any Credit Agreement);
(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 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 notes
will be subordinated to such Subsidiary's Guarantee of the 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 (or, in the case of the
1993 Senior Note Indenture, having been granted to any Person);
(2) 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;
(3) 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 (1)(a), (b) or (d), (2)(c), (4) or (9) 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 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 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 (3) if:
(a) in case the Indebtedness to be refinanced is subordinated in right
of payment to the notes or JSCE's Guarantee thereof, such new
Indebtedness, by its terms or by 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 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 notes or JSCE's Guarantee thereof, as the
case may be;
43
(b) in case the notes are refinanced in part or the Indebtedness to be
refinanced is pari passu with, or subordinated in right of payment
to, the 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 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 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 (3) may
not be Indebtedness of any Restricted Subsidiary of JSCE other than
CCA;
(4) 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;
(5) Indebtedness in respect of letters of credit and bankers' acceptances
Incurred in the ordinary course of business consistent with past
practice;
(6) 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 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 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 notes required to be repurchased
by CCA under the "Limitation on Asset Sales" and "Repurchase of
Notes upon Change of Control" covenants) at any time prior to the
Stated Maturity of the 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;
(7) 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;
44
(8) 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;
(9) 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 (9) 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 (9) but which was not so
Incurred; and
(10) 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 or CCA's Common Stock held by
employees of JSC, JSCE or any of its Restricted Subsidiaries (or, in
the case of the 1993 Senior Note Indenture, employees of JSCE and 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 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 notes are
outstanding.
In the case of the Series A Senior Note Indenture and the Series B Senior
Note Indenture, notwithstanding any other provision of this "Limitation on
Indebtedness" covenant:
(1) 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;
(2) Indebtedness Incurred pursuant to the 1994 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 (2) 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 (1)(a)
or (1)(c), as the case may be, of the second paragraph of this
"Limitation on Indebtedness" covenant;
(3) for purposes of calculating the amount of Indebtedness outstanding at
any time under clause (1) 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
notes, shall be considered to be outstanding; and
(4) 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 notes or JSCE's Guarantee of
the 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 (4) 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.
45
In the case of the 1993 Senior Note Indenture, notwithstanding any other
provision of this "Limitation on Indebtedness" covenant,
(1) 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;
(2) Indebtedness Incurred pursuant to the 1994 Credit Agreement, or
represented by the New Senior Notes, on the Recapitalization 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 Common Stock
of JSC pursuant to clause (2) of the definition of "Recapitalization
Plan" and the application of any proceeds thereof) shall be treated as
Incurred immediately after the Recapitalization Closing Date pursuant
to clause (1)(a) of the second paragraph of this "Limitation on
Indebtedness" covenant;
(3) for purposes of calculating the amount of Indebtedness outstanding at
any time under clauses (1)(b) and (1)(d) 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
shall be considered to be outstanding and 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 JSCE's Guarantee of the 1993 Senior Notes or the New
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 (4) 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 of clause (1) 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)
46
Limitation On Restricted Payments
So long as any of the notes are outstanding, JSCE will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(1) 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 other than JSCE or any Restricted Subsidiary that is a
Wholly Owned Subsidiary of JSCE;
(2) 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;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other voluntary
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
notes (other than the Senior Subordinated Notes, the Subordinated
Debentures and the Junior Accrual Debentures); or
(c) Indebtedness of JSCE that is subordinated in right of payment to
JSCE's Guarantee of the notes (other than the Guarantees of JSCE
with respect to the Senior Subordinated Notes, the Subordinated
Debentures and the Junior Accrual Debentures); or
(4) make any Investment in any Unrestricted Subsidiary (such payments or
any other actions described in clauses (1) through (4) 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:
(i) 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
(ii) 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
47
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 notes) plus all
amounts contributed to the capital of JSCE by JSC; plus
(iii) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries (other than such Investments made
pursuant to clause (5) 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
(iv) $25 million.
The foregoing provision shall not take into account, and shall not be
violated by reason of:
(1) 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;
(2) 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
notes; or
(c) Indebtedness of JSCE that is subordinated in right of payment to
JSCE's Guarantee of the notes, including premium, if any, and
accrued and unpaid interest, with the proceeds of, or in exchange
for, Indebtedness Incurred under clause (3) or (4) of the second
paragraph of the "Limitation on Indebtedness" covenant;
(3) 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 (and, in the case of the 1993 Senior Note
Indenture, any other sale of Capital Stock of JSC, JSCE or CCA
which is substantially concurrent with the public offering referred
to in (a)) (net of underwriting discounts and commissions, if any,
but without deducting other fees or expenses therefrom);
(4) the repurchase, 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;
(5) the making of Investments in Unrestricted Subsidiaries in an aggregate
amount not to exceed $25 million in each fiscal year of JSCE;
(6) the acquisition of:
(a) Indebtedness of JSC or a JSC Parent;
(b) Indebtedness of CCA which is subordinated in right of payment to
the notes; or
(c) Indebtedness of JSCE that is subordinated in right of payment to
JSCE's Guarantee of the 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);
48
(7) 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;
(8) 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;
(9) 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;
(10) 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
(11) the payment of pro rata dividends to holders of Capital Stock of
Smurfit Newsprint; provided that, in the case of clauses (2) through
(7), (11) and (12), 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 (3) and not by clause (2) 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 (3)
of this second paragraph of this "Limitation on Restricted Payments"
covenant shall reduce the amount available for Restricted Payments
under clause (4)(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 (4) above; or
(2) the acquisition of Indebtedness that is subordinated in right of
payment to the notes, as permitted by clause (6) 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 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:
(1) pay dividends or make any other distributions permitted by applicable
law on any Capital Stock of such Restricted Subsidiary owned by JSCE or
any other Restricted Subsidiary;
49
(2) pay any Indebtedness owed to JSCE or any other Restricted Subsidiary;
(3) make loans or advances to JSCE or any other Restricted Subsidiary; or
(4) 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:
(1) existing in any Credit Agreement;
(2) existing under the 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 (5)
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 a whole to the Holders than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced;
(3) 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 (or the Recapitalization Closing Date);
(4) existing under or by reason of applicable law;
(5) 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;
(6) in the case of clause (4) 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
(7) 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:
(a) entering into any agreement permitting or providing for the
incurrence of Liens otherwise permitted in the "Limitation on
Liens" covenant; or
(b) 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)
50
Limitation On the Issuance of Capital Stock of JSCE and Restricted Subsidiaries
Under the terms of the Indentures, 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:
(1) to JSCE or another Restricted Subsidiary that is a Wholly Owned
Subsidiary of JSCE;
(2) 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;
(3) 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;"
(4) issuances or sales to foreign nationals of shares of the Capital Stock
of Foreign Subsidiaries, to the extent mandated by applicable foreign
law; or
(5) 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 Indentures, 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 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:
(1) 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;
(2) any transaction among JSCE and any Restricted Subsidiaries or among
Restricted Subsidiaries;
(3) 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;
(4) 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;
(5) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant;
(6) the provision 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; or
(7) any transaction contemplated by the terms of the Recapitalization Plan.
(Section 3.07)
51
Limitation On Liens
Under the terms of the Indentures, 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 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:
(1) Liens securing obligations under:
(a) any Credit Agreement; and
(b) any Receivables Programs (and, in the case of the 1993 Senior Note
Indenture, the Secured Notes for so long as they remain
outstanding);
(2) other Liens existing on the Closing Date;
(3) Liens securing Indebtedness of Restricted Subsidiaries (other than
Acquired Indebtedness and refinancings thereof);
(4) Liens securing Indebtedness Incurred under clause (4) or (5) of the
second paragraph of the "Limitation on Indebtedness" covenant;
(5) Liens granted in connection with the extension, renewal or refinancing,
in whole or in part, of any Indebtedness described in clauses (1)
through (4) above; provided that with respect to clauses (2) and (3)
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;
(6) Liens with respect to Acquired Indebtedness permitted under clause (7)
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;
(7) Liens securing the Senior Subordinated Notes, the Subordinated
Debentures, the Junior Accrual Debentures or the other notes, in each
case to the extent required to be incurred pursuant to the terms of the
indentures governing such Indebtedness; or
(8) Permitted Liens. (Section 3.08)
Limitation On Sale-Leaseback Transactions
Under the terms of the Indentures, 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:
(1) the lease is for a period, including renewal rights, of not in excess
of three years;
52
(2) 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;
(3) the lease secures or relates to industrial revenue or pollution control
bonds;
(4) the transaction is between JSCE and any Restricted Subsidiary or
between Restricted Subsidiaries; or
(5) 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 Indentures, 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:
(1) 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
(2) apply (no later than the end of such 12-month period or 24-month
period, as the case may be, referred to in clause (1)) such excess Net
Cash Proceeds (to the extent not applied pursuant to clause (1)) 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 paragraph 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 the notes on a pro rata basis an aggregate
principal amount of notes equal to the Excess Proceeds on such date, at a
purchase price equal to 101% of the principal amount of such notes, plus, in
each case, accrued interest (if any) to the date of purchase (the "Excess
Proceeds Payment").
53
Notwithstanding the foregoing:
(1) 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
(2) 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:
(1) that the Excess Proceeds Offer is being made pursuant to this
"Limitation on Asset Sales" covenant and that all notes validly
tendered will be accepted for payment on a pro rata basis;
(2) 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");
(3) that any Senior Note not tendered will continue to accrue interest;
(4) 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;
(5) 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;
(6) 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 notes delivered for
purchase and a statement that such Holder is withdrawing his election
to have such notes purchased; and
(7) that Holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased portion
of the 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:
(1) accept for payment on a pro rata basis notes or portions thereof
tendered pursuant to the Excess Proceeds Offer;
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all notes or portions thereof so accepted; and
54
(3) deliver, or cause to be delivered, to the relevant Trustee all notes or
portions thereof so accepted together with an Officers' Certificate
specifying the notes or portions thereof accepted for payment by CCA.
The Paying Agent shall promptly mail to the Holders of 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
notes surrendered; provided that each note purchased and each new note
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 Excess Proceeds are received
by CCA under this "Limitation on Asset Sales" covenant and CCA is required to
repurchase 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 Notes upon Change of Control
(1) In the event of a Change of Control, each Holder shall have the right
to require the repurchase of its 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:
(a)(i)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
(ii) 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
(b) obtain the requisite consents, if any, under the instruments
governing any such unsubordinated Indebtedness of JSCE or CCA to
permit the repurchase of the 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
notes pursuant to this "Repurchase of Notes upon Change of Control"
covenant.
(2) Within 30 days of the Change of Control, CCA shall mail a notice to the
Trustee and each Holder stating:
(a) that a Change of Control has occurred, that the Change of Control
Offer is being made pursuant to this "Repurchase of Notes upon
Change of Control" covenant and that all notes validly tendered
will be accepted for payment;
(b) 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");
(c) that any notes not tendered will continue to accrue interest;
(d) that, unless CCA defaults in the payment of the Change of Control
Payment, any notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
55
(e) that Holders electing to have any notes or portion thereof
purchased pursuant to the Change of Control Offer will be required
to surrender such notes, together with the form entitled "Option of
the Holder to Elect Purchase" on the reverse side of such 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;
(f) 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
notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such notes purchased; and
(g) that Holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased
portion of the 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.
(3) On the Change of Control Payment Date, CCA shall:
(a) accept for payment notes or portions thereof tendered pursuant to
the Change of Control Offer;
(b) deposit with the Paying Agent money sufficient to pay the purchase
price of all notes or portions thereof so accepted; and
(c) deliver, or cause to be delivered, to the Trustee, all notes or
portions thereof so accepted together with an Officers' Certificate
specifying the notes or portions thereof accepted for payment by
CCA. The Paying Agent shall promptly mail, to the Holders of 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 note equal in principal amount to any unpurchased portion of
the notes surrendered; provided that each note purchased and each
new Senior Note issued shall be in an original principal amount of
$1,000 or integral multiples thereof. CCA will publicly 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 Notes upon Change of Control" covenant, the
Trustee shall act as 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 a Change of Control occurs under this
"Repurchase of Notes upon Change of Control" covenant and CCA is
required to repurchase notes as described above and CCA may modify
any of the foregoing provisions of this "Repurchase of 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 notes either pursuant to clause (1)(b) or clause (2) 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 notes
outstanding. See "--Events of Default." In addition, the failure by CCA to
repurchase 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 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.
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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 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 and the Secured
Notes (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 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 the Secured Notes, and any other indebtedness then outstanding which by its
terms prohibits such repurchases of the notes, either prior to or concurrently
with such repurchases.
Events of Default
The following events are defined as "Events of Default" in the Indenture:
(1) CCA defaults in the payment of principal of (or premium, if any, on)
any notes when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(2) CCA defaults in the payment of interest on any notes when the same
becomes due and payable, and such default continues for a period of 30
days;
(3) 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
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, or, in the case of the 1993 Senior Notes, written notice
by the Trustee or Holders of 25% or more in the aggregate principal
amount of the 1993 Senior Notes;
(4) 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 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;
(5) 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;
(6) a court having jurisdiction in the premises enters a decree or order
for:
(a) 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;
(b) 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
57
(c) 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;
(7) JSCE, CCA or any of their Significant Subsidiaries:
(a) 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;
(b) 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
(c) effects any general assignment for the benefit of creditors;
(8) JSCE, CCA and/or one or more of their Significant Subsidiaries fails to
make:
(a) at the final (but not any interim) fixed maturity of any issue of
Indebtedness a principal payment of $50 million or more; or
(b) 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 (a), such defaulted
payment shall not have been made, waived or extended within 30 days
of the payment default and, in the case of clause (b), 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 (b) to exceed $100 million; or
(9) 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 (4) or
clause (8) 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
(6) or (7) 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) (or, in the case of the
1993 Senior Note Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the 1993 Senior Notes, 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 (4), (8) or (9)
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 (4), (8) or (9) 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 (6) or (7) above occurs with respect to JSCE or
CCA, all unpaid principal of, premium, if any, and accrued interest on the
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 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
58
Senior Notes or Series B Senior Notes, as the case may be) (or, in the case of
the 1993 Senior Note Indenture, the Holders of at least a majority in aggregate
principal amount of the 1993 Senior Notes then outstanding), 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:
(1) all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the notes that have
become due solely by such declaration of acceleration, have been cured
or waived; and
(2) 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 Series B Senior Note Indenture, Holders of Series B Senior Notes even
if acting unanimously may not be able to
(1) 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 (3) above; or
(2) 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 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 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 notes unless:
(1) the Holder gives the Trustee written notice of a continuing Event of
Default;
(2) the Holders of at least 25% in aggregate principal amount of
outstanding notes make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding 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 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 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 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, the Series B Senior Notes or the 1993 Senior Notes as
the case may be. (Sections 5.04, 5.05 and 5.06)
The Indentures 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
59
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 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:
(1) 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 notes and under the Indenture;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(3) 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 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 notes shall be at least equal to the lesser of:
(a) 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
(b) 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 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 (3);
(4) immediately after giving effect to such transaction on a pro forma
basis, JSCE, CCA or any Person becoming the successor obligor of the
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
(5) JSCE or CCA, as the case may be, delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate
compliance with clauses (3) and (4)) and Opinion of Counsel, in each
case stating that such consolidation, merger or transfer and such
supplemental indenture
60
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 (3) and (4) 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 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 (3) and (4) of the preceding sentence with respect to JSCE.
Notwithstanding the foregoing, nothing in clause (2), (3), (4) or (5) above
shall prevent the occurrence of:
(1) a merger or consolidation of JSCE and CCA, or either of their
respective successors;
(2) the sale of all or substantially all of the assets of CCA to JSCE;
(3) the sale of all or substantially all of the assets of JSCE to CCA; or
(4) the assumption by JSCE of the Indebtedness represented by the notes.
(Section 4.01)
In the event:
(1) JSCE merges into CCA; and
(2) 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
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 (1) through (5) of the first paragraph under
"Consolidation, Merger and Sale of Assets":
(1) all references in the Indenture to "CCA" shall continue to refer to
CCA, as the survivor in such merger;
(2) all references to "JSCE" and to "JSCE's guarantee" shall refer to
Interco and to Interco's guarantee contemplated by clause (2) above,
respectively; and
(3) 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 Indentures provide that JSCE and CCA will be
deemed to have paid and will be discharged from any and all obligations in
respect of the 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 notes or JSCE's Guarantee of the notes (except for, among other matters,
certain obligations to register the transfer or
61
exchange of the notes, to replace stolen, lost or mutilated notes to maintain
paying agencies and to hold monies for payment in trust) if, among other
things:
(1) 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 notes on the Stated
Maturity of such payments in accordance with the terms of the Indenture
and the notes;
(2) JSCE or CCA has delivered to the Trustee:
(a) 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
(b) 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 15.6-A of the New York
Debtor and Creditor Law;
(3) 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
(4) if at such time the notes are listed on a national securities exchange,
CCA has delivered to the Trustee an Opinion of Counsel to the effect
that the 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
Indentures further provide that the provisions of the Indentures will no longer
be in effect with respect to clauses (3) and (4) under "Consolidation, Merger
and Sale of Assets" and all the covenants described herein under "Covenants,"
clause (3) under "Events of Default" with respect to such covenants and clauses
(3) and (4) under "Consolidation, Merger and Sale of Assets," and clauses (4),
(5), (8) and (9) under "Events of Default" shall be deemed not to be Events of
Default, upon, among other things, the deposit with the Trustee, in 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 notes on the Stated Maturity of such
payments in accordance with the terms of the Indenture and the notes, the
satisfaction of the provisions described in clauses (2)(b), (3), and (4) 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 obligations 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 notes as described in the immediately preceding
paragraph and the notes are declared due and payable because of the occurrence
of an
62
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 notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the 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 1998 Credit Agreement contains a covenant prohibiting defeasance of the
notes.
Modification and Waiver
Modifications and amendments of the Indentures may be made by JSCE, CCA and
the Trustee with (x) in the case of the 1993 Senior Notes, the consent of the
Holders of not less than a majority in aggregate principal amount of the
outstanding 1993 Senior Notes, and (y) in the case of the Series A Senior Notes
and the Series B Senior Notes, 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 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:
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any Senior Note;
(2) reduce the principal amount of, or premium, if any, or interest on, any
Senior Note;
(3) change the place or currency of payment of principal of, or premium, if
any, or interest on, any Senior Note;
(4) 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;
(5) reduce the above-stated percentage of outstanding notes, the consent of
whose Holders is necessary to modify or amend the Indenture;
(6) waive a default in the payment of principal of, premium, if any, or
interest on the notes; or
(7) reduce the percentage of aggregate principal amount of outstanding
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, in the case of the Series A and Series B Senior
Notes, release JSCE from its Guarantee of the notes).
The provisions requiring the consent or approval of specified percentages of
Holders of either class of the Series A and Series B Senior Notes or both
classes of the Series A and Series B 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 the Series A and Series B Senior Notes or such two
classes of the Series A and Series B 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 1998 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
1998 Credit Agreement.
63
No Personal Liability of Incorporators, Shareholders, Officers, Directors or
Employees
The Indentures provide that no recourse for the payment of the principal of,
premium, if any, or interest on any of the 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 Indentures, or in any of the 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 notes, waives and releases all such liability.
(Section 9.09)
Concerning The Trustee
The Indentures provide that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in each 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 Indentures 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.
MARKET-MAKING ACTIVITIES
Morgan Stanley will use this prospectus in connection with sales of the
notes in market-making transactions at negotiated prices related to prevailing
market prices at the time of sale. Morgan Stanley may act as principal or agent
in such transactions. Morgan Stanley has no obligation to make a market for the
notes and may discontinue or suspend its market-making activities at any time
without notice at its sole discretion.
Morgan Stanley & Co. Incorporated acted as underwriter in connection with
the original offerings of the notes and received an underwriting discount of
$23 million in connection therewith.
As of December 31, 2000, affiliates of Morgan Stanley owned 14,187,101, or
approximately 5.8%, of the outstanding shares of common stock of Smurfit-Stone.
Alan E. Goldberg is a director of Smurfit-Stone and was initially designated as
a director of Smurfit-Stone by an affiliate of Morgan Stanley. Mr. Goldberg
resigned as an officer of the Morgan Stanley affiliate in February 2001 and
such affiliate designated Leigh J. Abramson for election as a director of
Smurfit-Stone at the next annual meeting of the stockholders of Smurfit-Stone.
Smurfit-Stone's by-laws provide that so long as Morgan Stanley's affiliate owns
at least 1,000,000 shares of Smurfit-Stone's common stock, adjusted for any
stock dividend, stock split or similar change, Smurfit-Stone's board of
directors will continue to nominate for election one designee of the Morgan
Stanley affiliate. Pursuant to a voting agreement, dated as of May 10, 1998,
SIBV has agreed to vote all of its shares of Smurfit-Stone's common stock in
favor of the Morgan Stanley affiliate's designee for so long as such affiliate
has the right to nominate such individual. Mr. Abramson will become such
affiliate's designee upon his election to the board. See "Risk Factors" and
Smurfit-Stone's Annual Report on Form 10-K for the year ended December 31, 2000
and Proxy Statement for further information.
Although there are no agreements to do so, Morgan Stanley, as well as
others, may act as broker or dealer in connection with the sale of the notes
contemplated by this prospectus and may receive fees or commissions in
connection therewith.
We will receive no portion of the proceeds from the sales of the notes in
market-making transactions.
We have agreed to indemnify Morgan Stanley against certain liabilities,
including civil liabilities under the Securities Act or to contribute to
payments Morgan Stanley may be required to make in respect thereof.
64
LEGAL MATTERS
The validity of the notes and the guarantees thereof have been passed upon
for us by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
EXPERTS
The consolidated financial statements of JSCE at December 31, 2000 and 1999,
and for each of the three years in the period ended December 31, 2000,
appearing in this prospectus and the registration statements 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
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 its Annual
Report on Form 10-K for the year ended December 31, 2000, incorporated by
reference into this prospectus and the registration statements of which this
prospectus forms a part, 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.
65
INDEX TO FINANCIAL STATEMENTS
Page
Index to Financial Statements: No.
- ------------------------------ ----
Report of Independent Auditors............................................. F-2
Consolidated Balance Sheets--December 31, 2000 and 1999.................... F-3
For the years ended December 31, 2000, 1999 and 1998:
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Stockholder's Equity (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, 2000 and 1999, and the related consolidated statements of
operations, stockholder's equity (deficit) and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States.
As discussed in Note 1 to the financial statements, in 1998 JSCE changed its
method of accounting for start-up costs.
Ernst & Young LLP
St. Louis, Missouri
January 29, 2001
except for paragraph 8 of
Note 5,
as to which the date is March
9, 2001
F-2
JSCE, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
--------------
2000 1999
------ ------
(In Millions,
Except Share
Data)
Assets
Current assets
Cash and cash equivalents.................................... $ 21 $ 11
Receivables, less allowances of $9 in 2000 and $9 in 1999.... 342 396
Inventories
Work-in-process and finished goods......................... 93 95
Materials and supplies..................................... 124 139
------ ------
217 234
Refundable income taxes...................................... 7 7
Deferred income taxes........................................ 5 42
Prepaid expenses and other current assets.................... 20 22
------ ------
Total current assets..................................... 612 712
Net property, plant and equipment.............................. 1,262 1,309
Goodwill, less accumulated amortization of $79 in 2000 and $72
in 1999....................................................... 198 205
Notes receivable from SSCC..................................... 439 364
Other assets................................................... 156 146
------ ------
$2,667 $2,736
====== ======
Liabilities and Stockholder's Deficit
Current liabilities
Current maturities of long-term debt......................... $ 10 $ 12
Accounts payable............................................. 312 389
Accrued compensation and payroll taxes....................... 88 88
Interest payable............................................. 27 30
Other current liabilities.................................... 71 152
------ ------
Total current liabilities................................ 508 671
Long-term debt, less current maturities........................ 1,519 1,624
Other long-term liabilities.................................... 236 253
Deferred income taxes.......................................... 488 423
Stockholder's equity (deficit)
Common stock, par value $.01 per share; 1,000 shares
authorized, issued and outstanding..........................
Additional paid-in capital................................... 1,129 1,129
Retained earnings (deficit).................................. (1,213) (1,364)
------ ------
Total stockholder's equity (deficit)..................... (84) (235)
------ ------
$2,667 $2,736
====== ======
See notes to consolidated financial statements.
F-3
JSCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December
31,
----------------------
2000 1999 1998
------ ------ ------
(In Millions)
Net sales.............................................. $3,867 $3,413 $3,155
Costs and expenses
Cost of goods sold................................... 3,250 2,871 2,654
Selling and administrative expenses.................. 275 307 322
Restructuring charges................................ 9 257
------ ------ ------
Income (loss) from operations...................... 342 226 (78)
Other income (expense)
Interest expense, net................................ (103) (175) (196)
Other, net........................................... 6 411 (5)
------ ------ ------
Income (loss) from continuing operations before
income taxes, extraordinary item and cumulative
effect of accounting change....................... 245 462 (279)
Benefit from (provision for) income taxes.............. (99) (186) 108
------ ------ ------
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change................................. 146 276 (171)
Discontinued operations
Income from discontinued operations net of income
taxes of $1 in 1999 and $17 in 1998................. 2 27
Gain on disposition of discontinued operations net of
income taxes of $4 in 2000 and $2 in 1999........... 6 4
------ ------ ------
Income (loss) before extraordinary item and
cumulative effect of accounting change............ 152 282 (144)
Extraordinary item
Loss from early extinguishment of debt, net of income
tax benefit of $0 in 2000, $6 in 1999 and $9 in
1998................................................ (1) (10) (13)
------ ------ ------
Cumulative effect of accounting change
Start-up costs, net of income tax benefit of $2...... (3)
------ ------ ------
Net income (loss).................................... $ 151 $ 272 $ (160)
====== ====== ======
See notes to consolidated financial statements.
F-4
JSCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
Common Stock
----------------
Accumulated
Par Additional Retained Other
Number Value, Paid-In Earnings Comprehensive
of Shares $.01 Capital (Deficit) Income (Loss) Total
--------- ------ ---------- --------- ------------- -----
(In Millions, Except Share Data)
Balance at January 1,
1998................... 1,000 $ $1,102 $(1,476) $ $(374)
Comprehensive income
(loss)
Net loss............... (160) (160)
Other comprehensive
income (loss), net of
tax
Minimum pension
liability
adjustment........... (4) (4)
----- ---- ------ ------- ---- -----
Comprehensive income
(loss).............. (160) (4) (164)
----- ---- ------ ------- ---- -----
Balance at December 31,
1998................... 1,000 1,102 (1,636) (4) (538)
SSCC stock option
exercises............. 26 26
SSCC capital
contribution.......... 1 1
Comprehensive income
Net income............. 272 272
Other comprehensive
income (loss), net of
tax
Minimum pension
liability
adjustment........... 4 4
----- ---- ------ ------- ---- -----
Comprehensive
income.............. 272 4 276
----- ---- ------ ------- ---- -----
Balance at December 31,
1999................... 1,000 1,129 (1,364) (235)
Comprehensive income
Net income............. 151 151
----- ---- ------ ------- ---- -----
Comprehensive
income.............. 151 151
----- ---- ------ ------- ---- -----
Balance at December 31,
2000................... 1,000 $ $1,129 $(1,213) $ $ (84)
===== ==== ====== ======= ==== =====
See notes to consolidated financial statements.
F-5
JSCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
December 31,
--------------------
2000 1999 1998
----- ----- ------
(In millions)
Cash flows from operating activities
Net income (loss)...................................... $ 151 $ 272 $ (160)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Gain on disposition of discontinued operations....... (10) (2)
Extraordinary loss from early extinguishment of
debt................................................ 1 16 22
Cumulative effect of accounting change for start-up
costs............................................... 5
Depreciation, depletion and amortization............. 120 134 134
Amortization of deferred debt issuance costs......... 7 10 8
Deferred income taxes................................ 104 154 (92)
Gain on sale of assets............................... (407)
Non cash employee benefit (income) expense........... (21) 30 5
Non cash restructuring charge........................ 4 179
Change in current assets and liabilities
Receivables........................................ 54 (100) 8
Inventories........................................ 17 (15) 3
Prepaid expenses and other current assets.......... 2 (13) (1)
Accounts payable and accrued liabilities........... (117) 64 (16)
Interest payable................................... (59) (46) (4)
Income taxes....................................... (3) 12 (16)
Other, net........................................... 1 (10) 42
----- ----- ------
Net cash provided by operating activities.............. 247 103 117
----- ----- ------
Cash flows from investing activities
Property additions..................................... (116) (69) (265)
Notes receivable from SSCC............................. (21) 25 (336)
Proceeds from property and timberland disposals and
sale of businesses.................................... 8 873 6
----- ----- ------
Net cash provided by (used for) investing activities... (129) 829 (595)
----- ----- ------
Cash flows from financing activities
Borrowings under bank credit facilities................ 1,441
Net borrowings (repayments) under accounts receivable
securitization program................................ 3 15 (1)
Payments of long-term debt............................. (111) (954) (921)
Deferred debt issuance costs........................... (35)
----- ----- ------
Net cash provided by (used for) financing activities... (108) (939) 484
----- ----- ------
Increase (decrease) in cash and cash equivalents 10 (7) 6
Cash and cash equivalents
Beginning of year.................................... 11 18 12
----- ----- ------
End of year.......................................... $ 21 $ 11 $ 18
===== ===== ======
See notes to consolidated financial statements.
F-6
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions)
1. Significant Accounting Policies
Basis of Presentation: JSCE, Inc., hereafter referred to as the "Company,"
is a wholly owned subsidiary of Smurfit-Stone Container Corporation ("SSCC"),
formerly known as Jefferson Smurfit Corporation ("JSC"). On November 18, 1998,
a subsidiary of JSC was merged with Stone Container Corporation ("Stone"), an
action hereafter referred to as the "Merger," and Stone became a subsidiary of
SSCC. The Company owns 100% of the equity interest in Jefferson Smurfit
Corporation (U.S.) ("JSC (U.S.)") and is a guarantor of the senior unsecured
indebtedness of JSC (U.S.). The Company has no operations other than its
investment in JSC (U.S.). JSC (U.S.) has extensive operations throughout the
United States.
The deficit in stockholder's equity is primarily due to SSCC's 1989 purchase
of JSC (U.S.)'s common equity owned by Jefferson Smurfit Group plc ("JS Group")
and the acquisition by JSC (U.S.) of its common equity owned by the Morgan
Stanley Leveraged Equity Fund I, L.P., which were accounted for as purchases of
treasury stock.
Nature of Operations: The Company's major operations are in containerboard
and corrugated containers, consumer packaging, specialty packaging and
reclaimed fiber resources. In February 1999, the Company announced its
intention to divest its newsprint subsidiary, and accordingly, its newsprint
segment is accounted for as a discontinued operation (See Note 9). The Company
transferred ownership of the Oregon City, Oregon, newsprint mill to a third
party in May 2000, thereby completing its exit from the newsprint business.
The Company's paperboard mills procure virgin and reclaimed fiber and
produce paperboard for conversion into corrugated containers, folding cartons
and industrial packaging at Company-owned 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. Recycling operations collect or broker wastepaper for sale to
Company-owned and third-party paper mills. 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 majority-owned and controlled subsidiaries.
Significant intercompany accounts and transactions are eliminated in
consolidation.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents of $18 million and $3 million were
pledged at December 31, 2000 and 1999, as collateral for obligations associated
with the accounts receivable securitization program (See Note 5).
Revenue Recognition: In December 1999, the Securities and Exchange
Commission staff issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements." SAB No. 101 further defines the basic
principles of revenue recognition and was adopted by the Company on October 1,
2000. The Company recognizes revenue at the time products are shipped to
external customers. The adoption of SAB No. 101 did not have a material effect
on the 2000 financial statements.
Shipping and Handling Costs: During 2000, the Emerging Issues Task Force
("EITF") issued EITF 00-10, "Accounting for Shipping and Handling Fees and
Costs." Previously, the Company recognized shipping and handling costs as a
reduction to net sales. Effective with the adoption of SAB No. 101 on October
1, 2000, EITF 00-10 requires shipping and handling costs to be included in cost
of goods sold. Accordingly, shipping and handling costs have been reclassified
to cost of goods sold for all periods presented. The effect of adopting EITF
00-10 increased net sales and cost of goods sold from previously reported
amounts by $118 million in 1999 and $112 million in 1998.
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 under the
last-in, first-out ("LIFO") method except for $39 million in 2000 and 1999
which are valued at the lower of average cost or market. First-in, first-out
("FIFO") costs (which approximate replacement costs) exceed the LIFO value by
$65 million and $52 million at December 31, 2000 and 1999, respectively.
Net Property, Plant and Equipment: Property, plant and equipment are carried
at cost. The costs of additions, improvements and major replacements are
capitalized, while maintenance and repairs are charged to expense as incurred.
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. Estimated useful lives of
papermill machines average 23 years, while major converting equipment and
folding carton presses have an estimated useful life ranging from 12 to 20
years.
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.
Deferred Debt Issuance Costs: Deferred debt issuance costs included in other
assets are amortized over the terms of the respective debt obligations using
the interest method.
Long-Lived Assets: In accordance with 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," long-lived assets held and used
by the Company and the related goodwill are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
Income Taxes: The Company accounts for income taxes in accordance with the
liability method of accounting for income taxes. Under the liability method,
deferred assets and liabilities are recognized based upon anticipated future
tax consequences attributable to differences between financial statement
carrying amounts of assets and liabilities and their respective tax bases (See
Note 7).
Transfers of Financial Assets: The Company accounts for transfers of
financial assets in accordance with SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." Accordingly,
financial assets transferred to qualifying special purpose entities and the
liabilities of such entities are not reflected in the consolidated financial
statements of the Company. Gain or loss on sale of financial assets depends in
part on the previous carrying amount of the financial assets involved in the
transfer, allocated between the assets sold and the retained interests based on
their relative fair value at the date of transfer. Quoted market prices are
generally not available for retained interests, so the Company generally
estimates fair value based on the present value of expected cash flows
estimated by using management's best estimates of key assumptions. The Company
has complied with the disclosure requirements of SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." SFAS No. 140 replaces SFAS No. 125, effective March 31, 2001, and
more clearly defines the accounting standards for transfers of financial assets
(See Note 4).
Employee Stock Options: The Company's employees participate in SSCC's stock-
based plans. Accounting for stock-based plans is in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" (See Note 10).
F-8
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
Environmental Matters: The Company expenses environmental expenditures
related to existing conditions resulting from past or current operations from
which no current or future benefit is discernible. Expenditures that extend the
life of the related property or mitigate or prevent future environmental
contamination are capitalized. Reserves for environmental liabilities are
established in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities." The Company records a liability at the time when it
is probable and can be reasonably estimated. Such liabilities are not
discounted or reduced for potential recoveries from insurance carriers.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications: Certain reclassifications of prior year presentations
have been made to conform to the 2000 presentation.
Start-up Costs: In April 1998, the AICPA issued SOP 98-5, "Reporting the
Costs of Start-Up Activities," which requires that costs related to start-up
activities be expensed as incurred. Prior to 1998, the Company capitalized
certain costs to open new plants or to start new production processes. The
Company adopted the provisions of the SOP in its financial statements as of the
beginning of 1998. The Company recorded a charge for the cumulative effect of
an accounting change of $3 million, net of taxes of $2 million, to expense
costs that had been capitalized prior to 1998.
Prospective Accounting Pronouncements: In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, as amended by SFAS No. 138,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted by the Company, effective January 1, 2001. The statement
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings.
Based on the Company's derivative positions at December 31, 2000, the
Company estimates that upon adoption it will record an asset for the fair value
of existing derivatives of approximately $4 million and a corresponding
reduction in cost of goods sold.
2. Merger and Restructurings
During the fourth quarter of 1998, in connection with SSCC's Merger with
Stone, the Company recorded a restructuring charge of $257 million related to
the permanent shutdown of certain containerboard mill operations and related
facilities formerly operated by JSC (U.S.), the termination of certain JSC
(U.S.) employees, and liabilities for lease commitments at the closed JSC
(U.S.) facilities. The containerboard mill facilities were permanently shut
down on December 1, 1998. The assets at these facilities were adjusted to their
estimated fair value, less cost to sell, based upon appraisals. The sales and
operating income of these mill facilities in 1998 prior to closure were $209
million and $9 million, respectively. The terminated employees included
approximately 700 employees at these mills and 50 employees in the Company's
corporate office. These employees were terminated in December 1998.
F-9
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
During 1999, the Company permanently closed eight additional facilities,
which resulted in approximately 400 employees being terminated. A $14 million
restructuring charge was recorded related to these closures. The sales and
operating loss of these facilities in 1999 prior to closure were $32 million
and $7 million, respectively. The 1999 adjustments include a reduction to 1998
exit liabilities of $5 million and a reclassification of pension liabilities of
$12 million.
The following is a summary of the restructuring liabilities recorded:
Write-
down of
Property and Facility
Equipment to Lease Pension Closure
Fair Value Severance Commitments Curtailments Costs Other Total
------------ --------- ----------- ------------ -------- ----- -----
Opening balance......... $ 179 $ 27 $21 $ 9 $13 $ 8 $ 257
Payments.............. (3) (1) (3) (7)
Adjustments........... (179) (179)
----- ---- --- ---- --- --- -----
Balance at December 31,
1998................... 24 20 9 10 8 71
Charge................ 4 4 3 1 2 14
Payments.............. (26) (3) (3) (3) (35)
Adjustments........... (4) (12) (5) (21)
----- ---- --- ---- --- --- -----
Balance at December 31,
1999................... 2 17 8 2 29
Payments.............. (2) (3) (1) (6)
----- ---- --- ---- --- --- -----
Balance at December 31,
2000................... $ $ $14 $ $ 8 $ 1 $ 23
===== ==== === ==== === === =====
Future cash outlays are anticipated to be $4 million in 2001, $3 million in
2002, $3 million in 2003, and $13 million thereafter.
The Company recorded $23 million of Merger-related charges as selling and
administrative expenses during the fourth quarter of 1998. These charges
pertained to professional management fees to achieve operating efficiencies
from the Merger, fees for management personnel changes and other Merger costs.
3. Net Property, Plant and Equipment
Net property, plant and equipment at December 31 consists of:
2000 1999
------ ------
Land...................................................... $ 52 $ 57
Buildings and leasehold improvements...................... 245 247
Machinery, fixtures and equipment......................... 1,788 1,762
Construction in progress.................................. 52 40
------ ------
2,137 2,106
Less accumulated depreciation and amortization............ (875) (797)
------ ------
Net property, plant and equipment......................... $1,262 $1,309
====== ======
Depreciation and depletion expense was $113 million, $127 million and $127
million for 2000, 1999 and 1998, respectively. Property, plant and equipment
include capitalized leases of $57 million and $58 million and related
accumulated amortization of $36 million and $30 million at December 31, 2000
and 1999, respectively.
4. Timberland Sale and Note Monetization
The Company sold approximately 980,000 acres of owned and leased timberland
in Florida, Georgia and Alabama in October 1999. The final purchase price,
after adjustments, was $710 million. The Company received $225 million in cash,
with the balance $485 million in the form of installment notes.
F-10
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
The Company entered into a program to monetize the installment notes
receivable. The notes were sold to Timber Notes Holdings, a qualified special
purpose entity under the provisions of SFAS No. 125, for $430 million cash
proceeds and a residual interest in the notes. The transaction has been
accounted for as a sale under SFAS No. 125. The cash proceeds from the sale and
the monetization transactions were used to prepay borrowings under the JSC
(U.S.) Credit Agreement. The residual interest included in other assets was $37
million and $33 million at December 31, 2000 and 1999, respectively. The key
economic assumption used in measuring the residual interest at the date of the
monetization was the rate at which the residual cash flows were discounted
(9%). At December 31, 2000, the sensitivity on the current fair value of the
residual cash flows to immediate 10% and 20% adverse changes in the assumed
rate at which residual cash flows were discounted (9%) was $2 million and $4
million, respectively.
The gain of $407 million on the timberland sale and the related note
monetization program is included in other, net in the 1999 consolidated
statements of operations.
5. Long-Term Debt
Long-term debt as of December 31 is as follows:
2000 1999
------ ------
Bank Credit Facilities
Tranche A Term Loan (8.3% weighted average variable
rate), payable in various installments through March
31, 2005............................................... $ 275 $ 275
Tranche B Term Loan (10.1% weighted average variable
rate), payable in various installments through March
31, 2006............................................... 65 115
Revolving Credit Facility (10.0% weighted average
variable rate), due March 31, 2005..................... 17 50
Accounts Receivable Securitization Program Borrowings
Accounts receivable securitization program borrowings
(6.6% weighted average variable rate), due in February
2002................................................... 227 224
Senior Unsecured Notes
11.25% Series A unsecured senior notes, due May 1,
2004................................................... 287 300
10.75% Series B unsecured senior notes, due May 1,
2002................................................... 100 100
9.75% Senior Notes, due April 1, 2003................... 500 500
Other Debt
Other (including obligations under capitalized leases of
$27 million and $34 million)........................... 58 72
------ ------
Total debt.............................................. 1,529 1,636
Less current maturities................................. (10) (12)
------ ------
Long-term debt.......................................... $1,519 $1,624
====== ======
The amounts of total debt outstanding at December 31, 2000 maturing during
the next five years are as follows:
2001................................................................. $ 10
2002................................................................. 172
2003................................................................. 771
2004................................................................. 363
2005................................................................. 127
Thereafter........................................................... 86
F-11
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
Bank Credit Facilities
JSC (U.S.) has a bank credit facility (the "JSC (U.S.) Credit Agreement")
consisting of a $550 million revolving credit facility ("Revolving Credit
Facility") of which up to $150 million may consist of letters of credit, and
two senior secured term loans (Tranche A and Tranche B) aggregating $340
million at December 31, 2000. The JSC (U.S.) Credit Agreement was entered into
in March 1998, and the net proceeds were used to repay the 1994 term loans and
Revolving Credit Facility. The write-off of related deferred debt issuance
costs, totaling $13 million (net of income tax benefits of $9 million) for
1998, is reflected in the accompanying consolidated statements of operations as
an extraordinary item.
A commitment fee of 0.375% per annum is assessed on the unused portion of
the Revolving Credit Facility. At December 31, 2000, the unused portion of this
facility, after giving consideration to outstanding letters of credit, was $498
million.
On March 22, 2000, JSC (U.S.) and its bank group amended the JSC (U.S.)
Credit Agreement to (i) permit the acquisition of St. Laurent Paperboard Inc.
by SSCC and (ii) approve the divestiture of the Oregon City newsprint mill.
On October 15, 1999, JSC (U.S.) and its bank group amended the JSC (U.S.)
Credit Agreement to (i) permit the sale of the timberlands and the Newberg
newsprint mill, (ii) permit the cash proceeds from these asset sales to be
applied as prepayments against the JSC (U.S.) Credit Agreement, (iii) permit
certain prepayments of other indebtedness, and (iv) ease certain quarterly
financial covenants for 1999 and 2000. The proceeds from the timberland sale
and the Newberg newsprint mill were used to reduce the balance of the Tranche A
and Tranche B term loans. The write-off of related deferred debt issuance
costs, totaling $10 million (net of income tax benefits of $6 million) for
1999, is reflected in the accompanying consolidated statements of operations as
an extraordinary item.
The JSC (U.S.) Credit Agreement contains various covenants and restrictions
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, and (iv) maintenance of certain financial covenants.
The JSC (U.S.) Credit Agreement also requires prepayments if JSC (U.S.) has
excess cash flows, as defined, or receives proceeds from certain asset sales,
insurance or incurrence of certain indebtedness. As a result of excess cash
flow in 2000, JSC (U.S.) is required to make a $59 million prepayment on the
Tranche A term loan prior to March 31, 2001. The Company intends to either fund
the $59 million prepayment with available borrowings under the Revolving Credit
Facility or amend the JSC (U.S.) Credit Agreement, and therefore it is
classified as long term debt.
The obligations under the JSC (U.S.) Credit Agreement are unconditionally
guaranteed by SSCC, 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 JSC (U.S.) Credit Agreement is also secured by a pledge of all
the capital stock of the Company and each of its material subsidiaries and by
certain intercompany notes.
Accounts Receivable Securitization Program Borrowings
JSC (U.S.) has a $315 million accounts receivable securitization program
(the "Securitization Program") which 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"). The
accounts receivable purchases are financed through the issuance of commercial
paper or through borrowings under a revolving liquidity facility and a $15
million term loan. Under the Securitization Program, JS Finance has
F-12
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
granted a security interest in all its assets, principally cash and cash
equivalents and trade accounts receivable. The Company has $88 million
available for additional borrowing at December 31, 2000, subject to eligible
accounts receivable. Commercial paper borrowings under the program 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.
Under the current program, liquidation requirements were to begin in
December 2001. On March 9, 2001, the Securitization Program was amended to (i)
reduce the borrowings available through the issuance of commercial paper or
under the Revolving Credit Facility from $300 million to $214 million and (ii)
extend the final maturity on these borrowings from February 2002 to February
2004. The $15 million term loan remains outstanding with a February 2002
maturity date, bringing the total program size to $229 million. As a result,
all debt under the Securitization Program is classified as long term.
Senior Unsecured Notes
The 11.25% Series A unsecured senior notes are redeemable in whole or in
part at the option of JSC (U.S.), at any time on or after May 1, 2000 with a
premium of 2.813% of the principal amount and after May 1, 2001 at par. The
10.75% Series B unsecured senior notes and the 9.75% Senior Notes are not
redeemable prior to maturity. Holders of the JSC (U.S.) 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.
The Senior Notes, which are unconditionally guaranteed on a senior basis by
the Company, rank pari passu with the JSC (U.S.) Credit Agreement and contain
business and financial covenants which are less restrictive than those
contained in the JSC (U.S.) Credit Agreement.
Other
Interest costs capitalized on construction projects in 2000, 1999 and 1998
totaled $4 million, $3 million and $2 million, respectively. Interest payments
on all debt instruments for 2000, 1999 and 1998 were $157 million, $214 million
and $184 million, respectively.
6. Leases
The Company leases certain facilities and equipment for production, selling
and administrative purposes under operating leases. Future minimum rental
commitments (exclusive of real estate taxes and other expense) under operating
leases having initial or remaining noncancelable terms in excess of one year,
excluding lease commitments on closed facilities, are reflected below:
2001................................................................ $ 33
2002................................................................ 27
2003................................................................ 24
2004................................................................ 21
2005................................................................ 17
Thereafter.......................................................... 40
----
Total minimum lease payments.................................... $162
====
Net rental expense for operating leases, including leases having a duration
of less than one year, was approximately $49 million, $50 million and $54
million for 2000, 1999 and 1998, respectively.
F-13
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
7. Income Taxes
Significant components of the Company's deferred tax assets and liabilities
at December 31 are as follows:
2000 1999
----- -----
Deferred tax liabilities
Property, plant and equipment and timberland............ $(404) $(399)
Inventory............................................... (27) (20)
Prepaid pension costs................................... (31) (31)
Timber installment sale................................. (129) (129)
Other................................................... (109) (82)
----- -----
Total deferred tax liabilities........................ (700) (661)
----- -----
Deferred tax assets
Employee benefit plans.................................. 79 91
Net operating loss, alternative minimum tax and tax
credit carryforwards................................... 79 148
Minimum pension liability............................... 2 2
Restructuring........................................... 7 7
Other................................................... 60 42
----- -----
Total deferred tax assets............................. 227 290
Valuation allowance for deferred tax assets............... (10) (10)
----- -----
Net deferred tax assets............................... 217 280
----- -----
Net deferred tax liabilities.......................... $(483) $(381)
===== =====
At December 31, 2000, the Company had approximately $51 million of net
operating loss carryforwards for U.S. federal income tax purposes that expire
in 2018 and 2019, with a tax value of $18 million. Further, the Company had
net operating loss carryforwards for state purposes with a tax value of $20
million, which expire from 2001 through 2020. A valuation allowance of $10
million has been established for a portion of these deferred tax assets. The
Company had approximately $41 million of alternative minimum tax credit
carryforwards for U.S. federal income tax purposes, which are available
indefinitely.
Benefit from (provision for) income taxes on income (loss) from continuing
operations before income taxes, extraordinary item and cumulative effect of
accounting change is as follows:
2000 1999 1998
---- ----- ----
Current
Federal.............................................. $ (6) $ (10) $ 9
State and local...................................... (1) 3
---- ----- ----
Total current benefit (expense).................... (7) (10) 12
Deferred
Federal.............................................. (78) (147) 88
State and local...................................... (14) (29) 8
---- ----- ----
Total deferred benefit (expense)................... (92) (176) 96
---- ----- ----
Total benefit from (provision for) income taxes.... $(99) $(186) $108
==== ===== ====
F-14
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
The Company's benefit from (provision for) income taxes differed from the
amount computed by applying the statutory U.S. federal income tax rate to
income (loss) from continuing operations before income taxes, extraordinary
item and cumulative effect of accounting change as follows:
2000 1999 1998
---- ----- ----
U.S. federal income tax benefit (provision) at federal
statutory rate....................................... $(86) $(162) $ 99
Permanent differences from applying purchase
accounting........................................... (2) (3) (3)
Other permanent differences........................... (1) (2) (2)
State income taxes, net of federal income tax effect.. (10) (19) 12
Effect of valuation allowances on deferred tax assets,
net of federal benefit............................... 1
Other................................................. 1
---- ----- ----
Total benefit from (provision for) income taxes... $(99) $(186) $108
==== ===== ====
The Internal Revenue Service has examined the Company's tax returns for all
years through 1994, and the years have been closed through 1988. The years 1995
through 1998 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.
The Company made income tax payments of $30 million, $33 million and $16
million in 2000, 1999 and 1998, respectively.
8. Employee Benefit Plans
Defined Benefit Plans
The Company participates in the SSCC sponsored noncontributory defined
benefit pension plans covering substantially all employees. On December 31,
1998, the defined benefit plans of the Company were merged with the domestic
defined benefit plans of Stone, and the assets of these plans are available to
meet the funding requirements of the combined plans. The Company intends to
fund its proportionate share of the future contributions based on the funded
status of the Company's plan determined on an actuarial basis. Therefore, the
plan asset information provided below is based on an actuarial estimate of
assets and liabilities, excluding the effect of the plan merger, in order to be
consistent with the presentation of the consolidated statements of operations
and the consolidated balance sheets.
The benefit obligation, fair value of plan assets and the under funded
status of the Stone domestic merged defined benefit plans at December 31, 2000
were $643 million, $431 million and $212 million, respectively.
Approximately 34% of SSCC's domestic pension plan assets at December 31,
2000 are invested in cash equivalents or debt securities, and 66% are invested
in equity securities. Equity securities at December 31, 2000 include 0.7
million shares of SSCC common stock with a market value of approximately $11
million and 26 million shares of JS Group common stock having a market value of
approximately $52 million. Dividends paid on JS Group common stock during 2000
and 1999 were approximately $2 million in each year.
Postretirement Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance benefits for all
salaried as well as certain hourly employees. The assumed health care cost
trend rate used in measuring the accumulated postretirement benefit obligation
("APBO") was 5.25% at December 31, 2000. The effect of a 1% increase in the
assumed
F-15
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
health care cost trend rate would increase the APBO as of December 31, 2000 by
$1 million and have an immaterial effect on the annual net periodic
postretirement benefit cost for 2000.
The following provides a reconciliation of benefit obligations, plan
assets, and funded status of the plans:
Defined Postretirement
Benefit Plans Plans
-------------- ----------------
2000 1999 2000 1999
------ ------ ------- -------
Change in benefit obligation:
Benefit obligation at January 1....... $ 957 $1,011 $ 94 $ 105
Service cost.......................... 18 21 1 2
Interest cost......................... 75 69 7 7
Amendments............................ 4 5
Plan participants' contributions...... 4 4
Curtailments.......................... (1) (2) (2)
Actuarial (gain) loss................. 63 (90) 9 (7)
Benefits paid......................... (64) (59) (17) (15)
------ ------ ------- -------
Benefit obligation at December 31..... $1,052 $ 957 $ 96 $ 94
------ ------ ------- -------
Change in plan assets:
Fair value of plan assets at January
1.................................... $1,155 $1,008 $ $
Actual return on plan assets.......... (19) 205
Employer contributions................ 1 1 13 11
Plan participants' contributions...... 4 4
Benefits paid......................... (64) (59) (17) (15)
------ ------ ------- -------
Fair value of plan assets at December
31................................... $1,073 $1,155 $ $
------ ------ ------- -------
Over (under) funded status: $ 21 $ 198 $ (96) $ (94)
Unrecognized actuarial (gain) loss.... 2 (189) 4 (3)
Unrecognized prior service cost....... 36 40 (1) (2)
Net transition asset.................. (1) (6)
------ ------ ------- -------
Net amount recognized................. $ 58 $ 43 $ (93) $ (99)
------ ------ ------- -------
Amounts recognized in the balance
sheets:
Prepaid benefit cost.................. $ 88 $ 71 $ $
Accrued benefit liability............. (32) (28) (93) (99)
Additional minimum liability.......... (3)
Intangible asset...................... 2 3
------ ------ ------- -------
Net amount recognized................. $ 58 $ 43 $ (93) $ (99)
------ ------ ------- -------
The weighted average assumptions used in the accounting for the defined
benefit plans and postretirement plans were:
Defined
Benefit Postretirement
Plans Plans
----------- ---------------
2000 1999 2000 1999
----- ----- ------- -------
Weighted average discount rate............... 7.50% 8.00% 7.50% 8.00%
Rate of compensation increase................ 4.00% 4.50% N/A N/A
Expected return on assets.................... 9.50% 9.50% N/A N/A
Health care cost trend on covered charges.... N/A N/A 5.25% 6.50%
F-16
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
The components of net pension expense for the defined benefit plans and the
components of the postretirement benefit costs follow:
Defined Postretirement
Benefit Plans Plans
---------------- --------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Service cost............................ $ 22 $26 $24 $ $ 1 $ 1
Interest cost........................... 75 69 68 7 7 7
Expected return on plan assets.......... (99) (91) (85)
Amortization of transitional asset...... (4) (4) (4)
Recognized actuarial loss (gain)........ (8) 4 4
Curtailment cost........................ 6 2
---- --- --- --- --- ---
Net periodic benefit cost............... $(14) $10 $ 9 $ 7 $ 8 $ 8
==== === === === === ===
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $35 million, $32 million and zero, respectively,
as of December 31, 2000 and $33 million, $31 million and zero as of December
31, 1999.
Savings Plans
The Company sponsors voluntary savings plans covering substantially all
salaried and certain hourly employees. The Company match is paid in SSCC common
stock, up to an annual maximum. The Company's expense for the savings plans
totaled $9 million in each of 2000, 1999 and 1998.
9. Discontinued Operations
During February 1999, the Company adopted a formal plan to sell the
operating assets of its subsidiary, Smurfit Newsprint Corporation ("SNC").
Accordingly, SNC was accounted for as a discontinued operation beginning with
the 1998 consolidated financial statements. SNC consisted of two newsprint
mills in Oregon. In November 1999, the Company sold its Newberg, Oregon,
newsprint mill for proceeds of approximately $211 million. Net gain on
disposition of discontinued operations of $4 million in 1999 included the
realized gain on the sale of the Newberg, Oregon newsprint mill, the estimated
loss on the sale of the Oregon City, Oregon, newsprint mill, actual results
from the measurement date through December 31, 1999 and the estimated losses on
the Oregon City, Oregon newsprint mill through the expected disposition date.
On May 9, 2000, the Company transferred ownership of the Oregon City,
Oregon, newsprint mill to a third party thereby completing its exit from the
newsprint business. No proceeds from the transfer were received. During the
second quarter of 2000, the Company recorded a $6 million after tax gain to
reflect adjustments to the previous estimates on disposition of discontinued
operations.
SNC revenues were $43 million, $253 million and $324 million for 2000, 1999
and 1998, respectively. The net assets of SNC included in the accompanying
consolidated balance sheet as of December 31, 1999 consisted of the following:
1999
----
Inventories and current assets...................................... $34
Net property, plant and equipment................................... 48
Other assets........................................................ 11
Accounts payable and other current liabilities...................... (94)
Other liabilities................................................... (4)
---
Net assets (liabilities) of discontinued operations............. $(5)
===
F-17
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
10. Employee Stock Options
Prior to the Merger, the Company's parent, SSCC, maintained the 1992
Jefferson Smurfit Corporation stock option plan (the "1992 Plan") for selected
employees of the Company. The 1992 Plan included non-qualified stock options,
issued at prices equal to the fair market value of SSCC's common stock at the
date of grant, which expire upon the earlier of twelve years from the date of
grant or termination of employment, death or disability. Effective with the
Merger, all outstanding options became exercisable and fully vested.
In November 1998, SSCC adopted the 1998 Long-term Incentive Plan (the "1998
Plan") and reserved 8.5 million shares of SSCC common stock for non-qualified
stock options and performance awards. Certain employees of the Company are
covered under the 1998 Plan, as are certain employees of Stone. The options are
exercisable at a price equal to the fair market value of SSCC's common stock at
the date of the grant and vest eight years after the date of grant subject to
accelerations based upon the attainment of preestablished stock price targets.
The options expire ten years after the date of grant.
The Company and its parent have elected to continue to follow Accounting
Principles Board Opinion No. 25 to account for stock awards granted to
employees. If the Company adopted SFAS No. 123 to account for stock awards
granted to employees, the Company's net income for the three years in the
period ended December 31, 2000, based on a Black-Scholes option pricing method,
would not have been materially different. The effects of applying SFAS No. 123
as described above may not be representative of the effects on reported income
for future years.
During the second quarter of 1999, the Company recorded a $26 million charge
in selling and administrative expenses, related to the cashless exercise of
SSCC stock options under the 1992 Plan. The charge was reflected in the
consolidated financial statements because the options were exercised by JSC
(U.S.) employees. No future stock option expense is expected.
11. Related Party Transactions
Transactions with JS Group
Transactions with JS Group, a significant shareholder of the Company, its
subsidiaries and affiliated companies were as follows:
2000 1999 1998
---- ---- ----
Product sales............................................. $49 $33 $39
Product and raw material purchases........................ 21 16 54
Management services income................................ 2 3 4
Charges from JS Group for services provided............... 1 1
Charges to JS Group for costs pertaining to the Fernandina
No. 2 paperboard machine through November 18, 1998....... 50
Receivables at December 31................................ 3 1 5
Payables at December 31................................... 10 13 4
Product sales to and purchases from JS Group, its subsidiaries and
affiliates are 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. 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.
F-18
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
On November 18, 1998, the Company purchased the No. 2 paperboard machine
located in the Company's Fernandina Beach, Florida, paperboard mill (the
"Fernandina Mill") for $175 million from an affiliate of JS Group. Until that
date, the Company and the affiliate were parties to an operating agreement
whereby the Company operated and managed the No. 2 paperboard machine. The
Company was compensated for its direct production and manufacturing costs and
indirect manufacturing, selling and administrative costs incurred for the
entire Fernandina Mill. The compensation was 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 Stone
Transactions with Stone after November 18, 1998 are included in related
party transactions. The Company sold and purchased containerboard from Stone,
primarily at market prices, as follows:
2000 1999 1998
---- ---- ----
Product sales.............................................. $387 $248 $14
Product and raw material purchases......................... 422 237 8
Net receivables at December 31............................. 24 28 4
Corporate shared expenses are allocated between the Company and Stone based
on an established formula using a weighted average rate based on net book value
of fixed assets, number of employees and sales. Net receivables are settled in
cash.
Transactions with SSCC
In connection with the Merger, a $300 million intercompany loan was made to
SSCC, which was contributed to Stone as additional paid-in capital. In
addition, a $36 million intercompany loan was made to SSCC to pay certain
Merger costs. These notes bear interest at the rate of 14.21% per annum, are
payable semi-annually on December 1 and June 1 of each year commencing June 1,
1999, and have a maturity date of November 18, 2004.
On November 15, 2000, pursuant to an Agreement and Plan of Merger among
SSCC, SCC Merger Co. and Stone, approximately 4.6 million shares of $1.75
Series E Preferred Stock of Stone (the "Stone Preferred Stock") were converted
into approximately 4.6 million shares of Series A Cumulative Exchangeable
Redeemable Convertible Preferred Stock of SSCC (the "SSCC Preferred Stock"). In
addition, a cash payment of $6.4425 per share, totaling approximately $30
million, was made to the holders of the Stone Preferred Stock. The cash payment
was equal to the accrued and unpaid dividends on each share of Stone Preferred
Stock less $0.12 per share to cover certain transaction related expenses.
The Company made a $30 million intercompany loan to SSCC to accommodate the
completion of the merger transaction. This note bears interest at the rate of
15.39% per annum, is payable on December 1 and June 1 of each year commencing
on June 1, 2001, and has a maturity date of November 18, 2004.
SSCC has the option, in lieu of paying accrued interest in cash, to pay the
accrued interest by adding the amount of accrued interest to the principal
amount of the notes. Interest income of $53 million, $48 million and $6 million
was recorded in 2000, 1999 and 1998, respectively.
F-19
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
The holders of the SSCC preferred stock are entitled to cumulative dividends
of $0.4375 per quarter, payable in cash except in certain circumstances, with
the first dividend paid on February 15, 2001. This dividend of approximately $2
million was funded by a dividend from JSC (U.S.) through the Company to SSCC.
12. Fair Value of Financial Instruments
The carrying values and fair values of the Company's financial instruments
are as follows:
2000 1999
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
Cash and cash equivalents............... $ 21 $ 21 $ 11 $ 11
Notes receivable from SSCC.............. 439 439 364 364
Residual interest in timber notes....... 37 37 33 33
Long-term debt, including current
maturities............................. 1,529 1,533 1,636 1,664
The carrying amount of cash equivalents approximates fair value because of
the short maturity of those instruments. The fair values of notes receivable
are based on discounted future cash flows. The fair value of the Company's 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 residual interest in timber notes is based on
discounted future cash flows.
13. 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. In addition, the
Company faces potential liability for response costs at various sites for which
it has received notice as being a potentially responsible party ("PRP")
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 after consideration for the number
of other PRPs at each site, the identity and financial condition of such
parties and experience regarding similar matters.
The Company and SNC are parties to a Settlement Agreement to implement a
nationwide class action settlement of claims involving Cladwood(R), a composite
wood siding product manufactured by SNC that has been used primarily in the
construction of manufactured or mobile homes. In 1998, the Company recorded a
$30 million charge, including $20 million SNC paid into a settlement fund, and
additional amounts relating to administrative costs, plaintiffs' attorneys'
fees, class representative payments and other costs. Based on the number and
magnitude of the claims paid out of the settlement fund and the fact that SNC
received a return of $10 million from the settlement fund in exchange for
posting a letter of credit, the Company reduced its estimated loss contingency
by $10 million which was recorded as a reduction to selling and administrative
expenses in the 2000 financial statements.
F-20
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
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 operations.
14. Business Segment Information
In the fourth quarter of 2000, the Company reorganized its business
segments. The Boxboard and Folding Carton segment was renamed as the Consumer
Packaging segment. Certain operations previously included in the Specialty
Packaging segment were reassigned to the new Consumer Packaging segment while
certain operations remained in the Specialty Packaging segment. In addition,
during 2000, corporate expenses previously allocated to business segments are
no longer allocated. The information for 1999 and 1998 has been restated from
the prior year in order to conform to the 2000 presentation.
The Company has three reportable segments: (1) Containerboard and Corrugated
Containers, (2) Consumer Packaging and (3) Reclamation. The Containerboard and
Corrugated Containers segment is highly integrated. It includes a system of
mills and plants that produces a full line of containerboard that is converted
into corrugated containers. Corrugated containers are used to transport such
diverse products as home appliances, electric motors, small machinery, grocery
products, produce, books, tobacco and furniture. The Consumer Packaging segment
is also highly integrated. It includes a system of mills and plants that
produces a broad range of coated recycled boxboard that is converted into
folding cartons and packaging labels. Folding cartons are used primarily to
protect products such as food, fast food, detergents, paper products,
beverages, health and beauty aids and other consumer products, while providing
point of purchase advertising. Flexible packaging, paper and metalized paper
and heat transfer labels are used in a wide range of consumer applications. The
Reclamation segment collects recovered paper generated by industrial,
commercial and residential sources which is used as raw material for the
Company's containerboard and boxboard mills as well as sales to external third
party mills.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes, interest expense, and other non-
operating gains and losses. The accounting policies of the reportable segments
are the same as those described in the summary of significant accounting
policies except that the Company accounts for inventory on a FIFO basis at the
segment level compared to a LIFO basis at the consolidated level. Intersegment
sales and transfers are recorded at market prices. Intercompany profit is
eliminated at the corporate division level.
The Company's reportable segments are strategic business units that offer
different products. The reportable segments are each managed separately because
they manufacture distinct products. Other includes corporate related items and
one nonreportable segment, Specialty Packaging. Corporate related items include
goodwill, the elimination of intercompany assets and intercompany profit and
income and expense not allocated to reportable segments including corporate
expenses, restructuring charges, goodwill amortization, interest expense and
the adjustment to record inventory at LIFO.
In 1999, corporate related items included a $407 million gain on the
timberland sale and related note monetization program (See Note 4).
F-21
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
A summary by business segment follows:
Containerboard &
Corrugated Consumer Recla-
Containers Packaging mation Other Total
---------------- --------- ------ ----- ------
Year ended December 31, 2000
Revenues from external
customers................... $2,033 $1,017 $605 $ 212 $3,867
Intersegment revenues........ 47 26 121 9 203
Depreciation, depletion and
amortization................ 61 29 3 26 119
Segment profit (loss)........ 220 99 26 (100) 245
Total assets at December 31.. 1,155 495 85 932 2,667
Capital expenditures......... 76 16 1 23 116
Year ended December 31, 1999
Revenues from external
customers................... $1,818 $ 951 $452 $ 192 $3,413
Intersegment revenues........ 40 20 126 6 192
Depreciation, depletion and
amortization................ 68 28 3 24 123
Segment profit............... 195 91 17 159 462
Total assets at December 31.. 1,195 512 110 919 2,736
Capital expenditures......... 30 22 2 15 69
Year ended December 31, 1998
Revenues from external
customers................... $1,776 $ 912 $275 $ 192 $3,155
Intersegment revenues........ 39 22 132 5 198
Depreciation, depletion and
amortization................ 70 26 3 22 121
Segment profit (loss)........ 135 103 4 (521) (279)
Total assets at December 31.. 1,410 512 78 1,174 3,174
Capital expenditures......... 208 31 6 20 265
The following table presents net sales to external customers by country of
origin:
2000 1999 1998
------ ------ ------
United States.............................................. $3,861 $3,406 $3,149
Foreign.................................................... 6 7 6
------ ------ ------
Total net sales........................................ $3,867 $3,413 $3,155
====== ====== ======
F-22
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
15. Quarterly Results (Unaudited)
The following is a summary of the unaudited quarterly results of operations:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2000
Net sales.................................... $940 $1,020 $969 $938
Gross profit................................. 136 170 152 159
Income from continuing operations before
extraordinary item.......................... 22 43 33 48
Gain on disposition of discontinued
operations.................................. 6
Extraordinary item........................... (1)
Net income................................... 22 49 33 47
1999
Net sales.................................... $758 $ 816 $884 $955
Gross profit................................. 95 141 140 166
Income (loss) from continuing operations
before extraordinary item................... (17) (2) 9 286
Discontinued operations...................... 4 (1) (4) 3
Gain on disposition of discontinued
operations.................................. 4
Extraordinary item........................... (10)
Net income (loss)............................ (13) (3) 5 283
The effect of adopting EITF 00-10, "Accounting for Shipping and Handling
Fees and Costs," during the fourth quarter of 2000 was to increase net sales
and cost of goods sold from previously reported amounts in the first, second
and third quarters by $30 million, $32 million and $30 million, respectively.
F-23
[LOGO FOR SMURFIT APPEARS HERE]
PART II
INFORMATION NOT REQUIRED IN THIS PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all fees and expenses paid in connection with
the original offerings of the notes, 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................. $ 363,147
National Association of Securities Dealers, Inc. filing fee......... 61,000
Blue Sky fees and expenses.......................................... 55,000
Printing and engraving expenses..................................... 825,000
Legal fees and expenses............................................. 1,300,000
Accounting fees and expenses........................................ 450,000
Miscellaneous....................................................... 27,603
----------
Total........................................................... $3,081,750
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-Laws of the co-registrants provide the co-registrants with the
authority to indemnify their directors, officers, employees and agents to the
full extent allowed by Delaware law. Smurfit-Stone Container Corporation
maintains an insurance policy which provides directors and officers of the co-
registrants with coverage in connection with certain events.
See Item 17 for the co-registrants' undertaking with respect to
indemnification.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The Exhibits to this registration statement are listed in the Index to
Exhibits.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "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.
II-1
(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.
(4) For purposes of determining any liability under the Securities Act,
each filing of the co-registrants' annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (and where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act), that
is incorporated by reference into these Post-Effective Amendments shall be
deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
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 these Post-
Effective Amendments Nos. 7 and 8 to the Registration Statements to be signed
on its behalf by the undersigned, thereunto duly authorized, on April 25, 2001.
Jefferson Smurfit Corporation (U.S.)
/s/ Patrick J. Moore
By: _________________________________
Patrick J. Moore
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, these Post-
Effective Amendments Nos. 7 and 8 to the Registration Statements have been
signed below by the following persons in the capacities and on the dates
indicated.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick J. Moore and Craig A. Hunt as his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all post-effective amendments to the Registration
Statements, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Ray M. Curran Director, President and April 25, 2001
____________________________________ Chief Executive Officer
Ray M. Curran (Principal Executive
Officer)
/s/ Patrick J. Moore Vice President and Chief April 25, 2001
____________________________________ Financial Officer
Patrick J. Moore (Principal Financial and
Accounting Officer)
II-3
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 these Post-
Effective Amendments Nos. 7 and 8 to the Registration Statements to be signed
on its behalf by the undersigned, thereunto duly authorized, on April 25, 2001.
JSCE, Inc.
/s/ Patrick J. Moore
By: _________________________________
Patrick J. Moore
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, these Post-
Effective Amendments Nos. 7 and 8 to the Registration Statements have been
signed below by the following persons in the capacities and on the dates
indicated.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick J. Moore and Craig A. Hunt as his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all post-effective amendments to the Registration
Statements, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Ray M. Curran Director, President and April 25, 2001
____________________________________ Chief Executive Officer
Ray M. Curran (Principal Executive
Officer)
/s/ Patrick J. Moore Vice President and Chief April 25, 2001
____________________________________ Financial Officer
Patrick J. Moore (Principal Financial and
Accounting Officer)
II-4
EXHIBIT INDEX
Exhibit
Number Description of Document
------- -----------------------
1.1(a)* Underwriting Agreement relating to the Series A and Series B Senior
Notes, previously filed as Exhibit 1.1 to the Company's registration
statement on Form S-2 (No. 33-2383)
1.1(b)* Underwriting Agreement relating to the 1993 Senior Notes, previously
filed as Exhibit 1.1 to the Company's registration statement on Form
S-2 (No. 33-58348)
1.2* Agreements, dated April 4, 1994, between Jefferson Smurfit
Corporation (U.S.) ("JSC (U.S.)") and A.G. Edwards & Sons, Inc., the
qualified independent underwriter
2.1* Agreement and Plan of Merger, dated as of May 10, 1998, as amended,
among Smurfit-Stone Container Corporation ("Smurfit-Stone"), Stone
Container Corporation ("Stone Container") and JSC Acquisition
(incorporated by reference to Exhibit 2(a) to Smurfit-Stone's
registration statement on Form S-4 (File No. 333-65431))
2.2* Stock Purchase Agreement dated as of May 10, 1998 among Smurfit
International BV ("SIBV"), Jefferson Smurfit Group plc, Morgan
Stanley Leveraged Equity Fund ("MSLEF"), Smurfit-Stone and certain
other shareholders of Smurfit-Stone (incorporated by reference to
Exhibit 2(b) to Smurfit-Stone's registration statement on Form S-4
(File No. 333-65431))
2.3* Asset Purchase Agreement dated as of May 10, 1998 between Smurfit-
Stone and Smurfit Packaging Corporation (incorporated by reference to
Exhibit 2(c) to Smurfit-Stone's registration statement on Form S-4
(File No. 333-65431))
3.1* Restated Certificate of Incorporation of JSC (U.S.)
3.2* Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's annual report on Form 10-K
for the fiscal year ended December 31, 1994 (File No. 0-11951))
3.3* By-laws of JSC (U.S.)
3.4* By-laws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's annual report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-11951))
4.1* Indenture for the Series A Senior Notes (incorporated by reference to
Exhibit 4.1 to the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1994 (File No. 0-11951))
4.2* Indenture for the Series B Senior Notes (incorporated by reference to
Exhibit 4.2 to the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1994 (File No. 0-11951))
4.3* Indenture for the 1993 Senior Notes (incorporated by reference to
Exhibit 4.4 to the Company's registration statement on Form S-1 (File
No. 33-75520))
4.4* First Supplemental Indenture to the 1993 Senior Note Indenture
(incorporated by reference to Exhibit 4.5 to the Company's
registration statement on Form S-1 (File No. 33-75520))
4.5* Second Supplemental Indenture to the 1993 Senior Note Indenture
5.1(a)* Opinion of Skadden, Arps, Slate, Meagher & Flom relating to the
Series A and Series B Senior Notes, previously filed as Exhibit 5.1
to the Company's registration statement on Form S-2 (No. 33-52383)
5.1(b)* Opinion of Skadden, Arps, Slate, Meagher & Flom relating to the 1993
Senior Notes, previously filed as Exhibit 5.1 to the Company's
registration statement on Form S-2 (No. 33-58348)
10.1 Subscription Agreement among Smurfit-Stone, JSC (U.S.), Container
Corporation of America and SIBV (incorporated by reference to Exhibit
10.4 to Smurfit-Stone's quarterly report on Form 10-Q for the quarter
ended March 31, 1994 (File No. 0-23876))
II-5
Exhibit
Number Description of Document
------- -----------------------
10.2 JSC (U.S.) Deferred Compensation Plan, as amended (incorporated by
reference to Exhibit 10.7 to Smurfit-Stone's annual report on Form 10-
K for the fiscal year ended December 31, 1996 (File No. 0-23876))
10.3 JSC (U.S.) Management Incentive Plan (incorporated by reference to
Exhibit 10.10 to Smurfit-Stone's annual report on Form 10-K for the
fiscal year ended December 31, 1995 (File No. 0-23876))
10.4(a) Jefferson Smurfit Corporation Amended and Restated 1992 Stock Option
Plan dated as of May 1, 1997 (incorporated by reference to Exhibit
10.10 to Smurfit-Stone's annual report on Form 10-K for the fiscal
year ended December 31, 1997 (File No. 0-23876))
10.4(b) Amendment of the Jefferson Smurfit Corporation Amended and Restated
1992 Stock Option Plan (incorporated by reference to Exhibit 10.3 to
Smurfit-Stone's quarterly report on Form 10-Q for the quarter ended
September 30, 1999 (File No. 0-23876))
10.5(a) Amended and Restated Credit Agreement, dated as of November 18, 1998,
among Smurfit-Stone, the Company, JSC (U.S.) and the financial
institutions signatory thereto, The Chase Manhattan Bank and Bankers
Trust Company, as senior managing agents, and The Chase Manhattan
Bank, as administrative agent and collateral agent (incorporated by
reference to Exhibit 10.6 to Smurfit-Stone's annual report on Form 10-
K for the fiscal year ended December 31, 1998 (File No. 0-23876))
10.5(b) First Amendment of Amended and Restated Credit Agreement, dated as of
June 30, 1999, among Smurfit-Stone, the Company, JSC (U.S.) and the
financial institutions signatory thereto, The Chase Manhattan Bank and
Bankers Trust Company, as senior managing agents, and The Chase
Manhattan Bank, as administrative agent and collateral agent
(incorporated by reference to Exhibit 10.1 to Smurfit-Stone's
quarterly report on Form 10-Q for quarter ended June 30, 1999 (File
No. 0-23876))
10.5(c) Second Amendment of Amended and Restated Credit Agreement, dated as of
October 15, 1999, among Smurfit-Stone, the Company, JSC (U.S.) and the
financial institutions signatory thereto, The Chase Manhattan Bank and
Bankers Trust Company, as senior managing agents, and The Chase
Manhattan Bank, as administrative agent and collateral agent
(incorporated by reference to Exhibit 10.1 to Smurfit-Stone's
quarterly report on Form 10-Q for the quarter ended September 30, 1999
(File No. 0-23876))
10.5(d) Third Amendment of Amended and Restated Credit Agreement, dated as of
March 22, 2000, among Smurfit-Stone, the Company, JSC (U.S.) and the
financial institutions signatory thereto, The Chase Manhattan Bank and
Bankers Trust Company, as senior managing agents, and The Chase
Manhattan Bank, as administrative agent and collateral agent
(incorporated by reference to Exhibit 10.1 to Smurfit-Stone's
quarterly report on Form 10-Q for the quarter ended September 30, 2000
(File No. 0-23876))
10.5(e) Fourth Amendment of Amended and Restated Credit Agreement, dated as of
July 31, 2000, among Smurfit-Stone, the Company, JSC (U.S.) and the
financial institutions signatory thereto, The Chase Manhattan Bank and
Bankers Trust Company, as senior managing agents, and The Chase
Manhattan Bank, as administrative agent and collateral agent
(incorporated by reference to Exhibit 10.2 to Smurfit-Stone's
quarterly report on Form 10-Q for the quarter ended September 30, 2000
(File No. 0-23876))
10.5(f) Amendment No. 5, Waiver and Agreement, dated as of March 28, 2001,
among Smurfit-Stone, the Company, JSC (U.S.) and the financial
institutions signatory thereto, the Chase Manhattan Bank and Bankers
Trust Company, as senior managing agents and The Chase Manhattan Bank,
as administrative agent and collateral agent.
10.6(a) Term Loan Agreement, dated as of February 23, 1995, among Jefferson
Smurfit Finance Corporation ("JS Finance") and Bank Brussels Lambert,
New York Branch (incorporated by reference to Exhibit 10.1 to Smurfit-
Stone's quarterly report on Form 10-Q for the quarter ended March 31,
1995 (File No. 0-23876))
II-6
Exhibit
Number Description of Document
------- -----------------------
10.6(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 Smurfit-Stone's quarterly report on Form 10-Q for the
quarter ended March 31, 1995 (File No. 0-23876))
10.6(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 Smurfit-Stone's quarterly report on Form 10-Q for the
quarter ended March 31, 1995 (File No. 0-23876))
10.6(d) Receivables Purchase and Sale Agreement, dated as of February 23,
1995, among JSC (U.S.), as Initial Servicer, and JS Finance, as
Purchaser (incorporated by reference to Exhibit 10.4 to Smurfit-
Stone's quarterly report on Form 10-Q for the quarter ended March 31,
1995 (File No. 0-23876))
10.6(e) Liquidity Agreement, dated as of February 23, 1995, among JS Finance,
the Financial Institutions party thereto as Banks, Bankers Trust
Company as Facility Agent and Bankers Trust Company as Collateral
Agent (incorporated by reference to Exhibit 10.6 to Smurfit-Stone's
quarterly report on Form 10-Q for the quarter ended March 31, 1995
(File No. 0-23876))
10.6(f) Commercial Paper Dealer Agreement, dated as of February 23, 1995,
among BT Securities Corporation, Morgan Stanley & Co., JSC (U.S.) and
JS Finance (incorporated by reference to Exhibit 10.7 to Smurfit-
Stone's quarterly report on Form 10-Q for the quarter ended March 31,
1995 (File No. 0-23876))
10.6(g) Addendum, dated March 6, 1995, to Commercial Paper Dealer Agreement
(incorporated by reference to Exhibit 10.8 to Smurfit-Stone's
quarterly report on Form 10-Q for the quarter ended March 31, 1995
(File No. 0-23876))
10.6(h) First Omnibus Amendment, dated as of March 31, 1996, to the
Receivables Purchase and Sale Agreement among JSC (U.S.), JS Finance
and the Banks party thereto (incorporated by reference to Exhibit 10.3
to Smurfit-Stone's quarterly report on Form 10-Q for the quarter ended
June 30, 1996 (File No. 0-23876))
10.6(i) Affiliate Receivables Sale Agreement, dated as of March 31, 1996,
between Smurfit Newsprint Corporation and Smurfit-Stone (incorporated
by reference to Exhibit 10.4 to Smurfit-Stone's quarterly report on
Form 10-Q for the quarter ended June 30, 1996 (File No. 0-23876))
10.6(j) Amendment No. 2, dated as of August 19, 1997, to the Term Loan
Agreement among JS Finance and Bank Brussels Lambert, New York Branch
and JSC (U.S.) as Servicer (incorporated by reference to Exhibit
10.12(j) to Smurfit-Stone's annual report on Form 10-K for the fiscal
year ended December 31, 1997 (File No. 0-23876))
10.6(k) Amendment No. 2, dated as of August 19, 1997, to the Receivables
Purchase and Sale Agreement among JSC (U.S.) as the Seller and
Servicer, JS Finance as the Purchaser, Bankers Trust Company as
Facility Agent and Bank Brussels Lambert, New York Branch as the Term
Bank (incorporated by reference to Exhibit 10.12(k) to Smurfit-Stone's
annual report on Form 10-K for the fiscal year ended December 31, 1997
(File No. 0-23876))
10.6(l) Amendment No. 2, dated as of August 19, 1997, to the Liquidity
Agreement among JS Finance, Bankers Trust Company as Facility Agent,
JSC (U.S.) as Servicer, Bank Brussels Lambert, New York Branch as Term
Bank and the Financial Institutions party thereto as Banks
(incorporated by reference to Exhibit 10.12(l) to Smurfit-Stone's
annual report on Form 10-K for the fiscal year ended December 31, 1997
(File No. 0-23876))
10.7 Consulting Agreement, dated as of October 24, 1996, by and between
James S. Terrill and JSC (U.S.) (incorporated by reference to Exhibit
10.15 to Smurfit-Stone's annual report on Form 10-K for the fiscal
year ended December 31, 1996 (File No. 0-23876))
10.8 Registration Rights Agreement, dated as of May 10, 1998, among MSLEF,
SIBV, Smurfit-Stone and the other parties identified on the signature
pages thereto (incorporated by reference to Exhibit 10(e) to Smurfit-
Stone's registration statement on Form S-4 (No. 333-65431))
II-7
Exhibit
Number Description of Document
------- -----------------------
10.9 Voting Agreement, dated as of May 10, 1998, as amended, among SIBV,
MSLEF and Mr. Roger W. Stone (incorporated by reference to Exhibit
10(f) to Smurfit-Stone's registration statement on Form S-4 (No. 333-
65431))
10.10(a) Smurfit-Stone 1998 Long Term Incentive Plan (incorporated by
reference to Exhibit 10.14 to Smurfit-Stone's annual report on Form
10-K for the fiscal year ended December 31, 1998 (File No. 0-23876))
10.10(b) First Amendment of the Smurfit-Stone 1998 Long Term Incentive Plan
(incorporated by reference to Exhibit 10.2 to Smurfit-Stone's
quarterly report on Form 10-Q for the quarter ended September 30,
1999 (File No. 0-23876))
10.11 Forms of Employment Security Agreements (incorporated by reference to
Exhibit 10(h) to Smurfit-Stone's registration statement on Form S-4
(No. 333-65431))
10.12(a) Purchase and Sale Agreement, effective as of July 28, 1999, between
Rayonier, Inc. and JSC (U.S.) (incorporated by reference to Exhibit
2.1 to the Company's current report on Form 8-K dated October 25,
1999 (File No. 0-11951))
10.12(b) First Amendment to Purchase and Sale Agreement, dated October 21,
1999, between Rayonier, Inc. and JSC (U.S.) (incorporated by
reference to Exhibit 2.2 to the Company's current report on Form 8-K
dated October 25, 1999 (File No. 0-11951))
10.13 Employment Agreement of Ray M. Curran (incorporated by reference to
Exhibit 10.27 to Smurfit-Stone's annual report on Form 10-K for the
fiscal year ended December 31, 1999 (File No. 0-23876))
10.14 Employment Agreement of Patrick J. Moore (incorporated by reference
to Exhibit 10.27 to Smurfit-Stone's annual report on Form 10-K for
the fiscal year ended December 31, 1999 (File No. 0-23876))
10.15 Employment agreement for Joseph J. Gurandiano (incorporated by
reference to Exhibit 10.1 to Smurfit-Stone's quarterly report of Form
10-Q for the quarter ended June 30, 2000 (File No. 0-23876))
10.16 Severance benefits agreement for Joseph J. Gurandiano (incorporated
by reference to Exhibit 10.2 to Smurfit-Stone's quarterly report of
Form 10-Q for the quarter ended June 30, 2000 (File No. 0-23876))
10.17 Employment Agreement of William N. Wandmacher (incorporated by
reference to Exhibit 10.31 to Smurfit-Stone's annual report on Form
10-K for the fiscal year ended December 31, 2000 (File No. 0-23876))
10.18 Employment Agreement of F. Scott Macfarlane (incorporated by
reference to Exhibit 10.32 to Smurfit-Stone's annual report on Form
10-K for the fiscal year ended December 31, 2000 (File No. 0-23876))
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(a)* Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit
5.1(a))
23.1(b)* Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit
5.1(b))
23.2 Consent of Ernst & Young LLP
24.1 Powers of Attorney (included on signature page hereto)
25.1(a)* 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, previously filed as
Exhibit 25.1 to the Company's Registration Statement on Form S-2 (No.
33-52383)
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Exhibit
Number Description of Document
------- -----------------------
25.1(b)* Statement on Form T-1 of the eligibility of NationsBank of Georgia,
National Association, as Trustee under the 1993 Senior Note
Indenture, previously filed as Exhibit 25.1 to the Company's
Registration
- --------
*Previously filed.
II-9